Bloomberg News

JBS $17 Billion Spree Set to Continue as CEO Seeks Growth

May 22, 2014

A $17 billion wave of acquisitions in the past decade that propelled JBS SA (JBSS3) past Tyson Foods Inc. (TSN:US) to become the world’s biggest meat producer isn’t over.

Chief Executive Officer Wesley Batista expects the Sao Paulo-based maker of beef, poultry and pork products to keep growing through deals that will be assessed “as opportunities arise,” he said in an interview during a conference at Bloomberg’s Sao Paulo office today. The 44-year-old Brazilian plans to focus on products such as TV dinners and frozen pizzas over unprocessed meat because of higher margins.

“Growth is in our DNA,” Batista said. “The takeovers have always happened as the opportunities came.”

JBS, which supplies more than 10 percent of the world’s beef after takeovers including Smithfield Foods Inc. units in the U.S. in 2008, is shifting to processed products to boost profit. While sales growth will be led by demand from Asia in coming years, JBS will continue to invest in production from the Americas and Australia because those areas have the most competitive industries, Batista said.

More than 60 percent of JBS’s sales come from meat-processing plants acquired in the U.S. and Australia over the past 10 years, and the remainder from South America. The latest large purchase was the Seara food-processing assets in Brazil from Marfrig Global Foods SA for 5.85 billion reais ($2.6 billion) last year.

Chinese Consumption

As for consumption, the proportion of JBS’s sales going to Asia and the Middle East will double to about 30 percent in coming years, led by China’s growing middle class, Batista said.

“Chinese focus on boosting consumption over investment has had a direct impact on our sales over the last two years,” he said.

JBS, which started as an abattoir in western Brazil about six decades ago, is also diversifying away from beef and using more pork and poultry to make its food products, which Batista expects to increase to about 40 percent of sales this year from 30 percent in 2013.

The company’s shares have lost 12 percent in Sao Paulo this year, compared with a 2 gain for Brazil’s benchmark Ibovespa index, after interest payments and currency hedging costs led it to post a surprise 69 percent first-quarter profit drop. JBS rose 2.5 percent to 7.84 reais at the close in Sao Paulo.

Net income fell to 70 million reais from 227.9 million reais a year earlier, the company said last week. That trailed the 233.3 million-real median estimate of four analysts’ estimates compiled by Bloomberg.

Debt Surge

JBS’s net debt swelled to 23.7 billion reais in the quarter from 15.7 billion a year earlier, mainly because of debt assumed after the Seara acquisition.

Leverage ratios returned to the levels before the Seara takeover thanks to rising earnings. Net debt fell to 3.4 times earnings before interest, taxes, depreciation and amortization, or Ebitda, from 3.9 times in the previous quarter.

The acquisition of Seara helped JBS improve margins by selling more value-added products such as sausage and frozen lasagna rather than raw meat.

JBS’s Ebitda of 6.6 percent of sales was the best for a first quarter since 2007, data compiled by Bloomberg show.

The Batista family controls JBS through the J&F Participacoes SA holding company run by Wesley’s brother Joesley, who was CEO before him and led the company’s rise to top global beef producer through acquisitions including Pilgrim’s Pride in the U.S.

Government Backing

JBS is also backed by the Brazilian government through a 25 percent stake held by the BNDES development bank, which has sought to fund companies with the potential to become global leaders in their industries.

JBS hired units of JPMorgan Chase & Co. and Banco Bradesco SA for a 3 billion-real initial public offering of its JBS Foods SA processed-food unit, two people with direct knowledge of the matter said last month. JBS sought authorization for the offering, according to a May 20 regulatory filing.

Batista declined to comment on how much the company plans to raise and when it will hold the share sale because of regulatory restrictions.

JBS is the world’s biggest meat producer by sales, followed by Tyson, according to data compiled by Bloomberg.

To contact the reporter on this story: Gerson Freitas Jr. in São Paulo at gfreitasjr@bloomberg.net

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net Carlos Caminada


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Companies Mentioned

  • TSN
    (Tyson Foods Inc)
    • $37.21 USD
    • -0.99
    • -2.66%
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