US barbecue enthusiasm to lift earnings for beef giant Marfrig this year

[CHICAGO] Brazilian beef producer Marfrig Global Foods SA sees Americans eating more meat this year amid a rebound in the US economy, and giving the company's profits a boost.

Restaurants are reopening and government stimulus money translates to more spending on food. Combined with plentiful supplies of US cattle, margins are set to widen for the North America unit, which accounts for 80 per cent of the company's earnings, said Tim Klein, chief executive officer at Marfrig's National Beef, the fourth biggest US meat processor.

"People will prepare more barbecues, will have more money to spend," he said. "We are very optimistic." Beef processors in the US are enjoying a sweet spot in the commodity cycle, with more animals available than the capacity to process them. While the Covid-19 pandemic sickened workers and impeded operations last year, Marfrig doesn't expect virus-related disruptions going forward. National Beef aims to vaccinate at least 70 per cent of its 7,000 workers, and the immunisations have already begun. So far, more than half have agreed to get the vaccine, Mr Klein said.

"Official estimates suggest cattle supplies will only reduce a little bit in 2022," Mr Klein said. "In the first and second quarters, our margins in the US are expected to be at the same level or better than in the same period of 2020." Vaccinations of meat workers are starting to accelerate in the US, with some employees at JBS SA's American subsidiaries already headed for a second dose. Cargill Inc said it's preparing to offer the vaccine to employees at three protein facilities, while Tyson Foods Inc said it will give vaccinations to many of its 13,000 workers in Iowa this week.

In Brazil, where vaccine purchases by the private sector are not yet allowed, Marfrig doesn't expect operation disruptions even as the nation's has had record cases and deaths due to a recent Covid outbreak. "Our labor protocols are very safe," said Marfrig Chief Executive Officer Miguel Gularte.

In the fourth quarter of 2020 Marfrig reported adjusted earnings before interest, taxes, depreciation and amortisation of 2.1 billion reais (S$485 million), exceeding the 2 billion-real average estimate by analysts tracked by Bloomberg. Sales and net income also beat estimates. Company Ebitda doubled to 9.6 billion reais in 2020 while net income was the highest ever reported.

"We were efficient in buying cattle, processing it and selling the final product in North and in South America," Marfrig's Chief Financial Officer Tang David said in the same interview.

The challenge in Marfrig's South American operations is the sharp rise in cattle prices.

"Margins are very tight in Brazil and in Argentina," Mr Gularte said, adding that the impact of reduced income aid on consumption is still unknown.

BLOOMBERG