JBS SA last week announced they aren’t done growing their beef business as they filed a Form S1 with the Securities Exchange Trading Commission to conduct an initial public offering of stock (IPO). This new arrangement will combine their U.S. operations with their Australian operations, which will operate independently from their South American business.
JBS has been on a tear, growing their global red meat operation. Five years ago, this global powerhouse didn’t exist; JBS was just another beef processor in Brazil. In three short years, they have invested over $3 billion in just the U.S. beef industry alone, purchasing Swift, Smithfield Beef and Five Rivers Cattle Feeding.
The growth plans of this meat company are aggressive, and now they need more capital to achieve those growth goals. They expect to gather another $2 billion in this IPO which will be used to achieve better sales growth and better operating efficiencies.
They intend to invest $500 million in current packing operations through which they expect to provide lower per-unit production costs and higher yields through more efficient processing techniques. They will also become more aggressive on their value added product lines. JBS has historically realized greater margins on value added products. Those products reduce their customers’ costs and help stimulate consumer demand. They intend on finding added value in beef byproducts, as well, through fuel production from their rendering operations.
In the Australian operations, JBS has instituted Halal processing capabilities that will allow them to expand exports to Muslim customers in the Middle East. It seems that the company will leave no stone unturned when it comes to adding value across their entire value chain.
Some other areas of growth JBS plans to examine include developing a global direct distribution strategy that will allow them to improve service to existing customers while giving them the opportunity to directly service new customers in the foodservice and retail channels and they intend on directly engaging medium to small size customers.
Historically, JBS’ sales strategy has relied upon the use of third-party distributors who purchase their product, perhaps further process it, and re-sell it to end users at higher prices, retaining incremental margins for their own benefit. They plan to take the middleman out of the picture and capture those margins through their own direct sales efforts.
The down side, according to JBS, is that this strategy may have an effect on their relationships with those third-party distributors. However, it is one aspect that may deliver handsome rewards.
The acquisition of some of these third-party distributors will play a vital role in this strategy being successful. Ironically, the company has a long way to go in proving its place in the global beef industry, with less than five years of experience. They have a lot of new ideas and there is no shortage of energy and passion for the industry from the Batista family.
These guys aren’t just a bunch of suits running a large corporate operation. My limited experience with the Batista family suggests they are simply running the family business. They also have some darned good people working for them. This IPO is a big step when other protein companies have been experiencing near-death business conditions—Pilgrim’s Pride and Smithfield, just to name a couple. Credit has been a tough market and is vital to grow this business. This IPO is the first large one to occur in the U.S. for several years and it will be interesting to see how successful this effort will be. JBS, to some, technically will be an American company after this IPO and it is a move that I believe will help add value to cattle for U.S. beef producers.
This outfit has the unique ability to spot and locate differences in global markets and figure out how to capitalize on these seasonal and cultural markets for beef around the world which can offer greater margins on beef products and more value to beef cattle.
If these guys can sell beef for more, do it more efficiently, and expand profit margins for themselves and beef producers, they have earned a great deal of respect from the industry. After all, it’s hard to sell cattle to a company that isn’t making a profit. I expect to see these guys take the U.S. beef industry to a new level of profitability in the future. — PETE CROW