JBS Says It's Done With Asset Sales as Earnings Boost Outlook

November 14, 2017 10:35 AM
 
JBS Says It's Done With Asset Sales as Earnings Boost Outlook

(Bloomberg) -- JBS SA says it’s done selling assets as record earnings and brighter prospects for its beef, chicken and pork businesses in the U.S. offset the fallout from the scandal that has engulfed its controlling family.

The meat giant said it cut net debt to 45.5 billion reais in the third quarter, or 3.42 times earnings before interest, taxes, depreciation and amortization, below the company’s year-end target multiple of 3.5. Further deleveraging is expected as proceeds from some deals that were completed last month are used to pay down borrowings, said Andre Nogueira, JBS USA’s chief executive officer.

The world’s largest meat producer has raised 6 billion reais ($1.8 billion) over the past few months after offloading some beef operations in South America, U.K. chicken producer Moy Park and a stake in dairy producer Vigor Alimentos SA. It’s also close to selling its Five Rivers Cattle Feeding division, people familiar with the matter told Bloomberg last month. Some of those assets were included in a divestment plan announced in June after JBS was plunged into crisis following the revelation that Wesley and Joesley Batista, the brothers who control the company, confessed to bribing more than 1,800 politicians.

‘No Need’

"There is no need of further divestment," Nogueira said by phone on Tuesday. JBS’s foreign businesses, which account for about 75 percent of total sales, should perform even better next year amid near-full employment conditions in the U.S. and ample supplies of cattle and feed, boosting cash generation and allowing the company to quickly reduce debt levels, he said. "Our leverage is already the lowest among Brazilian peers."

Meat operations in the U.S., which account for more than two-thirds of JBS’s revenues, have benefited from rising demand both at home and abroad, while the cost of feeding livestock and poultry remains low after farmers harvested back-to-back bumper corn crops. JBS and peers including Tyson Foods Inc. have had profitable margins on beef and pork-processing for much of the year, HedgersEdge data show.

JBS will likely maintain its cattle slaughtering capacity in Brazil while seeking to boost volumes after a steep decline in the past quarter, Chief Operating Officer Gilberto Tomazoni said by phone. The unit, which accounts for about 12 percent of total sales, posted the worst results among all JBS businesses in the third quarter, with an Ebitda margin of 1.4 percent.

Shares Jump

Adjusted Ebitda rose to a record 4.32 billion reais, compared with 3.14 billion reais a year earlier, the Sao Paulo-based company said Monday in a statement after markets closed. That exceeded all of the the six analysts’ estimates compiled by Bloomberg.

Shares rose as much as 6.1 percent to 8.49 reais, the best performer among companies in Brazil’s benchmark Ibovespa index, which fell 0/5 percent as of 1:11 p.m. local time.

JBS USA Beef, the company’s biggest unit with operations spanning Australia and Canada as well as the U.S., saw Ebitda margin expand to 7.3 percent from 5 percent. Ebitda at Pilgrim’s Pride Corp., JBS’s U.S. chicken unit, almost doubled from a year earlier, the company said last week. Seara, the company’s Brazil chicken unit, saw margins rise to 11 percent from 7.3 percent.

©2017 Bloomberg L.P.

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