Animal protein giants JBS (JBSS3) and Marfrig (MRFG3) released their results for the second quarter of 2022 Thursday evening (22).
Marfrig announced net income of R$4.255 billion in the second quarter of 2022, an increase of 144.9% year-on-year, in addition to announcing a dividend of R$500 million. On the other hand, JBS saw its earnings drop by about 10%, but by a value above expectations.
The two companies’ reported numbers came in above market consensus, driven by South American units, with Seara specifically being the highlight of JBS. However, the movements are diverse in the stock exchange. Shares of Marfrig rose 4.76% at R$14.30, while JBSS3 fell 2.62% to R$30.42.
Marfrig provided above-expected numbers, supported by the result in South America, while North America was in line with expectations. However, with the consolidation of BRF’s balance sheet (BRFS3), our perception of the new company is mixed,” XP Investimentos wrote in a report.
For XP analysts, margins in the US are stabilizing faster than expected due to higher livestock prices, while inflation is weighing on consumers, which could lead to a shift away from protein in favor of poultry. In South America, despite higher livestock prices in Uruguay and Argentina, Brazil helped offset, and exports remain the main reason for our optimism.
The Itaú BBA research team also attributes Marfrig’s strong result to “strong increases in the Ebitda margin, while the North American operation provided significant margin reductions due to a decline in the USA livestock cycle.”
For Bradesco BBI, the meatpacking company reported positive numbers, with EBITDA ex-BRF coming in 12% higher than consensus and 17% higher than analysts’ estimates at home, as margins are stronger than-than The forecast for the South American segment, despite US beef segment margins, which has historically been the main driver of stocks, is broadly in line with expectations of 13%.
BBI analysts explain that net income of R$4.3 billion, far above consensus, was due to the positive impact of about R$3.8 billion from a valuation report that valued BRF higher than the price Marfrig paid.
In Credit Suisse’s assessment, in terms of profitability, the company was able to deliver a stronger margin than its counterparts in its North American operations (constant net income, Ebitda margin of 13.2%, 30 basis points higher than forecast by Credit Suisse). and the South (Ebitda margin 9.5%, 140 basis points higher than expected by the bank). In the North American operation, the good news was that volumes remained well, even with the economy’s current inflationary moment.
Credit analysts remain optimistic about Marfrig as they believe operating momentum will remain intact. For National Beef, the bank sees a gradual decrease in the availability of cattle, driving up prices for fattened calves. However, he notes, beef prices should remain at good levels, as demand shows no signs of weakening. In the South American division, the market is relatively less built than the market, which is satisfied with a greater supply of livestock and, therefore, a significant improvement in margins.
In terms of dividends, XP analysts rated profit return 5.6%, despite the downside, the new company’s leverage reached twice (from 1.67 times without BRF).
XP Investimentos reiterates its buy recommendation and target price at R$34, a potential uptick of 149.1% against Thursday’s closing price (11) from R$13.65, seeing the company trading at 4.5 times constant value (EV) compared to Ebitda for 2023 Credit sees Suisse also notes that Marfrig is trading less than 5 times the EV/Ebitda, which is an “attractive level,” he notes. In addition, the Swiss bank says it is building with BRFS3, which should also benefit Marfrig shares. In short, it repeats the classification Outperform (the equivalent of buying) and the target price is 23 Brazilian riyals.
Less optimistic, Bradesco BBI and Itaú BBA maintain a neutral recommendation for Marfrig, with a target price of R$18 and R$26, in that order.
JBS (JBSS3) Reaches A Consensus With The Help Of Seara
In a report, XP Investimentos writes that JBS reported mixed numbers in the second quarter of 2017, but the overall result was solid. “Results were positive in Brazil (exceeded expectations in Ceará, below expectations in Friboy), while the United States was also positive (in line with the beef sector, strong numbers in pork).”
According to JBS, the multi-protein, multi-geographical strategy “pays the bill” as while US beef margins widen, Australian beef and friboy are improving and the strong momentum of PPC and Seara mitigates the decline in beef.
For Itaú BBA, the result was somewhat positive, with Seara being the positive surprise, while the good results for PPC – Pilgrim’s Pride Corporation – were already priced in the market. On the other hand, the US beef company suffered the effects of the slowdown in the cattle cycle, but analysts at the bank believe this was also expected after the results of TSN earlier this week.
“Seara surprised even the most hopeful,” Credit Suisse commented. Subsidiary JBS reported record operating performance in the quarter. While revenue was in line with the R$10.7 billion figures, Ebitda reached R$1.5 billion – the highest in Seara’s history. If taken as a basis for comparison, the already strong Ebitda margin revealed by BRF on Wednesday, was overtaken by Seara by 350 basis points. “The performance was primarily the result of a better combination of sales and price increases, which were more than enough to offset the still high costs,” explains analyst Victor Saraggioto.
In terms of profitability, BBI’s analysis team highlights that consolidated Ebitda was 6% higher than consensus (already adjusted for already published PPC results), although in line with the bank’s expectations, given that revenue was 3% higher than consensus. The EBITDA margin was slightly higher. JBS’s Seara operation in Brazil has been a highlight, but the US Beef Division’s margin (taking into account legacy disclosure, which includes the US and Australia), historically the main driver of the action, was broadly in line with expectations at 10% and It fell 21% in the second quarter of ’21.
XP Investimentos remains optimistic about JBS’s ability to arbitrate in different cycles and a diverse consumer base, confirming that JBSS3 is the top pick in the protein segment with a buy recommendation and target price of 51.80, a potential upside of 65.8% over the day before the closing price of R$31.24. BBA is also buying an equivalent recommendation of JBS with a target price of R$54, with a potential increase of 72.9%. The credit repeats the outperformance rating (purchase equivalent) and target price of R$42.
Bradesco BBI, in turn, maintains a neutral assessment of JBS, with a target price of R$34. , a trend that is likely to continue,” analysts estimate. The USDA expects reduced livestock availability for 2023, which could lead to a roughly 10% increase in livestock costs, while a potential economic slowdown in the United States may limit increases in beef prices. Cow, according to a BBI assessment, noting that it sees the stock trading broadly in line with the historical average.
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