US and China boost earnings of Brazilian meatpackers
Crisis? What crisis? The expression is the title of a recent report in which bank BTG Pactual projected second-quarter earnings for meat processors. Analysts already expected a good performance, but were surprised. At the height of the pandemic, producing beef, a commodity of usually tight margins, was especially profitable, beating even the most optimistic forecasts.
JBS and Marfrig, the two largest beef producers on the planet, generated so much cash that it seems they don't need to take on debt, a feat in an industry used to have high debts. In the second quarter, both reached their lowest indebtedness ratios ever. Together, they had almost R$14 billion in free cash flow - R$10.5 billion at JBS alone - with about R$5 billion in profit.
The favorable and atypical second-quarter situation is closely tied to the pandemic's impacts on beef production in the US. With the spread of coronavirus among workers, dozens of American meatpackers were temporarily halted, opening a gap in the meat supply and creating a surplus of not-slaughtered cattle. Result: cheap raw material and pricey end product.
With more than 80% of their sales in the US, Marfrig and JBS enjoyed the ride, boasting an EBITDA margin of more than 20% in the division that hosts the American beef business.
Marfrig, which owns National Beef, the fourth-largest meatpacker of the US, had the best performance among the peers, delivering a 23.4% margin. JBS USA Beef, business front that also includes the operation in Australia and Canada, had 20.4% EBITDA margin. For an idea of the magnitude of these results, few years ago figures close to 10% would already be much celebrated by the American beef industry.
The injection of American profits made a big difference in the consolidated margin of the companies. Mafrig, which has over R$60 billion in annual sales, reached an EBITDA margin of 21.5% in the second quarter, a record. JBS, whose annual net revenue tops R$230 billion, saw its margin reach 15.5%, also an all-time high.
Although the big highlight, the US beef business was not the only one to stand out. In Brazil, where the meatpackers have large operations, the weakened currency boosted the profitability of exports, something that combined with the voracity of China, which has never imported so much meat as in 2020, threw a party for the meat companies.
The situation also benefited the earnings of Minerva Foods, a company that...
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