JBS, the world's largest meatpacker, expects its U.S. poultry unit Pilgrim's Pride to report a profit for 2012, after a net loss last year, on hopes demand for protein will gain momentum throughout 2012, a senior company official said on Wednesday.
Pilgrim's Pride (PPC.N), the world's second largest poultry producer, has struggled with rising feed costs and excess supply in North America, said Jeremiah O'Callaghan, head of investor relations for JBS. But resilient demand for the product and an decline in costs are likely to help restore margins in coming months, he said.
JBS last month increased its stake in Pilgrim's to 75 percent, in a show of confidence that the U.S. company can return to profitability. A better performance by Pilgrim's is likely to help accelerate debt-reduction efforts and help JBS return to a profit for 2012 after a net loss of 75.7 million reais ($41 million) in 2011, he noted.
"We are witnessing an improvement in the United States ... There was a widespread cut in poultry production in that market but demand has remained resilient," O'Callaghan, a 17-year company veteran, said in an interview.
His remarks underscore JBS's bet that a gradual ease in poultry oversupply in its home market and plans to lower Pilgrim's reliance on long-term contracts should help bolster margins for the unit.
A weak U.S. dollar and solid demand for animal protein in countries like Mexico and Venezuela, which have ramped up purchases of JBS products this year, should also help restore profitability.
Apart from Brazil, the company has operations in the United States, Australia, Mexico, Paraguay, Uruguay and Argentina.
Shares of JBS jumped 1.6 percent to 7.79 reais, compared with a drop of 1.2 percent in Brazil's benchmark Bovespa index .BVSP.
Pilgrim's reported a net loss of $495.7 million for 2011.
CATTLE SLAUGHTER TO SURGE
O'Callaghan said that JBS will seek to boost slaughter capacity in its beef business. Apart from leasing operations from cash-strapped rivals, the company is eyeing potential acquisition targets that allow for capacity expansion.
He mentioned the need to boost presence in Brazil's westernmost states, where there is still space to raise cattle. He declined to elaborate on any potential takeover targets.
The company expects to end 2012 with slaughter capacity of 8 million heads. Slaughtering should rise 20 percent to 7.5 million heads from 2011, he added.
The number comes in line with the plan to use 95 percent of installed capacity this year, assuming certain growth rates for local and external demand, O'Callaghan said.
The better results at Pilgrim's and a recovery in business conditions in Brazil and other key markets should allow JBS to reduce debt more rapidly this year, the executive noted.
Increased margins at Pilgrim's should help bring down net debt at the end of the year to less than 3 times earnings before interest, taxes, depreciation and amortization (EBITDA) from 4 times in 2011, Eduardo Galvão, an investor relations official, added.
JBS will keep on with its strategy of raising funds in global debt markets through its JBS USA unit to fetch lower borrowing costs and repay costly credit lines in Brazil, O'Callaghan said.
($1 = 1.83 Brazilian reais)