July 23, 2018 / 10:00 AM / 3 months ago

BRF, Carrefour among Brazil trucking strike victims as Q2 results roll in

SAO PAULO, July 23 (Reuters) - An 11-day truckers’ strike that paralyzed Brazil’s economy in May has investors in sectors from meatpacking to malls bracing for the final bill as companies such as BRF SA and JBS SA prepare to report quarterly earnings.

As a result of the strike, some 167 meat-producing plants halted operations, resulting in 3 billion reais ($793 million) in losses for pork and chicken processors, according to estimates from industry group ABPA.

That came on top of a Brazilian prohibition on exports from BRF plants and a European Union import ban that had already sent investors for the exits.

“For the second quarter we expect that the majority of these companies, especially (BRF), but also JBS, should have suffered margin pressure on a year-over-year basis,” Benjamin Theurer, an analyst at Barclays in Mexico City, said in an interview.

While the strike lasted less than two weeks, the knock-on effects lasted much longer, Theurer added, as a backlog of ships waiting to get into port slowly wound down.

Analysts at BTG Pactual estimate second-quarter earnings before interest, taxes, depreciation, and amortization at BRF has fallen some 32 percent from the same quarter last year.

Further down the supply chain, food retailers such as GPA and Carrefour Brasil, owned by France’s Casino Guichard Perrachon SA and Carrefour SA , respectively, will also feel the pinch.

“High turnover products, commodities, products that go bad practically daily, a two-week strike would have hurt,” said Rogerio Soares, a partner at Eneas Pestana & Associados, one of Brazil’s leading retail consultants.

A number of other sectors exposed to retail, such as Brazil’s mall operators, which include BR Malls Participacoes SA and Iguatemi Empresa de Shoppings Centers SA , are also set for a sub-par quarter, as the truckers’ strike emptied out stocks at many tenants.

SILVER LINING

The macroeconomic backdrop was not universally negative in the second quarter, however.

The lead-up to and start of the World Cup boosted sales to soccer-mad Brazilians of everything from beer sold by Ambev SA to televisions sold by local e-commerce standout Magazine Luiza SA.

Moreover, some companies saw paradoxical upsides from the strike.

The EU chicken export ban had led to extremely aggressive meat pricing in the domestic market. The chicken cull resulting from the strike would have alleviated some of that pressure by lessening oversupply, said Theurer, the Barclays analyst.

For grocers, warehouse-style stores, already increasingly popular with Brazilian retail customers, saw more business from restaurants and other businesses, said Eneas Pestana’s Soares.

This month, GPA reported strong revenue growth in an operational preview, even as the truckers’ strike knocked 0.7 percent off total sales, as the cash-and-carry format drove growth.

As many food and beverage companies failed to deliver directly to clients as a result of the truckers strike, those clients turned temporarily to such stores, often known as “cash and carry,” to meet their needs.

“The cash-and-carry stores filled that void,” Soares said.

($1 = 3.78 reais)

Reporting by Gram Slattery; Editing by Christian Plumb and Susan Thomas

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