Latam protein producers to benefit from improved outlook
"In general, the fundamentals of the protein sector in Brazil are improving and are expected to be stronger in 2014. Softer grain prices are likely to reduce costs of chicken and pork producers," according to Gisele Paolino, a Director at Fitch.
"Brazil beef producers should also benefit from a positive cattle cycle, high beef prices in the country and demand from exports markets."
While Fitch expects cash flow from operations (CFFO) of all rated companies to increase, free cash flow (FCF) trends vary depending on their strategy towards expansion. Fitch expects BRF, Marfrig, Minerva and JBS to improve FCF during next year, while Rodopa's FCF may continue to be constrained by expansion plans.
The Brazilian protein companies are expected to lower leverage during 2014 due to expanding EBITDA and steady debt levels. Lower input costs, strong international demand, focused efforts on obtaining cost efficiencies and improving working capital management should fuel rising CFFO.
Fitch expects demand for animal proteins to remain positive in 2014 due to improving global conditions and projected turnaround in the Brazilian economy. International demand from emerging markets remains structurally positive with a growing middle-class and the development of modern retail chains in those markets. ■