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By Ana Mano
SAO PAULO, Nov 8 (Reuters) - Brazilian food processor BRF SA posted third-quarter net income that beat the average of analysts estimates, but shares fell nearly 2% in late morning trading in São Paulo as investors see obstacles to maintaining momentum.
In an earnings statement on Friday, BRF said net income came in at 446 million reais ($109 million), as net revenue rose by 8.4% to 8.4 billion reais from the third quarter in 2018.
The result was the second straight quarterly gain for the meatpacker, and reversed an 860 million real loss a year ago.
After demand peaked during the Ramadan season in the second quarter, BRF noted a slight decrease in volumes and margins in the third quarter, referring to sales in Middle Eastern countries.
BRF said sales volumes in the Brazil segment increased by 8% from the second quarter of 2019, putting them roughly in line with last year’s level.
In other international markets, volumes rose by some 5% from the third quarter in 2018, driven by strong demand in Asia after a deadly pig disease there decimated local herds.
Still, investors were un-fazed.
Banco BTG said a 467 million real one-off tax gain recognized last quarter inflated operating profit. Itaú BBA noted “disappointment” at provisions for tax and other contingencies under the corporate segment.
Patricio Rohner, vice-president for international markets, said Brazil has fewer than necessary plant approvals to cater to Chinese demand for chicken products, a cheaper substitute for pork.
Whether China will approve more plants for export after the outbreak of African swine fever remains to be seen, management said.
Regarding restrictions to sell processed meat products to Saudi Arabia from its Abu Dhabi plant, BRF said an audit is scheduled for early December, and is hoping it would result in the lifting of restrictions by year-end.
Other challenges include developing a reliable local chicken supply chain in the Middle East, where the company will build a new factory after an agreement to invest $120 million.
“We have local chicken breeders serving the Abu Dhabi factory. What we are going to do is to support their development so that they can supply not only Abu Dhabi, but also to our Saudi Arabia plant,” Chief Executive Officer Lorival Luz said.
Saudi Arabia accounts for about a fourth of BRF’s halal food business, which requires meat be produced according to Muslim dietary requirements.
After a visit by Brazilian President Jair Bolsonaro to Saudi Arabia last month, the company became “a partner” in helping it achieve the goal of producing 60% of its chicken consumption locally, BRF said. (Reporting by Ana Mano and Paula Laier; Editing by Steve Orlofsky and Chris Reese)