Why Brazil’s richest man is no longer Brazil’s richest man

Hello! In this issue of our Weekly Report: Jair Bolsonaro’s approval ratings, and why Jorge Paulo Lemann is no longer Brazil’s richest man.

The week in review

• Problems ahead. Just this week, President Jair Bolsonaro contradicted his top two cabinet members. After Justice Minister Sergio Moro invited a gun control activist to an unpaid consultant position, Mr. Bolsonaro promptly ordered her dismissal. But the more worrisome episode involved Economy Minister Paulo Guedes. The president admitted to the possibility of diluting the pension system—against everything his economic guru has said.

• Oil. Brazil’s energy council announced the government will hold an auction on October 28 for production sharing contracts for companies to explore areas that it says hold “significant volumes of oil and gas.” The reserves are from the so-called Transfer of Rights area—a high-yield, pre-salt region currently being explored by state-run oil company Petrobras.

• Venezuela. Juan Guaidó, the leader of the Venezuelan opposition to Nicolás Maduro, visited President Jair Bolsonaro in Brasília. Mr. Guaidó is recognized by over 50 countries—Brazil included—as Venezuela’s legitimate head of state. Last week, however, Mr. Maduro grew politically stronger as he managed to block humanitarian aid from the U.S. through Colombia and Brazil.

• Central Bank. Roberto Campos Neto was confirmed by the Senate as Brazil’s new Central Bank president. He takes the job with the country in much better shape than when his predecessor, Ilan Goldfajn, was handed the reins. Even if Brazil’s benchmark interest rate is at its lowest ever (6.5%/year) there is room for more cuts, as the country’s economy continues to post pedestrian growth rates. In 2018, Brazil’s GDP expanded by 1.1%.

• Lula. After missing out on his brother’s funeral after a legal battle, former President Lula was authorized on Friday to attend the funeral of his 7-year-old grandson who died of meningitis yesterday. Since April 7, 2018, Lula has served a 12-year prison sentence for corruption and money laundering (and has recently been convicted in another similar case). Brazilian prisoners have the right to attend funerals of close family members.

Jair Bolsonaro’s approval ratings

This week, polling institute MDA and brokerage firm XP published the first opinion polls assessing President Jair Bolsonaro’s approval ratings—the former focused on the electorate, while the latter polled investors and representatives of financial firms. While Mr. Bolsonaro has lost a lot of support in both polls—showing that being a sitting president is much tougher than being president-elect—he remains much more popular among investors.

Why Brazil’s richest man is no longer Brazil’s richest man

Brazil’s legendary businessman Jorge Paulo Lemann is no longer the richest man in the country, after seeing his net worth shrink more than USD 4bn in the past year, according to Forbes. Although he still has some USD 23bn to spare, losing the crown to banker Joseph Safra says a lot about how his management style may be at stake.

The three main companies managed by Lemann’s fund, 3G Capital—Kraft Heinz, Restaurant Brands International (Burger King’s controller) and AB InBev—lost around 30.5% of their market value in the past year.

AB InBev saw its profits fall 14.7% last year. In Brazil, Ambev, the beer manufacturer controlled by AB InBev, registered a fall on domestic beer sales during Q4 2018, which BTG Pactual analysts said was “disappointing with no signs of improvement.” Ambev’s shares fell 6.15% in São Paulo after the numbers were released. Meanwhile, Kraft Heinz shares crashed 27% last week after the company reported a USD 15.4 billion impairment that caused a USD 12.6 billion loss, an investigation by the U.S. Securities and Exchange Commission into accounting practices slashed its dividends by 36%.

Both companies seem to share the same problems: a different consumer mindset and their management style.

For years, 3G Capital’s way of doing business, forged by Mr. Lemann and his partners Carlos Alberto Sicupira, and Marcel Telles, was seen as a blueprint for success. Aggressive sales, tough cost control and plenty of acquisitions, provided results for a long time. But it now seems to be causing more problems than it is solving.

Kraft Heinz failed in acquiring Unilever and sees its consumers preferring healthier and fresher foods; AB InBev actually merged with SABMiller and is the largest brewer in the world, but clients are opting for craft and premium beers.

“The least concerning is the accounting issue. Most concerning is that companies like Kraft have, to use the word, blown up, over the last year. (…) I think that’s all due to the fact that consumers are not eating the same kind of food they used to. That’s where the root of their problems are,” said JPMorgan analyst Ken Goldman about Kraft Heinz in a CNBC interview. The bank cut Kraft Heinz from overweight to neutral and slashed the price target to USD 37 from USD 52 after the results.

Mr. Goldman is not the only one to see the problems. Mega-investor Warren Buffet, who holds a stake at Kraft Heinz recently said he “overpaid for Kraft,” but does not intend to sell such a large stake. Will Mr. Lemann be able to convince the market to do the same?

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