Investing.com -- Fitch Ratings has revised its outlook for BRF S.A., a major player in global poultry exports and the Brazilian processed food market, to positive from stable. The agency has also affirmed BRF's Long-Term Foreign Currency (FC), Local Currency (LC) Issuer Default Ratings (IDRs) and senior unsecured notes at 'BB+', along with its National Scale Long-Term Rating and local bonds at 'AAA(bra)'.

The revision to a positive outlook reflects Fitch's anticipation of sustained operational efficiencies and robust cash flow generation. This is expected to lower BRF's net leverage to below 1.0x by the end of 2025. Consistent solid operating results and credit metrics, coupled with financial discipline, could potentially lead to an upgrade for BRF's IDRs.

BRF's ratings are influenced by its dominant position in global poultry exports and the Brazilian processed food market, its strong liquidity, and low refinancing risk. The company's broad distribution network and robust brands offer significant market scale and diversification, distinguishing it from competitors.

Fitch predicts a positive long-term outlook for the protein sector, driven by increasing demand for chicken meat and robust export market demand. The U.S. Department of Agriculture forecasts stable domestic chicken meat consumption in Brazil and export growth of approximately 2.0% year-over-year in 2025.

Brazil's National Supply Company (Conab) anticipates the country's soybean and corn production to reach 167 million and 120 million tons, respectively, in 2025. This increased grain output is expected to benefit the pork and poultry industries by keeping costs under control, as grains account for a significant part of animal protein processing costs.

Fitch's calculations indicate that BRF's EBITDA will be BRL9.5 billion in 2025, relatively stable compared to BRL9.0 billion in 2024, and a significant increase from the BRL3.6 billion in 2023. This improvement in margin is enhancing cash flow generation and resulting in positive Free Cash Flow (FCF). Capital expenditure (Capex) is expected to remain steady at around BRL3.4 billion, with dividends at about 25% of net income.

Fitch expects BRF's net leverage to strengthen to below 1.0x by the end of 2025, down from 5.4x in 2022, 3.1x in 2023, and 1.1x in 2024. This deleveraging performance is supported by a BRL5.3 billion capital infusion in 2023, declining corn and soybean prices since 2023, rising chicken prices in 2024, and the company's efficiency program.

The agency also notes the linkages between BRF and its parent company Marfrig. Fitch's assessment considers BRF to have the same credit profile as Marfrig. However, if BRF had a stronger credit profile, it could be rated up to one notch above Marfrig.

In comparison to other large food processors such as Grupo Bimbo S.A.B de C.V., Sigma Alimentos, S.A. de C.V., and The Kraft Heinz (NASDAQ: KHC ) Company, BRF's ratings are lower. Despite the level of exports, most of BRF's industrial plants and revenues are in Brazil. The weaker operational environment of Brazil in relation to Mexico and the U.S. should be considered when comparing BRF with these other issuers.

Fitch considers BRF's profit to have been more volatile than the processed food industry average over the past four years. However, BRF's credit metrics are robust and are projected to remain strong in 2025.

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