Marfrig Alimentos SA, Latin America’s second-largest beef producer, posted the biggest two-day gain on record on speculation the company’s strategy to divest units with lower profit margins may boost earnings.
Shares jumped 6.8 percent to 7.85 reais at the close of trading today in Sao Paulo, the best performer on the Bovespa index, which slid 0.5 percent. Marfrig gained 25 percent in the past two sessions, the most since it first sold shares in June 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.”
The company’s $750 million of 8.375 percent notes due in May 2018 rose 3.76 cents to 72.43 cents on the dollar, pushing yields down to 15.21 percent, according to data compiled by Bloomberg. The debt had plunged from 99.4 cents in May to as low as 59.9 cents on Oct. 4, the data show.
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.
“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,” Altenhofen said. “This year’s drop is excessive, and even after today’s gain the stock isn’t expensive.”
The stock fell 40 percent in three days in early August after Sao Paulo-based GWI Asset Management cut its stake.