JBS’s second quarter performance shows little sign of Brazil’s recent dramas

Beef Central, 15/08/2017

JBS’s global meat protein operations appear to have been little affected by the dramatic events in Brazil surrounding major shareholders, the Batista family, and broader industry corruption allegations, with solid overall financial performance reported for the company’s second quarter this morning.

Across all operations in four continents, the world’s largest meat processor reported pre-tax earnings for the second quarter ended June 30 of R3.8 billion (A$1.52 billion), an increase of almost 30 percent on the same period last year. Best performers were the company’s US beef, chicken and pork divisions, with the beef division (including operations in Australia and Canada) lifting an incredible 1100 percent in EBITDA, driven mostly by circumstances in the US processing sector.

Net revenue across all JBS business was down 4.6pc to A$16.7 billion, impacted by the appreciation of the Brazilian currency over the quarter, while net income fell 80pc to the equivalent of A$124 million, also impacted by foreign exchange movements.

Most readers by now will be familiar with the dramatic events that have unfolded in Brazil this year, firstly due to food safety concerns over bribery allegations concerning meat inspectors, and later by a second bribery scandal involving JBS shareholders, the Batista family.

“Our operations performed very well during the second quarter of 2017,” global chief executive Wesley Batista said in today’s quarterly financial statement.

Beef operations in Brazil registered a recovery in EBITDA in relation to the first quarter, in spite of a ‘more challenging scenario’ during the period, he said.

“Our beef operations in the US, which include Australia and Canada, performed quite positively, clearly indicating an excellent outlook for upcoming periods.

“JBS’s performance for the period is a clear demonstration of the quality of our business units around the globe and of the extraordinary team that we have,” Mr Batista said.

The company’s USA Beef division (including Australian and Canadian operations) saw net revenue up 5.9pc to US$5.53 billion. Reductions in volume year-on-year in Australia contributed to an overall volume reduction of 1.5pc across the US beef division, while net revenue from exports grew by 9.2pc (entirely due to growth in trade out of the US), with an increase of 6pc in volumes and 3pc in prices during the same period. (It’s important to remember that Australian and US results are reported collectively, making it impossible to distinguish the individual contributions of each).

In the US operations, cattle supply continued to expand, thanks to low feed costs coupled with better pasture conditions. Beef demand remained strong in both export and domestic markets, with a highlight being US exports, which grew more than 10pc compared with the second quarter in 2016.

These factors allowed for more favourable beef spreads, increasing JBS operating margin in the country.

In Australia, production volume decreased due to lower cattle supply, the company said. Nevertheless, revenues were not significantly impacted due to an increase in prices both in domestic and export markets, compared with the same period a year earlier.

The US beef business unit (US, Australia and Canada) registered an EBITDA of US$324 million in the quarter ended June 30, which represented a recovery of 1100pc in relation to the same period last year. EBITDA margin was 5.9pc, the highest ever posted in a second quarter by JBS USA.

South America

Elsewhere, JBS Mercosul (South American beef division) saw net revenue down 14.2pc year-on-year, impacted by a 22pc reduction in volume, partially offset by a 7.4pc increase in average sales prices. In the export market, net revenue for South American operations decreased 11pc in the same period, due to a 15pc reduction in exported volume, partially offset by a 4pc increase in prices.

The appreciation of the Real versus the US$ during the second quarter also contributed to the reduction of net revenue in South America.





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