May 15, 2020 / 3:10 PM / 16 days ago

Brazil's JBS faces 'enormous volatility' amid global COVID-19 pandemic

SAO PAULO (Reuters) - Brazilian meat company JBS SA said on Friday it is facing “enormous volatility” related to costs and product prices due to the global health crisis caused by the novel coronavirus.

During a conference call to discuss first-quarter results, JBS executives said consumer demand has shifted away from food service, a trend seen in all markets. But while there are no significant differences in margins on food service and retail meat sales, it is becoming increasingly difficult to predict costs, prices and consumer behavior.

JBS gets most of its revenue in U.S. markets, where states are gradually starting to open up, and operating prospects may improve, JBS executives said.

On the other hand, its Brazilian beef division has struggled as the company furloughed workers in March and April in response to potential outbreaks.

The company on Thursday reported a steep 6 billion reais ($1 billion) net loss in the first quarter largely due to foreign exchange movements. In mid-morning trading on Friday, JBS shares were down 3.6% at 23.57 reais.

Excluding currency effects last quarter, JBS would have reported a 803 million reais net profit.

In Friday’s call, JBS said as foreign exchange volatility subsides, the company will be able to boost net profit and earnings before interest, taxes, depreciation and amortization, a measure of operating income known as EBITDA.

Chief Financial Officer Guilherme Cavalcanti said the problem was “the translation” of the financial results into Brazilian reais.

Most of JBS’s sales are overseas and booked in foreign currencies. The real fell 22% against the dollar in the January-March period, its biggest quarterly depreciation in 18 years.

JBS executives have warned the COVID-19 pandemic may have lasting effects, as outbreaks in Brazil and the United States caused plant closures and volatility in its U.S. chicken business.

Credit Suisse analysts said JBS posted “lackluster results,” blaming weakness in the chicken processor Pilgrim’s Pride division and the disappointing results at JBS’s U.S. beef unit, which also includes Australia and Canada.

“Still on the negative side, JBS Brazil (beef) remains below full potential,” Credit Suisse said.

Reporting by Ana Mano, Editing by Franklin Paul and Steve Orlofsky

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