Brazils BRF pledges changes after bad first quarter; shares tumble

By Ana Mano

SAO PAULO Reuters – Brazilian food processor BRF SA on Thursday attributed disappointing firstquarter results to a rise in costs and inflation in its domestic market, and vowed to boost its margins and return to profitability.

In separate calls with analysts and journalists to discuss the results, BRF Chief Executive Officer Lorival Luz said management is preparing measures “to simplify” the companys structure, declining to elaborate.

He said the plan does not involve asset sales or factory closures.

“We will change the way we operate in all areas of the company, we will simplify processes and procedures,” Luz said, adding that some of the measures will be introduced this month. “The aim is to become more dynamic and effective, to work with agility towards our goals of growing and posting profits in a sustainable way.”

The poultry and pork processor posted a loss of 1.5 billion reais 298.5 million in the first quarter, and burned more than twice that amount in cash as it weathered the economic downturn in Brazil.

The results reflected poor food sales and margins in the South American country and the impact of a derivativerelated writeoff of 406 million reais.

BRFs new Chief Financial Officer Fabio Mariano said the expense tied to a corn derivative position had to be recognized in the first quarter.

“When we look back, it was not quite the right decision,” he said in response to a question from Reuters, referring to the merit of that hedge position.

BRF shares were down around 12 at one point in morning trading before paring losses to trade 6.3 lower in Sao Paulo, making it one of the biggest losers on the exchange.

Credit Suisse analysts said BRF was going through “testing times.”

“We believe consensus will significantly trim their estimates to reflect the somewhat unexpected new scenario,” the analysts wrote. “The companys production chain is long and complex, which demands a few quarters to get it back on track again.”

Referring to the firstquarter results, JP Morgan said “we didnt see that coming,” and downgraded the stock to underperform.

“We think the macro scenario remains challenging, with corn prices near alltime highs and logistics costs at elevated levels, while China lockdowns pose risks to a big part of BRFs export market,” JP Morgan said.