BRF Plans More Divestments in Turnaround Bid: Corporate Brazil

BRF SA (BRFS3), Brazil’s biggest food producer, plans to divest more local assets after last week’s sale of two beef plants while expanding its overseas business, Chief Executive Officer Claudio Galeazzi said.

Galeazzi, who was appointed CEO in August, is selling assets and cutting costs as Brazil’s faltering economic expansion and an oversupply in international markets caused the company to miss third-quarter revenue forecasts by the widest margin since 2009. Selling the beef plants to Minerva SA freed up 170 million reais ($74 million) in working capital and will allow BRF to focus on areas where it has the most expertise, he said in an interview in New York yesterday.

“The company is in a new cycle now,” Galeazzi said. “We need to focus, and need to divest everything that doesn’t add value.”

BRF, the world’s largest meat processor by market value, plans to focus on its core businesses of processed and packaged foods such as TV dinners as well as food-service condiments and toppings while shifting away from areas including slaughterhouses and poultry farms. The company is also accelerating its pace of international expansion and wants to increase domestic sales of “in natura” products including whole cuts of chicken, beef and pork, according to Galeazzi.

“We’ll probably have some divestments in the next six to 12 months,” he said. “We’re looking at it much more closely now.”

Plant Sale

The plants BRF sold to Minerva are in Mato Grosso, which processes more cattle than any other state in the country, according to data compiled by the Brazilian meat exporters’ association, Abiec. BRF will get a 15 percent stake in Minerva and two seats on its board, according to a regulatory filing last week disclosing details of the transaction.

“It makes a lot of sense,” Luis Miranda, an analyst at Banco Santander SA, said about the sale by phone from Santa Fe, Mexico. “It’s part of the operating improvements and focusing on core operations, given that beef is not a key raw material for the company.”

Galeazzi was appointed amid a change in the company’s structure as Abilio Diniz, the former chairman of the Cia. Brasileira de Distribuicao Grupo Pao de Acucar supermarket chain, took over as BRF’s chairman on April 9.

BRF rose 1.1 percent to 52.49 reais at the close of trading in Sao Paulo today. The benchmark Ibovespa dropped 1.1 percent.

‘Created Doubts’

Brazil’s gross domestic product will expand 2.5 percent this year, according to a central bank survey of about 100 economists published yesterday, compared with a median forecast of 3.5 percent in a December 2012 survey. The International Monetary Fund in October cut its 2014 growth forecast for Latin America’s largest economy, citing concern that accelerating inflation may damp consumption.

While BRF’s adjusted net income tripled to 287 million reais in the three months through September from a year earlier, it trailed the average estimate of 362 million reais among 10 analysts surveyed by Bloomberg. Sales were 4.4 percent below the average forecast of 13 analysts, the biggest miss since the last quarter of 2009, according to data compiled by Bloomberg.

“The results of the last quarter really scared the market,” Nataniel Cezimbra, an analyst at Banco do Brasil SA, said by phone from Sao Paulo. “It created doubts about volume of sales, pricing and competitiveness, both abroad and in the domestic dynamics.”

BRF is still determining which regions it will move into, Chief Financial Officer Leopoldo Saboya said. The expansion will probably focus on a few key markets and be done through mergers and acquisitions with companies that have strong local brands and processing capacity, according to Galeazzi.

“It wouldn’t be smart to have organic growth in these countries,” he said. “It’s a long process. This way, we won’t just be a commodities exporter, but have this local presence that allows us to acquire raw materials regionally, and use our exports to find an adequate balance.”

To contact the reporter on this story: Julia Leite in New York at jleite3@bloomberg.net

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

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