Food Maker BRF Slumps Amid `Challenging' Conditions in Brazil

  • Shares slide 11%, most since 2008, after sales miss estimates
  • Third-quarter was `shockingly weak,' Bank of America says

BRF SA, Brazil’s biggest processed-food maker, tumbled the most in seven years after reporting lower-than-expected third-quarter sales amid “extremely challenging” economic conditions in the country.

The stock slumped as much as 12 percent, the worst performer on Brazil’s benchmark Ibovespa index. BRF slid to 60.10 reais at the close of trading in Sao Paulo. Trading volume was more than five times the daily average.

BRF, which makes more than 5,000 products from margarine to lasagna, reported late Thursday after the close of trading that revenue climbed 14 percent to 8.28 billion reais ($2.14 billion). That trailed the 8.82 billion-reais average of 10 estimates compiled by Bloomberg.

The lower-than-expected sales and stock plunge come after the company’s credit rating was increased earlier this week. Moody’s Investors Service upgraded BRF’s rating to Baa2, with a stable outlook, citing the company’s strong credit metrics, relevant presence in export markets and solid operating performance.

Cautious Consumers

The company said consumers are more cautious because of credit restrictions and a potential tax increase. Brazil, Latin America’s biggest economy, is heading toward the longest recession since the 1930s as the government struggles to revive the nation’s finances.

The earnings report was “shockingly weak,” analysts at Bank of America said in a report. They cut their price target for the shares to 65 reais from 80 reais and lowered their rating on the stock to sell from buy. Analysts at Itau BBA cut BRF’s rating to neutral from buy in a note Friday.

“We expect the fourth quarter to be just as pressured,” Caio Moreira, an analyst at Banco Fator SA, said by telephone from Sao Paulo. “There’s nothing signaling that we’re going to have a better quarter, especially in Brazil.” Moreira has a neutral recommendation on the stock.

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