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Marfrig Brazil beef volumes soar, expanding into void left by JBS

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Marfrig Global Foods reported a jump in Brazilian beef exports - rubbing home its advantage over beleaguered rival JBS, which saw shipments dip – but its shares underperformed nonetheless, amid worries over spending levels.


Brazil-based Marfrig reported a 41% jump to R$490.1m in earnings before interest, tax, depreciation and amortisation (ebitda) for the July-to-September period, reflecting expansion at both its major operating divisions.


At Keystone, a major food supplier to the likes of Burger King, McDonalds and Subway, underlying ebitda rose by 21% to R$244m, helped by a “favourable environment for raw material costs”, such as grains and meat, and by increased business in Asia, including China.


At the Brazilian beef division, adjusted ebitda soared 67% to R246m, as a drive to ramp up volumes - which drove a 22% surge to R$2.6bn in the unit’s sales - paid off.


Export surge


Indeed, the group termed “assertive” its strategy of reopening mothballed Brazilian processing capacity “to anticipate and accelerate production growth” as the country’s meat industry tapped into cyclical improvement in sector dynamics – besides the void left by troubles at JBS.


Marfrig’s Brazil beef division raised sales volumes by 22% to 301,000 tonnes during the quarter, led by a 56% jump in exports.


Marfrig termed this export performance a “highlight” of the quarter, noting that “in case of fresh beef, volumes grew 98%, reflecting the strong recovery on the export levels”.


The group claimed a 23% share of Brazilian beef exports, quoting analysis by Secex.


JBS setbacks


The results come at a time when Brazil is cementing its place as the world’s second largest beef exporter, underpinned by expansion in Asia, including China.


However, JBS revealed that its Brazilian beef exports had fallen over the period, dropping 13.7% in revenue terms, undermined by a sharp cut in slaughter rates, as it conserved cash to help a drive to cut debt, after being land with hefty fine payments over the claims against former bosses Wesley and Joesley Batista.


Indeed, the drop in revenues came despite a 9.2% rise in the average price of the group’s beef exports, as it focused its operations on higher-value products.


The JBS Brazil division reported a drop in ebitda for the quarter of 72% to R$72.5m, thanks also to the sale of operations in Argentina, Paraguay and Uruguay amid the debt repayment drive.


And with the group reporting a R$2.25bn charge for the quarter to reflect claims under Brazil’s so-called Pert federal tax renegotiation programme, JBS reported a 15.5% dip to R$354.6m in operating profit .


‘Investors may raise their eyebrows’


Still, JBS shares outperformed on Tuesday in Sao Paulo, adding 3.1% to R$8.25 in afternoon deals, while those in Marfrig stood down 1.3% at R$6.74.


BTG Pactual analyst Thiago Duarte termed “impressive” JBS’s progress in paying down its debts during the quarter, during which borrowings, as a proportion of ebitda, fell to 3.4 times from 4.2 times.


Mr Duarte flagged “remarkably low capex of R$691m, confirming just how focused on liquidity and deleveraging management has been recently”.


By contrast at Marfrig, he noted a “worrying” spending spree in support of the Brazilian expansion drive.


“Investors may raise their eyebrows on another major freed cash flow burn of R$621m, 15% of market capitalisation,” although adding that “at least it was for a good cause: growth”.


BTG Pactual restated “neutral” ratings in shares in both meatpackers, with 12-month target prices of R$10.00 for JBS stock, and R$9.00 for Marfrig.

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