Can Pedro Parente fix food company BRF?

. Jun 15, 2018
pedro parente brf After leaving Petrobras, Pedro Parente takes over BRF. Photo: ABr
pedro parente brf

After leaving Petrobras, Pedro Parente takes over BRF. Photo: ABr

When Pedro Parente took over as CEO of Petrobras in May 2016, Brazil’s oil and gas company was the most indebted of its kind in the world. Two years later, the company has reclaimed its respectability, despite its recovery owing to a much-criticized pricing policy which pleased investors but infuriated fuel consumers. Now, Mr. Parente may be facing an even bigger challenge: saving food company BRF from the abyss.

The markets are fond of Pedro Parente. When he resigned from the top job at Petrobras, the company’s stock crashed by 15 percent. This week, when it became clear that the executive would be named as the new boss of BRF, the food company’s stock went up by 2 percent in after market hours.

But it will be no easy task. Mr. Parente&#8217;s name alone will not be enough to turn around the mess which BRF has gotten itself into. The company&#8217;s image and financial performance have been severely hit by Federal Police investigations against <a href="">corruption schemes</a> to defraud sanitary permits. The scandals led the European Union, China, and Saudi Arabia (all important markets) to embargo BRF products.</span></p> <p><span style="font-weight: 400;">What Mr. Parente brings to the table is the impression that, after 53 days without a CEO, Brazil&#8217;s second-biggest meat producer will no longer be adrift. Stakeholders have been at each other&#8217;s throats for at least a couple of years, when the company began accumulating losses. Earlier this year, the former chairman of the board faced a sort of &#8220;mutiny&#8221; that led the company to turn to Pedro Parente.</span></p> <p><span style="font-weight: 400;">Market analysts have been prudent with their optimism. Last week, <a href="">Credit Suisse</a> published a report highlighting that &#8220;like in any company that undergoes such drastic changes, it is hard to imagine that BRF will become the company it used to be.&#8221;</span></p> <h3>How did BRF become so problematic in the first place?</h3> <p><span style="font-weight: 400;">Until recently, BRF was headed by Abilio Diniz, a member of one of Brazil&#8217;s richest families. He was famous for being the boss at Pão de Açúcar, the country&#8217;s leading supermarket chain which has been controlled by French retailer Casino Guichard-Perrachon since 2012.</span></p> <p><span style="font-weight: 400;">In 2015, Diniz promoted a radical change to the company&#8217;s management &#8211; which turned out to be an utter failure. Since July 2015, BRF has lost 62 percent of its market value &#8211; i.e. BRL 36 billion.</span></p> <hr /> <p><span style="font-weight: 400;"><img class="alignnone size-large wp-image-5078" src="" alt="brf net debt" width="1024" height="330" srcset=" 1024w, 300w, 768w, 610w, 1180w" sizes="(max-width: 1024px) 100vw, 1024px" /></span></p> <hr /> <p><span style="font-weight: 400;">The new management became known for employing aggressive strategies in a generally conservative business. BRF took risks in areas which are pivotal for poultry and pork producers. For instance, it decided to reduce animal food stocks to increase cash flow. But when corn prices went up, the company was forced to pay extra in order to avoid losing its animals to starvation.</span></p> <p><span style="font-weight: 400;">According to a former executive, Diniz&#8217;s crowd wanted to replicate the same business model used by beer and soda producers AmBev, without questioning whether it was transferrable to the meat production business.</span></p> <p><span style="font-weight: 400;">Moreover, BRF&#8217;s management was erratic, to say the least. Between 2013 and 2018, the company changed its CEO five times. The most puzzling thing about those radical changes is the company was doing fine before. The board of directors tried to fix what was, in fact, working fairly well. The result? BRF went from a BRL 2.9 billion profit in 2015 to losses of BRL 375 million and BRL 1.1 billion last year.</span></p> <h3>Challenges Pedro Parente will face</h3> <p><span style="font-weight: 400;">In more ways than not, Pedro Parente is expected to implement at BRF the recipe he used to recover Petrobras from its dire financial strains. That means renegotiating debt maturity dates, accelerating a divestment plan that will get rid of plants which are not essential to the core business, and adjusting the company&#8217;s capital structure without diluting the current stakeholders.</span></p> <p><span style="font-weight: 400;">He will also have to deal &#8211; just like he did in Petrobras &#8211; with angry shareholders who believe that the company operated to their detriment. In the United States, the recent sanitary scandals resulted in class actions from investors. Meanwhile, the 10-day truckers&#8217; strike caused the death of 70 million chickens. As a consequence, the company decided to close down a turkey plant in Goiás.</span></p> <p><span style="font-weight: 400;">Mr. Parente is set to remain BRF boss for one year and will use this time to groom a replacement to continue his plan for the company. The market&#8217;s trust in him wasn&#8217;t shaken by the way he left Petrobras. But it could be depending on his performance at BRF.

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