In this file:
· Edited Transcript of JBSS3.SA earnings conference call or presentation 12-Nov-20 2:00pm GMT
· Brazil's JBS gears up for Brazil, U.S. expansions following strong Q3 results
Edited Transcript of JBSS3.SA earnings conference call or presentation 12-Nov-20 2:00pm GMT
via Yahoo Finance - November 12, 2020
Q3 2020 JBS SA Earnings Call Nov 13, 2020 (Thomson StreetEvents) -- Edited Transcript of Jbs SA earnings conference call or presentation Thursday, November 12, 2020 at 2:00:00pm GMT
TEXT version of Transcript
* Andre Nogueira De Souza JBS S.A. - CEO of JBS USA * Gilberto Tomazoni JBS S.A. - CEO & Member of Executive Board * Guilherme Perboyre Cavalcanti JBS S.A. - CFO, IR Officer & Member of Executive Board * Wesley Mendonça Batista Filho JBS S.A. - CEO of South America, Member of Executive Board & Director
Conference Call Participants ================================================================================
* Benjamin M. Theurer
Barclays Bank PLC, Research D0ivision - Head of the Mexico Equity Research & Director * Carla Casella JPMorgan Chase & Co, Research Division - MD & Senior Analyst ================================================================================
Operator  --------------------------------------------------------------------------------
Good morning, everyone, and thank you for waiting. Welcome to JBS Third Quarter of 2020 Results Conference Call. With us here today, we have Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of JBS; Andre Nogueira, CEO of JBS USA; Wesley Batista Filho, CEO of JBS South America; and Christiane Assis, Investor Relations Director. This event is being recorded. (Operator Instructions) Before proceeding, let me mention that forward statements are based on the beliefs and assumptions of JBS management. They involve risks and uncertainties because they relate to future events, and therefore, depend on circumstances that may or may not occur. Now I will turn the conference over to Gilberto Tomazoni, Global CEO of JBS. Mr. Tomazoni, you may begin your presentation.
Gilberto Tomazoni, JBS S.A. - CEO & Member of Executive Board 
Good morning, everyone. Before we start, I want to thank everyone for being here today. The third quarter of 2020 is a new milestone for GBS. Our net revenue reached BRL 70 billion, and our net income reached BRL 3.1 billion, a performance that we attribute above all to 2 factors: a strong operating result in all our business units and a lower financial cost with the reduction of the company debt. The operating result was only because of the commitment of our 250,000 team members around the world. Our people are our greatest asset. And taking care of the health of this team and the communities where we operate has been our top priority. In face of the COVID-19 pandemic, we have adopted a strict protocols in our facility and made important investment in the infrastructure to ensure the continuity of our activity was safe. After all, food production is an essential activity. We have committed around BRL 2.7 billion in health and safety for our team members and community during this pandemic. We also pay attention to consumers, innovating to meet their changing needs. We are also quick in managing our product mix and sales channels to adapt our production to new demands. But our advances in this period go far beyond financial performance. Our Fazer o Bem Faz Bem project has established a true legacy health care in Brazil. We have constructed 2 permanent hospitals, expanded 15 public health clinics, distributed 15,000 items of medical equipment, provided 89 ambulances and contributed more than 550,000 food baskets to those in need. In United States and Canada, we mitigate the impact of the COVID-19 pandemic in the lives of thousands of families through the donation of our Hometown Strong program. With the launch of the Together for the Amazon program, JBS renewed its commitment to environment preservation. Through JBS Green Platform, we will expand our system for monitoring livestock supplier, which today cover 45 million acres to the supplier of our supplier. This program will supported by blockchain technology. Another pillar of this program is the JBS Fund for the Amazon, which aim to promote product conservation and the sustainable development of the communities living in the biome. The fund was created with a bold goal to raise BRL 1 billion in 5 years and the initial investment of BRL 250 million from JBS. Additionally, we are building our robust and transparent governance system. The company was classified by Transparency International, one of the most transparent company Brazil. We are enhancing our ethic and compliance program across our global platform with the same level of commitment. The focus on innovation allow JBS to offer an increased broad portfolio to reach customers, and this is reflected to the preference for our products. We continue to invest in value-added products and branding. In the United States, Plumrose has invested $207 million in the construction of a new bacon factory and another one of the Italian specialties. We also created the manufacturing capacity for Planterra, a plant-based product company that market, the OZO brand. JBS is accelerated its BRL 13 million investment program in Brazil that was announced in 2019. The company will invest a total of over BRL 8 billion through 2000 -- 2024. The rest will be invested by our contract growers. These investments are mainly focused on increasing Seara production capacity. At the end of this plan, the company will be have the production capacity for value-added product, chicken and pork doubled. 12 facilities already have projects in progress. We are also waiting for Cade's decision to complete the purchase of Bunge's merger in the mayonnaise business in Brazil. This acquisition will be at BRL 1 billion to Seara revenue. We are very excited about what the future we are building. Once again, thank you for your attention. I would like to ask our CFO, Guilherme Cavalcanti, to continue our presentation.
Guilherme Perboyre Cavalcanti, JBS S.A. - CFO, IR Officer & Member of Executive Board 
Thank you, Tomazoni. Please, let's begin on Page 4 on the third quarter consolidated results. So net revenues grew 34% and reached the record for the company of BRL 70 billion in the quarter. Our adjusted EBITDA reached BRL 8.0 billion with an EBITDA margin of 11.4%, an increase of 35.0% quarter-over-quarter. And our net profit reached BRL 3.1 billion and a BRL 1.17 earnings per share. Now moving to Page 5. We show our decrease in net financial expenses in $13 million quarter-over-quarter, in line what we are expecting in reducing interest expenses this year in $100 million compared to last year. Our free cash flow reached BRL 5.2 billion, an increase in 37%. Please, now on Page 6. We show first our net leverage, which reached also record low levels for the company of 1.60x in dollars and 1.83x in reais. Our net debt decreased quarter-over-quarter, $1.7 billion. From the second quarter to the third quarter, the reduction was $950 million, which was the free cash flow that we generated in the quarter. On the chart on the right, we showed that our total liquidity increased from $4.8 billion. And here we are showing liquidity of $5.1 billion because this is a pro forma, and we are considering subsequent events like the payment of the JBS USA 34 bonds that will mature -- that was maturing in 2024 on an amount of $150 million. This payment represents a savings of $25 million per year. We are also considering $100 million of a PPC payment of the $350 million of credit lines that was withdrawn. So the $450 million plus the $100 million of PPC plus the $300 million increase in liquidity matches the $950 million generated in the third quarter. So now this new amortization schedule that we present here has an average period of 6 years. And the total liquidity presented here, it's enough to take us in terms of debt amortization up to 2026 without considering any free cash flow generation. And this is divided in $3.4 billion in cash on hands, which is much more that we need considering our cash conversion cycle, and $1.7 billion in revolving credit lines. On the charts below, you see that our short-term debt is only 6.6% of the total. Our commercial bank exposure is only 12.7%, which gives comfort for the company that in any crisis event where capital markets could be shut down, we have enough limit to have supported from commercial banks. The entity breakdown, you see that most part of our debt is at JBS USA level, which we have lower costs. And our average cost of debt in dollars is 5.14% compared to the 5.15% of the second quarter. This should give you an idea of the space that we still have in terms of interest expense reduction. Our 10-year bond that matures in 2030 today is trading at record levels of 113% of the face value, which is a yield of 3.8%. So we have an average cost of 5.14% for a 6-year average period compared to our 10-year bond that's trading at 3.8%. Another potential source of interest reduction is our credit perception from a Standard & Poor's and Fitch. We are one notch from investment grade, which would represent another interest savings as we continue with the liability management process. To give you an idea of this potential as well, Tyson, which is our most comparable peer in U.S., has a leverage of around 2.7x, and its 10-year bond is -- (inaudible) is BBB-plus and its 10-year bond is traded at 2.3%. Now let's start on the business unit segments, and we'll begin with Seara highlights. Net revenue totaled BRL 7 billion, an increase of 30% over the third quarter 2019, boosted by a 22% increase in the average sales price and 6.4% in volumes sold. EBITDA totaling $1.1 billion in the third quarter, which represents a growth of 55% when compared to the BRL 705 million in last year. The EBITDA margin expanded from 13.2% to 15.7%. This performance is due to the significant increase in sales volume, a better mix of markets, channels and products, as well as the continued growth in sales coming from innovations introduced since 2019. In the domestic market, net revenues totaled BRL 3.4 billion, 25% higher, driven by an increase in 4.4% in volumes sold and 20% in the average sales price. The highlight once again was the prepared products category, which registered a growth in volume and average prices of 11% and 18%, respectively. In the export market, net revenues was BRL 3.5 billion, an increase of 35.0% in the annual comparison as a result of an increase of 24% in the average price and 8.6% in volumes sold. The Seara brand, for the first time in its history, entered to the Top 20 ranking among the most chosen by Brazilian according to Kantar's Brand Footprint Brasil Panel, the result of a solid effort in quality, innovation and branding. Seara has consistently innovated and recently strengthening its festive product portfolio by introducing unique products in the market such as Fiesta Organico, the first organic Christmas chicken in Brazil, and the Incrivel shredded cod, the first plant-based festive product of the market. Now let's move to next page where we talk about JBS Brazil highlights. Net revenue totaled BRL 11 billion, which corresponds to a 35% increase over the last year as a result of a 50% increase in the average sales price that more than offset the 9.6% reduction in the volumes sold. Adjusted EBITDA, which excludes donations, was BRL 857 million with an EBITDA margin of 7.5%. Given the low availability of cattle, the level of beef production was affected during this quarter, which impacted the cost of the raw material, which the average arroba price increasing over 50% according ESALQ-Sao Paulo in relation to the last year. This impact was partially compensated by an increase of beef prices in the domestic and export markets. In the domestic market, net revenue totaled BRL 6.5 billion, which corresponds to a significant increase of 50% in the annual comparison, mainly due to the 60% increase in average sales price despite the 5.7% reduction in volumes sold. In the export market, which represented 43% of the business unit sales in the quarter, net revenue reached BRL 5.0 billion, an increase of 20% compared to the last year due to the 48% increase in average sales price, which more than compensated the 19% reduction in volumes sold. Friboi continues to consolidate its position as the main beef brand in the Brazilian market through the expansion of its partnerships with key customers through initiatives such as Acougue Nota program as well as through the growth of its Maturatta, Friboi brands Reserva and 1953. Now please, let's move to the next page where we'll talk about JBS USA Beef highlights in U.S. GAAP. Net revenues totaled $5.3 billion in the quarter, a 5.0% reduction compared to last year. EBITDA was $503 million with an EBITDA margin of 9.4% for the period. In the U.S. and Canada, production increased in relation to the second quarter and volumes returning to pre-COVID levels. The continuity of a favorable demand contributed to an increase in beef prices over the third quarter 2019. Cattle supply remained ample, however, and increase in the number of animals processed drove finished cattles to a higher level when compared to the same period last year. Additionally, North America exports grew over the second quarter, not only in volume, but also in quality and product diversity, increasing their contribution to the business results. In Australia, the lack of cattle availability continues to impact beef production. The lack of finished cattle in the main producing regions caused a temporary halt and reduction of shifts in processing facilities during the quarter, affecting the business unit performance. On the other hand, Primo Foods, a processing food and branded products operation in America -- in Australia continues posting strong results, growing in volume, quality and innovation. Recently, Primo successfully launched several products in the segments of gourmet sausage, duos, animal protein and cheese, microwavable bacon and its snacks product line focused on children. Now please let's move to JBS USA Pork highlights in U.S. GAAP. Net revenues totaling $1.4 billion, a decrease of 5.5% over the last year. EBITDA totaling $136 million in the third quarter 2020, which corresponds to a 13% increase over the third quarter 2019. EBITDA margin was 9.5%. Pork production returned to pre-COVID levels, offsetting the lower volumes produced in the second quarter 2020, which was impacted by a temporary suspension of the pork facility and the lower production pace due to the pandemic. The increase in pork supply in the period was absorbed by the domestic and export market demand, maintaining low park inventory levels. Cutout increased in each month of the quarter, surpassing at the end of the quarter prices practiced during the third quarter 2019. Additionally, the price of live hogs, which in June were at lowest level of the year, recovered since then at the sequential increases, however, is still below the levels of the same period last year. Exports in the period continued to grow above the levels of last year with China as the main destination, followed by Mexico and Canada. Plumrose continues focus on the organic growth of its operation, investing the increase of its production line and in the greenfield projects. The construction of a new precooked and cooked bacon facility in Missouri that started in April are advancing as expected. This new facility should start in 2021, and we will have the capacity to produce 24 million pounds per year. Additionally, Plumrose is also working on the announced plan to build a new state-of-the art Italian meats and charcuterie ready-to-eat facility with investments estimated at $200 million. Now let's move to Pilgrim's Pride highlights in U.S. GAAP. Net revenues totaled $3.1 billion, 10.7% higher than the third quarter 2019. EBITDA was $305.0 million, an increase in 18% over the last year with an EBITDA margin of 9.9%. In the U.S., demand continues to recover mainly in the retail and QSR business with volumes stronger than a year ago, though volatility and challenging conditions in commodity segment is still remaining. After a very difficult first half of 2020, Mexico operations delivered great results in the Q3 and generated one of the strongest Q3 in the company's history in Mexico, despite the unfavorable mix impact and added operating costs relative to the same period last year. PPC continues to invest in premium brands as well as seeking more market in the modern channels, which will bring more stable margins to its operations. In Europe, chicken operations are continuing to improve, driven by the exposure to retail as well as a recovery in QSR segment, despite the significant impact of COVID-19 on the operations. In addition, PPC strong internal operating performance and commitment to innovation have helped in mitigating the difficult environment. The improvement in results from the newly acquired European pork assets has been maintained with positive EBITDA and margins continue to increase. The performance was driven by strong demand at the retail, partially offset by reduction in foodservice, continued strength in the pork exports, especially to China, as well as the implementation of operational improvements and synergies captured. Now let's move to the ESG highlights. On social responsibility, we present here some of the actions taken by JBS on the donations to fight COVID-19 in Brazil, which already have benefited around 77 million people in the country. So several initiatives examples in this page, like the 2 permanent hospitals that we build, 556,000 basic baskets, 40 pulmonar physiotherapists, 30 -- 365 respirators, so on and so forth in 280 cities. Now please, let's move to the next page where we show our global priorities for sustainability. Our pillars are integrity of product, animal welfare, employee health and safety, water and climate change. All those pillars related and in connection to the United Nations sustainability of objectives as presented here on the bottom of the page. Now moving to the next page. We just have more examples, for example, of the water consumption, waste where we use it to generate energy. We have a plastic recycling plant. We have biodiesel plants, and we are building a fertilizer factory. Also on the animal welfare initiatives presented here, which granted JBS the World Finance Sustainability Awards in 2020. The company was the winner in the food processing industry category, and it's the only Brazilian company to be included in the British publication ranking. Now let's move to the next page where we show our JBS commitment to the sustainability of the Amazon. We have 4 strategic pillars. First is the sustainability of our value chain, which we'll talk on the next page. And here, we also show our Fund for the Amazon, which the 3 pillars are the forest conservation and restoration, social economic development of the communities and scientific and technological development. In the next page, as I mentioned, the sustainability of our value chain has 3 pillars. The first one is our green platform, that JBS Green Platform that we launched, which by 2025 we'll be able to monitor not only our suppliers, but also the suppliers of our suppliers. Second pillar is sharing the intelligence of the monitoring system. As you know, we monitor on a real-time through satellite images more than 450,000 square kilometers. And we intend to share this technology for other players within and outside our sector. And the third pillar is to support and inclusion of the producers. We -- of the 50,000 suppliers that we have in the Amazon region, we already blocked 9,000. And we launched a program to support on a legal basis, on a technological basis for them to come back to be in compliance to the forestation regulation. So the next page is the pillars of the Fund for Amazon that I already mentioned. And in the last page, we have our several compliance initiatives that we will continue to develop, train people, refresh our systems, improve our systems and refresh our code of conduct, not only for the company but also for any third party that wants to work with JBS. With that, I would like to open for the question-and-answer session. Thank you.
Questions and Answers …
Brazil's JBS gears up for Brazil, U.S. expansions following strong Q3 results
By Ana Mano, Reuters
via Successful Farming/Agriculture.com - 11/12/2020
SAO PAULO, Nov 12 (Reuters) - Food processor JBS SA reiterated plans to grow production capacity in Brazil and in the United States after posting strong third quarter results, executives said in a conference call to discuss earnings on Thursday.
Chief Executive Officer Gilberto Tomazoni said 12 of the company's plants in Brazil were being expanded, as JBS seeks to double production capacity, by 2024, of its Seara food division, which processes pork and chicken products.
"The strong investment in Seara reflects our confidence in the brand," Tomazoni said. "Seara products are now in every Brazilian household."
JBS, which reported a near nine-fold rise in third-quarter net profit, also plans to start production of cooked and pre-cooked bacon at its new Missouri plant in 2021. The facility has capacity to process 11,000 tonnes of products per year. In the United States, where JBS derives most of its global sales, the company is mulling a $200 million investment in a facility to produce charcuterie and other cold cuts.
The company is also upbeat on China, which is expected to import more beef from JBS' plants in the United States in the fourth quarter. The Asian country bought almost a third of JBS' overall meat exports between July and September.
JBS shares opened almost 3% higher but later pared gains to 1.66%...