MercoPress. South Atlantic News Agency

Brazil’s Marfrig deeper in the red but beef division manages turnaround

Shutting down plants the company coped with a shortage of cattle in Argentina and Uruguay

A slump the Brazilian currency Real landed Marfrig deeper in the red despite an improved operating result, lifted by takeovers and better tailoring its beef operations to a shortage of cattle.

The Brazil-based meat giant, who claims to the UK's top poultry producer and the largest private company in Ireland besides being the fourth-ranked world food company, reported a jump in losses of R$540.0m in the July-to-September quarter, from $68.6m a year before.

Marfrig said the deterioration “was primarily due” to the rapid depreciation in the Real after Brazil's central bank at the end of August stunned markets by cutting interest rates.

The Real loss of some 9% against the dollar over the quarter hit the value of Marfrig currency hedges, lumping the group with a R$1.36bn charge for marking the value of the instruments to market prices.

The hit more than wiped out the benefit of a quadrupling to R$445.3m in operating profits, on revenues up 45% at R$5.52bn, reflecting the takeovers of US-based Keystone Foods and Ireland's O'Kane Poultry, besides organic growth in beef operations.

The beef division has suffered from a dearth of available cattle, sapped by quests to rebuild herds notably in Argentina and Uruguay, where livestock numbers were run down heavily two years in the face of world economic downturn and in-country droughts.

The group processed, at 861,000 head of cattle, 13.1% fewer than in the same quarter a year before.

Nonetheless Marfrig raised beef revenues by 9.4% to R$1.97bn through higher prices, helped by a re-jig of its sales geography - selling more in the strong Brazilian market, besides in Asia and Russia, with the group using its spread of operations to bypass Moscow's curbs on Brazilian imports...

And the group raised profits in beef through better organising its South American processing capacity to cope with the lower volume.

By tweaking plant running rates, through temporary shutdowns at some plants and increases at others, Marfrig boosted to 70% of full capacity the rate at which its factories were running, up from 64% a year before.

Higher utilisation rates imply a broader spread of overheads, and more cost-effective operations.

The group, citing “operational improvements… a consequent increase in plant capacity utilisation, a focus on more profitable markets [and] the gradual pass through of prices”, reported earnings before interest, tax, depreciation and amortisation (ebitda) in beef up 65% at R$184.6m. (Argentine Beef Packers S.A.)