August 17, 2010

JBS shares slip on profits slump

Shares in JBS slid 5% after the world's biggest beef producer revealed its earnings had been nearly wiped out in the April-to-June quarter by a foreign exchange hit and higher debts.

The Brazilian meat giant reported a 53% jump to BRL14.1 billion in revenues for the April-to-June period, boosted by the acquisitions of both domestic rival Bertin and Pilgrim's Pride, the US poultry group.

Profitability at an underlying level (EBITDA), excluding interest, taxes, depreciation and amortisation, soared by more than 160% to BRL1 billion, as margins widened in all three US divisions, covering beef, pork and chicken, and in the South American operations.

The business reported an EBITDA margin of 7.5% in the latest period, compared with 3.6% the quarter before.

However, the group result was held back by a jump to BRL539.8 million in financial expenses, stemming from high exchange rate volatility, which impacted hedging positions, and by the extra working capital needed to fund a 21% increase in exports by volume.

 
JBS also suffered high tax rate due to levies paid in the profitable North American division at the standard tax rate, while the group's Brazilian business ran at a loss.

Meanwhile, earnings fell by 97% to BRL3.7 million, well below analysts' forecasts of a BRL180-million result.

JBS chief executive Joesley Medonca Batista expects both sales volumes and prices to be strong in the second half of the year, especially from the US, as international trade normalises.

JBS shares closed 5.7% lower at BRL7.92 in Sao Paolo.