SÃ O PAULO?It has been a tough year for JBS SA, the world's largest meatpacker.

The Brazil-based giant has seen its earnings decline in three of the past four quarters, as it wrestles with currency fluctuations, hedging woes, a $14.3 billion net-debt load and legal troubles for its chief executive and chairman. Shares of the Sã o Paulo company are off about 25% so far this year.

The latest bad news came this week when JBS, whichcontrols U.S. poultry producer Pilgrim's Pride Corp., reported a 74% drop in earnings for the three months ended in September. Third-quarter net profit fell to 887.1 million reais ($257.9 million) from 3.44 billion reais a year earlier and 1.54 billion reais in the second quarter.

In a call with analysts on Wednesday, Chief Executive Wesley Batista blamed rising feed costs at home and a strong Brazilian currency for crimping JBS's profit margins and sales in South America. Brazil's deep recession has also weighed on domestic demand. JBS said third-quarter net revenue fell 4% to 41.2 billion reais.

"Clearly we are not satisfied with the result," said Mr. Batista. "Now we believe the worst is behind us."

Mr. Batista was particularly bullish on prospects in the U.S., where its JBS USA beef unit increased its gross profit margin to 5.2% in the third quarter, up from 3.4% a year ago.

The company's North American peers are enjoying strongbusiness as well. Tyson Foods Inc., the largest U.S. meat company, has projected record profits this year and more growth in 2017. Hormel Foods Corp. in August reported its 13th consecutive quarter of record earnings, and Cargill Inc. in October said growth in its beef and poultry businesses were major contributors to a 66% surge in quarterly profits.

The U.S. is a critical market for JBS, which now derives more than two-thirds of its annual net sales from outside Brazil.

But troubles at home continue to hurt the company, many of them having little to do with chickens, cows or pigs. Its profits were hammered in the first quarter due to losses from its hedging activities with the Brazilian real.

Last year, JBS made a killing betting against the Brazilian currency, ending the year with a 10.6 billion-real financial gain from its currency desk after the real slumped 33% against the dollar in 2015. But the real's unexpected rally in the first quarter forced the company to spend big to unwind those positions. JBS posted a net loss of 2.74 billion reais in the January-to-March period.

JBS has since abandoned its hedging operations, Mr. Batista said Wednesday, saying the costs of the strategy outweighed the risks.

But the abrupt dive of the real and other emerging market currencies over the past few days in response to the election of Donald Trump as U.S. president has raised concerns about JBS' decision to stop hedging.

"Whether you like it or not, we're living in a new economic world," said Joã o Pedro Brü gger, an economist at investment firm Leme Investimentos in Florianopolis. "If I were an investor, I would not feel comfortable with a decision not to hedge."

Strong ties to the Brazilian government have also hamstrung JBS this year. The firm in October abandoned its plan to spin off its international business into a new company based in Ireland and to list it on the New York Stock Exchange after the proposal was nixed by the Brazilian national development bank BNDES, a minority shareholder that nevertheless has veto power.

Investors were stunned in September when a Brazilian judge suspended Mr. Batista and his brother JBS Chairman Joesley Batista from the helm of the meat company as part of an investigation into alleged fraud at some of the nation's largest public pension funds.

JBS isn't a target of the probe. But Wesley and Joesley Batista were among more than three dozen Brazilian executives barred by a judge from managing any business while police investigate the alleged scam. The Batista brothers, who have denied wrongdoing, were allowed to return to JBS about a week later.

The probe is aimed at uncovering alleged malfeasance at four state pension funds that allegedly overpaid for stakes in Brazilian-owned companies, including a pulp and paper firm owned by J&F Investimentos SA, a holdingcompany controlled by the Batista family.

JBS has been the world's most-acquisitive meatpacker since the turn of the century, spending about $18.7 billion over that period on 40 separate deals to build an international network supplying steaks, pork chops, organic chicken and leather, according to data compiled by Dealogic. The company has been opportunistic: It bought U.S. beef and pork processor Swift in 2007 when the company was struggling and heavily indebted, and acquired Pilgrim's Pride, the second-largest U.S. poultry processor, out of bankruptcy in 2009.

"They're still empire builders," said Ryan Oksenhendler, vice president of corporate investments at Continental Grain Co., which invests in agricultural companies but doesn't hold a position in JBS. "They're probably retrenching a bit here, looking at where they go next."

Write to Marla Dickerson at Marla.Dickerson@wsj.com, Luciana Magalhaes at Luciana.Magalhaes@wsj.com and Jacob Bunge at jacob.bunge@wsj.com

(END) Dow Jones Newswires

November 17, 2016 00:45 ET (05:45 GMT)

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