JBS N.V. Class A Common Shares

Good morning and welcome to JBS' first quarter of 2026 results conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this conference is being recorded. Any statements eventually made during this conference call in connection with the company business outlook, projections, operating 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 marketing conditions and therefore are subject to change. Our president with us today, Gilberto Tamazoni, Global CEO of JBS, Xavier Michele Conti, Global Finio, CEO of JBS USA, and Christian Aziz, Investor Relations Director. Now, I'll turn the conference over to Gilberto Zamazzoni, Global CEO of JBS. Mr. Zamazzoni, you may begin your presentation. 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 change in a global trade flow. This is consistent with what we have been saying. We understand the nature of our business and the cycles we operate in, and we manage the company with that in mind. In the environment, we remain focused on what we can control. Operational excellence, cost, discipline, agility, and long-term value creation. JDS delivery net growth, sales growth of 11%, reaching $21 billion, U.S. dollars, and is a record for the first quarter. Net income was $221 million U.S. dollars. and EBITDA totaled approximately 1.1 billion U.S. dollars, with a margin of 5.2%. Leverage increased 2.77 times, 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 operation perspective, the quarter reflected both the challenge of the cycle and the resilience of our platform. In deep North America, the environment remained very difficult. APTDA was negative to $130 million, with margin at 2.3% negative, impacted by contrained cattle supply and higher cost. During the quarter, we advanced organizational and operational adjustment across our U.S. beef platform, focused on rationaling and refurbishing and simplifying our structure in more challenging phase of the cattle cycle. As the business has evolved, several areas were already operating in an integrated way, On that, we brought together fed beef, the three business units, fed beef, regional beef, and case-ready into a more unified structure. This is a natural step. It reduces duplication, improves coordination, and allows us to leverage our skills and talent more efficiently while stressing decision-making and positioning the business to improve it 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. Every boy and pilgrim We have been developing piloting artificial intelligence initiatives for over a year to support better decision-making, commercial execution, and operational efficiency. And we are now scaling this capability globally. At Seara, we continue to advance automation and process improvement to increase productivity, improve product equality, and support the expansion of higher value-added categories. These reflect our approach to the CISO. We act early, focus on what we control, and position the business for a stronger performance event. This quarter, once again, highlighted the importance of our diversified platform. Despite the headwinds, our business helped balance the consolidation performance. 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 adjustment in breeder placement and continuous demand growth, JBS Brazil reported an EBITDA margin of 4.5%, a second-to-higher first quarter margin in its history, supported by a disciplined commercial execution and favorable demand. Friboi also delivered a strong top-line performance, with a solid demand both domestic and export. The China State Guard created an adjustment in the global trading flow during the quarter, But our team responded quickly, managed volume within the quota structure, and developed alternative markets, such as United States, Mexico, Indonesia, preserving value and expanding our commercial footprint. In Australia, margin reached 7.1%, and operational fundamentals remain positive. and 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, Pilgrim has a softer quarter, impacted by seasonality and planet plant adjustment. These actions were necessary to improve efficiency, enhance productivity mix, and better align our footprint with demand. The adjustments have been completed, and we have already seen improvement trends. U.S. park remains stable, with the sign of gradual improvement supported by more balanced supply and demand dynamics. Cash flow in the quarter was also impactful for growth topics, with investment focused on efficiency, especially value-added products, and stressing our global footprint. truly aligned with our long-term value creation. Looking ahead, the fundamental of a global protein remains strong. Beef supply continues to be constrained in the key markets. Poultry demand remains solid, and our brands continue to gain relevance with the consumers. Seasonality, we are very important role. The start of barbecue season in the United States, typically support stronger consumption across protein and improve the inducer conditions to coming quarters. At the same time, we all remain disciplined. Our priorities are clear. Operational excellence, extreme control on cash generation. We also remain focused on addressing the company's long-term position in a global capital market. including creating the conditions for further expanding 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 action 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 be through the financial results in more detail. Guilherme, please.

Thank you, Tomazzoni. Let's now move on to the operational and financial highlights of the first quarter of 2026. Net sales reached a record of $22 billion for a 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 $916 million, which represents a margin of 4.2% in the quarter. Adjusted operating income was $516 million, with a margin of 2.4% in IFRS. and $444 million in U.S. cap with a margin of 2.5%. Net income was $222 million in the quarter and an earnings per share of 21 cents. Excluding the non-recurring items, adjusted net income would be $241 million and an earnings per share of 23 cents per share in the quarter. Finally, the return on equity was 22% and return on invested capital was 15%. Free cash flow in the first quarter of 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 a higher cash burden 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 of $319 million, compared to $79 million in the first quarter of 2025. An additional of $252 million working capital impact resulting from the higher livestock supplies paid in 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 of 2026, This impact will be offset on 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 year at 2.77 times, in line with our long-term target of keeping net debt to the line between two and three times. 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 cap, value creation projects, and shareholder returns while maintaining a health 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 on the earnings released by certain indicators reported under USGET. This initiative is expected to broaden our eligibility for key benchmark indexes such as S&P Composite's 1,500 family. With that in mind, I would like to open up for the question and answer session.

Thank you. The floor is now open for questions from investors and analysts. If you have a question, please click the raised hand at this time. If at any point your question is answered, you can remove yourself from the queue by clicking the lower hand, and questions will be answered in the order they are received. Ladies and gentlemen, the first question comes from Isabella Simonado from Bank of America. Mrs. Simonado, you may go ahead.

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

Hi, Isabella. On the first question, I think it's early. We're still reviewing our estimates. And again, there's a lot of variables that's not in our control. But I would say that for this year, the break-even EBITDA, the cash flow break-even EBITDA will be anything between $5.7 and $6 billion. That's our better estimation. In terms of Cash usage, you write the leverage rate of 2.77. So bear in mind that our long-term target is to be between two and three times. We, being in this range, we think we keep investment rates. above three times. We enter on the attention zone, where we are when we start to reviewing things like you mentioned, capital expenditures, dividends and so on. Our dividend limit is at 375, and I think it's worth mentioning that in 2023, our leverage reached 4.84 in the third quarter, and we kept investment grade because of the cyclicality nature of our business. Because in 2024, the leverage came down without any effort to 1.89. In fact, in 2024, I even unwind the discount receivables. So 2024, we use the printing a $2.8 billion free cash flow, but I used $500 million to unwind discount receivables, so I printed $2.3 billion free cash flow. So that's the kind of leverage that we have to use, because we don't use these levers recurrently. Exactly to be able to use whenever we need. So, for example, I could increase my discount receivables again for anything from $500 to $1 billion in discount receivables that I unwinded in 2024 when the cash flow was robust. I can also increase my supplier-vendor finance because we have space for that. But these all have costs. So, we use only if needed. So, that's how we will be managing leverage. second quarter, we may be closer to our upper range limit on the long-term target. But bear in mind that the second semester, there's always a strong free cash flow generation. So we expect to end up the year in our target zone of between two and three times. And as long as we keep inside this range, we've been managing to keep the billion-dollar dividends that we already announced and around more than a billion dollars in growth cap. If you look at since 2019, we did an average of expansion cap of almost a billion dollars with an almost billion-dollar average dividend as well. So I think being in this range, I think we can keep the space of gross capex and dividends, but we will always be monitoring according to our leverage, which is our main variable for capital allocation decisions.

Isabella, good morning. So, obviously, this herd rebuild in the cycle of the U.S. business is taking longer than we all wish for, but for the industry to have any integration, especially on the cow-calf side of the business, is just not realistic. for a few reasons. It's very specialized, and the people that do it have very special knowledge that's very different than what we do. And other than that, especially on the cow-calf side of this supply chain, it's very expensive, right? Expensive not as in price. I mean, it's expensive. It has a lot of – you need a lot of land, and you need to manage a lot of land to be able to have a significant amount of livestock, and that's not our business, so we're not looking into that.

Super helpful. Thank you.

Thank you, ladies and gentlemen. The next question comes from Enrique Bressolin with Bradesco. You may go ahead, Mr. Bressolin.

Hello. Good morning, everyone. Thank you for taking my questions. I have two also on USB. The first is to understand, you know, a little bit more the profitability of delivering the quarter. We know it's a seasonally weak quarter. evolving into the barbecue season, right? We continue to see spreads that seem to be pressured as they were.

Henrique, maybe can you repeat the question? We lost half of the question. Can you repeat, please?

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 grilling 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 in the beginning of the year. So, you know, how you see this favorable seasonality playing out under the current environment?

So, no, there wasn't anything extraordinary from a hedge perspective or even the whole strike situation. didn't have a meaningful impact on our quarterly results, so nothing to do with that. It was simply margins, especially in January and February, were for sure very, very challenging and probably one of the most challenging periods we've ever seen in history. Talking about the next quarters, we expect obviously to be better than what we had in Q1, but For sure, 2026 will be a more challenging year than 2025.

That's clear, Wesley. Thank you very much.

Thank you. Our next question comes from Benjamin Thurier with Barclays. Mr. Thurier, you may go ahead.

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

Hi, Ben. Thank you for your question. Related to Australia. Only the operation was very strong. We had a good quarter in terms of volume and sales. And only the impact when you compare to the last quarter, last year, the first quarter last year, was FX, was around 15% devaluation. valuation of the Aussie. And this is the only impact of the business. The business remains strong. In Queensland, we have 40% of the cattle herds. The conditions, the environment conditions for pasture is the best we have seen in the last three years. We remain very positive with the Australia business. About the volatility in Brazil, it's normal because as you know, Brazil is focusing to accomplish the quota in a China quota. All of the players in the market try to produce as much as they can in order to be able to reach a share of the quota. It is normal. The price of the carol is this, but you saw in the last weeks the price start to go down, and we see that if the quota will be achieved, we believe that at the end of June, the volume should go down, and the price of the cattle should be down as well. in a way to accommodate that to where Brazil will be put in an additional 100,000 tons per month. This is normally what we see in the situation that less cattle will be harvested and the price of the cattle will be down. I think it's a part of the, we see it as normal.

Perfect. Thank you very much.

Thank you. And now Guilherme Gutila from DTG would like to ask a question. You may go ahead, Mr. Gutila.

Hi, Tomasone, Guilherme, and Wesley. Good morning. So we have two questions here also. The first one is regarding Seara. So just want to discuss a little bit more about the margin of the company. So margins stay at quite strong levels, but they decline sequentially. So if you could provide us a bit more information on what drove the sequential decline, if it was more related to the pork business, to the chicken, or maybe something else, like any call you can provide us would be very helpful. And if I may just do a quick follow-up also in the U.S. beef, there was some new reports like pointing to the postponing of the measure, but there was also the possibility of lower U.S. beef import tariffs. So, how are you guys seeing this for the U.S. beef segment and also for JBS Brazil and Australia that should also benefit kind of from this? Thank you.

Guilherme, related to Seara, Seara increases its sales volume both domestically and export. Demand for all of the products remain very strong. The only explanation is the effects. If you take the effects compared to the last quarter, you see the effects, the impact will be around 10%. And this is more than justify all of the business is very strong. We are very confident with the results of the common practice.

And on the U.S. beef, Guilherme, so, you know, if tariffs are lowered, I actually see this as, and there is a more, a bigger income of Australian and Brazilian beef and from other geographies as well. I see this as mostly, you know, in a big sense, very complementary. The U.S. has really gone into a production system that prioritizes prime and choice and heavier cattle, and today, just the percentage of select cattle that we see is a lot smaller than what we use it to have. It's basically a very, very small minority of cattle nowadays is ungraded or low-graded cattle, so I think, you know, that increase in imports, potential increase in imports could, you know, complement that production that we're doing a lot less of. And I actually think that, you know, the byproduct of having this priority of higher marbled, more premium beef, the production system that we have in the U.S., is that we have a lot of fat trim as part of our production. Actually, you could almost argue it's one of the main primals one of the main products that comes out of cattle is fat trim. And the only reason why our fat trim is valued so high and it has such a good value is because we have available lean. And if we don't have that available lean, we actually could see our fed cutout actually reduce and the price of that, you know, well-marbled beef actually have to be higher because we don't have the credit for that fat trim. So my point is, you know, in some cuts, yes, it would probably be in a way competitive with domestic production. But I would say that the majority of what potentially would come in would actually be pretty complementary and not what we're targeting to produce in the U.S. right now. Very clear. Thank you.

Thank you. And our next question comes from John Baumgartner from Mizuho. You may go ahead, Mr. Baumgartner.

Hi. This is Isabella on for John. Thank you for taking our question. So, could you please discuss the next step that JBS plans to take in terms of increasing its presence in value-added meat? Is there still more to do on the M&A front to secure assets? Does JBI have the necessary brands and assets right now for, you know, the next steps in its growth? And in terms of going to market, should we expect a strategy similar with the partnership between Sierra and Netflix in Brazil, or is there a different approach that you plan to take? Thank you.

Okay. Isabel, in terms of M&A, it's part of our routine to look all the time for opportunities for M&A, for growth. But at this moment, we are focused on the cash generation and to pass on excellence. And this is the focus of the company now.

Okay, thanks.

Thank you. And our next question comes from Laura Harada from Santander. Mrs. Harada, you may go ahead. Mrs. Harada, if you're trying to speak, you might be on mute.

Hi. Good morning. Can you hear me? So, good morning, everyone. Thanks for taking my question. Actually, I have two for my end. First, on Seara, the export scenario has become somewhat more challenging in key markets as a result of disruptions in the Middle East, while we also saw the European Union considering banning retaining exports from Brazil. So, it would be very helpful to understand how Seara adjusted its commercial strategy in response to that environment, both in terms of logistics and also in terms of pricing. And if I may add, you announced you're going to start publishing 10Q and 10K fillings, which we see as positive in terms of eligibility for U.S. indexes. In this sense, what are your expectations for JBS's next steps towards being included in those indexes, and I was wondering if you could share with us some thoughts on the accounting standards that this broader discussion could potentially bring. That's all from my end. Thank you.

Laura, I will start to answer the question about SEARA that you have made, and Guilherme will be answering you about the 10Q, 10K we have published. First, you asked about the Middle East war and how this impact the business. I will tell you this is the neutral impact because we have an input of cost additional because you need to skip some port and you need to use trucks for internal transportation to reach the customers. But demand in terms of volume is remain the same, remain strong. as it was before, and the extra cost is by the market. Means that the will is neutral, is war in the business so far. Related to the European that you mentioned, it's very new. I know that Brazil will provide the necessary clarification to the European Union regarding to the technical guidance related to the subject. For our side, we see Brazil is fully compliant with European Union requirements. And the other thing is important to clarify, import point that... have not been suspended. I think we have a period of clarifications, and this has not impacted business so far. And we are very confident Brazil will be fine, will be reaching agreement with the European Union. And for our side, we continue to monitor the matter.

Hi. Regarding indices, it's worth mentioning that today only around 40% of our feed flows It comes from passive funds, which in this sector, generally, this number is 60%. And the reason is that is because we are not on the main indexes yet. However, we think we already have the necessary criteria for the Russell. We entered last year, last September, in the Foods US as a US company. Now, May, June, we have rebalancing of Russell. It's not in our control, but there's chances that we enter into Russell, creating a demand for the shares. And now, having more than 50% of our sales in the U.S., and if we do 10Ks and 10Qs, and in June, we'll complete one year of having our primary listing in the U.S., this makes us eligible for to the S&P family. So that's the perspectives in terms of the index. In terms of accounting standards, we are Netherlands incorporated. So the IFRS is the accounting standard for that. But in our press release, we put all the relevant information in US GAAP. So you can compare and also the bridge from IFRS to US GAAP. So with that, we think we can reach U.S. investors that are used to U.S. GAAP and have the comparability, and reach also European investors and Latin American investors that are used to IFRS.

That's super clear. Thank you, guys.

And our next question comes from Leonardo Alencar with XP Investmentals. You may go ahead, Mr. Alencar.

I would like to discuss a little bit more about the US peace. As you mentioned that the strike in the first quarter wasn't really impactful for the results. Would you say that without the strikes, the situation would be a little worse for the first quarter or not? Or even if there's any lingering effects for the Q2 from these strikes? Another thing I would like to understand from your side that we've been discussing this for the last few quarters, but just to get an update regarding the Mexican border, if you're expecting that to open anytime soon, if you think that would change the supply side in the short term, could be a fair wind for this second quarter, maybe for the second semester. So two questions for you. And just one thing about Seattle. You mentioned some of the new regarding the exports, I agree with that. But then looking on the some biases between in natura or fresh and processed goods. It looks like in the beginning of the year, we saw some strengths from the processed side, and now we are seeing some positioning more to the in natura. So just to get an understanding here of what you're seeing, if there is a demand is softening or if it's just a short-term hiccup, let's say. So just to get a better view from Seara on the domestic market as well. Thank you.

Bernard, just on the – good morning. Just on the strike situation, you know, we were able to redirect volumes in other plants, so we didn't lose, you know, volume because of this strike. There were maybe, you know – costs here and there that were extraordinary, but nothing significant enough to justify doing any adjustment or anything like that that's relevant to the market. So we decided to just leave it as is with the result because it wasn't significant. Mexico border opening for feeder cattle, absolutely, no question, is the most important thing that could ever happen. in the short term to get, you know, to get some sort of relief on the supply side on beef in the U.S. Obviously, the USDA has, you know, has been super, as always, very responsible in making sure that that's done whenever they feel the situation or they, you know, they have assurance of the situation from the Mexico side is exactly how they want so that they keep screw warm outside of the U.S., But having said that, you know, whenever that, you know, the U.S., whenever and if that ever happens with the U.S. government feeling that, you know, that is the right time, absolutely would be the most significant thing that could happen to normalize supply in this industry in the short term.

And Leonardo, related to your question about chicken in Brazil and Chicken in Brazil, we start the year, beginning of the year, I think in January was a little bit softening. And this quarter, but then February and March, that recovery, I think is the market demand in Brazil very strong. And the demand in export is strong. We, that time, with the last quarter, we discussed that the statistics show that Brazil will be grow high volume because of the, of the genetic will be higher. And that moment I saw that, I said that we're not seeing the, we're not seeing the market, but I don't know the statistics, but the reality statistic was some mistake that the association that, republish the numbers and correct the information that the market will be grow around 10%. You're talking more about 4%. But 4% is very, it is, I think it's balanced with the demand. We have a standard demand and the normal grow in domestic market.

Okay. Thank you, Adelaide. And, Thomas, just to be clear, you said there's improvement, but that is mostly in Natura or Processed or both?

No. Processed, we are, the market is, we can say, stable. The market is not a grow, but we are, you say, we are flat, but we sell more value-added, more premium products. than the low, the more commodity product. And, but the demand, it's just the demand in general was weak, but they recover in March. We are, we made a very good sales that we are confident that the combination of our strategy to, distributing domestic market, different channels, different category of product, we are able to manage this situation. But for chicken, it's very strong demand. For processed product, it's strong in the premium and soft in the more commodity.

That's clear. Thank you.

Thank you. Thank you. And our next question comes from Heather Jones. You may go ahead, Mrs. Jones. Hi, Mrs. Jones. If you're trying to speak, you may be on mute.

Hi. Are you able to hear me now?

There you go.

Thank you. My question is on North American beef. And just due to a variety of factors, including drought, it just seems like the herd rebuild is getting pushed out and likely being much more slow and meager than expected. And then, like you mentioned, the border reopening. So it just seems like even if everything goes right from here, we're looking at, like, late 28 before any significant increase in cattle availability. So... It would seem additional industry rationalization is required. And so I was just wondering when do you see that happening and wondering if JBS has considered rationalizing some capacity, maybe one of your smaller facilities. So just hoping you could help me how to think through that. Thank you.

You're right. Especially with this drought, it's going to delay the herd rebuild. I don't think it will further liquidate, but it's probably going to delay the herd rebuild here. Look, we're not really focused on that right now with this, you know, talking about plant rationalization and all of that. So we're focused just on making our business better with the things that we can control given the footprint we have. So that's not something that we're looking at the moment. And it's very difficult for me to speculate on anything else, right, because anyway, it wouldn't be appropriate for me to speculate on other things. on other players in the market. But we're not looking at that right now.

Thank you. Our next question comes from Ricardo Alves from Morgan & Stanley. You may go ahead, Alves.

Thanks, everybody. Good morning. Thanks for the call. One question for Wesley, one for Guilherme. First on U.S. beef, Wesley, please, as we think about the breeding season, protein inventories are down big time in the U.S. Red meat is down. Chicken is down. And when you look at beef purchases to be delivered in June, July, also down big time, 15% or so. How do you feel about channel inventory today when you're thinking about retailers and food service as we head into the grilling season? These data points, I think that my point is that these data points would indicate to us that there's a lot of upside to cut-out prices in the very near term. I wanted to see if you have that view. Or on the flip side, maybe it could also indicate that demand is expected to be softer, I guess. I don't know. I don't think that that's the case, but it is a possibility. So I just wanted to hear from you what you get from retailers and food service, you know, in your conversations on the ground. I think that that would be helpful for the very short term on the cutouts. That's my first question. The second question, a really quick one to Guilherme. Sure. the pretty significant CapEx expansion that we've been discussing for the past couple of months, and we saw that taking place in the first quarter. Could you detail a little bit more? I know that maybe you cannot quantify by division, but at least, you know, the main projects that you're working on for the rest of this year, just so that we have a better idea of, you know, what's going on. in your U.S. product division, even projects that you're doing on U.S. beef, PPC, and so forth. I think that that would be helpful as well, just a reminder of the CapEx expansion. Thanks, everybody.

Ricardo, on beef, you know, cutouts has already, you know, started the year already compared to the same time last year, much higher than 15% higher than on the whole quarter than compared to the same period of time. And the reason is, you know, lower volume and demand continues to be strong. So, you know, you have a constant demand and a shorter supply. You know, the price tends to go up when that happens. So, you know, looking forward, I would expect it's difficult to, you know, we have to wait and see and see how that's going to impact demand at these potentially higher prices. But supply is tighter, so we'll see what happens there. We'll probably see a demand state continue to stay strong, and we know the supply is kind of short, so there is a potential for it. But we'll have to wait and see.

Hi, Pablo. So the main projects continue to be ones on the outside, so the food facility in Walker County, the fully-cooked bacon and sausage facility, the Perry, Iowa, fresh sausage plants, Cactus, Texas, and really Colorado modernization of the beef processing plants. Then we have investment in Brazil in the Paraguay chicken plant and also the Oman acquisition. Bear in mind that the Oman acquisition will not be a cash effort. Even that, it will all be financed with the local banks there.

And our next question comes from Lucas Ferreira with JP Morgan. You may go ahead, Mr. Ferreira.

Hi, everyone. Thanks for taking my questions. Two follow-ups. One is on Australia. It seems like you guys have a sort of a constructive view there on the quality of pastures in the business. I just wanted to understand, you know, potentially the trend for margins there once at least if you look at the Australian dollar remains even a bit stronger than the levels we've been seeing in the first quarter. And cattle prices seem to be sort of stable, but with the MLA outlook of some reduction in slaughtering this year, right, with the changing cycle. So I don't know in the regions you guys operate and all the other, you know, businesses in Australia how to think about margins going from here, if it's also some seasonal effects that should help lifting the margins going forward. And number two is still on the U.S. beef. Wesley, just so I understand your comment, you mentioned that you expect 1026 to be more challenged than 25. Last year you had a 1.5% negative margin. Should we expect a weaker margin this year, given your comments? And then Tokyo was particularly weak last year, right, with a minus 3.9 margin. Remember the issues with the hedging, et cetera. So should this sort of a weakness more skewed towards the second half or a how to think about also the evolution of the business from here. Thank you.

Lucas, thank you for your question. Related to Australia, I think where we operate, we are very, very... positive in terms of the volume that will be harvested this year. I think it will be not different than the last year. Some period of the year I think will be higher. I mentioned in the beginning in one of the answers that we have Queensland that where we are main operation, that the climate condition is very positive. I think it is the best in the last three years that the And this is, this show us that there will be a, the coming months will be a good supplier, and talk about supplier. Then you talk about demand. Demand is very, very strong from, and I think it's not just in U.S., but all of the premium markets that Australia sell, that Japan, Korea, and other ones. Japan is very, Australia is very well positioned catch this benefit from this demand, the growth demand, global protein growth demand. See, look, we are positive where we operate, that will be a great year for this GDS Australia.

Look, as we saw, I'm going to say this without giving any guidance, but, you know, you could expect this year versus last year, I'm talking marketing in general, to be one one and a half percentage point worse than last year. About 1%, I think it's fair. Obviously, then we have our internal dynamics, right, how our operations are. And like you said, last year we had some hedging impact in a specific quarter. But overall, you could expect the market to be one to one and a half percentage point worse than last year.

Perfect. Thank you very much, everyone.

And to the next, Jack Harden from Stevens would like to ask a question. You may go ahead, Mr. Harden.

Yes, hi. This is Jack Harden on for Paran Sharma. Thanks for the question. For U.S. chicken, consumer demand remains strong, partly supported by tight beef supplies, but broiler processing margins remain below mid-cycle levels. How do you assess the current supply-demand balance in chicken? And do today's margin levels suggest the industry needs to moderate production? Thanks.

Steve, we see very balance in the chicken demand in the U.S. We had in the beginning of the year that the big bird was a little bit very challenged, but the price of... breast recovered during the quarter, we see that demand is strong and value added and prepared. We have a strong demand and all of the business, all of the other categories that Pugliese sell in domestic market in the U.S., all of them are positive. And when you look for the side in the supply, we see that the balance supply demand, we are positive with our business in business.

And our next question comes from from Goldman Sachs. You may go ahead, Mr. Borolucci.

Hey, guys. Good morning, everyone. It's always a pleasure to talk to you. Thanks for the Q&A. I think the question goes to Tomazzoni, and this is just to try to gain perspective beyond the quarter on the benefits from diversification and portfolio. Tomazzoni, this was a very rare quarter where we saw very strong demand. Actually, you mentioned three business units record high sales for our first quarter, but at the same time, virtually all the business units delivered lower margins versus last year. I think the exception was Brazil Beef, which, you know, one could argue that this quarter, particularly diversification, didn't quite help you. I think my question for you is, once you think about the year and the build-up, you mentioned the grieving season in the U.S. Obviously, the year-end brings seasonality also to Brazil. Where are the opportunities where you think margins could show some clearer sequential improvements, where are the main risks, and how would you expect diversification to help you going forward? Thank you very much.

Okay, Tiago. Good question, Tiago. I'm very positive with diversification because when you look for our results this quarter, if you compare to the last quarter, the difference is around $400 million. Yes. And we can explain this difference with two business units. First, UF, BFUS. I think the results of the BFUS was impact around 50% of the difference of our EBITDA. And Wesley, Phil, you have explained about that. And I think we reached the bottom of the results. I think we made some, we are, we see that the common quarter, we cannot say that it will improve a lot, but I think it will be better than it was this quarter. The market condition didn't change, but I think we are more balanced, and we made some adjustment in our structure that I think will help us to navigate even inside of the company with the low cost of operation, more synergy. and outside synergy in terms of commission. I think this is one of the things that give us more confidence about that the results will be better than was this quarter. If you can add, Eduardo.

Oh, I'm just going to add, Tiago, that I, you know, I think a good way to think about diversification is always You know, more so than comparing every time to the, you know, always on the comp versus last year. If you look just at the absolute number, right, you have Port USA and Seattle with double-digit margins. You have Australia, even though this quarter was a lower quarter than where it has been, it's still in a very positive height, single-digit, right when you have the U.S., beef U.S. at the low side, which we went back five years ago. You'll probably see all of the other businesses at a lower margin and beef higher. And I think the other way to look at the diversification as, you know, working even in this quarter is when you compare our portfolio of businesses with any one of our peers, right? And each one of them could be that they are singularly in a market, and that market is really good or really bad. Right. our businesses are always going to have, our portfolio business is always going to give a more stable kind of result versus our peers just based on the uniqueness of our diversification. So I think, you know, I'll say that even in this quarter that was a weaker quarter, the diversification pieces that we have is actually pretty evident in my opinion.

And just to end, finish my point of view that we start, that 50% was beef in U.S. The other 50% was filibus. Filibus need to adapt its portfolio to the market demand. We, before, U.S. was just focused to export, they use the breast, the white meat, and export the dark meat. at this portal, like quarters. But the market changes. There is a demand in domestic market now in U.S. for dark meat. and to adapt its layout of the three factories in order to be able to supply the demand of the market. Then we stopped for two weeks, three plants. Then this was affected, the results, and the climate conditions affected as well. Then these two things explain the difference in terms of the results compared to the last year, 400 million. that 200 million in the filgrims and around 200 million in the bees. That is one thing about it. The other thing is, ah, you mentioned that the other bees are not delivered. But that was the effects. Effects was affect Ceara and effects was affect Australia. This is, if you want to explain the business, is that effects Ceara and Australia and the, as I explained, and beef in the West. But this is one thing about the results. The other thing, if you talk about diversification, of course, if you have just the beef in the West, we have a really tough situation. But as we have managed different business in different geography, we are able to compensate. If you compare just a single company with one business, that will be a huge difference. Of course, the diversification is working. And I believe that this difference in terms of cycle is normal in our business. We need to be able and to focus and manage the business. When there is a low level, we need to be better than the other competition. When there is a high level, we need to be better than the competition. This is the part. This is the game.

Very good and true. Thank you very much, Tomas and Leonel. Thank you.

And our next question comes from Renata Cabral at Citi. You may go ahead, Mrs. Cabral.

All right. Thank you so much for this space for questions. My first one is a follow-up related to the last one, diversification, but in the angle of GLP-1 adoption. It was already mentioned by companies management that the adoption of of GLP-1, its structural shift towards high-protein diet, of course, particularly in the U.S., as the adoption is higher right now due to costs. So, could you please elaborate to us how tangible this trend is already in your day-to-day business? Are you seeing measurable change in the consumer behavior already? it was the different perceptions of the consumers for PPC. So in terms of innovation, GLP-1 is something that you think about when you are elaborating a new product and mix in terms of smaller portion or anything different. And this focus in the U.S., but even for Brazil, Are you seeing already this trend or you think the contribution can come in the future? And since you are investing in expansion for Seattle, so do you have these in mind in terms of the future products that you are going to release on those investments? So this is my first question. The second one is related to grain prices. that has been positive for the company for a while. Right now, there's the discussions on the potential risks on the El Nino and fertilizers costs. So if you can share your outlook for 2026-2027, it would be great as well. Thank you so much.

Thank you for your question. When you talk about GLP-1, I think GLP-1 is one of the factors that is affecting the global consumption of protein. When we are saying here that a strong demand for protein is globally in all of the market, and this is affected by, of course, as you mentioned, GLP-1, but GLP-1, I think, is not the most important issue. I think this is the perception and not just perception, but the knowledge that protein is very important for to have even in the new generation or in the older generations. because if you want to have longer life, you need to eat more protein. If you want to have muscle in the beginning, you need to eat protein. That protein becomes very important for all of the generations. The second, the regulatory. If you saw that the U.S. FDA changed the parameters, they inverted the parameters because that they, put that you need to have more protein in order to have more health, then to eat more protein is healthier. And this is globally. And then there is about this new technology about medicine that is because you want to lose weight, and if you lose weight, you need to eat more protein in order not to lose muscle, lose fat. And this is not in one country. I think this is globally. We see it will be continuous. high protein, the consumption. And we are, it's not new in order now. What we see the new now, all the companies try to adapt the portfolio to have more protein. Even the companies that work in high carbohydrate product, now they want to adapt for more protein. But if you look at our core, our core is focused on protein. that we don't need to adapt our car. We need to accelerate what we have done so far. We are, for example, we are launching high-protein line of products in the other parts of the world, and we are, work and innovation in order to facilitate how the people eat protein. For example, use our fry for simplify the lives if you want to cook at home. And you see that the people cook more at home. And if I say you, we have the right portfolio for the right rent. And we not see that as a tendency. We see that it is structural. They eat more protein. And we are investing in all of the innovation in order to facilitate that. And the second question, I understood that you asked about grain, about the cost of the nutrition of the animal. If you look for, say you, despite a global inventories being at a comfortable level, there is significant volatility in the market. And I think it's a lot of uncertainty regarding to the weather conditions and the fertilizer cost. If you look for corn, globally demand remains very strong. Apple supports the market even with the recent pressure in the grain price. I think the tendency is to increase the price because of the weather, because of the fertilizers. But in terms of what is the impact of our company, I can tell you that We believe that we are well positioned from a risk management perspective. While the crop conditions have improved, we remain prepared for the potential volatility, including the possible reduction in the Brazilian safrinha crops.

Thank you so much, Tomazone. It's super clear. Thanks for sharing your thoughts on GLP-1 as well. Very complete answer. Thank you.

Thank you. And our next question comes from Ricardo Boiatacci with Sopron. You may go ahead, Mr. Boiati.

Hi. Good morning, everyone. Wesley, a couple of follow-ups here regarding North America. The first one, besides the terrorist discussions this week, there were some reports about the potential deregulation in the cattle industry. So in your view, what can be really done to incentivize ranchers to raise more cattle? sustainably, meaning the longer term, and what is the likelihood of any potential policy change happening this year in that regard? The second point here on the overall protein demand in North America, this summer we have the FIFA World Cup happening in North America, right? So can we expect here any meaningful impact coming from that event, specifically in North America, maybe a stronger than usual barbecue season or something like that? And lastly, on prepared foods, this is a more broad question for the company. we see many CapEx initiatives to build or expand capacity in prepared foods. So my question is if you can quantify a little more how fast prepared foods are growing within JDS portfolio, and do you have any particular long-term target for this category to represent in your overall portfolio in the long term? Thank you, guys.

Good morning. So on the deregulation, for sure, I mean, as we, you know, see cow-calf producers and ranchers in general trying to rebuild the herd and deciding to rebuild the herd, regulation and over-regulation can be, you know, an obstacle in anything the government does to help the ranchers. It's very helpful, and for sure it's important. On the protein side, the demand is pretty strong overall. How impactful will the FIFA World Cup be? I don't know. I think it's helpful. It's not negative, but I think it might be relevant in a few days of the next few months, but I don't think it moves the needle enough to say that this substantially, structurally changes how we're going to see the overall summer and spring here for these demands.

And about our strategy for value added, we don't have a specific target for value added. We want to increase the share of prepared foods in our port fund. And why we want to do that? Because when we talk now a lot about cycle, where is the low part of the cycle, or high part of the cycle. Prepared, there is practically no cycle. The demand normally is very stable. and with higher margin, and because of that, we are prioritizing our investment in the prepared food and brands. We are investing in brands, and we are investing in the line of prepared food. And if you saw that investment we have, Guilherme just mentioned before, that investment in U.S. about sauces, it's breakfast sauces. It's a value-added. Pilgrims are value-added from breaded plants. And you saw in Brazil, some investment in Seattle was the focus on that. We are prioritizing investments in value-added. This is a fact. We are not having a specific target on that.

That's clear. Thank you very much, guys.

Thank you. Another nice question comes from Priya Ori Gupta with Barclays. You may go ahead, Mr. Gupta.

Thank you so much for taking the questions. Can we talk a little bit about how we should think about net leverage trending through the end of the year? I think earlier, a couple months ago at Cagney in particular, we had talked about scope for net leverage to be below 2.5 times this year. It sounds like it could be ending the year in the upper range of that 2.5 to 3 times area. I just want to make sure that we're thinking about that correctly. And as part of that, you highlighted the new issue with some tender that you did recently. However, it does look like you tendered less than you issued. Should we expect some of that incremental amount to get deployed to debt reduction later this year or just kept on the balance sheet? And then the second question I had was just on the free cash flow breakdown. You talked about it being 5.7 to 6 billion now. Last quarter, you had said it would be 5.7. So if you could just walk us through what's driving the higher end of that range now, that would be helpful. Thank you.

I agree. So from a lateral average perspective, you're right. I think the perspective to end this year is more likely to be between two and a half and three times, given the weaker results we had in the first quarter. In terms of the tender, we did, bear in mind we have a billion dollars in dividends to be paid in June, but our cash position is still at three and a half billion dollars. which is around $500 to $600 million above our minimum cash, given our cash conversion cycle and the different geographies that we are around the world. So we have space to buy bonds with excess cash, but this decision will probably be done in the second semester when is the period where our cash generation starts. It is stronger. In terms of the free cash flow breakeven, it's just an estimate. I think the accounts that we have, Corgini should be on the $5.7 billion. Working capital in the first quarter was better than the first quarter last year. But going forward, I just gave this range because there's a lot of moving things like energy prices, That could impact grains. We know how much these impact basically on fertilizers and energy in the grain prices. That could move working capital if prices go up. So that's why I gave the range from 5.7 to 6 because of the uncertainty that we have given all the volatility in the market.

Great. Thank you. And just a quick follow-up, if you do think about looking at further debt pay down, should we expect you to use a similar approach to what you did in the beginning of the year, or could you take other considerations into account, sort of thinking through the interest expense reduction versus maturity management and absolute debt reduction?

Thank you. Yes. The approach will be absolutely the same, given that all my debt is including the $2.9 billion maturing in 2032, all the coupons are below treasury. So it's not worth it to pay any of those debts. So any repurchase would be on 34, 33, 35 spots. The 34, for example, is the highest coupon, which we still have $300 million outstanding. That could be a possible target.

Thank you. Very clear.

Thank you. And our next question comes from Mateus Enfield with UBS. You may go ahead, Mr. Enfield.

Hi, all. Morning. Thank you for your time. My first question on the lease demand in Brazil, we're still seeing it quite resilient in spite of prices, so I'm just trying to get a sense if you're getting pushback from retailers. or push back on the margin on demand growth or demand reduction, and what's the size or scale that we could expect for demand down in Brazil and in U.S. beef as a result of higher prices. My second question is on sort of a longer-term view around production. We're seeing quite a lot of restrictions to trade flows, be it quotas or sanitary barriers for exports. I know the company is diversified, but whether there are some additional regions that could become focused for investments in the midterms such as rest of LATAM or more investments in Europe that could help circumvent those sanitary and trade flow restrictions in general and how you're incorporating that into the longer term investment decisions that the company is taking. Those are the two questions. Thank you.

If Understood. Well, you asked about the demand for beef in Brazil and beef in U.S.

Yeah.

Yeah, that was that. But look, in Brazil, even that we had the higher price of cow and the higher price of meat, the demand in Brazil remained strong for beef and for all of the proteins. And And we talk about JBS. And now, I think it's with the end of the quotas of China, May, the price of cattle will be decreased. And I think it will be more favorable to sell in domestic markets. It is important that we have developed category management. 2.0 say that we are, we call a Soviet reserve. It's in Brazil that we manage inside of the store of our customers, the budget area. And this show that the store, they have our model. They sell not just more meat, but they sell more for all of the stores. And this, this is get a strong reception from our customers. And because of that, I see that even now with this situation that after the quota of China ends, we are, I think, we are very well structured, even in Brazil, even in the U.S., to manage the volume for our business freeboil. I think it's in the U.S. to comment a little bit about the demand, but I think... The demand continues strong, Matheus.

We think all the things already mentioned before on just the overall protein trend and people understanding more about nutrition, prioritizing protein. We've seen that. And just the overall preference also for protein, and especially beef, has been pretty strong. That's how we see the demand in the U.S.

I think this relates to the first request and first re-answer about the demand of protein, GLP-1, and the other factor that is booster all of the consumption, protein consumption globally. I think it's, Mateus, if I'm right, your question about the investment, the fluidity space of our investment. Is it correct?

Yeah, how you're considering restrictions to trade flows with quotas and sanitary barriers into your investment process and investment decision for the mid-long term? Thank you.

I think we are very well positioned where we produce and where we sell our product. I think as we build this global platform and you look at it, we are produced where it is the most competitive way to produce, and we are present to sell where the market demand is. Then I think in terms of balance, we are well balanced. Of course, now our focus now for this year is to cash generation. We are not looking for a new generation. project in our portfolio. We just start with the project in Paraguay. We start the project in Oman. I think now we need to develop this project in the green field that we are working on. No any new project in our pipeline now.

Awesome. Super clear. Thank you.

Thank you. Our next question comes from Igor Lueves with Gmail. You may go ahead, Mr. Lueves. Can you hear me? Yes.

Okay. Thank you very much for the opportunity. The first question is about CapEx. We observed CapEx essentially doubling year over year, and it came slightly higher than expected, reflecting an acceleration across the platform, but mainly related to renovation projects from the downtime at PPC with capacity expansion initiatives. It would be interesting to understand if you can share with us how the capacity expansion is progressing from a numerical standpoint, how much of increase you expect to achieve based on what production levels and whether we can expect CAPEX to normalize as early as second quarter. In my second question, I would like to get your perspective on what might happen in the second half of the year regarding the filling of China's quotas. As you have already mentioned, it's possible that cattle prices will fall in Brazil, given the quota is being front-loaded faster than initially expected. which could reduce the number of slaughters in the second half of the year, leaving more cattle on hand and lowering price per arroba. But my question is more focused on the cutout side of the domestic markets. Do you think it's possible that with the reduction in exports, part of the volume will be directed to the domestic markets, and with more meat supply here, the cutout price might face downward pressure? I would like to take your view on this variable going forward. Thank you very much.

Look, we have, when you talk about the graphics, we are put one billion, one billion dollars in capital for expansion. The grow capex, as we call, grow capex. And this is, we are not disclosure one by one, but because many business unity, the different types of, different types of the capex, it will be different. It is difficult to explain the volume because one is One is the number of chickens. The other is a volume of, well, prepared food. And to put together will be difficult to explain. That we are not disclosed then. But the CAPEX is, as you mentioned, if you compare for the last years, is higher because we are seeing the strong demand. But we are not seeing now any moment that we need to review the graphics because we are seeing the cash generation for the second semester of the year will be strong. But it is something we can see in the future. Because it's capital expansion, we can postpone, we can give more time to do. But we are not looking now because we are not seeing that it's necessary for now. But could be in the future something that we can take a look. The other thing about the Brazilian situation, about the market situation about beef. We say that the end of Cod of China, we may, the number of Caribbean harvests for the English will be down. Should be down because we need to accommodate these, I mentioned, 120,000 tons per month for this. we need to find a market for that, then the induced will be reduced, the number of cattle will be harvest. And if you reduce the number of cattle will be harvest, combined with more availability of kind for feedlot, we believe that the price of cattle will be down as well. Car out could be down because more volume domestic, but the price of beef will be down as well. Then I see that the spread between the bulls price, the car out and the live cattle will be remained or depends, in our case, could be enhanced that we have value-added product. When you talk value-added product, not with processed product. It's value-added raw products that I mentioned to you, better presentation, better way to serve the customer in different cuts of beef. If you look for our side, I think we are very well-structured. in Brazil and outside to Brazil to take advantage, the impact of this end of the quotas of China.

Okay, super clear. Thank you very much.

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

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

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