BRF S.A. (NYSE:BRFS) Q1 2024 Earnings Call Transcript May 8, 2024
BRF S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen. Welcome to the BRF Call to show the results referring to the First Quarter 2024. This call is being recorded and then can be accessed at the company’s website in ri-brf@global.com. The presentation is also available for downloading. At this moment, all the participants and attendees are connected as listeners and then we will start our Q&A session where more instructions will be given. Before we proceed, I’d like to report that the statements, the perspective statements are based on the beliefs and assumptions of BRF and the current positions for the company. These statements may involve risks and uncertainties having insights that refers to future events and rely on circumstances that may or may not happen.
Investors, analysts, and reporters may take into account that events related to macroeconomic environment to the segment and other factors may change the results from those expressed in their respective financial statements. Present in this conference, we have Mr. Miguel Gularte, CEO and Fabio Mariano, CFO. I’d like to give the floor now to Mr. Miguel who will start the presentation. Please, Mr. Miguel, you can proceed.
Miguel de Souza Gularte: Good morning. I would like to thank the presence of all of you here in our call for the results in the first quarter 2024. We started the year where the brand Sadia celebrates eight year of history and 90 years as a most efficient, more resilient, efficient company, and sustainable company, we report a bid though of R$2.1 billion with a margin of 15.8%. The numbers reflect consistent advances in the efficiency of the company quarter-per-quarter. Our management program BRF+ is conducting the company to the next level of operational performance, defined it as reference. Now the Version 2.0 of our program advances with the objective of leveling the indicators of the units according to the internal benchmarks in each of the work fronts.
The accuracy of our system of specification and the new permits for exportations allows us greater agility and capability in responding to potentialize our results. The improvements in commercial execution in Brazil and the excellence of our predictive model for purchasing of grains also allows the growth and profitability of the company. We continue — oriented by high performance, more and more competitive, and prepare to capture the opportunities that come up. I would like to invite our CFO, Fabio Mariano to present the results in details, and I’ll come back right after that for final remarks and disclosure.
Fabio Luis Mendes Mariano: Good morning, everybody who is connected here. I’ll start on the first page, the financial indicators for the first quarter of 2024 started by net revenue, which reached R$13.4 billion. For EBITDA, we reported R$2.1 billion and this give us a margin of almost 16% for the period. The better results in the first quarter of the company, the free cash flow performance was R$844 million. In working capital, we further reduced the financial cycle to 4.7 days, three days less and in the same period last year. Inventory turnover remained at lower historic levels at 75 days. Finishing the slides with leverage, we reached 145x the EBITDA in the last 12 months, the lowest leverage in eight years. We show in the next slide, Page 4 on the left, the historic evolution of gross profit with profitability of 24.4% for the period.
We disclosed gross profit of around R$2.4 billion. On the right, we can also see the evolution of EBITDA as highlighted earlier. In the next slides, we will present the performance for segment and business. Starting with Brazil, we continue progressively evolving with the operating result. We achieved 51.1% of EBITDA margin after the period, the seasonal period. We highlight the performance of processed products with good levels of profitability in the consumer environment that is still recovering and a marked improvement in fresh products. In the next slide, we make it clear the growth and margins of the regular portfolio at the start of 2024 versus the average for 2023. We emphasize on the right side of the slide, again, our journey of continuous evolution in commercial execution, reflecting in a greater number of customer, availability of products in the stores, and sequential improvement in customer service levels, contributing significantly to the performance of domestic market.
We also remain focused on leading innovations that meet the needs of our consumers. We launched new products in the frozen, cold cuts, and margarine categories. On the next slide, we bring the international market. We observe the evolution, the operational evolution of the segments, sustaining healthy margins as a result of persistence, recovery of exporting, rates, new markets, and good performance in Turkey and GCC, the Gulf countries. EBITDA margin increased by 6% in comparison to the previous quarter. We saw gains in the share and exportation of chicks and ford meat to several destinations. In the next slide, we qualitative highlighted the halal market, the celebration of Ramadan that’s moved the market with the highlight of the launching of new products and ease and juice and breaded products.
Our brands and own distribution continue to favor the results in the region. In Turkey, we also, recorded good performance as a reflection of the growth in sales of processed products, which enable an increase of 4.7 points in market share and good levels of profitability and enter a portfolio locally. On the right, I show the highlights on the direct exportation market. We can notice the behavior of prices and the main cuts that continue responding. We expanded our business alternatives with 25 new licenses for various markets, maximizing prices. We also highlight inventories at lowest historic levels, which continue to help reduce logistics costs and improve commercial positioning. I’d like to finalize the business segments presentation with the next slide for ingredients and fats.
This segment reported 10.7% of EBITDA margin. It’s important to consider that the evolution of the manufacturing yield continues to convert in the maximize and other results to the core portfolio of the company. In path, we highlight new commercial export agreements and advances in mapping the value levers of our efficiency program, as well as the start of the integration project for ERP systems. In ingredients, we remain focused on expanding markets and increasing sales of value added items. We also highlight the accreditation of Concordia plant by ABRA. We continue to add value to our coproducts in order to maximize business integration. Then I’ll share the progress of our efficiency program, which will be quantified in numbers, by Miguel soon.
I will present the comparisons with the same periods from last year, bars in light gray color. The comparison with 2022 can also be seen in the material. We noticed that in agriculture, we saw a drop in feed conversion for poultry and pork of 2.9% and 0.6%, respectively. Chicken mortality fell by 1% and pork by 0.7%. Hatching rates rose to 2.6 percentage points. In industry, we increased more than 3.6 percentage in factory output. In logistics, we reduced returns and raised the service levels in Brazil significantly. On Page 12, we consolidated the following highlights of sustainability. Advances in the Sustainalytics rating best rated company in the sector, publication of our integrated report, including the complete mapping of Scope 3 greenhouse gas emissions, and finally, achievement for the second consecutive year of the CEO of Good Environmental Practices of our Kezad plant in the Emirates, reinforcing sustainable practices in the international market.
We now present on Page 14 the information related to the company capital structure. On the table on the left, we see the evolution of the net debt leverage. These indicators were already highlighted at the beginning of the conference. On the right, we see the debt profile, which remains diversified and elongated with no concentration of repayments in the short term and comfortable liquidity position. The next slide, we show the free cash flow. The graph the chart shows an operating cash flow of over R$2 billion, an investment flow of R$696 million and R$509 million in financial flow resulting in free cash flow of R$844 million. You can also see the evolution in the smaller charge, the evolution of cash flow in the recent quarters. In the final slide, we can see the reduction of net debt between the quarters.
We report net debt of R$9 billion. Reduction in low ones will continue contributing to reduction of interest charges in the coming quarters. I’d like to thank your attendance, and then I hand over to CEO, Miguel Gularte to his closing remarks.
Miguel de Souza Gularte: Thank you, Fabio. To finalize our presentation, I would like to highlight that our capital structure, optimized capital structure, financial discipline, and continue operational recovery made it viable another quarter of we also recorded in this quarter the lowest leverage in the last eight years. BRF+ 2.0 presented capturing of [indiscernible] with advances in the main front operational fronts per year. We are now performing above the historic levels in some of the main indicators. For example, mortality rate, feed conversion, and logistics service level. Inventory turnover that reached 75 days allowed the lowest historic level in the company with 4.7. In our international operation, diversification, market diversification was determining to maximize the revenue of the company.
We achieved in this quarter 25 new licenses for exportation. In Brazil, we kept healthy levels of profitability with an increase in the regular portfolio margin sustained by the consistent improvement of commercial execution and contribution from innovations to our results. As well as in 2023, the commitments that were taken and the opportunities identified drive us to continue this evolution trajectory with agility and efficiency. We continue focus on the development of our people, and we concluded in this quarter our annual engagement survey. We have a substantially better result in comparison to the prior cycle and above the companies, the high performance companies, recognizing by our employees and a reflection of the management best practices and dedication from the leadership.
All of our evolution will not be possible without the commitment from our almost 100,000 employees that we thank them so much. We also thank our Chairman, Marcos Molina for his constant leadership and presence. Big thanks to the shareholders council, integrated producer, customers, vendors, and all the communities where we’re present. Thank you.
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