Shares in Minerva, South America's largest beef exporter, rose sharply as analysts praised the company's strong fourth-quarter operating results, alleviating concerns about rising debt amid a downturn in Brazil's cattle cycle.
Goldman Sachs reiterated its "buy" rating on the stock, highlighting the potential for strong sales to China and steady demand in Brazil, where higher beef prices have partially offset the decrease in cattle availability.
Despite posting a net loss of 1.57 billion reais ($277 million) in the fourth quarter, primarily due to negative currency effects, Minerva's operating profit, measured by earnings before interest, taxes, depreciation, and amortization (EBITDA), increased by 56% to 944 million reais, surpassing the average forecast in an LSEG poll.
By midday trading in São Paulo, Minerva's shares had risen 10%, while rival JBS's shares were up 7% ahead of its forthcoming earnings report.
Minerva's management indicated the company expects to generate sufficient cash to reduce debt this year and next, following investments in new slaughterhouses across South America, which have increased its nominal capacity by over 50%.
Concerns regarding Minerva's rising debt have been prevalent, with some analysts suggesting that the company overpaid for Marfrig assets in Brazil, Chile, Argentina, and Uruguay. The 7.5 billion reais ($1.33 billion) deal was finalized in 2023 but only closed in October due to delays in regulatory approvals.
Morgan Stanley analysts welcomed Minerva's robust EBITDA, positing that free cash flow could buoy shares, despite the high debt ratios resulting from the acquisition.
Net debt surged 76% year-on-year to 15.6 billion reais by the end of 2024. Currency effects contributed nearly 2 billion reais to gross debt in the fourth quarter, according to analysts at Genial Investimentos, who cautioned that Minerva might breach its debt covenants. However, management dismissed this risk, noting that not all debt obligations are included in the covenant calculations.
CFO Edison Ticle stated that the company could generate between 1 billion and 2 billion reais in free cash this year to pay down debt but acknowledged that cash expenses would reach approximately 2 billion reais due to higher debt levels.
Ticle also anticipated an additional 200 million reais in capital spending on the 13 former Marfrig plants, which will necessitate extra working capital of up to 500 million reais.
Prior to the fourth-quarter results, XP analyst Lucas Alencar advised investors to wait for the company's capital optimization plan before making any stock decisions.