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JBS Quarterly Earnings Beat Estimates on Grass-Fed Beef

JBS SA, the world’s largest beef producer, posted third-quarter earnings excluding items that beat analysts’ estimates amid its reliance on South America’s low cost, grass-fed cattle.

Earnings before interest, taxes, depreciation and amortization, or Ebitda, rose to 1.38 billion reais ($669.5 million) in the quarter ended Sept. 30, the highest since 2008, the Sao Paulo-based company said in a statement yesterday. The result is above a forecast gain of 1.31 billion reais, the average of nine estimates compiled by Bloomberg.

JBS is benefiting from lower cattle prices in the Mercosur region, Thiago Duarte, a Sao Paulo-based analyst with Banco BTG Pactual SA, said in an Oct. 29 note to clients. The company also had higher beef sales and margins, said Duarte, who has a buy recommendation on the stock.

The company is shielded from rising grain prices because herds of cattle in Brazil and Argentina are primarily grass-fed, while ranchers in the U.S. and Canada rely on corn and soybeans for feedstock. Prices for corn climbed 12 percent and soybean prices rose 5.8 percent in the quarter amid the worst U.S. drought in more than half a century.

Net income was 367 million reais, below analysts’ estimates of an adjusted gain of 386 million reais. JBS reported a loss of 67.5 million reais a year earlier.

Higher Margin

JBS’s net sales were 19.4 billion reais, up 24 percent from a year ago. Earnings before interest, taxes, depreciation and amortization were 7.1 percent of sales in the quarter. That compares with 5.1 percent a year earlier.

The company said its third-quarter free cash flow, or what is left after covering operating expenses and capital spending, was 156.9 million reais. Positive free cash flow helped the company to cut debt, according to the statement. Debt fell to 3.7 times Ebitda, from 4 times a year earlier.

JBS also said it is starting to operate six beef plants that will expand slaughter capacity by 15 percent next year, according to the statement.

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