July 30, 2013 / 3:45 PM / in 5 years

UPDATE 1-BRF sees Brazil demand recovery in second half of 2013

* CFO says early July results suggest sales to recover

* BRF will miss annual capex guidance of 1.5 bln reais

* Production costs peaked in first quarter, says CFO

SAO PAULO, July 30 (Reuters) - BRF, Brazil’s largest processed foods company, sees a recovery in local demand in the second half of 2013 after posting below-expected earnings due to weak domestic sales, executives said on Tuesday.

BRF SA, the Brazil’s largest poultry exporter, reported profit of 208.4 million reais ($92 million) for the second quarter on Monday, short of the 360 million reais average estimate in a Reuters poll of five analysts.

Chief Financial Officer Leopoldo Saboya told analysts that he had seen signs in July of recovering demand on the local market, which comprises 44.5 percent of BRF’s sales. Accelerating inflation weighed on Brazil consumer sentiment in the first half of the year.

Headline inflation has begun to ease in Brazil after peaking at 6.7 percent over the past 12 months in June, according to the IPCA consumer price index.

Saboya said that the company was slowly bringing down its unit production costs, which appear to have peaked in the first quarter of this year, although costs of goods sold remain more than 12 percent greater than a year earlier.

Corn and soybean prices, which make up the bulk of costs in the company’s pork and poultry production, fell in the second quarter from the first, BRF said.

In a conference call, the new chairman of BRF’s board, Abilio Diniz, formerly chief executive of Brazilian retailer Pão de Açúcar, said BRF would likely fall just short of investing the 2 billion reais originally slated for 2013, due to slower-than-expected capital expenditures.

Saboya said capital expenditures would likely end the year above 1 billion reais, but below the forecast 1.5 billion reais.

In the first half of 2013, BRF carried out 524 million reais of capital spending.

BRF shares were trading up 0.2 percent at 48.65 reais after the call.

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