Earnings Call Transcript - JBS Q1 2026

Operator, Operator

Good morning, and welcome to JBS First Quarter of 2026 Results Conference Call. As a reminder, this conference is being recorded. Any statements eventually made during this conference call in connection with the company's business outlook, projections, operating and financial targets and potential growth should be understood as merely forecasts based on the company's management expectations in relation to the future of JBS. Such expectations are highly dependent on the industry and market conditions, and therefore, are subject to change. Present with us today, Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of JBS; Wesley Batista Filho, CEO of JBS USA; and Christiane Assis, Investor Relations Director. Now I'll turn the conference over to Gilberto Tomazoni, Global CEO of JBS. Mr. Tomazoni, you may begin your presentation.

Gilberto Tomazoni, Global CEO

Good morning, everyone. Thank you for joining us today. The first quarter of 2026 was a challenging period for JBS, shaped by market volatility, seasonality, operational disruption and changes in global trade flows. This is consistent with what we have been seeing. We understand the nature of our business and the cycles we operate in, and we manage the company with that in mind. In this environment, we remain focused on what we can control: operational excellence, cost discipline, agility and long-term value creation. We delivered net sales growth of 11%, reaching $21 billion, a record for our first quarter. Net income was USD 221 million and adjusted EBITDA totaled approximately USD 1.1 billion, with a margin of 5.2%. Leverage increased to 2.7x reflecting pressure on earnings and cash generation, while we continue to strengthen our liability profile, extending average debt maturity to approximately 15.6 years. From an operational perspective, the quarter reflected both the challenge of the cycle and the resilience of our platform. In Beef North America, the environment remained very difficult. EBITDA was negative USD 230 million, with a negative margin of 2.3%, negatively impacted by constrained cattle supply and higher costs. During the quarter, we advanced organizational and operational adjustments across our U.S. beef platform, focused on rationalizing, resizing and simplifying our structure in this more challenging phase of the cattle cycle. As the business has evolved, several areas are already operating in a more integrated way. Building on that we brought together fed beef, regional beef and case-ready into a more unified structure. This is a natural step to reduce duplication, improve coordination and allow us to leverage our skills and talent more efficiently while strengthening decision-making and positioning the business to improve performance over time. These actions are part of a broader effort driving efficiency across the company. Our focus is to extract more value from existing assets, improve productivity and enhance execution through technology, automation and data. At Friboi and Seara, we have been piloting artificial intelligence initiatives for over a year to support better decision-making, commercial execution and operational efficacy, and we are now scaling this capability globally. At Seara, we continue to advance automation and process improvement to increase productivity, improve product quality and support the expansion of higher value-added categories. This reflects our approach to the cycle. We act early, focus on what we control and position the business for a stronger performance ahead. This quarter once again highlighted the importance of our diversified platform. Despite the headwinds, our businesses helped balance consolidated performance. Seara delivered an EBITDA margin of 15.5%, supported by strong export demand, innovation and growth in value-added products despite currency pressure and cost inflation. The outlook for poultry in Brazil remained positive, supported by balancing supply-demand, including adjustments in breeder replacement and continuous demand growth. JBS Brazil reported an EBITDA margin of 4.5%, the second-highest first quarter margin in history, supported by disciplined commercial execution and favorable demand. Friboi also delivered a strong top-line performance with solid demand, both domestic and in exports. The China safeguard created an adjustment in global trade flow during the quarter, but our team responded quickly, managing volume within the quota structure and developing alternative markets such as the United States, Mexico and Indonesia, preserving value and expanding our commercial footprint. In Australia, margin reached 7.1%, and operational performance remained positive; in Queensland cattle conditions are the best we have seen in the last three years, reinforcing our positive outlook for the business. In the United States, figures were softer this quarter, impacted by seasonality and plant adjustments. These adjustments were necessary to improve efficiency, productivity and mix and better align our footprint with demand. The adjustments have been completed, and we have already seen improving trends. U.S. pack levels remained stable with signs of gradual improvement supported by more balanced supply and demand dynamics. Cash flow in the quarter was also impacted by higher investment focused on efficiency, especially in value-added products and strengthening our global footprint, truly aligning with our long-term value creation. Looking ahead, the fundamentals of global protein remain strong. Beef supply continues to be constrained in key markets. Poultry demand remains solid, and our brands continue to gain relevance with consumers. Seasonality — the start of barbecue season in the United States — typically supports stronger consumption across protein and improving industrial conditions in coming quarters. At the same time, we will remain disciplined. Our priorities are clear: operational excellence, execution and control on cash generation. We also remain focused on strengthening the company's long-term position in global capital markets, including creating the conditions to further expand our participation in relevant equity indices over time. We continue to review costs, optimize resources and improve productivity across the business. We understand the cycle. We operate with discipline, and we are taking the right actions to navigate the current environment while strengthening the company for the future. Thank you. I will now turn the call over to Guilherme, who will go through the financial results in more detail. Guilherme, please?

Guilherme Cavalcanti, Global CFO

Thank you, Tomazoni. Well, let's now move on to the operational and financial highlights of the first quarter 2026. Net sales reached a record of $22 billion for our first quarter. Adjusted EBITDA in IFRS totaled $1.1 billion, which represents a margin of 5.2% in the quarter. Adjusted EBITDA in U.S. GAAP totaled $960 million, which represents a margin of 4.2% in the quarter. Adjusted operating income was $528 million with a margin of 2.4% in IFRS and $444 million in U.S. GAAP with a margin of 2.5%. Net income was $222 million in the quarter and earnings per share of $0.21. Excluding the nonrecurring items, adjusted net income would be $241 million and earnings per share $0.23 per share in the quarter. Finally, return on equity was 22% and return on invested capital was 15%. Free cash flow in the first quarter 2026 was negative at $1.5 billion compared to a cash consumption of $970 million in the first quarter of 2025. In addition to the seasonal cash consumption that typically occurs in the first quarter, the main drivers of higher cash burn compared to the same period last year were: a decline in adjusted EBITDA of approximately $400 million reflecting the weaker operating results; an increase in capital expenditures, which more than doubled compared to the first quarter 2025, totaling $566 million driven primarily by expansion CapEx of $390 million compared to $79 million in the first quarter of 2025; and an additional $252 million working capital impact resulting from higher livestock supplier payment deferral as previously flagged in our last earnings call. It is worth noting that if we execute the same level of livestock deferral in the fourth quarter 2026, this impact will be offset in the free cash flow for the full year. Notably, working capital consumption was already below the same period last year because excluding the additional $252 million in deferred livestock payments, working capital would have been approximately 23% better compared to the first quarter of 2025. In the first quarter, we also strengthened our balance sheet with the issuance of $2.5 billion in bonds in the market and the tender offer of $1.45 billion. This allowed us to extend our debt maturity profile, reaching an average debt term of 15.6 years and an average cost of 5.7%. We have no significant debt maturities until 2031. Our leverage ended the quarter at 2.77x in line with our long-term target of keeping net debt to EBITDA between 2x and 3x. Our $3.4 billion in revolving credit lines and $3.5 billion in available cash provide us with the flexibility to continue executing our expansion CapEx, value-creation projects and shareholder returns while maintaining a healthy and robust balance sheet. Last night we also announced that beginning next quarter, we will voluntarily file Forms 10-K, 10-Q and 8-K with the SEC prepared under IFRS and supplemented in the earnings release by certain indicators reported under U.S. GAAP. This initiative is expected to broaden our eligibility for key benchmark indices, such as the S&P 500 family. With that in mind, I would like to open up for the question-and-answer session.

Operator, Operator

Ladies and gentlemen, the first question comes from Isabella Simonato from Bank of America.

Isabella Simonato, Analyst - Bank of America

I have a couple of questions. First, Guilherme, if I may ask you for that breakeven EBITDA exercise you do every quarter — that's really helpful. If you could just walk through that, we really appreciate. And also to the point of cash and leverage — your leverage is pretty close to 3x, right? I know that's not how rating agencies look at that. But if you look to EBITDA, U.S. GAAP, right, it is even higher than that. So I was wondering, you mentioned before a CapEx of $2.4 billion for this year and $1.3 billion of expansion. If that continues to be the goal, or if you are reviewing that not only for this year but going forward, what type of levers do you have to bring leverage down, assuming you don't have a big jump in your EBITDA for the next 18 to 24 months? That would be my first point. And also about the U.S. beef business — I think we have been discussing that for a while now, about how the cycle apparently is different than previous down cycles and there's a matter of how the cattle herd can be rebuilt as the sector goes through generational transitions and issues. Do you see the business model changing going forward? Any type of vertical integration that would make sense on the cattle part for you to be supportive of herd growth over time? That would be my second point.

Guilherme Cavalcanti, Global CFO

Isabella. So on the first question, I think it's early. We're still reviewing our estimates. And again, there are a lot of variables that are not in our control. But I would say that for this year, the cash-flow breakeven EBITDA will be anywhere between $5.7 billion and $6.0 billion. That's our best estimate at the moment. In terms of cash usage, you're right, leverage reached 2.77x. We bear in mind that our long-term target is to be between 2x and 3x. Being in this range we think we keep investment grade; above 3x we enter an attention zone when we start reviewing things like capital expenditures, dividends and so on. Our dividend limit is at 3.75%. I think it's worth mentioning that in 2023 our leverage reached 4.84x in the third quarter, and we kept investment grade because of the cyclical nature of our business. In 2024, leverage came down without any aggressive deleveraging actions to 1.89x. In fact, in 2024 I even unwound discount receivables. So in 2024 we would have printed about $2.8 billion free cash flow, but I used $500 million to unwind discount receivables, so that printed $2.3 billion free cash flow. These are the sort of levers that we keep available because we do not use them recurrently; we keep them to use whenever needed. So, for example, I could increase discount receivables again by anything from $500 million to $1 billion — amounts I unwound in 2024 when cash flow was robust. I can also increase vendor financing because we have space for that. But these all have costs, so we use them only if needed. That's how we will be managing leverage. The second quarter may be closer to our long-term target range, but bear in mind that in the second semester there's always strong free cash flow generation. So we expect to end the year in our target zone of between 2x and 3x net debt to EBITDA. As long as we keep inside this range, we've been managing to keep the $1 billion dividend that we already announced and around $1 billion in expansion CapEx on average. If you look since 2019, we did an average expansion CapEx of almost $1 billion with an almost $1 billion average dividend as well. So being in this range, I think we can keep this pace of growth CapEx and dividends, but we will always be monitoring according to our leverage, which is our main variable for capital allocation decisions.

Gilberto Tomazoni, Global CEO

So obviously, the herd rebuild in the cycle is taking longer than we all wish. But for the industry to have any large-scale vertical integration — especially on the cow-calf side of the business — is not realistic for a few reasons. It's very specialized work and requires specific knowledge that is very different from our core. Beyond that, it's very expensive in terms of land and capital — you need a lot of land and you need to manage it to have a significant amount of livestock, and that's not our business. So we're not looking into that.

Operator, Operator

The next question comes from Erik Bresolin with Bradesco.

Erik Bresolin, Analyst - Bradesco

I have two also on U.S. beef. The first is to understand a little bit more the profitability we delivered in the quarter. We know it's a seasonally weak quarter evolving into the barbecue season. We continue to see spreads that seem to be pressured. Was there anything extraordinary in Q1 U.S. beef margins such as hedges or even the impact from the Greeley strike? And the second is how you see margins evolving into the barbecue season — spreads appear to be pressured back to the levels they were at the beginning of the year. So how do you see this playing out under the current environment?

Guilherme Cavalcanti, Global CFO

Maybe can you repeat the question? We lost half of the question.

Erik Bresolin, Analyst - Bradesco

Sorry, sure. The first one is if there was anything extraordinary in Q1 U.S. beef margins such as hedges or even the impact from the Greeley strike? And the second is how you see margins evolving into the barbecue season, spreads appear to be pressured back to the levels they were at the beginning of the year. So how do you see this playing out under the current environment?

Guilherme Cavalcanti, Global CFO

No, there wasn't anything extraordinary from a hedge perspective, and the strike did not have a meaningful impact on our quarterly results. It was simply margins, especially in January and February, that were very challenging — probably one of the toughest periods we've seen. Talking about the next quarters, we expect obviously better than Q1, but 2026 will be a more challenging year than 2025 overall.

Operator, Operator

Our next question comes from Benjamin Theurer with Barclays.

Benjamin Theurer, Analyst - Barclays

Just two quick ones. First, can we talk a little bit about Australia and some of the cost headwinds you're seeing on the Australian cattle cycle, and if there was something in particular in the first quarter that drove a little over 300 basis points of margin contraction? And second, if you could share a few thoughts as it relates to cattle price in Brazil. It's been very erratic and volatile. Any background or interpretation as to what we should think about going forward for the Brazilian cattle price would be helpful.

Gilberto Tomazoni, Global CEO

Hi Ben, thank you for your question. Related to Australia, operations were very strong. We had a good quarter in terms of volume and sales. The main impact when you compare to the first quarter last year was FX — the Australian dollar was about 15% weaker versus the prior-year quarter — and this is the main driver of the difference. EBITDA remains strong in Queensland, where we have about 40% of the cattle herd; conditions there are the best we have seen in the last three years. We remain very positive on the Australia business. About the volatility in Brazil, it's normal in the current context because Brazil is focusing to meet the China quota and all players in the market are trying to produce as much as they can to reach their share of the quota. It's normal that cattle prices increase for a period. You saw in the last two weeks the price started to go down. If the quota will be achieved — we believe by the end of June — volumes should go down and cattle prices should come down as well, in order to accommodate the additional supply that will be released into the market. This is normally what we see in such a situation: fewer cattle harvested later and lower cow prices. We see this as part of a normal cycle adjustment.

Operator, Operator

And now Guilherme Guttilla from BTG would like to ask a question.

Guilherme Guttilla, Analyst - BTG Pactual

Good morning. We have two questions. The first is regarding Seara. Margins stayed at quite strong levels but declined sequentially. Could you provide more information on what drove the sequential decline — was it more related to pork, chicken, or something else? Any color would be helpful. Quick follow-up on U.S. beef: there were reports about postponing of the measure, but also the possibility of lower U.S. beef import tariffs. How are you guys seeing this for the U.S. beef segment and also for JBS Brazil and Australia, which should also benefit kind of from this?

Gilberto Tomazoni, Global CEO

Guilherme, related to Seara, sales volume both domestic and exports remained very strong across products. The main explanation for the sequential decline is FX. If you take the FX compared to prior quarters, the impact is around 10%, which more than justifies the sequential decline. The business is very strong and we are very confident about Seara's performance in the coming quarters.

Guilherme Cavalcanti, Global CFO

On the U.S. beef and potential tariff changes, if tariffs are lower, I actually see imports as largely complementary. The U.S. production system prioritizes prime and choice cattle; the proportion of select or ungraded cattle is much smaller than historically. Increased imports could complement the production we do less of domestically. Also, part of U.S. production yields significant amounts of fat trim as a byproduct of producing more marbled beef. The value of that fat trim is linked to having available lean; if imports increase and lean supply tightens, we could see changes in the value relationships between cuts and trimmings. In short, some cuts could be competitive with domestic production, but much of potential additional imports would act as a complement to the U.S. production system rather than a full substitute for what we target to produce in the U.S.

Operator, Operator

Our next question comes from John Bob Gardner from Mizuho.

Isabella (on behalf of John), Analyst - Mizuho (substituting)

Could you please discuss the next steps JBS plans to take to increase its presence in value-added products? Is there still more to do on the M&A front to secure assets? Does JBS have the necessary brands and assets right now for the next steps in growth? In terms of go-to-market, should we expect a strategy similar to the partnership between Seara and Netflix in Brazil, or is there a different approach planned?

Gilberto Tomazoni, Global CEO

Isabella, in terms of M&A, we are always reviewing opportunities as part of our routine. At the moment, we are focused on cash generation and operational excellence. That is the company's priority now.

Operator, Operator

Our next question comes from Laura Harada from Santander.

Laura Harada, Analyst - Santander

Two questions. First, Seara exports have become more challenging in key markets as a result of disruptions in the Middle East, and we also saw the European Union considering notifications from Brazil. How did Seara adjust its commercial strategy in response to that environment, both in terms of logistics and pricing? Second, you announced you will start publishing 10-Q and 10-K filings, which we see as positive for U.S. index eligibility. What are the expectations for JBS's next steps toward index inclusion? Could you share thoughts on the accounting standards and any implications?

Gilberto Tomazoni, Global CEO

Laura, I'll address Seara first and Guilherme will answer on indices. Regarding the Middle East situation, the impact has been neutral overall: we incurred incremental logistics costs because in some cases we had to reroute shipments and use additional trucking for internal transportation to reach customers, but demand volumes have remained strong. The extra costs have been absorbed by the market so far, and we view the net impact as neutral to the business. Regarding the European matter, it's relatively new. Brazil will provide necessary clarifications to the European Union on the technical guidance. From our perspective, Brazil is fully compliant with EU requirements. Import suspensions have not been imposed — there is a period for clarifications — and this has not impacted our business so far. We are confident Brazil will reach an understanding with the EU and we continue to monitor the situation closely.

Guilherme Cavalcanti, Global CFO

Regarding indices, today only around 40% of our free float comes from passive funds in this sector; generally that number is around 60% for peers, and the reason is we are not yet in the main indices. However, we believe we already meet the necessary criteria for the Russell indices. We listed our shares as a U.S. company last September in the Foods sector, and in May-June there's a Russell rebalancing — not in our control, but there are chances we enter that index, creating demand for the shares. We now have more than 50% of our sales in the U.S. With the 10-Ks and 10-Qs and after completing one year of having our primary listing in the U.S., this will make us eligible for the S&P family as well. In terms of accounting standards, we are a Netherlands-incorporated company and IFRS is the accounting standard for that. In our press release, we include all relevant information under U.S. GAAP for comparability and we provide bridges from IFRS to U.S. GAAP so U.S. investors used to U.S. GAAP and European and Latin American investors used to IFRS can compare appropriately.

Operator, Operator

Our next question comes from Leonardo Alencar with XP Investments.

Leonardo Alencar, Analyst - XP Investments

I would like to discuss US beef. You mentioned that the strike in the first quarter wasn't really impactful for the results. Would this mean that without the strike the quarter would have been even worse, or are there lingering effects into Q2 from the strike? Also, an update regarding the Mexican border — are you expecting it to open in time, and could that change the supply side in the short term for Q2 or the second half? Lastly, a small question about Seara: domestically we've seen rotation of performance between natural/fresh and processed goods. At the beginning of the year there was strength from processing and now we're seeing some transition to the fresh side. Is demand softening or is this a short-term shift?

Guilherme Cavalcanti, Global CFO

Leonardo, on the strike situation, we were able to redirect volumes to other plants, so we didn't lose volume because of the strike. There may have been some incremental costs, but nothing significant enough to adjust reported results. On Mexico border reopening for live cattle, that would be the single most important short-term relief for U.S. cattle supply. The U.S. Department of Agriculture is appropriately cautious to ensure any reopening is done when conditions meet their requirements, but if and when the border reopens, it would be a significant factor to normalize supply in the short term.

Gilberto Tomazoni, Global CEO

Leonardo, regarding chicken in Brazil: at the beginning of the year demand was a little soft, but in February and March there was a recovery. Domestic and export demand for chicken is strong. Earlier we discussed that statistics indicated higher production due to genetics improvements; there was a correction in the published numbers and growth estimates are more moderate. Overall, we see the domestic market as balanced with strong demand for processed and higher value-added products. Processed/premium demand is strong while commodity demand is softer; demand overall recovered across the quarter and we made very good sales. We continue to manage category mix and distribution to match market demand.

Operator, Operator

And our next question comes from Heather Jones.

Heather Jones, Analyst

Are you able to hear me now? My question is on North American beef. Due to drought and other factors, the herd rebuild is getting pushed out and looks slower than expected. Even if the border reopens, it seems like a material increase in cattle availability isn't likely before late 2028. It would seem additional industry rationalizations may be required. Has JBS considered rationalizing some capacity, maybe one of the smaller facilities? How should we think about that?

Guilherme Cavalcanti, Global CFO

You're right that drought will delay herd rebuild and could slow the pace. We're not focused on capacity rationalization at this time. Our current focus is improving the business within our existing footprint — making it more efficient and resilient. It's difficult to speculate about broader industry rationalizations or other players, and it's not something we're considering at the moment.

Operator, Operator

Our next question comes from Ricardo Alves from Morgan Stanley.

Ricardo Alves, Analyst - Morgan Stanley

One for Wesley and one for Guilherme. First, on U.S. beef, protein inventories are down across the board in the U.S., and when you look at beef purchases to be delivered in June and July they're also down significantly. How do you feel about channel inventory today among retailers and foodservice heading into grilling season? Those data points suggest upside to cutout prices in the near term. Do you have that view, or could it indicate softer demand expectations? Second, on CapEx: the expansion CapEx is significant and we saw it pick up in Q1. Could you detail the main projects for the rest of this year, by division if possible — for example, U.S. prepared foods, pork projects, beef modernization, etc. — to give us more clarity on what the CapEx is funding?

Guilherme Cavalcanti, Global CFO

Ricardo, on beef, cattle slaughter is already lower year on year, in some periods more than 15% lower compared to the same time last year, while demand remains strong. So when supply is shorter and demand constant, prices tend to rise. Looking forward, it's difficult to predict the exact elasticities because higher prices may pressure demand a bit, but given the tight supply and strong demand, there is potential upside in prices. We'll watch how it impacts volumes. On CapEx projects, the main investments continue to be in prepared foods (fully cooked and fresh-prepared capacity), modernizations of beef processing plants, investments in U.S. pork and sausage capacity, and expansion projects in Brazil and Paraguay including chicken capacity and related projects. We also have the Oman acquisition being financed locally, which is not a cash outlay for global cash flows. We are prioritizing expansion projects that increase value-added capacity and productivity.

Wesley Batista Filho, CEO - JBS USA

To add more color on projects: the main projects include the new prepared foods facility in Walker County, Iowa — the fully cooked and sausage facility in Perry, Iowa — a fresh sausage plant in Perry, Iowa, modernization initiatives across beef processing plants, and projects in Brazil and Paraguay including chicken plants. These projects are aimed at increasing value-added production and improving efficiency. The Oman acquisition will be financed locally and therefore not a cash burden for the global treasury.

Operator, Operator

Our next question comes from Lucas Ferreira with JPMorgan.

Lucas Ferreira, Analyst - JPMorgan

Two follow-ups. One on Australia: you have constructive views on pasture quality. If the Australian dollar remains stronger, and with cattle prices fairly stable but potential reductions in slaughter this year given cycle changes, how should we think about margins in Australia from here? Are there seasonal effects that should lift margins? Second, on U.S. beef: you mentioned 2026 will be more challenged than 2025. Last year you had a negative margin of around 1.5%. Should we expect weaker margins this year given your comments? Q2 last year was particularly weak. How should we think about the evolution across the year?

Gilberto Tomazoni, Global CEO

Lucas, related to Australia, in the regions where we operate we are positive on the harvest and supply prospects for the year. Queensland conditions are particularly favorable and this bodes well for supply in coming months. Demand from premium markets Japan, Korea and others remains strong and Australia is well positioned to benefit. We expect a good year for JBS Australia given those dynamics.

Guilherme Cavalcanti, Global CFO

Without giving explicit guidance, you could expect the market overall this year versus last year to be roughly 1 to 1.5 percentage points worse in margin terms given the headwinds we described. Internal operational dynamics will of course vary across businesses and quarters, and specific hedging or events last year affected particular quarters. But a reasonable way to think is perhaps around a one percentage point headwind versus last year in aggregate.

Operator, Operator

Jack Harden from Stephens.

Jack Carden (on behalf of Paron Sharma), Analyst - Stephens (substituting)

For U.S. chicken, consumer demand remained strong, partly supported by tighter supplies, but broader processing margins remain below mid-cycle levels. How do you assess the current supply-demand balance in chicken? Do current margin levels suggest the industry needs to moderate production growth?

Gilberto Tomazoni, Global CEO

We see a balanced supply-demand situation in U.S. chicken. At the beginning of the year some parts of the bird were challenged, but the price of breast recovered during the quarter. Demand is strong for value-added and prepared products; overall categories we sell in the U.S. are positive. We see a better balanced supply/demand and are positive on our chicken business.

Operator, Operator

Our next question comes from Thiago Bortoluci from Goldman Sachs.

Thiago Bortoluci, Analyst - Goldman Sachs

Tomazoni, to gain perspective beyond the quarter: this was a rare quarter where we saw very strong sales, record first-quarter sales, but virtually all business units delivered lower margins versus last year except Brazil beef. One could argue diversification didn't quite help you this quarter. Once you think about the year, where do you see opportunities for margins to show clearer sequential improvements? What are the main risks and how would you expect diversification to help you going forward?

Gilberto Tomazoni, Global CEO

Good question, Thiago. I'm positive on diversification because when you compare the quarter to last year, the difference is around $400 million, and we can explain most of that difference by two business groups. First, U.S. beef represented about half of the difference and was very impacted. We believe we have reached or are near the trough for those results after restructuring and adjustments; while we cannot say it will improve dramatically quarter to quarter, we expect better performance than Q1 as operations stabilize. The other approximately half of the difference relates to adjustments in chicken operations that needed to adapt portfolio and layout to changing demand, particularly switching more to domestic demand for certain dark meat and prepared products; some plant stoppages and climate issues affected results. That combination explains the roughly $400 million difference. In addition, FX effects impacted Australia. The key point is our diversified platform allowed other businesses to offset some of the weakness in U.S. beef. If we only had U.S. beef the results would be materially worse. Diversification gives more stability across cycles. We continue to act early and focus on operational improvements to be better than peers in down cycles and to capture opportunity in up cycles.

Wesley Batista Filho, CEO - JBS USA

To add, a good way to think about diversification is to look at absolute numbers rather than just comps to last year. We have businesses like U.S. pork and Australia delivering double-digit or high single-digit margins respectively, while U.S. beef is in a low cycle. Five years ago the portfolio looked different — today having many businesses at healthy margins while one is at a trough provides more stability versus peers that are concentrated. That diversification is working even in a quarter like this.

Operator, Operator

Our next question comes from Renata Cabral at Citi.

Renata Fonseca Cabral Sturani, Analyst - Citi

A follow-up on diversification and GLP-1 adoption. Management has mentioned GLP-1 adoption as a structural shift potentially reducing protein consumption in the U.S. Have you observed measurable changes in consumer behavior already? Is GLP-1 considered when developing new products, for example smaller portion sizes? Are you seeing this trend in Brazil or is it likely to be a future factor? And given expansion for Seara, are you incorporating this trend into product development? Second, on grain prices: they've been favorable but there are potential risks from fertilizer costs and weather. Can you share your outlook for 2026 and 2027?

Gilberto Tomazoni, Global CEO

On GLP-1, we see it as one factor among many affecting protein consumption, but overall demand for protein remains strong globally. Many consumers and health authorities are emphasizing adequate protein intake, especially for healthy aging and maintaining muscle mass. GLP-1 medications drive weight loss trends that may affect portions and demand patterns for some consumers, but this is not a single-country phenomenon — it's global in scope. We are already adapting our portfolio: Seara and other businesses have launched higher-protein product lines and innovations to make it easier for consumers to eat protein at home, including simplified cooking solutions and convenient formats. Our core is already protein-focused so we are accelerating in that direction. Regarding grain prices and feed costs, global inventories are at comfortable levels but there is significant volatility and uncertainty from weather and fertilizer costs. Corn demand remains strong globally, and prices could be pressured by weather or fertilizer availability. From a risk management perspective we are well prepared, although volatility remains a factor and we are monitoring potential impacts including a smaller safrinha crop in Brazil.

Operator, Operator

Our next question comes from Ricardo Boiati with Safra.

Ricardo Boiati, Analyst - Safra

Wesley, a couple of follow-ups regarding North America. First, besides tariffs there were reports about potential deregulation in the cattle industry. In your view, what can be done to incentivize ranchers to raise more cattle sustainably over the longer term? What is the likelihood of policy change this year? Second, on overall protein demand in North America, with the FIFA World Cup happening this summer in North America, can we expect any meaningful impact on demand or a stronger-than-usual barbecue season? Lastly, on Prepared Foods, you have many CapEx initiatives. How fast are prepared foods growing within JBS's portfolio and do you have any long-term target for this category's share?

Wesley Batista Filho, CEO - JBS USA

On deregulation and rancher incentives, anything the government can do to help ranchers rebuild herds — whether through regulatory facilitation or support programs — is helpful. Policy changes that meaningfully incentivize ranchers could assist herd rebuild, but the timing and likelihood depend on regulatory and political processes. Regarding the World Cup, it may provide some incremental demand on certain days or weekends, which is positive for protein consumption, but I wouldn't expect it to substantially change the broader seasonal trends. It's helpful but not a structural change. On Prepared Foods, the category is growing and we are prioritizing investments in prepared foods and branded value-added products because they are less cyclical and higher margin. We don't publish a specific long-term percentage target, but we are allocating significant CapEx to expand prepared foods capacity and branded platforms because we see it as a strategic priority.

Gilberto Tomazoni, Global CEO

To emphasize prepared foods strategy: we don't have a specific numeric target disclosed, but we are increasing the share of prepared foods and higher value-added products in our portfolio because these categories are typically less cyclical and have higher margins. That's why many of our current investments prioritize prepared foods, branded plants and innovation in value-added categories, both in the U.S. and Brazil.

Operator, Operator

Our next question comes from Priya Ohri with Barclays.

Priya Ohri-Gupta, Analyst - Barclays

Guilherme, can we talk about how to think about net leverage trending through the end of the year? A couple months ago at CAGNY the target discussed was scope for net leverage below 2.5x this year. It sounds like you may end the year in the upper part of 2.5x to 3x. Should we think about that correctly? Also, you tendered less than you issued in the recent transactions. Should we expect some of the incremental amount to be deployed to debt reduction later this year or kept on the balance sheet? Second, on the free cash flow breakeven, you talked about $5.7 billion to $6 billion now versus $5.7 billion previously — what's driving the higher end of that range?

Guilherme Cavalcanti, Global CFO

From a leverage perspective, yes — given the weaker Q1 results the more likely outcome is to end the year between 2.5x and 3x net debt to EBITDA. Regarding the recent tender and issuance, remember we have $1 billion in dividends to be paid in June. Our cash position is still $3.5 billion, which is around $500 million to $600 million above our minimum cash needs for operating cycles and geographic coverage. We have space to buy bonds with excess cash, but that decision will likely be made in the second semester when our cash generation is typically stronger. On free cash flow breakeven, $5.7 billion remains our baseline estimate, but I provided a range up to $6.0 billion because of uncertainties — energy prices, grain and fertilizer costs and other market volatilities could change working capital and cash requirements, so we gave a conservative upper bound.

Priya Ohri-Gupta, Analyst - Barclays

Quick follow-up: if you look to further debt paydown later in the year, would you use a similar approach to the one you used earlier this year (issuance and tender), or would you consider other approaches focused on interest expense reduction versus maturity management and absolute debt reduction?

Guilherme Cavalcanti, Global CFO

The approach would be the same in principle. Most of our debt coupons are below treasuries, so it's not attractive to prepay those instruments. Any repurchases would target higher coupon bonds that trade at discounts in the market, such as some of the 2034-2035 issues. We will evaluate coupon, maturity management and market opportunities when deciding the best use of excess cash.

Operator, Operator

Our next question comes from Matheus Enfeldt with UBS.

Matheus Enfeldt, Analyst - UBS

First on beef demand in Brazil: demand remains resilient despite higher prices. Are you getting pushback from retailers on pricing? How should we think about demand elasticity and potential demand reduction at higher prices? Second, on a longer-term view around production and trade restrictions — we're seeing quotas and sanitary barriers. Are there additional regions that could become investment focus to help circumvent sanitary and trade flow restrictions, such as other LatAm countries or Europe? How are you incorporating these trade-flow risks into mid-term investment decisions?

Gilberto Tomazoni, Global CEO

Matheus, in Brazil, despite higher cattle and meat prices demand remains strong for beef and other proteins. Our category management initiatives in retail — for example, managing space and assortment inside stores — are gaining strong reception from customers and help maintain volumes. Regarding trade flows and restrictions, our strategy is to produce where it's most competitive and sell where demand exists, which is the essence of our global platform. We are present in multiple geographies — Brazil, U.S., Australia, Paraguay, etc. — and that footprint helps mitigate trade disruptions. For now our focus for the year is cash generation and operational excellence. We continue to develop projects already in the pipeline (Paraguay, Oman) and will evaluate new investments as appropriate, but there are no new, large greenfield projects being pursued aggressively right now.

Operator, Operator

Our next question comes from Igor Guedes with Genial.

Igor Guedes, Analyst - Genial

On CapEx: CapEx essentially doubled year-over-year and came slightly higher than expected, reflecting an acceleration across the platform, mainly related to renovation projects and capacity expansions. Could you share how capacity expansion is progressing in the U.S., how much production increase you expect and whether CapEx could normalize as early as Q2? Second, on China quotas: as quotas are filled and exports adjust, could part of this exported volume be redirected to domestic markets in Brazil and, if so, could that create downward pressure on the domestic cutout price? How do you view that risk?

Gilberto Tomazoni, Global CEO

When you talk about CapEx, our growth CapEx budget is about $1 billion this year and is allocated across many business units. Because the projects are heterogeneous (chicken capacity, prepared foods, beef modernization, etc.), it's difficult to express the capacity increases in a single metric like number of chickens or tons. The higher CapEx reflects strong demand and strategic investments in value-added capacity, but we can adjust timing if needed — expansion projects can be phased if necessary. On the China quota situation: if quotas front-load exports, industry slaughter may be reduced later to accommodate export volumes; at the end of the quota period supply to domestic market could increase and that can put downward pressure on domestic prices. However, because we have value-added products and diversified channels, we believe we are well positioned to adapt and capture value both domestically and internationally.

Operator, Operator

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

Gilberto Tomazoni, Global CEO

I would like to thank you all for joining us today and to thank all JBS team members for their dedication. Looking ahead, we have not changed our focus: execution, efficiency, disciplined capital allocation and cash generation. That is what allows us to deliver consistent results and build long-term value creation. Thank you.

Operator, Operator

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