JBS (NYSE:JBS) released first-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.
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Summary
JBS N.V. reported record net sales of $21 billion for Q1 2026, a growth of 11%, with a net income of $222 million and EBITDA of $1.1 billion, reflecting a margin of 5.2%.
The company faced operational challenges in North America, particularly in Beef, which reported a negative EBITDA of $230 million due to supply constraints and higher costs.
Strategic initiatives include restructuring the US Beef platform, scaling AI capabilities globally, and focusing on technology and automation to enhance productivity.
Despite challenges, Seara delivered a strong performance with an EBITDA margin of 15.5%, supported by export demand and growth in value-added products.
JBS extended its average debt maturity to 15.6 years and maintained a leverage of 2.77 times, aiming to stay within a target range of two to three times net debt to EBITDA.
Management highlighted the importance of diversification and expressed confidence in the company's ability to manage through the current cycle, while maintaining focus on operational excellence and cash generation.
The company plans to file forms 10-K, 10-Q, and 8-K with the SEC to broaden eligibility for key benchmark indexes.
Future outlook is optimistic with expectations for stronger cash generation in the second half of the year and continued focus on value creation through strategic investments.
Full Transcript
OPERATOR
Good morning and welcome to JBS's 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's 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 market conditions and therefore are subject to change. Our president with us today, Gilberto Tomazoni, Global CEO of JBS; Guilherme Calicanti, Global CFO of JBS; Wesley Batista, CEO of JBS USA; and Christiana Zees, 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 flow. 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.
JBS delivered net sales growth of 11%, reaching $21 billion USD, a record for a first quarter. Net income was $222 million USD, and EBITDA totaled approximately $1.1 billion USD with a margin of 5.2%. Leverage increased to 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 operational perspective, the quarter reflected both the challenges of the cycle and the resilience of our platform.
In Beef North America, the environment remained very difficult. EBITDA was negative $230 million USD, with a margin at -2.3%, impacted by constrained supply and higher costs. During the quarter, we advanced organizational and operational adjustments across our US Beef platform, focused on rationalizing, restructuring, and simplifying our structure in a more challenging phase of the cattle cycle. As the business evolved, several areas were already operating in an increasingly integrated way.
Building on that, we brought together 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 strengthening decision-making and positioning the business to improve its 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 Pilgrim's, we have been developing and 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.
These reflect our approach to the cycle. We act early, focus on what we control, and position the business for stronger performance ahead. This quarter once again highlighted the importance of our diversified platform. Despite the headwinds, our business helped balance and consolidate 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 remains positive, supported by balanced supply and demand, including adjustments in breeder placement and continuous demand growth.
JBS Brazil reported an EBITDA margin of 4.5%, the second-highest first-quarter margin in its history, supported by disciplined commercial execution and favorable demand. Friboi also delivered a strong top-line performance with solid demand both domestically and in exports. The channel safeguard created an adjustment in the 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 fundamentals remain 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, Pilgrim's had a softer quarter, impacted by seasonality and plant adjustments. 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. pork remains stable, with signs of gradual improvement supported by more balanced supply and demand dynamics. Cash flow in the quarter was also impacted by growth CapEx, with investments focused on efficiency, especially value-added products, and strengthening our global footprint, truly aligning with our long-term value creation. Looking ahead, the fundamentals of our global protein business 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 will be very important, as the start of the barbecue season in the United States typically supports stronger consumption across protein and improved industrial conditions in the coming quarters. At the same time, we will remain disciplined. Our priorities are clear: operational excellence, strict control on cash generation. We also remain focused on strengthening the company's long-term position in the global capital market, 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 Calicanti, Global CFO
Thank you, Tomazoni. 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 US 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 US GAAP with a margin of 2.5%.
Net income was $222 million in the quarter, and earnings per share were $0.21. Excluding the non-recurring items, adjusted net income would be $241 million and earnings per share of $0.23 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 burn compared to the same period last year were a decline in adjusted EBITDA of approximately $400 million, reflecting the weaker operating results, and an increase in capital expenditures which more than doubled compared to the first quarter of 2025, totaling $566 million, driven primarily by expansion CapEx of $319 million compared to $79 million in the first quarter of 2025, and an additional $252 million working capital impact resulting from the higher livestock suppliers 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 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 EBITDA 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 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 on the earnings release by certain indicators reported under US GAAP. This initiative is expected to broaden our eligibility for key benchmark indexes such as the S&P Composite 1500 family. With that in mind, I would like to open up for the question and answer session.
OPERATOR
Thank you. The floor is now open for questions from investors and analysts. If you have a question, please click the raise hand at this time. If at any point your question is answered, you can remove yourself from the queue by clicking lower hand. 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.
Isabella Simonado, Bank of America
Thank you. Good morning, Tomazoni, Guilherme, Chris, thank you for the time. I have a couple of questions. First, Guilherme, if I may ask you for that break-even EBITDA exercise you do every quarter, that's really helpful. If you could just walk through that, we would really appreciate it. And also to the point of cash, right? Your leverage is pretty close to three times, right? I know that's not how rating agencies look at that, but if you look at the EBITDA under US GAAP, it's 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 now also about the US Beef business. I think we have been discussing that for a while now about how the cycle apparently has changed or is different than the previous down cycles.
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? 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. So 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 reach at 2.77. So we 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 grades above three times. We enter on the attention zone where 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 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 unwinded discount receivables. So 2024 we used the printing at $2.8 billion free cash flow. But I use it $500 million to unwind discount receivable. So I printed $2.3 billion free cash flow. So that's the kind of leverage that the levers that we have to use because we are not, we, we are not, we don't use these levers recurrently. 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. So second quarter we may be closer to our up 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 2 and 3 times net EBITDA. And as long as we keep inside this range, we've been managing to keep the billion-dollar dividends that we already announced it and around one more than a billion dollars in growth capex. If you look at since 2019, we did an average of expansion capex of almost a billion dollars.
We've done almost a billion dollars average dividends as well. So I think being in this range I think we can keep this faith of growth capex and dividends. But we will always be monitoring according to our leverage which is our main variable for capital allocation decisions.
Wesley Batista, Acionista Controlador E Conselheiro Da JBS
Isabella, good morning. So obviously this, this herd rebuild and the cycle of the US business is taking longer than we all wish for. But for, for the industry to have any integration on the, especially on the cow-calf side of the business is, is just not realistic for a few reasons. It's very, very specialized and the people that do it have very special knowledge that's, that's very different than what we do. And other than that, the, the especially on the cow-calf side of, of of of this supply chain, it's very expensive, right?
Expensive. Not as in price. I mean it's, it's expensive. It's, it has a lot of, you need a lot of land and you need to manage a lot of land to be able to, to have a significant amount of, of of livestock and that's not our business. So we're, we're not looking into that.
Isabella Simonado, Bank of America
Super helpful. Thank you.
OPERATOR
Thank you. Ladies and gentlemen, the next question comes from Enrique Bristolin with Bradesco. You may go ahead, Mr. Bristolin.
Enrique Bristolin, Bradesco
Hello. Good morning everyone. Thank you for taking my questions. I have two also on US Beef. The first is to understand, you know, a little bit more the profitability delivered in the quarter. We know it's a, it's a seasonally weak quarter. Evolving into the, the barbecue season. Right. We continue to see spreads that, that seem to be pressured as they were. Sorry. Sure. The first one is if there was anything extraordinary in Q1 US 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 in the beginning of the year. So how you see these favorable seasonality playing out under the the current environment.
Wesley Batista, Acionista Controlador E Conselheiro Da JBS
So no, there wasn't any any. Anything extraordinary from a hedge perspective or even the, the, the whole strike situation didn't have a meaningful impact on, on our our quarterly results. So nothing to do with that. It was simply margins especially in January and February were, were. Were for sure very very challenging and probably one of the most challenging periods we've ever seen in in. In. In history. So talking about the the next quarters, you know, we expect obviously to be better than what we had in.
In Q1, but for sure 2026 will be a more challenging year than 2025.
Enrique Bristolin, Bradesco
That's clear. Wesley, thank you.
OPERATOR
Thank you. Our next question comes from Benjamin Thurrier with Barclays. Mr. Thurrier, you may go ahead.
Benjamin Thurrier, Barclays
Hey good morning Tomazoni guy. 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 share a few thoughts as it relates to the cattle price in Brazil, it's been very erratic and volatile. So any, any background any interpretation as what we should think about going forward for the Brazilian cattle price, that would be helpful. Thank you very much.
Gilberto Tomazoni, Global CEO
Hi Ben, thank you for your question related to Australia. The only the operation was very strong. We had a good quarter in term of volume and sales. And the only the impact when you compare to the last quarter last year. The first quarter last year was FX was around 15%. The valuation of the Aussie and this is the all impact of the business. The business remaining strong in Queensland that when we have 40% of the cattle herds. The conditions, the the environment conditions for Pastor is the best we have seen in the last three years.
And then we are, we are remain very positive with the Australia business about the volatility in Brazil. It's Carol, it's, it's normal because as you know Brazil is focusing to, to accomplish the quota in, in. In China quota and all of the, all of the players in the market try to to produce as much they can in order to to. To able to to reach a part a share of the quarter. It is a normal the price the. The price of the Carol increased. But you saw in the last last start to to.
To go down. And and we see that if the quote will be achieved, we believe that the end of of June the volume will should be go down and the price of the cattle should be down as well. In a way to accommodate that bre to where Brazil will be will be put in an additional 100 mil. 100,000 tons per month. This is normally that what we see in the situation that we less less cattle will be harvest and the price of the Carol will be down. I think it's. It's a part of the.
We are see it as a normal.
Benjamin Thurrier, Barclays
Okay, perfect. Thank you very much.
OPERATOR
Thank you. And now Guillermi Gutiva from BTG would like to ask a question. You may go ahead, Mr. Gutiva.
Guillermi Gutiva, BTG
Good morning. So we have two questions here also. The first one is regarding Ciara. 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 caller you can provide us would be very helpful.
And if I may just do a quick follow up. Also in the US Beef there was some new reports like pointing to the postponing of the measure. But there was also the possibility of lower US beef import tariffs. So how are you guys seeing this for the US beef segment and also for JBS Brazil and Australia that she also benefit kind of from this.
Gilberto Tomazoni, Global CEO
Thank you, Guillermi. Related to Ceara Seara increases its sales volume both domestic and export demand for all of the products remain very strong. The only explanation is the fx. If you take the effects that compared to the last quarter the quarters you see the effects the impact will be around 10%. And this is more than justify all of this. The the business is very strong. We are very confident with the results of CR in the common weeks in the common quarters and on the US Beef guider me. So you know, if if tariffs are are lowered I actually see this as. And there is a more a bigger income of of Australian and Brazilian beef and from other geographies as well. I see this as mostly in a lot of in a big sense very complementary.
The US has really gone into a, into a, into a production system that prioritizes prime and choice and, and heavier cattle. And today just the percentage of select cattle that we, we see is a lot smaller than what we use it to have is basically a very, very small minority of cattle nowadays is ungraded or low graded cattle. So I think you know, that, that that increase in imports, potential increase in imports could could you know, complement that production that we're, we're doing a lot less of. And I actually think that, you know, when the byproduct of having this priority of higher marbles more premium beef that we are, we're production system that we have in the US is that we have a lot of fat trim as part of our, 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 fed trim. And the only reason why our fed trim is valued so high and it has such a good value is because we have available lean. And if we don't have available that available lean, we actually could see our fed cut out, 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, for that for that fed trim. So my point is I, you know, in some cuts, yes, you would probably be in, in a way competitive, you know, with, with domestic production.
But I would say that the majority of what potentially would, would come in would actually be pretty complementary and not what we are we're targeting to produce in the US right now.
Guillermi Gutiva, BTG
Very clear.
OPERATOR
Thank you. Thank you. And our next question comes from John Gartner from Mizuho. You may go ahead. Mr. Bob Gardner.
Isabella Simonado, Bank of America
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 pres in value added meat. Is there still more to do on the MNA front to secure assets and does JBS 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.
Gilberto Tomazoni, Global CEO
Isabella. In terms of M and A, it's. We are, we are. It's part of our routine to look all the times the opportunities for M and A for grow. But this, this moment we are focused on the cash generation and to personal excellence. And this is the focus of the company now.
Isabella Simonado, Bank of America
Okay, thanks.
OPERATOR
Thank you. And our next question comes from Laura Harada from Santander. Mrs. Harada, you may go ahead. Misses Harada, if you're trying to speak, you might be on mute.
Leonardo Alencar, XP Investimentos
Hi, good morning. Can you hear me? So good morning everyone. Thanks for taking my question. Actually, I have two from my end. First on Ciara, the exports narrow person have 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 protein exports from Brazil. So it would be very helpful to understand how Ciara 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 filings which we see as positive in terms of eligibility for US 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.
Gilberto Tomazoni, Global CEO
I will start to answer the question about Ciara that you have made and Guillermo will be answering you about this. The 10Q and 10K, we are published. First, you asked about the Middle East war and how this impacts the business. I'll tell you this is a neutral impact because we have an input of additional cost because you need to skip some ports and you need to use trucks for internal transportation to reach the customers. But demand in terms of volume remains the same, remaining strong as was before.
And the extra cost is borne by the market, meaning that it is neutral. There is a war in the business so far related to the European issue that you mentioned. It's very new. I know that Brazil will provide the necessary clarification to the European Union regarding the technical guidance related to the subject. And from our side, we see Brazil is fully compliant with European Union requirements. And the other important point to clarify is that imports have not been suspended.
I think we have a period of clarifications and this has not impacted the business so far, and we are very confident Brazil will be fine and will reach an agreement with the European Union. From our side, we continue to monitor the matter.
Guilherme Calicanti, Global CFO
Hi. Regarding indices, it's worth mentioning that today only around 40% of our free float is for cake. It comes from passive funds, which in this sector generally this number is 60%, and the reason is that we are not on the main indexes yet. However, we already have, we think we already have the necessary criteria for the Russell. We entered last year, last September in the FTSE US as a US company. So now in May and June, we have rebalancing of Russell.
It's not in our control, but there's a chance that we enter into Russell, creating demand for the shares. Now having more than 50% of our sales in the US and if we do 10Ks and 10Qs and in June we'll complete one year of having our primary listing in the US, this makes us eligible to the S&P family. So that's the perspective 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 US investors that are used to US GAAP and have the comparability and reach also European investors and Latin American investors that are used to IFRS.
Leonardo Alencar, XP Investimentos
That's super clear. Thank you guys.
OPERATOR
And our next question comes from Leonardo Alencar with XP Investimentos. You may go ahead, Mr. Alencar.
Leonardo Alencar, XP Investimentos
Thank you for taking my questions. I would like to discuss a little bit more about U.S. beef. Wesley, you mentioned that the strike in the first quarter wasn't really impactful for the results. And would you say that without the strike situation would be a little worse for the first quarter or not? Or even if there's any lingering effects for Q2 from this strike? Another thing that 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 tailwind for this second quarter, maybe for the second semester. So two questions for USB and just one thing about Ciara. You mentioned Thomasoni regarding the exports Middle East and I agree with that. But then looking on the domestic side we've been seeing some erratic performance from prices between natural or fresh and processed goods.
It looks like in the beginning of the year we saw some strength from the processed side and now we are seeing some transitioning to the to Martin. So just to get an understanding here what you're seeing if there is a demand is softening or if it's just a short term pickup, let's say. So just to get a better view from Ciara on the domestic market as well.
Wesley Batista, Acionista Controlador E Conselheiro Da JBS
Just on the. Good morning. Just on this strike situation, you know, we were able to redirect volumes in other plants so we didn't lose volume because of this strike. There were maybe 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 some sort of relief on the supply side on beef in the U.S. Obviously, the USDA has been super, as always, very responsible in making sure that that's done. Whenever they feel the situation or they have assurance that the situation from the Mexico side is exactly how they want so that they keep screw worms outside of the US. But having said that, whenever and if that ever happens with the U.S. Government feeling 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.
Gilberto Tomazoni, Global CEO
And Leonardo, related to your question about chicken in Brazil, we start the year, the beginning of the year, I think January was a little bit softening in this quarter. But then February and March saw recovery. I think the market demand in Brazil is very strong and the demand in the export is strong. We discussed that the statistics show that Brazil will grow high volume because of the genetics will be higher. And at that moment, I said that we're not seeing the market.
But I don't know statistical, but in reality, statistical was some mistake that the association republished the numbers and corrected the information that the market will grow around 10%. You're talking more about 4%. But 4% is very balanced with the demand. We have external demand in the normal growth in the domestic market.
Leonardo Alencar, XP Investimentos
Okay, thank you. Isolate. And Tomas, just to be clear, you said this improvement but then it's mostly in natura or processed or both.
Gilberto Tomazoni, Global CEO
No processed. We are, we are the market is we can say stable. The market is not growing. But we are. We are. We are. You say you are flat, but we sell more value-added, more premium products than the low, the more commodity product. And, but the demand, if you saw the demand in January was, was weak. But they recovered in March. We made very good sales that we are confident that this is a combination of our strategy to distribute in the domestic market.
Different channel, different category of product. We are able to manage this situation. But for chicken, it's very strong. The demand for processed product is strong in the premium and soft in the more commodity.
Leonardo Alencar, XP Investimentos
That's clear. Thank you.
OPERATOR
Thank you. And our next question comes from Heather Jones. From Heather Jones. You may go ahead. Mr. Jones. Hi, Mr. Jones. If you're trying to speak, you may be on mute.
Heather Jones
Hi. Are you able to hear me now?
OPERATOR
There you go.
Heather Jones
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 to be 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 2028 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.
Wesley Batista, Acionista Controlador E Conselheiro Da JBS
So, Heather, you're right. Especially with this drought, it's going to delay the herd rebuild. I don't think we 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.
It's very difficult for me to speculate on anything else. Because anyway, it wouldn't be right. It wouldn't be appropriate for me to speculate on other players in the market. But we're not looking at that right now.
OPERATOR
Thank you. Our next question comes from Ricardo Alves from Morgan Stanley. You may go ahead, Mr. Alves.
Ricardo Alves, Morgan Stanley
Thanks everybody. Good morning. Thanks for the call. One question for Wesley, one for Guilherme. First on US Beef. Wesley, please. As we think about the grilling 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 was that there is 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 in your conversations on ground.
I think that that would be helpful for the very short term on the cutouts. That's my first question. The second question, really quick one to Guilherme. 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 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. pork 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.
On beef, you know, cutout is already, you know, started the year already compared to the same time last year, much higher than 15% higher than on the whole quarter then compared to the same period of time. And the reason is, you know, lower volume and the meds 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 how that's going to impact demand that this potentially higher prices.
But supply is tighter, so we'll see what happens there. But we'll probably see demand continue to stay strong, and we know the supply is kind of short, so there is a potential for but we have to wait and see.
Guilherme Calicanti, Global CFO
Hi Carlo. So the main projects continue to be the ones announced. So the Pilgrims Prepared Foods facility in Walker County, the Ackenny Iowa 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 investments in Brazil in biodiesel, in the Paraguay chicken plant, and also the Oman acquisition. Bear in mind that the Oman acquisition will not be a cash effort given that it will all be financed with the local banks there.
OPERATOR
And our next question comes from Lucas Ferreira with JP Morgan. You may go ahead Mr. Ferreira.
Lucas Ferreira, JP Morgan
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 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 US Beef, Wesley, just so I understand your comment. You mentioned that you expect 2026 to be more challenged than 2025. Last year you had a 1.5% negative margin. Should we expect a weaker margin this year given your comments?
And then Q2 was particularly weak last year, right, with the -3.9 margin. Again, remember the issues with the hedging, etc. So should it be sort of a weakness more skewed towards the second half or how to think about also the evolution of the business from here? Thank you.
Wesley Batista, Acionista Controlador E Conselheiro Da JBS
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 not be different than last year. Some periods of the year, I think, will be higher. I mentioned at the beginning in one of the answers that we have Queensland, where our main operation is, that the climate condition is very positive. I think it's the best in the last three years, and this shows us that the coming months will be a good supplier.
And talking about supply, then you talk about demand. Demand is very, very strong, and I think it's not just in the US but all of the premium markets that Australia sells to, like Japan, Korea, and others. Japan is very well positioned to catch this benefit from this demand, the growing global demand. See, look, we are positive where we operate. That will be a great year for JBS Australia. Look, as we, it's so I'm going to say this without giving any guidance, but you know, you could expect this year versus last year, I'm talking market in general, to be one to one and a half percentage points 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 points worse than last year.
OPERATOR
Thank you. And next Jack Harden from Stevens would like to ask a question. You may go ahead Mr. Harden.
Jack Harden, Stevens
On for Peron Sharma. Thanks for the question. For us, 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?
Wesley Batista, Acionista Controlador E Conselheiro Da JBS
Steve, but we see very balanced in the chicken demand in the US. We had, in the beginning of the year, that the big bird was a little bit very challenged, but the price of breast recovering during the quarter, we see that demand is strong in the value-added and prepared. We have very strong demand in all of the business, all of the other categories that Pilgrim's sell in the domestic market in the US. All of them are positive, and when you look for the side and the supply, we see better balance supply, demand.
We are positive with our business in Pilgrim's business.
OPERATOR
And our next question comes from Thiago Portici from Goldman Sachs. You may go ahead Mr. Bordolucci.
Thiago Portici, Goldman Sachs
Hey guys. Good morning everyone. It's always a pleasure to talk to you. Thanks for the Q and A. I think the question goes to Tomazoni, and this is just to try to gain perspective beyond the quarter on the benefits from diversification and portfolio, Tomazoni. This was a very rare quarter where we saw very strong demand. Actually, you mentioned in 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 grilling season in the US. 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.
Gilberto Tomazoni, Global CEO
Okay Thiago. Good question. Thiago. I'm very positive about diversification because when you look for our result this quarter, if you compare to the last quarter, the difference is around $400 million. And we can explain this difference with two business units. First, the US beef. I think the results of the US beef were impacted around 50% of the difference of our EBITDA, and Wesley, you have explained about that. I think we reached the bottom of the results.
I think we made some adjustments, and we see that the coming quarter, we cannot say they will improve a lot, but I think it will be better than this quarter. The market condition didn't change, but I think we are more balanced, and we made some adjustments in our structure that I think will help us to navigate even inside the company with the low cost of operation, more synergy, and outside synergy in terms of commercial. I think this is one of the things that give us more confidence that the results will be better than this quarter.
Wesley Batista, Acionista Controlador E Conselheiro Da JBS
Wesley, oh, just going to add Thiago that, 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 is to look just at the absolute number, right? You have Pork USA and SATA with double-digit margins. You have Australia. Even though this quarter was a lower quarter than what it has been, it is still in a very positive high single digit, right?
When you have the US beef at the low cycle. If you went back five years ago, you'd probably see all of the other businesses at a lower margin and beef higher. And I think the other way to look at this 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 in each one of them could be that they are in a singularly in a market. And that market is really good or really bad.
But our businesses are always going to have. Our portfolio of 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 would say that even in this quarter that was a weaker quarter, the diversification thesis that we have is actually pretty evident in my opinion.
Gilberto Tomazoni, Global CEO
And just to finish my point of view, that we start that 50% was. The other 50 was FUB need to adapt its portfolio to the market demand. We before us was just focused to export. They use the breast, the white meat, and export the dark meat that is portal leg quarters. But the market changes. There is a demand in the domestic market now in the US for dark meat. And Pilgrim's need to adapt its layout of the three factories in order to be able to supply the demand of the market.
Then we stop for two weeks three plants. Then this was affected the results and the climate conditions affect 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 Pilgrim's and around 200 million in Indian beef. That is one thing about that. The other thing is. Ah, the what you mentioned that the other business not deliver the result. But that was the effects effects was affect Sierra and effects was affect Australia.
This is you. If you want to explain the business is that effects CR in Australia and the Pilgrim's that I explained in beef in US 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 us 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 a you you one business that will be a huge difference.
Of course the different education is is working. And I believe that this difference in terms of cycle is normal in our business. You need to be able and to focus and manage the business in. When they have the low level we need to be better than the other competition. The high level will be better than the competition. This is the part. This is. This is the game.
Thiago Portici, Goldman Sachs
Certainly true. Thank you very much, Thomas Wesley.
OPERATOR
Thank you. And our next question comes from Renata Cabral at Citi. You may go ahead, Mrs. Cabral.
Ricardo Boyatachi
Hi, good morning everyone. Wesley, a couple of follow-ups here regarding North America. The first one besides the tariffs discussions this week, right. 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? I mean in 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 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 JBS 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.
Wesley Batista, Acionista Controlador E Conselheiro Da JBS
So on the deregulation for sure, I mean as we see cattle producers and ranchers in general trying to rebuild herd and deciding to rebuild herd, regulation and over-regulation can't be an obstacle. And anything the government does to help the ranchers is very helpful and for sure it's important. On the protein side, demand is pretty strong. Overall, how impactful would 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.
Priya Ori Gupta (Equity Analyst)
Thank you so much for taking the questions. Guilherme, can we talk a little bit about how we should think about net leverage trending through the end of the year? I think earlier, you know, a couple of months ago at Cagny in particular, we had talked about scope for net leverage to be below two and a half times this year. And it sounds like it could be ending the year sort of in the upper range of that two and a half to three times area. I just want to make sure that we're thinking about that correctly.
And as part of that, you highlighted the new issuance and 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 break-even, 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.
Guilherme Calicanti, Global CFO
Hi Priya, so from a leverage perspective, you're right. I think the perspective is to end this year more likely to be between two and a half and three times, given again, 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 $3.5 billion, which is around at least 500, 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 this excess cash. But this decision will probably be done in the second semester when is the period where our cash generation is stronger. In terms of the free cash flow breakeven, it's just an estimate. I think the accounts that we have continues to be on a $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 will be 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 uncertainties that we have given all the volatility in the market.
Priya Ori Gupta (Equity Analyst)
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 interest, expense reduction versus maturity management and absolute debt reduction. Thank you.
Guilherme Calicanti, Global CFO
Yes, the approach will be absolutely the same given that all my debt, including the $2.9 billion maturing in 2032, they 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.
Priya Ori Gupta (Equity Analyst)
Thank you. Very clear.
OPERATOR
Thank you. And our next question comes from Matthias Enfield with UBS. You may go ahead, Mr. Enfield.
Matthias Enfield (Equity Analyst)
Hi all, morning. Thank you for your time. My first question is on the beef demand in Brazil. We're still seeing it quite resilient despite prices. So I'm just trying to get a sense if you're getting pushback from retailers or pushback 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 in US 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's planning to diversify, but whether there are some additional regions that could become focused for investments in the midterms such as the 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's taking.
Those are the two questions. Thank you.
Gilberto Tomazoni, Global CEO
If I understood well, you asked about the demand for beef in Brazil and beef in the U.S. Yeah, both that. But look, in Brazil, even though we had the higher price of cattle and the higher price of meat, the demand in Brazil remains strong for beef and for all of the proteins. We talk about JBS, and now I think with the end of the quarters of China, the price of cattle may decrease. And I think it will be more favorable to sell in the domestic market.
It is important that we have developed a category management 2.0, which we call Asogi Reserve. It's in Brazil that we manage inside the store of our customers the budget area. And this shows that the store, they have our model. They sell not just more meat but more for all of these stores. And this project is getting a strong reception from our customers. And because of that, I see that even now with this situation, after the quota of China, we are very well structured even in Brazil and even in the U.S. to manage the volume for our business. Freeboy, I think it's in Western to comment a little bit about the demand, but it takes the event continues strong.
Wesley Batista, Acionista Controlador E Conselheiro Da JBS
Matthews, you know, we think all the things already mentioned before on just the overall protein trend and people understanding more about nutrition, prioritizing protection protein. We've seen that and just the overall preference also for protein and especially beef has been pretty strong. So that's how we see the demand in the U.S. I think this is related to the question first we answered about the demand of protein GLP1 and the other factor that boosts all of the protein consumption globally.
I think, Matthias, if I'm right, your question about the investment, the future expansion of our investment. Is it correct?
Matthias Enfield (Equity Analyst)
Yeah. How you're considering restrictions to trade flows with quotas and sanitary barriers into your investment process and investment decision for the mid to long term.
Gilberto Tomazoni, Global CEO
I think we are very well positioned where we produce and where we sell our product. I think we built this global platform, and we produce 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, our focus now for this year is cash generation. We are not looking for new projects in our portfolio. We just started the project in Paraguay and the project in Oman.
I think now we need to develop these projects in the greenfield that we are working on. No new projects in our pipeline now.
Matthias Enfield (Equity Analyst)
Awesome. Super, super clear. Thank you.
OPERATOR
Thank you. And our next question comes from Igor Guedes with Genial. You may go ahead, Mr. Guedes.
Igor Guedes (Equity Analyst)
Can you hear me? 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 we expected, reflecting an acceleration across the platform, but mainly related to renovation projects stemming 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 an increase you expect to achieve based on what production levels, and whether we can expect CapEx to normalize as early as the 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 feeling 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 head. But my question is more focused on the cutout side of the domestic market.
Do you think it's possible that with the reduction in exports, part of the volume will be directed to the domestic market 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.
Gilberto Tomazoni, Global CEO
Look, when you talk about the CapEx, we are putting $1 billion in capital for expansions, what we call growth CapEx. We are not disclosing one by one because many business units have different types of CapEx, and it will be difficult to explain volume because one is the number of chicken, the other is a volume of well-prepared food. To put together would be difficult to explain, so we are not disclosing them. But the CapEx, as you mentioned, is higher compared to the last years because we are seeing strong demand.
We are not seeing any moment now that we need to review the CapEx because we see the cash generation for the second semester of the year will be strong. But this is something we can see in the future. Because it's CapEx of expansion, we can postpone, we can give more time to do it, but we are not looking now because we do not see that it is necessary for now. But it could be in the future, something that we can take a look at. The other thing about the Brazilian market situation about beef, we said that the end of the quota of China may mean the number of cattle will be harvested will be down because we need to accommodate this.
I mentioned 120,000 tons per month for beef. We need to find a market for that. Then the increase will be reduced. The number of cattle will be harvested, and if you reduce the number of cattle harvested combined with more availability of current feedlot, we believe that the price of cattle will be down as well. This means that cutout could be down because of more volume domestically, but the price of beef will be down as well. Then I see that the spread between both prices, the cutout and the live cattle, will remain or depend on our case, could be enhanced because we have value-added products.
When you talk about value-added products, not just processed products, but value-added raw products that I mentioned, better representation, better way to serve the customer in different cuts of beef. If you look at our side, I think we are very well structured in Brazil and outside Brazil to take advantage of the impact of the end of the quotas of China.
Igor Guedes (Equity Analyst)
Okay, super clear. Thank you very much.
OPERATOR
Ladies and gentlemen, there being no further questions, I would like to pass the floor to Mr. Gibeta Mazoni.
Gilberto Tomazoni, Global CEO
I would like to thank everyone for joining us today and all JBS team members for their dedication. As we look 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
This is the end of the conference call held by JBS. Thank you very much for your participation and have a nice day.
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