Jbs N.V. Q2 FY2025 Earnings Call

Good morning, and welcome to the JBS Second Quarter of 2025 Results Conference Call. This conference is being recorded. Any statements made during this call regarding the company's business outlook, projections, operating and financial targets, and potential growth should be seen as forecasts based on management's expectations for JBS's future. These expectations are influenced by market conditions, the overall economic performance in Brazil, and industry and international market behavior, so they may change. Present with us today are Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of JBS; Wesley Batista Filho, CEO of JBS USA; and Christiane Assis, Investor Relations Director. Now I will turn the conference over to Gilberto Tomazoni, Global CEO of JBS. Mr. Tomazoni, you may begin your presentation.

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

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

The first question comes from Lucas Ferreira with JPMorgan.

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

Can you hear me now?

Yes.

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

The next question comes from Ben Theurer with Barclays.

Can you guys hear me?

Yes, we can hear.

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

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

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

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

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

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

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

Can you hear me now?

Yes.

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

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

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

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

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

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

Making sure you guys can hear me okay.

Yes, we can hear you, Priya.

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

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

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

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

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

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

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

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

Can you guys hear me?

Yes, Gustavo, we can hear you.

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

So the U.S. pork performance this quarter, much of it was because of some trade disruptions we had with product going to China and for that period of time, there was over a 100% tariff, and products had to reshuffle, creating unexpected disruptions. We expect the third quarter of 2025 to get back to normal margins. So that's not something that we are overly concerned about; it will be a gradual recovery, we expect it to be an immediate recovery. It's just that it was more of a one-off impact in the second quarter. We actually are quite optimistic about margins in the pork business. We've grown our live production. Like you're saying, you're asking about integrated supply, in the last 5 to 10 years, we've grown that. When we see grain prices being at a relatively low level based on history, and also with a potential for the cutout of pork to become favorable when there is low availability of beef and high prices of beef, pork should present a good option. We're actually quite optimistic about pork margins in the U.S. going forward.

I hope you can hear me.

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

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

So you bring in a few good points. The Mexico situation is obviously quite relevant in the short term. There are about 1 million head, 1.2 million heads of feeder cattle that come to the U.S. and are fed in the U.S. As of November last year, when the border got shut, and at the beginning of this year, it opened, it shut down again. We have been following the situation closely. What we realize is that the Mexican government is working diligently with the U.S. government to find a way to reopen and restore the flow of cattle. We think that it's very relevant in the medium term, but we don't think that it would significantly impact the long-term cycle of herd review. So I would disconnect those things. Though it's a very important point that you raise, it does impact the U.S. market, especially in the south, where a lot of that cattle stays. When it comes to imports, lean trim has been something that the U.S. has imported for a long time. We blend that with fat trim to make ground beef. When you lose a source like Brazil, it's significant, but it's still relatively early to determine the exact impact since there is inventory in the U.S. We've seen inventory flowing into the U.S., so we haven't seen the impact just yet. We're still watching to see the flow when Brazilian inventory is used, and we will see less flow of Brazilian beef coming in. So it's too early to tell exactly how big it will be.

Leonardo, related to chicken Seara, I don't know if it's clear, but the impact of the avian flu, when we had the outbreak, really had a strong impact of around 5% on the result of Seara. Now after the reopening of markets, the impact is around 1.5% to 2% on EBITDA. We are really confident with the future of this business because demand is strong, both domestic and export. Not just in Brazil, we see all of the markets, in the U.S., European markets have better demand. When you look for the supply, we have the same restrictions we had before. We are discussing genetics, about mortality; all of the issues remain. It may increase the number of available birds slightly, but when you look at demand, the increase in availability did not significantly impact the results. We remain very positive about the chicken business for this year.

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

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

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

Can you hear me?

Yes.

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

John, so we see that where we're investing, in the categories we’ve invested in, there should have higher double-digit margins, around 15% is our expectation. So it should bring the average of our EBITDA up. On Pilgrim's side, we've achieved significant success in branding our products and we’ve captured considerable market share in a short time, along with a lot of distribution. There is a huge opportunity for us to do that on the pork side in the red meat side of prepared foods, and we haven’t done much of that, but that's something that's certainly part of our plans and part of what we see as potential for this prepared foods business in the U.S.

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

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

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