JBS misses estimates as financial expenses soar

Sao Paulo | Reuters — JBS SA, the world’s largest meatpacker, on Monday reported second-quarter income that missed estimates as a spike in net financial expenses and its struggling South American operations weighed on results.

JBS reported quarterly net income of 309.8 million reais (C$123.6 million), below a consensus estimate of 603 million reais and an 80 per cent drop from the same quarter a year ago.

Net financial expenses totaled 2.2 billion reais in the period, the worst in five quarters because of currency variations and adjustments in the fair value of derivatives, which together accounted for about half of the expenses, the company said.

Earnings before interest, tax, depreciation and amortization, a gauge of operating profitability, came in at 3.7 billion reais, above a consensus estimate of 3.4 billion reais, reflecting the good results in JBS’s U.S., Australian and Canadian operations.

JBS said net revenues fell 4.6 per cent from a year earlier to 41.6 billion reais due to the weak performance of its Seara and Mercosur divisions and a strengthening of the Brazilian currency.

In the quarter, about 73 per cent of JBS’s global sales were booked in the domestic markets where it operates, while 27 per cent came from exports, it said.

Weakness in Brazil was partly compensated by the good results of the U.S., Canadian and Australian beef divisions, as well as the chicken meat business in the U.S., the company said.

The results underscore the company’s difficulties operating in Brazil, whose economy grew just 1 percent in the first quarter from the preceding one, marking an exit from its longest recession on record.

The quarter was also marked by an overhaul of internal processes after JBS was embroiled in a corruption scandal following witness testimony from owners Joesley and Wesley Batista, who confessed they spent millions to bribe politicians to win business.

In the statement, JBS reiterated plans to raise six billion reais from asset sales, which were announced after the scandal and are ongoing. Proceeds are earmarked to reduce debt.

Last Friday, JBS said its second-quarter earnings would not be audited pending an assessment of the facts related to the leniency agreement signed between parent J+F Investimentos with federal prosecutors, which was communicated to the market on June 5 and is related to the payment of the bribes.

Under the agreement, J+F agreed to pay a 10.3 billion-real fine to settle accusations that involved senior company officials and scores of politicians. The scandal almost toppled Brazilian President Michel Temer.

— Reporting for Reuters by Ana Mano.