Incoming JBS CEO seeks improved beef margins

(Michael Ciaglo/Bloomberg)

JBS NV said its main business of U.S. beef is yet to benefit from a restructuring plan, but sees that effort as well as a renewed flow of Mexican cattle eventually aiding meatpacking margins.

Wesley Batista Filho, named to take over as CEO next year, told analysts on Aug. 11 that JBS hasn’t yet captured the gains from efforts to combine different U.S. businesses and seek synergies. That could aid results ahead, just as lingering impacts of a massive cattle shortage continue to hit. 

At the same time, while a slow rebuild of the U.S. cattle herd continues to squeeze industry margins, Batista Filho said that a resumption of trade with Mexico would bring relief. The U.S. announced last month it will allow Mexican cattle imports to resume after a more than yearlong ban to prevent the spread of a deadly parasite, as the Trump administration seeks to tamp down record beef prices.

A “normal” cattle flow could be seen as soon as the second quarter of 2027, Batista Filho said. “It’s going to be much better than where we are right now.”

JBS shares tumbled on Aug. 12, adding to a steep decline in the previous session. In addition to the CEO change, the company late Aug. 11 reported a second-quarter net loss due to one-time charges, while its unprofitable U.S. beef operations showed some improvement.

U.S. meatpackers are facing a series of headwinds from a massive cattle shortage that pushed costs higher, and as the spread of the parasitic New World screwworm threatens animal health. To tackle such challenges, companies have ceased operations in different facilities in an effort to cool competition for cattle and improve margins. JBS announced that a plant in Souderton, Pa., that had been shut down will be transformed to make value-added products.

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Jose Batista Sobrinho and Wesley Batista Filho. (Michael Nagle/Bloomberg)

In the U.S., JBS targets operating profit margins 2.5 percentage points higher than peers by 2027, but Batista Filho conceded that a herd rebuild may take at least a couple of years.

“JBS management seems more optimistic than its peers about the benefits of reopening cattle imports from Mexico,” analysts at BTG Pactual led by Thiago Duarte wrote in a report. The future of U.S. beef operations will be “the most important variable to watch.” they added.

Batista Filho, 34, is the current head of U.S. operations and is taking over from Gilberto Tomazoni as CEO in January. His appointment puts a member of Brazil’s Batista family back at top leadership for the first time in about eight years, after a corruption scandal hit other high-profile family members.

During the call with analysts to discuss quarterly results, Batista Filho said there would be no change in strategy once he takes over. “We’re going to continue to grow on the avenues that we have been growing,” he said.

JBS shares retreated as much as 5.3% in New York, extending the Aug. 10 drop of 5.8%, as the market digests a flurry of company news. Over the last five days, the company has announced the CEO change and quarterly earnings, as well as a joint-venture deal to expand in Asia.  

The BTG analysts noted that the CEO transition has been in the works for years. “We’ve always sensed he was being prepared to take over,” they wrote. “We do sense that this is to be a smooth process.”

Still, the change in management could bring “negative memories of governance issues in JBS,” analysts at XP Inc. led by Leonardo Alencar wrote. The timing for the many company announcements, meanwhile, is also “far from obvious,” the analysts said. 

JBS USA Holdings ranks No. 86 on the Transport Topics Top 100 list of the largest private carriers in North America.