May 22, 2023

 

Brazilian meatpackers face profit decline amid US sales slump

 

Brazilian meatpacking companies have encountered a significant drop in profits during the first quarter of the year due to underperforming sales in the US, MercoPress reported.

 

The losses incurred were deemed more severe than those caused by the temporary suspension of Brazilian beef sales to China, which is the country's other primary market.

 

JBS and Marfrig, two major players in the industry, experienced squeezed profit margins in their US plants due to higher cattle prices coupled with a low supply. JBS reported a net loss of BRL 1.5 billion (~US$300 million; BRL 1 = US$0.20) between January and March, compared to earnings of BRL 5.14 billion (~US$1.02 billion) in the same period last year. Similarly, Marfrig's profits plummeted from BRL 109 million (~US$21 million) to a loss of BRL 634 million (~US$126 million).

 

Felipe Simonsen Biancalana from Guide Investimentos said that the most significant factor impacting the meatpackers' financial performance was the change in the livestock cycle in the US, resulting in reduced supply. This had a much larger impact than the atypical case of the mad cow disease that led to a meat embargo in Brazil.

 

Sales of Brazilian beef to China were suspended between February and March due to a voluntary self-embargo announced by Brazil to comply with a bilateral protocol.

 

JBS USA, the North American beef unit of JBS, reported an adjusted EBITDA of BRL 115.8 million (~US$23 million) for the quarter, marking a staggering 97.2% drop compared to the same period in 2022.

 

The poor performance in the US market had a ripple effect on the group's consolidated adjusted EBITDA, which fell by 78.6% to BRL 2.16 billion (~US$432 million). Consequently, the consolidated adjusted EBITDA margin decreased by 8.6 percentage points compared to the previous year, reaching 2.5%.

 

Inflation in the US also negatively impacted Marfrig's sales in North America. The company operates in the region through National Beef, which experienced a 15.5% drop in revenue in the first quarter, totalling BRL 13.4 billion (~US$2.6 billion). With the increase in cattle prices, National Beef's EBITDA plunged by 78% to BRL 527 million (~US$105 million), resulting in an EBITDA margin of 3.9%.

 

Tim Klein, the CEO of Marfrig's North America operations, projected a more favourable scenario in the second and third quarters, traditionally more profitable, with a predicted 3% to 4% drop in cattle prices. He said that July should have the lowest price of the year.

 

Minerva Foods managed to "escape" some of the impacts as the company does not operate in North America and was more sensitive to the Chinese embargo in the first quarter. Despite credit challenges and the Brazilian embargo, Minerva achieved a profit of BRL 114 million (~US$22 million) in the first three months of the year, representing a mere 0.5% decrease compared to the same period in 2022. The company also relied on its units in Argentina and Uruguay to continue serving the Chinese market.

 

-      MercoPress