Equity Research October 18, 2019
Earnings Preview FOOD & BEVERAGE 3Q19: mixed results; the US and Argentina working in favor while BZ market disappointing
Next week, the 3Q19 earnings season for the F&B sector begins. Overall, we expect to see companies more exposed to the domestic market still facing a weak consumer demand. In Target Price this context, we point out Ambev and M Dias Branco that, besides presenting reduction in Ticker YE20 TP Rating Mkt Cap* volume, should also show pressured margins due to higher costs related to the dollar appreciation, in our view. Regarding the animal protein companies, we expect positive figures ABEV3** 20.0 Market Perform 295,319 for companies exposed to the US beef market, such as JBS and Marfrig, due to higher JBSS3 33.0 Outperform 79,516 spreads and costs at comfortable levels. Brazilian meatpackers exposed to Argentinian market should also present positive figures on the back of exports to China. On the other BRFS3 45.0 Outperform 29,192 hand, companies more dependent on BZ exports might bring limited results since figures MDIA3 45.0 Market Perform 12,045 released by Secex frustrated initial expectations on beef, poultry and pork exports throughout the 3Q19. All considered, here follows below our estimates for the 3Q19 results to each MRFG3 10.0 Outperform 7,188 company separately. BEEF3 10.5 Outperform 3,943
Ambev (report date: Oct 25, pre market): Negative. We expect higher prices in Brazil and a *R$ Million; as of October 17; ** YE19 TP to be updated in the solid result in CAC to induce the consolidated top line that should reach R$ 11.5 bn, an 3Q19 report increment of 4% y/y in our estimates. However, higher costs related to FX in Brazil and LAS may pressure consolidated EBITDA margin, which we expect to drop to 38.4% from 40.2% in Performance YTD the 3Q18. In Beer Brazil, the price hike implemented in July combined with the still weak % scenario for consumption in Brazil should negatively affect volume in the 3Q19: we expect a reduction of 2% y/y in beer volume. In addition, higher costs related to FX might pressure margins, though partially offset by efficiency gains in SG&A as observed in the 2Q19. JBS Therefore, we expect a decrease of 120 bps y/y in EBITDA margin that should reach 40.5%.
Given a stronger comparison basis and negative effects from the suspension of tax benefits in Minerva the Manaus Free Zone, we expect EBITDA margin falling to 41.7% from 49.6% for NAB Brazil. In LAS, we shall see a marginal recovery in volumes on the back of a weaker comparison basis. However, higher expected costs for the 2H19 due to FX appreciation in the Marfrig region should pressure EBITDA margin that we expect to drop substantially to 38.1% from 44.4% in the 3Q18. On the positive side, we expect CAC to follow the upward trend observed in the last quarters with increases in both volumes and prices, leading EBITDA margin to BRF 38.6% (+140 bps y/y), in our estimates.
JBS (report date: Nov 13, after market): Positive. We expect strong results for JBS mainly Ambev stemming from a robust performance in JBS USA Beef. Consequently, we estimate revenue totaling R$ 53.3 bn (+8% y/y) and EBITDA reaching R$ 5.8 bn (+30% y/y) with margin at 10.8% vs 9% in the 3Q18. Due to the fire in Tyson's plant occurred in the 2Q19, we assumed Ibovespa a reduction in beef supply, pushing spreads up, and benefiting margins in the beef industry in the US. Therefore, we expect JBS USA Beef to present an EBITDA margin of 10.6% vs. 8.2% in the 3Q18, also driven by (i) the continuous strong demand in the domestic market, (ii) the M. Dias Branco increase in exports from Australia to China, and (iii) a balanced cattle availability in the US. -40% 10% 60% 110% 160% JBS USA Pork, in turn, might show negative results due to pork oversupply and higher costs observed in the quarter. Thus, we estimate EBITDA margin at 7.5% (240 bps lower y/y). PPC, whose results are schedule to be released on October 31, might continue to face lower FX Variation average prices also given the oversupply. However, due to a weaker comparison basis, we (BRL/USD) estimate EBITDA margin at 9.4% vs. 5.8% in the 3Q18. In Brazil, we see margins being benefited by: (i) increase in volumes exported; (ii) higher average prices, and (iii) the dollar appreciation. As a result, we estimate EBTIDA margin at 9.2% and 11% for JBS Brazil and 4.2 Seara, respectively. (Estimates per unit on page 3) 3.8 BRF (report date: Nov 07, pre market): Positive. In our view, BRF’s results should continue presenting the upward trend observed in the 1H19 in an annual comparison. Although Secex 3.4 figures showed reduction in exported volumes of BZ poultry (-16% y/y) and pork (-4% y/y) in the 3Q19, we expect BRF’s results to be supported by: (i) higher international and domestic 3.0 prices, (ii) dollar at higher levels, and (iii) corn prices at more comfortable level. Therefore, we expect an increase of 7% y/y in the consolidated revenue, which totaled R$ 8.5 bn in our 2.6 estimates. EBITDA should benefit from a weaker comparison basis, reason why we estimate it at R$ 1.1 bn, a significant increase of 88% y/y, with margin at 13.3% vs. 7.6% in the 3Q18.
In Brazil, EBITDA margin should boost by higher average prices and lower costs y/y. Source: Bloomberg and BB Investimentos Accordingly, we estimate margin at 11.8% from 9.7% same period last year. Halal has a stronger comparison base but, due to lower costs, it should sustain margin, which we estimate at 14%, a slight rise of 40 bps compared to the 3Q18. International unit, in turn, should Luciana Carvalho continue to show strong results given the encouraging international demand, mainly in Asia, [email protected] and higher prices. Thus, we see EBITDA margin at 20.7% against a negative margin of 6.7% in 3Q18. (Estimates per unit on page 4)
1 / 9 3Q19 Earnings Preview
M. Dias Branco (report date: Nov 08, after market): Negative. M Dias Branco’s results should follow the downward trend observed in the 1H19 and come in weak in 3Q19. The still challenging environment for consumption in Brazil combined with higher wheat costs, considering the dollar appreciation, may pressure margin in our view. As a result, we expect an 8% decrease in volume y/y, partially compensated by higher average prices due to company’s efforts focused on improving mix and channels, diminishing, thus, the practice of discounts. All in all, we estimate revenue at R$ 1.6 bn (-8% y/y) and EBITDA dropping by 31% y/y to R$ 195 mn, with margin at 12.1% vs. 16.3% same period last year.
Marfrig (report date: Nov 11, after market): Positive. Marfrig should report positive figures on the back of: (i) solid results in North America due to the fire in Tyson’s plant aforementioned, and (ii) higher exports from Argentina to China, which has gained strength since the 2Q19. Hence, we estimate revenue at R$ 12.5 bn, an increment of 13% y/y. Despite higher costs in Brazil and Uruguay are expected given higher cattle prices y/y, we believe that the fixed costs dilution in North America as a result of Tyson’s effect and the favorable cattle cycle in the US should partially compensate. For that reason, we estimate EBITDA increasing 13% y/y to R$ 1.2 bn with margin flat y/y at 9.8%.
Minerva (report date: Nov 12, after market): Neutral. We expect mixed results for Minerva in the 2Q19. Athena foods should continue to benefit from the encouraging scenario in Argentinian exports to China, in our view. On the other hand, a significant increase in volumes from Brazil to the Asian country has not been reached yet. According to Secex figures, volumes of beef exported decreased by 11% y/y in 3Q, leading us to believe that Minerva, as a pure player focused on the beef industry, should not yet benefit from higher volumes as expected. Thus, we estimate revenue at R$ 4.6 bn (+7% y/y) induced by the performance of Athena Foods and the stronger dollar. EBITDA, in turn, should be pressured by higher cattle costs in both Uruguay and Brazil. Consequently, we estimate EBITDA at R$ 438 mn (- 2% y/y) and margin at 9.4% vs 10.4% in the 3Q18.
Highlights Net Revenue Consensus EBITDA Consensus R$ Million 3Q19e y/y q/q 3Q19e ∆ % 3Q19e y/y q/q 3Q19e ∆ %
ABEV3 11,519 4% -5% 12,469 -8% 4,418 -1% -6% 4,832 -9%
JBSS3 53,299 8% 5% 51,950 3% 5,777 30% 13% 5,446 6%
BRFS3 8,544 7% 2% 8,633 -1% 1,134 88% -27% 845 34%
MDIA3 1,611 -8% 4% 1,771 -9% 195 -31% 7% 192 2%
MRFG3 12,488 13% 7% 12,376 1% 1,224 13% 13% 1,147 7%
BEEF3 4,654 7% 16% 4,442 5% 438 -2% 20% - -
Source: Bloomberg and BB Investimentos estimates
Ambev (ABEV3) Report Date: October 25. Pre market.
Income Statement R$ Million 3Q19e 3Q18a 2Q19a y/y q/q
Net Revenue 11,519 11,064 12,145 4.1% -5.2%
(-) COGS (4,952) (4,371) (4,961) 13.3% -0.2%
Gross Profit 6,566 6,693 7,184 -1.9% -8.6%
SG&A (3,333) (3,510) (3,788) -5.0% -12.0%
Other income (expenses) 209 198 191 5.3% 9.5%
EBIT 3,443 3,382 3,586 1.8% -4.0%
(+) Special items above EBIT (8) (13) (34) -39.9% -77.3%
(+) Financial Results (666) (611) (567) 9.0% 17.4%
(+) Share of results of associates 0 (3) (1) - -
EBT 2,769 2,755 2,984 0.5% -7.2%
(-) Taxes 281 138 (364) - -
Net Income 3,049 2,892 2,620 5.4% 16.4%
EBITDA 4,418 4,451 4,691 -0.7% -5.8%
Margins % 3Q19e 3Q18a 2Q19a y/y q/q
Gross Margin 57.0% 60.5% 59.1% -3.5 p.p. -2.1 p.p.
EBITDA Margin 38.4% 40.2% 38.6% -1.9 p.p. -0.3 p.p.
Net Margin 26.5% 26.1% 21.6% 0.3 p.p. 4.9 p.p.
Source: Company data and BB Investimentos estimates
2 / 9 3Q19 Earnings Preview
JBS (JBSS3) Report Date: November 13. After market.
Income Statement R$ Million 3Q19e 3Q18a 2Q19a y/y q/q
Net Revenue 53,299 49,403 50,842 7.9% 4.8%
(-) COGS (45,613) (41,776) (42,905) 9.2% 6.3%
Gross Profit 7,686 7,627 7,937 0.8% -3.2%
SG&A (4,109) (6,849) (4,444) -40.0% -7.5%
EBIT 3,577 778 3,493 - 2.4%
(+) Financial Results (779) (1,891) (698) -58.8% 11.6%
EBT 2,798 -1,113 2,795 - 0.1%
(-) Taxes (1,394) 1,012 (466) - -
Net Income 1,404 (101) 2,329 - -39.7%
Attributable to non-controlling interests (174) 32 (145) - 19.9%
Adjusted Net Income 1,229 -133 2,183 - -43.7%
Adjusted EBITDA 5,777 4,432 5,099 30.4% 13.3%
Margins % 3Q19e 3Q18a 2Q19a y/y q/q
Gross Margin 14.4% 15.4% 15.6% -1.0 p.p. -1.2 p.p.
EBITDA Margin 10.8% 9.0% 10.0% 1.9 p.p. 0.8 p.p.
Net Margin 2.3% -0.3% 4.3% 2.6 p.p. -2.0 p.p.
Per Unit Net Revenue 3Q19e 3Q18a 2Q19a y/y q/q
JBS USA Beef (US$ mn) 5,636 5,419 5,638 4.0% 0.0%
JBS USA Pork (US$ mn) 1,631 1,394 1,559 17.0% 4.6%
PPC (US$ mn)* 2,806 2,698 2,843 4.0% -1.3%
JBS Mercosul (R$ mn) 7,810 7,583 7,172 3.0% 8.9%
Seara (R$ mn) 5,491 4,992 5,081 10.0% 8.1%
EBITDA
JBS USA Beef (US$ mn) 596 447 503 33.5% 18.6%
JBS USA Pork (US$ mn) 123 138 127 -11.3% -3.5%
PPC (US$ mn)* 264 156 349 69.4% -24.4%
JBS Mercosul (R$ mn) 722 707 336 2.2% -
Seara (R$ mn) 607 512 563 18.5% 7.7%
EBITDA Margin (%)
JBS USA Beef (US$ mn) 10.6% 8.2% 8.9% 2.3 p.p. 1.7 p.p.
JBS USA Pork (US$ mn) 7.5% 9.9% 8.2% -2.4 p.p. -0.6 p.p.
PPC (US$ mn)* 9.4% 5.8% 12.3% 3.6 p.p. -2.9 p.p.
JBS Mercosul (R$ mn) 9.2% 9.3% 4.7% -0.1 p.p. 4.6 p.p.
Seara (R$ mn) 11.0% 10.3% 11.1% 0.8 p.p. 0.0 p.p.
Source: Company data and BB Investimentos estimates
3 / 9 3Q19 Earnings Preview
BRF (BRFS3) Report Date: November 7. Pre market.
Income Statement R$ Million 3Q19e 3Q18a 2Q19a y/y q/q
Net Revenue 8,544 7,970 8,338 7.2% 2.5%
(-) COGS (6,471) (6,599) (6,246) -1.9% 3.6%
Gross Profit 2,072 1,372 2,092 51.1% -0.9%
SG&A (1,392) (1,355) (1,162) 2.7% 19.9%
EBIT 680 17 930 - -26.9%
(+) Financial Results (438) (507) (619) -13.7% -29.3%
EBT 242 (491) 311 - -22.1%
(-) Taxes 6 (174) (120) - -
Net Income 248 (665) 191 - 29.8%
Adjusted EBITDA 1,134 604 1,547 87.7% -26.7%
Margins % 3Q19e 3Q18a 2Q19a y/y q/q
Gross Margin 24.3% 17.2% 25.1% 7.0 p.p. -0.8 p.p.
EBITDA Margin 13.3% 7.6% 18.6% 5.7 p.p. -5.3 p.p.
Net Margin 2.9% -8.3% 2.3% 11.2 p.p. 0.6 p.p.
Per Unit Net Revenue 3Q19e 3Q18a 2Q19a y/y q/q
Brazil 4,411 4,121 4,082 7.0% 8.1%
Halal 2,196 2,208 2,372 -0.5% -7.4%
International 1,632 1,117 1,615 46.1% 1.0%
Other Segments 304 251 276 21.2% 10.2%
EBITDA
Brazil 521 398 790 31.0% -34.1%
Halal 308 302 370 2.2% -16.8%
International 338 (74) 323 - 4.7%
Other Segments 48 (4) 46 - 3.4%
EBITDA Margin (%)
Brazil 11.8% 9.7% 19.4% 2.2 p.p. -7.5 p.p.
Halal 14.0% 13.7% 15.6% 0.4 p.p. -1.6 p.p.
International 20.7% -6.7% 20.0% 27.4 p.p. 0.7 p.p.
Other Segments 15.7% -1.6% 16.8% 17.3 p.p. -1.0 p.p.
Source: Company data and BB Investimentos estimates
4 / 9 3Q19 Earnings Preview
M Dias Branco (MDIA3) Report Date: November 8. After market.
Income Statement R$ Million 3Q19e 3Q18a 2Q19a y/y q/q
Net Revenue 1,611 1,745 1,542 -7.7% 4.5%
(-) COGS (1,116) (1,164) (1,084) -4.1% 3.0%
Tax Incentives (ICMS) 78 91 76 -14.9% 2.0%
Gross Profit 572 672 535 -14.8% 7.1%
SG&A (411) (437) (409) -6.0% 0.5%
EBIT 162 235 126 -31.1% 28.5%
(+) Financial Results (26) 28 (21) - 25.3%
EBT 135 263 105 -48.5% 29.2%
(-) Taxes (55) (28) (4) - -
Net Income 80 235 101 -65.9% -20.3%
EBITDA 195 284 183 -31.3% 6.7%
Margins % 3Q19e 3Q18a 2Q19a y/y q/q
Gross Margin 35.5% 38.5% 34.7% -3.0 p.p. 0.9 p.p.
EBITDA Margin 12.1% 16.3% 11.8% -4.2 p.p. 0.3 p.p.
Net Margin 5.0% 13.5% 6.5% -8.5 p.p. -1.5 p.p.
Source: Company data and BB Investimentos estimates
Marfrig (MRFG3) Report Date: November 11. After market.
Income Statement R$ Million 3Q19e 3Q18a 2Q19a y/y q/q
Net Revenue 12,488 11,089 11,719 12.6% 6.6%
(-) COGS (10,744) (9,573) (10,239) 12.2% 4.9%
Gross Profit 1,744 1,516 1,481 15.1% 17.8%
SG&A (790) (608) (730) 29.8% 8.2%
EBIT 954 907 751 5.2% 27.1%
(+) Financial Results (406) (714) (404) -43.1% 0.6%
Minority Stake (312) (380) (314) -17.9% -0.5%
EBT 236 (187) 33 - -
(-) Taxes 48 86 53 -44.1% -9.9%
Net Income 284 (101) 87 - -
EBITDA 1,224 1,080 1,082 13.3% 13.1%
Margins % 3Q19e 3Q18a 2Q19a y/y q/q
Gross Margin 14.0% 13.7% 12.6% 0.3 p.p. 1.3 p.p.
EBITDA Margin 9.8% 9.7% 9.2% 0.1 p.p. 0.6 p.p.
Net Margin 2.3% -0.9% 0.7% 3.2 p.p. 1.5 p.p.
Source: Company data and BB Investimentos estimates
5 / 9 3Q19 Earnings Preview
Minerva (BEEF3) Report Date: November 12. After market.
Income Statement R$ Million 3Q19e 3Q18a 2Q19a y/y q/q
Net Revenue 4,654 4,338 4,024 7.3% 15.7%
(-) COGS (3,802) (3,515) (3,296) 8.2% 15.4%
Gross Profit 852 822 728 3.6% 17.0%
SG&A (497) (422) (420) 17.8% 18.3%
EBIT 355 401 309 -11.3% 15.2%
(+) Financial Results (282) (531) (415) -46.9% -32.0%
EBT 73 (130) (106) - -
(-) Taxes (2) (3) (7) -46.8% -79.1%
Net Income 72 (133) (113) - -
EBITDA 438 449 364 -2.4% 20.4%
Margins % 3Q19e 3Q18a 2Q19a y/y q/q
Gross Margin 18.3% 19.0% 18.1% -0.6 p.p. 0.2 p.p.
EBITDA Margin 9.4% 10.4% 9.0% -0.9 p.p. 0.4 p.p.
Net Margin 1.5% -3.1% -2.8% 4.6 p.p. 4.4 p.p.
Source: Company data and BB Investimentos estimates
pany data and BB Investments estimates (considering Pro Forma numbers)
6 / 9 Disclaimer
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Pursuant to art. 22 of CVM Instruction 598, BB-Banco de Investimento S.A. declares that:
1 - The institution may be paid for services rendered or have business relationships with the company(ies) analyzed in this report or with natural person or legal entity, fund or universality of rights, which acts representing the same interest of this(these) company(ies); the Conglomerate Banco do Brasil may be paid for services rendered or have business relationships with the company(ies) analyzed in this report, or with natural person or legal entity, fund or universality of rights, which acts representing the same interest of this(these) company(ies).
2 - The institution may own equity directly or indirectly, less than 1% of the capital stock of company(ies) discussed, but may purchase, sell or broker securities of the company(ies) in the market; the Conglomerate Banco do Brasil may have direct or indirect ownership interest equal or superior to 1% of the capital stock of the company(ies) discussed, and may acquire and dispose of securities of the company(ies) on the market.
3 - Banco do Brasil S.A. owns indirectly 5% or more, through its subsidiaries, of equity issued by Cielo S.A. (whose shares are owned by BB-Banco de Investimento S.A.) and IRB Brasil Re, Brazilian listed companies that may own, directly or indirectly, equity of other listed companies covered by BB-Banco de Investimento S.A.
Relevant Information – Analysts
The research analysts who are primarily responsible for this research and whose names are listed on the front cover declare that:
1 - The information and opinion contained in this report reflect only and exclusively the analyst(s) personal opinion about the company and its security, and it was prepared independently and autonomously, including in relation to BB-Banco de Investimento S.A. and other Group companies.
2 - The analyst(s) compensation is entirely tied to salary policies of the Banco do Brasil S.A. and they do not receive additional compensation for services rendered to the sender object of the analysis report or persons connected with him.
Items Analysts 3 4 5 6 Luciana Carvalho - - - -
3 - The analyst(s) of investments, their spouses or partners, hold, directly or indirectly, on behalf of themselves or others, shares and/or other securities issued by the companies object of the analysis.
4 - The analyst(s), their spouse or partner, own, directly or indirectly, any financial interest related to the companies mentioned in this research report.
5 - The analyst(s) have relatives who work for the sender object of the analysis report.
6 - The analyst(s), their spouse or partner, directly or indirectly, are involved in the acquisition, disposal or intermediation of securities object of this report.
RATING
"RATING" is an opinion of the economic and financial fundamentals and various risks to which a company, financial institution or raising of third party funds might be subject within a specific context which can be modified as these risks change. "Investors should not consider in any way the "RATING" as an investment recommendation."
8 / 9 Disclaimer
BB Banco de Investimento S.A. - BB-BI e-mail: [email protected]
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Director Executive Manager BB Securities - London Erik Breyer Denisio Augusto Liberato 4th Floor, Pinners Hall – 105-108 Old Broad St. EC2N 1ER – London – UK Heads of Research +44 (20) 7367 5800 Strategy - Wesley Bernabé, CFA Equities - Victor Penna
[email protected] [email protected] Deputy Managing Director João Domingos Cicarini Junior +44 (20) 7367 5802 Equity Team Head of Sales Agribusiness Metals and Mining Nick Demopoulos +44 (20) 7367 5832 Luciana Carvalho Gabriela E. Cortez Institutional Sales [email protected] [email protected] Annabela Garcia +44 (20) 7367 5853 Catherine Kiselar Oil and Gas Melton Plummer +44 (20) 7367 5843
[email protected] Daniel Cobucci Trading
Banks and Financial Services [email protected] Bruno Fantasia +44 (20) 7367 5852
Wesley Bernabé, CFA Pulp and Paper Gianpaolo Rivas +44 (20) 7367 5842 [email protected] Gabriela E. Cortez
Vinícius Soares, CFA [email protected] Banco do Brasil Securities LLC - New York
[email protected] Real Estate 535 Madison Avenue, 33th Floor Capital Goods Georgia Jorge New York City, NY 10022 - USA
Gabriela E. Cortez [email protected] (Member: FINRA/SIPC/NFA) [email protected] Kamila Oliveira
Catherine Kiselar [email protected] Deputy Managing Director [email protected] Retailing Gabriel Cambui Mesquita Santos +1 (407) 608 1778 Electric and Other Utilities Georgia Jorge ECM
Rafael Dias [email protected] Charles Langalis +1 (646) 845 3714
[email protected] Sugar and Ethanol Nilton Jeronimo +1 (646) 845 3880 Rafael Reis Daniel Cobucci DCM
[email protected] [email protected] João Kloster +1 (646) 845 3717 Food and Beverage Transportation Luciana Batista +1 (646) 845 3864 Luciana Carvalho Renato Hallgren Head of Syndicate
[email protected] [email protected] Shinichiro Fukui +1 (646) 845 3865
Institutional Sales
Economics and Market Strategy Fixed Income Michelle Malvezzi +1 (646) 845 3715 Hamilton Moreira Alves Renato Odo Fabio Frazão +1 (646) 845 3716
[email protected] [email protected] Trading Henrique Tomaz, CFA José Roberto dos Anjos Dennis Holtzapffel +1 (646) 845 3859
[email protected] [email protected]
Richardi Ferreira BB Securities Asia Pte Ltd - Singapore
[email protected] 6 Battery Road #11-02
Singapore, 049909 Sales Team Managing Director
Institutional Investor [email protected] Marcelo Sobreira +65 6420 6577
Retail [email protected] Director, Head of Sales Head - Antonio Emilio Ruiz Fernando Leite José Carlos Reis +65 6420 6570 Antonio de Lima Junior Higor Benedetti Institutional Sales Bruno Finotello Henrique Reis Zhao Hao, CFA +65 6420 6582 Cleber Yamasaki Marcela Andressa Pereira Li Jing Ting +65 6420 6578 Daniel Frazatti Gallina Paulo Arruda
Denise Rédua de Oliveira Pedro Gonçalves
Fabiana Regina Renata Simões
Fábio Caponi Bertoluci Sandra Regina Saran
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