JBS bounces back after COVID with strong third quarter financials

Jon Condon, 20/11/2020

SLAUGHTER cattle supply out of Australia is not likely to recover significantly until at least 2022, investors were told during a JBS briefing following the tabling of the company’s third quarter financials earlier this week.

Global beef processor JBS has bounced back from the impacts of COVID earlier in the year, reporting net revenues of R$70 billion for the quarter ended September, up 34pc on the same period last year and a new record for the company.

Despite a challenging scenario due to impacts from the global pandemic, JBS global delivered pre-tax earnings (EBITDA) of R$8 billion (up 35pc year on year) and net income of R$3.1 billion.

“We may face occasional short-term imbalances in supply and demand in any given region in which we operate, but this does not alter the overall positive trends. In this sense, our geographical diversification, coupled with our diverse product portfolio across multiple proteins, will help reduce short-term volatility and provide more consistent results over the long-term,” JBS global CEO Gilberto Tomazoni said.

Reported in US$, the JBS US beef division (including operations in Australia and Canada) reported net revenue of US$5.3 billion in the quarter, a 5pc reduction compared to the same quarter last year, due to an 8pc decrease in volume sold, partially offset by a 2.6pc increase in the average selling price. EBITDA was US$503m.

In beef operations in the US and in Canada, production increased on the previous quarter, and volumes returned to pre-COVID levels.

The continuity of favourable demand contributed to an increase in beef prices over the same period last year, shareholders were told. US cattle supply remained ample, however, an increase in the number of animals processed drove finished cattle prices to a higher level when compared to same period of last year.

Additionally, North American beef exports grew over the previous quarter, not only in volume, but also in quality and product diversity, increasing their contribution to this business’ results.

In Australia, the lack of cattle availability continued to impact beef production, Mr Tomazoni said, with 2019 and 2020 producing the lowest cattle herd in the country in the last 20 years.

“The lack of finished cattle in the main beef producing regions in Australia caused a temporary halt and reduction of shifts in processing facilities during the quarter, affecting the business unit performance,” he said.

Questions on supply

The outlook and supply performance for Australia featured prominently during questiontime with analysts.

Andre Noguiera

JBS US division chief executive André Nogueira agreed with a suggestion that the US beef division’s performance would have looked better, if the Australian contribution was excluded.

“Our last quarter in Australia was very tough for us. In the quarter, Australia had a very important impact for three main reasons: the most important was the lack of cattle availability. Australia has been in a strong period of herd rebuilding, with its overall production of beef in the quarter down 30pc compared with last year. Thirty percent is a big, big reduction, because the herd rebuilding phase is very, very strong,” he said.

Australia is coming out of worst droughts in decades, but grass is no abundant in many areas – that’s why the retention is so strong in Australia.”

And just probably it will stay with us for the remainder of this year and next year. Probably we’re going to see more availability of slaughter cattle in Australia in 2022, but of course, that depends on the grass condition and the weather.

“If Australia sees some reduction in grass, numbers may come a little earlier.”

Victorian challenges

Mr Noguira also pointed to the challenges faced in JBS Australia’s southern operations in the Melbourne area, where because of COVID,  plants needed to work in a reduced capacity, and closed for a period.

“The third factor was that the Australian government created some benefits to try to help some companies that had reduced production rate with COVID, and that created some distortion in the industry. This was for small companies and they had competitive advantage because they had their labour covered by the government during the quarter. This is not the same, they reduced that benefit and that benefit will not be there in the first quarter.

“But (the impacts driven by Australia) were relevant. We never publish the Australian financial numbers separately, but there is no question that the North American operations (US and Canada) would have presented a much better margin than what was published in the quarter, without the Australian impact.”

“But herd retention (and thus low availability of slaughter cattle) will stay with us in Australia for the remainder of this year and probably for the next year too. We should see better availability of cattle in 2022.

“Again, demand is very strong for beef, so beef price and export and price of export to Australia have been pretty good, but with this amount of retention that is going on to rebuild the herd, cattle price in Australia now is in the highest point historically, and as long as this retention will continue, we will need to adjust operations,” Mr Noguira said.

“We have done that during this quarter – we changed some shifts and some operations in the plants to adjust for the new reality that we are going to have less cattle. I think that next year will be a little bit better than what you saw during this quarter, but to really see a big improvement in cattle availability in Australia, it will be 2022. Again, prices are going up in the beef side, but not enough to offset the record level that we are seeing in cattle prices.”

Public float prospects

Questioned about whether the company was still on track to carry out a US public listing, chief financial officer Guilherme Cavalcanti, said the (float) project was impacted by the pandemic, which the company put all of its efforts and focus into, in keeping employees safe and keeping lines operating.

“It’s very difficult to do a project like this, when we can’t even travel to the United States,” he said.

“And now we are probably facing a second COVID wave, so it’s difficult to put a timeline on that. But it’s a priority project for us – we are taking some steps on this front. There have been some company reorganisations that we are implementing, which is part of this strategy, which is also why we are capitalising inter-company loans, so it is a way to pave the way for the listing in the future.”

“But when that happens, is difficult to say. It is a priority project for the company, we will resume it at some point for sure, but it’s difficult to give a day because we don’t know how long this pandemic will take, if this second wave will be stronger or weaker, or when we will have the vaccine.

“But, again, as soon as we can, we will resume the project. Hopefully, we can get it next year, but in the meantime, again, we are taking all the steps related to it, whatever we can do to anticipate and continue this project.”





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