March 15, 2013

Brazil's JBS to increase investment in 2013

As it seeks to protect profits and scale down debt amid a challenging beef market, Brazil's JBS SA is opting to invest more cautiously this year.

JBS Chief Executive Officer Wesley Batista said on Thursday (Mar 7) in a conference call to discuss fourth-quarter earnings, that the company plans capital expenditures of up to BRL1.2 billion (US$609 million). Last year, the company earmarked BRL1.6 billion (US$812 million) for investments, way above the BRL900 million-1 billion (US$457-507 million) originally budgeted for capital spending.

Batista pledged to further reduce JBS's high debt levels and prioritise cash generation as a way to shore up confidence in the company's growth strategy. Net debt fell to the equivalent of 3.4 times earnings before interest, tax, depreciation and amortization (EBITDA) in the fourth quarter and could reach as low as 2.5 times of EBITDA by year-end, he noted.

"In general, compared to 2012, we are confident that in 2013 we will generate more cash and reduce leverage," Batista said.

JBS posted a fourth-quarter profit of BRL66.4 million (US$33.85 million) on Wednesday (Mar 8). Adjusted net income, which excludes goodwill amortisation expenses related to takeovers, ended up above estimates by a Thomson Reuters poll of analysts this week.

Shares rose 2.3% as fourth-quarter earnings showed some resilience in the company's top line despite the challenging outlook for meatpackers, analysts said. While results underscored both strong sales and favourable costs trends in JBS's Mercosur beef division, it unmasked problems at the US unit.

While cattle costs in Brazil remain flat on an annual basis, retail beef prices have been falling more sharply than expected throughout this year. The short term outlook for JBS USA Beef is not promising either as the size of the US herd approaches record lows and cattle prices trend higher.

The company plans to improve cash-flow in 2013, after it resumed last year an aggressive takeover strategy that has helped propel it to the top of the global beef industry but increases its debt.