MBRF’s Middle East Bet Pays Off but Ties Up Cash

MBRF, Brazil’s largest chicken exporter, posted record profitability at Sadia Halal, the unit that holds all of MBRF’s Middle East assets, after keeping shipments flowing during the war involving Iran and building inventory at sea.

The strategy underscored the earnings upside of the Brazilian meatpacker’s growing exposure to the region, but it also tied up cash. MBRF carried more than 50,000 metric tons of additional inventory between Brazil and the Middle East, while second-quarter cash use reached $167 million (864 million reais) and leverage rose.

Sadia Halal more than doubled EBITDA from a year earlier to $95 million. Its margin climbed to 16% from 9%, according to results released Thursday. Higher regional prices more than offset additional logistics costs, making the unit the standout in an otherwise solid operating quarter.

“When the conflict broke out in the Middle East, we kept shipments flowing and continued serving our customers,” Chief Executive Officer Miguel Gularte said on an analyst call Friday. “That proved to be the right decision. Food security was already highly valued in the region, and the conflict made it even more important.”

“The result leaves us very well positioned for a future IPO of Sadia Halal,” Gularte said.

Cash Cost

The strategy came with a significant working-capital cost.

Part of the additional inventory supported second-quarter profitability, while the balance should generate returns in the second half, Chief Financial Officer José Ignacio Scoseria said.

Other demands on cash included more cattle in feedlots, following a favorable first half for feedlot operators, and an early buildup of seasonal products expected to generate fourth-quarter sales.

“We expect, and are committed, to reversing in the second half the exceptional cash use recorded in the first half,” Scoseria said.

Stronger cash generation would help MBRF reduce leverage. Its net debt-to-EBITDA ratio rose to 3.41 times in the second quarter from 2.74 times a year earlier.

MBRF is also seeking to reduce capital spending, targeting $964 million (5 billion reais) in 2026 and $771 million (4 billion reais) in 2027. It aims to capture $193 million (1 billion reais) in merger synergies this year.

The company expects to receive $75 million from Saudi Arabia’s sovereign wealth fund by the end of 2026 as payment for part of the stake sale in Sadia Halal.

US Beef Relief

A gradual improvement in MBRF’s US beef business, which accounts for nearly half of the company’s revenue, could provide another path to lower leverage.

Tim Klein, CEO of MBRF-controlled National Beef, said Tyson Foods’ beef restructuring announced Thursday would immediately cut US slaughter capacity by 3,000 head of cattle a day.

The US industry is currently slaughtering about 80,000 head a day, Klein said, meaning the reduction would remove almost 4% of capacity.

US authorization for cattle imports from Mexico should also ease tight animal supplies, although the impact is likely to become more significant only in the second half of 2027, he said.

“The worst of the cycle is behind us, and conditions will improve from here,” Klein said.

Quarterly Results

MBRF reported second-quarter net revenue of $7.85 billion (40.7 billion reais), up 5% from a year earlier. Adjusted EBITDA also rose 5%, to $617 million (3.2 billion reais), with a margin of 7.9%.

Net income fell 19.5% to $13.3 million (69 million reais), while net debt rose 19.7% to $8.68 billion (45 billion reais).

MBRF shares were little changed in Friday trading on B3, the Brazilian stock exchange. The company had a market value of about $4.36 billion (22.6 billion reais).

This story was translated from the original Portuguese with the assistance of artificial intelligence and reviewed by The AgriBiz editorial staff.