Brazil: Marfrig posts loss after real beef problems

By Oscar Rousseau

- Last updated on GMT

Marfrig said it could change its financial outlook for Q3, over instability concern in Brazil
Marfrig said it could change its financial outlook for Q3, over instability concern in Brazil

Related tags Brazil Beef Poultry

A strong Brazilian real dented income for meat packer Marfrig, which posted a loss of R$132 million ($41.3m) in its second-quarter results up to 30 June.

Over the first six months of the year, Marfrig narrowed the gap on its income loss, posting R$238m ($74.5) compared with the R$339m ($106m) it posted in the second half of 2015.

Net revenue for the meat processor – which claims to the be third-largest in Brazil, behind JBS​ and BRF​ – came to R$4.8bn ($1.5bn), slightly higher than the second quarter of 2015. Minimal growth for the business comes down to low global meat prices, soaring cattle costs in Brazil and a strong Brazilian real, which made exports, particularly beef, less competitive.

Marfrig reported a decrease in volume sales from its beef lines and food brand Keystone​ as dollar-based revenues to the US made trade expensive. While the business was hit by a high real, nearly 80% of its revenue came from other foreign currencies. And despite the challenges flagship brand Keystone faced in the US, it performed remarkably well on the global stage and posted a nearly 25% rise in pre-tax earnings to $67m.

Marfrig’s four-point strategy

  • Natural growth through operational and productivity improvements
  • Promote growth in high-margin Asian markets by expanding Keystone’s work in foodservice and beef exports
  • Improve ties with America after a trade deal open the US market to Brazilian beef​ exports
  • Reduce debt and financial overheads to boost free cash flow

Chinese takeover

The International Monetary Fund (IMF) expects negative GDP growth of 3.3% for Brazil this year. With a state of political and financial instability in the country, Marfrig​ said it could change its financial outlook for the third quarter of the year.
 
The company also divested a number of Argentinian beef plants in the second quarter of the year, selling factories to Chinese company Black Bamboo Enterprises​ for R$239m ($75m).

Beef remains Marfrig’s most prominent operation, with 38% of revenue coming from fresh beef and a further 55% coming from processed beef and poultry.

Related topics Meat

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