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Executives

Wesley Batista - Global CEO of JBS

André Nogueira - CEO of JBS USA

Jerry O'Callaghan - Investor Relations Officer

Analysts

Farha Aslam - Stephens Inc.

Daniel Senssel - J.P. Morgan

Mauricio Martínez - GBM

Jose Yordan - Deutsche Bank

Pedro Leduc - J.P. Morgan

Erika Miyazaki-Ross - Barclays

JBS S.A. (OTC:JBSAF) Q2 2014 Results Earnings Conference Call August 15, 2014 10:00 AM ET

Operator

Good morning everyone and welcome to JBS’ conference call. During this call we will present and analyze the results for the second quarter of 2014. As requested by JBS this event is being recorded. The recording will be available to listeners this afternoon and can be accessed by following instructions posted on the company's website at jbs.com.br/ir.

Taking part on this call we have Mr. Wesley Batista, Global CEO of JBS; Mr. André Nogueira, CEO of JBS USA; and Mr. Jerry O'Callaghan, Investor Relations Officer. Now I will turn the conference over to Mr. Wesley Batista. Please go ahead, sir.

Wesley Batista

Thank you, and good morning, all. Thank you very much for being in our second quarter earnings call. I will turn the call to Jerry to go through the presentation and the highlights for the second quarter and before we turn to Q&A, after Jerry finishes the call I will make some more comments about our performance in this second quarter and our view about the business overall. So I will turn the call to Jerry. Jerry?

Jerry O'Callaghan

Thank you. Thank you, Wesley. Good morning everybody and thank you all for being on the line with us today. We have put our presentation on our web page this morning and I just wanted to mention that we will be making reference to this presentation during this call and I will mention page numbers for those of you who are accompanying us.

So starting on page 3. The highlights on a consolidated basis for JBS for the quarter. We had R$ 29 billion in sales, R$ 7 billion greater than the same period last year. 32% sales growth. Our gross margin was R$ 4.25 billion, that was up R$ 1.3 billion or 44.5% in relation to the same period last year and our consolidated EBITDA for the period was R$ 2.4 billion and that was up almost 46% in relation to the same period last year with than EBITDA margin of 8.4%.

Interesting, just to highlight there that our revenues were up 32% but our gross profit and our consolidated EBITDA was up 44%, 45% in the same period. So obviously there was an improvement in operations. There was a better performance this year in the relation to the same period last year. Net income for the period was R$ 254 million or R$0.09 of the real per share that was impacted by two factors which we mentioned in our press release last night. Firstly, we paid -- we prepaid 16 bonds, a portion of our 16 bonds and that cost us R$ 90 million and we continue to maintain our dollar exposure position in Brazil hedged which is an expensive exercise but we think it's a prudent exercise in this environment. We think it's better to have this expense and to be protected against currency variation.

Our exports in the period were up quite substantially as well up 45% in relation to the same period last year at $ 4.3 billion in exports on a global basis from JBS. Almost one third of for total revenue coming from exports. Obvious growth in the emerging markets where production is not keeping up with demand. And on leveraged, on a consolidated basis our leverage, we ended the quarter at 3.15 times against 3.26 times at the end of the first quarter and if we go back to the third quarter of last year, we were about four times after we had announced a relevant acquisition. So a big decline in leverage through the last couple of quarters.

Looking at the business units individually, I am making reference to page 4 in our presentation which is available to you. So I am mentioning highlights, at least one highlight from each of the business units and are starting with our JBS Foods in Brazil which is basically our poultry and pork business and all our prepared and convenience foods business in Brazil which is a relatively recent business unit. We had more than R$ 3 billion in revenues in the period R$ 440 million in EBITDA, with than an EBITDA margin of 14.3%. You might recall that we had an EBITDA margin of just north of 13% in the first quarter. So we have seen growth in revenue growth and EBITDA and improvement in the EBITDA margin.

JBS Mercosul business, which is basically our beef business, our hides business and other related businesses in South America, Brazil, Uruguay, Paraguay and in Argentina. R$ 6.3 billion in sales in the second quarter. That was 15.8% in relation to the second quarter of last year. And EBITDA R$ 634 million with an EBITDA margin of double digits, 10.1%. Our U.S. beef business. $5.3 billion in sales, that was almost 11% in relation to the same period in last year and $R 8 million plus in EBITDA was an EBITDA margin of 2%. Our pork business had revenues just over $1 billion, $1.0128 billion. 18.4% up on the same period last year. EBITDA was $114 million with an EBITDA margin of 11.1%.

And then finally, regarding our business units. Our poultry business in the U.S. Pilgrim's Pride Corporation which already reported almost $ 2.2 billion in sales which was stable in relation to the same quarter last year. $ 338.6 million in EBITDA with an EBITDA margin of 15.5%. Continuing in our presentation and making reference to recent events which were announcements made by the company since the end of the quarter, basically in the month of July. We announced to acquisitions during that period of time and I will briefly describe those acquisitions here.

We announced the acquisition of Tyson in Mexico and Tyson in Brazil and we also announced the acquisition of a local poultry producer here in the state of São Paulo close to the big consumption centers in Brazil. Regarding the Tyson, Mexico acquisition, $ 400 million, three vertically integrated processing units and seven distribution centers. $ 400 million was what we paid for that. In Brazil, Tyson, also three integrated poultry units, six distribution centers, $ 175 million was what we paid for that. And then the company in São Paulo state is called Céu Azul. To integrated poultry plants, three hatcheries and feed mills. All of this is subject to anti-trust approval. And so this was an announcement made in the last month and subject to anti-trust approval. The Tyson Mexico acquisition done in the name of Pilgrim's Pride Corporation and the acquisitions made in Brazil, Tyson do Brasil and Céu Azul made in the name of JBS Foods.

Now turning to page 7 in our presentation, talking a little bit about our exports. We already mentioned 45% increase in exports. Those are broken out by destination on a consolidated basis on page 7. So we see an increase in our sales in the South American region and substantial increase overall in the sales. 45% up, and obviously part of that is due to the increase in our production capacity and exports of poultry and pork products out of Brazil.

Now talking a little bit about CapEx and our debt profile, looking at presentation from page 9 onwards. So firstly on CapEx, we had R$ 760 million in CapEx in the quarter. About 40% of that was related to acquisitions, expansions and facility modernization and the balance 60% to maintenance. And also in the period we finalized the acquisition of convenience, prepared foods business here in the state of São Paulo called, Massa Leve. That involved the transfer of R$ 203 million worth of shares, JBS S.A. shares which we had in treasury, plus the payments of R$ 65 million in cash. And that can be seen in our statement of cash flow and in the line net effect of working capital from acquired companies.

Cash generation was R$ 147.3 million in the period and basically cash generation was limited because of increasing exports which requires working capital and increased capacity and increased pricing across just about all our businesses.

Debt profile on page 10 of our presentation. We can see the evolution of our leverage from the third quarter of 2013 coming from just over four times to just over three times at the end of the quarter. Our debt by currency, 77% is in U.S. dollars. The cost of that has declined now to 5.67% per annum and the balance in real, 23%, 11.25% annual cost of the debt. We issued bonds at JBS USA in the quarter, $ 750 million. Part of the proceeds used to pay down our 16s and so again that is a measure which is allowing us to extend our maturity curve and to reduce the cost of debt in dollars.

Continuing on debt profile, I am on page 11 of our presentation. We ended the quarter with R$ 10.3 billion in cash and with $ 1.27 billion in fully available facilities at our JBS USA business. So if we add our cash position plus these available lines in the U.S., that represent 133% of our short-term debt. And the percentage of our short-term debt in the period of reduced from 29% to 28% of the total debt. Just on our debt maturity also on page 11, we see that a good portion of our debt matures now to 2020 and onwards.

Okay. And then just briefly on is business unit. I will go through this very quickly from pages 14 onwards. Page 14 is regarding JBS Foods, where we are basically, the brands we have, the breakdown between domestic and export markets and a good balance of the export markets that we are working with. The Seara brand is highlighted also in our presentation. We have been increasing our market share with the Seara brand in Brazil and doing quite a lot of promotion and advertising around the brand.

The results of that business units, specifically, are on page 15 of our presentation. And revenue is up from R$ 2.8 billion in the first quarter to R$ 3.1 billion. EBITDA was up to R$ 440 million with an EBITDA margin of 14.3% as I mentioned earlier. And so we see a constant improvement in this business unit.

JBS Mercosul, which is basically our beef business in Brazil, in Uruguay, Paraguay and in Argentina. Our hides business which is quite a substantial business and also other related businesses like biodiesel and other byproducts that we produce. Again this is 47% exports, 53% domestic. Quite a lot of exports to Asia and to neighboring South American countries and again we have a very strong brand in our beef sector in Brazil which we have been supporting and in which we have been increasing our participation in the market.

Revenues for R$ 6.3 billion for the period. That was up 16% in relation to the same period last year. If we look at exports, they were up 22%. EBITDA was up R$ 634 million with an EBITDA margin of 10.1%. We see a lot of consistency in the EBITDA of this business. Double-digit margins, very constant margins over the last five quarters.

Going to our U.S. business and starting with our JBS USA beef business. And again on page 20 of our presentation we show the location of those businesses. JBS USA in the U.S. Our operation in Canada, up in Alberta in Canada and also our operations in the east coast of Australia. 28% of this business is export, 72% is domestic. Because of our Australian exports to Asia, there is a big concentration of the exports into Asia but also a lot of sales in to our neighboring North American countries. And some very recognizable brands, very specific brands like Aspen Ridge, Cedar River and the Swift, various types of Swift brands that we have got.

Revenue was up 11% in relation to the same quarter last year of $ 5.3 billion. We saw the price increases domestically and in the export market. EBITDA was up just over $108 million, 2% EBITDA margin. Cattle prices were up as well and we saw quite strong exports to Asia as I mentioned. Our pork business in the U.S. Again we are located in the U.S., three production facilities. 85% is domestic U.S. 15% is export. Again exports are concentrated either in the neighboring North America countries are into Asia, and again very strong brands and some high-quality products like our dry rubbed ribs and other pork items inside the U.S. market. Revenue went from just under $ 900 million to over $ 1 billion quarter-on-quarter, up almost 19% year-on-year. We saw substantial price increases in the pork category. Wesley will comment about that business a little bit later.

EBITDA was very strong at just under $ 114 million with an EBITDA margin of 11.1%. EBITDA was up 124% in relation to the same period last year.

And then finally on the business unit, just briefly on our chicken business in North America, it's Pilgrim's Pride Corporation. We reported numbers right at the end of last month, so most of you will be familiar with that business. Just a little bit about, 80% domestic, basically 11% is our Mexican operations, 9% of exports. Again a lot of those exports are out of the U.S. into Mexico. So a bigger participation than actually what we produce in Mexico but also some exports to Asia. This business posted revenues of $ 2.2 billion which is pretty stable in relation to the same period last year but a big increase in EBITDA. EBITDA was up to $ 339 million with an EBITDA margin north of 15%. So we saw, besides the reduction in feed price, we have seen efficiency improvements across this business which was responsible for that very strong EBITDA in this business unit.

So that finalizes our presentation today and I will pass you on now to our President Mr. Batista to make some further comments before we open for Q&A. Thank you very much.

Wesley Batista

Thank you, Jerry. I will go through some -- try to summarize some key points here on this call. So Jerry already mentioned the points. But very good topline growth, so 32% this quarter compared to the same quarter last year. Very strong gross margin expansion, so we expand 44% our gross margin this quarter compared to the same quarter last year. EBITDA, the same thing, 45% expansion in EBITDA this quarter compared to last quarter.

So a clear demonstration that gross margin and EBITDA is growing more than our revenue. So we did 32% growth in revenue but the gross margin and EBITDA expand 44% and 45%. So good quarter in all these fronts. Net income, so we missed net income based on two factors. So we did R$ 254 million in net income affected by R$ 90 million that is one-time event, the premium that we pay on the 2016 bond. So it did impact our financial cost in $90 million. And also the cost to carry the hedge on our dollar exposure, so we are fully hedged. So this is costing us but due to the political scenario in Brazil we strongly believe that this is the most secure thing to do now, even though it is costing quite a lot.

So leverage, we keep the leverage in our balance sheet. So it seems we are now the [three acquisition] (ph), we have mentioned to the market that we are going to finalize 2014 at around three times leverage and we are well positioned to even close this year are below three times leverage. Export, very strong growth, 45% growth this year, this quarter compared to last quarter. So we are seeing a very strong demand in a lot of different markets. China, big big demand especially for beef. A lot of emerging markets, very strong exports demand.

Talking quickly here about its business units. So JBS Foods, that is our chicken prepared food and pork business in Brazil. Last year we announced R$ 1.2 billion in synergy that we are going to capture this year. We are ahead of this number. We already captured R$ 700 million in this first half of 2014. In our run rate base we are looking for R$ 1.5 billion instead to R$ 1.2 billion. So ahead of our initial guidance in terms of synergy for our JBS Foods business. So 14% margin EBITDA and expanding the margin comparing to the first quarter. So we are very satisfied where we are going with this business.

So our Mercosul business that is the beef, the hides in Brazil, Argentina, Uruguay and Paraguay, is going well. It's a stable business performing double-digit (indiscernible) is around 10%. And we keep satisfied where we are and where we are going in this business and we have seen, again, very strong demand in exports. You all know Russia opened all the beef plants in Brazil. Chicken and pork plant in Brazil. This is going to benefit our, and as well China, this is going to benefit our beef business in Brazil.

So the beef business in North America, moving to North America, the beef business in North America. Last year and in this, first half of this year, that was the most challenged business in our whole company. But we are seeing improvement in the beef business in North America. In the last 12 months or more, year and half, we saw five plants that shut down in U.S. and that definitely this is going to help to balance the supply and the industry capacity to be much more balanced and we are optimistic that we are going to see good improvement on the beef business. We are looking for a much stronger third quarter on the segment. We are already in the middle of the third quarter and we are seeing very strong improvement on our beef business in North America, Canada and Australia is performing really well.

So our pork business is very stable business. We have been performing really well on this business. It's a benchmark in the industry in U.S., so we did over 11% margin EBITDA. And again we look very -- we are very confident that this business will keep performing in a double-digit margin. In the third quarter we look for even a better number than the second quarter.

So finally, Pilgrim's Pride. In U.S., already we report the number. Did very well, 15% margin EBITDA in the second quarter. The business is performing extremely well. Pilgrim's today definitely is a really, really well managed company. And we are satisfied about the results but even more when we compare ourselves looking the (indiscernible) number and the surveys that we can compare our profitability in this business comparing to the industry. Pilgrim's is performing really really well. It's inside of the best companies in terms of profitability in the U.S. So we are very satisfied. We are looking for a very strong second half of 2014. Again, third quarter is going actually ahead of the second quarter when comparing to the same period. So we, again, look forward for even stronger third quarter comparing to the second quarter.

Grain price in U.S. declined and definitely this will help margins. So we are very satisfied with where we are. So overall we are looking for, in a consolidated base we are looking for a stronger third quarter, stronger than the second quarter, and we are satisfied with our structure. We are very pleased about our management team. We have been working really really hard on things that we control. Being better in cost, being better in product mix, being better in all the pricing, the [strategy] (ph). So we are very satisfied where we are going with JBS overall.

So with that I will turn the call to the operator to open for Q&A. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Farha Aslam with Stephens Inc.

Farha Aslam - Stephens Inc.

I have a question on Hillshire and your decision, you have decided to pass on Hillshire due to valuation. But kind of going forward, could use share with us your interest in growing in the U.S. and particularly the -- your interest in branded food businesses in the U.S.?

Wesley Batista

So, Farha, yes, exactly what you mentioned. So we participated in Hillshire deal. So we went until where we were seeing value creation for us and the discipline. So (indiscernible), he mentioned already that we keep looking at opportunities. We would like to expand our business in North America. Branded and packaged food products is a area that we are looking for. It's not the only area that we are looking for. For example, we announced the acquisition in Mexico, is a very strategic acquisition for Pilgrim's Pride, where we already have a strong presence. So overall, Farha, in Pilgrim's and in JBS overall, we will be looking for opportunities in North America and South America in the chicken, pork and the prepared food business. So if we see an opportunity that creates value for our shareholders, we will be analyzing.

Farha Aslam - Stephens Inc.

Thank you. And just as a follow-up. You had mentioned briefly Russian trade bans. How do anticipate that impacting your business and how do you anticipate global protein flows to change as a result of that?

Wesley Batista

So Farha, very very few impacts in Australia. So we don't export a lot of product from Australia to Russia and as well in North America and overall. Beef, chicken and pork, very very small volumes going to China -- to Russia, sorry. Some more leg quarters going to Russia compared to beef or pork. So very very few impact in our business. And actually we did not see any impact not very few. Don't see any impact in our business in North America and Australia. And very beneficial for Brazil overall but much more because the restriction on Europe, than the restriction on North America. Because Europe exports much more volume, especially in pork, to Russia then North America. So overall very positive for JBS overall.

Operator

Our next question comes from Daniel Senssel with J.P. Morgan.

Daniel Senssel - J.P. Morgan

So quick question again about Hillshire and leverage. You mentioned that the company is on track to be below three times. However, if the Hillshire acquisition would have gone through, the leverage would have been much higher than three, even close to four. So are you guys still looking for a big acquisition or these acquisitions that you have mentioned you are looking at are much smaller.

Wesley Batista

Daniel, first of all, you are right. So when I mentioned that we are on track to be below three times leverage, this is without a big, major acquisition. So we tried Hillshire. We thought that Hillshire was quite a unique opportunity in the U.S. Great company, so we kept when we were seeing value but it was a very unique opportunity. So we were -- if we had done Hillshire, yes, you are right, our level is going to be four times again. But we don't think acquisition, major acquisition would be below three times. And when I mentioned that we are open to look opportunities business, I mean that we are looking. So we are not involved are engaged in any large or big acquisition. We are not analyzing any major acquisition.

So we don't see, actually realistically, we don't see anything big, big coming as an opportunity for us to look. So even if we do some acquisition in a smaller scale, like we did Tyson in Mexico and Brazil, this will not impact our leverage overall and we will be able to be three or below three times leveraged by the end of the year.

Operator

Our next question comes from Mauricio Martínez with GBM.

Mauricio Martínez - GBM

I was wondering if you can give us more color on the relative losses and if we shall expect higher losses than current level or maybe if such losses should normalize?

Wesley Batista

No, actually, it's not a loss. It's impacted the results of course, because this cost us to hedge our exposure and it's not a derivative loss. It's the cost to hedge our exposure in dollar and is option we can hedge or we cannot. So we have been hedging our exposure due to the political scenario in Brazil, we feel that is an insurance that is costing us over R$ 300 million. But at this stage we prefer to know the cost of this insurance then to run a risk that we can see the real tomorrow. I am not saying that we -- our view is that the real we jump. But we prefer to know the cost then to wake up and to see the real at three some point that this can cost billions in our company in terms of exposure. So it's a decision that we are taking to pay this cost to not run a risk on the currency.

Operator

Our next question comes from Jose Yordan with Deutsche Bank.

Jose Yordan - Deutsche Bank

I had a follow-up on this last question. Because of your, presumably your global exposure you have a natural hedge and you can translate more of those dollar liabilities outside of Brazil and just have it be hedged naturally. Is there any effort right now to make that happen, to lower the dollar exposure in Brazil? If you can tell us what the actual dollar amount is would also help. And then I have another question for the U.S.

Wesley Batista

Yes, our exposure is around $ 5 billion. This is the amount of exposure that we have. And, yes, the way to mitigate this is to reduce our dollar exposure in Brazil and we are going to look and we are looking. So we would like to have the debt, dollar-denominated debt in U.S. and in Brazil, more real denominated there. So we are looking to shift this to U.S. more dollar-denominated debt and to Brazil more real denominated debt. So this is the best way to mitigate these. When you say natural hedge, look, this is a very complex conversation because some people in Brazil, I hear some company saying that they have natural hedge and we have a hard time to believe that that anyone has a natural hedge.

Why, because if the real tomorrow jumps to higher or becomes weak, it's hard to say that you have a natural hedge. Because you can run a risk that the sales price internationally, because the attractiveness of the export, will decline. So if this happens, you are not naturally hedged. So overall, again, this is a quite difficult analysis. One has different view on currency exposure. For us at this point, we have election in Brazil in couple of months. At this point we prefer a big cost. We prefer to pay this may cost but we prefer to know how much is the cost to not run any risk, instead to be open on the currency. So this can change. We can change our mind. So our board thinks in that way, as our executive team things in that way and we are keeping this hedge. So of course this is impacting our net income plus the R$ 90 million that we pay on the bond, impacted our net income. But for this stage we prefer to know the cost.

Jose Yordan - Deutsche Bank

Totally agree. The conservative is better. My second question is on the U.S. I hear your comments about the plant closing et cetera. But is it the only reason why the inflection point in margins in the third quarter or is there something else behind it. I am talking about U.S. beef now, right, and how sustainable is it into 2015. I mean, what would be your -- if this turn is really more sustainable, what kind of margins can you see in this business in 2015. And what is the status of herd rebuilding, I know we have seen early stages of herd rebuilding but it takes a while to do. I mean, are you more or less bullish on that prospect then you were in the last call?

Wesley Batista

Well, look, Jose, couple of things that we are more optimistic about the beef business in U.S. First of all, of course the industry adjusting capacity is a key factor. Five plants closed in the last year and a half, so this took almost 8000 heads per day out of the market. So for sure this is a key factor to help balance the industry to have a better margin and better results. But not only that, export is growing overall. So we are seeing a strong demand in China, so we believe we will see less beef available in the U.S. and this also helps sales price. So overall -- and now also our Canadian business, we are making a good improvement there. Our regional and our fed business in U.S. as well, we did some change and we are very optimistic about where we are going with our beef business.

So you said exactly right, we are in the early stage in terms of the herd expansion. But in our view, the worst on the beef business is behind. I think the second half of this year will be better and I think '15 will be better, and I think '16 will be a very good year for the beef business in the U.S. So if you ask what is the normalized margin that I think we can see in this business, look, we feel that this business -- it's not reasonable running a beef business in U.S. in a competitive industry and not making at least 5% margin EBITDA. So we are well behind 5% but like I mentioned in the beginning, the third quarter will be much stronger than the second quarter. We are already in the middle of this third quarter. So the third quarter will be well, better than the second quarter. So overall, we are positive. I am not saying that we believe this business would jump for 7%-8% margin, I am saying that I believe the second half will be far stronger than the first half and the coming years, '15 and '16 will see improvement due to these factors. The export and the planned closure in U.S., adjusting the capacity and the supply.

Operator

Our next question comes from Pedro Leduc, J.P. Morgan.

Pedro Leduc - J.P. Morgan

A little different one regarding the Pilgrim's acquisition of Tyson poultry assets in Mexico, once approved by the anti-trust, you will probably become as large as the current leader there. But it's a little bit of a different market than you currently operate in. It's a net importer of poultry, net importer of grains and it's a market that seems to value fresh protein a lot more than processed. So could you guys help us elaborate a little bit on the rationale for this acquisition and the long-term potential you see there and what should be the JBS strategy in this country from now on. Thank you.

Wesley Batista

So first of all, Tyson has a great business in Mexico. They have been operating this business, I think, over 20 years. They have a strong operation there. They do very well in there. So it's a well-run business that we are going to acquire. So there is a huge amount of synergy will fall our business. Fabio, our CFO in Pilgrim's mentioned in the earnings call in PPC, the amount of synergy that we believe we can capture on this acquisition. And, again, Mexico is a net importer in chicken and a net importer in grain but is a huge consumer market for us. And we believe being in Mexico, the market is growing. Mexico, in our view, demand. It's a very very strategic move for us and PPC already has a strong presence in Mexico. And combining the Tyson and Pilgrim's Pride operation, we see a lot of synergy. We see synergy in cost, we see synergy in operation, we see synergy in distribution and sales. So in our view, it's a very strategic and great great move for Pilgrim's. And also buying a business that is a good business that Tyson build over this past many years and its well managed already, a well-managed business. And we see opportunity to even expand margin further due to the synergies that we believe we can capture.

Operator

Next question, Ms. Erika Miyazaki-Ross with Barclays.

Erika Miyazaki-Ross - Barclays

A couple of questions if I may. With regards to the JBS Mercosul and the U.S. Park division, obviously very strong margins this quarter. I'm just wondering if those levels are sustainable going forward, particularly within the pork division. And then with respect to the Russian sanctions, are you able to potentially quantify the impact that might have on your LatAm operations. And then finally, are you able to give us an update with regards to the potential opening of the U.S. to Brazilian beef and any potential impact that might have?

Wesley Batista

So let me start with your first question. So all our pork business, again, I mentioned in the beginning we have a very strong pork operation in U.S. for a long time. It's a well-managed business. It's already three quarters consecutive that we are around 10% margin EBITDA. So we did 9.5% and 9.2%, and now 11%. And what I can tell you, that we believe this is sustainable and that actually I think we can see some improvement in the third quarter compared to the second quarter in terms of margin percentage, in a percentage basis. So I think it sustainable. We are seeing good demand for pork. So we are seeing much less beef available in U.S., so big decline in beef production. So it is very beneficial for chicken and pork in the U.S. So we believe that these margins can be sustained going forward for pork.

On the South America question about our view when, you asked, we will open to Brazilian beef. Look, it is hard to say, this is a technical discussion. The USDA is analyzing and is going through a process. We believe to some point Brazil will be able to access U.S. and I think Brazil has quite good beef to serve U.S. In terms of trimming, we have the lean meat in Brazil and the lean meat in U.S. So this is going quite short in terms of supply, lean beef to the hamburger industry. So we believe at some point we will absolutely open to Brazil. To say when, it' hard. Look, I don't know, maybe from here to the end of the year, to the beginning of 2015, I think it's possible.

On the Russian, it's very beneficial for our business in Brazil. Russia has opened all the pork, chicken and beef. And this will be beneficial to our South American business. We do between $600 million to $800 million. Actually we believe we can increment between $600 million and $800 million in sales in Russia through our South American operation.

Erika Miyazaki-Ross - Barclays

So that's incremental sales?

Wesley Batista

Yes.

Erika Miyazaki-Ross - Barclays

Okay. And presumably were expecting margins to stay pretty stable, in the kind of double-digit contacts?

Wesley Batista

Yes, I believe so.

Erika Miyazaki-Ross - Barclays

Okay. Great. And the last one, sorry to take up your time. JBS Foods, obviously fantastic margins again this quarter. Our those sustainable levels? I think you had initially guided that you'd hope to reach kind of low double-digit and obviously surpassing that somewhat. I'm just wondering if that something that we can expect to continue?

Wesley Batista

Yes, you can expect that this to continue and actually we are not satisfied. We believe we have more things to do.

Operator

This concludes today's question-and-answer session. I would like to invite Mr. Wesley Batista to proceed with his closing statement. Please go ahead, sir.

Wesley Batista

Well, I would like to thank you all to be in our earnings call this morning and look forward to talk again with great numbers in the third quarter. So thank you very much. Have a good day.

Operator

This concludes JBS audio conference for today. Thank you very much for your participation and have a good day.

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