JBS, which released financial results on Tuesday that were below analysts expectations, said Seara and the U.S. beef division presented the biggest challenges for the company last year, when it lost about 1 billion reais (C$272.3 million) compared with a 15.457 billion real annual profit (C$4.21 billion) in 2022.

JBS shares dropped about three per cent in early trading after the results, which were also negatively affected by global poultry oversupplies and high grain prices, especially in the first half of 2023.

“JBS reported what we view as good (Q4) results, tough high market expectations could drive a negative price reaction,” Goldman Sachs told clients.

Goldman said JBS’ fourth-quarter earnings before interest, tax, depreciation and amortization (EBITDA) was in line with its expectations, even as the U.S. beef division “printed negative profitability.”

The weakness of the U.S. beef unit, the company’s largest by sales, was offset by the results of Pilgrim’s Pride and the strength of operations in Australia and the beef business in Brazil, Goldman noted.

“We remain constructive on the forward, and expect momentum to be supported by PPC, Australia, (the) U.S. pork (division) and Seara,” Goldman analysts wrote.

In the United States, a lack of cattle supplies made the company’s EBITDA negative in the fourth quarter of 2023 for that division.

JBS managers, who addressed analysts in a conference call to discuss results, said the U.S. beef segment will continue to face headwinds this year.

Regarding the Seara division, CEO Gilberto Tomazoni said it is poised to report double-digit margins as early as the first quarter as the company identified issues and is executing a plan to make industrial processes more efficient.

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Attorney General Letitia James said JBS USA Food Co, the Brazilian company’s American-based unit, has “no viable plan” to reach net zero greenhouse gas emissions by 2040, making its stated commitment to achieving that goal false and misleading.

James said JBS has admitted its “Net Zero by 2040” commitment did not incorporate the vast majority of greenhouse gas emissions from its supply chain, including from deforestation in the Amazon.

She also said reaching the goal was “infeasible” given JBS’ plan to increase production and therefore its carbon footprint, on top of greenhouse gas emissions that had by 2021 exceeded those of the entire country of Ireland.

“Families [are] willing to spend more of their hard-earned money on products from brands that are better for the environment,” James said in a statement. “JBS USA’s greenwashing exploits the pocketbooks of everyday Americans and the promise of a healthy planet for future generations.”

The lawsuit filed in a New York state court in Manhattan seeks a $5,000 civil fine per violation of state business laws, and to recoup ill-gotten gains from false sustainability claims.

JBS’s businesses include Pilgrim’s Pride Corporation, one of the largest U.S. chicken producers.

In a statement, JBS said it disagreed with the lawsuit. It also pledged to continue partnering with farmers, ranchers and others toward a “more sustainable future for agriculture” that uses fewer resources and reduces its environmental impact.

The company generated about $53.5 billion of revenue in the first nine months of 2023, about 59 per cent of which came from North America and Central America.

JBS shares trade in Brazil. The company has been seeking to list its shares in the United States.

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JBS in a securities filing offered a one-time dividend payment of about 2.2 billion reais (C$621 million) to coax investors into backing the longstanding plan.

Shareholders will decide whether to accept the proposal at a general meeting yet to be scheduled.

JBS global CEO Gilberto Tomazoni said it is possible that the meeting will take place in 30 days. He believes that by December all steps to complete the transaction will have been taken so that the company’s shares can start trading in New York.

The proposed structure will use a Netherlands-based vehicle called JBS NV and have Class A shares with one voting right and Class B shares with 10 votes, JBS said. JBS NV’s class A common shares would trade in the U.S. and Brazilian depositary receipts would be listed for trading in Sao Paulo.

JBS’ management has repeatedly made the case that a U.S. listing would reduce its cost of capital and help its shares trade at multiples closer to peers such as Tyson Foods and Pilgrim’s Pride, which it controls.

Analysts at Bradesco BBI agreed that the much-awaited move will help close the valuation gap to its main peer in the U.S., referring to Tyson.

Sao Paulo broker Genial said JBS is a “buy” as a proposed listing in the U.S. will help improve its governance standards.

“A dual listing would better align JBS’ corporate structure it to global peers, which we believe could be received positively by investors,” Goldman Sachs said.

JBS in 2007 was the first Brazilian meat packer to go public. That year saw JBS embark on an acquisition spree in the U.S., followed by its purchase of the XL Foods beef packing business in Canada in 2013. In years prior, it had expanded capacity in Brazil and bought plants in Argentina, marking the start of its aggressive internationalization.

The U.S. listing has been in the works for the better part of a decade, but was postponed in part due to a 2017 corporate corruption scandal in Brazil and then again amid the COVID-19 pandemic.

JBS gets the lion’s share of its revenue from the U.S. market, where it processes beef, poultry and pork products for domestic consumption and export.

The JBS USA arm also oversees the company’s operations in Canada, which today include the former XL beef slaughter and packing plant at Brooks, Alta. and case-ready meat plants at Calgary and at Belleville, Ont.

— Reporting for Reuters by Ana Mano and Roberto Samora in Sao Paulo.

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The attack caused its Australian operations to shut down on Monday. The company said it was working to resolve the incident.

JBS USA, in a statement Monday afternoon, said it had determined Sunday that it “was the target of an organized cybersecurity attack, affecting some of the servers supporting its North American and Australian IT systems.

JBS added it’s “not aware of any evidence at this time that any customer, supplier or employee data has been compromised or misused as a result of the situation.”

Resolution “will take time, which may delay certain transactions with customers and suppliers.”

The attack shut down operations across several Australian states, JBS Australia CEO Brent Eastwood told industry news website Beefcentral on Sunday, at which time he was not able to say how long the stoppage would last.

The world’s largest meatpacker has operations in Canada and the U.S., the latter of which on Monday marked the Memorial Day public holiday.

Australian meat processing operations would be impossible without normal access to IT and internet systems, according to the Beefcentral report. JBS’s Primo Smallgoods business in Queensland state has also been affected, the report said.

JBS USA said Monday its response included suspending “all affected systems,” but didn’t say whether operations at North American plants were affected to the same extent as in Australia.

JBS USA’s holdings in Canada include the company’s major beef slaughter and packing plant at Brooks, Alta. and case-ready meat plants at Calgary and Belleville, Ont.

— Reporting for Reuters by Melanie Burton. Includes files from Glacier FarmMedia Network staff.

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The meat packer’s move away from the drug ractopamine, a feed additive, shows how companies are maneuvering to take advantage of an expected shortage in China, the world’s largest pork consumer, due to African swine fever (ASF).

Though not harmful to humans, the disease is deadly to pigs, with no vaccine available. It surfaced for the first time in Asia more than a year ago in China, and has now spread to over 50 countries, according to the World Organization of Animal Health – including those that account for 75 per cent of global pork production.

“Here’s a major packer that says ASF is important enough that we’re going to get in a position to serve that market,” said Steve Meyer, economist for U.S. commodity firm Kerns and Associates.

JBS USA, owned by Brazil’s JBS SA, said it removed ractopamine from internally owned production systems in August 2018. Now the company will also prohibit the drug from diets of hogs owned by farmers who sell livestock to JBS USA.

The Colorado-based JBS unit sells pork under brands including Swift and Swift Premium.

“Early on, basically JBS said, ‘You guys chase that export stuff. We’re going to serve the domestic market,'” Meyer said. “It’s pretty much an about-face on that.”

Rival U.S. pork producer Smithfield Foods, which is owned by China’s WH Group, already raises all of the hogs on its company-owned and contract farms without the drug.

Tyson Foods previously told Reuters it was looking at diversifying its pork supply to include ractopamine-free hogs as demand expands.

“We are confident this decision will provide long-term benefits to our producer partners and our industry by ensuring U.S. pork products are able to compete fairly in the international marketplace,” JBS USA said in an emailed statement.

Ractopamine is used in some countries to raise leaner pigs, but China does not allow its use or tolerate residues in imported meat. The European Union also bans ractopamine.

Elanco Animal Health — the manufacturer of Paylean, its brand name for a ractopamine feed ingredient — did not immediately respond to a request for comment.

Beijing blocked pork imports from a Canadian company this summer because China’s customs agency said a shipment contained ractopamine.

— Tom Polansek reports on agriculture and ag commodities for Reuters from Chicago.

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U.S. authorities have been investigating the companies controlled by J+F since their largest shareholders — brothers Joesley and Wesley Batista — admitted to bribing politicians and Brazilian officials to obtain benefits for their businesses.

Brazil’s federal prosecutor’s office said on Friday that an agreement between authorities from both countries was signed and added to the plea deal J+F closed with Brazilian prosecutors to allow for U.S. authorities to come and talk to the shareholders.

It is not clear yet what part of the businesses owned by J+F in the United States is being targeted by U.S. authorities.

J+F declined to comment.

A large part of JBS’s operations are based in the U.S., where the company already controls Pilgrims Pride Corp. and has plans to do an initial public offering of shares of its JBS USA arm.

Among the operations which would be included in a JBS USA IPO is the company’s Brooks, Alta. beef packing plant, one of Canada’s largest, with capacity to process up to 4,200 head of cattle per day.

— Reporting for Reuters by Ricardo Brito.

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In April all of JBS operations will meet U.S. auditing and compliance requirements under the Sarbanes-Oxley Act, JBS management told analysts on a call to discuss fourth-quarter results, moving one step closer to an initial public offering (IPO) of the unit.

“It is the best option to unlock value,” JBS chairman and investor relations officer Jeremiah O’Callaghan said.

In October, the company pulled a planned US$500 million U.S. IPO of JBS Foods International after the scandals in Brazil hurt investor interest in the deal.

Among the international operations that would have been included in JBS’s IPO is its Brooks, Alta. beef packing plant, one of Canada’s largest, with capacity to process up to 4,200 head of cattle per day.

O’Callaghan on Thursday said JBS is still dealing with fallout from plea deals struck by the company’s former chairman and CEO, who admitted to bribing scores of Brazilian politicians. He said JBS was running an internal investigation as part of collaboration efforts with Brazilian and U.S. authorities.

JBS reported an unexpected fourth-quarter net loss late on Wednesday due to currency and hedging effects, as well as weakness at its Brazil beef unit, but overall operational performance remained strong, boosting optimism about the potential U.S. listing.

Analysts at JPMorgan highlighted strong cash flow and the increasingly profitable U.S. beef division in a note to clients suggesting shares could recover from recent underperformance.

JBS shares rose as much as 5.2 per cent in Sao Paulo, trading to 9.36 reais (C$3.66).

Strong cash flow helped the company lower its ratio of net debt to EBITDA to 3.38, the lowest in the industry, according to management.

“We did it faster and better than planned,” said chief operating officer Gilberto Tomazoni, regarding the deleveraging efforts. He said the company will continue reducing net debt through cash generation until reaching a target ratio of two times EBITDA by 2019.

JBS said global demand for animal protein will grow steadily through 2030, and its beef and leather operations in South America are the only units that are not performing well.

“We outperformed our competitors in each of the segments in each of the markets where we operate,” said Andre Nogueira, chief executive of the U.S. business. “From the viewpoint of our JBS USA unit, 2018 will be even better than 2017,” he added.

— Reporting for Reuters by Ana Mano and Paula Laier.

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U.S. chicken company Pilgrim’s Pride is critical to JBS’ long-term strategy of pursuing business opportunities that reduce volatility and enhance margins, JBS said in a statement.

“No core assets at JBS USA, or any other part of the world, are candidates for sale,” the statement said.

Among JBS USA’s assets are one of Canada’s largest beef packing plants and one of the country’s largest feedlots, both at Brooks, Alta.

The agreement to sell Argentine operations to Minerva SA , announced on Tuesday, was the first by JBS, the world’s largest meat packer, since its founders admitted to paying bribes to Brazilian politicians in exchange for favours in a scandal that threatens to topple President Michel Temer.

The US$300 million transaction, expected to close in July, also involves the sale of JBS plants in Paraguay and Uruguay to Minerva.

Last month, J+F Investimentos, controlling shareholder of JBS, agreed to pay a record-setting 10.3 billion real (C$4.24 billion) fine for its role in corruption scandals.

— Reporting for Reuters by Tom Polansek in Chicago.

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In a Wednesday securities filing, Sao Paulo-based JBS said that BNDES Participacoes SA, the investment arm of Brazil’s state development bank BNDES, opposed the plan, which included separating the company’s global operations and moving them to Ireland.

BNDES did not explain why it challenged the reorganization plan, JBS CEO Wesley Batista told analysts on a call from Colorado. A BNDES representative said the state agency will comment later Wednesday.

“The bank thought it was not the best road ahead for the company,” said Batista, adding that the current shareholder agreement with BNDES would end in 2019, which would then free it to reorganize operations.

Shares of the world’s No. 1 meatpacker plunged nearly 18 per cent on Wednesday, the most in eight years, signalling frustration with the end of a plan aimed at accelerating JBS’s growth, reducing fundraising costs, optimizing taxes and attracting a wider base of investors.

“This is a major negative surprise. The listing process had already been moving since May and a veto from this shareholder was totally unexpected,” said Pedro Leduc, an analyst with JPMorgan Securities. BNDESPar holds 20 per cent of JBS, making it the company’s No. 2 shareholder, after the Batista family’s 45 per cent stake.

Batista said there were alternatives to the reorganization but did not elaborate, except to say that listing North American assets on the New York Stock Exchange was one possibility. The region is the biggest source of revenue for JBS globally.

Among JBS USA’s businesses are one of the biggest beef packing plants in Canada — the former XL Lakeside plant at Brooks, Alta., with capacity to process about 4,000 head of cattle per day — and a cattle feeding operation nearby.

Under terms of the plan proposed in May, the JBS Foods International unit was to be listed in New York. Investors saw the move as the best way for JBS to become the first Brazilian multinational with a clear division of local and global assets.

The billionaire Batista brothers Wesley and Joesley, who are JBS’s CEO and chairman, respectively, expected the reorganization to be ready by November.

Change of command

The company’s shares fell as much as 17.6 per cent to 9.72 reais in Sao Paulo, their biggest drop since Oct. 15, 2008, cutting into their gains this year. Since the reorganization was announced, JBS had risen 43 per cent.

The reorganization was devised before a new Brazilian government swapped the senior management of BNDES. President Michel Temer tapped economist Maria Silvia Bastos to run BNDES and BNDESPar, replacing Luciano Coutinho, who was for years seen as a supporter of the Batistas’ push to internationalize JBS.

The idea of splitting Brazil-based and global assets gained traction because most of JBS’s revenues now come from overseas units, especially from North America. According to people with knowledge of the situation, executives had told investors in several road shows promoting the reorganization that BNDESPar was on board with the plan.

Abandoning the reorganization plan comes at a time when JBS has fallen under increased scrutiny from prosecutors and government auditors for allegedly providing Brazil’s former ruling Workers Party with illegal donations in the 2014 presidential campaign. JBS denied making any undeclared donations to the party or ruling coalition allies.

— Reporting for Reuters by Reese Ewing and Guillermo Parra-Bernal; additional reporting for Reuters by Tatiana Bautzer in Sao Paulo.

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Under the plan, the company’s global operations and Brazil-based food processor Seara Alimentos will regroup under a new Ireland-based company, JBS Foods International.

JBS USA and JBS SA asked holders of notes due between 2020 to 2025 to consent to some parts of the global reorganization proposed by JBS in May.

Holders who agreed to the consent solicitation by the expiration date of August 16 will receive a cash payment of $1.25 per $1,000 principal amount (all figures US$).

The plan, which involves listing JBS Foods International in New York, also requires approvals from shareholders and regulators.

JBS USA has been a major player in the Canadian beef market since 2013, when it bought the former XL Foods packing plant and Lakeside Feeders operation at Brooks, Alta.

— Reporting for Thomson Reuters’ International Financing Review by Paul Kilby.

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