Yahoo Finance JBS Surges as Cheap Corn Fuels Chicken, Pork Profit Rebound
(Bloomberg) -- JBS SA shares surged to a fresh two-year high after a major rebound in the company’s chicken and pork operations drove stronger-than-expected results.
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The world’s largest meat producer swung to a net profit from a year-earlier loss in the second quarter. Earnings excluding certain expenses more than doubled, beating even the highest analyst projection.
Producers of chicken and pork are seeing a quick rebound in profits after last year’s plunge as abundant supplies of corn and soybeans have reduced the cost of feeding birds and hogs at a time when consumer demand is surging. That’s a boon for JBS even as its sizable beef operation in North America struggles amid the tightest US cattle supplies in seven decades.
“The chicken business is strong in all regions,” Chief Executive Officer Gilberto Tomazoni said Tuesday in an interview, citing the benefit of lower grain prices and a better balance between supply and demand as main drivers.
Global supplies have been constrained by fertility issues, meaning the market should remain balanced over the next quarters, the executive said Wednesday during a conference call with analysts.
Shares of the company, with operations spanning Colorado to New Zealand, climbed as much as 6.9% in early Sao Paulo trading, extending gains over the past 12 months to almost 90%.
The Brazilian company posted net income of 0.77 real (14 cents) a share in the three months ended June, it said late Tuesday. That compares with a loss of 0.12 real a year earlier. The result still trailed the average of estimates from analysts surveyed by Bloomberg as one-time expenses, including a tax settlement in Brazil, and an overhaul of operations in Europe eclipsed some gains from sales. Earnings before such items more than doubled to 9.9 billion reais, 25% above analyst projections.
Profit Margins
JBS saw its profit margin excluding items such as taxes and interest rise to 9.8% in the second quarter, the best in two years, even as its North American beef operation — which accounts for almost one-third of the company’s sales — neared breakeven. Its chicken operations, which include publicly traded Pilgrim’s Pride Corp., posted whopping margins of more than 17%.
JBS, which is controlled by the billionaire Batista brothers, is also benefiting from rising supplies of cattle in Brazil and Australia even as lower beef prices have limited gains in those operations.
Cash flows that the Sao Paulo-based company can freely use for everything from acquisitions to share buybacks jumped more than fourfold from a year earlier to roughly $1 billion in the quarter. Net debt, which in the second quarter was close to 2.8 times earnings, is expected to drop to near two times by year-end, Chief Financial Officer Guilherme Cavalcanti said in the same interview.
JBS remains in talks with the US Securities and Exchange Commission for a listing of its shares in New York, Tomazoni said, without providing further updates on the move.
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