Multinationals show optimism with operations in Brazil – 7/9/2023 – Market

The mood of multinationals operating in Brazil has shown optimistic signs in the face of a scenario of reduced inflation expectations and positive perspectives on topics such as Tax Reform and the fiscal framework.

Survey made by Sheet Based on conference calls held in May and June by 100 multinationals operating in Brazil, it identified positive comments from executives in 80% of cases. The other 20% who cited the country in their statements during the events pointed out complaints or some type of concern.

The thermometer of multinationals points to good prospects for sales in the country in areas such as food, technology, agricultural supplies and medicines. They celebrate improvements in inflation and the population’s purchasing power, as well as the prospect of a good agricultural harvest this year and an increase in Chinese demand, which is advancing in its post-Covid reopening process.

These are statements like those of Tim Cook, CEO of Apple, who reported a “stellar” performance in emerging markets in general, with quarterly records in Brazil, India and Malaysia. He highlighted good results especially in services and iPhone sales.

Marcelo Rabach, CEO of Arcos Dorados, which operates McDonald’s franchises in Brazil, said the first quarter went “extremely well” and the trend for the second would be maintenance of momentum. “We know from numbers published by other retailers in the market that there are some headwinds in Brazil, but we are beating the market, and that is reflected in the market share numbers we have in Brazil,” said Rabach.

Food and beverage companies such as Kellogg (owner of the Pringles brand), Hormel Foods (from Ceratti), the giant brewing company AB Inbev and Brown-Forman (from Jack Daniel’s whiskey) are some of those reporting sales growth or showing confidence in the coming months.

The increase in the minimum wage in May boosted expectations. “From January to April, consumers were dealing with high inflation and had their wages from last year. The industry performed well. But now you have an extra cash injection and purchasing power coming back to consumers,” said Michel Doukeris , CEO of AB Inbev.

Market analysts also see a moment of economic improvement in Latin America.

According to Karina Saade, director of the BlackRock fund in Brazil, global investors are more optimistic about Latin America, because the region is more advanced in relation to the interest rate cycle. “Central banks took the lead and are closer to the end of the monetary tightening cycle. The next movement should be a drop in interest rates, contrary to what we see in most developed countries,” said Saade at an event by the Eurasia Group consultancy. , at the end of June.

She assesses that interest in the region should also help attract resources related to the energy transition, such as the exploration of lithium and copper reserves and the adoption of solar energy, in addition to the nearshoring movement, of American and European companies seeking to withdraw production from the region. Asia and relocating it to closer countries.

At a conference by Array Technologies, which offers solar energy equipment, CEO Kevin Hostetler said that the demand seen in the country is very strong. “Brazil will be the big success story for us this year,” he said.

Optimism covers varied segments, such as medical marijuana, tourism and watchmaking. Keith Strachan, president of MediPharm Labs, which markets medicines made from cannabis, praised sales contracts for two pharmaceutical partners and said that the Brazilian market is promising for the company. Brian Chesky, CEO of Airbnb, and Efraim Grinberg, of the Movado Group, classified the country as one of the relevant markets for the international growth of companies.

Among the most likely reasons for confidence, Insper professor Guilherme Fowler cites expectations for the Tax Reform, now approved by the Chamber of Deputies, in addition to the repositioning of Brazil’s image in the world after the change of government and other aspects of the economic environment. This evolution is reflected in the drop in analysts’ estimates for inflation and the perception of greater monetary easing this year, with an improvement in the GDP growth forecast (Gross Domestic Product).

For Carlos Primo Braga, associate professor at Fundação Dom Cabral, this recent perception is positive, more so than in the January scenario, and should continue for the next few months, but multinationals are keeping an eye on macroeconomic values ​​and the reformist advance. He points out that, despite the signs of improvement, this does not mean that Brazil will recover investment grade anytime soon and that the fiscal situation still inspires caution.

In their analyst conferences, vehicle manufacturers still complained of weak sales, especially of trucks. In the oil industry, in turn, there were complaints against the temporary tax on oil exports instituted by the Lula government on the occasion of the partial resumption of federal taxes on gasoline and ethanol, in March.

“The real damage of this fee is in the credibility [do Brasil], which needs to attract a lot of capital to develop its resources. For us, and for the capital markets, there was more impact on Brazil’s credibility than financial impact,” said Filipe Crisostomo Silva, CEO of Galp, the Portuguese oil company.

Sinead Gorman, Shell’s chief financial officer, said she found the creation of the tax frustrating, with possible impacts on climate-related investments, but weighed its temporary nature.

For Germany’s Daimler Truck, owner of brands such as Mercedes-Benz, weak truck sales in the first quarter, as expected after the adoption of the Euro 6 engine standard, could be softened later on. “Perhaps towards the end of the second quarter we expect to see some normalization as sellers will run out of Euro 5 trucks. But overall for the full year this will mean a bear market,” said Jochen Goetz, CFO of the company. .