(Bloomberg) -- JBS SA’s shares soared to the highest since 2022 as a boost from increased chicken demand helped the world’s largest meat producer mitigate the impact of a severe shortage of cattle in the US.  

JBS’s earnings are recovering faster than anticipated from last year’s plunge. The Sao Paulo-based company made a profit of 0.74 real per share (14 cents) in the first quarter, the company said in a filing. That reversed a loss during the same period a year earlier and topped all of the analyst estimates compiled by Bloomberg.

The stock jumped as much as 9.3% in São Paulo, to the highest level since November 2022. It was the biggest gainer in Brazil’s benchmark stock index.

The profit beat underscores how major meat producers are bouncing back after contending last year with a highly unusual combination of setbacks — from a white meat glut to high feed costs and lackluster appetite from inflation-hurt consumers. Companies are now benefiting from lower grain prices and increased demand for chicken and pork as cheaper alternatives to pricey beef. 

“Consumers are shifting demand away from beef toward other proteins,” Chief Executive Officer Gilberto Tomazoni said in an interview. “Chicken demand is strong.”

‘Competitive Advantage’

JBS is reaping the benefits of diversification at a time when scarce supplies of slaughter-weight cattle is poised to continue to weigh on profits for JBS’s North American beef unit — the company’s largest operation, Tomazoni added. In addition to higher margins at the company’s chicken and pork businesses, ample cattle supplies in Brazil and Australia also helped boost earnings in the first quarter, allowing the company to increase supplies of beef from those countries at a time when US exports have been constrained. 

“That’s our competitive advantage,” he said.

Other major meat producers including Tyson Foods Inc., BRF SA and Pilgrim’s Pride Corp., the US chicken producer that is controlled by JBS, also posted first-quarter earnings that beat analyst predictions. 

Tomazoni said earnings have also improved due to efforts to boost efficiency, which includes the streamlining of operations in Europe after a series of acquisitions over the past several years.

Shares Trail 

JBS’s debt burden has fallen to the equivalent to 3.7 times earnings before items such as taxes and interest and is on path to reach 2.5 times by year-end, according to Chief Financial Officer Guilherme Cavalcanti.    

To be sure, JBS’s profit margins are still below levels seen in previous years, and should remain so until US cattle supplies start to rebound — only expected for 2025 or 2026. Before Wednesday’s rally, JBS shares were up by less than 1% this year, trailing rivals including Tyson. The company is seeking to list its shares in New York, a process that has faced delays and opposition from lawmakers and environmentalist groups. 

Disruptions associated with excessive rain and floods caused only temporary interruptions and recoverable production delays in some of JBS’s chicken plants in southern Brazil. While operations are now running mostly normally, a small processed-food plant should remain halted through the end of the week, Tomazoni said.

Floods in Australia also limited beef production in the first three months of the year, an impact that should be fully compensated by increased activity in the second quarter, according to Cavalcanti.

(Updates with shares in the third paragraph.)

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