JBS SA

BOVESPA:JBSS3

Earnings Call Transcript 2020-Q2

[Operator]

Good morning, everyone, and thank you for waiting. Welcome to JBS Second Quarter of 2020 Results Conference Call. With us here today, we have Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of JBS; Andre Nogueira, CEO of JBS USA.; Wesley Batista Filho, CEO of JBS Brazil; and Christiane Assis, Investor Relations Director.

This event is being recorded. [Operator Instructions]

Before proceeding, let me mention that forward 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. I want to begin by thanking our 240,000 team members of their extraordinary work, dedication and commitment, especially our leadership team. You are great. Thank you very much.

Since the beginning of the coronavirus pandemic, JBS has prioritized: one, to protect of our 240,000 team members; two, to commit to our greater purpose of producing food at the time when the world needed most; third, to stay by the side of our customers, clients and suppliers; and number four, ensuring the strength of our financial position.

We promote a giant mobilization to protect people and support community. We invested $400 million in protective measures for team members and their community, including bonus paid in U.S.

We implemented a strict prevention of safety protocol in all of our facility, established with the support of health experts and benchmark institutions. The protocols have been strictly adhered by our team members and promptly incorporated enhanced safety measures, including new PPEs into all of their work routines.

We donated BRL 700 million to the communities, equivalent $120 million, for action to combat the COVID-19, one of the largest global donation of a company in the food sector.

The speed of the response of our team in the face of this context was extraordinary. The ability to adapt to change in the market imposed by the changing consumer habits and buying pattern was unbelievable. This was only possible due to the experience of our team, their autonomy and our culture of execution.

During a period of so many challenges where we have, once again, demonstrated our resilience, our diversified geography and our protein production platform, our focus on health and safety of our workforce and our dedication to our team members around the world has enabled JBS to face the challenge and the volatility that the pandemic imposed on all the companies worldwide.

Even throughout this period of so many challenges, innovation at the company did not stop. On the contrary, with the acceleration of trends, some initiatives took shape quickly. We entered in the vegetable protein and meatless segment. In U.S., we set up an independent company to explore this market, Planterra. With the OZO brand, it is already in the shelf of so many stores. In Brazil, Seara with Incrível line is the leader in the category. This is a market that grows year by year. We are very well positioned to be among the leaders in this segment.

We have significantly increased our dedication to the important issue of sustainability. We have been firmly committed to eradicating deforestation across our entire supply chain. The last independent auditor report show that 100% of our cattle purchase met our social environment criteria. We are confident that our action makes us part of the solution, but we are aware that we must do more and we will. We have already directed our effort towards the development of the platform that will guarantee full traceability of our livestock supply chain. We are well positioned in technology and operational to address this issue responsibly from a leadership position.

Let's go to the numbers. Net revenue in the quarter was a BRL 67.6 billion, an increase of 32.9% with EBITDA of BRL 10.5 billion and a EBITDA margin of 15.5%. In this scenario of countless challenges, we kept our liquidity at very comfortable level, USD 4.8 billion, and we have reduced our leverage ratio to 1.75x, the lowest leverage in the JBS history.

Now I'll pass to Guilherme that he will be -- make the details of our results. Guilherme, please.

[Guilherme Cavalcanti, executive]

Thank you, Tomazoni. So please let's move to Page 5 where we show the increase in revenues to BRL 67.6 billion, which shows our gross profit of BRL 14.5 billion, an increase of 83%. And the increase of 106% of EBITDA, reaching BRL 10.5 billion. This strong operational result was enough to offset the FX loss caused by the translation into the -- of the dollar debt into the real balance sheet. And at the end, we generated a net profit of BRL 3.4 billion.

Next page, we show our operating cash flow, which increased 120% to BRL 11.4 billion, higher than our EBITDA due to a release in working capital, more specifically lower accounts receivables and lower inventories, which was also benefiting early on our free cash flow that was BRL 9.5 billion, a cash conversion from EBITDA of more than 90%. In this page, we also see the reduction in our net interest expenses of $30 million on the quarter compared to the quarter last year.

Next, Page 7, our debt profile. On the left-hand side, we see the decrease in our leverage ratio to the lowest level in the history of the company to 1.75x net debt to EBITDA and a decrease in net debt from $11.7 billion to $10 billion.

On the right-hand side, we have our debt amortization schedule. This is already pro forma, considering the payment of $875 million of debt that we used cash for that. And even after the payment of this debt, we still have $3.25 billion in cash on hand and $1.6 billion in revolving credit facilities available. This is -- this liquidity -- total liquidity of $4.8 billion is enough to take the company on their own in terms of debt amortization till 2026.

Worth mentioning that second quarter 2019 we ended with $1.6 billion in cash on hand. So if you were to come back to the same levels of cash on hand of 1 year ago, we could pay $1.7 billion in debt, which would represent more $100 million in net interest expense savings.

Worth mentioning also, this -- our cash -- our cost of debt of 5.15% for an average term of 7 years comparing to our 10-year bond, which is trading at 4%, shows that we also have an opportunity to continue decreasing interest expenses with more liability management exercises.

Now let's talk about unit performance. We will begin on Page 9 with Seara. Net revenue of BRL 6.4 billion and increasing 25.8% compared to the second quarter 2019, boosted by a 19.8% increase in the average sales price and 4.5% in volumes sold. EBITDA in the second quarter 2020 totaled BRL 1.1 billion, which represents a significant growth of 91.6% when compared to the BRL 563.4 million of the second quarter 2019. The EBITDA margin expanded from 11.1% in the second quarter '19 to 16.9% in the second quarter of '20. This performance is a result of an increase in sales volume; a better mix of market channels and products, with an emphasis on processed products category; and the continued growth in sales coming from innovations introduced since 2019.

In the domestic market, net revenue was BRL 2.9 billion, 9% higher than the second quarter of 2019 with an increase of 4.2% in volumes sold and 4.5% in the average sales price. The processed products category was once again the highlight, posting growth in volumes and average prices of 12.3% and 8.9%, respectively.

The Seara brand has been for the last 12 months the leader of the frozen food category with 23.8% of market share in value, 1.8 points versus the second brand, and has been delivering record results in the Incrível Seara, Seara Gourmet, Seara Orgânico product lines. In the export market, Seara's net revenue reached BRL 3.5 billion in the quarter, an increase of 42.5% in the annual comparison, driven by an increase of 36.1% in the average price and 4.7% in volumes sold.

Moving to JBS Brazil. Net revenues of BRL 8.7 billion and increasing 21.6% compared to the second quarter '19. EBITDA of the second quarter 2020 totaled BRL 1.1 billion with an EBITDA margin of 12.4%, which represents a significant increase of 222.8% in the annual comparison.

In the domestic market, net revenue was BRL 4.3 billion, which corresponds to an increase of 0.8% when compared to the second quarter '19. Friboi remains focused on consolidating its position as the main beef brand in the Brazilian market with the growth of its Maturatta, Friboi Reserva and 1953 Friboi brands in the country.

In the export market, which represents 51.1% of the business unit sales, net revenue had a significant growth of 51%, reaching BRL 4.5 billion, driven by an increase in the average sales price. It's worth mentioning that the beef exports to China posted 53% growth in dollar revenue in the period when compared to the last year.

Now moving to JBS USA Beef. Net revenue of $5.6 billion and EBITDA of $1.1 billion and an EBITDA margin of 20.4%. The quarter was marked by a material volatility in the supply and demand balance due to the impact of COVID-19 on the animal protein industry, notably in North America.

During the quarter, the company's #1 priority was protecting the health and safety of its team members, coupled with the safety of their families and local communities. In the United States and Canada, beef production volumes decreased as a result of the enhanced safety measures and protocols implemented by the company. These actions included removing the group of vulnerable people with full pay and benefits, decreasing line speeds and erecting physical barriers on production floors, among other safety measures, to prevent the potential spread of COVID-19.

During April, the company temporarily closed 3 processing facilities, further reducing production capacity. On the other hand, beef demand remained strong, creating a momentary imbalance in supply and demand, which impacted beef prices.

The Australian operation had a less impact of COVID-19 in the second quarter. The volume of processed cattle increased compared to the previous quarter despite the continuity of the challenging scenario of cattle availability.

Primo Foods' further processing operations remain focused on diversifying its portfolio with innovative products, mainly in the snacking and ready-to-eat segment. In the first half of 2020 alone, Primo Foods launched 15 new products under Primo, Smokeman Brothers and Stackers brands with great success in Australia and New Zealand.

Now moving to JBS USA Pork. Net revenue of $1.6 billion and EBITDA of $167 million and increasing 31% over the previous years with an EBITDA margin of 10.5%. In a quarter marked by the unprecedented impact of COVID-19, the unit confirmed the resilience of its business model based on its operational excellence, stemming from its team members' ownership attitude, on the close relationship with the suppliers and on the commitment to supply higher-quality pork products to its customers.

Similarly to Beef, JBS USA Pork also enhanced safety measures and protocols through all its plants in the U.S. The focus on safety of its members and families as well as the partnership with local communities were of vital importance to ensure the continuity of pork production, minimizing the negative effects of a more pronounced reduction in slaughter. In the quarter, JBS USA Pork processed 5.5% less hogs compared to the same period last year, a rate significantly lower than some of our competitors.

Moving forward in the company's growth strategy in the prepared foods segment in U.S., during the quarter, Plumrose broke ground of its brand-new facility in Moberly in Missouri. The new plant with a capacity of 24 million pounds per year will produce precooked and cooked bacon and should start operating in 2021.

Also, in a later announcement this week, Plumrose communicated its plans to build a new state-of-the-art Italian meats and charcuterie ready-to-eat facility with investment estimated in $200 million.

Now moving to Pilgrim's Pride. Net revenues of $2.8 billion, stable in relation to the second quarter '19. EBITDA of the second quarter totaled $112 million and EBITDA margin of 4%. In the U.S., the first half of the quarter was significantly challenged before a gradual loosening of travel and movement restrictions due to COVID-19 drove an improvement in channel demand, especially from food service. Similar to the first quarter, large bird deboning was once again the most volatile in the quarter and remained challenging.

In Mexico, industry prices were also below seasonality before reverting closer to normal levels by the end of the quarter. In the region, PPC's increased share of noncommodity products, strong execution and growth in prepared foods has helped to partially offset the weakness.

In Europe, the operations once again performed in line with last year, driven by strong retail demand. And despite the significant impact of COVID-19 on the operations, it's a strong internal operating performance and improving SG&A management helped in mitigating the difficult environment. The performance was driven by strong demand at the retail partially offset by a reduction in foodservice; continuing strength in pork exports, especially to China; as well as the implementation of operational improvements and synergy capture.

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

[Operator]

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

[Benjamin Theurer, analyst]

Hello? Can you hear me?

[Gilberto Tomazoni, executive]

Yes. We can hear you, Ben.

[Benjamin Theurer, analyst]

Now you can hear me? Okay. Sorry, there was a little technical issues here. So let me start off again. So first of all, congratulations on the results, clearly impressive what you've managed to post here during the quarter.

Now two questions. One, I guess, more for Guilherme. Obviously, we saw a very strong cash flow generation during the quarter and leverage, and you've mentioned that being at like historic low levels for JBS. So question is around capital allocation. What is priority right now in terms of CapEx; potential M&A; shareholder return, i.e., for dividends; pay down debt? So if you could guide us a little bit through your capital allocation process and what are the drivers and how you think about M&A in the current environment, considering that there might be some opportunities that have been caused because of the COVID pandemic. So that would be my first question.

[Guilherme Cavalcanti, executive]

Okay. Thanks, Ben. So regarding capital allocation, in the last 12 months, we generated around $3.3 billion in free cash flow. Roughly speaking, we used this cash to pay down $2 billion of net debt, $800 million in acquisitions and $300 million in dividends. Going forward, we expect positive free cash flow. So even if you consider the same EBITDA of the last year semester, we will still be deleveraging through the free cash flow, in which the year-end with leverage is even lower than now.

So said that, we have free cash flow enough to invest in organic growth, to invest in M&A, to return money to shareholders and still preserve a very solid balance sheet. Of course, with the leverage that we are reaching, the balance from returning to shareholders to pay down debt and M&A can change. But in the case of M&A, this will depend of having a target at the right price. We will not spend our cash just because we are with excess cash. So it has to be an accretive acquisition for the shareholders.

In terms of returning money to shareholders, we have repurchase share programs open. And given the high discounts that we -- our enterprise-value EBITDA related to our peers, we think that it's a good investment for our excess cash.

Now to finish, I would like also to remember that if we were to increase our net debt in 1x, remember, we generated $5.6 billion in EBITDA in the last 12 months, so in order to come back to the levels of between 2 and 3x, which maybe would maximize the firm value, we would need to spend $5 billion without bringing any EBITDA to the balance sheet. So I would say that we will continue with a very strong balance sheet, despite being able to continue with our strategy of growth and creating value for the shareholders.

[Benjamin Theurer, analyst]

Okay. Perfect. That was very clear. And then my second question, I guess, is more for Andre. In the U.S., obviously, it was a challenging quarter. There was a lot of disruption within your beef and pork operations. You had to shut down, and then the market dynamics clearly caused this once-in-a-lifetime opportunity with low cattle and then high beef pricing. Now how do you think about the potential going forward? The next 6 to 12 months, how do you feel about cattle availability, farmer reaction within cattle but also within hog in order to secure supply beyond 2021? And how have you performed within that context domestically and on the export markets? I think you've mentioned something on the Brazil call this morning, so I just wanted to follow up on your performance on exports as well.

[Andre Nogueira, executive]

Ben, thanks for the question. Ben, we had a situation in terms of the supply that's very favorable, correct? It was already favorable even before the pandemic, and now with the backlog of cattle and hogs that created during the pandemic, because of the reduction in production for all the disruption that you comment that was very challenged, not only in U.S., challenged in U.S., challenged in Canada, less in Australia, but challenged in Europe, so it created a backlog of cattle in U.S. and Canada and a backlog of hogs. That will take time for us to work through this -- the backlog. So the supply perspective is very positive for the next several months, probably this year and next year.

And demand is pretty strong. Demand is strong in retail, very strong in retail. We reduced the export from U.S. and from Canada during the quarter by design because we put priority in the domestic market. And now export is growing again. Production is back to almost normal level. I would say that's not 100%, but it's close to normal levels. We still have some areas that we need to continue to improve, especially more on the value-added side. Inside of the different pork plants, there's more things that we can do to return to the normal mix level. But exports will grow in the second part of this year.

Export is growing pretty strong to China. U.S. -- as I anticipated in the last quarter, U.S. has taken a big part of market share. I think that now it's around 20% of the total pork that China imports is exported from U.S. So it's ahead to what I thought, and I said and I commented in the last quarter, the volume from U.S. to China. And we have this reduction in export that we need to offset now in the second part of the year, so we will grow pretty strong.

Australia production will be less. Australia is in a rebound phase of the herd. So grass is very good and very available in the whole Australia. So production in Australia will be down because less cattle is available, but for a good reason. We are building the herd back. And for the mid-, long term, this will be positive. But Australia, will export more -- less, so U.S., will export more, U.S. and Canada. And then we'll start to export beef from U.S. to China. U.S. has a very, very small position today in China. But now with the adjustments in tariffs, U.S. is more competitive, and it's growing. And I believe that today, China is the largest importer of pork from U.S. I believe that China will be one of the top 5 importers of beef from the U.S., too. That would be very helpful for the demand for the U.S. beef side.

Again, we are back plus normal production, not absolute normal, but very close. Supply is in very good shape. Demand is in a good shape, can improve if food service comes back. It's coming back. It's not normal yet, but it's clearly coming back. And if food service comes back, we should see even a big improvement.

And the perspective for the long term should not change. Asia, overall, is growing the consumption of protein and is growing through import. And U.S., Canada, Australia and of course, Brazil are the suppliers of this new demand. So I think that the perspective is very positive.

Understand that we're still in the middle of the pandemic, that we can see and probably will see a lot of volatility. But I'm extremely proud the way that our team has faced this volatility, the way that we put our priorities, protect our workers and produce food. And even with absolute priorities, we were able to deliver a pretty strong results in the quarter.

[Operator]

Our next question comes from Bryan Hunt with Wells Fargo Securities.

[Bryan Hunt, analyst]

Just two questions. First question is when you look at your $400 million of COVID-related expenses, how much of those may be ongoing in future periods? And basically, what should we expect in Q3 and Q4??

[Andre Nogueira, executive]

Maybe I start your answer here in the U.S. perspective.

[Gilberto Tomazoni, executive]

Yes. Please, Andre.

[Andre Nogueira, executive]

So Bryan, from U.S. perspective, it was around $215 million. A lot of this is investment, onetime, to adjust the plants. A big part of this is new protocols of safety and staggered shifts. 1,000 more people that we hire, 500 of that is to educate the workers about COVID and enforce social distance and enforce the use of PP&E -- the new PP&Es that is face mask and face shield in every plant. Another 500 is extra cleaning in all the common areas. So this will stay, this part of the people, as long as the COVID issue is here, it will stay. The part of the PP&E -- the extra PP&E, it will stay. Some additional costs for staggering shifts, it will stay as long as the COVID is here. But I would say that the big part of this, the largest part was onetime event that was in Q2.

But it's hard. Again, we're still in the middle of the pandemic. How much this will come to impact us, how much more we need to do to be able to say that it will be maybe less than 50% for the second part of the year. But it -- I will not go there to try to guess that. But I would say that the biggest part was onetime event.

And this $315 million related to U.S., we are not considering any inefficiency because we reduced speed, and we do not profit, that's not. That's only cost that was accrued in the quarter. And part of this is the donation, the $35 million donations and investments in the communities that we are doing. Of the $50 million that we're going to do is U.S., $35 million was already booked in the quarter.

[Wesley Batista, executive]

Bryan, this is Wesley here. So a very similar scenario from -- in Brazil. Most of this -- a lot of it is -- a lot of this cost is onetime events for Brazil. Adjustments in the plant flow of the plant -- flow of people in the plant, increasing size of cafeterias, increasing size of changing rooms. And obviously, there is going to be ongoing PPE. But like Andre said, it's very hard to forecast on what it's going to be because we continue to always improve our protocols and new things could come, so it's tough to say how much it will be ongoing.

[Bryan Hunt, analyst]

Very good. My next question is around the $200 million cured meat facility in the United States, which was announced. You look at that and you look at the success of you all and others in the industry, and I'm wondering, is this announcement of building your own facility more of a characteristic, the earnings are so strong in the industry at this point that there's less willing sellers? I was wondering if you can characterize what the M&A pipeline looks like. And should we anticipate more organic growth from the company going forward?

[Andre Nogueira, executive]

So Bryan, from the U.S. perspective, again, every growth that we want to have needs to be aligned with the company's strategy. The company strategy is to grow the portfolio of prepared foods and branded, so this is aligned with that growth. We did the acquisition of Empire Foods that was more in the value-added side. The price was right. The acquisition was right. We analyzed that, and it was better in that case to do acquisition than build 5 new case-ready plants, so we bought 5 case-ready plants with the Empire.

In the Italian meats and in the bacon side, the question is to complete our portfolio of the prepared foods. We want to grow in that area. We didn't see any assets that was modern enough with the quality that we want for the growth of the segment. So in that case, between buying older assets, smaller plants, not so efficient and build a new, state-of-the-art, very efficient plant in a segment that's growing that already have the capabilities inside of Plumrose to build and to sell that, made more sense to build that.

So we always will look both, Bryan. Sometimes it will be acquisition makes more sense and will be a better return, sometimes it will be a greenfield investment will be a better investment. And in that case, you have very few new or relatively new assets in U.S. that makes sense for us to do the acquisition. I'll not say that it's more a trend of greenfield, it's a trend of look both. And when it makes sense in greenfield, we'll go to greenfield. It needs to be aligned with the company's strategy of grow more the prepared foods and value-added, will change a bit. But we just did 2 acquisitions in the more value-added, and we have announced 2 greenfields. We've got a combination of both.

[Bryan Hunt, analyst]

And my last question -- Go ahead.

[Gilberto Tomazoni, executive]

And Bryan, just to -- in addition to what Andre said, JBS has a history of the acquisitions. We didn't change this. We are always evaluating opportunities in the market. We have had a great success due to our discipline to seek in the right price. I think is -- it is in the right price, it's in the combination of margin and multiples. We continue to evaluate looking for the right moment. We didn't change the strategy. But when you don't have the right target, we do greenfield. This is simple like that.

[Bryan Hunt, analyst]

Very good. And then my last question is, given the strong results that you just posted and the likelihood you'll be listed on a U.S. exchange, do you believe those are trigger mechanisms to become investment-grade on the debt side? And that's it for me.

[Guilherme Cavalcanti, executive]

Now the investment grade, it's worth mentioning that the rating agencies, they work on a moving average way. So generally, they get 2 years of historic data and 3 years of forecast data. So even if we're showing strong data at the moment, maybe you have to get this moving average to get on the scorecard at the level of investment-grade. If you read the reports of S&P, Moody's and Fitch, our financial metrics are already investment-grade. And it's getting -- for example, our financial metrics would be compared to BBB flat before these results. Now I would say that our financial metrics, it's going towards an A level, so -- because, as I mentioned, we will continue to deleverage until the end of the year.

So my expectation is that these strong metrics will be enough to offset other qualitative metrics of the scorecard and bring us ratings upgrade.

[Operator]

Our next question comes from Carla Casella with JPMorgan.

[Carla Casella, analyst]

Just a follow-up on Bryan's question. Are there any hurdles left to complete the U.S. listing? And do you have a time frame in mind?

[Gilberto Tomazoni, executive]

Carla, as we said last quarter, our priority was to focus on protecting people and the operation challenge imposed by the pandemic. And the agility with which we reacted setup that we did the right decision. But now things are more under control, and we are returning to addressing the listing. We don't have a deadline, but we are taking all necessary steps for the process.

[Carla Casella, analyst]

Okay. And are there any key steps that we should track?

[Gilberto Tomazoni, executive]

Sorry, could you repeat?

[Carla Casella, analyst]

Are there any steps that we could track to see as you move towards the listing? Meaning will we see -- what's the order of events? Will you have to put out the -- a bond amendment or other -- just documentation? I'm wondering if there are any important steps that -- or hurdles.

[Gilberto Tomazoni, executive]

No, no. It's the same steps. We have some rules to be full -- to be complete -- paper to be complete is just to return on the process. There is a time to approve. It is -- now we return our -- we need to return to the beginning, no. But it's just -- we have a lot work done, we just -- to restart.

I don't know if you want to add some, Guilherme. I think it's clear that we just restart the project.

[Guilherme Cavalcanti, executive]

Yes. And in due time, if we need a constant solicitation from the bondholders, we'll ask it. But we still have some other things to do before that.

[Carla Casella, analyst]

Okay. Great. And then I have one question on the business. Food service, if you could talk about how food service versus retail performed -- or the mix, how that mix changed -- may have changed during COVID? And if you're seeing it shift back to more normal levels, or if you see that changing more longer term?

[Andre Nogueira, executive]

Maybe I start here from the U.S. perspective, Carla. Of course, during the pandemic, the strong point of the pandemic, April, May, food service slowed down dramatically. I would say that for us, and I'm not saying that's the reality of the market, but for us, in the beef and pork side, food service in July was only 10% below of July last year. So pretty strong in my mind, considering all that's still going on in U.S. and Australia -- in U.S. and Canada. In Australia food service is still very slow, very, very slow in Australia.

Our customers in chicken, maybe because of the segments that we operate in chicken, some of the customers in the food service are doing better than the same time of last year. So I'd say that recovery is coming in U.S. I don't think that is a long-term but more a medium-term perspective. And this will be upside for the business. I think that as food service recover, retail will slow down a little bit, but not slow down in the same amount that food service will recover.

So it's coming. It's not in the level that was before. But no question, that's improving, especially in U.S. and Canada and Mexico. Australia, a little bit behind the curve with the resurgence of the virus that we saw there now. Food service was recovering, now it came back.

[Carla Casella, analyst]

Okay. Great. And then just one other one. Given that you have all 3 proteins. In the U.S. market, can you talk about what the grocers are doing in terms of promoting? Are -- as we come out of COVID, are you seeing them shift from one protein to another?

[Andre Nogueira, executive]

Well, I think that during the COVID, no one promoted anything, correct? It was a question of availability. And I'm really proud that our key customers were the ones that gained more market share during the COVID time. So it looks like that we kept the supply in very good shape, and they were able to gain market share from other retailers that are not customers of us.

I think that now we're seeing much more promotion. Prices are coming down in retail. The wholesale price came down way early. Retail enjoyed very good margins for a period of time, and now they are promoting more aggressively. And I think that they're promoting all the 3 proteins. I don't think that they are -- put one ahead of the other. I think that in a period of time, well, some retailers will push more beef, the others will push pork, the others will push chicken. I think that we're seeing promotion is strong back, and strong back in all the 3 proteins.

[Operator]

Our next question comes from Pedro Leduc with BLP Asset.

[Pedro Leduc;BLP Asset;Analyst, analyst]

Congrats on the operating results. It's a bit of a different one, okay? So bear with me. I much appreciate you describing the SG&A efforts you're pursuing and definitely look forward to following its results. Now as a Brazilian, I recognize that the government doesn't always do its part in restraining deforestation, fires and cattle raising or movement in prohibited areas. And given that they don't do much of their part, it increases the burden as you -- on you as a company to do this extra effort. And of course, this is very hard. And more often than not, the press likes to show the negative headlines and probably will take time to show the positive ones.

So given this negative bias and -- from the press, I guess, and everybody paying much more attention to it, as a shareholder, I'm starting to think that maybe it would be better for your share price to completely shut down the 20-plus plants that you have close to those protected areas. You would probably lose maybe 2%, 3% of your revenues, but get more clients elsewhere, more investors, better stock multiples, credit, et cetera. So I'm starting to think it as a positive trade-off. I know it's very sensitive for you, but is this something that you are also considering? Is this a valid discussion? So get out of those areas, shut down those plants, maybe sell. It will have a limited impact on your revenues and probably better benefits elsewhere.

[Wesley Batista, executive]

Well, if you mind -- don't mind, I would like to answer. So Pedro, this is Wesley. I think I would approach this question from 2 angles. So first angle, we don't believe that that's part of the solution and that's not part of improving the situation in that region of Brazil. We actually think the other way around. We think that our operations can be part of the solution and part of bringing positive improvement and positive change in the region. So we don't approach -- we don't like to think of approaching this issue and the situation from that perspective.

The other part that I think it's important, and we -- from -- when we approach it from an ESG perspective, we can't forget the middle part, the S part, which is the social part, and all of the thousands of people that work in those regions and thousands of jobs that are created directly and indirectly by those operations in Brazil. And those are regions that really need that type of companies and type of the industry there. So we believe that we can improve. We can be part of the solution. We can bring positive change. Create -- take care of the environment for sure, that's a priority, but absolutely continue to create opportunities on the social part.

[Gilberto Tomazoni, executive]

Yes. I would like to add to the answer of Wesley. We have a strong policy in terms of 0 deforestation in Amazon region. We have -- I think we have one of the best programs. So with our satellite monitoring of -- and georeference data, our direct supplier is 50,000 suppliers, and we block at 9,000. But I know there is the direct suppliers. There is a gap to monitor the indirect suppliers and a need to fill the gap. We need to close this gap. We are working on that. We have -- because this depends on 2 things. One is the technical platform, and the other is the agreement with the other associations in the market, give the information that -- possibility of monitoring all of this process. And we are really advanced on that, really advanced. And we need to answer this. I think the solution is not to close the plant, it's to find a way to guarantee that we have full traceability of our supply chain.

[Pedro Leduc;BLP Asset;Analyst, analyst]

That's right. I hope that's the better solution, indeed. But I think it's a good discussion food for thought.

[Gilberto Tomazoni, executive]

But we are work hard on that. We are work hard and are so confident that we will give the answer to the market very soon.

[Operator]

Our next question comes from Carlos Laboy with HSBC.

[Carlos Alberto Laboy, analyst]

First of all, congratulations on these spectacular results, this is fantastic. Mr. Tomazoni, can you expand on the traceability tool that you've mentioned here? Do you have a plan for when it's going to get rolled out? If it's been pilot tested already? Are you getting good results from this? When do you think you may have a target date for tracing the full providence record of every animal that you buy?

[Gilberto Tomazoni, executive]

We are committed to do that. We are committed to full traceability for all of the supply chains. We are committed to do that. We have some challenge because -- its technical challenge and process challenge to get the information, to put all the things. But we are working hard on that for a long period of time. I believe that we are very advanced on that. And as I said before, I think we are able to share with the society in a short term our strategy to do that. But don't forget that direct supply, we are doing a great job on that. Indirect, we didn't because it's not dependent just for us. We need to have more -- other association, other players in the market to do that together. And we are working on that. I think we are -- can address this in a very short time.

[Wesley Batista, executive]

Carlos, if I can just complement on Tomazoni's answer, he's 100% spot on. The direct supplier issue we can directly address without the partnership with third parties. With the indirect supplier, we need to work with the chain. This is not an integrated chain, so we need to work with other people and bring more parties in the solution -- into the solution here. So because of that, it's more difficult to put a time line. What we can tell you is that this is a top priority for the Brazilian operation and for the company in general and that we're working very hard on this. And this is something that we are -- this is on the top of our priority. And in the short term, we want to be able to present to the market and to the society a proposition of how to address this issue.

[Operator]

Our next question comes from Lucas Ferreira with Banco JPMorgan.

[Lucas Ferreira, analyst]

I have a very specific question about the margarine business that you recently bought that it appears that is now fully approved by the antitrust authorities of Brazil. So wondering if you can comment about the integration plan for this business. And what's your expectations about just sales volume growth? Are you investing in the brand? What's the kind of commercial strategy for it? And also in terms of production, if you expect also to increase your market share in this segment?

[Gilberto Tomazoni, executive]

Wesley, I think you can answer and I can help at the end some.

[Wesley Batista, executive]

Sure. So Lucas, we had a response from the antitrust division here in Brazil or -- yes, here in Brazil, and they were not -- they did not have any objections to the -- to this deal. And we are now in the 15 days -- within the 15 days in which we can -- we have to wait until the transaction is concluded. So we are waiting here for these 15 days to be -- to pass, and then we can -- with the antitrust approval -- antitrust unit approval, we can go ahead and integrate the business.

Our approach to this business would be very similar and in line with what we've done in Seara and in JBS in general. Our strategy doesn't change in that way. So top-quality products, that's the first part, and that's something that we have already been working on with our current margarine business. And we're already planning with this approval to implement and to put all of our controls and all of our practices to improve quality, and that's the #1 action that we need to take.

Other than that, use our distribution in Brazil for Seara, which is a very, very robust distribution, to bring this product to the market and communicate it well to the consumer what are the benefits of this product and why our product has the top quality in the market.

So we want to have a different -- a very different approach. Our integration will be fast and will be -- with the approval will be fast and will be similar to what we've done in Seara. And we hope to gain share with the customers -- consumers' preference, similar to what we've done in Seara and acquire the preference of the consumer just like we've done with the other brands here in Brazil and around the world.

Tomazoni, I don't know if you want to complement?

[Gilberto Tomazoni, executive]

No. I think if -- when it's integrated in terms of -- to get all of the synergy, but we are manage as independent company, just a team focused on developing this market. And it's a lot of synergy to us because, first, we don't have today a production facility. We are -- we have third-party suppliers that we are -- start to produce our own margarine that is Doriana. And the second, I think, is we are -- with all of the capability that Seara has for distribution, for point of sales management, we are so excited with this opportunity in this 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]

Sorry, I was on mute. I want to say that we are -- our solid team, our global production and distribution platform, our robust balance sheet and higher liquidity have put us in a good position to continue to execute our growth plan. We are continuing to put our team's safety first, and we'll focus on to produce quality foods for all of the world and keep our focus on innovation.

I extend my sincere appreciation to all of you, and continue to support us, and I believe it's our company. Thank you very much.

[Operator]

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