Brazil's JBS SA, the world's largest meat processor, said on Wednesday that higher production of beef in Brazil and the United States and lower feed prices should drive an improvement in its profit margins and debt levels next year.
JBS Chief Executive Wesley Batista told investors on a call that the company's debt to earnings before interest, taxes, depreciation and amortization (EBITDA) had peaked in the third-quarter at 4.32 and should start to fall gradually this quarter with help from a rise in free cash flow.
He said JBS aims to end 2017 with a net debt to EBITDA ratio of about 3 and a recovery in EBITDA margin would help drive the reduction in debt, which grew due to acquisitions of $5 billion in recent months.
"The worst is behind us," Batista said, adding that he expected a recovery of double-digit EBITDA margins from the company's Pilgrim's Pride unit in the United States, its Moy Park unit in Northern Ireland and its South American unit, which has suffered from high grain prices over the past year.
Batista said margins below 15 percent from South American operations were unacceptable.
In early 2015, irregular rainfall over Brazil's main corn crop slashed output of the grain. Combined with record exports of existing stocks of the grain, Brazil's livestock feeds market was thrown into crisis.
Corn prices soared to record levels domestically. Prices in Brazil remain nearly double the levels seen last year.
Animal protein producers, especially of poultry, cut capacity earlier in 2016 and are expected to rely on more costly corn imports, largely from Argentina, until the middle of 2017 when Brazil's next winter corn harvest begins.
Batista said the productive cycle for cattle in Brazil was turning to favor the company with greater supply of animals for slaughter and expectations for lower prices per carcass.
On Monday, the company reported a 74 percent drop in net quarterly profit to 887.1 million reais ($258 million) with a downward drag on sales from clients in Mercosur, the trade block that includes Brazil, Argentina, Paraguay, Venezuela and Uruguay.
Sales in the United States were improved in the quarter, however, and Batista said on Wednesday he expected the scenario to remain positive for beef consumption and exports from the North American market, which accounts for the largest portion of the Brazilian company's revenue.
JBS shares in Brazil were up 3.4 percent at 11:30 a.m.