JBS Sees Bigger Beef Toll on Profit Amid Cattle Shortage
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The smallest U.S. cattle herd in decades is taking a big toll on profit at JBS NV, driving deepening losses at its largest operation.
Second-quarter results for the world’s largest meat supplier are the first since JBS transferred its listing to New York from Sao Paulo in June. Under International Financial Reporting Standards, adjusted earnings before interest and taxes fell 12% from a year earlier to $1.2 billion, the company said in a statement. JBS posted a loss of $293 million at its North American beef operation, an 11-fold widening from a year earlier.
A severe shortage of cattle in the U.S. has driven slaughter-weight animal prices to an all-time high, wiping out billions in profit for major meat producers, including Tyson Foods and Cargill Inc. Supplies are expected to remain tight for the next couple of years, testing the ability of JBS’ other protein businesses to cushion the impact at a time when they’re also facing setbacks from tariffs and other trade restrictions.
RELATED: Cattle Herds Grow After 70-Year Low; JBS Foresees Recovery
JBS USA ranks No. 68 on the Transport Topics Top 100 list of the largest private carriers in North America and No. 10 among agriculture/food processing carriers. Tyson ranks No. 1 on the sector list and No. 9 on the overall private TT100. Cargill ranks No. 21 on the sector list.
Pilgrim’s Pride Corp., JBS’ U.S. chicken unit, last month posted record quarterly earnings as it continued to benefit from booming demand — with consumers looking for cheaper alternatives to pricey beef — and low bird feed costs.
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Ample cattle availability helped boost profit for beef in Australia. Meanwhile, China tariffs on U.S. exports and higher hog prices weighed on JBS’ U.S. pork business, which saw revenue decline from a year earlier. The Brazilian beef business reported lower margins as higher cattle costs offset a surge in exports.
JBS managed to report higher net income for the three months that ended in June, largely driven by lower financial expenses. Earnings per share were 48 cents, up from 30 cents a year earlier and above the average of analyst estimates compiled by Bloomberg.
JBS is seeking to modernize its beef operations — including through a $200 million plan to upgrade its plants in Cactus, Texas, and Greeley, Colo. — as part of efforts to weather the cattle shortage impact, CEO Gilberto Tomazoni said.
The company is also taking steps to expand further into added-value consumer products, which typically command higher profit margins than the commodity meat business. JBS said Aug. 13 that it agreed to acquire an Iowa facility for $100 million, with a plan to transform it into the company’s largest ready-to-eat bacon and sausage plant in the U.S.
The company controlled by the billionaire brothers Wesley and Joesley Batista also approved a plan to repurchase $400 million of its own stock, according to a separate statement. The move adds to a $1.2 billion dividend payment in the second quarter. JBS shares have climbed 4.9% since June, when they started trading in New York.
JBS burned $55 million in cash in the second quarter, which compares with a $1.1 billion free cash generation a year earlier. The company cited higher inventories in the U.S. “mainly due to higher prices” and at Brazilian chicken business Seara — which has been impacted by trade bans, including from China after a bird flu outbreak in May — among drivers for the reversal.
