JBS sinks as loss exhibits diversification nonetheless has dangers

By Tatiana Freitas

JBS SA, the world’s largest meat producer, plunged essentially the most in three years as an surprising loss within the first quarter confirmed that its technique of manufacturing totally different proteins in a number of geographies doesn’t make it proof against threat.

“That is the primary time in 12 years we face adversarial circumstances in all of the international locations we function,” Chief Government Officer Gilberto Tomazoni mentioned throughout an earnings name. Which means JBS earnings have confirmed stability in the long run, supporting the corporate’s diversification technique, he mentioned.

The shares fell as a lot as 13% in Sao Paulo, marking each the most important intraday decline and the bottom intraday value since March 2020. 

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Earnings earlier than objects got here in beneath analysts estimates in all of JBS’s operations, from US beef to Brazil hen and as distant as Australia. The underperformance had totally different causes for every enterprise, which reinforces the advantages of the diversification mannequin, Wesley Batista Filho, head of the US operations, advised traders on Friday.

Meat producers have been squeezed by record-high cattle prices within the US and elevated animal-feed costs at a time when inflation has curbed demand and prompted a commerce all the way down to cheaper meals. That’s a shift from latest years, when meatpackers loved file earnings. This week, Tyson Meals Inc. shares additionally plunged after the company cut its full-year gross sales forecast, and Cargill Inc. is struggling with its protein enterprise.

Simultaneous headwinds throughout protein classes don’t occur typically, so the primary quarter could also be as dangerous because it will get, JBS executives mentioned. Performances have been enhancing in all companies, and the restoration needs to be quicker in its Brazilian beef and hen items and in Australia. Enhancements will take longer within the US, Batista mentioned.

Whereas demand might rise within the coming months as barbecue season begins up, cattle prices will stay excessive, curbing earnings. Margins within the US beef enterprise are prone to proceed beneath historic ranges in 2023 and a part of subsequent 12 months, he mentioned.

“So long as JBS continues to face this excellent storm, with a unfavourable protein downcycle in each single enterprise unit, we imagine traders will ignore a budget valuation and stay on the sidelines, ready for a greater entry level,” Itau BBA analyst Gustavo Troyano mentioned in a report.

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