JBS N.V. (JBS) Earnings Call Transcript

Good morning, and welcome to JBS' Third Quarter of 2026 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Any statements eventually made during this conference call in connection with the company's business outlook, projections, operating and financial targets and potential growth should be understood as merely forecast 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. Are present with us today, Gilberto Tomazoni, Global CEO of JBS; Guilherme Cavalcanti, Global CFO of JBS; Wesley Batista Filho, CEO of JBS USA; and Christiane Assis, Investor Relations Director. Now I'll turn the conference over to Gilberto Tomazoni. Mr. Tomazoni, you may begin your presentation.

Good morning, everyone, and thank you for joining us today. The third quarter was marked by a challenging market conditions across several of our business, changing international trade flows, pressure on poultry margins and a global oversupply of pork affected our results. At the same time, we made progress in important areas of our operation, reinforcing our confidence in the strategy we have been executing. Our experience in food industry as shown as the importancy of understand the market cycles, improving efficiency and make a decision that to strengthen our business over the long term. Our important development in the quarter was the return to positive EBITDA in our U.S. beef business. This is an encouraging result of the work we have been doing to improve competitiveness. There is still more to do, but we are beginning to see the benefit of these initiatives. Lastly, will provide more details of the performance of North America business in the actions underway. Turning to Pilgrim's Pride. As Fabio highlighted during the company third quarter earnings call. Chicken continues to resonate with a consumer across its markets, supported by affordability and the strength of its diversified portfolio. He also emphasized the progress in operation efficiency, innovation and investment in high-value products. These remain important priorities as Pilgrim's continues to strengthen its business and build resiliency across market cycles. In Brazil, despite a challenged quarter, our team responds promptly in adapting production and commercial strategy and leverage our global network and distribution capabilities. While export to China declined sharply, Friboi successfully redirected volumes to other markets and expanded domestic sales. This performance reflects the threatening of Friboi brands, the value of our Friboi+ retail relationship programs and the effectiveness of our commercial execution. We already see an improvement in October, reflecting this adjustment in renewed demand from China as a customer security volumes under the 2027 quarter. Together with seasonality and stronger divestment consumption, this created a more favorable environment for our Brazilian beef business in the fourth quarter. The recovery in export volumes, combined with the strongest seasonal demand in Brazil, give us confidence in the better fourth quarter for Friboi. Our strong brand, customer relationships and access to international market remain important competitive advantage, allowing us to respond to changing in demand and maximize the value of our products. Friboi is a clear example of how strong brands close relationship with retails and access to different markets helped us to respond to challenging conditions and strengthen our competitive position. At Seara, the quarter was affected by higher cost and more challenging commercial environment in Brazil. Despite this pressure, Seara gained market share across the categories enriches the highest ever level of brand preference in consumer consideration. These results reflect the strength of Seara brand and its position with Brazilian consumer. We are focusing on what we can control, improving efficiency and commercial execution, strengthen the integration between our operations and customers and increasing the value of our portfolio. We continue to invest in automation at Seara to improve productivity and efficiency. Seara's a strong brand innovation and investment in production capability, provide a solid foundation for growth. The gains in market share and record brand indicators reinforce the competitiveness of Seara of the strength of the commercial execution. Internationally, the Middle East remain as an important market, where our investment in local production and distribution are strengthening our presence and contributing positive results. In Europe, we maintain production and build inventories during a period of trade restriction position the business to benefit as sales resume. The fourth quarter is also an important period of Seara, supported by strong seasonal demand in the local markets, together with the recovery international sales and the inventories built during the quarter. This supports a more favorable outlook for Seara in the final months of the year. Across the global operations, market conditions vary but the pace of recovery will not be the same across the proteins and geography. This reinforced the importancy of our diversification strategy. We have built JBS as a global multi-protein company with access to different markets and [indiscernible] of earnings. Diversification does not eliminate in dual cycles, but it stress our ability to navigate them, allocate capital and continue developing our business. Our investment in efficient innovation, brands and value-added products support this long-term strategy. And our people remain fundamental to the execution with experienced team close to our operations and customers. Cash generation is another important priority. Leverage increased during the quarter as expected reflected the operating environment, we remain focused on working capital management and disciplined capital allocation, maintaining the financial flexibility need to be support our investments. We have built JBS as a long-term vision, investment consistent and strengthens our ability to compete in different markets and industrial cycles. Our strategy remains unchanged. We will continue to focus on execution, efficiency, innovation and develop our people, creating conditions for sustainable growth and long-term value creation. Our leadership transition is progressing as planned, with Wesley Batista Filho gradually take on greater responsibility for JBS operations. This is a natural step in the company evolution, supported by our strong management team, consistent strategy and our titles we have built over the years. Thank you very much. I will now turn the call over to Wesley.

Good morning, everyone. The main highlight of the quarter was our U.S. Beef business returning to positive adjusted EBITDA under the U.S. GAAP after 2 challenging years. This reflects both improving market conditions and the operational changes we've been implementing. Earlier this year, we brought our fed beef, regional beef and case ready business unit under one management structure to better coordinate procurement, production and sales and optimize our production footprint. We've also increased our focus on yields, productivity, maintenance, operational reliability and cost discipline. On the market side, the reopening of the U.S. border to Mexican Cattle imports is an important development. Cattle are arriving heavier and reaching processing weight sooner. We expect approximately 1 million herd of imported cattle from Mexico per year. Cattle prices have declined from recent peaks, while beef prices remain resilient. Although cattle supplies remain tight, Mexican imports and a better balancing processing capacity to support a more constructive outlook. Turning to U.S. pork. Market conditions deteriorated rapidly during the quarter. Higher global supply and weaker demand have pressured prices and margins. We expect these conditions to remain challenging into the first half of 2027. Our focus is on cost management and operational efficiency. The U.S. has harvested its second largest corn crop on record supporting ample grains availability and stable feed costs. In South America, soybean planting in Brazil has progressed within the ideal window, although it is still early to assess the second corn crop. Overall, we're encouraged by the improvement of the U.S. Beef business. Our focus remains on what we can control, improving productivity, managing costs and making our operations more competitive. Thank you, everyone. I will now turn the call over to Guilherme.

Thank you, Tomazoni, and Wesley. Last night, we announced the acquisition of 100% of Flora for the enterprise value of $442 million, of which $367 million for the equity and $175 million in debt assumption. All the equity will be paid in JBS treasury Class A shares. There will be no impact on JBS net leverage given Flora EBITDA. Flora brings higher margins than JBS, a portfolio of well-established home and personal care brands and significant synergies. Flora also brings an important strategic advantage in JBS. It is established a B2C platform gives us access to new sales channels in Brazil, particularly drug stores and specialized retailers which we can leverage to accelerate the growth of our higher value-added products, including Genu-in our collagen-based health and nutrition platform. At the same time, Flora is highly complementary to our value chain as it uses raw materials that JBS already produces. Tallow is a clear example with approximately 93% of Flora's consumption already supplied by JBS. This combination allows us to move closer to the end consumer while creating new venues of growth. We see cost synergies from integrating corporate and commercial functions as well as additional opportunities across logistics, procurement and tax. Considering only 2027 synergies for acquisition note all reduce from 7x to less than 4.9x. Over 10 years, we estimate the present value of total synergies and monetization of tax credits at $422 million, further reinforcing the value creation of the transaction. On Page 17 of the 10-Q financial statements, we disclosed approximately $800 million in VAT-related tax credits and $2.2 billion in income tax credit. Additional details, including breakdown further explanation can be found on Page 18 of our 2025 annual financial statements. Keep in mind, under Brazil's tax reform, VAT tax, ICMS, will be gradually replaced by CBS and IBS, but we expect the tax credit accumulation to continue to grow. To establish the synergies, you can use the applicable tax rate, Flora's revenue and net margins incorporating a higher capacity utilization and additional capacity expected to come online over the next years. We also announced the acquisition of Canal Rural for the enterprise value of $16 million to be paid in JBS treasury Class A shares. Canal Rural brings us closer to the producer, strengthens our ability to advance [feasibility] across our indirect supplier base and provides an important platform for engaging with society and policy makers. Let's now move on to the operational and financial highlights of the third quarter of 2026. Net sales reached $23 billion for the third quarter. Adjusted EBITDA under IFRS totaled $1.2 billion with a margin of 5.2% for the quarter. Excluding market-to-market adjustments on biological assets, adjusted EBITDA margin would have been 5.5%. This metric is used by some of our peers, which also report under IFRS. The main impact was the market to market in U.S. for given the reduction in the future curve of live hogs. It's important to highlight that there is no cash impact related to that. Adjusted EBITDA in U.S. GAAP totaled $1 billion, which represents a margin of 4.4% for the quarter. Adjusting operating income was $521 million, with a margin of 2.3% in IFRS and $597 million in U.S. GAAP with a margin of 2.6%. Net income was $164 million in the quarter and an earnings per share of $0.15, excluding the nonrecurring items, adjusted net income would be $167 million and earnings per share will be $0.16 in the quarter. Free cash flow was negative $167 million in the third quarter with $551 million in decrease year-over-year, explained by $653 million decline in adjusted EBITDA and higher working capital consumption in Brazil, particularly inventories. The increase was mainly reflected higher grains inventory at Seara as well as higher chicken inventories at Seara in Europe. The company also faced high inventories in JBS Brazil beef products to be sent to China in the fourth quarter 2026 to fulfill the '27 quarters. This offset the quarterly positive working capital contribution of $325 million positive from the U.S. and Australia business units. Total working capital consumption was $106 million in the quarter. Not considering guidance but simply upgrading the increasing and increasing the cash flow breakeven EBITDA exercise for the year, we expect $5.5 billion in 2026, driven by $2.1 billion in capital expenditures, working capital, expected consumption of $550 million in 2026, an improvement of $300 million year-over-year, legal segments of $100 million already realized in 2026, biological assets of $850 million, flat over 2025, interest expenses of $1.4 billion an increase of $100 million versus the previous estimated due to the higher net debt, leasing expense at $500 million in 2026 and an effective tax rate of 25%. Another exercise, again, without providing guidance is to look at the potential for cash flow generation in 2027. In Beef North America, our largest segment, adjusted EBITDA was negative by $309 million year-to-date in U.S. GAAP. Considering year-to-date working capital consumption of $254 million and capital expenditure of $158 million, the cash consumption of this business unit was $721 million. For every 1% improvement in Beef North America EBITDA margin, this would translate into approximately $300 million in EBITDA. We are still in the budgeting process, but we expect to reduce capital expenditures by around $500 million in 2027. Considering the closing of Australia's equity sale and cash flow improvement, we expect leverage to be within our target range for the end of 2027. Debt profile. We continue to strengthen our liquidity position. In August, we announced an increase in our revolving credit line from $3.5 billion to $4.2 billion while reducing the [indiscernible] cost of this line. Our cash liquidity combined with the revolving credit line facility totaling approximately $8.2 billion. Our average debt term reached 14.4 years with an average cost of 5.7%. Net leverage ended the quarter at 3.54x, excluding the market-to-market of the biological assets, our net leverage would have been 3.41x However, the company maintains a well-balanced debt maturity profile with no material maturities over the next 5 years. It is also worth noting that more than 95% of our debt has fixed interest rates, 33% maturing beyond 2050 and all the debt up to 2032 has coupons below the equivalent treasury rates. On August 18, we delivered a proposal to the Board of Pilgrim's Pride Corporation to acquire the shares of PPC common stock that JBS and its affiliates done or read on as announced to the market. Given our ownership of approximately 82% of PPC and our pending proposal, we will not take any questions related to PPC. We appreciate your understanding. With that, I would like to open to Q&A sessions.

[Operator Instructions] Our first question comes from Mr. Gustavo Troyano with Itau.

And my question is on U.S. beef and especially thinking about the profitability levels going forward. I just wanted to hear your thoughts on the pace of the segment's margin recovery as we move into the fourth quarter, especially considering that you disclosed the monthly profitability levels for the segment throughout the third quarter, and it seems that the fourth quarter could be better than what the seasonality would suggest. So I just wanted to hear from you if you think that the third quarter could be a bottom for this cycle when we think about 2027, if this margin should start to recover sequentially from the fourth quarter onwards. And still on that topic, just to follow up on a point that we discussed in JBS day a couple of months ago when you mentioned that there were some operational improvements to be delivered in the segment if these numbers are starting to show off in the third quarter or if there's a potential for 2027 to incorporate these operational improvements.

We had a good third quarter in our opinion. It started off actually quite tough, more in line with what the second quarter looked like and it ended up a lot better. Q4 is usually a little bit of -- December could always be a little bit of a surprise. But given how it has started in the first half of Q4 here. We expect that Q4 could be stronger than -- should be stronger than Q3. So we're expecting a sequential improvement into Q3 as of right now because, again, we're in the middle of the quarter here, but so far, it looks promising. And again, when we look into next year, based on a couple of things, based on just the market improving overall the balance between supply and demand for cattle. We think we're going to have a much better year into next year and probably, as of right now, we think it's going to be a market that operates in the low single digits, but we could have maybe actually even a positive surprise depending on how things develop. And on top of that, just how the market is going to look like, you said it right. It's a big, big focus of ours is disintegration that we are having between our beef business units. And we're seeing a lot of improvements. But we still expect a lot into next year. I still think that just on operational efficiencies and more -- some more synergies in sales, we could have around or even above 2 percentage points into next year.

And our next question comes from Mr. Ricardo Alves with MS.

Can you hear me, everyone?

Yes.

Question on Florida. About 80% coming from Texas. I missed the very beginning of the explanation on the tax credits, Guilherme. Can you go over the tax credits again, just in terms of how much we should expect in the short term, if there is some timing on when you can really monetize those credits? And then, when we're thinking about Flora alone, our understanding is that the net debt-to-EBITDA ratio was closer to 4x. So is it fair to say that the leverage was also affected for the transaction, the leverage at the Flora level? So I'm not talking about the leverage of JBS because maybe in terms of short-term financing, given that long-term rates are in a much more difficult place today in Brazil, maybe you incorporate that into the balance sheet of JBS, maybe you're going to be able to leverage more all the growth that you expect in the Personal Care, all the discussions that we've had in the past around collagen. So just to understand how within the JBS portfolio, how you could accelerate the growth potential you see there if that was also a rationale for the transaction. So just 2 follow-ups from the Flora transaction, please.

Okay. Thank you, Ricardo. So beginning with tax credits, the monetization of tax credit is pretty straightforward. As you know, the ICMS, the VAT tax exporters are exempt of that. But we pay ICMX on the inputs in the states we operate. But when you explore the product, we cannot offset the ICMS we paid. So this becomes a credit. So -- and those credit at the consolidated balance sheet is around $800 million in JBS. So when we have Flora inside JBS with the same [indiscernible] Ricardo, you call the same corporate. We can pay Flora's ICMS on the domestic sales with the one credit or the ICMS price that we have accumulated. These ICMS, as I mentioned, will be replaced by CBS and IBS, which will have the same dynamic of credit accumulation. It may be even more. So then we'll be able to use to monetize those credits with Flora. And the last is Flora will start to pay income tax next year. Bear in mind that we have, as I mentioned, $2.2 billion in income tax credit in JBS balance sheet, which can also be paid to pay Flora's income tax. So basically, also are the major parts of the tax credit synergies. As you mentioned, it's the most part of the synergies. Now the net debt to EBITDA, you are putting on the 2026 Flora's EBITDA. But Flora, some segments of Flora operated in 2026 with 49% capacity, which we expect to increase the capacity to 70% next year and so one, because we have some disruptions in 2026. Factories renovation, things that decreased our capacity utilization. And we have the CapEx -- expansion CapEx that is being implemented and new capacity is coming online in the next years. So it's -- because we have all these downtimes because we have disruptions and we have the capacity coming online next year, it's better to look at 2027 EBITDA. That is around $420 million, for next year. So considering this $420 million, net debt to EBITDA or Flora would be even lower than JBS. And as we put more capacity online throughout the years, increasing revenue and EBITDA and monetized tax credit, the net effect on average throughout time is even positive with Flora acquisition. Clear Ricardo? And now let's talk to the strategic part. Guilherme and Wesley will help you.

Yes. So what I'll say here, Ricardo, is obviously all of the -- those are the short-term more simple parts of this whole opportunity here. But what we are very interested about is we see this as more of a continuation of the work we've been doing for the past 5 years, especially when we started our business with Genu-in in Brazil and with biotech also in Spain and in the south of Brazil. And we think that the future of the protein market is going to be, obviously, in the center of the plate, that's a big -- the main part of -- a big part of the business, and that continues to be a main focus of ours. But we cannot ignore, and we need to be very, very much present in all of the nutritional supplements and nutritional part of the business that we think it's a huge value-added part of the business, especially given the production capacity that we have. And we think that starting off in the Brazilian market that we have a lot of strength in the commercial side overall, being able to distribute now with a different, obviously, distribution base for all these dry goods being able to create a strong B2C business for all of these sort of nutritional market. We think it's a big opportunity and something that will add a lot of value to our core products. And on top of that, enhance our portfolio on nutrition overall. So going from the center of the plate also to all of this nutritional side. And again, it's a business that's growing within JBS. And we think that in the future, in the next decade, this will become a huge business globally as a whole, we want to be an important part of that. So this is the -- it's an important step for us to grow in that direction.

I also want to highlight that it's also an important way for us to monetize our byproducts. For example, if you look at Darling, the company in the U.S., great part of its valuation is for the agreements that enhance human health and well-being.

And now Ms. Isabella Simonato would like to ask a question from Bank of America.

So I want to follow up on the Flora deal. I guess, the overall rationale is clear, but I wanted to ask if you could think about this acquisition as the first step of some category that can become bigger over time for JBS, right? I recall we had the discussion, I think, in the first JBS Day in the U.S., right, if you could move away from protein than diversify and become more of a consumer goods right company. So I wonder if we can interpret this move as something as a first step of something bigger, right? I guess that's my first question. And still on that matter, when we compare Flora to eventually other targets of acquisitions in that segment, if you could just give us a context about their peers, virtually relative valuation and why do this now -- my sense is that the implementation of the tax reform also matters and timing. But I just want to give -- to understand a little bit better timing and the context for this. And I understand that there's no immediate balance sheet impact to JBS. But I wonder if adding complexity here and eventually any type of additional investments that Flora might required in this time, if that makes sense?

So Isabella, I'll start here. Obviously, our -- like I said, it's -- as part of a nutrition and being able to develop a strong B2C business for all this supplement category is the main target of ours, and it's one of the biggest parts of the vision of this acquisition on top of all the things that Guilherme mentioned that are very important as well from an integration and synergy perspective, verticalization as well of our core products. Obviously, we're also going through -- it's very important for us to grow all of this to have a complete portfolio. And so we're going to have other portfolios that we are entering as a company right now. And obviously, we're going to do everything we can to be very successful in that and to have a leadership position in those categories within the Brazilian market. And obviously, we'll see what the future holds for that. So if there's accretive ways to grow that business within the Brazilian context, as of right now, it's something that we're going to evaluate. But again, we think that there is potential. So let's see. I'll let Guilherme mention about the valuation.

Isabella, so we have to speak in 2 frontier. So if you look at the international peers, enterprise value EBITDA for 2027 multiple ranges from 10 to 14x. But if you look at the Brazilian comparables, these range from 5 to 10 times. So in Brazil, but those are lower than our international peers. But we think that we have potential that that's one of the reasons that we have -- we see potential value creation. And again -- and as I mentioned, if you look at all the synergies and put the net present value of the compared to the enterprise value we paid, we see that the logic is very, very compelling.

And our next question comes from Mr. Henrique Brustolin, from BBI.

My question is back to U.S. beef, especially about Mexico cattle imports. Wesley you have mentioned, right, the relevance of cattle imports from Mexico to help rebalance the U.S. industry. We are seeing imports growing but still at a somewhat slow pace, right, to get to the 1 million heads per year. And of course, there is a natural ramp up here. But it would be great to get your view in terms of how are imports right now shaping up relative to your expectations? And how you expect the pace picking up going into 2027, so we can see this better environment in terms of cattle supply and beef margins.

Henrique We think that Mexico, obviously, when we first opening, we just had one port of entry was below 1,000 head, beginning 1,000 head per day. But given the volumes that are crossing as of right now, we think it's very relevant. We -- obviously, there's many variables here. And -- but given what we know right now, we would expect in to an annualized basis of about 1 million head. If you think that we have 2 -- I mean, 2 bigger states of Mexico, right, being open to export to the U.S. And you're doing 1 million head out of the 1.2 million they use it to come. I think it's pretty -- I mean, it's pretty relevant. I mean -- and it's a big deal. If you think about it, also, I think it's a good way to think about it is. In the past, again, the Mexican cattle would account for 4% to 5% of U.S. processing volumes. But if you look at just what that percentage was of the southern states, you're talking about, I don't know, probably 15 -- around 15% of the processing capacity of the southern plant. So it's a big deal and just the amount of cattle that's been crossing. It's important it's relevant enough to make a big difference. And I attribute a lot of the improvement in the cattle situation in -- for us in the U.S. coming from the reopening of the Mexico border.

And now Mr. Pooran Sharma from Stephens.

Just wanted to focus on U.S. pork. My first question would be to understand the commentary you alluded to earlier. I believe you said you expected maybe some potential relief in the first half of '27 or at least you expect the conditions to drag on through the first half of '27. Just wanted to see what gives you confidence or visibility into improvement in the back half of 2027? And for my follow-up, I wanted to understand just the differences between U.S. GAAP and IFRS a little bit better for this segment. We've seen the last few quarters a big divergence in these margins. And I think it's largely due to the biological asset valuation given the move we've seen in lean hogs in 4Q, I just wanted to get a sense if you would expect the same type of divergences between U.S. GAAP and IFRS to persist in 4Q for U.S. pork?

Sharma, so on the pork side, we expect that it will continue to be tough at least through the first half of the second year -- of next year. What we expect and we see the USDA number for just global production kind of similar and in line with what we believe is, we think that there is going to be an adjustment of production globally. Obviously, countries that are more competitive and more productive are going to be -- gain a bigger market share of the global pork supply and countries that are less efficient are going to have those space and competitiveness. So [indiscernible] showing a decrease in next year's pork production globally, similar to the increase we had this year. We already see numbers, for example, in China, which are the biggest pork producers in the world reducing -- they used to have around 40 million sows. That was their total herd of sows. And now they are close to 36 million, and that's almost -- it's a relevant increase -- decrease, excuse me, in a very, very large country. And we think we're going to see that in other areas. Countries that are less competitive are going to lose space in the market. And I think that globally, overall, we're going to see an adjustment. Obviously, you have to remember that, pork cycle is a lot shorter than the beef cycle. So I'm not saying that the beginning of second half of next year is going to be -- great if things are going to be completely changed. I don't know that yet. But our expectation is that given the -- what we're seeing globally in -- especially in some of these countries moving in to reduce production, we think that there is a good chance that we have a better second half of next year.

Okay. Going to the market to market, you are totally right. The volatility all comes from the fact that the IFRS inventories are market to market, including the hogs while in U.S. GAAP at cost. And how it's the market to market. Do you get all the future curve of hogs to price our [indiscernible]. And that's what the big swing was. So looking at the fourth quarter, it will depend on this future curve. We think that the future public already inclined. So only if it inclines even were down, that would have another effect like that. But it's worth mentioning that, for example, WH, which reports in IFRS and because of these hog volatility, it is EBITDA adjusted is a disaster for the market-to-market of biological assets.

Next is Mr. Thiago Duarte with BTG.

I wanted to circle back to Guilherme's exercise in the end of the presentation, particularly when discussing the outlook for 2027. And obviously, you never provided a guidance, but looking at the exercise and trying to reconcile the numbers a little bit, you talked Guilherme about coming into the end of 2027 with the leverage of the company within what you call the safety zone, if I'm not mistaken, which is up to 3x leverage, right? And as we try to sort of reconcile the numbers to your EBITDA, the way I'm looking at the math here, it implies a pretty nice improvement in the company's EBITDA in 2027 relative to 2026. And my understanding is that the biggest contributor to that in your exercise has to come from the U.S. Beef division. So my question to you guys, and obviously, going back into the discussions about cattle imports from Mexico and so on and so on is are you comfortable that U.S. beef can approach the sort of historical normalized of low to mid-single-digit margin into 2027? So that would be the question trying to reconcile to the exercise that Guilherme did in the end of the presentation.

Okay. Thank you, Thiago. Yes, I also read your report last night. So -- and you mentioned that at the $1.4 billion EBITDA for the fourth quarter, we would be ending at $375 million. That's not correct. You forgot the free cash flow generation of the fourth quarter, which kind of sets part of the decrease in the last 12 months EBITDA. Bear in mind that the last quarter, we have the deferred livestock. We will have the inventory sales in Europe of Seara, and we have the resume of Chinese purchase from the working capital we consume in JBS Brazil in the fourth quarter. So therefore, with the $1.4 billion EBITDA that you mentioned for the fourth quarter, we would be ending between 3.5 and 3.55x net debt to EBITDA depending on, of course, the free cash flow, but that's -- I think it's a better estimate. So now for the next year, you're right, the main assumption here is the turnaround of U.S. Beef. Remember, this year, U.S. Beef consumed $721 million of free cash flow already because working -- only working capital was $254 million and $310 million of EBITDA. So for next year, if this EBITDA comes to the positive side. So whatever that's why I mentioned, each 1% is $300 million EBITDA and the working capital consumption was mainly due to the cattle prices increase in the first semester. If we think of falling cattle price or even a stable prices, we should release working capital from this business unit instead of consumption, consuming working capital. So my assumption for next year, again, bear in mind, we have the Australia equity sale of $800 million cash inflow. We have the fourth quarter, as I mentioned, free cash flow generation. And for next year, if we have a turnaround in the beef segment, and we end up with EBITDA between $5.5 billion or $6 billion will be below 3x.

And our next question comes from Mr. Benjamin Theurer with Barclays.

Actually, I would like to pick up on that the exercise and one of the commentary you make as it relates to CapEx next year. So if I picked it up the right way, I think you said you're looking into the budgeting to reduce CapEx by approximately $500 million. Is that against the roughly $2 billion as in 2026? And if so, what would be areas where you're looking at in terms of cutting CapEx? Is that cut out right? Or is that postponing? How should we think about that reduction in CapEx that you've mentioned?

That's a very important point that I also forgot to put in the equation of the previous question that also embedded around $500 million of capital expenditure decrease for next year, improving free cash flow, our $2 billion free cash flow, $2.1 billion of this year. Bear in mind that around $1 billion in maintenance CapEx with there's not much change of that. But $1 billion is growth CapEX. So what we'll be doing for next year is that some CapEx that -- or some projects that we started we already began, and so we will finish it. But do not start new projects. Are the ones that didn't start, we will postpone for the other year or depending on how the stay. So that's why we are still in the budgeting process. In fact, I'm going to grill next Friday to -- for budget and CapEx meetings, but we are very confident that we can cut around $500 million of CapEx. Remember that in 2013, when our EBITDA was $3.5 billion with budget a $1 billion maintenance CapEx for 2024 and a $300 million growth CapEx for start 2024. But because 2024 was better than expected. In fact, we ended up with $6.8 billion in EBITDA in a $2.8 billion of free cash flow. We when we started some projects, and we end up 2024, spending $500 million a -- so that's what we intend to do. We will stop upon CapEx, reduce the $500 million if the year is better than expected, we can anticipate the ones that we postponed. Is it clear?

Very clear.

And our next question comes from Mr. Thiago Bortoluci with GS.

I think my question is for Wesley, right? And I would like to stress again the demand side in the U.S., right? And this is just to put in perspective a few of the information we have so far. We know pork has been underpriced for a while. It's not the first time you mentioned it in our press release. When I see the numbers for Pilgrim's, you continue to choose strong demand. But then when I see top line growth, it's pressured within foodservice, fresh and retail. And then I think more importantly, when I see the evolution of the cutout for beef, throughout the greening season, it moved actually downwards and ended the quarter even a little bit below last year, right? So in a context when we have rates in the U.S. potentially higher for longer, inflation, potentially higher how confident you are that demand will remain sticking to next year? And more importantly, how confident you are in your pricing power eventually to protect or even expand margins in this context.

Thanks, Thiago. So look, we see demand for protein in general, has been pretty strong. I think the fundamentals are all there. I don't want to be too repetitive and talk about all of them because it's something that in all conferences and all meetings we all talk a lot about and we all kind of see similar fundamental trends that everybody knows. But when we look at specifically per protein, we see beef demand, when you have such a big increase in prices, obviously, our price follows the price of cattle. So when we -- we had such a large increase of cattle prices and then you have such a large increase of beef prices. Sometimes it's even difficult to look at the seasonality because just maybe the price of cattle goes up in the in the off-season kind of period, right, and then things kind of stabilize at. So it's a little bit tricky to look at that in that way. But what we actually -- the way I would say it is having it cut out that's in the high 300 and still have the strong volume that we're seeing. I think that's a big deal and it shows that demand in beef is really strong. And when we talk to customers, we hear that the beef demand is quite inelastic. And actually, I'll even say we're much more inelastic than we even expected before all of this big shortage of cattle that we've had in the U.S. In chicken, we're seeing just in the worldwide, we're seeing the same thing. We're seeing demand for chicken pretty strong, especially in food service, and we're seeing a lot of food service chains, QSRs, all going into chicken. So there is a big trend going there. Now obviously, inflation overall across the board, especially in fuel have taken a toll in consumers and what we are seeing is that the protein that's had the softest -- the biggest challenge has been for work absolutely has had the biggest -- we're seeing the softness in demand, very concentrated in pork. And I think it's -- it just shows -- I think it's not necessarily anything against pork that the consumer has. It's just that their preference for beef and chicken has been just so strong that the protein that they have whenever there they have to stretch a little bit more to your dollar. They're still going to have their beef. They're still going to consume chicken and maybe they cut back a little bit on pork. So that's what we've been seeing. But overall, the trends are still pretty consistent in our opinion. Having said that, obviously, when overall inflation is just that high, it's strong and puts the straining consumer, they have to make a choice, and they have made a choice to cut back on pork demand.

And our next question comes from Mr. Andrew Strelzik with Bank of Montreal.

I wanted to ask about Seara. You talked about record chicken exports out of Brazil, but there were also some areas of weakness as well and the margins were the lowest we've seen in a little while. So I'm curious if we should anticipate Seara margins continuing to decline year-over-year in the fourth quarter and into '27. Or if you see opportunities for that to recover. And if you do see opportunities for that to recover, what the drivers would be?

Andrew, thank you for your question. We see -- first, I will be answer direct to your question. See, we see improvement on the margin of Seara for the fourth quarter compared to the third quarter. And what is the reason for that? First, I think is 1 of the very important reason is the appreciation of the dollar against real. And Seara export 50% of its revenue. And this is -- means a lot in terms of impact in the bottom line. This is the first. The second point that the market for the chicken, just to add the explanation of resin, we see the demand of Chicken globally, very strong. Seara reported was the largest volume that sold in one quarter to export means that the market is very demanding. This is the point that demand is strong and dollar is higher. And there is another point of Seara. In Europe, our team anticipated is a restriction of Brazilian poultry export and chicken breast ahead of those restrictions building inventories in this region, we expect to sell these inventories in the fourth quarter allow us to serve customers even while shipments from Brazil were restricted. Together with the stronger seasonal demand in Brazil and support the favorable outlook of Seara, for this month, we are -- we really expect higher margin than the third quarter of Jan.