JBS Q3 2026 Earnings Call Transcript

JBS (NYSE:JBS) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

JBS reported a challenging Q3 2026 due to international trade changes, poultry margin pressures, and pork oversupply, but noted positive EBITDA in the U.S. beef business.

Pilgrim’s Pride saw strong consumer demand for chicken, reflecting operational improvements and a diversified portfolio.

In Brazil, despite export declines to China, Friboi redirected products successfully to other markets, with expectations of improved Q4 due to renewed Chinese demand.

Seara faced cost challenges but gained market share and is investing in automation to enhance productivity.

JBS announced the acquisition of Flora for $442 million, enhancing their B2C platform and creating potential tax synergies.

Net sales for Q3 2026 reached $23 billion with an adjusted EBITDA of $1.2 billion under IFRS.

JBS emphasizes its diversification strategy across global operations and focuses on efficiency, innovation, and brand strength.

The company plans to leverage the Flora acquisition for tax synergies and strategic growth in the consumer goods sector.

JBS highlighted a $167 million negative free cash flow in Q3, driven by a $653 million decline in adjusted EBITDA and increased working capital needs.

The U.S. pork sector remains challenging with deteriorated market conditions expected to persist into the first half of 2027.

Full Transcript

OPERATOR

Good morning and welcome to JBS’s third quarter 2026 results conference call. At this time all participants are in listen-only mode. Following management’s remarks, we will open the floor for a question-and-answer session, and instructions will be given to participants at that time. Please note that to ensure all analysts have the opportunity to ask a question, we kindly request that each analyst limit themselves to just one question. As a reminder, this conference is being recorded.

Any statements made during this conference call in connection with the company’s business outlook, projections, operating and financial targets, and potential growth should be understood as merely forecasts based on the company’s management’s expectations in relation to the future of JBS. Such expectations are highly dependent on industry and market conditions and therefore are subject to change. Our presenters with us today: Gilberto Tomazoni, Global CEO of JBS; Guilherme Perboyre Cavalcanti, Global CFO of JBS; Wesley Batista Filho, CEO of JBS USA; and Christian Aziz, Investor Relations Director. Now I’ll turn the conference over to Gilberto Tomazoni. Mr. Tomazoni, you may begin your presentation.

Gilberto Tomazoni (Global Chief Executive Officer)

Good morning, everyone, and thank you for joining us today. The third quarter was marked by challenging market conditions across several of our businesses. Changing international trade flows, pressure on poultry margins, and a global oversupply of pork affected our results. At the same time, we made progress in important areas of our operation, reinforcing our confidence in the strategy we have been executing. Our experience in the food industry has shown us the importance of understanding market cycles, improving efficiency, and making decisions that strengthen our business over the long term.

An important development in the quarter was the return to positive EBITDA in our U.S. beef business. This is an encouraging result of the work we have been doing to improve competitiveness. There is still more to do, but we are beginning to see the benefits of these initiatives. Wesley will provide more details of the performance of our North America business and the actions underway. Turning to Pilgrim’s Pride, as Fabio Sandri highlighted during the company’s third-quarter earnings call, chicken continues to resonate with the consumer across its markets, supported by affordability and the strength of its diversified portfolio. He also emphasized the progress in operations, efficiency, innovation, and investment in high-value products. These remain important priorities as Pilgrim’s continues to strengthen its business and build resiliency across market cycles.

In Brazil, despite a challenging quarter, our team responded promptly, adapting production and commercial strategy and leveraging our global network and distribution capabilities. While exports to China declined sharply, Friboi successfully redirected volumes to other markets and expanded domestic sales. This performance reflects the strength of the Friboi brand, the value of our Friboi Plus retail relationship programs, and the effectiveness of our commercial execution.

We already see an improvement in October reflecting these adjustments and renewed demand from China, as customers secured volumes under the 2027 quota. Together with seasonality and stronger domestic consumption, this created a more favorable environment for our Brazilian beef business in the fourth quarter. The recovery in export volumes, combined with the strongest seasonal demand in Brazil, gives us confidence in a better fourth quarter for Friboi.

Our strong brand, customer relationships, and access to international markets remain important competitive advantages, allowing us to respond to changes in demand and maximize the value of our products. Friboi is a clear example of how strong brands, close relationships with retailers, and access to different markets helped us respond to challenging conditions and strengthen our competitive position. At Seara, the quarter was affected by higher costs and a more challenging commercial environment in Brazil. Despite this pressure, Seara gained market share across the categories and reached the highest-ever level of brand preference and consumer consideration. These results reflect the strength of the Seara brand and its position with Brazilian consumers. We are focusing on what we can control: improving efficiency and commercial execution, strengthening the integration between our operations and customers, and increasing the value of our portfolio.

We continue to invest in automation at Seara to improve productivity and efficiency. Seara’s strong brand, innovation, and investment in production capability provide a solid foundation for growth. The gains in market share and record brand indicators reinforce the competitiveness of Seara and the strength of the commercial execution. Internationally, the Middle East remains an important market, where our investments in local production and distribution are strengthening our presence and contributing positively to results. In Europe, we maintained production and built inventories during a period of trade restrictions, positioning the business to benefit as sales resume. The fourth quarter is also an important period for Seara, supported by strong seasonal demand in the local markets.

Together with the recovery in international sales and inventories built during the quarter, this supports a more favorable outlook for Seara in the final months of the year. Across the global operation, market conditions vary and the pace of recovery will not be the same across the proteins and geographies. This reinforces the importance of our diversification strategy. We have built JBS as a global, multi-protein company with access to different markets and sources of earnings. Diversification does not eliminate industry cycles, but it strengthens our ability to navigate them, allocate capital, and continue developing our business.

Our investments in efficiency, innovation, brands, and value-added products support this long-term strategy, and our people remain fundamental to the execution, with experienced teams close to our operations and customers. Cash generation is another important priority. Leverage increased during the quarter, as expected, reflecting the operating environment. We remain focused on working capital management and disciplined capital allocation, maintaining the financial flexibility needed to support our investments. We have built JBS with a long-term vision, investing consistently and strengthening our ability to compete in different markets and industry cycles. Our strategy remains unchanged.

We will continue to focus on execution, efficiency, innovation, and developing our people, creating conditions for sustainable growth and long-term value creation. Our leadership transition is progressing as planned, with Wesley Batista Filho gradually taking on greater responsibility for JBS operations. This is a natural step in the company’s evolution, supported by our strong management team, consistent strategy, and the culture we have built over the years. Thank you very much. I will now turn the call over to Wesley.

Wesley Batista Filho (Chief Executive Officer, JBS USA)

Good morning, everyone. The main highlight of the quarter was our U.S. beef business returning to positive adjusted EBITDA under U.S. GAAP after two challenging years. This reflects both improving market conditions and the operational changes we’ve been implementing. Earlier this year we brought our Fed Beef, Regional Beef, and Case Ready operating business units under one management structure to better coordinate procurement, production, and sales and optimize our production footprint.

We’ve also increased our focus on yields, productivity, maintenance, operational reliability, and cost discipline. On the market side, the reopening of the U.S. border to Mexican cattle imports is an important development. Cattle are arriving heavier and reaching processing weight sooner. We expect approximately 1 million head of imported cattle from Mexico per year. Cattle prices have declined from recent peaks while beef prices remain resilient. Although cattle supplies remain tight, Mexican imports and a better balance in processing capacity support a more constructive outlook.

Turning to U.S. pork, market conditions deteriorated rapidly during the quarter. Higher global supply and weaker demand have pressured prices and margins. We expect these conditions to remain challenging into the first half of 2027. Our focus is on cost management and operational efficiency. The U.S. has harvested its second-largest corn crop on record, supporting ample grain availability and stable feed costs. In South America, soybean planting in Brazil has progressed within the ideal window, although it is still early to assess the second corn crop.

Overall, we’re encouraged by the improvement of the U.S. beef business. Our focus remains on what we can control: improving productivity, managing costs, and making our operations more competitive. Thank you, everyone. I’ll now turn the call over to Guilherme.

Guilherme Perboyre Cavalcanti (Chief Financial Officer)

Thank you, Tomazoni and Wesley. Last night we announced the acquisition of 100% of Flora for an enterprise value of $442 million, of which $367 million for the equity and $175 million in net debt assumption. All the equity will be paid in JBS treasury Class A shares. There will be no impact on JBS net leverage, given Flora EBITDA. Flora brings higher margins than JBS, a portfolio of well-established home and personal care brands, and significant synergies.

Flora also brings an important strategic advantage to JBS. Its established B2C platform gives us access to new sales channels in Brazil, particularly drugstores and specialized retailers, which we can leverage to accelerate the growth of our higher value-added products, including Genuine, our collagen-based health and nutrition platform. At the same time, Flora is highly complementary to our value chain, as it uses raw materials that JBS already produces.

Tallow is a clear example, with approximately 93% of Flora’s consumption already supplied by JVs. This combination allows us to move closer to the end consumer while creating new avenues of growth. We see cost synergies from integrating corporate and commercial functions, as well as additional opportunities across logistics, procurement, and tax. Considering only 2027 synergies, the acquisition multiple would reduce from 7 times to less than 4.9 times. Over 10 years, we estimate the present value of total synergies and monetization of tax credits at $422 million. To further reinforce the value creation of the transaction, on page 17 of the 10-Q financial statements we disclosed approximately $800 million in VAT-related tax credits and $2.2 billion in income tax credits.

Additional details, including a breakdown and further explanation, can be found on page 18 of our 2025 annual financial statement. Keep in mind, under Brazil’s tax reform, VAT tax ICMS will be gradually replaced by CBS and IBS, but we expect the tax credit accumulation to continue to grow. To establish the synergies, you can use the applicable tax rate, Flora’s revenue, and net margins, incorporating higher capacity utilization and additional capacity expansion capex expected to come online over the next years.

We also announced the acquisition of Canal Rural for an enterprise value of $16 million, to be paid in JBS treasury Class A shares. Canal Rural brings us closer to the producer, strengthens our ability to advance feasibility across our indirect supplier base, and provides an important platform for engaging with society and policymakers. Let’s now move on to the operational and financial highlights of the third quarter of 2026. Net sales reached $23 billion for the third quarter. Adjusted EBITDA under IFRS totaled $1.2 billion, with a margin of 5.2% for the quarter. Excluding mark-to-market adjustments on biological assets, adjusted EBITDA margin would have been 5.5%. This metric is used by some of our peers which also report under IFRS. The main impact was the mark-to-market in US Pork, given the reduction in the future curve of live hogs.

It’s important to highlight that there is no cash impact related to that. Adjusted EBITDA in US GAAP totaled $1 billion, which represents a margin of 4.4% for the quarter. Adjusted operating income was $521 million with a margin of 2.3% in IFRS, and $597 million in US GAAP with a margin of 2.6%. Net income was $164 million in the quarter and earnings per share of $0.15. Excluding the non-recurring items, adjusted net income would be $167 million and earnings per share would be $0.16 in the quarter.

Free cash flow was negative $167 million in the third quarter, with a $551 million decrease year over year, explained by a $653 million decline in adjusted EBITDA and higher working capital consumption. In Brazil, particularly inventories, the increase was mainly reflected in higher grains inventory at Seara as well as higher chicken inventories at Seara. In Europe, the company also faced high inventories in JBS Brazil beef products to be sent to China in the fourth quarter 2026 to fulfill the 27th quarter.

This offset the quarterly positive working capital contribution of $325 million from the US and Australia business units. Total working capital consumption was $106 million in the quarter. Not considering guidance, but simply updating the cash flow break-even EBITDA exercise for the year, we expect $5.5 billion in 2026, driven by $2.1 billion in capital expenditures; working capital expected consumption of $550 million in 2026, an improvement of $300 million year over year; legal settlements of $100 million already realized in 2026; biological assets of $850 million, flat over 2025; interest expenses of $1.4 billion, an increase of $100 million versus the previous estimate due to the higher net debt; leasing expense at $500 million in 2026; and an effective tax rate of 25%.

Another exercise, again without providing guidance, is to look at the potential for cash flow generation in 2027 in Beef North America. Our largest segment adjusted EBITDA was negative by $309 million year to date in US GAAP. Considering year-to-date working capital consumption of $254 million and capital expenditure of $158 million, the cash consumption of this business unit was $721 million. For every 1% improvement in Beef North America EBITDA margin, this would translate into approximately $300 million in EBITDA.

We are still in the budgeting process, but we expect to reduce capital expenditures by around $500 million. Considering the closing of Australia’s equity sale and cash flow improvement, we expect leverage to be within our target range for the end of 2027. Debt profile: we continue to strengthen our liquidity position. In August we announced an increase in our revolving credit line from $3.5 billion to $4.2 billion, while reducing the all-in cost of this line. Our cash liquidity combined with the revolving credit line facility totals approximately $8.2 billion. Our average debt term reaches 14.4 years with an average cost of 5.7%. Net leverage ended the quarter at 3.54 times. Excluding the mark-to-market of the biological assets, our net leverage would have been 3.41 times.

However, the company maintains a well-balanced debt maturity profile with no material maturities over the next five years. It is also worth noting that more than 95% of our debt has fixed interest rates, 33% maturing beyond 2050, and all the debt up to 2032 has coupons below the equivalent Treasury rates. On August 18, we delivered a proposal to the board of Pilgrim’s Pride Corporation to acquire the shares of PPC common stock that JBS and its affiliates don’t already own. As announced to the market, given our ownership of approximately 82% of PPC and our pending proposal, we will not take any questions related to PPC. We appreciate your understanding. With that, I would like to open the Q&A session.

OPERATOR

Thank you. The floor is now open for any questions from investors and analysts. As previously mentioned, we kindly request that each analyst limit themselves to just one question. Ladies and gentlemen, our first question comes from Mr. Gustavo Troiano with Itaú. Mr. Troiano, you may go ahead with your question.

Gustavo Troiano (Analyst at Itaú BBA)

Hello everybody. Thanks for taking my question. And my question is on US Beef and especially thinking about the profitability levels going forward. I just wanted to hear your thoughts on the pace of the segment’s margin recovery as we move into the fourth quarter, especially considering that you disclosed the monthly profitability levels for the segment throughout the third quarter and it seems that the fourth quarter could be better than what the seasonality would suggest.

So just wanted to hear from you if you think that the third quarter could be a bottom for this cycle when we think about 2027, if this margin should start to recover sequentially from the fourth quarter onwards. And still on that topic, just to follow up on a point that we discussed in JBS Day a couple of months ago, when you mentioned that there were some operational improvements to be delivered in the segment, if these numbers are starting to show off in the third quarter or if there’s a potential for 2027 to incorporate these operational improvements.

Thank you very much.

Wesley Batista Filho (Chief Executive Officer, JBS USA)

Gustavo, good morning. So we had a good third quarter, in our opinion. It started off actually quite tough, more in line with what the second quarter looked like, and it ended up a lot better. You know, Q4 is usually a little bit of, you know, December could always be a little bit of a surprise, but given how it has started in the first half of Q4 here, we expect that Q4 should be stronger than Q3. So we’re expecting a sequential improvement into Q4 as of right now, because again, we’re in the middle of the quarter here, but so far it looks promising.

And again, when we look into next year, based on a couple of things — based on just the market improving overall, the balance between supply and demand for cattle — we think we’re going to have a much better year into next year, and probably, as of right now, we think it’s going to be a market that operates in the low single digits. But, you know, we could have maybe actually even a positive surprise depending on how things develop. And on top of that, just how the market is going to look — like you said, it’s a big, big focus of ours, this integration that we’re having between our beef business units. And we’re seeing a lot of improvements, but we still expect a lot into next year. I still think that, just on operational efficiencies and some more synergies in sales, we could have up around or even above 2 percentage points into next year.

Gustavo Troiano (Analyst at Itaú BBA)

Thank you very much.

OPERATOR

Thank you. And our next question comes from Mr. Ricardo Alves with Morgan Stanley. Mr. Alves, you may go ahead.

Ricardo Alves (Analyst at Morgan Stanley)

Hello, can you hear me, everyone?

OPERATOR

Yes, good morning.

Ricardo Alves (Analyst at Morgan Stanley)

Yes, good morning, Wesley, Tomazoni, and Guilherme as well. Thanks for the call. Question on Flora: about 80% coming from taxes. I missed the very beginning of the explanation on the tax credits. Guilherme, can you go over the tax credits again, just in terms of how much we should expect in the short term, if there’s some timing on when you can really monetize those credits? And then when we’re thinking about Flora alone, our understanding is that the net debt to EBITDA ratio was closer to four times.

So is it fair to say that the leverage was also a factor for the transaction — the leverage at the Flora level? So I’m not talking about the leverage of JBS, because maybe in terms of short-term financing, given that long-term rates are in a much more difficult place today in Brazil, maybe you incorporate that into the balance sheet of JBS. Maybe you’re going to be able to leverage more all the growth that you expect in the personal care, all the discussions that we’ve had in the past around collagen.

So just to understand how, within the JBS portfolio, how you could accelerate the growth potential you see there, if that was also a rationale for the transaction. So just two follow-ups from the Flora transaction, please.

Guilherme Perboyre Cavalcanti (Chief Financial Officer)

Okay, thank you, Ricardo. So beginning with tax credits, the monetization of tax credit is pretty straightforward. As you know, ICMS, the VAT tax, exporters are exempt of that. But we pay ICMS on the inputs in the states we operate. But when we export the product we cannot offset the ICMS we paid, so this becomes a credit. Okay. Those credits at the consolidated balance sheet are around $800 million in JVs. So when we have Flora inside JBS, with the same CNPJ, as you call the same corporate, we can pay Flora’s ICMS on the domestic sales with the ICMS credits that we have accumulated.

Okay. Those ICMS, as I mentioned, will be replaced by CBS and IBS, which will have the same dynamic of credit accumulation, maybe even more. So we’ll be able to use and monetize those credits with Flora. And the last is Flora will start to pay income tax next year. Bear in mind that we have, as I mentioned, $2.2 billion in income tax credit in JBS balance sheet, which we can also use to pay Flora’s income tax. So basically those are the major parts of the tax credit synergies, as you mentioned is the most part of the synergies.

Now the net debt/EBITDA—you are putting on the 2026 Flora EBITDA. But Flora, some segments of Flora operated in 2026 with 49% capacity, which we expect to increase to 70% next year and so on, because we have some disruptions in 2026—factories renovation, things that decrease our capacity utilization—and we have the expansion capex that is being implemented and new capacities coming online in the next years. So because we have all these downtimes, because we have these disruptions, and we have the capacity coming online next year, it’s better to look at 2027 EBITDA that is around 420,000,000 reais for next year.

So considering these 420 million reais, net debt/EBITDA of Flora would be even lower than JBS. And as we put more capacity online throughout the years, increasing revenue and EBITDA and monetized tax credits, the net effect on leverage throughout time is even positive with Flora acquisition. Okay, clear, Ricardo. So now let’s talk to the strategic part. I’ll begin, and Wesley will help here.

Wesley Batista Filho (Chief Executive Officer, JBS USA)

Yeah, so what I would say here, Ricardo, is obviously those are the shorter-term, more simple parts of this whole opportunity here. But what we are very interested about is we see this as more of a continuation of the work we’ve been doing for the past five years, especially when we started our business with Genu-in in Brazil and with Biotech, either also in Spain and in the south of Brazil. And we think that the future of the protein market is going to be, obviously, in the center of the plate.

That’s a big, you know, the main part of the business and that continues to be a main focus of ours. But we cannot ignore, and we need to be very, very much present in, all of the nutritional supplements and nutritional part of the business that we think is a huge value-added part of the business, especially given the production capacity that we have. We think that starting off in the Brazilian market, where we have a lot of strength on the commercial side overall, being able to distribute now with a different, obviously, distribution base for all of these dry goods, being able to create a strong B2C business for all of this sort of nutritional market—we think it’s a big opportunity and something that will add a lot of value to our co-products and, on top of that, enhance our portfolio on nutrition overall.

So going from the center of the plate also to all of this nutritional side. And again, it’s a business that’s growing within JBS, and we think that in the future, in the next decades, this will become a huge business globally as a whole, and we want to be an important part of that. So this is an important step for us to grow in that direction. I also would highlight that it’s an important way for us to monetize our byproducts. For example, if you look at Darling, a company in the US, a great part of its valuation is for the ingredients that enhance human health and well-being.

Ricardo Alves (Analyst at Morgan Stanley)

Thank you for the very complete answer, Wesley. Thank you also, Guilherme. Helpful. Thank you.

OPERATOR

Thank you. And now Mrs. Isabelle Simonato would like to ask a question from Bank of America. Mrs. Simonato, you may go ahead.

Isabelle Simonato (Analyst at Bank of America)

Thank you very much. Good morning, everyone. So I want to follow up on the Flora deal. I guess the overall rationale is clear, but I wanted to ask if we could think about this acquisition as the first step of some category that can become bigger over time for JBS. I recall we had the discussion, I think in the first JBS Day in the US, if you could move away from proteins and diversify and become more of a consumer goods company. So I wonder if we can interpret this move as a first step of something bigger.

I guess that’s my first question. And still on that matter, when we compare Flora to, eventually, other targets of acquisitions in that segment, if you could just give us context about their peers and, eventually, relative valuation—and why do this now? My sense is that the implementation of the tax reform also matters in timing, but I just want to understand a little bit better timing and the context for this. And I understand that there’s no immediate balance sheet impact to JBS, but I wonder if adding complexity here and, eventually, any type of additional investments that Flora might require during this time, if that makes sense.

Thank you.

Wesley Batista Filho (Chief Executive Officer, JBS USA)

Isabelle, good morning. So I’ll start here. You know, obviously, like I said, part of nutrition and being able to develop a strong B2C business for all of this supplement category is a main target of ours, and it’s one of the biggest parts of the vision of this acquisition. On top of all the things that Guilherme mentioned that are very important as well from an integration and synergy perspective—verticalization as well of our core products—it’s very important for us to grow all of this to have a complete portfolio.

And so we’re going to have other portfolios that we are entering as a company right now. And obviously we’re going to do everything we can to be very successful in that and to have a leadership position in those categories within the Brazilian market. And obviously we’ll see what the future holds for that. So if there are accretive ways to grow that business within the Brazilian context as of right now, it’s something that we’re going to evaluate. But again, we think that there is potential. So let’s see. I’ll let Guilherme mention here about the valuation.

Guilherme Perboyre Cavalcanti (Chief Financial Officer)

Hi, Isabelle. So we have to split into fronts. If you look at the international peers, enterprise value/EBITDA 2027 multiples range from 10 to 14 times. But if you look at the Brazilian comparables, these range from 5 to 10 times. So in Brazil multiples are lower than our international peers. But we think that we have potential—that’s one of the reasons that we see potential value creation. And again, as I mentioned, if you look at all the synergies and put the net present value of them compared to the enterprise value paid, we see that the multiple is very, very compelling.

Isabelle Simonato (Analyst at Bank of America)

Thank you.

OPERATOR

Thank you. And our next question comes from Mr. Henrique Brustolin from BVI. Mr. Brustolin, you may go ahead with your question.

Henrique Brustolin (Analyst at BVI)

Hello, everyone. Thank you for taking my question. My question is back to US Beef, especially about Mexican cattle imports. Wesley, you have mentioned the relevance of cattle imports from Mexico to help rebalance the US industry. We are seeing imports growing, but still at a somewhat slow pace to get to the 1 million head per year. And of course there’s a natural ramp up here. But it would be great to get your view in terms of how imports right now are shaping up relative to your expectations and how you expect the pace picking up going into 2027, so you can see this better environment in terms of cattle supply and beef margins.

Thank you very much.

Wesley Batista Filho (Chief Executive Officer, JBS USA)

Good morning. We think that Mexico, obviously, when it first opened and you just had one port of entry, was below 1,000 head per day. But given the volumes that are crossing as of right now, we think it’s very relevant. There are many variables here, but given what we know right now, we would expect, on an annualized basis, about 1 million head. If you think that we have the two biggest states of Mexico being open to export to the US and you’re doing 1 million head out of the 1.2 that used to come, I think it’s pretty relevant, and it’s a big deal if you think about it.

Also, a good way to think about it is, in the past, Mexican cattle would account for 4% to 5% of US processing volumes. But if you look at just what that percentage was of the southern states, you’re talking about probably around 15% of the processing capacity of the southern plants. So it’s a big deal, and just the amount of cattle that’s been crossing is important—it’s relevant enough to make a big difference. And I attribute a lot of the improvement in the cattle situation for us in the US to the reopening of the Mexico border.

Henrique Brustolin (Analyst at BVI)

Thank you very much. Very clear, Wesley.

OPERATOR

Thank you. And now Mr. Purin Sharma from Stephens has a question. You may go.

Purin Sharma (Analyst at Stephens)

Good morning, and thanks for the question here. Just wanted to focus on US pork. My first question would be to understand the commentary you alluded to earlier. I believe you said you expected maybe some potential relief in 1H27, or at least you expect the conditions to drag on through 1H27. Just wanted to see what gives you confidence or visibility into improvement in the back half of 2027. And for my follow-up, I wanted to understand just the differences between US GAAP and IFRS a little bit better for this segment. We’ve seen the last few quarters a big divergence in these margins, and I think it’s largely due to the biological asset valuation. Given the move we’ve seen in lean hogs in 4Q, I just wanted to get a sense if you would expect the same type of divergences between US GAAP and IFRS to persist in 4Q for US pork.

Wesley Batista Filho (Chief Executive Officer, JBS USA)

Sharma, good morning. So, on the pork side, we expect that it will continue to be tough at least through the first half of the second year of next year. We expect—and we see—the USDA number for, you know, just global production, kind of similar, in line with what we believe. We think that there is going to be an adjustment of production globally. Obviously, countries that are more competitive and more productive are going to gain a bigger market share of the global pork supply and countries that are less efficient are going to lose space and competitiveness.

So, the USDA is showing a decrease in next year’s pork production globally, similar to the increase we had this year. We already see numbers, for example in China—which are the biggest pork producers in the world—reducing. They used to hover around 40 million sows; that was their total herd of sows. And now they are close to 36, and that’s a relevant decrease in a very, very large country. And we think we’re going to see that in other areas. Countries that are less competitive are going to lose space in the market.

And I think that globally, overall, we’re going to see an adjustment. Obviously, you have to remember that the pork cycle is a lot shorter than the beef cycle. So I’m not saying that the beginning of the second half of next year is going to be great and things are going to be completely changed—I don’t know that yet. But our expectation is that, given what we’re seeing globally, especially in some of these countries moving to reduce production, we think that there is a good chance that we have a better second half of next year.

Guilherme Perboyre Cavalcanti (Chief Financial Officer)

Okay. Going to the mark-to-market, you are totally right. The volatility all comes from the fact that the IFRS inventories are mark-to-market, including the hogs, while in US GAAP it’s at cost. And how is the mark-to-market? You get all the futures curve of hogs to price our inventories, and that’s what the big swing was. So looking at the fourth quarter, we will depend on this futures curve. We think that the futures curve is already inclined, so only if it inclines even more down would we have another effect like that.

But it’s worth mentioning that, for example, WH, which reports in IFRS, because of this hog volatility, is adjusted for the mark-to-market of biological assets.

Purin Sharma (Analyst at Stephens)

Okay. Appreciate the clarification.

OPERATOR

Thank you. And next is Mr. Thiago Duarte with BTG, who would like to ask a question. Please go ahead, Mr. Duarte.

Thiago Duarte (Analyst at BTG Pactual)

Yeah, hello everybody. Good morning. Thanks for the opportunity, as usual. I wanted to circle back to Guilherme’s exercise in the end of the presentation, particularly when discussing the outlook for 2027. And obviously you never provided a guidance, but looking at the exercise and trying to reconcile the numbers a little bit, you talk about coming into the end of 2027 with the leverage of the company within what you call the safety zone, if I’m not mistaken, which is up to three times leverage, right.

And as we try to sort of reconcile the numbers to your EBITDA, the way I’m looking at the math here, it implies a pretty nice improvement in the company’s EBITDA into 2027 relative to 2026. And my understanding is that the biggest contributor to that in your exercise has to come from the U.S. Beef division. So my question to you guys, and obviously going back into the discussions about capital imports from Mexico and so on and so on, is: are you comfortable that U.S. Beef can approach the sort of historical normalized low- to mid-single-digit margin into 2027?

So that would be the question, trying to reconcile to the exercise that Guilherme did at the end of the presentation. Thank you.

Guilherme Perboyre Cavalcanti (Chief Financial Officer)

Okay, thank you, Thiago. Yeah, I also read your report last night. And you mentioned that at the $1.4 billion EBITDA for the fourth quarter we would be ending at 375. That’s not correct. You forgot the free cash flow generation of the fourth quarter, which offsets part of the decrease in the last 12 months’ EBITDA. Bear in mind that we have the deferred livestock; we will have the inventory sales in Europe of Seara; and we have the resumption of Chinese purchases from the working capital we consumed in JBS Brazil in the fourth quarter.

So, therefore, with the $1.4 billion EBITDA that you mentioned for the fourth quarter, we would be ending between 3.5 and 3.55 times net debt to EBITDA, depending on, of course, the free cash flow. But that’s, I think, a better estimate. So now for next year, you’re right: the main assumption here is the turnaround of U.S. Beef. Remember, this year U.S. Beef consumed $721 million of free cash flow already, because only working capital was $254 million and $310 million of EBITDA. So for next year, if this EBITDA comes to the positive side—so, whatever—that’s why I mentioned each 1% is $300 million EBITDA. And the working capital consumption was mainly due to the cattle price increase in the first semester.

If we think of falling cattle prices or even stable cattle prices, we should release working capital from this business unit instead of consuming working capital. So my assumption for next year: again, bear in mind, we have the Australia equity sale of $800 million cash inflow; we have the fourth quarter, as I mentioned, free cash flow generation; and, for next year, if we have a turnaround in the beef segment and we end up with EBITDA between $5.5 or $6 billion, we will be below three times.

Thiago Duarte (Analyst at BTG Pactual)

That’s super helpful. Thank you. Glad.

OPERATOR

Thank you. And our next question comes from Mr. Benjamin Thurer with Barclays. You may go ahead with your question, Mr. Thurer.

Benjamin Thurer (Analyst at Barclays)

Yeah, good morning. Thanks for taking my question. I actually would like to pick up on the exercise and one of the commentary you’re making as it relates to CapEx next year. So, if I picked it up the right way, I think you said you’re looking into the budgeting to reduce CapEx by approximately $500 million. Is that against the roughly $2 billion base in 2026? And if so, what would be areas where you’re looking at in terms of cutting CapEx? Is that cut outright, or is that postponing?

How should we think about that reduction in CapEx that you’ve mentioned? Thank you.

Guilherme Perboyre Cavalcanti (Chief Financial Officer)

That’s a very important point that I also forgot to put in the equation of the previous questions: I also embedded around $500 million of capital expenditure decrease for next year, improving free cash flow. Our $2.0–$2.1 billion of this year—bear in mind that around $1 billion is maintenance CapEx, where there’s not much change to that, but $1 billion is growth CapEx. So what we’ll be doing for next year is that some CapEx projects that we already began we will finish, but we will not start new projects, or the ones that didn’t start we will postpone for the other year or depending on how the year goes.

That’s why we are still in the budgeting process. In fact, I’m going to Greeley next Friday for budget and CapEx meetings. But we are very confident that we can cut around $500 million of CapEx. Remember that in 2023, when our EBITDA was $3.5 billion, we budgeted $1 billion maintenance CapEx for 2024 and $300 million growth CapEx for 2024. But because 2024 was better than expected—in fact, we ended up with $6.8 billion in EBITDA and $2.8 billion of free cash flow—we then restarted some projects and we ended 2024 spending $500 million in growth CapEx. So that’s what we intend to do: we will stop and postpone CapEx, reduce the $500 million.

If the year is better than expected, we can anticipate the ones that we postponed. It’s clear.

Benjamin Thurer (Analyst at Barclays)

Yeah. Yep, very clear. Thank you.

OPERATOR

And our next question comes from Mr. Thiago Bortolucci with GS. Please go ahead, Mr. Bortolucci.

Thiago Bortolucci (Analyst at Goldman Sachs)

Yes. Hey, guys. Good morning, everyone. Thanks for the opportunity. I think my question is for Wesley, and I’d like to stress again the demand side in the U.S. This is just to put in perspective a few of the information we have so far. We know pork has been under pressure for a while—it’s not the first time you mentioned this in your press release. When I see the numbers for Pilgrim’s, you continue to allude to strong demand. But then, when I see top-line growth, it’s pressured within foodservice, fresh, and retail.

And then, I think more importantly, when I see the evolution of the cutout for beef throughout the grilling season, it moved actually downwards and ended the quarter even a little bit below last year. So in a context when we have rates in the U.S. potentially higher for longer, inflation potentially higher, how confident are you that demand will remain sticky next year, and more importantly, how confident are you in your pricing power eventually to protect or even expand margins in this context? Thank you very much.

Wesley Batista Filho (Chief Executive Officer, JBS USA)

Thanks, John. So look, we see demand for protein in general has been pretty strong. I think the fundamentals are all there. I don’t want to be too repetitive and talk about all of them because it’s something that in all conferences and all meetings we all talk a lot about and we all kind of see similar fundamental trends that everybody knows. But when we look at specifically per protein, we see beef demand, you know, when you have such a big increase in prices, you know, obviously our price follows the price of cattle. So when we had such a large increase of cattle prices and then you have such a large increase of beef prices, sometimes it’s even difficult to look at the seasonality because maybe the price of cattle goes up in the off-season kind of period, right, and then things kind of stabilize up here.

So it’s a little bit tricky to look at that in that way. But what we actually—the way I would say it is, having a cutout that’s in the high 300s and still have the strong volume that we’re seeing, I think that’s a big deal. And it shows that demand in beef is really strong. And when we talk to customers, we hear that the beef demand is quite inelastic, and actually I would even say much more inelastic than we even expected before all of this big shortage of cattle that we’ve had in the U.S. In chicken we’re seeing, you know, just worldwide, we’re seeing the same thing. We’re seeing demand for chicken pretty strong, especially in foodservice. And we’re seeing a lot of, you know, foodservice chains, QSRs, all going into chicken. So there is a big trend going there. You know, now obviously inflation overall across the board, especially in fuel, have taken a toll on consumers. And what we are seeing is that the protein that has had the toughest—the biggest challenge has been pork.

Pork absolutely has had the biggest—you know, we’re seeing the softness in demand very concentrated in pork. And I think it’s not necessarily anything against pork that the consumer has. It’s just that their preference for beef and chicken has been just so strong that whenever they have to stretch a little bit more their dollar, they’re still going to have their beef, they’re still going to consume chicken, and maybe they cut back a little bit on pork.

So that’s what we’ve been seeing. But overall the trends are still pretty consistent in our opinion. Having said that, obviously when overall inflation is just that high and strong and puts the strain on consumers, they have to make a choice and they have made a choice to cut back on pork demand.

OPERATOR

Thank you. And our next question comes from Mr. Andrew Strelczik with Bank of Montreal. You may go ahead with your question. Mr. Strelczik.

Andrew Strelczik (Analyst at Bank of Montreal)

Hey, thanks for taking the question. Wanted to ask about Seara. You talked about record chicken exports out of Brazil, but there were also some areas of weakness as well. And the margins were the lowest we’ve seen in a little while. So I’m curious if we should anticipate Seara margins continuing to decline year over year in the fourth quarter and into ’27, or if you see opportunities for that to recover, and if you do see opportunities for that to recover, what the drivers would be.

Thank you.

Gilberto Tomazoni (Global Chief Executive Officer)

Hi, Andrew. Thank you for your question. We see first—I will be answering directly your question. We see improvement on the margin of Seara for the fourth quarter compared to the third quarter. And what is the reason for that? First, I think one very important reason is the appreciation of the dollar against the real, and Seara exports 50% of its revenue, and this means a lot in terms of impact on the bottom line. This is the first. The second point: the market for chicken—just to add to the explanation of Wesley—we see the demand of chicken globally very strong. Reported was the largest volume sold in one quarter to export, which means that the market is very demanding. This is the point: demand is strong and the dollar is higher. And there is another point for Seara. In Europe, our team anticipated restrictions of Brazilian poultry exports and chicken breast. Ahead of those restrictions, we built inventories in this region.

We expect to sell these inventories in the fourth quarter, allowing us to serve customers even while shipments from Brazil were restricted. Together with the stronger seasonal demand in Brazil, this supports the favorable outlook of Seara for this month. We really expect higher margin than the third quarter for Seara.

OPERATOR

Great. Thank you very much. Thank you. Our next question comes from Mr. Leonardo Alencar with XP. You may go ahead with Mr. Alencar.

Leonardo Alencar (Analyst at XP)

Okay, thank you. Good morning, everyone. Probably a follow-up on the last question. I understand there are many moving parts going on in Brazil right now—so with the Newcastle in Santa Catarina and now the restriction on pork exports to the Philippines. But also this inventory build-up because of the Chinese quota for beef and Seara’s strategy on corn. There are too many things in place to get a better view on the Q4. If you could just walk us through on this inventory release.

I would expect probably beef and part of this chicken in Europe to be released on Q4, but on-farm maybe it would stay for longer. But then this impact on exports—how they could play on margins as well. So just some more color on that. Thank you. Did you hear my question? I’m not listening to anything from the other side.

OPERATOR

Sorry, Leonardo, I think Tomazoni had a problem there.

Leonardo Alencar (Analyst at XP)

Oh, sorry. Sorry. I’m back. Sorry. Did you get my question?

Gilberto Tomazoni (Global Chief Executive Officer)

Yes, I think I got your question. Let me see if I will start to answer. Hello. Hello. Are you hearing me, Leonardo? Yes. Okay. Just to talk about—you mentioned the restriction that we have in terms of the Philippines. We do not yet know for certain what the restriction will be there. There is talk about halting imports for at least 60 days. It is unclear whether this refers to stopping the issuance of import licenses or halting shipments. If the decision concerns import licenses, the impact will not be felt until around January.

If the decision is to halt shipments, the impact will be immediate. Of course this will have an impact. We do not know what the impact is yet. But you know that pork is under pressure globally—Wesley has mentioned that it is not just in the U.S., it is globally. And of course we have markets to sell with a lower price—that will impact margin. But pork is really—if you consider all of the revenue of Seara, fresh pork has a lower impact if you compare to the other businesses that we have in Seara.

The other point that you mentioned is about the quota of China. I think it’s important to let you know that we started production for China’s market in the second half of September, anticipating this revenue demand under the 2027 quota. That production effort started in the third quarter, while the related sales are expected to benefit the fourth quarter. We have already seen improvement in October. And we will have additional revenue from what we produced in September in the second half—we just had the cost of the production and not the revenue.

Now we are starting to ship to China. That will show strong improvements on results of Friboi in Brazil. And the same will be with Seara. I mentioned before, to the other question—it was Andrew asking—about the product that we have in Europe. Europe is closed; we are selling the product. We are expecting that we resume importation at the end of this year or the beginning of next year. But the product will be around in Europe next year. This means that I think the strategy we have done—both in Friboi and Seara—to build inventory in Europe, and the strategy to start to produce early to China in Friboi, will benefit our business in the fourth quarter.

Leonardo Alencar (Analyst at XP)

Hey, thank you, Tomaz.

OPERATOR

Thank you. And our next question comes from Mr. Matthias Enfield with UBS. Mr. Enfield, you may go ahead with your question.

Matthias Enfield (Analyst at UBS)

Good morning. Thank you for your time. I want to have a question on U.S. beef. We saw peers partnering with cattle suppliers for a while now but particularly more recently, and we discussed in the past whether the current U.S. cattle cycle is going to lead to a structurally different supply. So my question is more on your end: what’s the way to get closer to the rancher? If there are any alternatives there—anything that the company is considering or starting in that direction—or if you want to restate the comments from previous calls that it’s a business that is a bit too different from yours.

So trying to understand how you get closer to the rancher, if that’s a strategy that JBS could also follow. Thank you.

Wesley Batista Filho (Chief Executive Officer, JBS USA)

So no, we see that us entering a ranching business—the ranching business or even the feedlot business—is not our focus. It’s not our core. It’s not something that—we’ve done that in the past, and I think that our model today, which is to partner up with, you know, having long-term commitments with companies that are specialized to do that, is the best scenario for us. And we don’t see ourselves verticalizing the supply chain. We don’t see that as something that—well, having said that, obviously, we have very strong partnerships with a lot of different suppliers, and those are very long-term agreements that are great partnerships, and we see us having that going, not us doing it ourselves.

Matthias Enfield (Analyst at UBS)

Awesome. Thank you.

OPERATOR

Next question is from Mr. Lucas Ferreira with JP Morgan. Mr. Ferreira, you may go ahead.

Lucas Ferreira (Analyst at JP Morgan)

Hi guys. Hope you are good. Also have a follow-up on the U.S. beef business, which is looking at 2027. Obviously we’re going to have more cattle from Mexico, and with the ramp-up that we’ve been seeing it’s looking great. But on the other hand we also expect retentions to increase, right—that’s the expectation for some normalization ahead. And we started to see some announcements of more capacity being added back to the system. I wanted to hear also on the labor side if there could be more labor available next year.

So the question is really, how do you see the net-net of these things? So more cattle from Mexico—you mentioned 1 million head—but eventually more retention and also more capacity being added or more shifts being added as these animals get into the system. So, Wesley, what do you see as the net-net of the cattle availability in the country, and if you think there is a risk of more supply actually ends up, you know, limiting the upside for margins.

Thank you very much.

Wesley Batista Filho (Chief Executive Officer, JBS USA)

Look, because—good morning. Our analysis on beef has always been with the information we have in the public. So I’m not going to talk about individual announcements by our peers, but the recent announcement nowadays was, I think, a little bit of a continuation of what we heard in the past. We don’t see that there is any new, later information that changes the way we see the market going forward. We already expected that. At least, there is nothing new from recent announcements.

From our point of view, it’s more of a continuation of what had previously been announced. All of these comments that we’re making are based on that as a premise—as an assumption. We think that next year will be, again, a much better supply. Demand for cattle—and labor—hasn’t been a problem, at least from our perspective, for a few years now. So even if there is more labor next year, I don’t think it changes much. It’s something that has already been the case for this year.

OPERATOR

Thank you. Our next question comes from Mrs. Heather Jones. Mrs. Jones, you may go ahead with your question.

Heather Jones (Analyst)

Good morning. Thanks for the question. My question is related to the U.S. Pork business, specifically on the GAAP results. It was a sharper-than-expected sequential deterioration, and I’m just trying to get a sense of what that was predominantly driven by—lower hog production earnings, or more roughly evenly split between raising and the processing side?

Wesley Batista Filho (Chief Executive Officer, JBS USA)

Heather, good morning. We had a sharp decline in hog producing for sure, and hog producing has been a big part of it. It has been doing great for the past years and it has been a great help to our business, and now it has been deteriorating faster. So it’s an important part of the decline—yes, it’s an important part of it. But also, just overall, spreads have been tighter. If you look at the spread between cost and the hog cost, it has been kind of compressed on both sides.

Heather Jones (Analyst)

Okay, thanks so much.

OPERATOR

Thank you. And our next question comes from Mr. Guillermi Polaris with Santander. Go ahead, Mr. Polaris.

Guillermi Polaris (Analyst at Santander)

Good morning, everyone. Question here for Guilherme. If you could just recap a bit the steps towards the closing of the Nantara deal, when we should see the 800 million flowing through the balance sheet, and just the overall step by step until there.

Guilherme Perboyre Cavalcanti (Chief Financial Officer)

Thanks, Guillermi. Yeah, this depends on the regulatory authorities of Australia, including FIRB. Generally it doesn’t take so long, but it’s something that is out of our control. We don’t expect it to take a long time.

OPERATOR

Thank you. And next we have Mr. Ricardo Viatori from Safra. Mr. Viatori, you may go ahead with your ques