Ana Mano

SAO PAULO: Brazilian food processor BRF SA, (NYSE:), on Thursday blamed disappointing first quarter results on a rise of costs and inflation in the domestic market. The company vowed to improve its margins.

BRF Chief executive Officer Lorival Luz revealed that the management team is working to simplify the organization’s structure in separate phone calls to journalists and analysts.

The plan is not about asset sales, or closing factories.

Luz stated that the changes will affect all aspects of the business, and will streamline processes. Some of these measures will also be implemented this month. Our goal is to grow and post profits sustainably, so we will be more agile.

1.55 billion Brazilian reals ($298.5m) was lost by the pork and poultry processors in the first quarter. It spent twice the amount of cash it received to deal with the Brazil economic downturn.

Results reflect the poor food sales, margins and impact of the derivative write-off of 406million reais.

Fabio Mariano is the Chief Financial Officer at BRF. He stated that expenses related to corn derivative positions had to have been recognized by the beginning quarter.

He said, “When we reflect back, it wasn’t quite the right choice,” in answer to a question by Reuters. This was referring to the value of the hedge position.

BRF shares fell around 12% in morning trading, before losing 6.3% in Sao Paulo. This made it the largest loser on the exchange.

Credit Suisse (SIX) Analysts said that BRF was in “testing periods.”

Analysts wrote that they believe consensus will reduce their estimates significantly to reflect this unexpected situation. “The company’s production chain is long and complex, which demands a few quarters to get it back on track again.”

Referring to the first-quarter results, JP Morgan said “we didn’t see that coming,” and downgraded the stock to underperform.

JP Morgan reported that “the macro scenario is still challenging” with corn prices close to all-time highs. Logistics costs are also at an elevated level, as well as China lockdowns.

($1 = 5.0256 reais)