JBS sees margins up in 2017 as feed, cattle costs fall


Sao Paulo | Reuters — Brazilian meatpacking giant JBS SA expects profit margins to improve over the course of this year, CEO Wesley Batista said on Tuesday, as lower cattle and feed costs and healthier markets ease the pressures that hurt 2016 results.

JBS shares rose two per cent in Sao Paulo despite lower-than-expected earnings reported late on Monday, as investors cheered the strong performance of its U.S. beef business and the outlook for stronger global demand this year.

“We expect… a gradual improvement each quarter in international prices, which clearly helps to recover margins, along with lower input costs,” Batista told analysts on a call.

Earnings before interest, taxes, depreciation and amortization slipped to 6.6 per cent of revenue in 2016, from 8.2 per cent in 2015, as a spike in Brazilian grain prices and a tight U.S. cattle market eroded profitability.

By the fourth quarter, however, the so-called EBITDA margin recovered to 7.5 per cent, just 0.1 percentage point below a year ago. The margin in the JBS USA beef business swung to 7.3 per cent from negative 0.5 per cent a year earlier.

Bradesco BBI analyst Gabriel Lima told clients in a note on Monday that exports to Asia helped boost the U.S.-based beef division, whose strong performance should lift the group’s EBITDA by 30 per cent this year.

Excluding the cost of writing off a discontinued brand in South America, Lima said fourth-quarter EBITDA would have risen about 10 per cent, in line with his expectations.

Batista said U.S. beef exports have remained healthy in the first three months of 2017, up about 25 per cent from a year ago.

He said the $230 million acquisition of ham and bacon producer Plumrose USA, announced along with earnings on Monday, should generate annual cost savings between $25 million and $30 million (all figures US$).

Batista said JBS had no major acquisitions on its radar, that but there could be more opportunities like the Plumrose deal.

The plan to list its global business units separately in a U.S. IPO of subsidiary JBS Foods International remains on schedule, Batista added.

Reporting for Reuters by Paula Laier and Brad Haynes.


Stories from our other publications