JBS - Earnings Call - Q1 2025

Transcript

Speaker 2

Good morning and welcome to JBS S.A. and JBS USA First Quarter of 2025 Results Conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. As a reminder, this conference is being recorded. Any statements eventually made during this conference call in connection with the company business outlook, projections, operating and financial targets, and potential growth should be understood as merely forecasts based on the company's management expectations in relation to the future of JBS. Such expectations highly depend on market conditions, on Brazil's overall economic performance, and on industry and international market behavior, and therefore are subject to change. Our present with us today: Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of JBS; Wesley Batista Filho, CEO of JBS USA; and Christiane Assis, Investor Relations Director.

Now, I will turn the conference over to Gilberto Tomazoni, Global CEO of JBS. Mr. Tomazoni, you may begin your presentation.

Speaker 6

Good morning, everyone. Thank you for joining us today for our call. JBS, beginning 2025 with one of the strongest first-quarter results in its history, and yet another demonstration of the strength of our diversified global platform. Net sales rose 8.5% in US dollars, and net profit jumped 50.5%, with an EBITDA margin of 7.8%. A remarkable performance in what is typical of a soft quarter for the global protein industry. Quarter after quarter, our results continue to validate the strategy decisions we have made building and managing our platform. We also advanced our goal for our dual listing of JBS shares in both Brazil and the United States, following the completion of our regulation with the U.S. Securities and Exchange Commission. Once approved by our minority shareholders, this step will remark a new chapter in the company journey.

We believe this mutual listing will enhance our international visibility, attract new investors, and further strengthen our position as a global leader in food. Our poultry and pork business in Brazil and the United States were the standout performance this quarter. Seara and Pilgrim's delivered a record first-quarter EBITDA margin of 19.8% and 14.8%, respectively. I want to emphasize that Seara's performance reflects a discipline and focus on operational excellence and position across domestic and international markets, capturing value through product mix optimization and a strong focus on innovation. With the launch of new categories in Brazil, such as the air fryer-ready products line and the co-branded partnership with Netflix, the business continued to strengthen its portfolio of high-value-added offerings. Pilgrim's results were driven by solid demand, disciplined portfolio management, and stable grain costs.

JBS US Pork also delivered a strong performance supported by higher sales volume and available supply-demand dynamic, achieving an EBITDA margin of 12.4%. Our strategy of geography and protein diversification continues to yield positive results even with ongoing margin pressure for JBS Beef North America. The beef business in Brazil and Australia benefits from respective cattle cycles in both countries. At Friboi, the focus remains on operational excellence, expanded value-added portfolio, and increased market access. In Australia, where the cycle is expected to remain favorable in the coming quarters, results reflect operational improvement and export growth. Despite being a quarter that typically sees higher cash consumption, the company leverage ratio stood at 1.99 times EBITDA in US dollars, well below the 3.66 times EBITDA reported at the same period last year.

Uncovering our financial stretch, net sales for the quarter reached $19.5 billion, with adjusted EBITDA of $1.5 billion. We remain confident in our long-term strategy: operational excellence, growth through diversification, innovation, value-added products, and strong brands. The strength of our global platform, combined with disciplined capital allocation, market diversification, and our capacity to innovate, support value creation for all of our stakeholders, including our team members, customers, investors, producers, partners, and consumers. Finally, our first-quarter results reaffirm our conviction that we are on the right path, delivering consistent growth, expanding margin, and preparing JBS for a new cycle of opportunities. Thank you again for joining us today. I will pass the turn to the call over to Guilherme, who will work throughout our financial results in more detail. Guilherme, please go ahead.

Speaker 1

Thank you, Tomazoni. Let's now move on to the operational and financial highlights of the first quarter of 2025, starting on slide 10, please. Net revenues for the first quarter was $19.5 billion, adjusted EBITDA totaled $1.5 billion, and represents a margin of 7.8% in the quarter. Net profit was $500 million in the quarter. Excluding the non-recurring items, adjusted net income would be $572 million. Moving on to the next slide, the first quarter of 2025 operating cash flow recorded a negative result of $285 million, while free cash flow was negative by $970 million. The main variations that impacted cash flow in the annual comparison were the increase in tax payments in the amount of $206 million, driven by solid results mainly from Seara, PPC, US Pork, and Australia.

The increase in working capital impacted mainly by the growth in inventories due to the higher cost of capital in the U.S. and Brazil. The increase in margin deposits for our hedge positions in the futures market, driven by the rising cattle prices in the U.S., and the payment of antitrust-related settlements in the amount of $140 million. Moving on to slide 13, net debt in the first quarter ended at $14.8 billion, a reduction of $1.1 billion compared to the previous year. I would also like to highlight some advances we have made in liability management, which allowed us to reach an average term of approximately 12 years and an average cost of 5.4%. In January 2025, we issued bonds totaling $1.75 billion, with strong demand for these securities.

In March, we issued a CRA through Seara for approximately $123 million, the first issued with a 30-year term, the longest in the Brazilian capital market. As a subsequent event in May, we repurchased $850 million in senior notes due 2030 and filed an issuance of a new CRA through Seara for a total amount between $141 million and $176 million. Leverage in dollars decreased in one year from 3.66 times to 1.99 times in the first quarter of 2025. The decrease is due to the expansion of EBITDA and debt reduction. Finally, I would like to highlight that in the general meeting, the shareholders approved the distribution of $789 million in dividends, equivalent to $0.30 per share, which will be paid today. It is worth remembering that we still have $0.17 to be distributed in the event of approval of the dual listing.

I will now briefly go through the business units. Starting with Seara on slide 14, net revenue growth in the quarter was 3%, while profitability grew approximately 8 percentage points, reaching 19.8% EBITDA margin, a record for the first quarter. This result is a consequence of better commercial and operational execution, strong global demand for poultry and pork, and expansion of the value-added portfolio. Moving on to slide 15, in the first quarter of 2025, JBS Brazil recorded net revenue 10% higher than in the first quarter of 2024 as a result of strong international demand and higher prices in the domestic market, which were intended to offset the sharp increase in cattle prices. Thus, the EBITDA margin reached 4.1%, a slight drop year over year.

Moving on to slide 16, and now speaking in dollars and US GAAP, JBS Beef North America net revenue in the first quarter of 2025 grew 15% compared to the previous years as a result of strong demand that drove cut-out to record levels in the US. However, profitability continues to be pressured by the challenging cattle cycle, which has also kept the price of live cattle at record levels. On slide 17, we have JBS Australia. In the annual comparison, the 12% revenue growth is mainly due to the higher volume sold in beef exports. The EBITDA margin reached 10.4%, an increase of 1.3 percentage points in the annual comparison as a result of the greater availability of animals for slaughter and gains in the operational efficiencies.

Turning now to JBS USA Pork, net revenue for the quarter grew 5% year over year, reflecting high prices driven by strong demand. Pork consumption is also being helped by the average price of beef, which remains high. Once again, JBS USA Pork demonstrated consistency and solidity in its results for the quarter, thus delivering an EBITDA margin of 11.1%. Pilgrim's Pride highlighted on slide 19 reported a 2% increase in net revenue in the quarter. In the first quarter of 2025, Pilgrim's delivered a solid performance, reflecting the consistent execution of its strategy and the resilience of its diversified portfolio across all regions where it operates. The company maintained robust margins driven by operational gains and the continued strengthening of strategic partnerships, which keep customers even in the face of a volatile scenario. With that in mind, I would like to open up for the Q&A session.

Speaker 2

Ladies and gentlemen, we will now begin the question and answer session. If you have a question, click the raise hand button at this time. If at any point your question is answered, you can remove yourself from the queue by clicking lower hand. Our first question comes from Ben Taylor with Barclays. Please go ahead.

Speaker 0

Yeah, good morning, Tomazoni, Gui. Thank you very much for opening up for questions here. Two questions for you. Number one, you talked a little bit about this on the call earlier tomorrow, but I guess there was a little bit, a few things were lost in translation, literally. As it relates to these recommendations for the voting on the dual listing, which is upcoming in about 10 days, how do you feel about your ability to really talk to investors? And how has the feedback been just from some of these investors that tend to vote along these proxies to get a little bit of a sense how you think about the outcome of the voting next week and what is under your control? That would be my first question. Then I have a second one on your operations.

Speaker 1

Okay, we do not have access to votes. Votes come closer to the general assembly. Basically, we do not know how many of those passive funds will follow the proxy of the agencies. What we have been continuing to do is talking to shareholders, showing the importance for them to come to vote. A lot of funds generally never come to general assembly. We are stressing this importance for the ones that we continue talking.

Speaker 0

Okay, thank you very much. Good luck with that. Then second, just on the beef business in the U.S., you flagged a couple of things in terms of export headwinds because of lever, particularly in the second quarter, what is upcoming in terms of just from a tariff perspective. Also, at the same time, I mean, clearly cattle prices just continue to go up. As you look at the current environment, A, what are you seeing, or what signs are you seeing in terms of just starting a rebuild and what the implications are for you guys here? Second, as it relates to these trade flows, how much of an impact should we think about this into Q2 just from a margin perspective or dollar amount? Anything you can share with us as to the impact from these tariff implications on exports? Thank you.

Speaker 5

Ben, good morning. A few things. For sure, we're seeing 2025 a much more difficult year than 2024 from a margin perspective. We are seeing some signs of herd rebuild, if you want to say that, because what we're seeing is a much lower queue, much lower processing of female of non-fed animals, about 14% versus the same time last year, which is already a year, you know, 2024 was already much lower than 2023. We continue to see that, and that is encouraging. It's not as best as we would like, and it's not as intense as we would like, but still, they are positive signs for herd rebuild. We still expect that 2026 would be a better year than 2025, but probably not 100% out of the wood, out of the woods yet.

When it comes to tariffs and trade, you know, disruption, we think that this whole scenario of trade that we had right before this weekend, you know, was costing us from a margin perspective about 1-1.5 percentage points in margins. And like I said in the previous call, a lot of that was coming from actually our byproducts. A lot of hides go to China and get processed there. That was a very important mark. That is a very important market for hides. Since that's kind of gone away, we see that it's probably just going to impact half of the quarter, so it would not be a full impact of the quarter. With that, also, you know, we're seeing 2025 will be a challenging year. Q2 will be very challenging compared to the same time last year.

The one thing, Ben, that we're seeing more than ever, and we're very confident about is that, and we're being able to see this in the current quarter that we're presenting, and we're certainly going to be able to see that in the second quarter, is even though the U.S. beef business continues to be challenging, we're going to be able to continue to show relatively stable margins given the diversification of the business. You know, as the U.S. has these challenges, we're seeing positives in other geographies and in other proteins. We continue to be very confident. Actually, we think that this whole diversification advantage is going to be, you know, more clear than ever, the advantage that that means for our business.

Speaker 0

Okay. So Wesley, just to confirm, that's 100-150 basis points in the second quarter, basically for the first half on tariffs. There was nothing in the first quarter, correct?

Speaker 5

You are correct.

Speaker 0

Okay. That's it. Thank you very much. I'll pass it on.

Speaker 2

Our next question comes from Priya Ohri-Gupta with Barclays. Please go ahead.

Speaker 3

Good morning, and thank you for taking the question. I was wondering if I could just follow along with the last point that we were discussing around some of the impact to second quarter. I think, Guilherme, you had spoken previously about your expectation that EBITDA for this year would end up being close to flat year on year. Is that still something that seems achievable just given what you're seeing on the US beef business tariffs and just overall sort of what's happening in the second quarter? I had just a couple of follow-ups. Thanks.

Speaker 1

Hi, Priya. No, I never gave this kind of guidance or expectation. Last call, I just made a math calculation. So I gave what we call the break-even EBITDA. So what would be the EBITDA that makes my free cash flow go to zero? And this was around $4.5 billion. So I just said that in case we have the same EBITDA, that would be how much cash we would be generating given that. But it was not an expectation for the year. The only thing that I can say about it is that this first quarter, our last month EBITDA is now $7.4 billion. So again, we have all the rest of the year to see how much it could be compared to the previous years. But again, it's early to say.

Speaker 3

Got it. Thank you. That's helpful. Two just quick follow-ups. First, how are you thinking about the potential for debt reduction over the rest of the year, as well as maybe taking out the rest of the 2030 notes? You talked a little bit about what you're seeing with U.S. consumer behavior. Can you tell us a little bit about what you're seeing on the retail side in terms of promotions and how that might be helping sort of demand for different proteins and what that would look like into the grilling season? Thank you.

Speaker 1

Okay. Again, to call into the rest of 2030 is a possibility. In the case of our liability management, we are always extending the maturities. We could be doing new issuance of 10 and 30s and take out, for example, could be the 2030 or could be also the shorter maturities because it is a constant exercise of extending the maturities to have this comfortable amortization schedule. For the year, in terms of debt reduction, we think, of course, we will generally generate cash on second, third, and fourth quarter. We also pay dividends. We already paid. We announced the dividend that we are paying today. We have also the dividends that we will be paying in the case of the dual listing being approved. It will more or less depend on how much cash we generate compared to the dividends that we pay.

The important thing is that our leverage is currently at two times, right? 1.99. We think that we will be able to finish the year on our long-term goal, which is between two and three times. That is automatic in terms of leverage. We will be very, of course, confident that we will be on a two and a half times range, more or less, which is very comfortable. Also, given our cost of debt, which is 5.4%, and given our comfortable amortization schedule and more liability management that maybe we will be maybe doing throughout the year.

Speaker 5

Priya, then on US consumer, we are seeing an overall strong demand for the three proteins. You know, when it comes to beef, it's a good way of seeing this. You know, yes, we have a lower processing of fed cattle, but we also have much higher weights. Weights are up, you know, more than 3% this year. So overall, it's not like we have a lot less beef. We actually have a little bit more beef to sell when it comes to fed beef without the cows, without the non-fed animals. And still with that, we're having a 9% valuation of our cut-out year over year on the first quarter. This means to us very clearly that it's demand-driven, and demand is strong. We see that across the three proteins. I'm giving this example of beef as just an example.

Overall, we're seeing a trend also that of consumers moving from food service to retail. That's no news. This is something we've been talking for a while. I don't see, Priya, that it's necessarily because the retail is doing some sort of aggressive features and all of that. I mean, more than I don't think it's to do with something as specific as that. I think it's just a trend that people are seeing more cheaper value to get a good meal at home versus eating out. That's more to do with that than any specific future activities.

Speaker 3

Thank you so much.

Speaker 2

Our next question comes from Ricardo Alves with Morgan Stanley. Please go ahead.

Speaker 0

Hey, everyone. Thanks for the follow-up. Guilherme, a question for Guilherme. While the EBITDA generation of the quarter was above expectations, I'm getting a lot of questions on free cash flow, particularly on working capital. Do you think that are we able to go over at least the main lines, how they could evolve in the next couple of quarters? I mean, we discussed inventory in the previous call. Maybe if we can go over a couple of lines just to make sure that we can still work with a scenario of, I believe, correct me if I'm wrong, $300-$350 million of consumption for the year, I think that that would be helpful. A quick follow-up to Wesley. Thanks for the comments, Wesley, on the 1 percentage point, 1 to 1.5 percentage point impact on the beef side. I think that that was a good clarification.

Qualitatively speaking, is it only leather? Can you just go over more, you know, what is impacting the, what are the impacts related to the tariffs? You know, where exactly have you been restricted to operate out of the U.S.? We know the issues with exports to China, but is it more relevant to beef, or is your pork operation in the U.S. also significantly impacted in the second quarter? I guess, more importantly, how fast can your operation really react to that? You know, we talked about half of the quarter being impacted, but is it really, really fast for us to recover to a normalized operation going forward? Thank you very much, everybody.

Speaker 1

Okay, Ricardo. As you listed on the previous call, working capital consumption was mainly due because first quarter is a quarter where you recompose inventories, and those inventories were recomposed on higher prices of raw material, mainly cattle and also grains. Going forward, it all depends on the market demands and if we'll be able to sell those inventories at prices that will generate a positive cash flow. It's early to say, but basically what our inventory was rebuilt on higher prices and now depends on how much the market for our products will be commercializing throughout the year.

Speaker 5

Ricardo, just on this whole trade and with the tariffs and all of that in China, just to separate two different impacts. One of them was the high tariffs on the China and the U.S. put against each other. That had one impact. A separate impact was beef access to the U.S. Today, basically the U.S. beef plants are not approved to export to China. Those are two different things that are separate. One of them obviously got improved, and this deal between the U.S. and China to lower tariffs obviously has an immediate impact on the market, except for beef going to China because that is a plant approval thing that has not changed.

On the beef side, the larger part of the impact that I mentioned is hides is a relevant part, probably the most relevant because a lot of that went there and it was a larger share of the total export of hides was to China. It was more difficult to maneuver to other markets. Beef is not the same as hides in that. Beef, we have other markets that we can continue to export and have the appropriate destination to that product. Beef, part of that is the whole hides deal. Whenever we have the stairs coming back to a lower level, it's pretty immediate, the reaction capability that we have. On the beef side, on the meat side, that's going to take a longer time. We have to regain our approvals to China. That's going to take a longer time.

Like I said before, the largest part of the loss that I mentioned is hides. On the pork side, yeah, there was also a relatively similar loss on the pork side when it comes to the stairs, about 1-1.5 percentage points. It was all tariff. It was not plant approval. As the tariffs come back to a lower level, the reaction time, like you asked, is pretty quick. It is not something that takes too long to regain access and continue to export.

Speaker 0

Pretty clear, Wesley. Thanks so much for the clarification. Thanks, Guilherme, as well.

Speaker 2

Our next question comes from Carlos Laboy with HSBC. Please go ahead. Excuse me, Mr. Carlos Laboy, you may go ahead.

Speaker 3

Is that better?

Speaker 5

Yeah, we can hear you. Good morning.

Speaker 3

Good morning, Wesley. I was hoping you could review for us the different key areas of your US beef operation and whether you're happy with the capabilities and the performance that you have in the key areas and if there's any areas in particular that you're looking for capability or performance improvement over the next year or two.

Speaker 5

Carlos, we're very, actually, we're very, very proud of the job that the team has done over the last two years. You know, we've significantly improved our operations. And the numbers tell. When you compare our results from 2024 to 2023, I mentioned that in the previous call, I think it's pretty telling because you look at market data and 2024 was a much tougher year than 2023. And our margin was pretty stable. It shows that we were able to capture a lot internally. We see that actually improving into 2025. Even though the market is pretty difficult and pretty challenging, we think our operation today is very, very competitive. There are things to continue to improve, and we're very focused on that. The performance today we see as very, very competitive.

Again, we're always going to have more than we want to get and more than we want to improve in our business. Today we have a very, very competitive beef business in the US.

Speaker 3

Thank you.

Speaker 2

Our next question comes from John Wagner with Mizuho. Please go ahead. Excuse me, Mr. John, your microphone is on mute.

Speaker 4

Can you hear me now?

Speaker 5

We can hear you. Good morning.

Speaker 4

Sorry about that. Yeah, just your first question for me, on CR, Q1 was the fourth consecutive quarter now with at least a high teens margin. It seems as though more benefits are likely here from the premium product mix and the efficiencies. How should we think about the incremental cost efficiencies to be realized from here? Is it possible to quantify that? Set against that, are there any notable growth investments that you still have to make at this point?

Speaker 1

Hi, John. Thank you for the question. Seara is benefiting from the improvements we have done last year. This improvement was in operational excellence. Efficiency of our operations was in mix management, was in pricing, and to increase our capacity to produce because we have made a lot of investment in the past. Now we are seeing the volumes coming to the market. This combines all of these things. We have now experienced this improvement of margin. I talk improvement of margin because if you compare the first quarter with the fourth quarter last year, we had increased the cost of the grain. Even that, Seara was able to deliver the same results because of the benefit from these improvements. If you look ahead, we are seeing that next quarter will be higher cost of grain compared to the first quarter.

The third quarter, we are seeing now in Brazil, because of a great crop, we see the reduction of the cost of the total grain, but it's focused on corn. I hope Seara can continue to deliver good margins. I don't know exactly. We cannot estimate exactly what is the % of the margin, but it will be a very healthy margin.

Speaker 4

Okay, thanks for that. You know, to follow up, I'd like to ask about your diversification strategy and particularly the investment back in January to enter the eggs business in Brazil. That seems to be a nice opportunity in moving into a lower-priced protein. I'm curious how you think about growing this exposure to eggs over time. Is this something that you're looking to grow more ambitiously relative to aquaculture or plant-based? Is it just more of a localized focus in South America, or would you consider entering the egg category in the U.S. through M&A as well? Thank you.

Speaker 1

We see aquaculture is a different market for eggs. Aquaculture, it's a lot of regulations. We cannot decide the market and start. It depends on the license to operate. It's more we can grow, improve our volume where we are in, for example, in Tasmania. Otherwise we need by acquisition. We keep our priority to grow in this segment, it is one of the priorities. Eggs, we enter in Brazil, but eggs is a global protein. I think it's more global than the other proteins. We start in Brazil, but we have the ambitions to do with the eggs the same we have done with chicken, pork, and beef. We are global, one of the global players, one of the leaders in the market.

Speaker 4

Okay, thank you.

Speaker 2

Our next question comes from Ben Terry with Barclays. Please go ahead.

Speaker 0

Yeah, thank you very much for squeezing in a follow-up. Just wondering, Australia, that was actually pretty strong again. I know we had, I think it was the last two quarters, a couple of issues on the salmon side, but this quarter in particular felt like really good. I was wondering maybe just because of all that diversification strategy, and you've explained already the impact on exports of hides from US to China, how that impacted. I wanted to understand if you actually saw on the flip side some benefit in things like exports from Australia into China, offsetting some of that, maybe getting better pricing to ultimately drive those better margins because the margin expansion was really good with over 100 basis points versus last year. We just want to understand what's been driving that.

Speaker 1

As we said before that we had in the last quarter, the fourth quarter last year, some challenge in terms of because of the climate, too much rain, and the challenge to take the cattle to the processing plant. In the first quarter, we was not solved all of the problem because in the south of Australia remained a challenge for that, but was much better than the fourth quarter. The good things about Australia is the herds increased a lot. We are not taking till now the whole benefit from that. I think this challenge we had with climate, we postponed the benefit for longer than we are expected to have. We are so confident in terms of the Australia delivering results in the coming quarters. About diversification, I think just to mention you, pork, we are so excited with the pork business.

We bought the pork business in Australia, and we are now making investment improvement on the quality of our operation in terms of the investment in farms and investment in increased productivity. Bank made a benchmark with the other operation we have in Brazil, in the U.S. We are so excited about that because Australia exports grain and imports pork meat. If you export grain because you are exposed to international price, it means that we are able to produce inside of Australia. We believe that in the future, Australia could be a net export and not a net import like today. Australia is one of the markets we are really emphasized that would be one of the opportunities for growth of the company.

Speaker 0

Okay, got it. One real quick for GE, the $2 billion CapEx number, that still holds for the year, $2 billion?

Speaker 1

Yes, yes.

Speaker 0

Good. That's all.

Speaker 2

Next question comes from Carlos Laboy with HSBC. Please go ahead.

Speaker 3

Yes, just a quick follow-up, please. Guilherme, can you please review for us again the key dates ahead through completion of a dual listing, assuming all goes well?

Speaker 1

The tentative deadline that we published on the year four is General Assembly on May 23rd, then last day of trading of JBS S.A., June 6th, first day of BDRs, June 9, and ISI on the 12th. That is the tentative timeframe. Something's not out of control, but that is what we put as a tentative on year four.

Speaker 3

Thank you.

Speaker 2

Ladies and gentlemen, there being no further questions, I would like to pass the floor to Mr. Gilberto Tomazoni for his closing statements. Please go ahead.

Speaker 1

I want to thank you again for your participation in this conference call. I want to thank you for all our team members, that commitment to the daily commitment to deliver the best result and be the best. I want to extend my gratitude from them and say we are confident for the future of the company, that we can keep improving, grow, and create more opportunity for all of our stakeholders, including our team members. Thank you.

Speaker 2

This is the end of the conference call held by JBS. Thank you very much for your participation and have a nice day.