Brazil's JBS SA is opting to invest more cautiously this year as the world's No. 1 meatpacker seeks to protect profits and scale down debt amid a challenging beef market, Chief Executive Officer Wesley Batista said on Thursday.
JBS plans capital expenditures of up to 1.2 billion reais ($609 million), Batista told analysts in a conference call to discuss fourth-quarter earnings. Last year, the company earmarked 1.6 billion reais for investments, way above the 900 million to 1 billion reais originally budgeted for capital spending.
Batista pledged to further reduce JBS's high debt levels and prioritize cash generation as a way to shore up confidence in the company's growth strategy. Net debt fell to the equivalent of 3.4 times earnings before interest, tax, depreciation and amortization (EBITDA) in the fourth quarter and could reach as low as 2.5 times of EBITDA by year-end, he noted.
"In general, compared to 2012, we are confident that in 2013 we will generate more cash and reduce leverage," Batista said.
JBS posted a fourth-quarter profit of 66.4 million reais ($33.85 million) on Wednesday. Adjusted net income, which excludes goodwill amortization expenses related to takeovers, ended up above estimates by a Thomson Reuters poll of analysts this week.
Shares rose 2.3 percent as fourth-quarter earnings showed some resilience in the company's top line despite the challenging outlook for meatpackers, analysts said. While results underscored both strong sales and favorable costs trends in JBS's Mercosur beef division, it unmasked problems at the U.S. unit.
While cattle costs in Brazil remain flat on an annual basis, retail beef prices have been falling more sharply than expected throughout this year. The short term outlook for JBS USA Beef is not promising either as the size of the U.S. herd approaches record lows and cattle prices trend higher.
The company, a one-time family butcher, plans to improve cash-flow in 2013, after it resumed last year an aggressive takeover strategy that has helped propel it to the top of the global beef industry but increases its debt.
($1 = 1.97 Brazilian reais) (Additional reporting and writing by Caroline Stauffer; Editing by Gerald E. McCormick, Guillermo Parra-Bernal)