16 May 2024

2 minute read

By: Global Ag Media

South America

Shares of Brazil's JBS SA rose 7% in early morning trading on Wednesday after the world's largest meatpacker reported strong first-quarter results in spite of headwinds faced by its large US beef business, reported Reuters. 

JBS executives said they continue to see reduced cattle availability in the United States and demand constrained by higher beef prices in its biggest market. At the same time, JBS is positive on the outlook for its chicken export business as demand is heating up globally and grain prices have subsided.

The company's US pork division is, however, benefiting from a shift in consumer demand for pork in place of beef, the company said. In Brazil, a combination of leaner manufacturing processes and lower feed prices bolstered the company's Seara processed foods division, it added.

"JBS' diversification is now playing its role," said BTG analysts in a note to clients, referring to the fact the firm owns plants in multiple countries and sells different types of protein.

BTG said it believes JBS' Pilgrim's Pride, its US pork business and Australian operations "should all be direct beneficiaries of the downturn in the US cattle cycle", adding that Brazilian operations are also benefiting from stronger cyclical fundamentals.

BTG said JBS offers the "best risk-reward in the sector" and has a "buy" recommendation on the stock.

Addressing analysts, JBS CFO Guilherme Cavalcanti said the company is de-leveraging faster than it had anticipated. He said that if the company reports margins of 7.5% for 2024, it is possible for its net-debt-to-EBITDA ratio to fall to 2.5x from a current 3.7x by year-end.

Reducing leverage at the current pace allows JBS to consider paying dividends and evaluate acquisition opportunities, Cavalcanti said in answer to a question about options for capital allocation.

The priority, however, is retaining JBS' investment grade status, Cavalcanti noted.