BRF SA Looking At A Long Road Back

"How can it get any worse?" certainly has a place of distinction among the most foolish validations that investors will try to use with struggling companies, and Brazil's BRF SA (BRFS) is a case in point. In addition to ongoing criminal investigations, BRF has been effectively banned from the EU for the time being, is facing rising costs and weak market share, has high debt and modest near-term free cash flow prospects, and has to find a new CEO and craft a turnaround strategy.

BRF's new board does appear to be an upgrade, and the company still has some positives going for it - including a meaningful overseas presence and a still-strong presence in the Brazilian market. While the valuation may look modest relative to the long-term potential of a successful turnaround, investors need to appreciate that such a turnaround is going to take time, and success is far from certain.

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BRF SA Looking At A Long Road Back

At BRF SA, The Flesh Is Still Weak And Investor Spirits Aren't So Willing

It has gone from bad to worse at BRF SA (BRFS), as frequently happens when a company reaches a "critical mass" of mismanagement and poor decision-making. BRF's big miss with fourth quarter results put the cap on what was already a pretty poor 2017, and though BRF has a new management team and a new plan, major investors seem to want yet more change.

I've always thought it was going to take time and patience (a lot of patience…) for BRF to develop, and I don't believe the company is unfixable. That said, there's a lot of work to be done in both the domestic and international operations and plenty of volatility inherent in a commodity-driven business with significant international emerging market exposure. I believe mid-to-high single-digit revenue growth is still possible and, coupled with mid-to-high single-digit FCF margins, can still support a $10-plus fair value from here, but this is a high-risk call that is going to need a couple of years to really play out.

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At BRF SA, The Flesh Is Still Weak And Investor Spirits Aren't So Willing

BRF Has A Lot Of Work Ahead To Rebuild Credibility

The nearly 25% drop in BRF's (BRFS) share price over the past year is hardly the worst part of the story; I think you could argue that the market has been relatively merciful all things considered. While I've often noted (and lamented) BRF's above-average cyclicality, I thought management had a strategy in place that would see ongoing global growth in processed/packaged food lead to more sustainable results. I was wrong on many accounts, as the company's strategy is still unclear and inconsistently managed.

I do still believe BRF has a lot of potential, but “potential” is a word that has brought many investors to sorrow. Results should improve in the second half of the year, but management has a lot left on the “to do” list – including showing that they can manage the Brazilian business to generate growth and margins and that they can make the international operations less dependent upon commodity products. There is still upside into the high teens, but BRF management has a lot of work to do to rebuild the trust that would justify such a fair value today.

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BRF Has A Lot Of Work Ahead To Rebuild Credibility

For BRF, There's Opportunity Amid The Adversity

When I last wrote about Brazilian food company BRF (NYSE:BRFS), I was concerned about the likelihood that the company's financial results were entering a rough period - squeezed between Brazil's weak domestic market, challenges in many export markets and spiking input prices. At the same time, BRF is seeing more competition at home and trying to navigate a tricky dual-brand strategy that could lead to market share and revenue pressures.

Those concerns have proven valid, but I'm surprised at the extent to which the market has been willing to look past it and toward the significant long-term opportunity BRF offers - I thought the shares were undervalued below $17 back in May, but I didn't expect a 24% move in the ADRs, nor the 13% move in the underlying local shares. Perhaps some of this is due to buyout rumors, particularly as Marfrig and JBS (OTCQX:JBSAY) haven't been great performers.

In any case, I still like BRF and this is still a stock that I hope to own for a long time. With a fair value in the $18-$19 range, but significant growth opportunities yet to be tapped, I think the shares hold some appeal but investors concerned about the risks and enhanced volatility of a Brazilian company may want a bigger discount before taking the plunge.

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For BRF, There's Opportunity Amid The Adversity

Seeking Alpha: BRF S.A. Not So Appetizing Yet For Nervous Stomachs

When I last wrote about BRF S.A. (NYSE:BRFS), I warned that investors were likely in for a bout of elevated volatility - a prediction that, when made in reference to almost any Brazilian company, is a little like predicting that jumping into the ocean will make you wet. The shares have indeed jumped around since that last article and the shares have underperformed not only the Bovespa, but other Brazilian food players like Marfrig (OTCPK:MRRTY), JBS (OTCQX:JBSAY), and Minerva (OTCQX:MRVSY).

Whether BRF shares are a good idea now rests in large part on your time horizon. The company is doing a lot of smart things - relaunching a complementary value-priced brand in Brazil, prioritizing higher-margin processed/packaged foods, and using M&A to acquire local production and distribution to capture more value from international sales. Along the way, though, there have been frequent management shake-ups and there is still a lot of volatility in the business model due to commodity inputs, protein prices, currency, and so on.

I do believe that BRF can eventually achieve its goals of becoming more like Hormel (NYSE:HRL) or Nestle (OTCPK:NSRGY) and achieving EBITDA margins in the high teens or even 20%, and I do like the company's efforts to improve ROIC in recent years. That said, getting volume growth going again is a clear must-do and investors can certainly be forgiven for thinking that BRF is too risky and too volatile to mess with today. I believe the fair value for the ADRs is still above $17, but it's going to take a healthier, or at least more stable, environment in Brazil for these shares to do meaningfully better.

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BRF S.A. Not So Appetizing Yet For Nervous Stomachs

Seeking Alpha: BRF Sticking To Its Plan In A Challenging Market

The ever-volatile, and generally bad, economic situation in Brazil isn't doing any favors for BRF S.A. (NYSE:BRFS), and neither is increasing competition. Worries about market share and a potential price war in Brazil cast an already tough third quarter in an even more negative light, helping accelerate a nearly 20% decline in the Brazilian shares since my August update and a nearly 30% decline in the ADRs.

As I have warned in prior pieces, BRF shares and ADRs have always been more volatile than global integrated food companies like Nestle (OTCPK:NSRGY) and General Mills (NYSE:GIS) and I expect that to be the case for the foreseeable future. Nevertheless, I think fears of a price war are overdone and I believe BRF's management continues to execute on a very sound plan to position the company as a truly global protein and processed foods player.

Absent a more robust recovery in Brazil (which nobody seems to expect right now), it's going to likely take a couple of strong quarters for BRF to get back into investors' good graces. Unfortunately, growing poultry export competition from U.S. producers, higher grain prices, and a tougher domestic market could make that a more prolonged process than investors would like to see. I still believe BRF shares are an attractive long-term holding, and that this is the sort of pullback that investors can/should use to build positions, but the next quarter or two could offer a level of volatility that nervous investors won't like.

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BRF Sticking To Its Plan In A Challenging Market

Seeking Alpha: BRF's Strong Exports Offset A Tough Brazilian Market

There are times when boring businesses have their advantages, and this is one of those times in Brazil. BRF SA (NYSE:BRFS) local shares have outperformed the Bovespa by about 35% over the past year as this core consumer business has held up better than many during Brazil's difficult economic times. The weakness of the Brazilian real has hurt the performance of the ADRs (down about 18% over the past year), but I continue to believe that BRF is on its way toward establishing itself as a global packaged food company with a focus on emerging market consumption growth.

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BRF's Strong Exports Offset A Tough Brazilian Market

Seeking Alpha: BRF Tastes Better Than It Looks

The real reason to own Brazilian poultry and processed food giant BRF (NYSE:BRFS) is for the company's long-term leverage to a shift away from commodity protein toward processed food (think more Hormel (NYSE:HRL)/Oscar Mayer and less Tyson (NYSE:TSN)/Pilgrim's Pride (NASDAQ:PPC)) and its growing emerging market presence out of Brazil. That said, the market is still a quarter-to-quarter weighing machine and BRF posted a confusing set of first quarter results that were better than they may first seem.

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BRF Tastes Better Than It Looks

Seeking Alpha: These Are Tougher Times For Brazil, But BRF Still Offers A Bright Future

BRF (NYSE:BRFS) is certainly not the only quality Brazilian company to see its ADRs trading well below its highs, but I continue to believe this is a good stock for investors looking for long-term exposure to emerging market consumers. BRF is looking at more challenging domestic conditions this year, but the company continues to pursue a vision of gradual transition from its reliance on commodity proteins and becoming a global packaged/branded food company.

When I last wrote about BRF, I thought the shares had gotten a little pricey and that investors could wait for what I thought was an inevitable pullback in Brazilian stocks. That pullback has happened, taking the ADRs down more than 20%. It seems early to blow the "all clear" on Brazil, but I do think investors can start to think about initiating positions in this well-run food company.

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These Are Tougher Times For Brazil, But BRF Still Offers A Bright Future

Seeking Alpha: BRF's Operational Improvements Shining Through

Brazil's largest food company, BRF SA (NYSE:BRFS), continues to show progress with its self-improvement efforts. Although economic stress on Brazilian consumers has been leading to some trading-down in buying patterns, BRF has offset this with a more profitable SKU mix and an increased focus on operating efficiency. Despite an unexpected change in the company's leadership, the company looks on track with previously announced plans to shift more emphasis to higher-margin processed/packaged products and to prioritize margin and cash flow efficiency.

The biggest problem with BRF shares, apart from the volatility of the Brazilian economic and political environment, is valuation. I do believe that BRF has a plan that can lead the company into the ranks of the multinational packaged food giants, but the shares reflect a lot of optimism. I'm in no rush to sell just because of valuation, but new investors may find it wiser to wait for one of the seemingly inevitable corrections in the Brazilian stock market before stepping to the plate.

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BRF's Operational Improvements Shining Through

Seeking Alpha: BRF SA Doing A Lot More With Less

Brazil's leading food producer, BRF SA (NYSE:BRFS) (also known as Brasil Foods), tends to be quite a bit more volatile than international peers like Nestle (OTCPK:NSRGY) and Unilever (NYSE:UL) or U.S.-centric companies like Hormel (NYSE:HRL). In the last quarter that volatility has worked in investors' favor, with a better than 13% gain that brought the year-to-date gain up above 20%.

What should be of more interest to long-term investors is the significant progress the company is making with its plans to streamline its operations and prioritize margins over volume. I don't expect BRF to continue delivering 10% beats at the EBITDA line, but the company's strong execution with this plan certainly helps management build credibility. These shares aren't exceptionally cheap right now, but I'm in no hurry to sell what I believe is one of the better-run Brazilian companies and one with significant growth potential for the long term.

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BRF SA Doing A Lot More With Less

Seeking Alpha: BRF Still In The Early Stages Of A Major Transformation

It is going to take time to realize, but the management of BRF SA (BRFS), or "Brasil Foods", has a bold vision for this already-large food company. The basic story at BRF has not changed all that much - the company wants to transition from a commodity producer of animal proteins to a diversified branded global food company - but management has gotten more serious about product development, go-to-market strategies, and global distribution. With a strong position in the growing Brazilian market, as well as footholds in the Middle East and Asia, a potential double-digit annual return makes this still a stock worth following closely.

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BRF Still In The Early Stages Of A Major Transformation

The Motley Fool: BRF SA Holds Impressive Long-Term Potential

Analysts and investors like to talk about "the next Apple" or "the next Microsoft," but they don't often talk about "the next Nestle (NASDAQOTH: NSRGY  ) ". That's a shame, as Brazil's BRF (NYSE: BRFS  ) , or Brasil Foods, has set that goal for itself; it has a long-term target of becoming a global packaged-foods leader with a particular focus on emerging markets. The path between here and there is not going to be smooth and setback-free, but BRF looks like a somewhat beaten-down name to consider in the emerging markets.

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BRF SA Holds Impressive Long-Term Potential

Seeking Alpha: Can Brasil Foods Hit Some Impressive Goals?

Brazilian meat company BRF-Brasil Foods (Nasdaq: BRFS) has had a solid run already. Basically a marriage of convenience between Perdigao and Sadia prompted by hideous derivative losses at Sadia, Brasil Foods has nevertheless formed itself into an impressive Brazilian food concern with significant export prospects. Perhaps even more to the point, in a year where most Brazilian equities fared quite badly indeed, this one did fairly well. Of course, the more important consideration is whether there's money to be made yet from this name.

A Known Quantity In A Major Emerging Market
Although far from a household name in the United States, Brasil Foods is in some respects a Brazilian version of Tyson Foods (NYSE: TSN). Like Tyson, Brasil Foods operates in a variety of protein markets, including chicken, beef and pork. Unlike Tyson, and perhaps more like Hormel (NYSE: HRL) or Sara Lee (NYSE: SLE), Brasil Foods has a sizable branded business as well.

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Can Brasil Foods Hit Some Impressive Goals?

Buffett And Brasil Foods? If Only...

Brasil Foods (Nasdaq: BRFS) jumped on Friday on the rumor that Warren Buffett's Berkshire Hathaway (NYSE: BRK.A) started buying shares and aims to hold 5% of the company.

I have my doubts about this one.

The rumor appears to be coming from Sao Paulo's Valor Economico – a joint venture between Globo and Abril (two of the largest media companies in Brazil) and one of the largest business-oriented papers in the country. So it is not as though this is coming from a paper that routinely publishes stories about alien abductions or Kim Kardashian's latest boyfriend.

That said … well, let's say I have my doubts. The story talks about “fund managers” from Berkshire visiting Brasil Foods a week or so ago, and then the company buying in the wake of those visits. Perhaps this is an artifact of translation, but I think we all know that Mr. Buffett doesn't exactly employ “fund managers” as we commonly think of the term. “Company representatives/executives?” Sure, why not. But “fund managers”? I don't think so.

And now there's a story on Bloomberg quoting a Brazilian investment manager talking about how people are speculating that Buffett/Berkshire will ultimately buy 5% of the company. To be fair, he's not claiming to have any first-hand knowledge himself, but I get suspicious when the only source for a story is “speculation”.

Now don't get me wrong – I would be thrilled to hear Warren Buffett talking up and buying up Brasil Foods. My history with this stock goes back to Sadia and the disastrous currency speculation fiasco that led it to accept a merger with Perdigao. Even though I'm still down quite a bit from peak valuation, I have a nice profit here and I think the company can continue to thrive. After all, there's a long-held trend in history that higher household incomes go hand-in-hand with more meat consumption and Brasil Foods is a very cost-effective meat producer with an excellent export business.

On top of that, this would be a pretty solid Buffett-like way to play the growth in the emerging markets. Let's be honest, Buffett is not going to buy some crappy Chinese shell company headquartered in the Caymans and audited by an accounting firm operating from Malawi. If Buffett is going to play emerging markets, it's going to be in relatively stable and well-run businesses – like his prior involvement with PetroChina (NYSE: PTR). So, as one of the world's emerging powers in protein, with large domestic and export exports, and a good local cost advantage, Brasil Foods makes some sense.

On the other hand, Brasil Foods is not shockingly cheap and there is the risk not only of recurrent inflation in Brazil, but global trade hangups (like Russia's stated goal of becoming self-sufficient in chicken and periodically banning imports from certain countries). Now Buffett does not always subscribe to other people's notions of “cheap”, but I'm not convinced Brasil Foods meets the Buffett margin of safety requirements.

Whether Buffett agrees with me or not, I'm likely to hang on to these shares for a while. After all, I like it for the same reasons he presumably would – a well-run emerging markets company with low costs and high leverage to rising global standards of living, coupled with a good play on rising on food costs (assuming that the company can continue to pass on higher grain costs and so on).

Buffett involvement or no, I would BUY shares of Brasil Foods.

Disclosure: I own shares of BRF Brasil Foods