2013-03-18 03:04:29 - Recently published research from Business Monitor International, "Brazil Food & Drink Report Q2 2013", is now available at Fast Market Research
While we maintain our view that significant fiscal and monetary stimulus will precipitate a pickup in private consumption over the coming quarters, we believe that private banks' concerns over elevated nonperforming loans, high household debt levels, reduced purchasing power and weak consumer confidence mean that such a development will be more modest than we previously expected. As such, we forecast private consumption to contribute 0.9 percentage points (pp) to GDP in 2013, down slightly from our previous forecast of 1.0pp, growing by just 1.4% in real terms this year.
This being said, food and retail consumption is likely to outperform among the country's private consumption items, and we project generally strong sales growth for the main companies in the sector. We
also believe that a moderation in input prices (grains) could help margins for these companies to recover in the coming months.
Headline Industry Data (local currency)
* 2013 per capita food consumption = +10.4% year-on-year (y-o-y); forecast compound annual growth rate (CAGR) to 2017 = +8.6%.
* 2013 alcoholic drink sales = +10.5% y-o-y; forecast CAGR to 2017 = +10.3%.
* 2013 soft drink sales = +9.2% y-o-y; forecast CAGR to 2017= +8.7%.
* 2013 mass grocery retail sales = +7.7% y-o-y; forecast CAGR to 2017 = +8.2%.
Full Report Details at
Key Company Trends
Strong Quarterly Results For JBS: JBS posted its best quarterly results in more than four years in Q312, recording net income of BRL367mn, more than double the Q212 total and significantly higher than the Q311 total, a loss of BRL67mn. A key reason for the better results has been significantly higher sales from the company's Brazil operations, which account for roughly 30% of all sales. In particular, sales from Brazil increased by 18% y-o-y in Q312 to BRL4.5bn, as Brazilian cattle prices have become more competitive and the real has depreciated. The company's poultry operations (through Pilgrim's Pride Corporation), saw sales increase by almost 10% t-o-t to US$2.0bn in Q312. The increase in sales was aided by a smaller increase in key input costs, meaning that the company saw its gross income increase by 46% y-o-y to BRL1.7bn.
Strong Coffee Crop To Have Limited Effects On Starbucks' Margins: We expect strong Brazilian coffee production in 2013/14, despite it being an off-year for the crop and in spite of the fact that domestic exporters have suggested that the country will have fewer coffee exports in 2012. As of January, coffee crop flowering appears to be largely on schedule owing to good weather conditions, meaning that next year's offyear crop will still be one of the largest on record. Despite this, we continue to forecast higher average coffee prices in 2013. This is not expected to have a significant effect on key coffee makers such as Starbucks, whose share price and margins have largely not reflected the effects of coffee prices in recent years.
Cencosud Denies Reports It Will Buy Brazilian Retail Chain: Chilean retailer Cencosud has denied reports that it has started negotiations to buy Brazilian retail chain Intercontinental Comercio de Alimentos. Brazil's O Estado de S. Paulo newspaper reported that Cencosud was in talks to buy the Brazilian chain for up to US$388mn. Cencosud recently purchased the Colombian assets of French supermarket Carrefour in a bid to support its expansion strategy across Latin America.
Key Risks To Outlook
Downside Risks To Growth Forecast: Should fixed investment disappoint in 2013 on the back of project delays, as it did in 2012, economic activity could remain weaker than we currently expect in the coming quarters. Such a scenario would pose major downside risks to our 2013 real GDP growth forecast of 3.5%
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