Fixed Income Analysis /

JBS: Mixed Q1 19 results, but strengthened balance sheet

    Rafael Elias
    Rafael Elias

    Director, Latin America Credit

    Tellimer Research
    15 May 2019
    Published by

    The Brazilian meat processing company JBS S.A. (JBSSBZ) reported improved Q1 19 results in BRL terms, but mixed results in US$ terms. We reiterate our Buy recommendation on JBS bonds on what appear to be improving fundamentals and attractive valuation.

    JBS reported mixed Q1 19 results, following the trend that we have seen in the industry during the first quarter of 2019. However, the company’s Liability Management (LM) programme (see our Flash Report of 3 May) strengthened JBS’s balance sheet and has continued to do so in the opening weeks of the second quarter, with transactions completed in May.

    Operationally, JBS reported net revenue of US$11.8bn in Q1 19, lower than the US$12.3bn a year ago. These results were negatively affected by the BRL depreciation and were also impacted by uneven performances among its subsidiaries. EBITDA in Q1 19 was US$848mn, slightly lower than the US$860 million in Q1 18. JBS reported cash of US$1.9bn, slightly lower than then US$2.3bn at the end of 2018 and even lower than the US$3.3bn in Q1 18. Part of the reason for this decrease was the comparison basis, given the one-time proceeds from asset sales that JBS received during 2018. Total debt in Q1 19, however, was US$14.3bn, lower than the US$14.5bn of 2018 and US$17.0bn at the end of Q1 18. As a result of this debt reduction, debt-to-EBITDA came in at c3.6x in Q1 19, roughly the same as at the end of 2018 but lower than the 4.2x at the end of Q1 18.

    Regarding the company’s LM programme, JBS paid US$600mn in partial amortizations of debt related to the normalisation agreement that the company has standing with a number of financial institutions. This payment was made on 10 May and by the end of the month, JBS anticipates that it will pay an additional US$400mn that, along with the previous prepayment, will total a debt reduction of US$1.0bn from the normalisation agreement, and other debts. The funds to make these payments will come from the US$500mn, 7.0% senior unsecured bonds due 2026 (BB-/BB-) issued on 1 April, as well as from cash generated by the company.

    Another positive effect of the company’s LM programme was a reduction in average yield for its debt of c25 bps and an extension in maturities as illustrated below. In addition, JBS reported that the company’s total liquidity (including revolving credit facilities) amounted to cBRL14.8bn (or cUS$3.8bn), c4.7 times higher than short-term debt of US$793mn. 

    Although Q1 19 has proved challenging for the Brazilian protein and foods segment in general, negatively affected by the BRL depreciation, some price softness in certain products and shifts in demand among different products within the companies’ portfolios, JBS and its peers have all stated that they expect 2019 to be a positive year as they see substantial operational and cost improvements going forward. Thus, we reiterate our Buy recommendation on the JBS family of bonds.