JBS N.V. (JBS) Q2 2025 Earnings Report, Transcript and Summary

Good morning, and welcome to JBS Second Quarter of 2025 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Any statements eventually 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 expectations in relation to the future of JBS. Such expectations are highly dependent on market conditions, on Brazil's overall economic performance and on industry and international market behavior and therefore, are subject to change. Present with us today, Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of JBS; Wesley Batista Filho, CEO of JBS USA; and Christiane Assis, Investor Relations Director. Now I'll turn the conference over to Gilberto Tomazoni, Global CEO of JBS. Mr. Tomazoni, you may begin your presentation.

Good morning, everyone. Thank you for joining us today for our earnings call. The second quarter of 2025 marked the beginning of a new phase for JBS. With the launch of our shares on the New York Stock Exchange, we completed our dual listing. This is a strategic milestone that enhances our global visibility, broadens our investor base and reinforces JBS' position as one of the world's leading food company. I want to emphasize that this starts a new chapter of our trajectory. We see a clear path to long-term value creation anchored in operational excellence, diversification, innovation, value-added products and strong brands. It's worth highlighting that over the coming years, we will keep investing consistently to expand our platform and position the company to meet the global demand for protein. We truly believe JBS is well positioned for the future. We are delivering our long- term strategy with discipline and consistency, and that gives us confidence in the path ahead. At the same time, we will stay fully committed to our mission of returning value to our shareholders evidenced by $1.2 billion in dividends we paid this quarter as well as today's announcement of a $400 million share repurchasing program. Let's take a closer look at some strategic movements we have made this year. During the first half of 2025, we have made several important investment in the United States. In May, we disclosed a plan to build a new fresh sausage facility in Iowa, totaling USD 135 million. This came in addition to the USD 200 million allocated to upgrading our beef plants in Texas and Colorado and the $400 million for a new prepared foods facility that Pilgrim is building in Georgia. Yesterday, we also announced a further USD 100 million investment to acquire and expand the Iowa facility, which will be transformed into the largest ready-to-eat bacon and sausage plant in our U.S. operation. I want to stress here that all these projects are designed to support the growth of JBS' prepared foods portfolio, helping us to meet the growing demand for customers and consumers for these products. Even amid a challenged macroeconomic environment and with ongoing pressure in some business units, our second quarter performance once again reflected the resilience of our diversified global platform. Net sales were record, reaching USD 21 billion, a 9% increase year-over-year. Adjusted EBITDA was $1.8 billion, with a margin of 8.4%. Poultry operation once again stood out as a key highlight. Pilgrim's achieved the highest EBITDA in its history supported by lower grain costs and resilient U.S. demand. Results also reflected continued growth in the prepared foods portfolio, a strong relationship with key customers and solid performance across Fresh and Case Ready segments in U.S. Mexico and Europe delivered strong results as well. I'd like to particularly highlight that Seara delivered another quarter of consistent results despite the outbreak of avian influenza in Brazil. The business reached EBITDA margin of 18.1% driven by a disciplined commercial strategy, product mix management and a strong focus on innovation. The results highlights the robustness of our biosecurity protocols and the maturity of Brazilian sanitary system. It is important to note that the swift and technical response in Brazilian sanitary authorities, together with a strict industry- wide controls, ensured that only one isolated case was confirmed in the country at the commercial farm. In the United States, our beef business continued to face pressure from an unfavorable cattle cycle as the spread between the livestock costs and beef prices narrowed. The pork business was affected on a short-term basis by the trade restrictions, and we expect the performance to return to normal levels over the next few quarters. Diversification remains one of our greatest strengths. In Brazil, Friboi delivered strong results driven by new export approvals and productivity gains. In Australia, we continue to benefit from a favorable livestock cycle, with export growth and operational improvements contributing to another quarter of consistent performance. We also reaffirmed our commitment to financial discipline. The quarter ended with a net leverage at 2.27x, in line with our long-term targets and reflecting the strength of our capital structure and our financial management. With a stronger, more balanced and more innovative global platform, JBS is well prepared for the next phase of global opportunities. I want to conclude by saying that we remain confident in our team and our ability to create long-term value. Thank you again for joining us today. I will now turn the call over to Guilherme, who will walk through the financial results in more details. Guilherme, please go ahead.

Thank you, Tomazoni. Let's now move on to the operational and financial highlights of the second quarter of 2025, starting on Slide 13, please. Net revenue for the second quarter 2025 reached a record of $21 billion. Adjusted EBITDA totaled $1.8 billion, which represents a margin of 8.4% in the quarter, while adjusted operating income was $1.2 billion with a margin of 5.7%. Net profit was $528 million in the quarter and earnings per share was $0.48 per share. Excluding the nonrecurring item, adjusted net income would be $583 million and the EPS would be $0.53. Finally, the return on equity was 25.7% and the return on invested capital was 17%. Although the difference in EBITDA between the second quarter 2024 and the second quarter 2025 was only $141 million, the free cash flow difference reached approximately $1.1 billion due mainly to the following factors. The difference in EBITDA, as mentioned above, $104 million of higher capital expenditures, $242 million increase in finished goods inventories in the U.S. driven by higher prices. This cash is expected to return to the operating results over the coming quarters as sales are made. $250 million due to livestock hedging. Future purchase from suppliers such as feedlots at fixed prices are hedged through future contracts, exposing us to the spot price and thus matching with the mid sales. Due to the sharp rise in the cattle and hog prices, there was a negative cash impact on operating results due to the hedge. This cash is expected to return in the following quarters as the physical purchases are settled. $122 million increase in legal settlements, $257 million in higher tax payments, mainly due to improved results from PVC and Australia in recent quarters. $51 million impact on Seara's chicken inventory caused by the market closure due to a single -- it should return to around $4.5 billion based on the following estimated breakdowns, which may change over time due to the variables beyond our control. So capital expenditures of $2 billion in 2025 and $2 billion in 2026, which already included maintenance CapEx. Working capital of $900 million in 2025 and $250 million in 2026. The additional $650 million in 2025 compared to 2026 is due to the inventory and hedging tax explained earlier. Legal settlements of $300 million in 2025 and assuming 0 in 2026. Biological assets of $650 million in 2025 and the same amount for 2026. Interest expenses of $1.15 billion in 2025 and $1.1 billion in 2026. Leasing expenses of $500 million in 2025 and repeating in 2026. Moving on to Slide 16 to discuss our debt position and leverage. In June, we accessed the bond market to refinance our short-term and 2027 and 2028 and 2030 maturities. Strong investor demand allowed us to upsize the issuance to $3.5 billion while achieving a record low spreads for issuers with our credit ratings, which includes a $1 billion 40-year tranche. In addition, Seara issued approximately $160 million in local debentures. We used $3 billion to efficiently retire debt, creating nearly all maturities through 2031. As a result, our average maturity extended from 11 to 15 years, while the average cost increased by just 25 basis points to 5.6%. We kept the 2029 bond outstanding given its low 3% coupon, along with the 2031 bond at 3.75% and 2022 notes with coupons of 3.625% and 3%. From the $3.5 billion raised, $500 million was retained as excess cash. Leverage increased to 2.27x in the second quarter 2025, primarily due to $141 million decline in last 12-month EBITDA and the payment of $1.5 billion in dividends. Interest coverage remained stable at 7.7x compared to the previous quarter. With leverage at the lower end of our comfort range, stable interest coverage in line with recent quarters, no significant debt amortization in the coming years and a strong cash position, we announced a share buyback program of up to $400 million. We believe this represents an efficient use of excess cash given the current valuation multiples relative to our global peers. The repurchase programs may be implemented through open market purchase, privately negotiated transactions or under Rule 10b5-1 of the Exchange Act. Even with the share buyback program, we expect to end the year with leverage below 2.5x and interest coverage consistent with the end of 2024 levels at 7.4x. Our $3.4 billion in revolving credit lines and available cash of $3 billion, combined with expected cash generation in the second half, provide a robust financial position to continue pursuing value creation opportunities to our shareholders. I'll now briefly go through the business units. Starting with Seara on Slide 20. During the second quarter -- in the first half of the quarter, we saw a favorable commercial environment, both in the domestic and export markets. However, in mid-May, Brazil reported its first case of avian flu in a commercial flock. The country was officially declared free of the disease again in June, but some key export markets remain temporarily closed, which affected commercial performance. Even with the temporary headwinds caused by the outbreak, Seara achieved an adjusted EBITDA margin of 18.1% in the quarter, reflecting our strong focus, agility and discipline in pursuing operational and commercial excellence. Moving on to Slide 21. In the second quarter of 2025, JBS Brazil recorded net revenue of 20% higher than in the second quarter 2024 driven by strong demand in both international and domestic markets, which partially offset the sharp increase in cattle prices. As a result, the EBITDA margin reached 6.4% in the quarter. Moving on to Slide 22. And now speaking in dollars and under U.S. GAAP, JBS Beef North America net revenue in the second quarter grew 14% year-over-year driven by strong demand, and that drove cutout values to record levels in the U.S. However, profitability continues to be pressured by the challenging cattle cycle, which has also kept live cattle prices at record highs as well as by the additional headwinds related to global trade and animal health concerns in Mexico. On Slide 23, we have JBS Australia. In the annual comparison, the 20% revenue growth was primarily driven by higher volumes of beef exports. The EBITDA margin reached 12.7% and increasing 50 basis points compared to the same period last year, reflecting great availability of animals for slaughter and gains in operational efficiency. Turning now to JBS USA. Pork net revenues for the quarter decreased by 5% year-over-year. The pork business was affected on a short-term basis by trade restrictions, but the expected performance to return to normal levels over the next few quarters. Pilgrim's Pride, as highlighted on Slide 25, reported a 4% increase in net revenue in the quarter. In the second quarter 2025, Pilgrim's delivered record adjusted EBITDA of $687 million. In addition to a favorable commercial environment across its key markets, the strong performance reflects the successful execution of its strategy, including the strengthening partnership with the customers' expansion of value-added and branded products, innovation and efficiency gains. With that in mind, I would like to open for Q&A session.

[Operator Instructions] The first question comes from Lucas Ferreira with JPMorgan.

Guilherme, sorry, I think your line broke a little bit in the beginning of the presentation. So I just wanted to explore with you a little better your scenario for the free cash flow breakeven this year and next year. I just wanted to understand, especially if you already have any views on the CapEx given the projects the company is announcing for processed foods. And if I may, also a quick follow-up on the effect of the hedges. Just wondering if you can explain a little better how much of that $250 million you mentioned is returning to the EBITDA in the following quarters. If you can explain a little better, that would be great.

Can you hear me now?

Yes.

Okay. So Lucas, basically, I'm going to repeat the numbers that was cut. So capital expenditures, $2 billion for 2025 and $2 billion for 2026, already including the expansions announced. Of course, 2026, we still have to budget. And in the beginning of next year, we will give update on that. Working capital, $900 million for this year and $250 million for 2026. This additional $650 million in 2025 compared to the next year is due to the inventory and hedge impact that I will explain again. Legal settlements of $300 million this year and assuming 0 next year, biological assets of $650 million this year and the same amount for next year, interest expenses of $1.15 billion this year and $1 billion next year and leasing expenses of $500 million in both years. So basically, that's how we get to the $5.5 billion free cash flow breakeven for 2025 and $4.5 billion for 2026. Now the hedging explanation. Basically, we purchased cattle and hogs, for example, for sometimes 1 year from now at a price fixed because sometimes the feedlots need to have a better prediction of their flows to invest in grains and buy the cattle. And then we sell futures to be on the spot. So basically, we buy cattle in the future for a fixed price, and we sell futures to be spot and then meet with the sales price of the meat in the future. So basically, this cash flow tends to return as the physical purchases are settled and the meat are sold. And of course, it all depends on the market at the coming quarters, but that's how it works. And the thing is given that the cattle price raised very fast recently, we had this impact on the hedging, on the derivatives and on the margin that we have to deposit, the cash margin we have to deposit. But again, as the cattle price also comes back and also the cash margins tends to really be released.

The next question comes from Ben Theurer with Barclays.

Can you guys hear me?

Yes, we can hear.

Okay. Audio not in our favor today. So two quick ones. So number one, obviously, your business in Australia was really strong this quarter and I'm kind of like surprised on the upside. So I was wondering if you can help us understand or maybe give a little bit more detail, amongst the different categories in Australia, what, a, drove the significant top line expansion. But on top of it, also that margin expansion, where was that coming from? Like, which subcategory? And then I have a quick follow-up on the free cash flow.

Ben, our results in Australia, we increased volume, domestic and external, and we were able to increase price as well. And the strong performance came from beef. And the other business, they are quite at the same level of what they were last quarter, even on the exception of the salmon business, that was a bit lower because of the disease we had and we had less amount of volume of salmon to sell. But considering the size of our salmon business, it's is not relevant at all. Considering all of our business in Australia, we can tell you that the results, improved results, was in the cattle. And we see it continues for this year.

Okay. That's very clear. And then one for Gui. Just to be clear on what we've talked about, following up on Lucas' question, the free cash flow. As a starting point, like from a breakeven perspective, we should still use the IFRS EBITDA, correct?

Correct. I'm talking all in the IFRS EBITDA.

Okay. Just want to clarify that. Perfect. Congrats.

The next question comes from Henrique Brustolin with Bradesco.

I have 2 that I would like to explore in U.S. beef mainly. We saw this big sequential margin deterioration, right, which was also typically below some of what was reported already by peers. So I would like to understand a little bit more in the quarter, specifically what's behind it, if there were some components that could be seen as one-off given how your operations are structured with the vertical integration on some of the byproducts, and that we could see some improvement in the coming quarters. So that's the first one. And the second also on U.S. beef is, based on the experience you already have on that market and navigating previous cycles' lows, what do you believe will be needed to bring margins back to breakeven levels? And I know this is not an easy one, but I mean, if you think it will mostly depend on cattle supplies coming back to growth once again or there are things that could happen before the capacity adjustments, even the trade barriers being improved, that could bring margins back to those levels sooner than the cattle availability growth. Those would be the 2.

Henrique, so a few comments. So on our performance during the quarter, it was a very challenging quarter, for sure. And one of the things that makes it very challenging is when the market has a huge increase in volatility and price like we had just, to put it in perspective, right? So cattle at the last quarter of last year was at around $190 per hundred weight, and we went up to $230, $238. And actually during the second quarter was around $225. And when those swings are really huge like that, sometimes you'll see some gaps, some challenges in the quarter. That's basically positioning, and that's a short-term impact. It's a relevant impact, but it's a short-term impact. Actually, we just showed you a picture of our beef plant and all the work that we've been doing from an operational perspective, we're very confident with the work that the plants are doing. And in terms of efficiencies, in terms of uses, they're actually improving versus the previous quarters. And so we don't think that there is anything regarding operations. I think it's much more to do with positioning and especially when you have an explosive market like what we had in the last quarter. When it comes to where we see from a cycle perspective and, like you said, adjustment in capacity versus cowherd review. Obviously, we talk a lot about cowherd review because that's what we know in the market, what we see, what we have data. And we are confident that we are fully into herd review. One of the 2 information that's very relevant is cow slaughter is down again this year. And if you look, it's been compounding about 10% to 15% decrease in cow kills year after year. So that's a good sign. We're seeing less heifer as a percentage of feeder cattle versus previous periods. So those things are encouraging. Obviously, when they start happening, they take a double-hit, right? You already have less cattle. Now you have less heifers coming to market because they're being retained, which is good news long term, but short term, it makes it more challenging. Talking about capacity adjustments, I can obviously just talk about our own business. I can't talk about the market because I wouldn't be able to answer that. But we're comfortable with our current capacity, and we don't see any changes coming from that end on our side.

The next question comes from Andrew Strelzik with Bank of Montreal.

Can you hear me now?

Yes.

My first one, can you talk about the outlook for Brazil beef? With the U.S. tariffs, how is that impacting the operating environment and the supply-demand balance there? And how should that play out in margins over the balance of the year?

Andrew, thank you for the question. I'll make a comment first by the impact of the tariff, and then I'll talk about the outlook about the business. The tariffs were recent impairments with no impact in the quarter. When you look globally, the impact on JBS overall will be immaterial. If you look just for Friboi in Brazil, as a whole, the impact is not relevant. But some specific plants that exported more to U.S., maybe. But this is the good thing for our global platform that allows production to be redirected and the impact to be very mitigated. I think this is one of the moments that the value of the platform makes it more strong. If you talk about the future, it's too early to estimate the real impact. And it will depend how the global market will be rebalancing because this is interconnected. Maybe some countries will be substituted for Brazilian product, Australia and other countries. Even, besides that, some of U.S. product exported today could remain in the market. If Brazil will be replaced with what's delivered to the U.S., for us, we are not seeing today this really strong impact. It's too early to say the impact, to quantify the impact. About the outlook, you see that Friboi showed a strong growth in volume and even in price, domestic and export. We lost a little bit in terms of gross margins, but we gained more than that, we compensated with the higher volume. We see that, for the next quarter, our beef operation in Brazil continues to deliver good results.

Okay. That was very helpful color on that. And then I wanted to also ask on the U.S. prepared foods strategy. And you listed a number of investments that you've made there. How much will that increase your U.S. prepared foods volumes when I take all of those projects together? And as you think about continuing to build out that strategy, are you comfortable going with internal projects and smaller acquisitions kind of one by one? Or I guess, how are you thinking about achieving the aspirations in U.S. prepared foods?

Andrew, so on the prepared foods side, on our chicken, the plant that we announced in Walker County, it's a significant increase. It's almost going to double our capacity on that. But on the other side, on the pork side, on the sausage and cooked sausage, it will probably be at 20%. I can probably get more precise numbers afterwards and send that your way, but it will be a significant increase on both sides, maybe an average of 25%, 30% increase of our total capacity on volumes in the U.S. But we certainly can send you some more precise numbers afterwards. Our approach to this is pretty simple, on how we're investing and where we're deciding to grow. We're really starting off going by where we're seeing the demand in the market and where we're seeing that the market has a need for products. So we have grown a lot our prepared foods side on chicken. And today, we need more capacity to continue to grow. That's our bottleneck for growth in this market. It's actually production capacity. It's much more production capacity than actually being able to sell. And on the pork side of prepared foods, we've been working a lot with customers. And the demand for these products that we're starting to make are pretty large, and we decided to go there. We will obviously always look at assets for acquisitions. And obviously, there is a lot of things that go into play, if there is actually something out in the market for an acquisition or if there isn't; and if there is, if the assets are something that we think are good assets for the long term. In these 3 cases, we've decided that the best thing to do was to build a plant, modern plants that are going to be completely new and ready for the next 10, 15, 20 years. So that's what we decided. We're very excited about these 3 plants, and we think they're going to be among the best plants in the country.

The next question comes from Guilherme Guttilla with BTG.

So I just want to discuss a bit here about the chicken business. So maybe starting with Seara, just if you guys could give us a bit more color on how the avian flu outbreak impacted the company results? Maybe break down a bit how was the segment profitability and how the outbreak impacted it. And also on chicken, but on a different topic, I just want to discuss a little bit more here about the supply and demand scenario. So we discussed here in previous opportunities about how the lower hatchability and higher mortality rates are impacting the supply, the chicken supply. But like, what do you guys expect ahead? Like, until when do you guys believe the supply constraints can delay the cycle from turning? So that's it.

Guilherme, thank you for the question. I will be very pragmatic in the answer here to you. When the outbreak happened in Brazil, all, practically 100% of the market to export to Brazil closed. And we say that the impact, that moment in June, that was in June, the impact of our EBITDA in June was around 5% not just in chicken, the company as a whole, Seara. And with now some of the markets reopened, it remains closed in 2 important markets, that's Europe and China. We see that the government and the Minister of Agriculture is working to reopen market. I saw in the media yesterday that President Lula discussed it with President Xi Jinping about the issue. I'm so confident that it may be reopened, very close, these 2 markets because there is no technical reason to be closed because all of the technical things was answered, the question that the market made and declared Brazil free. We are so confident that will be reopened in the coming weeks. But the fact that today it's closed, and the impact of these 2 markets, their impact in the profitability of Seara, that will be around 2 percentage points. Or say, 1.5, 2 percentage points that is the impact we have now with this. I think with this, I hope that we answered your question, the first question. The second question, the outlook of the chicken business. We saw a strong demand for chicken globally, all of the markets, in Brazil, in U.S., in Europe, in Mexico. All of the markets, we see strong demand because in U.S., the consumer substitutes beef from chicken, and we see all the international markets have better demand. Brazil, we had a problem, but the market that opened and we export, there is strong demand for the volume. All the things that you have mentioned before about genetics, about mortality, about productivity, is not changing so far. And we remain confident from the outlook for this year for chicken.

The next question comes from Priya Ohri-Gupta, Barclays.

Making sure you guys can hear me okay.

Yes, we can hear you, Priya.

Okay. Perfect. Wesley, I'd love to just follow up on the comments that you were making around the prepared foods business. You did highlight that the company does consistently look at acquisitions as well as it considers sort of how to approach growing out capacity. Based on some of these investments that you guys have been talking about, should we assume that the need for acquisitions might be lower in the near future in the prepared side of the business? Or is there still scope to look at inorganic growth?

Priya, it's difficult to forecast what's going to be the future, right, on this because these are all based on opportunities, right? Acquisitions are always based on opportunities. So obviously, like we've always done in our history, we're going to look at anything that comes up. But it's difficult to forecast if it's going to be more, one or more of the other. Obviously, when we want to grow our business, we look at both. So it will be difficult for me to project for you what's going to be the future in this.

That's helpful. So it's just more of an ongoing thing. With regards to the beef cycle, it's, I would say, sort of getting to this point of heifer retention has been a little bit more elongated than we've seen in the past. What's your perspective on sort of how long it could take us to really start to see the bottom on profitability? So sort of how are you thinking about getting back to breakeven in the beef segment and then starting to see growth?

Yes. I think this year and the beginning of next year are going to be the bottom side of the cycle. And then from there, it's going to be a gradual increase somewhere in end of '27, beginning '28. It's going to be gradual. It's not going to be overnight, right, that you're going to see a complete change in the business. It's going to be gradual. But I think the worst part of the cycle is going to be right here for the next maybe 3, 4 quarters. And then from there, we're going to see this change and gradually improve.

Okay. That's helpful. And Guilherme, can you remind us again how you think about your ongoing cash balance? We're just shy of about $3 billion at this point, if we include some of the margin cash in there. Is that the right level for the near term? Or would you like to have a little bit more of a cushion there around where you maintain cash?

Priya, no, I think this is more than enough. I think given the company's cash conversion cycle today, a cash of $2 billion worldwide is more than enough for the operation. So we are comfortable with the current levels. And that's one of the reasons that we announced the share buyback program because, as you know, we paid $3 billion in debt. And the other debts that we have up to 2032, they all have coupons lower than 3.75%. So it was not efficient to buy the debt with excess cash. So we announced the share buyback program, but we still have cash above what we need our cash conversion cycle to operate.

Great. And then just one last administrative question. Where are you guys in terms of updating the bond ticker now that the equity listing has been completed and then putting the shelf in place?

Okay. So first, on the ticker of BZ, it's out of our control. We're talking to Bloomberg for a while now to take the BZ out of the ticker. We'll keep following up on that. And the shelf registration, first, we'll finish all the exchange offer to make all the remaining 144A bonds registered. And then we need the first register offer to 1 year to be a WKSI and have 2 shelf registrations. So we first need to do an issuance of debt and equity registered for then to ask for the shelf registration on WKSI. So I think maybe we need a new issuance, which currently we don't envision given that, again, as we talked about, we have more than enough cash. We have no maturities in the near term. So I don't see it coming to the market anytime soon.

The next question comes from Gustavo Troyano with Itaú BBA.

Can you guys hear me?

Yes, Gustavo, we can hear you.

So actually, my question is on U.S. pork. And earlier in the call, you guys mentioned that margins should recover in the next few quarters. So I just wanted to have more granularity on this topic, maybe the reasons behind the margin compression in U.S. GAAP in this quarter. And why do you believe they are improving in the remainder of the year? And if possible, if we could explore a little bit more like the pace of this recovery and when do you expect these margins to reach your recurring level going forward? And if we could discuss maybe the margin performance in the integrated part of the business compared with the nonintegrated part of the business, if that's a fair comparison to do for this quarter, if there are different margin performance between those 2 operations in there.

So the U.S. pork performance this quarter, a lot of it was because of some of the trade disruptions we had with product going to China and for that period of time, there was 100-and-some percent tariff, and we had products coming back, products that we had to reshuffle, and that created the disruption that we did not expect. We expect that as of the third quarter of 2025, right now, we're back to normal in margins. So that's not something that we're overly concerned about, being a gradual recovery, we think it's an immediate recovery. It's just that it was more of a one-off in the second quarter. We actually are quite optimistic about margins in the pork business. We've grown our live production. Like you're saying, you're asking about integrated supply, in the last 5 to 10 years, we've grown that and when we see grain prices being at a relatively low level based on history. And on the other side, you see a potential for the cutout of pork to become -- when there is low availability of beef and high prices of beef, pork becomes a very good option. So you could see a little bit of strength there because of that. We're actually quite optimistic about pork margins in the U.S. going forward.

The next question comes from Leonardo Alencar with XP.

I hope you can hear me.

Yes, we can hear you. Just speak a little louder, please, Leonardo.

Okay. I would like to go a little deeper regarding the U.S. beef. I understand this building is ongoing and that you're expecting that to change the scenario for at least 3, 4 quarters ahead. But we need to consider the other factors in place, the issue with the cattle import from Mexico that is not really happening right now, and also the impact of the tariffs in Brazil restricting imports of trimmings of beef, lean beef. If you could just go a little deeper on the discussion about the cycle in U.S. and if you could expect this average weight of cattle continue to increase or even decreasing maybe. And just to understand how this is going to play in the future because this was a very strong change of metrics, we could say, the average weight of the cattle and that increased probably the production of fatter meat, let's call it. So this was one of my questions. And the other one would be a follow-up regarding Seara. I understand that the issue with China, we are expecting this restriction to drop in the foreseeable future. But then what's your read on China, on the market in China, demand in China? Since they're not importing meat from Brazil for a while now and demand is probably still good, but then I wanted to hear that from you. If stocks are decreasing in China right now, so if you could expect China to resume imports to a previous level we were seeing before the restrictions or there's room for improvement on that. So that's my question.

So you bring in a few good points. This Mexico situation is obviously quite relevant in the short term. There is about 1 million head, 1.2 million head of feeder cattle that comes to the U.S. and they're fed in the U.S. So as of November last year when the border got shut, and beginning of this year, it opened. It shut down again. And we have been following the situation quite closely. And what we realize is that the Mexican government is doing a lot of work to make sure that, that situation is handled and working with the U.S. government to figure out a way to reopen and continue flow of cattle. We think that it's very relevant in the medium term, in the short term, but we don't think that necessarily would impact the long term of the cycle of the herd review. So I would disconnect those things. Though it's a very important point that you bring up. And it does create an impact in the U.S., especially in the south of the U.S., where a lot of that cattle stays. When it comes to imports, and obviously, lean trim is something that the U.S. has imported for a long time. We blend that. The market blends it with a fat trim and make ground beef. So when you lose a source like Brazil, it's significant. The impact of that, it's still relatively early to see because there is inventory in the U.S. There was inventory coming to the U.S. So we haven't seen 100% of what this is going to look like. But certainly, domestic meat or meat that is imported, that's lean is going to appreciate in value and going to have a higher value. And we'll see exactly how big the impact is going to be when that Brazilian inventory of meat in the U.S. kind of gets used and we will see less flow of Brazilian beef coming in. So it's too early to tell exactly how big is going to be the impact.

Okay. What about China chicken in Seara?

Leonardo, related to chicken Seara, I don't know what's clear before, but the impact of the avian flu, when we had the month that had the outbreak, really the strong impact was around 5% in the result of Seara. Now after release of markets, the impact is around 1.5% percentage of EBITDA. And we are really confident with the future of this business because demand is strong, domestic and export. Not just in Brazil, we see all of the markets, we see in U.S., with [ Cube ] releasing the results, and I think Fabio was mentioned that the strong demand in U.S. is not different in Mexico, is not different in Europe. And when you look for the supply, we have the same restriction we had before. We are discussing about genetics, about mortality, all of the issues remain. It may increase a little bit more the number of bullets. But when you look for the demand, the increase in the percentage of the number of bullets did not make really the difference to impact the results. We remain very positive with the chicken business for this year.

The next question comes from Renata Cabral with Citi.

My first one will be on the Brazilian beef cycle actually. Initial expectations was that maybe this year, 2025, towards 2026 would have the change in cycle in Brazil. We had cattle prices with a lot of volatility naturally because of the recent trade tensions. So my question is, the previous expectations remains regarding the cattle cycle in Brazil. If you could discuss it a little bit, it would be really helpful. And my second question is on disclosures. Now that you are reporting under U.S. GAAP, it's much easier for us to compare your numbers with U.S. peers. And given your recent announced investments in prepared foods, would you be able to share even a rough sense of range what prepared foods represents in your business today? Or looking ahead, do you see room to provide more details over time to help us have a better comparison on this front?

Okay. So I will start with the second question. So basically, Renata, first of all, the thing is our business segment has to be how we manage the company. So that's why we don't have prepared foods as a business segment because we have prepared foods in Europe, in U.S., in PPC, in Brazil, so on. So that's the reason. But of course, we can try to make managerial numbers for how much should be prepared foods. But then comes a question on what is the threshold, what's divided, what is prepared or not. So let's say, if we get what is really processed process, I would guess that 15% currently would be a good estimate. But of course, if you include, for example, brands, case readys or just brands that you put in the Natura meat, we can go up to 50%, if you put brands on the value-added side. So that's something in between that. And of course, we will always try to continue to improve our disclosures. And again, as we grow, we'll try to have this number developing to a better disclosure.

I think, Renata, related to beef cycle in Brazil, we are very optimistic with the cycle in Brazil. And I believe that the Brazilian sector is in a transformation because Brazil is increasing the feedlot. That feedlot makes possible to reduce the age of the animals to go to processing plants, to have genetic improvements. You have more feedlot because the DDG now is available because of corn ethanol. And this is a kind of change in the livestock sector that will be enhance the production. Producers make a good margin today because if you look for the quarter, the price of the beef increased 20% and the price of livestock increased 40%. It means that this is a good moment for the producers. There is a lot of incentives to raise animals. And the possibility for increased productivity is huge in Brazil. Brazil has half of the earth's, of U.S., and we produce the same amount of meat with U.S. that, if you look, this is a huge opportunity for improvement. And today, with the conditions we see in the market already mentioned, we are positive for this year and the next year from the livestock in Brazil.

The next question comes from Mr. John Baumgartner with Mizuho.

Can you hear me?

Yes.

Just wanted to follow up on U.S. prepared foods and your comments there, Wesley. You're making the investments in chicken and bacon and sausage and some of these Italian meats, and you mentioned responding to market demand. I'm curious, are there any particular white spaces in terms of species or product format that you still see as incremental opportunities for you, maybe more in beef or other types of pork? And then as you develop the portfolio, how do you anticipate the marketing to evolve? Are there opportunities for partnerships like you're doing with Netflix and Seara in Brazil?

John, so we see that where we're investing, where we have announced so far is where we're really seeing the demand, like we mentioned, the sausage, the cooked sausage. Just to explain what that is, a lot of that is what would go into and what we would see in pizza toppings, in salads. And so it's prepared and cooked bacon and sausage. So we're seeing a lot of demand there. That's where we've built. We're very confident about that. As we see other opportunities, we might communicate. But so far, that's where we see the opportunities and where we invested. On the Pilgrim's side, we've done a fantastic job here in the U.S. with branding our products and a great success story we just bore and achieved pretty large market share in pretty short time, and a lot of distribution. And it's a brand that's continued to grow very much and do a good job. And there is a huge opportunity for us to do that on the pork side, on the red meat side of prepared foods. And we haven't done much of that, but that's something that's, for sure, part of our plans and part of what we see as a potential for this prepared foods business in the U.S.

And then coming back to U.S. beef and what the market is seeing in terms of resilient demand despite weaker foodservice traffic, the broader economic challenges facing consumers. I'm curious your thoughts on that demand resilience. Are you seeing something different in terms of how consumers interact with beef during the cycle? Is it the broader protein movement that's driving consumers to prioritize spending on beef more so than past inflationary cycles? Any observations you have on demand resilience there would be great.

Yes. I think there is one comparison that's very, very illustrative of how resilient beef demand is. We've always compared chicken breast with pork loin and ground beef as accessible, affordable sources of protein. And we always compare those items as items that the consumer kind of jumps back and forth. And we've obviously seen, with the short supply of cattle and all of that, we've seen the gap of price of ground beef versus those 2 other sources of protein really open the gap. But you mentioned right, foodservices is lower. But on the retail side, and actually, on the overall side, we've seen demand for ground beef to continue to be pretty strong and people choosing to still consume ground beef. Even with this delta, this larger gap in price between pork and chicken, consumers are still really, really going after beef. I think there is a few things. I think, yes, there are those trends of people eating more protein, but that benefits all of the categories. People prioritizing protein, all of that is very important. But I think actually, what really, I think, is a testament to it is the quality of U.S. beef and how the U.S. consumer trusts it and really likes it. And even at a premium versus other proteins, they're still really looking forward to consume it and seek it. So obviously, this price being so much different than pork and chicken has more to do with the cattle cycle than anything, but the consumer is responding to that and still choosing to consume U.S. beef because of its quality and how much they trust the product. That's what we think.

The next question comes from Ricardo Alves with Morgan Stanley.

I have 3 questions, 2 for Guilherme. Guilherme, on working capital, I believe you mentioned $900 million of consumption this year, right? So that would imply something like $600 million of cash relief into the second half. I just wanted to confirm that level of magnitude at least. And if that's correct, if you could break it down in terms of how much of that would come from inventories or if you can just give some more granularity in terms of working capital relief into the second half and the magnitude. That's the first question. The second one, also to you, Guilherme, if I may. JBS has been paying a lot of dividends over the past few years, and I think that this year was not different. And now you have the buyback announcement, which is obviously appreciated. What is your current mindset on the distribution side? Are you sticking to that idea of returning something like $1 billion per year? Because it actually seems that you're running well above those targets. So I just wanted to get your latest thoughts on the distribution side. My last question to you, Wesley, would be, I thought it was very interesting, the comment you made on pork, that the sequential recovery would be immediate. I think that that's the expression you used as opposed to gradual. When you look at the beef performance this quarter, do you think that there are elements to the performance of the second quarter that you could also have an immediate sequential recovery? I know that you also made it clear on the U.S. beef side that you're going to have 3 or 4 quarters of very tough profitability, which is a view that we tend to share. But on a sequential basis, this minus 4%, are there elements, are there factors that you believe you can overcome really fast to improve to, I don't know, maybe closer to low single-digit negative margins? Those are my questions.

Ricardo, so basically, for this year, I think the best estimation in terms of cash generation for the second half is what I mentioned, that the free cash flow breakeven for this year at $5.5 billion. So get whatever is your EBITDA estimation for the whole year, minus $5.5 billion, and then take out 25% effective tax rate. That should give you a good estimation of how much cash we will generate. And you're right, we'll be releasing cash in the second half as every year we do. And it comes from decreasing inventories and the postpone -- in the last quarter, we always have around at least $400 million of postponement of livestock payments that releases working capital in the fourth quarter. So I think the math of the cash flow breakeven that I mentioned can give you a good estimation of what we are expecting to generate the whole year and, of course, consequently in the second half. So in terms of the dividends, if you look at how much we paid in dividends since 2020, we had exactly $1 billion -- $975 million average, in fact. So we paid in 2020 around $800 million; 2021, another $800 million -- $900 million. So in 2023, we paid $450 million, but we promised there the listing that we paid this year. So if we consider that the listing dividend that we paid in June was really promised in 2023, and get back this number, so you'll see that what we've been paying on the average of the last 5 years is exactly around $1 billion, as I mentioned. And that's why the excess cash, we just turned it on into share buybacks as we did in the past. In 2021, for example, we used the excess cash for share buybacks. So I think it doesn't change. Going forward, I think we continue with the mindset of paying around $1 billion in dividends every year. And of course, it depends on the M&A opportunity. So of course, this year, we could increase the share buybacks given there was no relevant M&A this year. So I think it didn't change. So $1 billion of dividends. We continue to think about $1 billion of growth CapEx going forward and also having free cash flow for M&A. If there's no M&A, we can improve the distribution on a buyback, for example.

So Ricardo, on the beef side, we think that our internal performance, again, I think we're going to perform better in the third quarter than we did in the second quarter. And part of that is because the things that we can improve are much more on the mid-margin side, on the buy-and-sell side versus operations. So we think that, that can be a quicker improvement in performance. Having said that, it's a lot more difficult for you to project and to try to predict the beef market today than the pork market because the pork market is a lot more stable today versus the beef market, and it's really tough right now to have a really long-term perspective of exactly what the market itself is going to do on beef. But we think on our own performance, we could have a much better quarter on the third quarter versus the second quarter on the things that depend on us.

The next question comes from Ricardo Boiati with Safra.

I have a follow-up question on prepared foods. Wesley, you already gave some nice colors, but I wanted to explore the opportunity in terms of sustainable margin improvement that the ongoing projects could provide for the company. Any estimate of what the incremental normalized margin could be when these projects mature in the future? That's the first question. And the second one, I think it goes to Guilherme. Regarding the shareholder base, since the dual listing, how do you see it evolving? Are you seeing already U.S. investors gaining traction? Are you already starting to access fund managers that maybe you previously couldn't? Any color on how that is evolving would be great as well.

So we think that the products that we're investing and the categories that we're investing are categories that should have higher double- digit margins, around 15% is our expectation. And so it should bring the average of our EBITDA up.

Ricardo, our expectation in all of the projects that was prepared, the ROI will be around 20%.

So in terms of shareholder base, so first of all, I think since we listed in New York Stock Exchange, our average trading daily volume more than doubled when we compare it to the last year. And our IR team is receiving a lot of reverse inquiries of new investors, new U.S. investors, that is starting to study the story of JBS. We increased already the foreign investor base. And especially on the conferences that we have, for example, we have in September conferences already scheduled, the number of meetings with JBS increased 60%. So we have full day schedules in conference. So I think people are starting to get the story, making their models. And we'll be doing also all the semester non-deal road shows in Boston, New York, Los Angeles, San Francisco, Chicago, Toronto, so on and so forth, until the end of the year, also Nashville, to get these new investors. And at the same time, again, as I mentioned before, we start checking the boxes to get to the index, given that today, 54% of the assets under management are passive. And this September, we will have, for example, a FTSE Index, will release their rebalancing. So we'll have a vision where we're going to be, for example, in the Russell next year. So most likely June next year, we'll be in the Russell. And again, trying to check the boxes and doing developments like we did in terms of releasing numbers in U.S. comparison to be able to be eligible to the most index that we can be.

The next question comes from Guilherme Palhares with Santander.

Just a quick view here on the table egg industry. You guys, of course, had the investment on Mantiqueira. I'd like to hear your thoughts now that you are closer to the business, your prospects. And if you could also read a bit how this is playing out in the U.S., whether there are opportunities there. We saw the very strong prices of eggs and Brazil also being a player on the exports during Q2. So if you could share a bit your thoughts around that business, what it means for growth in the next couple of years for the company, I would appreciate that.

Guilherme, thank you for the question. We bought 50% of Mantiqueira, and we mentioned that it is a new wave of growth, we are increasing our diversification of our platform. And we want to do with the eggs, what we have done with chicken and pork and beef, to be one of the global leaders of the category. This is the strategy. We cannot mention one other strategy because this will be responsible for Mantiqueira, not for us to say that what will be acquisition or something. I can see it's our priority for growth, both in Brazil and U.S. in the egg sector.

Could you share a bit your thoughts about the growth of this category? Because it seems that when you look in terms of production in Brazil, it has been outpacing your other proteins as well. So what is your thought going forward for the industry as a whole?

I think it's very positive, Guilherme. We have mentioned in other calls that the consumers, now they get the preference for protein, protein become more healthy. And it is a new trend. And when you look for the types of protein, we see that the eggs is more affordable among all other proteins that are available in the market. It means that eggs keep growing. And eggs become very, very healthy. And I think there is an opportunity to create trends in eggs as well. And Mantiqueira start to do that already with Happy Eggs. And Mantiqueira and some other brands, they are developing. This is the strategy. We see that this category will be growing and we can enter in the value-added eggs product as well. We are so excited with the growth of this category. And because of that, we made this investment, and we consider this category as one of the categories where we really make a difference in terms of growing in the future.

The next question comes from Igor Guedes with Genial.

Can you hear me?

Yes, we can hear you.

My question is about the U.S. pork unit. You exceeded our expectations in terms of margins, mainly due to the resilience of domestic pork consumption in the U.S. But beyond that, you mentioned the expansion of high value-added products, which partially offset the negative pressure on pork offal prices redirect to pet food and animal feed industry due to trade restrictions with China. In other words, as we understand it, the margin could have been even better if you realized price had behaved normally. I would like to understand if there is an expectation to resume normal shipments of pork offal to China and restore the realized price in the second half.

Igor, the trade with China, after the trade, a truce has been kind of in place here and postponed. It has already resumed to China and it's normal as of right now.

So in the next quarter, we can maybe see the realized price of pork U.S. going up?

Yes, you should see normalized margins from the third quarter forward. That's our expectation.

The next question comes from Isabella Simonato with Bank of America.

Just a quick question on U.S. pork and mostly related to accounting actually. We saw a big difference, right, in the IFRS margin and U.S. GAAP, which happened in the past, and you guys put a footnote explaining a little bit of the accounting. But I think our perception, right, is that you took a hit when we think about the U.S. GAAP margin in the end of the quarter because of lower cattle prices, right, while hog prices moved up during the quarter. So back to the discussion, right, of margin improvement in Q3, can we assume that the margin, right, for the average of the quarter was actually a little bit higher than those 6.5%? Or if you can break down what was the accounting impact regarding biological assets and mark-to-market of inventories, I think that will help to clarify a little bit of the hit on profitability.

Look, we manage the business here on a day to day, on a U.S. GAAP basis. So in the U.S., we manage it in U.S. GAAP. So we don't follow this on IFRS margins on a day-to-day basis. When I mentioned the improvement in margin next quarter and normalizing, going back to normal from where we expect the margins to look like, it's on a U.S. GAAP basis, and it doesn't have really a lot to do with U.S. GAAP/IFRS differences.

The next question comes from Pooran Sharma with Stephens.

Just wanted to parse into Australia a little bit more. I think you mentioned before the other businesses were running about the same as the prior quarter, maybe except for the salmon business. But the strong performance came from beef. It sounds like there's continued favorability in terms of the cattle cycle. So I was just wondering, as you look out, I think you said you see room for continued improvement for the year. And I was wondering if you meant that on a sequential basis. Like, when I look at EBITDA margins, do they sequentially improve from these strong levels? Or were you thinking more on kind of a year-over-year basis?

Thank you for the question, Pooran. We see that the margin of the Australia business will be 2 digits in the coming quarters. We see favorable livestock availability. We see that improving our results on the salmon business. And the other business, they are very stable. Pork is performing very well and prepared food is doing well. 50% of our business in Australia is beef, and we see these results will be above 2 digits -- no, to be 2 digits. Sorry for that, it's 2 digits. And we remain confident because we are talking in the other quarters that the cattle are available, but there is too much rain, they are not able to catch the cattle in the farms. And now the environment condition is much better, and we normalized our operations. We are working in our plants full, and we remain confident of this business.

Great. I appreciate that. And just as a follow-up and I wanted to hone in further on the U.S. and Brazil tariff situation. It sounds like JBS Brazil can find some offsets. You guys mentioned your global platform. And so I think you could find some offsets if you see some weakness there. But I just wanted to ask about the U.S. chicken business, Pilgrim's Pride. Typically, 4Q is a period where you see seasonal weakness for chicken. And I think this year, we're seeing just a little bit of incremental supply growth when it comes to egg set. But I'm trying to think about the Brazilian kind of beef situation. Do you think this bodes positively for PPC? And if so, can you help us kind of think about how much room for improvement there can be from a potential lower beef supply because of Brazilian tariffs?

I think that it's too early to estimate the real impact because we see that the volume from Brazil that Brazil not export to U.S., maybe we replace from the other markets, from Australia and from other countries. And as I mentioned before, besides that, some of the U.S. products today that are exported could remain in the domestic market. In the end, I think is the U.S. market will be supplied from the one side, from the other side. And this will be open, the opportunity for Brazil, because this is an interconnected system. There is no more production of beef globally. If some countries, they directed sales to U.S., they will be open opportunity for the market that they live. And I think we need to wait for this rebalance situation that we can more estimate what will be the impact of that. Related to chicken, you are right, there is a little bit increase in terms of eggs. But when you see the demand, I think the egg set, we talk about 1%, 2%, and the demand for protein is much higher than this. And we do not see any reason to not to be according to this normal cycle of the business.

Thank you, everyone. Ladies and gentlemen, there being no further questions, I would like to pass the floor to Mr. Gilberto Tomazoni.

I would like to once again thank you, everyone, for joining this earnings call. This quarter marked our listing in NYSE. We reaffirm our focus on growth and deliver value to shareholders, as well our confidence in the strength of our diversified platform, both in terms of geographic and protein. Year after year, it's proven to be the right strategy, an excellent tool to protect company for cycles, supply chain disruption or geopolitical impacts. I would likewise take this opportunity to thank all JBS team members. Our company is truly powered by people who share a common mission and are focused on delivering better results every day. Thank you. Thank you all.

This is the end of the conference call held by JBS. Thank you very much for your participation, and have a nice day.