JBS sees favourable U.S., China meat outlook

Brazil’s JBS, the world’s largest integrated meats producer, believes the outlook for the U.S. poultry market, where it operates Pilgrim’s Pride, is looking up, company executives said Thursday.

JBS CEO Wesley Batista said in a news conference with reporters after posting third-quarter earnings that the price of corn — the main component in chicken feed — was between US$7 and $7.50 a bushel a year earlier and prices for the grain have now fallen toward the US$4 to $4.50 range. Feed makes up about 70 per cent of the costs of producing poultry.

On the beef side, the outlook for U.S. exports is also positive. China’s growing demand for animal proteins has meant shipments of beef from JBS’s Swift Beef unit based in Greeley, Colorado, have risen to 1.5 million tonnes a year and may double by 2020, said Andre Nogeira, the head of JBS’s North American beef operations.

China still bans fresh or frozen Brazilian beef imports, as does the U.S., due to phytosanitary concerns.

The company posted Q3 net earnings of 258 million reais late on Wednesday, missing market expectations, due to a sharp increase in operational costs from last year.

After the purchase of Seara earlier this year from rival Marfrig, JBS has become not only the world’s biggest beef producer, but also the biggest poultry producer. However, the acquisition has driven up the company’s debt levels.

Batista has tasked himself with bringing those levels down.

After acquiring Seara, JBS’s net debt rose to 4.03 times earnings before interest, taxes, debt and amortization — a measure of cash flow known as EBITDA – compared with the 3.28 times EBITDA on June 30, prior to the acquisition.

“I can’t promise, but at least three times (EBITDA) is very realistic,” Batista said of his goals for JBS’s debt level.

Batista said he estimates the company can save 1.2 billion reais (US$515 million) in 2014 with cost savings from the integration of Seara.

JBS on Thursday noted total Q3 capital expenditures were 499.9 million reais. In North America, the company noted, those expenditures were mainly in its former XL Foods beef plant at Brooks, Alta., and at its Omaha plant in the U.S.

Meanwhile in its Mercosul operations, JBS said, the main capital investments were in “improvements in productivity” and in plant expansions.

JBS expects revenues of 120 billion reais next year, Batista added, which would make it one of the biggest companies in Brazil. — Reuters, with files from AGCanada.com Network staff

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