JBS Net Profit Rises as Currency Gains Counter Margin Declines

August 11, 2016 07:55 AM

JBS SA’s second-quarter profit surged as a depreciation in Brazil’s currency boosted revenue at the world’s largest meat producer, and it ended a currency hedging position that slashed earnings a year earlier.

Net income increased to 1.5 billion reais ($480 million) from 80.1 million reais a year earlier, the Sao Paulo-based company said in a statement Wednesday after the market closed. The company also booked a net financial gain of 772.4 million-reais on its debt because of currency movements.

Adjusted earnings before interest, tax, depreciation and amortization fell 19 percent from a year ago to 2.89 billion reais on smaller margins from its U.S. beef and chicken businesses as well as from Brazil’s chicken and processed-food unit Seara. That was in line with the 2.85 billion-reais average of six analysts’ estimates compiled by Bloomberg.

Brazil’s currency traded at an average 3.50 reais to the dollar in the quarter, 12 percent lower than a year earlier. More than 80 percent of JBS’s sales are in dollars and include revenue from Pilgrim’s Pride Corp., the U.S. publicly traded poultry company it controls.

Hedges Unwound

JBS said in May it would unwind a $12-billion hedging position used to protect its foreign debt from the fluctuations of the real after losing 5.8 billion reais with those derivatives. This hedging contributed to a record net loss of 2.74 billion reais in the first quarter.

Revenue climbed 12 percent to 43.7 billion reais, boosted by increased volumes as well as the currency depreciation. That missed the 44.6 billion-reais average estimate of eight analysts.

Earnings at its biggest unit -- JBS USA Beef -- slumped 88 percent from last year. Ebitda at the unit, which includes operations in Australia and Canada, fell to $27 million, reflecting lower availability of cows and higher production costs, the company said.

Ebitda at the Mercosul beef operation rose 21 percent to 457.2 million reais on improved demand in international markets.

Adjusted net income at Pilgrim’s, the second-biggest chicken processor in the U.S., missed analysts’ estimates after falling 39 percent in the period on weaker chicken prices, the unit reported on July 27.

Ebitda at Seara, Brazil’s second-largest chicken producer and foodmaker, fell 52 percent to 382 million reais in the period. Brazil’s chicken and processed food producers have been struggling with a surge in domestic corn prices.

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