Marfrig Rallies on Bets Turnaround Plan Will Boost Earnings

Marfrig Alimentos SA (MRFG3), Latin America’s second-largest beef producer, headed to its biggest two-day gain since 2007 on speculation the company’s strategy to divest units with lower profit margins may boost earnings.

Shares jumped 7.8 percent to 7.92 reais at 4:55 p.m. Sao Paulo time, the best performer on the Bovespa index, which slid 0.5 percent. Marfrig gained 26 percent in the past two sessions, the most since August 2007, after saying on Nov. 11 a measure of its third-quarter earnings exceeded estimates.

“The company is trying very hard to boost its profit margins by divesting units that are not related to its core business,” Roberto Altenhofen, an analyst at equity consulting firm Empiricus Research, said in a telephone interview from Sao Paulo. “Third-quarter earnings signaled that this strategy bore fruit earlier than we expected, and today shares are still gaining because people are now more optimistic about the company’s fourth quarter.”

Marfrig agreed to sell its U.S. and European distribution unit for $400 million to boost its cash position, according to an e-mailed statement Sept. 18. The unit belonged to Keystone Foods LLC, which Marfrig bought in 2010 for $1.26 billion.

The company’s earnings before interest, taxes, depreciation and amortization more than doubled in the third quarter from a year earlier to 637.5 million reais ($361.3 million), according to a regulatory filing. That compares with an average forecast of 311.4 million reais in a Bloomberg survey of nine analysts.

Marfrig dropped 59 percent this year through Nov. 10, then the third-worst performance on the Bovespa index. The stock has since pared the decline to 49 percent.

‘Faces Challenges’

“The beef industry faces some challenges, such as higher grain prices, and there’s concern about Marfrig because of its high leverage, but the market was pricing in the worst-case scenario for the company. This year’s drop is excessive, and even after today’s gain the stock isn’t expensive,” Altenhofen said.

The stock fell 40 percent in three days in early August after Sao Paulo-based GWI Asset Management cut its stake.

To contact the reporter on this story: Ney Hayashi in Sao Paulo at ncruz4@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos in New York at papadopoulos@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.