JBS SA

BOVESPA:JBSS3

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, everyone, and thank you for waiting. Welcome to JBS S.A. and JBS USA First Quarter of 2022 Results Conference Call. With us here today, we have Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of JBS; Andre Nogueira, President of Operations in North America; Wesley Batista Filho, President of Operations in Latin America, Oceania and the Global Plant-Based Business; and Christiane Assis, Investor Relations Director. This event is being recorded. [Operator Instructions]

Before proceeding, let me mention that forward-looking statements are based on the beliefs and assumptions of JBS' management. They involve risks and uncertainties because they relate to future events and, therefore, depend on circumstances that may or may not occur.

Now I will turn the conference over to Gilberto Tomazoni, Global CEO of JBS. Mr. Tomazoni, you may begin your presentation.

[Gilberto Tomazoni, executive]

Good morning, everyone. Thank you very much for joining this first quarter 2022 results. We're real elate throughout this presentation. We ended the first quarter of 2022 with a significant results. We posted a strong numbers, which give us immense satisfaction, showing our resilience in search as a challenging market.

The strong performance of our beef business in North America, the pork business in United States in Pilgrim's Pride, the business improvements in Australia, the brand advanced in Brazil, a focus on managing what was under our control. Our capability for innovation and our relentless pursuit of operational excellence were our key to posting very strong numbers during the quarter.

We had double-digit revenue growth in all business units. We also made advanced an EBITDA margin in practically all areas. As Guilherme will detail later, we increased our net income to $982.7 million with net revenue of $7.5 billion and adjusted EBITDA of $1.9 billion. We continue to invest in growth. Our CapEx was $418 million, with more than 50% of that in growth and organic growth projects and the other $204.5 million in M&A operations.

We also delivered a significant shareholder returns in the short term, returning $346 million in share buyback in the first quarter and an additional $204 million share buyback in April, and we just announced $400 million to $425 million in dividends. This represents $1 billion in shareholder returns. This allow us to deliver a short-term return and continues of our growing strategy. All this ended up in dollar. Our leverage fell from 1.67x to 1.53x in dollar. In Brazilian real, the decline was even more significant from 1.76x to 1.36x in the period.

One of our key trends you can see on the map on Slide 2. Our platform diversified by region and by protein types. When we face challenging environment and cycle in specific business and regions, we can compensate across other business. Thanks to our geographical platform. This was shown once again in the results for this quarter. Our platform is very hard to replicate. It's not impossible. Even more, if you consider we are constantly strengthening and further with new growth avenues. That is the case of the aquaculture business.

We want to grow this business at the same way as we made in poultry and pork. We acquired a company to serve as a platform for expansion in seafood sector, the first grow protein worldwide. Plant-based is another growth avenue. We already have a global alternative platform, opening products in Europe, U.S., Australia, and Brazil. We don't know yet how the full potential of this market. But we believe that plant-based protein can play important role include the protein gap and meeting the global demand for food.

Cultivated protein also has a role to play. Last week, we announced of completion of our BioTech food acquisitions. Our focus now is to scale the technology with investment in a new industrial plant in Spain. We also announced our new JBS BioTech innovation center in Brazil to develop our old, cultivated protein technology. On top of this, we have improved our ability to innovate, offer high-value products and new brands all to get closer to our customers with more than 150 brands worldwide by the end of 2025, our goal is to achieve 10 brands with a revenue of $1 billion -- over $1 billion.

JBS is in a unique competitive position to continue delivering strong results in the short term while continues to invest in our growth. Sustainability is at the core of our structures aligned with our ESG and net 0 commitments. We believe that no company can operate independently from the world around it. That's why we are contributing to the social and economic development in the region where we operate.

We have included some of these initiatives in our presentation. Having the best people in the right place and a strong company culture is also the key. Our team is the driving force behind the success of our multi-protein platforms worldwide. To reinforce our missions, values and our beliefs and mobile leaderships from supervisor to C-level executives, this year we are rolling out JBS-coated events around the world. Our people and our culture have brought us here and are central for our continued success. We are a people company.

Thank you. And now I will pass to Guilherme.

[Guilherme Cavalcanti, executive]

Thank you, Tomazoni. Let's go over the operational and financial highlights for the first quarter of 2022. Starting on Slide 24, please.

I would like to start by highlighting 2 important debt issuances at the beginning of this year, which are the JBS first 30-year bond and the first agriculture receivable certificates in dollars for the retail. Both the bond and agriculture receivables had a much higher demand than initially offered, which demonstrates the company's credibility with the capital markets and the recognition of the work that we have been done in terms of liability management. These issues made JBS to increase its average maturity debt from 6.3 years in the first quarter of 2021 to 8.2 years in the first quarter of 2022. For the same period, our average cost of debt dropped from 4.9% to 4.4%, and financial leverage in dollars remained at a very comfortable level at 1.5x net debt to EBITDA.

We have invested $1 billion in the first quarter of 2022 with the following breakdown. We returned $346 million to shareholders through share buybacks. If we include the share buybacks made in April 2022, the return was $550 million. I would also like to point out that the last night -- at last night, we announced a cancellation of $26.7 million treasury shares that we bought in April and a new buyback program of $113 million shares.

Additionally, we also announced the distribution of interim dividends in the amount of BRL 1 per share, totaling approximately $425 million. We concluded the acquisition of King's Group, one of the market leaders in the production of Italian Charcuterie and Rivalea, the leader in hog breeding and processing porks in Australia. The total investment considering the 2 acquisition was $204 million.

This week, we also announced the acquisition of the control of the Spanish company, BioTech Foods, one of the global leaders in the development of Biotechnology for the production of cultivated protein. Investment in the new facility is estimated $41 million. We also invested $480 million in modernization expansion and maintenance of our production units. And we invested more than $90 million globally in ESG initiatives. Hence, considering the share buyback in April, the dividends in May and BioTech, the total invested was $1.7 billion.

Finally, I would like to point out that the return on invested capital was 26% considering the first quarter last 12 months, being the best quarter of the company's history, the best first quarter.

Now move to Slide 25, where we present the financial and operational highlights for the quarter. In the first quarter of 2022, we achieved net revenues of $17.4 billion, which represents an increase of 21% in the annual comparison. The adjusted EBITDA for the quarter was $1.9 billion, which represents an EBITDA margin of 11%. Net income was a total of $983 million in the quarter, which represents earnings per share of $0.44.

I would also like to highlight that considering the first quarter 2022 last 12 months, once again, we reached record results. Net revenue was $68.7 billion. Adjusted EBITDA was $9.2 billion and net income $4.4 billion and earnings per share of $1.83.

To conclude this slide, the company's Board also approved the first -- in the first quarter, the cancellation of 129 million shares in treasury added to the constellation of 26.7 million announced last night, totally approximately of 156 billion shares canceled as well as a new buyback program with the objective of maximizing the value generation to the shareholders through an efficient management of its capital structure.

Please now move to Slide 27. The operating cash flow in the quarter was $66 million. Free cash flow for the quarter was a negative $542 million. It is worth mentioning that the first quarter of the year has the characteristic of consuming cash due to the concentration of payments to suppliers and the buildup of inventories. First quarter 2022 last 12 months, the operating cash flow was $4.9 billion. Free cash flow was $2.3 billion, and excluding nonrecurring payments of $790 million and the expansion CapEx of $1 billion, the free cash flow for the year would have been $4 billion with a conversion of 45% from the adjusted EBITDA.

We have also increased the investment in the company's organic growth. In the graph on the bottom of the slide, we have our CapEx in the quarter totaling $480 million, of which 57% is related to investments in modernization and expansion.

Now please let's move to Slide 28, where we have the evolution of our debt profile. Net debt in the first quarter was $14 billion, which represents an increase of $1.7 billion in comparison due to share buybacks in the amount of $1.7 billion, M&As of totaling of $1.9 billion, $1.4 billion in dividends and nonrecurring payments of $790 million. These events were partially offset by the cash generation of $2.3 billion and the positive impact of the exchange rate variation of $11 billion -- of $2 billion. Net leverage was 1.5x in dollars and 1.4x in real, while interest expense coverage increasing from 8.5x to 12x in 2022.

And it's important to highlight our comfortable liquidity position. We ended quarter with a cash position of $3.6 billion, together with the revolving line of $2 billion allowed JBS to end the quarter with a total availability of $5.6 billion. Moving to the bottom of the slide, I highlighted our average cost of debt in dollars of 4.1%. Considering the issuance of the agriculture receivables in April of $253 million, the average debt maturity went from 6.3 years to 8.2 years.

Now let's move to the business unit performance. Starting with Seara on Slide 29. Net revenue grew 21% in the first quarter, posting growth in both volumes and prices. Sales in the domestic market, which accounted for approximately 48% of the unit's revenue for the period, the prepared products category maintained its growth trend and record an increase of 17% in average sales price and 0.6% in volume. It is worth mentioning an important achievement.

According to Kantar, in the brand footprint Brazil 2022 ranking, Seara is among the 5 most chosen brands by Brazilians. This important achievement is the result of intense work with the objective of increasing brand preference and solidifying leadership in several categories.

In the export market, net revenue increased by 25% in relation to the first quarter 2021 due to a 13% growth in sales volume and a 10.5% growth in average prices despite the temporary suspension for our exports to Saudi Arabia and the recovery of the Chinese swine herd. The scenario for production costs remained very challenging in the first quarter, with the average cost of corn and soybean meal rising 13% and 4% year-over-year, respectively, remaining at high levels according to the ESALQ data.

Now moving to JBS Brasil on Slide 30. We see the revenue for the quarter growing 24% year-over-year, reaching $2.7 billion. In the domestic market, the macroeconomic scenario remains very challenging, putting pressure on beef consumption, which has already reached one of the lowest levels ever recorded. The profitability of this unit continues to be impacted by the average price of cattle which according to the data published by CEPEA-ESALQ increased around 11% in the average price for the quarter, being BRL 340 per arroba.

The export market was the highlight of the quarter, with net revenue reporting a significant increase of 45% when compared to the last year, mainly due to the growth of 17% in volume and 20% in the average sales prices for beef in natura in reais, mainly driven by the resumption of Brazilian exports to China at the end of 2021.

Moving to Slide 31. At JBS Beef North America and now speaking in dollar terms and in U.S. GAAP, JBS Beef North America revenue reached $5.5 billion in the first quarter, an increase of 27% year-over-year and the adjusted EBITDA totaled $792 million and a margin of 14.3%. These results do not include JBS Australia, which is now reported separately.

In the domestic market, the demand due positively to the net revenue growth, driven mainly by the recovery of the foodservice channel and the sustained net performance of the retail compared to the same period of the previous year. In the international market, despite of the continuous lowness of American ports, the volume export was more than 6% higher compared to the previous years. The Asian market continues to be the most important market for the American beef exports. On the cost side, results were impacted by the increase in relevant inputs such as labor and logistics.

Moving on to Slide 32, we have JBS Australia. As of this quarter, we will be disclosing the results separately. Therefore, it's important to provide a little more detail on the business unit. Briefly, JBS Australia is largest meat and food processing company in the country with operations in beef, sheep, pork, fish, and prepared foods.

JBS Australia produces a wide range of high-quality beef and lamb products. The business unit is also the largest Australian manufacturer of ham, bacon, salami, and cold cuts under the Primo brand. JBS recently announced the acquisition of 2 companies in the region: Huon Aquaculture a salmon producer and Rivalea, which produces high-quality pork for Australian markets.

Now talking about the results, net revenue was $1.4 billion, an increasing 26% compared to the first quarter of 2021 and adjusted EBITDA was $3.2 -- sorry, $93.2 million with a margin of 6.6%. Both the domestic market and exports contributed positively to these results even in the face of a very challenging cost scenario that puts pressure on the region's profitability. As a result, EBITDA margin grew by 5.8 percentage points from 8.8% to 6.6%.

Now moving to JBS USA Pork. In first quarter 2022, net revenue was $1.9 billion, an increase of 18% year-over-year. Adjusted EBITDA reached $187 million with a 9.8% EBITDA margin. In the domestic market, the strong demand for pork supported price during the quarter, favoring the segment's margins, which were at higher levels in the end of comparison. On the other hand, higher operating and live animal costs partially pressured results.

In the international market, USA figures show that U.S. pork export volumes were down 20% year-over-year in the first quarter mainly explained by the China's domestic pork production, which recovered after the African swine fever outbreak. The reduction in exports to China were partially offset by the good performance of Mexico that increased 42%.

Pilgrim's Pride on the Slide 34, presented net revenues of $4.2 billion in the quarter, an increase of 29.5% year-over-year. Adjusted EBITDA reached $502 million with an EBITDA margin of 12%. In the U.S., the foodservice channel recovered to the pre-COVID volume levels, while demand in the retail chain remained strong despite a challenging inflationary scenario. In Mexico, the good profitability is explained by the seasonality of the period investments -- of the period, investments in brand products and good management of the supply chain despite the rise in grain prices. In Europe, the scenario is still quite adverse despite a slightly recovery in the quarterly comparison.

To finish, I would like to move to Slide 35, that shows that our exports totaled $4.5 billion in the first quarter with approximately 180 countries taking part of these exports.

With that, I would like to open to our question-and-answer session.

[Operator]

[Operator Instructions] Our first question comes from Ben Theurer with Barclays.

[Benjamin Theurer, analyst]

Obviously, congrats on those strong results. 2 questions, if I may. So first, Seara obviously was pretty much under pressure during the quarter, and we've seen other companies struggling in January. But could you give us maybe a little bit of more detailed granularity within the quarter, how things moved from January into March and what you've been seeing so far in the second quarter? And what's your expectation on Seara's margin, which obviously is not at a level, I guess, you're pleased to see the margin? That will be my first question.

[Gilberto Tomazoni, executive]

Thank you, Ben, for the question. I will ask for Wesley to answer this question to you.

[Wesley Mendonça Filho, executive]

So yes, absolutely, we don't see the first quarter result for Seara as a result that will be our result going forward. We had a quarter that started off in January, very, very tough. We had a domestic market that was under a lot of pressure, but we saw that recover during the quarter in the domestic market and also in the export market. We also had within the quarter, the exchange rate devaluing -- the U.S. dollar devaluing against the real. And that was another important pressure in our results for the quarter. We did increase prices in U.S. dollar to counter effect that devaluation of the U.S. dollar. But that -- the effect of that we saw more in March and starting here the second quarter.

So again, started the quarter with a result that was very difficult in January, and we saw a gradual increase throughout the quarter until March, and we see the beginning of the second quarter actually better than March. So we are optimistic that this result for Seara won't be repeated in the second quarter and throughout the rest of the year. Yes, that's a little bit about Seara. And I'll…

[Gilberto Tomazoni, executive]

And, Ben, let me too add. I think one important thing to look at the Seara results. Seara results even under impression, they keep growing. And this is mainly because of increased the preference of the consumer. And then there is 2 indicators that linked to the preference, is the penetration and the repurchase. This is -- Seara is growing very fast in these 2 indicators. And this means you can predict the future of the company, the future of the brand.

[Benjamin Theurer, analyst]

Okay. Perfect. And then my second question is very similar, but actually from more on the opposite side of things. In Beef North America, obviously it was an exceptionally strong quarter with a margin in the almost mid-teens. But what we saw more recently, at least industry data, is indicating a little bit of more of a choppy right. So could you share maybe some initial thoughts on the current environment and what your expectations are heading into summer into the grilling season? On one side, obviously, cattle availability, but one thing is if they're available, the second thing is at what price. So maybe a little bit about that.

And what you're seeing on the demand side, be it for beef. But then aside from that, for all the drop value, be it the height, the feds and so on, which obviously has been a quite attractive market recently. So just to understand a little bit the dynamics input cost versus output, what you're getting.

[Gilberto Tomazoni, executive]

Andre, I think you are in the best condition to answer this question.

[Andre Nogueira, executive]

Ben, thanks for the question. You're right. First quarter good very strong. The key fundamentals for the business continue to be very positive. If you look at the USA report of cattle feed, we are in a record level, higher than last year by 1.7% for the same period. Global demand, very, very strong, specifically from Asia for us here in North America. China continues to grow in a pretty strong pace overall. Japan that was quite -- for quite a period of time, came back pretty strong. We think that Japan and Korea both have very low inventory. And as we go back to normal, they should be big, big buyers, and they're very relevant, again, for North America.

Domestic, we are seeing that retail price is still at a pretty high level. I think that we say we have all the incentives to promote much more beef as we start the grilling season. We're talking our retailer partners and we see that. So overall, are very positive. When we look at the industry data, you need to remember that's a very [indiscernible] industry data, and our portfolio of products are very different than that with much more value-added products with much more progress that are not captured by that industry data.

Just to give you a few examples, our CVA, that's beef and pork, value-added business, marinated cuts branded, we grew 40% in volume compared with the same quarter of last year. Our Swift brand that's very strong in pork, has become very strong in beef in the retail. We grew more than 20% compared to the same quarter of last year. So that's all what is not captured in the market data.

On top of that, you had commented and you are absolutely right, what we call drop credit. That's all the byproducts, things that we take out in the harvest floor has been going up in value year-over-year and quarter-over-quarter. And we are over $50, $60 more in Q2 2022 compared to the same quarter of last year sale. So that's go straight to the bottom line. And this is because of all the renewable fuel, what's going on in grain. So we don't see any weakness in that coming anytime soon. And that's not captured by the industry data that already the commodity [indiscernible] with the commodity cutout.

So I expect that we're going to see a movement in the cutout price. As we start the grilling season as demand start to kick up in the domestic market, both here and in Canada, and we will continue to see pretty strong in demand for the export.

What we need to wait and see is with all this inflation that's impacted the people globally. But for sure, here in U.S. and in Canada, with price of gas, price of rent, how does we impact the net income of the -- especially the low-income population. That's the population that can change more in terms of consumption that they can trade off in beef to chicken or from middle cuts to ground beef because they are seeing a high inflation overall in several areas of their life.

On the other hand, this low income is the one that in the U.S. have been seeing the biggest increase in compensation in the last 2 years and continue to be a very tight labor. And we will continue to see an increase in wage for this population. This increase in wage vis-a-vis higher cost in inflation, what to be the net disposable income and how this will impact beef, especially middle cuts for the future, we will need to see. I think that at this point, we are very positive in terms of demand. Global demand is very strong. U.S. demand, they're just going to start to see the grilling season that always is their strong season.

So when I compare all this and I look the overall JBS portfolio and what we have invested in the last several years in terms of innovation, in terms of value-add and in terms of programs, in terms of brands, I'm very positive for the remainder of the year. We're going to see, of course I already said that the last quarter, specific in this North America tight in the spread compared to the same period of last year. But I think I strong believe that will be continue to be in a very strong level.

[Operator]

Our next question comes from Priya Ohri-Gupta with Barclays.

[Priya Ohri-Gupta, analyst]

A couple of just administrative ones, if I could start with. On the last call, you had given us an update that you were expecting to sort of streamline the issuer structure on the bond side and sort of collapse that to JBS USA over the first half of this year. I was hoping you could give us progress on that?

And then secondly, is there any update that you could give us on the progress you're making towards registering the bonds and some of the requirements that are needed there? And then I have a second question.

[Guilherme Cavalcanti, executive]

Okay. Thank you, Priya. On the first question, in beginning of -- at the end of March, beginning of April, bonds at the S.A. entity was assumed by the JBS U.S.A. entity, as I mentioned in that call. So that you'll see this difference from the second quarter onwards. And about the registering the bonds, I think one of the major requirement is to have SOX compliance, which we have already running the tests in U.S.A., in Seara, but some of the subsidiaries and also at the asset level, we're still having to finish the SOX compliance program before being able to register the bonds.

So that's where we are. We have this ongoing project to have the SOX compliance in the entire JBS. So once this is done, we'll be able to register the bonds in the SECC.

[Priya Ohri-Gupta, analyst]

And then I guess if I could just follow up a little bit on to the last point you made with regards to Ben's question on sort of how inflation is impacting consumer behavior. I think you talked about it a little bit more in the context of fees. But could you share your thoughts on what you're seeing on the pork side as well? And just some of the discussions you're having with retailers in terms of pricing conversations for the Pork segment?

[Andre Nogueira, executive]

So just to…

[Gilberto Tomazoni, executive]

Andre?

[Andre Nogueira, executive]

Yes, just to be clear…

[Gilberto Tomazoni, executive]

No, go ahead Andre.

[Andre Nogueira, executive]

Just to be clear, we need to see what will be the impact, correct? We need to see what could be the net impact. It's not clear here. Because for one side, we have, of course, high inflation in several segments, especially in gas and rent and things that impacted by day of the people that for sure impacted their perspective. On the other hand, you have higher salary, one of the source of the inflation, the labor market in the U.S. that has been very, very high. And because [indiscernible] happening very, very high.

Especially the low income, we are seeing a pretty high increase in wage. That's what we did in our plans to become more competitive and continue to attract the labor. We raised compensation a pretty strong level in the last 2 years. So that's more income for the people on side, the other side of inflation. What to be the net of debt, and if that will impact any type of consumption. The food side is still for us to see for the next several quarters, not clear for me.

Again, beef price cut out price now compare how 6-7 months ago is lower. That's why I'm saying that we have all the incentives to promote more beef within the summer grilling. We are going to have less pork production in U.S. this year compared to last year. So I expect that pork price will become -- will continue to be in a pretty good level.

So all this will reflect the price of the retail still for us to see. If this will represent that people will trend down from meat to meat to ground beef or to chicken is still for us to see. I think that's too early for us to tell that. What I can say that overall globally, demand for protein continues to be very, very strong.

And when we see in the beef side, the market that was complete like Japan and Korea, we always need to remember that Australia that we have a big operational strategy that's important producing an important export of beef and lamb globally. The production [indiscernible] too way down compared with what with the normal production, 30%-40% down. So this is less beef available globally. That's why the demand has been so strong and that's why the price has been in a so strong level. And I don't see anything that would change that in any short term.

[Gilberto Tomazoni, executive]

In period, in a case like this, we have high inflation and to affect the consumer power. The food is the last category to software. Even we can move in among the categories, but it will be less to software. And this is one of the advantage of JBS. We have a diversified platform. We have very multi proteins, and we are really prepared for face this challenge in the consumer movements.

[Operator]

Our next question comes from Carla Casella with J.P. Morgan.

[Carla Casella, analyst]

Just a follow on to Priya's question there. In terms of the SOX compliance that you need at S.A., what are the key hurdles that you need for that? And what's the timing? Is that something that takes a year, 2 years, near term?

[Guilherme Cavalcanti, executive]

There's no hurdle. It's just a project that we putting in place. I would say that 1 year, I think could be enough for us to have SOX compliance in the entire company.

[Carla Casella, analyst]

And I'm sorry, did you say you're not going to -- did you disclose or will you disclose the restrictive group leverage, total debt or cash?

[Guilherme Cavalcanti, executive]

Could you repeat, please, Carla?

[Carla Casella, analyst]

The restricted group for the JBS USA restricted group, are you going to disclose the cash or debt at that level or leverage?

[Guilherme Cavalcanti, executive]

Yes, we will disclose that as we did in the past through the -- mainly for the bondholders.

[Andre Nogueira, executive]

Carla, just to be clear. It was always disclosed and we will continue to use the same website of the same information.

[Carla Casella, analyst]

Perfect. Okay. And then…

[Andre Nogueira, executive]

The only thing that change of the conference call. The website will be there, the information will be there the same way that was disclosed in the past.

[Carla Casella, analyst]

Perfect. Okay. That's what I was confusing. I remember you commenting on that last time. And then just one question, Australia. Thank you so much for breaking that out. It's super helpful. But since we don't have a lot of historic data for it, can you give us a sense for, is there a way to think about normalized margin in that market? Because I think it was traditionally a pretty high-margin business for you. But I'm just wondering if there's a way to think about normalized margin range?

[Gilberto Tomazoni, executive]

Andre considering our long term to manage this market. I think you are in a better condition to answer this question.

[Andre Nogueira, executive]

Yes, I'll start here and well if you put the call of the thing that I'm missing. So Carla, when we talk about Australia, we need to understand that the business is very, very different than the business in the past, okay? We still have the beef business there, the land business there that are relevant. But now we have several other business Primo business, that's a business that's over $1 billion of solid in sales, $1.2 billion of solid in sales, solid in global sale. We have the whole business and we have the Rivalea.

So when we look and we are not going to disclose the margin business by business, go to the store their margin for the whole Australia. It's hard to talk about normalized. Of course, in the business this specific segment business, we are still way below the volume, I comment before that Australia is still producing today because of the strong retention of cattle because of the great condition of the -- in the graph in the whole -- pretty much in the whole Australia right now and have been used since last year.

So the retention that started late in the 2020 was very strong [indiscernible]. True, its production in Australia studies and 40% below a normal level of production. So the margin is way below what's the normal margin for us. That's why we say that when all this retention and start to come back to the market, you're going to see a much higher volume, much higher sales and much better margin in the Australia segment. On top of that, we can comment at the position that we just did, these are just starting, they are just starting to put our way to manage the business to increase the margin. So they are not being big contributed for the margins right now.

So we are going to see a much stronger margin in the future when this business starts to deliver the new business and when beef go back to a more normal level of margin. So very, very bullish for Australia, especially for next year starting 2022, maybe even start in the fourth quarter of this year, but most probably for the next year.

[Carla Casella, analyst]

I'll let you go on.

[Guilherme Cavalcanti, executive]

Just to complement, Carla, what Andre is saying is especially the 2 businesses we have just acquired, there are businesses that, on a percentage basis, should contribute for a higher overall average margin. So we know that the salmon business, when it's in a normalized pre-COVID margin in which we are seeing that we are reaching that type of margin today. It's a business that has pretty high double digits, right? And the pork business in Australia has a pretty good margin. Today, with a lot of opportunities -- it's already operating double digits with a lot of opportunity for us to still improve our business there.

So there is lots of things that we should -- that we can do in the plant -- in the live part of the operations that can really improve. And on top of that, like Andre mentioned, we -- on top of that, we have the Primo business, which also is a business that should operate with double-digit margins. It should be a business that does well. So with the beef business and ship and land business in Australia recovering, we should have a pretty good business going there.

[Operator]

Our next question comes from Lucas Ferreira with J.P. Morgan.

[Lucas Ferreira, analyst]

My first question is regarding your, let's say, processed food or high value-added mix. I remember in the past you mentioned something like high double digits exposure in your portfolio. But since I've been doing a lot of acquisitions, wondering if you have sort of a new estimate of a new number of awards, the current exposure of the company to a more-high value-added category, maybe those, I don't know, with the 10%-plus margins, more stable prices? So if you have something to give us and sort of if you have a number you aim to have in the mid- to long run?

And then the second question is more specific about the Brasil Beef business, which was one of the underperforming units in the quarter. Despite of the strong prices of exports out of Brazil, I think you did not yet capitalize on that in the margin side. So what we expect for second quarter, second half of the year, if you already see improvements in profitability. I know cattle prices are still elevated, but I'm not sure if you can compensate that by strong export prices mainly.

[Gilberto Tomazoni, executive]

I will ask for Wesley to start to answer about beef in Brazil. And I want to understand better your first question. Can you repeat that?

[Lucas Ferreira, analyst]

Yes, Tomazoni sure. So the total JBS exposure to processed foods, if you can give me an estimate of how much of processor food or high value-added products represent of your total net sales, for instance?

[Wesley Mendonça Filho, executive]

I'll start here with Beef Brasil. So we started the first quarter compared to the previous year, we have a higher cattle cost in Brazil. We had some regions, especially the west of Mato Grosso that had a very short supply, so especially short in that region, which was a tough start of the year.

We are in a similar scenario to Australia. We are in a herd recovery in Brazil. And we are currently seeing calf prices being a little bit lower, which indicate a higher offer of calves currently, which will probably benefit the next couple of years. But having said that, it was -- on the quarter was tougher than previous year, start of the quarter from -- on a cattle supply perspective, especially in the west of Mato Grosso.

So we have a good -- a very strong export business, but we're also very -- we have a good share of the domestic market, which was especially underperformed in the first quarter, and we -- with response to that, we increased our export during the first quarter. And we are starting already to see at the beginning of this next quarter and the end of the first quarter, a recovering overall performance of the beef business, especially in the domestic market with the this increase in exports we have.

One big one important part of the outlook for this business is we have a suspension of the -- one of our plants to China, which is Mosaic is a big plant for us. We are compensating that loss in capacity to export to China with the other plants we have. So it's not going to be -- we're not going to have the full impact of that plant being suspended. We already had a second audit in that plant from the Chinese, and we are expecting the results of that other should come out anytime soon. So we're pretty optimistic that we're going to resume normal trade to China with Brazil, but still it's an uncertainty going forward. Having said that, with regards to the domestic market and other export markets, -- we have rebalanced our operations, and we have a better outlook going forward than what we had in the first quarter.

Another part that I think is important. We have been, for a long time, improving our value-added categories in Brazil. We have the [indiscernible] program, which today already has 1,870 stores in Brazil. It's growing very fast, especially with the high value of beef being able to, at store level, being able to increase the value of meat and bring savings to our inefficiencies to our partners is being valued very, very heavily, and this is a program that's growing very, very steadily. So tough start difficult start to the year, but we see an overall better trend for the second quarter.

[Gilberto Tomazoni, executive]

And Lucas the question about the value added. We have -- we manage the business like we disclosed the results, and we have value-added and brand in each one of the business inside of the business. Of course, we have some businesses practically brand that we have swift prepared food in. But it's a small part because if you consider that we have in Pilgrim's, a part of prepared foods as well. We have brands that -- we have a beef, we have the pork and we have Friboi as we had just mentioned. They have some brands, some value add.

Then we have Australia is the same thing that we manage now as a whole, and this is because it's a challenge to give you a precise answer on that. And I apologize, but I cannot give you really the numbers because it will be not precise. Maybe we can have a discussion with you and explain to you better how we manage in a separate way, maybe you can give you on a perception about it. I can tell you, in terms of size is big. It's big, it's more than $10 billion, but it's just an idea. I'm don't have numbers to compare with. This is correct or not. Just give you an impression more than $10 billion.

[Operator]

Our next question comes from Carlos Laboy with HSBC.

[Carlos Alberto Laboy, analyst]

I have 2 related questions. One is can you update us on how you're managing through this very tight U.S. labor market as you look out through the rest of the year? And on a related basis, you've spoken before and how you've made some robotics and automation research investments, I think, in New Zealand. Can you update us on any meaningful developments that are happening in this field or any relief that you might be able to get from these investments at some point in terms of automation and robotics in your plans?

[Gilberto Tomazoni, executive]

Andre About the comment of labor market in U.S., maybe you can give an answer, then I give you about our strategy for automation.

[Andre Nogueira, executive]

So labor, it's very tight not only in U.S., it's tight in U.S., it's tight in Europe, tight in Canada. It's tight in Australia. What we're doing as a company is become the company of choice for the labor investing. We invest in compensation a lot over the last 2 years, make sure that we are a leader in terms of compensation in our industry. And the [indiscernible] here, just to give you a perspective, in U.S., in the beef and pork segment. The average wage is probably around $25 -- $24 to $25 per hour. So if you compare that to minimum wages comparing that to other industry, we are very, very competitive because it's a very competitive market right now.

But more than that, we're investing a lot in our facilities in a welfare area in our facilities. I can guarantee you that now our facility state-of-the-art in terms of welfare and everything that touch the employees. We're investing the commitments with our hometown strong program here in North America, more than $100 million and the convenience that our members leave to them to be proud about the company, proud about the community. We're investing in housing because housing some of these communities is a big challenge to attract the labor. We create the better Futures program for our team members and their dependence when you have more than 2,800 people that sign up for the program.

So what we're doing as a company has become the best that we can be in our industry to be extremely competitive and is working. We have more availability of labor now. Turnover is going down. It's not equal in every market, in every state. The competitive is very different state by state, but I can say that our strategy and our investment is working. It's moving the right direction. We expect that this will continue to improve as we continue to collect the results of our investments.

[Gilberto Tomazoni, executive]

Andre, can you give some figures about the automation in the U.S. result.

[Andre Nogueira, executive]

Yes, we've been investing heavily in automation several segments. So in the deboning the chicken side, we are investing heavy in [indiscernible], the PPC have been comment about that, all the investment to put automation and be investing heavily in the pork plants in every area that we can have automation.

We just approved a new warehouse, full automated warehouse that use Scott Technology capacity that we're going to implement in Canada that's a potential important reduction in labor in top of Perdigao. Scott Technology has a project with experience that they develop a trace to trace the chickens that are pretty labor-intensive.

So we continue to work with Scott, but not only Scott and we continue to invest heavily in our plans to improve the part of the labor that we can have. We do some of the most difficult jobs in the plant and improve efficiency to face and to try to combat as much as we can in our operational excellence, the increase in costs that we've seen several areas.

[Gilberto Tomazoni, executive]

And Carlos, if you ask for why is our global strategy of automation, I can say, we have a global team focused on industrial 4.0. They are sharing knowledge. They are discussing opportunities in each one of the regions, but they share benchmarking. And we are in close contact with all of the suppliers in order to understand the opportunities. And whenever opportunity that makes an economic sense for automation, we are investing. This is one of the main route of investment is automation.

Chicken is easier than the other business for automations and prepare is easy to automation. We are -- I think we are going faster on this. And lamb in Australia, we have a plant fully automated by Scott. And as Andre mentioned, is Scott is an independent company. It's a public company, but we are creating an opportunity for Scott to develop a line for automation in food. And we are -- it's already done in U.S., and we are developing in other geographies because I believe we can develop a proprietary technology on top of the -- what is available in the market.

[Operator]

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

[Gilberto Tomazoni, executive]

I would like to thank all of you to attend this conference call and our -- thank you for our team members, 250 -- more than 250,000 team members around the world that is the responsible for these great results. Thank you.

[Operator]

That does conclude JBS' audio conference for today. Thank you very much for your participation. Have a good day, and thank you for using Chorus Call.