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JBS buys Plumrose to grow in US, as real hurts Brazilian profits

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Meat giant JBS revealed a further acquisition in the US, even as it credited a strong performance by its existing operations in the country for offsetting a decline in Brazil, and fuelling a return to the black.

Brazil-based JBS, the world's biggest meat packer, said it had to agree to pay $230m for Plumrose USA, the Illinois-based ham and bacon producer, which claims revenues of some $500m a year.

Plumrose was purchased from Danish Crown, Europe's largest meat processor, which said that the disposal was part of its so-called "4WD" strategy, involving a focus on Northern Europe and Asia.

"I am certain that JBS, with its wide presence and access to raw materials in North America, is a perfect match for Plumrose USA," said Jais Valeur, the Danish Crown chief executive.

JBS said that the acquisition, which comes with five processing plants and two distribution centres, "strengthens its customer base and geographical distribution in the US".

Pork, chicken improvements

Indeed, the deal was announced as Brazil-based JBS revealed results showing earnings of R$639.9m ($220m) for the October-to-December period, compared with a R$275.1m loss a year before, with the improvement reflecting an improved US performance, besides the absence of currency and restructuring charges which hit the year-ago results.

In US pork, the group reported a 21% jump to $171.5m in earnings before interest, taxation, depreciation and amortisation (ebitda) for the quarter, on revenues up 26% at $1.37bn, reflecting higher prices, as well as a boost to volumes from the $1.45bn acquisition of assets from Cargill late in 2015.

The group's US chicken operation, Pilgrim's Pride, achieved a 14.8% rise in ebitda to $172.2m, despite a 2.7% drop to R$1.91bn in revenues.

'Substantial beef improvement'

And in beef, JBS's US operation returned to positive ebitda of $387.6m, compared with a $25.2m loss a year before, despite a 6.2% drop in sales prices year on year, which restrained revenue growth to 1.6%, taking it to $5.33bn.

The improvement in beef reflected the drop in cattle prices, which on Chicago's futures exchange hit a six-year low during the quarter, undermined by the boost to supplies from a period of US herd rebuilding.

"The increase in cattle availability and the reduction in beef cattle prices contributed to a decrease in raw-material costs during the second half of the year," JBS said.

US beef packers' margins rose above $140 per head of cattle in late October, according to HedgersEdge.

JBS chief executive Wesley Batista held out prospects for continued improved animal supplies, saying that "in the US, a cycle of greater cattle availability has begun, which has contributed to a substantial improvement in the results of our US beef business unit".

The performance contrasted with a slump of 68% to R$298.9m in ebitda at JBS's Brazil-based pork and poultry business, Seara, which suffered a 30% slump in export takings, blamed on the strengthening of the real, which made Brazilian exports less competitive.

In beef, JBS's South American ebitda slumped by 84% to R$143.7m, again reflecting a slump in foreign business, with export revenues tumbling by 32% to R$2.63bn.

"The strengthening of the real versus the dollar had repercussions for our exports," Mr Batsita said, flagging too a dent to poultry and pork margins from elevated grain costs, following last year's disappointing Brazilian corn harvest.

Market reaction

The results were termed "strong" by analysts at Bradesco, which termed JBS's US beef performance as a "highlight".

"The results confirm our bullish expectations" for the US beef division, the broker said, restating an "outperform" rating on JBS shares, with a price target of R$18.00.

However, the earnings fell below the R$844m suggested by a Reuters' poll of analysts.

By Mike Verdin

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