Release Date: May 14, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

JBS SA (JBSAY) reported a strong first quarter of 2025 with net sales increasing by 8.5% in US dollars and net profit jumping 50.5%. The company is advancing its dual listing of shares in both Brazil and the United States, which is expected to enhance international visibility and attract new investors. The poultry and pork businesses in Brazil and the United States delivered standout performances, with record first-quarter EBITDA margins of 19.8% and 14.8%, respectively. JBS USA achieved a strong performance with higher sales volume and an EBITDA margin of 12.5%, supported by a strategy of geographic and protein diversification. The company's leverage ratio improved significantly, decreasing from 3.66 times to 1.99 times year-over-year, indicating strong financial management.

Negative Points

Operating cash flow recorded a negative result of $285 million, and free cash flow was negative by $970 million, impacted by increased tax payments and working capital. The US beef business faces challenges due to ongoing margin pressure and high cattle prices, with expectations of a difficult year ahead. The company is dealing with trade disruptions and tariffs, particularly affecting exports to China, which could impact margins by 1 to 1.5 percentage points. Working capital consumption was high due to inventory rebuilds at higher raw material prices, creating uncertainty about future cash flow generation. The dual listing process is subject to shareholder approval, and there is uncertainty about the outcome of the voting, which could impact the company's strategic plans.

Q & A Highlights

Warning! GuruFocus has detected 5 Warning Signs with JBSAY.

Q: How do you feel about the upcoming vote on the dual listing, and what feedback have you received from investors? A: (Guillerme Cabaca, Global CFO) We don't have access to votes until closer to the General Assembly, so we are unsure how many passive funds will follow proxy recommendations. We continue to stress the importance of voting to shareholders and engage with them to ensure participation.

Q: What are the current challenges and expectations for the US beef business, particularly regarding tariffs and cattle prices? A: (Wesley Batistafio, CEO of JBS USA) 2025 is expected to be more challenging than 2024 due to high cattle prices and export headwinds. We see signs of herd rebuilding, which is encouraging, but the impact of tariffs on exports, particularly hides, is significant. We anticipate a challenging Q2 but remain confident in our diversification strategy to stabilize margins.

Story Continues

Q: Is the expectation for EBITDA to remain flat year-on-year still achievable given the current challenges? A: (Guillerme Cabaca, Global CFO) I did not provide guidance for flat EBITDA. I mentioned a break-even point for free cash flow at $4.5 billion EBITDA. Our last 12 months' EBITDA is $7.4 billion, but it's too early to predict the full year's outcome.

Q: How do you plan to manage debt reduction and what are your expectations for consumer behavior in the US? A: (Guillerme Cabaca, Global CFO) We aim to maintain leverage between 2 and 3 times by year-end. We expect to generate cash in the upcoming quarters, despite dividend payments. (Wesley Batistafio, CEO of JBS USA) We see strong demand for proteins and a trend of consumers shifting from food service to retail, driven by perceived value rather than aggressive retail promotions.

Q: Can you elaborate on the impact of tariffs on the beef and pork operations and the speed of recovery? A: (Wesley Batistafio, CEO of JBS USA) The largest impact from tariffs is on hides, with beef exports to China also affected due to plant approvals. Pork operations face similar tariff impacts. Recovery from tariff changes is quick, but regaining beef export approvals to China will take longer.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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