JBS SA

BOVESPA:JBSS3

Earnings Call Analysis

Company Optimizes Debt and Enhances Profitability

In Q3 2023, the company made significant strides, decreasing net debt by $600 million to $16 billion, owing to a $1.1 billion EBITDA and an improved working capital, together offsetting $375 million in CapEx. This resulted in a leverage of 4.87x in dollars, despite a 61 percent drop in EBITDA over 12 months compared to the previous year. Net revenue saw a 6.7% increase year-over-year, and profitability improved due to lower production costs and higher operational efficiency. Additionally, the EBITDA margins across various segments improved sequentially, reflecting a focus on value-added products and operational excellence. The company reaffirmed a commitment to reducing debt in Q4 and hinted at potential share price revaluation upon approval of a double listing.

JBS's Q3 2023 Results: On the Path to Recovery

JBS showcases resilience with its Q3 2023 results, indicating a steady march towards recovery. The company has improved its EBITDA margin by almost 1 percentage point compared to Q2, reaching about 6%. This progress is attributed to their diversified operations across various geographies, proteins, and the implementation of managerial improvements in Brazil and the U.S. Their commitment to diversification stands out as they steadily improve results and margins.

Expansion and Optimistic Outlook for Seara and U.S. Beef Business

The company maintains an optimistic view on the outlook for Seara, their poultry and pork division, especially with new plants like Rolândia, which has yet to reach full capacity and has market share growth potential. Similarly, the U.S. beef segment is seeing recovery thanks to strategic measures tackling the challenges of beef prices, underlining the company's ability to navigate difficult market conditions. Additionally, the new Italian specialty plant's production is steadily ramping up, indicative of JBS's continued efforts in bolstering production capabilities.

Double Listing and Stakeholder Value Focus

JBS's focus on long-term value creation for stakeholders is further punctuated by the strategy to pursue a double listing in Brazil and the U.S. It's a step that aligns with the company's goal to enhance shareholder returns and benefit the broader community, including their employees. Amid celebrating its 70th anniversary, JBS exhibits a clear vision focusing on innovation, operational excellence, quality, and financial discipline, which resounds with its leadership values.

Debt Reduction and Leverage Management

In line with its disciplined approach to finance, JBS managed to reduce its net debt by USD 600 million in Q3. However, due to accounting specifics, the leverage ratio slightly increased to 4.87x in U.S. dollars. Nevertheless, this is an interim figure, and with a broader perspective of market consensus, the company forecasts a leverage ratio ending around 4x for 2023, representing a lower ratio than reported earlier in the year. This calculated debt management reflects their robustness in facing economic challenges, with an average debt maturity now extended to 12 years.

Strategic Capital Expenditure and Solid Free Cash Flow

Approximately BRL 1.8 billion or USD 375 million was allocated for capital expenditures in the quarter, split between maintenance and expansion purposes. Notably, JBS reported strong free cash flow amounting to BRL 3.4 billion or USD 703 million for the quarter. This impressive cash generation ability underscores the company's operational strength and strategic financial management.

Earnings Call Transcript 2023-Q3

[Operator]

Good morning, everyone, and thank you for waiting. Welcome to JBS S.A. and JBS USA Quarter 3 2023 Results Conference Call. With us here today, we have 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. This event is being recorded. [Operator Instructions]

Before proceeding, let me mention that any forward-looking statements that are made during this conference call 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'd like to turn the conference over to Gilberto Tomazoni, Global CEO of JBS. Mr. Tomazoni, you may proceed.

[Gilberto Tomazoni, executive]

Good morning, everyone. Thank you for attending our earnings call. Numbers of our Q3 of 2023 demonstrate that we are on the recovery path consistently to recover results and margins as we had indicated in the first quarter. Our businesses continue to strive both as margin is concerned, also as well as cash generation due to our diversified global platform diversified by geographies and proteins. And the implementation of important managerial improvements both in Brazil and U.S., we've added almost 1 percentage point in our EBITDA margin. When compared to Q2, it's about 6% now.

That progress of our cash generation also demonstrates our discipline -- our financial discipline and with the fundamentals of our debt policies, that's the first highlight of our results. Number two, this is a topic I had previously mentioned. We had 2 businesses that were underperforming. In this third quarter, we keep on working to recover the profitability of these operations. And we're now seeing the first results. At Seara, we have accomplished some of the improvements that have been identified, and we believe that in the following quarters we have a positive impact from these actions.

On top of those managerial improvements, Seara has some opportunities outbound, which is more market share to be acquired. New plants such as that of Rolândia, which are not at its full capacity yet, we remain very optimistic about the outlook for Seara. Our beef business in the U.S., the measures we have implemented have helped us navigate through this valley as far as beef prices are concerned. We are recovering despite more stringent spread, once again highlighting our improvements.

Thirdly, our financial discipline to reduce our debt during this quarter, due to that strong cash generation, we managed to reduce our debt -- our net debt by USD 600 million. Despite a reduction, our leverage is up 4.87x in U.S. dollars due to a statistical detail. Guilherme will be touching upon that shortly. That once again demonstrate we are ready to face these challenging times with that financial robustness. The average maturity rate to 12 years, more liquidity and reducing our debt. These are indications of our financial discipline to reduce our debt.

Starting in the previous quarter, it's good news. We are now going to be deleveraging the company structurally speaking. And my fourth highlight is we'll keep on growing when we start operations of these new plants. As you can see in the new openings of the plants in Rolândia, one of the most modern and sustainable plants in the world, once again, our new Italian specialty plant is ramping up its production. Our long-term strategy remains the same. We keep on focusing on growth through diversification, innovation, more added value and strong brands.

We have a multi-geography, a multi-protein platform, which is unique that gives us the resilience to face these challenging times in any geography or in any specific business. My fifth highlight, that's how we're focused on the long-term generation to stakeholders, double listing both in Brazil and in the U.S. By doing so, we believe that this is yet another means to generate value to all shareholders to society and our employees alike.

Finally, investments in expansion, the reduction of our debt and the execution of managerial improvements in our business indicates that we are completely focused on what we can control regardless of any other issues that may impact our businesses. Amidst our 70th anniversary, our brand consolidates this new time for JBS. This is yet the celebration of the past, a reflection of our present and a vision for our future, focusing on innovation, operational excellence, quality, financial discipline and leadership in any and everything we do. Thank you once again for attending our earnings call. I'll turn over to Guilherme for the financial results. Over to you, Guilherme.

[Guilherme Cavalcanti, executive]

Thank you, Tomazoni. Now let's go over the operational and financial highlights of quarter 3 2023, starting on Slide 12. I would like to start by highlighting [indiscernible] liability management we continue to carried out throughout the second half of this year [indiscernible]. JBS issued $2.5 billion of senior notes, of which $1.6 billion with a coupon of 6.75% maturity in 2034 and $900 million with a coupon of 7.25% and maturing in 2053.

Subsequently, we issued $500 million towards subsidiary [indiscernible] with maturity in [ Q4 ] and a coupon of [ 6.85% ]. Additionally, in October, we issued CRA in the amount of $1.7 billion in 5 series. With the resources described and will be paid almost all of our [ $404 million ] of trade finance in September and will repay almost all our short and mid-term debts in the amount of $5 billion [indiscernible] 2027 already completed. In the amount of [ 860 million ]. After the progress, we will JBS [ 12 ] year, reducing the average cost to 6.03% per year impact [indiscernible] need to pay debt until 2027.

Now moving on to Slide 13, we have the operational and financial highlights for the quarter. The net revenue [indiscernible] was BRL 91 billion or $19 billion. The adjusted EBITDA totaled BRL 5.4 billion or USD 1.1 billion, which represents a margin of 5.9% before the sequential improvement since quarter 1, 2023, in line with what we had mentioned in [indiscernible] net profit was $117 million in the quarter.

Now moving to Slide 14. Operating cash flow in the quarter was USD 1.3 billion, an improvement of 20% when compared with the previous quarter. [indiscernible] improvement in operating income, but also [indiscernible] capital, which was [indiscernible] effect by USD 341 million. [indiscernible] came from the improvement in accounts receivable [indiscernible] from China and [indiscernible] as well as the reduction in inventories as a result of the decreased price [indiscernible] in the U.S. and Brazil.

In the last few quarters [indiscernible] net free cash flow to offset the first quarter's cash flow of USD 4.2 billion [indiscernible] results of the second and third quarters, we have already reached USD 1.1 billion. In other words, 91% for all [indiscernible]. Quarter 4 generates new cash flows to the postponement of payments from [indiscernible] following fiscal year. And in the first quarter this year, we had a cash outflow of $440 million related to purchases, and we expect that a good part of this amount will now return in quarter 4, which will contribute positively for the cash -- free cash flow for the year.

Pardon we are considering capturing more than USD 150 million [indiscernible] on the back of lower beef prices because [indiscernible] estimating an additional cash flow of $100 million refund some taxes [indiscernible] and monetization of tax credits in Brazil. These amounts are in addition to the USD 185 million that we booked in the second and third quarters.

Finally, we are already expecting leverage in quarter 2 to be the highest of the year with the decrease in EBITDA, which, as we demonstrated, is already improving sequentially. When using the market consensus EBITDA, our leverage in 2023 will end at around 4x net debt-to-EBITDA ratio lower than the leverage posted in quarter 2.

[indiscernible] within the market consensus EBITDA of [indiscernible] with a margin of 6.5% with an average already resumed [indiscernible] indicated in our financial policy. In other words [indiscernible] In 2025, using market consensus data with a margin of 7% on average within year end 2.5x. To let us provide CapEx in this quarter was approximately BRL 1.8 billion or USD 375 million, of which 52% was maintenance CapEx and 48% for expansion and market [indiscernible].

Therefore, considering the fact that [indiscernible] the free cash flow for the quarter was [indiscernible] at BRL 3.4 billion or USD 703 million. On Slide 15, we see the evolution of our debt profile. The net debt in quarter 3 2023 ended at USD 16 billion, a decrease of approximately USD 600 million. The sequential operational improvement reflected in our EBITDA of USD 1.1 billion and the improvement in our working capital of $341 million were more than enough to offset investments in CapEx of $375 million.

The accrued interest of $270 million, biological assets of $113 million and leasing payments of $101 million. Net financial expenses in the quarter were at USD 261 million, stable compared to the previous quarters. It is worth noting that 79% of our debt [indiscernible] nominal [indiscernible] and with fixed coupon. The leverage in dollars was 4.87x in dollars and in BRL, 4.84x. This growth is explained by the [ 6 1 percent ] reduction in the EBITDA for the past 12 months [indiscernible] in quarter 3 2023 when compared to the same period of the previous year.

However, as I mentioned, our average debt [indiscernible] is quite comfortable at 12 years with an average cost of 6.08% and no relevant [indiscernible]. Before moving on to the business units, I would like to make everyone aware of [indiscernible] earnings release in our Investor Relations website, leaving [indiscernible] in dollars and in U.S. GAAP for the international operations to facilitate comparability with our U.S. peers.

Let's now quickly go through the business units, starting with Seara on Slide 16. The net revenue for the quarter is up by 6.7% year-over-year, reflecting the lower [indiscernible] On the other hand, profitability improved sequentially throughout the quarter as a result of lower production costs and greater operational efficiency. I would like to highlight that Seara inaugurated its industrial complex located in the city of Rolândia in October, advance its expansion strategy into branded value-added products, particularly in chicken -- breaded chicken and hot dog segments. The new plants are the most automated at Seara animals amongst the most modern at JBS ourselves.

On to Slide 17. Net revenue, [ 4.4 ] lower compared to the same period of previous year. As a result of the [indiscernible] prices maybe to China. This result was partially offset by greater demand in the domestic market, reflecting the decrease in retail prices. I would like to highlight that in a survey carried out by the Datafolha Institute in thousands of Brazilian households, the Friboi brand was once again elected Top of Mind, which is the most remembered and preferred brand by the Brazilian consumer. Friboi wins the meat category for the fourth time in a row and consolidates as the absolute leader.

Moving on to Slide 18. JBS Beef North America's net revenue grew 7% and the EBITDA margin was 1.6%, although profitability reflects the turnaround of the cattle cycle. In the annual comparison, the sequential improvement in profitability is a result of the company's efforts to improve commercial and operational performance already capturing gains on several fronts.

On to Slide 19. Australia, despite the decrease in consolidated net revenue, the EBITDA margin grew 3 percentage points to 6.6% in U.S. GAAP. That improvement mainly reflects the lower purchase price of live cattle given the greater availability of animals due to the more favorable cycle. According to Meat & Livestock Australia, the price of live cattle in Australia fell 49% year-on-year in Q3 '23.

JBS USA Pork, net revenue was 5% lower quarter-on-quarter. However, EBITDA margin returned to historical levels. This improvement is the result of lower grain costs minus 24% year-on-year, a decrease in pork prices minus 18% year-on-year and continuous efforts aimed at expanding the value-added portfolio and improving commercial and operational execution.

Pilgrim's Pride on Slide 21 showed a net revenue -- minus 2% in net revenue in Q3. However, all regions improved margins compared to the previous quarter as a result of operational excellence programs, continued partnership with key customers and increased diversification through a branded and value-added portfolio. In the U.S., poultry cuts that are used as raw material, Big Bird, still plays a challenging scenario, but market fundamentals have already started to improve.

Mexico recorded a strong result in the quarter with continued improvement in the live chicken operations, lower grain prices and a favorable exchange rate impact. Finally, in Europe, the positive trajectory of margin growth continued, driven by the continuous optimization of operations, cost recovery efforts, consolidation of back office activities and growth of partnerships with key customers.

As you can see, as we have been indicating, the sequential improvement in our profitability has already occurred. And the trend remains positive in the fourth quarter, highlighting JBS Australia, Seara and JBS Brazil. So I would like to open our question-and-answer session.

[Operator]

[Operator Instructions] Our first question comes from Thiago Bortoluci from Goldman Sachs.

[Thiago Bortoluci, analyst]

Congratulations on the results. Let me start by discussing the dynamics in Brazil. My first question is about growth. Tomazoni addressed that in his opening remarks. When you open the Rolândia plant, you announced with a controller, your intention to invest heavily in the country by 2027. Part of it is in Seara, but in other JBS operations as well. Can you give us some more color as to how the breakdown of those investments would be? What opportunities you are trying to address? Does that have any connection with the latest Seara plant? That's my first question.

My second question on to Brazil. I understand, Guilherme, when you talk about weaker export prices. But when we compare the dynamics quarter-on-quarter, prices and the 15-kilo unit, so I'd like to better understand the driver behind that continuously worse margins and the beef -- Brazilian beef industry?

[Gilberto Tomazoni, executive]

Thiago, thank you for your question. Let me start by answering the question about what I said during the opening ceremony in Rolândia. Yes, we are concluding this investment cycle. We had announced it's a 5-year investment cycle. So we concluded those investments in 4 years. JBS, $11 billion and another $3 billion from farmers investing in their poultry farms. We have just -- we are about to conclude those investments. There's some to be invested in the finishing construction or the final phases of the construction of some plants. That concludes that growth cycle we had planned a couple of years ago.

This process requires us to not only build a new plant, we have to develop a farming system around it. So we have to think about these things now for long-term investments. I talked about that within that context of investments. Of course, today, I refer to the financial discipline we have had so far. So I made the connections. If we were to be successful, if we had approval from shareholders to have double listing that would favor that strategy, that growth strategy we have been implementing.

But the most important thing now is to state that we're committed to our financial policy. As of Q4, as I said, structurally, we'll be reducing our debt. That's -- this is our main focus. Once these -- this double listing has been approved, the new prices of company shares, the company can issue and speed up that growth plan. It can be done because our market issues for Seara are very positive. I'm focusing on Seara, more specifically. We want to grow Seara's businesses.

In the circular economy, this can show us or that can give us many opportunities, both in power as well as byproducts using raw materials of our process. We have the peptide, fertilizer, biodiesel. So we have so many opportunities that will add value using the raw materials from our process and focusing on Seara -- focus on the fundamentals of Seara, focusing on customers.

We have more purchasing penetration products that are present in more households, and the repurchasing of these products give us the confidence that we can rethink that long-term investment strategy. That's the context in which I made that statement during the opening ceremony.

Now on to the point you're making about the -- about what Guilherme said, that will depend on what the company thought about these things back then when these transactions occurred. What I'm trying to say is that the major impact in our beef industry was, during the start of the pandemic, many containers prices were under a lot of pressure, that happened -- that impacted our business. That direct relation is directly linked to what we did. This is what impacted our results in the Beef Brazil industry.

[Thiago Bortoluci, analyst]

That's clear. If I may, a quick follow-up, if I may. You talked about double listing. Can you give us some updating in timing so that you can share?

[Gilberto Tomazoni, executive]

Yes, Thiago. We announced the structure of our listing. And in that structure that we announced, that structure didn't really provide for the holders to vote in our assembly meeting. But there wasn't a possibility for them to vote. But however, when the credit holders contacted us, they said they wanted to be [ titled ] to vote like [indiscernible] our assembly meeting.

So two points here. We considered that there was a fair request on their side? Hence, we thought that we should that we should approve that. And the second point is that the listing is not urgent. It's not an urgent matter. As you heard today, the postponing of the debt to a term of 12 years, so the maturity only in 2027 puts in a very comfortable position.

So why not give them what they requested. And I would say that this is not so much related with the structure of the operation, but rather a legal aspect of how to make this happen. The company's attorneys work towards making it happen, and they identified the way which this could be done. And that's why we had to return to the SEC and change the effort that we had with them so that they could vote.

So you file the documents, then there's the SEC review, they return with queries. And right now, this is what we are doing. We are answering their queries in this process. So this is where we stand right now. This is exactly where we stand. Nothing changed in terms of our [indiscernible]. It was a request [indiscernible] people. And it really -- it's something that we consider quite fair.

[Operator]

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

[Isabella Simonato, analyst]

Thank you for the discussion. Please add to that discussion about Seara. I'd say that it is an improvement trajectory, but it's somewhat an outlier in terms of what we were expecting and what we've seen in the rest of the industry. [indiscernible] has been talking frequently about improvement and how the [indiscernible] improved, so can you give us more detail about the business and orders when we think about [indiscernible] export profitability and the performance of process foods [indiscernible]

Just give us some more context about the profitability of that business, specifically in quarter 3? And the first question is about the pork margin in the U.S.A. There was an evident recovery quarter-over-quarter, but this business has been showing a lot of volatility. So what can we expect looking forward? How sustainable it is to go back to this high single-digit margins?

And in the last quarter, you already saw some big connections. So if you can give us more color about your business?

[Gilberto Tomazoni, executive]

Isabella, thank you for your question. Let me answer about Seara and then [indiscernible] answer your second question and talk about U.S. Pork. We have been announcing that the Seara business was not actually realizing all its potential. It wasn't performing at its full. And we even made some changes in the structure of Seara to work more closely with Seara. And so maybe now I can give you more information on what's happening with that business typically.

First, Seara's problem is internal. I even mentioned this before when I talked about investments. But I want to stress once again that preference, penetration and repurchase of our products, all these indicators continue to grow. The price positioning, which has [indiscernible] with the value of our products, we have been leading in many categories in the market in terms of price.

So when you look back in our history, when we bought Seara in 2013 and Seara was selling at a 30% [indiscernible] price than other leading brands. This is not the picture today. Seara has changed, and Seara has improved the value of its products and increased its penetration. So that is why we are so enthusiastic with our investments in Seara's growth. Because in many of categories, we were already reaching the cap. So we do have a market-related challenge here. We have a cost-related challenge, and this cost-related challenge is process [indiscernible] overnight.

Increasing the turnover of the chicken automation is a process. It requires training plus [indiscernible] of leaders to provide them with a condition to operate at a higher [indiscernible] level. So there are many other factors. And these are minor factors, but when you combine them all together, they will give you a performance level which is still below expected. And in this business, we must remember that we have been appreciating from the [indiscernible] to the ready free products.

And we ran the next phase, diagnose the problems in each of the small sets of the process, we identify any potential gaps to tackle all these gaps, and we very confident that from now on, it's just a matter of time. But as I said, it's not something that happens overnight. It will take us a few quarters until we can completely resolve this issue. But looking forward, we should be seeing -- increasingly more we should be seeing the capture of all these opportunities in Seara.

Wesley, can you please answer her question about U.S. Pork?

[Wesley Mendonça Filho, executive]

Isabella, well, actually, we don't see the U.S. business as a volatile business. If you look at industry's 10, 15 years -- if you look 10, 15 years back, it's one of the most stable businesses that we have. And for many years, it was at high single digits or mid-single digits and continues and sometimes [indiscernible] low double digits. And I think the [indiscernible] those numbers was in 2012 -- 2011 when the factory was starting -- 2010 was starting.

So it's a very stable business. You see that the first half of this year is the [indiscernible]. So when we look at the results that we are delivering now are more close to normality as an [indiscernible], Isabella. We are now in the middle of quarter 4 -- Quarter 4 is much more in line, first quarter is where it's [indiscernible] quarter 3 [indiscernible]. But we are expecting quarter 4, which will be much more in line with quarter 3 and so much with the first half of the year, where we had outlying numbers.

So it's a very stable business. You see that the first half of this year is the diverse by the [indiscernible]. So when we look at the results that we are delivering now all more goes to normality as an [indiscernible]. We are now in the middle of [indiscernible]. But we are expecting a quarter 4, it will be much more in line with quarter 3 and so much with the first half of the year, where we had outlying numbers. So we are very optimistic with our U.S. [indiscernible] as we don't expect much volatility in the future. We believe that it will go back to the same level of stability and the same level of margin that we have been seeing in the past 10 to 15 years.

Just as a comment of what are the major assets that we expect for next year.

Well, this year, particularly in the first half, there was a relevant [indiscernible], which will be relevant for the availability next year. Also the cost of grains is much lower. But we have been hearing over -- particularly when we talk about live animals, we carry over our animals with longer life in our chicken and as time goes by a breakeven becomes better, and we believe that next year, pork will have an important advantage because we will have less beef available in the market. We think the U.S. is very competitive in terms of what we [indiscernible] with other players in Europe that are reducing their [indiscernible] level, reducing their production. So we're very positive about next year.

And that of the third point was just the first half of the year, we will see the first half of the year as a rule, we see it as an exception.

The next question comes from Ricardo Alves from Morgan Stanley.

I have a question about North America beef. You delivered a similar margin, slightly better than that of quarter 2, whereas the industry spreads were pointing to a gross margin that could be much lower for the industry as a whole. So can you please explain, why you'll be able to maintain a constant margin sequentially, is there something worth mentioning at the level of SG&A, because we typically don't talk so much about that? Or is that more related with your cost initiatives -- more at the level of costs, so can you give us more details about costs and SG&A?

And along the same lines of data for cattle placements for the first quarter next year are pointing to an improvement in cattle supply. And even if it's something momentanous, I'd like to hear your view about that. The dynamics of quarter 3 but also looking forward and beyond quarter 4. I'm sorry for the long question.

My second question is a quick question about [indiscernible]. Can you give us an update about Processed Foods? And what you're expecting in terms of ramp up of this new plant that you just inaugurated both in terms of volumes as well as market presence. And also, what did you see in quarter 3? And what are you expecting for quarter 4 in terms of the competitive environment?

I talked to some other players in the market and in some specific categories, in Processed Foods competition is worth now at the consumer end, so is there any subcategories in Processed Foods that is more concerning to you? So I'd like to hear more about the competitive dynamics.

Good morning, Ricardo. Let me start with your question about U.S. beef. We certainly see that from quarter 2 to quarter 3 kind of improvement in our operations. Yes, we did have some reduction in SG&A expenses, but it's not what explains 100% of improvements in our results that's spread between cattle and beef. What we improved -- I can say that most of the improvements captured were on the commercial side. In the first half of the year, we had some positions that were outside of what we believe and we also made some improvement in our commercial area. So we advanced [indiscernible] still have that we can improve further in our commercial area but most of it is already captured in our results.

And we also advanced in the industrial area in turnover and costs [indiscernible] on the industrial side, this process is somewhat longer, but I can say that we are moving well. We're very positive about whats going on in the industrial area. Quarter 4 is a more difficult quarter for this business in the U.S. So we're expecting a more difficult quarter in quarter 4 than in quarter 3, but we are focused on what we can control, our operational excellence. And looking forward, what I can tell you is that I think it is possible to gain another 2 percentage points in our margin. And I'm certain of that. And I don't think that will be the end line. I think that it's something we can continue to do in the end of this year as well next year.

And next year, you're right, we -- our placement is reasonable, but we are looking at this very carefully. Because we know that, we are at the lowest in this cycle. And when you look at a broader investment plan, you have to wait for time to go from low to high until you can really understand if you're doing the right thing. So we are positive about the short term, but this is still a point of attention.

And 2024 should be a more difficult year for the beef business. And having said this, we have to put these in this past. It will be a more difficult year. But on the other side, we have a lot of things that we can improve in our operations, the 2% extra that I talked about. So it is possible that we will have the results that are similar or even slightly better, but not so different and it shouldn't [indiscernible] the trend of a more difficult year than we are expecting for 2024 because we will continue to capture our internal opportunities and this is how we will be able to maintain the same level of results next year.

Of course, we do not say precisely what will happen with the market. But considering what we are seeing kind of the internal improvements that we're making, we are -- this is a major focus for us.

[Gilberto Tomazoni, executive]

Ricardo, let me address your question about Seara. So the growth we have announced [Technical Difficulty] growing 10% across the board, volume availability, I mean, more available volumes this year and 10% for next year. These investments will make Seara have a 20% additional capacity. That's for all products, every category. When you talk about competition, Well, I usually talk about competition thinking about these items. I mean if you gain market share, you have to deserve their growth. You cannot gain market share to the detriment of your prices. So you have to grow your margins or your market share are adding more value to your products.

Seara's prices are on the rise. It's now the leader of several categories as far as prices are concerned. This we're talking about growth is to offer differentiated products, new and innovative products, and then you will be fighting for price. So if you offer a different product, a new product, you give consumers that chance to try it out and therefore, improving your margins. This has been our focus, and we have been successful so far.

Let me give you an example of our top line products. These are the branded products. We have brought in a lot of innovation. The market grew, we make that happen. So the market grew because we've given the market new products. So the ramp-up of those lines are above our expectations during the investment cycle. This has been the rationale. We started with the branded products, and we are going to escalate that to other categories. Thank you.

Lucas Ferreira from JPMorgan asks the next question.

My first question is about demand for protein in the U.S. Do you envision any down trading for poultry for other sources of protein? Do you believe that there will be a stronger demand for poultry next year? Or is there room for more price increases, especially in beef to help you in your spread later down this year and next year.

My next question is to Wesley about pork. The early part of the year was challenging due to the problems in California. Many competitors shut down 1-shift plants. Do you believe that the worst has past? Do you believe that the supply for slaughters is back to the normal numbers? Or do you expect more headwinds in the quarters to come?

I think I can field both questions. Well, as far as demand is concerned, Lucas, that's our take. For beef, our cutout is 16% higher than last year. The average for the quarter was 3.03 and SG&A was 2.60 last year. So despite lower volumes down by 7%, the average was 7.5%. Despite reducing 7.5% in volume, the cutout is 16% higher. That again, shows that the demand for beef remains strong, but volumes are drilling this year, smaller next year, even smaller, that will, of course, benefit the demand for both pork and chicken. This is only natural. Smaller volumes of beef, that protein will be replaced by proteins available in the market, and I mean, poultry and pork.

Again, it's not that the demand is weak, given less availability. Take a look at the price. Volumes are 7% down and the cutout prices are 16% higher, that's relevant. As far as swine go, we did not expect the [indiscernible]. These are different rules and regulations depending on the state, but we have a very disciplined approach. We met with our partners and customers, way back when, when there were some uncertainties about that issue. We decided to jump start issue because we were not willing to take the risk.

And that would hurt our customers. To both our partners and our customers, we made investments upfront, to prevent that from happening. So once the new regulation was signed by the Supreme Court, we already had production in place. Customers were aligned. So that did not hurt us at all, Lucas.

And finally, when talking about shutting down plants, we cannot talk about the market overall. We can talk about our own operation. We have 5 swine units in the U.S. 4 of them are 2-shift plants, very modern facilities, very large facilities, we've been investing heavily in recent years. So I can easily state that we are among the best in the U.S. in terms of CapEx structure.

And the other 1-shift plant we have is in a very advantageous location, close to consumers. So despite being a 1-shift plant, it's second to none. So as the industry evolves and becomes more modern, which is only natural, our plant footprint is very well positioned for the future.

Leandro [indiscernible] from XP asks the next question.

I would like to follow up on some of the issues that have been discussed based on costs, American farmers are reserving more and more heads to the feedlots, Q4, even Q1. You believe that there will be more supply or slaughtering above projections that will give you some comfort as far as costs are concerned. And maybe Q2, Q3 next year, will be better as far as demand goes. So we have better margins. However, 2024 will be worse, thinking about margins in terms of efficiencies as a result of that equation, industry overall should reduce the slaughter numbers.

So whats your take? Is there a better scenario in a very short-term period? Will the demand sustain the 2024 projections. Or would that implicate in lower slaughtering numbers. Does that make sense? Is JBS considering slaughtering fewer animals, so that you'll have more capacity? That's my first question.

My second question, we're not talking about Australia, right, but Australia has worse margins in the pork. However, the scenario is positive. Cattle raising cycle is more favorable. Let me include pork, fish. So what's the dynamics for Australia? I would like to better understand whether we can remain optimistic about Australia?

And finally, just a follow-up on Brazilian business, slower margins in Q2, Q3. We've been talking about the scenario for Q3, Q4. As far as demand is concerned, a lot of complaints from retail. We have a growing retail operations for beef. Is that an opportunity to speed up and open more stores and capture more of that momentum because most of the retail has been reducing inventory, and you have that opportunities by being vertical to capture more market share.

[Wesley Mendonça Filho, executive]

[indiscernible] would like to start by answering the question about U.S. beef. Leandro, I'll give some light on this. [indiscernible] so we have cattle feed but it's not excessive. I don't think we can say there's a major improvement against [indiscernible] -- and we cannot forget that we are at the lowest part of the cycle. So we will reach this point where we will have much [indiscernible] cattle. And next year, when we get closer to Spring times, we will better understand the intention of [indiscernible] then does the signal pointing to less cattle feed could be a good signal. [indiscernible] which can be a negative sign in the short term, but it will certainly be a sign of improvement in the mid to long term. For next year, short-term improvement means a long-term worsening and a short-term worsening can mean a long-term improvement. So this is an important point.

And what will determine is it mostly related with the climate than anything else. Today, the economic incentive for feeders are not that bad, it's a good incentive, but the problem in the climate. So if we have a more favorable climate next year, feeders will mean they're high, but more -- it will [indiscernible] will mean a midterm improvement. However, on the other hand, if we have a bad climate, dry climate that does not allow [indiscernible], we will see a higher cattle feed. But in the long term, this will mean a longer low cycle. So we need to better understand what we will have next year, and it will be greatly dependent on the climate conditions.

Now you go about Australia, we're very optimistic about Australia. What you saw for quarter 3, it may sound like it's getting worse, but it has nothing to do with the beef business structure. The beef business in Australia accounts for more than 60% of our sales, and it performed really well this year. And we're very positive. We're even starting to add a second shift in our plans because in the past, due to the restricted animal supply, we were working with 1 shift and now we are adding a second shift, so that we can operate at full capacity next year. So we're very positive about Australia.

And you can ask me, well, but your results were worse. But it wasn't really related with the beef operations in Australia, where we have 2 sites here. First, there was an FX problem, which -- there was a foreign exchange, FX, so an FX problem, with the Australian dollar versus the American dollar. And the second point is that we have more businesses there. It's not just beef. We also have [indiscernible] and this has an impact -- this business line had an impact of the price of raw materials. There was a price increase in raw material. So we import raw materials from Europe, raw materials were more expensive. And initially, there's an impact on costs, and it takes a while until this cost can be passed over to our prices.

And the second point is our aquaculture is, our salmon business had astronomic margin, and now we're still at an excellent margin, but lower than what it was before. So when you look at one number against the other, it seems like it's worsen. But there are 2 things that explain this drop.

First, the cost of raw materials for pork and the fact was [indiscernible], which was at very high margins. Now it's still at a maximum margin but lower than before. That's why you run doing this [indiscernible]. But the greatest impact we had here was FX effect. When you look in Aus, you don't see the results that we see in dollars.

And the other point that you raised is your point about Brazil and what we are expecting for quarter 4 and for the end of the year in terms of consumption. We're very optimistic. You even mentioned this, but we have some channels in which we really stand out against the market. The first channel is our stores, as you mentioned. The number of stores that we had is very relevant. We have a direct channel to service our customers. We're very optimistic about the [indiscernible] sales volume using the channel, our stores. We're very optimistic in the -- what we have in our special reserve by stores, and we also started to sell this category to larger grocery stores and results are really positive. [indiscernible] have been coming for to [indiscernible] this model. It is a model of success.

So when we look at all the pictures combined, and also if we consider that the free [indiscernible] brand has just received the top of line award in its category, we could say that we are very optimistic about the end of this year for our beef business in Brazil.

And Thomas, on just a follow-up about Australia. And [indiscernible] I must say that in order for the next year, we would certainly be expecting better margins for our Australian business. And despite the achievement order [indiscernible] were very positive looking forward about our Australian operations. Very clear. Thank you.

The next question comes from [indiscernible].

Let me go back to the discussion about [indiscernible] there is a point that is not yet very clear to us. You mentioned different points Tomazoni talks about the improvement in cost that has to be maintained in the ramp up of the new [indiscernible] -- but it's so much of the margin dynamic, but rather precisely, the top line [indiscernible] of our attention. So as Tomazoni talked about 10% added capacity this year and another 10% next year. But the impression that we get is that despite the added capacity, the volumes are not moving in a positive light. And they are involving less [indiscernible] with the rest of the market. So that's the point I want to focus on. I want to better understand why your volume dynamic does not seem to be reflected.

Of course, there was a price drop, but the volume dynamic does not seem to be responding in a business unit that should be seeing a relevant capacity addition for this year and next year. And I also think that once this is addressed, margins will tend to respond positively looking forward. I just want to better -- what is the revenue dynamics at Seara.

Thiago, I don't know how you're interpreting your question about the volume, because when you look a this volume, its specifically, for example, in quarter 3 compared with quarter 2 '23, there was a volume increase of 6%. So we are seeing an increase in Seara's volume. And the [indiscernible] we're talking about this output, it will come. There's no other way because it is a pull-push business. When we make a market decision, we make this decision based on a future forecast for demand, a future forecast of category growth and margin growth, and we look at the market to see how it's going and where we can grow, where we can improve our penetration.

And that's how we make our decisions. After we make a decision -- and when we start making our investments, volume will come. It's not about stopping production. There's no way we can stop production because that would create an imbalance in our entire chain. And if we do that, that will cause a much more serious problem in our processes. So as I said, volumes will come. If I compare one quarter against the other, there was already a 6% increase compared to quarter 2.

Now when you look at prices and maybe you're looking at sales, but poultry side had a major drop. So if I look at the poultry prices, the average price comparing to domestic and the [indiscernible] market we had in 2022 and the price that we had with same quarter in 2023, we are a lot -- at more or less a 25% reduction in price. So maybe despite dynamics is what misled to the conclusion but volumes are coming.

And it's no way they won't come and this is about the market strategy, as I was explaining before. You have to grow your category and not just use a [indiscernible] to focus on our categories. So the growth you mentioned about the quarter-on-quarter increase in volume is very relevant.

So can you also tell us what the accumulated growth in this year or the year-over-year growth increase that you had?

I don't have this number right now. But our IR team will contact you with this number later on, okay?

Next question comes from Ricardo Alves with Morgan Stanley.

Just a follow-up. I didn't hear your [indiscernible] remarks. And can you please just briefly comment on your expected impact for the end of the year. I think you always give some details that help us know what to expect into cash generation.

Ricardo, for quarter 4, first, on the operational side, we are very positive about Australia, and also Brazil, and Seara. So from the operational standpoint, we have a very positive cash generation. And as for the working capital, we expect [indiscernible] working capital, you see that it went from 6.5% to 4.5%, so we are expecting to release another $150 million drop in grain prices. We also expect working capital to cattle price in Australia and Brazil. And we have about 1 million USPs to receive as a [indiscernible] for state taxes, we pay our taxes, and we always have expected return -- tax return. So we are expecting to receive a refund of state taxes, in the U.S. and also to monetize our tax credit in Brazil.

And in quarter 4, we always have the deferred livestock, which is the deferring of payments at the request of breeders so that they can pay only next year. That, of course, depends on the negotiations that are just starting. But last year, we had $440 million from January -- from December to January, $300 million in U.S. and $140 million in Brazil. If we repeat the dynamics this year, we should have a considerable volume of working capital to be released due to this postponement and the payment terms of breeders. So what we are expecting for quarter 4 is a relevant free cash flow, just like we saw in quarter 3.

The question-and-answer session is now closed. Now I'd like to hand the call back to Mr. Gilberto Tomazoni for his final remarks. Mr. Tomazoni, you may proceed.

[Gilberto Tomazoni, executive]

Let me thank you all for attending our conference call. I'd like to thank our more than 260,000 employees around the world for all the dedication and for particularly operational excellence in their work. And reinforce that we are 100% focused on what we are proposing despite any other matters that may affect the business. And we're very positive about the future of this company. Thank you very much.

[Operator]

This conference call is now concluded. Thank you all for attending, and have a great day. Thank you for using Chorus Call.