May 11, 2018 / 4:43 PM / 6 months ago

UPDATE 1-Brazil's BRF results hit by feed costs, trade bans; shares drop

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By Ana Mano

SAO PAULO, May 11 (Reuters) - Rising grain prices and trade bans in key markets have stymied management efforts to put BRF SA in the black, Chief Executive Officer Lorival Nogueira Luz said on Friday, as the food company failed to turn a profit for the second quarter in a row.

BRF shares fell 2.2 percent to 23.49 reais in midday trading after results missed analyst consensus on Thursday. Managers said animal feed prices rose further in the second quarter, boosting production costs for the world's largest chicken exporter.

"Since the third quarter of last year, the price of feed rose about 20 percent," Luz told analysts and investors in a conference call to discuss results, referring to corn and soymeal. "This should continue to impact our production costs in the second quarter," he said .

BRF also faces trade bans in Russia and Europe on Brazilian meat products, which prompted the firm to send workers on paid leave at five plants. More measures to tailor capacity to demand could be announced, Luz said.

"We are monitoring the European situation closely and may need to adapt to new market conditions," he said.

Europe imposed the ban citing deficiencies in Brazil's health inspection services in the wake of a food safety investigation that accused the company and government inspectors of colluding to evade health and quality checks.

BRF said it lost 114 million reais ($32 million) last quarter, missing a consensus estimate for net income of 14.99 million reais.

BRF also missed a forecast for earnings before interest, tax, depreciation and amortization, a gauge of operating profit, which came in at 783 million reais, some 7 percent below expectations.

"We expect challenging results going forward," said Credit Suisse analysts led by Victor Saragiotto in a note to clients, pointing out issues including expensive grains, the European ban and depressed food prices in Brazil. More working capital requirements due to higher inventory levels of finished products could also weigh on the company, a situation exacerbated by the temporary closure of certain plants.

It was unclear whether BRF will be able to redirect any excess production capacity resulting from the bans to alternative markets, at similar prices.

This already proved difficult in the first quarter, when it increased volumes in Brazil by 9.6 percent, driven mainly by sales of fresh chicken, which tend to have lower margins and prices than processed foods. (Reporting by Ana Mano Editing by Chizu Nomiyama; Editing by David Gregorio)

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