Q1 2020 Earnings Call

Good morning, and thank you for joining us today as we review our operating and financial results for the first quarter ended.

$29.20 yesterday afternoon we shoot a press release providing an overview of our financial performance for the quarter including a Reconciliation of any non-gaap measures we may discuss with the copy of the release is available in the investor relations sections of our website along with a slice we'll reference during his call besides themselves also be probably a case and are available online at w w. C. Returning to you today are different then press it and and chief executive officer and fabulous Andre Chief Financial Officer before we begin our prepared remarks I'd like to remind everyone of our Safe Harbor disclaimer please call me for looking statements that represent our Outlook and current expectations as of the day of this release but if you know factors not anticipated the management and cause actual results to differ materially from those projected in this world making statements

For information concerning those factors has been provided in today's press release our 10-K and our regular filings with the SEC now like to turn the call over to Jason pan.

Thank you, John. Mm. Good morning everyone. And thank you. Thank you all for joining us today for the first quarter of 2023 reported net revenues at three point zero seven billion dollars wage adjusted ebitda of $165 million dollars or a 5% margin and a gap EPS of $0.27 before I begin discussing more detailed results of our operation. I would like to express my gratitude to our Global team members for their commitment dedication and continued hard work in supporting our ability to keep our team members safe and healthy while maintaining production Supply to customers during this unprecedented crisis.

At this time while we've adapted our Global operations to the changing channels and man. We've also adjusted our operations to be able to continue the operations at all our plants and minimize any significant wage option do the labor and health issues. I would like to outline some of the precautionary proactive actions. We have implemented that go beyond are all already rigid standards that all of our facilities combat the spread of covid-19 in accordance with health and disease guidelines recommended by specific government Health authorities. We are taking these steps to better Safeguard the wellness home health of each team member while fulfilling our Central Business Duty as a food producer two people here in the US and globally.

We have increased the frequency of daily sanitation including commonly used areas and repeatedly touch Services Limited visitors to our operations and offices perform daily life the screenings of team members, which includes required temperature checks self-screening and reporting to spend it all non crucial business travel and meeting attendance and our remote work for business office team members where possible inside our plants. We are promoting social distancing by staggering starts shift and breaks increasing Stacy and cafeterias and adding outdoor space to reduce density in our break areas. We are also requiring masks to be worn one hundred percent of the time while on a property. We are removing vulnerable populations from from our facilities and offering them full pay and benefits for those team members who are not able to come down.

Illness related to covid-19. We are requiring them to self isolate and shelter at home.

With short-term disability benefits. We are offering free preventive care to all team members and offering free live Health online services that allow for virtual doctor visits at no cost.

Turning to our business despite the volatile and challenging Market environment and q1. We have continued to achieve a solid relative performance to the competition operating performance in Europe also improved year-on-year as well as sequentially. However, it was more than offset by weak markets Dynamics in the US and Mexico

In spite of a difficult Global macro conditions are results have remained. Well balanced and are the results of our Visions become the best and most respected companies creating the opportunity of a better future for our team members to support our vision We are continuing our strategy of developing a unique portfolio of diverse complimentary business models continuing to relentlessly pursue to operational excellence becoming a more valued partner with our key customers and creating an environment for Safe People Safe products and healthy attitudes.

During the first quarter of 2020. Our team members have remained focused on executing and delivering our strategy regardless of market conditions. The disruptions caused by covid-19 on each individual countries demand for protein consumption as well as the flow of global trade presented a signal significant challenge the world has never seen before and generate volatility far beyond normal seasonal factors throughout the quarter and the first half of q1 the market tracked normal seasonality before wider implications of travel and movement restrictions. Do you recover nineteen disrupted retail and Foodservice Channel demand the Larkspur deboning market and especially volatile q1 and remain calm compared to 2019 with quick sharp beans followed by declines towards the end operations. However, we continue to improve our relative performance versus the industry across

All our business units including a large Virgin Islands in Europe implementation of the strategy at the Legacy operations to better mitigate future input cost challenges has continued to produce expected results while integration of our newly acquired operation is on track.

Mexico Market was very challenged for the much of the quarter despite these challenges the diversity of our portfolio and our Global footprint continues to minimize the impact of volatility due to the individual market conditions and increases the resiliency in our operations. We will maintain our strategy while continuing to improve the portfolio to better respond with individual market dynamics generate a relative increase in performance over our peers. We believe this approach will give us a higher and more consistent results of the mid-term long run and minimize the full Peaks and troughs of the commodity sectors.

And she won.

experience greater than normal volatility within our fresh chicken business

Well, the first half of the quarter was mostly in line with normal seasonality wider implementation a stay-at-home orders Nationwide during March drove, the fastest ever shifts change the man and significantly increased volatility within our businesses despite the sharp decline in food service requirements were able to quickly respond to the shifting Channel Demand by increasing our volume mix to keep customer retailers a large portion of our food service customers are within the US are segments, which further dampen the impact across our fresh business, you know, our portfolio is differentiated products along with our key customer model are giving us a better insulation against the volatility. We are also much better positioned to adjust product until next month given our presence across all three birds sizes and strong customer relationships while we continue to make relative operational improvements in our large birdied morning operations and Market.

Was extremely volatile and he won the cutout appreciate very quickly during March before we're reversing to reach close to Historic lows by early April, however, the market and you adapt to these changes in supply and demand and prices are already starting to adjust within the less commoditized small bird in case Reddy segments market supply and demand balance is better direct see one demand from our retailers is very strong our case ready business in particular is continued to be much more stable during the quarter in generated great results driven by strong demand off ticket is especially he customers into one retail volume demand for our case ready just bare chicken including those online through Amazon where we are the leading brand went off by 81% compared to last year online sales increased 205% versus same. A year ago in March quarter, and the momentum is increasing with volume down.

The last four weeks up 498% our Market leadership in these categories and more differentiated product portfolios have continued to strengthen the growth competitive Advantage versus the industry.

While the commitment to our key customers strategy has been reflected in the consistency of our past results. The value of this approach is never been more relevant to our growth than during the current period of uncertainty and challenges the strong relationships we have with key customers are giving us many opportunities to sustain our volume increase since these customers rely on us to satisfy their need for growth in addition many of our key customers maintained a leadership position in their respective categories as a result where the direct beneficiaries of their ability to outgrow their competition may be on driving pure growth or key customer strategy also promotes trust enhances long-term relationships and strengthens our margin structure.

within us prepared foods

You want revenues relatively flat your your volume is up 2% Foodservice volume is down 6% year-over-year while retail increase 64% in March driven by our pilgrims am just bear Brands the strong start to q1 and are prepared foods operations began to be impacted by the reduction include service demand in March the Escalade enclosures of food service operators throughout the month from schools to commercial restaurants drove a significant demand shift to retail. We will continue to adapt their operation to changes in short-term demand and food service.

For the period ending see one u.s. Cold storage was up about 6% versus last year, but 4% down sequentially compared to Q4 during q1. We began to experience the positive impact of China opening its market for u.s. Chickens. Our sales are China began to increase in q12 approximately 86 million pounds already accounting for 20% of our exports include a broad range of chicken products. Not only pause and dark meat. This is a positive signal for the potential for further growth in the future. The increase in exports to China was further supported by Duty abatement by the Chinese government while there was some volume contractions in some markets others, exceeded expectations and sought significant increase most of the girl was likely driven by a s f in several South Eastern Asian countries, but there was also a significant growth in Latin America and several African markets are export sales was 24% higher wage.

Volume year-over-year besides the inner minute equipment shortages. Our Logistics pipeline was mostly interrupted due to our scale and close relationships with cold supply chain partners, and we believe that we will continue this positive trend in Q2 our broad product and Geographic portfolio allows us to be nimble and proactive in maintaining and growing export market share while we continue to expand our product mix and Export destinations by country mix Market environment in Mexico during q1 was difficult as the effects of weak macro conditions, which contributed to uncertainties and consumer spending persisted longer than expected chicken prices, especially in chicken markets traditional markets wage. Well, well below seasonal expectations before reverting to reach closer to normal levels by the end of the quarter are increased share of non commodity products strong execution dead.

And growth and prepare throughs have all helped to partially offset the market weakness you continue to believe in long-term growth and demand prospects in Mexico. The results that are prepared foods in Mexico have continued outperform or expectations. We continue to lead in developing the market and prepared for you to Mexico by launching significantly more products to need to manage. We're making great advances in our prepared foods business Innovation as the core competency of our strategy. We are generating excellent results under premium pilgrims, and I both of which have continued to receive very favorable acceptance by customers at retail drugstores and qsrs. We have a strong team to Mexico committed to continue delivery a strong results of focusing are controllable and making sure that our team members are saved during the current unusual and unprecedented conditions are Legacy European operations wage.

Delivered strong results in q1 continuing the trend achieved in the last three quarters of 2019. We generated Revenue that was

In line with last year while ebit improved year-on-year and over prior quarter the increase in need that performance is supported by better operating efficiencies by remark our supply and Manufacturing Network improving Labor Management and implementing more automation to drive higher yields. We have also invested capital in maintaining existing assets to enhance the safety of our people make sure the quality of our products as well as a compliance with environmental and bird welfare rules.

A relative performance measured as a result of the last 12 months continues to put us above the average in the competition in Europe, which further validates the effectiveness of our strategy we have started to experience in the last month of T1 the initial impact of the Slowdown of food service on a legacy European business with some food service operator closed starting in Europe during March and with UK food service now completely closed also, we are expecting some deceleration in our volumes and results in Q2 despite the partial offset with you start to see an increase on the retail side of our operations. We are taking the appropriate measures and implementing actions to mitigate this impact as much as possible.

Our newly-acquired European operations performance continue to improve generating increasing positive ebitda. The performance is driven by robust demand that retail partially offset by reductions with service continuing strength and pork exports official especially to China as well as the initial implementation of operational improvements to capture of synergies sports to China. We're up by more than 80% in q1 and we are seeing improved momentum leading into Q2 all of our European fresh pork facilities are approved for China. So we're well-positioned could benefit from export opportunities. We also continue to evolve in our strategy and we will significantly increase our volumes with new key customers. The next quarter's integration of the new European operations is tracking welded expectations over the next few years. We continue to expect to generate ebitda Improvement to achieve a level that wage.

Competitive with leading companies with similar portfolio. We have a proven history of successful and efficient Integrations of companies. We have Acquired and we will apply similar methodologies in integrating the new operations. We are optimistic about building upon your existing operational improvements by continuing to optimize its manufacturing footprint extract best-in-class operational excellence capitalized export opportunities, optimize the portfolio of channels segments and products as well as strengthen and grow business with key customers to drive Innovations value-add in higher-margin areas. We are leveraging resources available through both our Legacy and newly-acquired operations in Europe in conjunction with our Global team in order to further strengthen a competitive Advantage by increasing our ability to offer key customers a much wider selection of Highly differentiated Innovative products to fulfill the growth in consumer demand. We looked for sure.

Sharing Innovation and best practices internally to enhance our operational and financial efficiency and position pilgrims as a whole.

for increased profitability and more consistent margins corn prices have fallen sharply since the beginning of March driven by lower by a sharp decline in st.joe know and fuel demand USDA also reported that farmers intend to plant ninety six point nine million acres of corn the largest Acres ever reported in March at a production also fell to Louis reported number ever in April while ethanol stocks also grew to a record as reported by the department of energy in the latest wisely report USDA forecasted old crap ending stalks of corn increase the two point 1 billion bushels with future revisions likely to show even more increases

With a shock to fuel ethanol the man combined with record intended planted Acres corn stocks are likely to continue to grow into an even bigger Surplus next year which took away on corn prices soybean meal features are also at their lowest price for the year with large South American crops and record weak currencies Weighing on us export Demand with a combined 180.4 million corn and soybean Acres reported by USDA March. There should be ample supply of acres for row crops this summer to ensure Surplus for both corn and Thursday. We prices in UK rallied at the end of the quarter of the British pound moved a multi-decade lose against the dollar pushing wheat prices higher also contributing to higher prices or restrictions played Sports in a few of the large larger exporters, which could lead to higher us and EU we exports

Weather in Western Europe and the Black Sea have improved recently and once the market feels more confident that export restrictions recently put in place will not have a major effect apply. Weed prices should ease to reflect the large surplus of global greenz according to USDA q1 industry production was up slightly more than 6% off when accounting for the extra work they have production but will likely moderate over the next few quarters as the market adapts to supply and demand conditions for the first quarter of this year larger black box and improved pre-reg productivity contributed to significant year-over-year growth in excess and check placements full Replacements were slightly above year-ago level as new capacity, which is not expected to significantly disrupt the industry's longer-term supply and demand balance is being ramped up. However restrictions duty covid-19 is led to more consumer.

Staying at home resulting in more retail demand for all proteins including chicken this shift in demand away from through service has resulted in an unexpected short-term imbalance in supply and demand wage some through service items cannot be easily redirected towards retail and causing dislocations among the different birds sizes.

More recent number from USDA and check placements are beginning to show reductions versus a year-ago levels. The latest weekly Slaughter reports also show lower production versus a year-ago levels indicating. The industry is already adapting to the change and market conditions in addition covid-19 is also called supply chain disruptions for competing proteins is beef and pork Slaughter number that I've also recently turned it down word, which we believe could have a positive benefit to chicken with the rebalancing of chicken supply and demand pricing is already rebounding from the low points in early April with the rapid change in macro environment and unemployment Rising consumer uncertainty will likely impact the channels of our businesses differently shelter in place orders and restrictions on restaurants are causing consumers to stay home and increase consumption of at home meals favoring retail demand. Some chicken is one of the most affordable and versatile proteins retail demand is likely to remain strong as wage.

Continue to be restricted in their actions.

Just two restaurants while they also adjust to the change in their personal economic situations. We expect Food Service demand will remain volatile at least in the near-term until the channel. However, the qsr our segment is holding up relatively well is expected to drive a faster comparative recovery and demand versus full service as the population gradually resume resume more normal routines. Our strategy is well suited to the challenging macro-economic as well as market conditions while we were already well balanced in terms of our birthdays expect we will continue to seek opportunities to incrementally diversify our product mix and reduce the commodity portion of our portfolio by increasing the number of differentiated products to keep a customer as well optimizing our existing operations by pursuing operational Improvement targets are key customer approaches strategic and creates a basis to further accelerate gross.

The important categories by providing more customized high-quality Innovative products. You give a clear long-term sustainable competitive advantage.

With that, I'd like to ask our CFO salary to discuss our financial results.

Thank you, Jason and good morning, everyone for the first quarter of 2020 net revenues were 3.07 billion vs. 2.72 billion from a year ago with an adjusted ebitda of 165 minutes a 5% margin compared to 204 million or 8% Margin for the year prior. Net income was 67 million including one-time game of approximately 22 million after-tax 4K settlement versus eighty four million a year prior operating margins were 4.4% in the United States negative 7.3% in Mexico, and I am 8% in Europe respectively our operating profit in US during q1 was eighty-five Million versus 150 million a year ago. We experienced significant volatility off the quarter across all of our fresh business units the particularly within the commodity segment our case radio operations were very strong and perform. Well as demand far outstripped suck.

At many retailers across the u.s. Be further benefit from austro Key customer Partnerships as well as our ability to react quickly to the demands shift by moving product to retail from Food Service, despite some reductions in volume from during keyone are small but business results continued to be on the top of the industry the market for large bird deboning was the most volatile starting start under pressure with increased production by the industry followed by a quick increase in response to paint reloading before reverting to historical novels by early April despite the challenging environment to continue to improve the operating efficiencies of a large body born in business while introducing more product differentiation in order to counter the volatility are consistent focus on customer strategy is all been positive results helping us to continue achieving an increase in relative person against the piers in Mexico reported an operating loss of twenty four million as the week Market wage.

violence persisted longer than expected in constraint consumer spending and demand chicken prices especially the traditional markets were weak and means we'll be little seasoning expectations for the majority of the Cross before reaching normal levels by the end of two months

we expect the results to continue to be volatile due to local economy and impacts of the exchange rate

Full recovery has chicken demanding Mexico improves and the market recovers balance within prepare for the Mexico. We remain as leader in developing the market and our own pace to launch many new projects here are strategies supportive of the goal to increase our higher-margin differentiated products while having product coverage from entry-level to premium across multiple channels in both France and prepared in the country. Once again, our strong team in Mexico is our to differentiation with their operational excellence and Market leadership, and we expect the straight in relative performance against industry peers to continue in the future as I mentioned quarter-over-quarter performance can be quite volatile in Mexico given market conditions, but Mexico has been very consistent on a year-over-year basis and you expect this positive or they recovering in Legacy Europe's operation profit continue drinking one do to improve operational efficiencies and input costs litigations. We also further develop wage.

Keep customer strategy including more integration with our newly acquired operations enhance Revenue optimization initiatives to give us better management of our mix and increased margin contribution. We will also continue to leverage our marketing and sales infrastructure to optimize sg&a cost and we believe we can run take the lead in relative results to the industry are nearly acquired operation European Acid Bath improve their performance and also against contribute positively data results due to the strength import export and good domestic demand, especially at retail as well as some good returns from the initial implementation of operation improvements since all of our Europe fresh sports facilities are not approved to China. We are well-positioned to First benefit from The Strain in export opportunities integration is tracking well to expectations and over the next few years. We are expecting to generate an improvement to achieve a level that is competitive with leading companies with similar pod.

We are proud of our history of successfully and efficiently integrating companies. We have Acquired and we will apply similar methodologies in integrating the new operations to achieve comparable results our sg&a. The first quarter was 3.3% of sales the line with a year ago as we improve the efficiencies of expenses despite more support from expecting to just bear brand nationally and the investment for our new prepared foods products both in the US and Mexico as well as the inclusion of the new assets in Europe.

We will continue to prioritize our Capital spending plans this year to optimize our product mix that is aimed at improving our ability to supply Innovative last commoditized products and strengthen our partnership with customers even during these uncertain times while we while evaluating all Catholics projects and deferring those we deem no desertion. We regulate our commitment to age on strong return on Capital employed projects that we improve our operational efficiency and projects Taylor to customer needs to further solidify competitive Advantage for billing page streets continue to be robust given our continued emphasis in cash flow from operations, focus on management of working capital and discipline investment in high-return projects. Our liquidity position is very strong with more than a billion dollars in total availability. We have no short-term immediate cash requirements with our bonds maturing 2025 and 2027 respectively and birth.

Mercurial 2020

Despite the continued stroke ashore position. We have up to draw a total of three hundred fifty million dollars on baby help during the quarter at the very attractive rate purely as a divorce. It moved to protect BBC against potential Market liquidity issues during the quarter are not that was 2.1 billion with a leverage ratio of 2.2 times less 12 monthly be dead or leverage remains at a good level and we expect to continue to produce positive cash flow this year increasing of financial capability to pursue strategic options. We expect twenty twenty-five expenses of around a hundred and forty million dollars.

We have a strong balance sheet in a relatively low leverage that can generate great opportunities during these uncertain times. We remain focused on exercising great care in ensuring that we create shareholder black males demands, you know capital structure while preserving the flexibility to pursue a broad strategy, and we will continue to consider and evaluate all relevant Capital allocation strategies that will match the pursuit of all good strategy, and we will continue to review each Prospect according to our value-creating standards operator. This concludes our prepared remarks. Please open the call for questions. Thank you. We will now begin the question-and-answer session you would like to ask you a question, please press * then 1 on your touchtone phone in the interest of allowing equal access to request that you limit yourself to your your questions to 2 then rejoined the queue for any follow-up.

If you are using a speaker phone, please pick up your handset before pressing the keys to minimize background noise to withdraw your question, please press star then.

Our first question today will come from Ben Thor with Berkeley, please go ahead. Hey, good morning. Jason Fabio Denon. Thanks. Thanks for taking my question. And I hope you're all safe safe and sound two questions. So one you've talked about the industry reducing capacity within Beef Pork, but also within Chicken Shack. Can you elaborate within that a little more on what you in particular have been doing in terms of on your supply-side if you've been reducing subject line speed output, etcetera. And where do you think we're going to have within the next within the next couple of weeks particularly on on the supply side off within chicken and Within These Productions that that would be my first question. Yeah. Sure sure been so, you know, we we had said on the previous quarter dead.

Q one in 2020 will be around 6% increases in in production higher on the front end and lower bumper on the back end and with the extra working day allocated the production for you know, Q one was 6.4% higher in pounds year of year. So that was right where we had expected that that to be now recently. Those numbers are showing much much lower wage. We've seen Slaughter pounds four or five percent below last year's numbers and they're actually now 11.8% below the pre covid-19. Decreases are starting to come through fairly heavily chick placements or now showing decreases of nearly 8% year-over-year and they're 10% Down vs Panthers.

Not covered. So we're going to start.

To see some midterm cutbacks within our own business. We we shifted our head if from our office already sectors into our case ready business. So we we really, you know, one of the things we did was ramped ramp through our case ready business and we downsized of our commodity business. So those are a couple of things that we're doing on the go forward, you know, we're we're obviously seeing the other proteins right now down in production most urgently around 35% So, you know, we're starting to see those cutbacks, you know cutting through the system on on the near-term and our our business as well positioned to capture some of that some of that market. That's we're seeing that station.

Perfect. And then one for that would be actually I guess for Fabio within your you briefly managed it but it didn't capture it. So clearly income tax income benefited significantly from a from an Ethics gain as well as this miscellaneous. Can you elaborate more what drove first of all the ethics game? But what's behind miscellaneous because that $34 million figure was was quite sizeable. No, sir. Thank you been so the attacks again is the Hedge that we can have against the operation in Mexico the working capital. So we have 100% of our working capital that is in Texas has in US Dollars that was drove the effects game on the miscellaneous. It is a legal case that wage settlement on stockholder derivative action case brought by a minority shareholders on BBC against JBS under the selling of my pocket appearance. The settlement was a birth

And if you see receive the net cash payment of 34 million dollars that's created at one time game of approximately nine cents per share. Okay. Did you in the past somehow provision for Thursday for you not take it back in. No, I have not provision. So it was a net gain for us. Okay, perfect. That's all I'll go back into the queue. Thanks. Thanks, man.

For next question will come from Heather Jones with Heather Heather Jones Research LLC, please go ahead.

Good morning. Thanks for taking the question.

So just wanted to try again on the volume question. So when you're two for call you mentioned that you would be transitioning off one of your large bird plants too small bird. So it's wondering if one that's still happening and to how should we be expecting pilgrims volumes to Trend to come in, I appreciate the color of Jason you provide it for the industry, but just

which

What should we be thinking about in terms for you guys Heather from the question around the facility transition off. The the right thing to do for us now is to push that off due to the added complexity that we would see within our facility. So we took the decision to end the right decision to to push that push that off and we'll we'll most likely bring that up in in the first quarter of 2021 but until with the environment, uh clearing up will push that off regarding our our volumes Heather we've cut back slightly as well as moving our headcount from Big Bird to our case ready business. So we we cut back a a a few percentage points on on the big bird side and a few percentage points on birth.

Small bird business. But again, we're seeing these volumes flowing through the industry as as well as our business. So we've cut back in fact two two of our our businesses in the US and I think we have a significantly lower exposure to the Food Service than most of our competitors and took my exposure in the famous turkey as far as as we see the keyless are the stages of mentioned coming back. We are seeing strong demand for our products in the especially our customers with Heather just add on over 50% of our food service volume is in the Key West our segment and we are seeing those coming back today to very close to uh pre covid-19.

Okay, that's consistent with what I've heard. Awesome on Mexico. I so when I look at the numbers and all the pricing impact even including a fax. I mean it wasn't insignificant but it wasn't horrible. It seemed like the bigger driver of the of the deterioration was on the cost side and and yells relative performed there in that region deteriorated significantly, too. So were there some unusual cost or something and that are going to bait as the year progresses just walk help me understand what happened there. Sure Heather chicken prices in the traditional markets where weaker and Minnie from below the seasonal expectations for the majority of the quarterback. They reach normal levels by the end of q1, and we expect our our results to continue to be volatile and we've seen this before due to the local economy. And in fact of the exchange rate the exchange rate. In fact, I'll call log.

In terms of the grain that we purchased as chicken demand New Mexico returns and the market recovers balance. We expect the fundamental stream group. And and and once again, I mentioned that in the repair with marker bulb in Mexico is are two different.

You have strong operational excellence and marketing leadership. And we expect this to strengthen the relative performance against the industry peers to continue in the future. We continue to invest in Mexico. We are growing in a prepared foods. We are going the fresh with our complex in Veracruz and and longer-term despite the volatility. We continue to see Mexicans are growing economy.

Okay, perfect. Thank you so much. I'll get back in the queue.

As a reminder, if you would like to ask you a question, please press * then 1 hour. Next question will come from Ben and the new with Steve please go ahead.

Hey, thanks. Good morning guys. I wanted to ask about in light of you know, higher levels of absenteeism wage. That's you know, grappling with covid-19. And um as well as kind of the recommendations from the CDC on how to operate facilities and mitigate risk associated with that. Can you help us think through kind of a productivity and capacity utilization of your plants and what it might take to get back to normal with respect to that.

Yeah, sure sure been our absenteeism is very across our our business. But our our teams have managed to this really well. Our own personal teams have worked very closely with our key customers the simplifier mix so that we create a more optimal footprint. So just because we have that absentees and does not mean we have to be less less efficient on the back end of our facility. So I will tell you that our key customer relationships have really added a lot of value their jobs. And so the efficiency of our facilities are are are actually very good due to the working relationships we have with our our key customers that's been dead. Again. Our key customer relationships have given us a very strong competitive advantage in terms of us keeping our operation.

shoes running running smoothly

With with regards to called the the new CDC guidelines we have left. We we believe that this the recent executive order will provide a consistent and sound and guided platform for which we can rely upon as we navigate our business across, you know, the 14 States in which we do business here in the in the we welcomed the consistency. We look forward to working with the local health and Labour leadership, you know, really so we can continue to do two things together that we both had in common which is 2 a.m. Keep our team members safe and continue to provide safe food for our communities and our and our country.

Okay, that's great color. Thanks. You gave some good detail in response to Heather's question about the plant conversion. I'm curious as it relates to other projects in particular or maybe upgrades for automation. Does the current labor environment change the map at all around life how you might think about investing in you know automated deboning equipment either for the you know, front half or back half of the bird or or any other uh equipment upgrades that you guys can make two two months plants more efficient and less, um, you know exposed to to labor tightness. Yeah, then I think it's a great it's a great question and this is something that that pre-owned pre covid-19.

several years in terms of

You know taking facilities down and and putting in automation equipment and that's been again another competitive Advantage. I believe that's helped us through the current environment. It doesn't change the way we think are going to invest in automation. We believe in automation. We believe in robotics and we're going to continue to move down that that path. It's it's the it's the it's the right thing to do, you know, the socio-economic perspective for our team members and the right thing to do for our business just as a reminder, we invested more than thirty million dollars in automation last year and connecting to the absenteeism class these automation projects help a lot or plan to continue to run very efficiently this year.

Okay. Thanks. Good luck. Thanks again.

Now we're next question will come from tens that low with Bank of Montreal, please go ahead. Hey, good morning. Everyone three questions.

your plans

second. What is the actual impact you think from the beef in in in pork Cycles on chicken prices of late Thursday and the and then I'll have one more follow-up can regarding the cost. I will I will tell you either fairly minimal we call it came back. Well, we across the Enterprise, you know, one of the one of those bigger costs I would I would say would be that we installed and and build over 10,000 barriers inside of our facility. So our engineering teams are maintenance teams did an absolutely great job in a short period of time and across all of our facilities to build these barriers where there may be six foot or less distance between our team members again, they both ten thousand of these, you know within 30 days off.

An absolutely great great job with that. You know one one of the other costs we we did offer a of gratitude a payment to our team members and just said thank you for doing what what they're doing and in the US and and that was one of the higher incentives that we that we gave for gratitude and that that will be a a a $10,000 payment and will do that will realize that recognize that in in Q2.

Yeah, peace and pork. So on the on the beef and pork side. We've obviously see the the the best production we're seeing ground beef, you know, year-over-year higher numbers that the 20% level as I am might have pork chops up 23% year-over-year. So we are seeing that that increase at the retail level. So we do believe chicken will be a more competitive product and a better value in the environment that we're currently in.

And my last question is you did say usually you're about a third a third a third big small medium. Where are you now? And do you need to change it given that you know fifty percent of your uh food service is q s r and you said that's largely back. Can you talk about that and I'll leave it there and thank you very much. Yes. Thank you. So Monday through. Yeah, we we've been developing and optimizing this portfolio, you know over many years. We've you followed us as you've seen the changes in in our our plant set up in our plant Dynamics moving these products and we believe we're in a sweet spot today. I think we may wind up tweaking this, you know, we might find people, you know more or at the end of this doing more eating, you know at home and we we might increase our retail shift, but I'll tell ya.

We believe we're in a in a pretty good spot and you know, look we took advantage of this opportunity to do more retail, you know, I'll attributed that that two three things wage and and and you just said it our portfolio is one of them we have deep relationships and we have a deep Network into the retail Channel and that enabled us to shift quickly into into this channel when we when we needed to we reached out to our key our key customers again, that's another ugly piece of how we may be able to shift very quickly in the retail channel. The Arky Arky customers gave us our first right of refusal for adding New Growth items. We increased our is business by 150% over the last 30 days. We increased our fresh bag parts that were commodity to a commodity sector moving it into the retail sector we increase that business by over 250 per month.

And I'll tell you but the last piece of this is the culture of ownership and accountability that we have inside each of our businesses. We're not a command-and-control operation. We have uh, we have businesses that are that are autonomously run and uh, when this opportunity for retail started shifting, you know, we quickly our teams quickly using a lot of agility moved a lot of business into the retail Channel and over the last 30 days. Our team is off and put on shelf can do SK use adding your significant amount of volume to help our retailers continue to grow grow their business. So three things our portfolio, you know, our key customer model and our culture of ownership and accountability really allowed us to take advantage of the the current situation and we we believe we're optimized and we met, you know, tweak the model.

A little bit after we see some, you know, maybe there's some permanent changes in the and the consumer habits.

After the pandemic. Thank you very much.

Our next question will come from Michael Pike in with Cleveland research, please go ahead. Yeah. Hi. Just wanted to touch base a little bit more on, you know kind of long-term production plans. I know some of the exits had been declining but have you guys met any changes to you know, you're breathing flock and you know, what, do you sort of see as you know kind of the same trajectory the trajectory for the industry?

Yeah, Michael, I would say that again. We've made some short for medium term adjustments. Nothing nothing permanent. We we we believe in faith in we believe in in the market and um in terms of breeders and Poets, we've not made any changes there. Um, we're going to stick with our our our class and and again, we we initially said this, uh, 2020 growth will be around, you know, three to four percent. We still believe that's going to be uh the case may we may see some declines more declines towards the back end again, the first half is first two was 6% I think we'll see some lower numbers here in in Q2, and it may just be slightly back up depending on what the market dynamics do and obviously the the other proteins absolutely play a significant part relative to the the protein space song.

See how that uh have those proteins react in Q2 and Q3 as well.

Okay, great. And then you're shifting over to exports. I know you talked a little bit about you know, the pickup and business to China the obviously the the dollar is, you know, strengthen versus off some of these currencies especially some of these oil markets and you talk about the weakness in Mexico. I mean, how do you sort of see the export picture playing out and you know, is there a chance, you know in your mind that there may be some restrictions placed on you guys in terms of exports that the domestic neat situation gets really tight particularly with the red meat production down so much recently things. Yep, Michael. So the the us usda's estimate on the on the front end of the year was around four and half percent growth and I I I will tell you from the pilgrims perspective our perspective. We seen a 24% increase in our export sales. Okay, and so we're we're running a little dog.

And then the Ford half percent USDA number but we anticipate for us for this year to grow our exports by about 15% primarily driven by China and our China run-rate still show. He said this um few quarters back that we're going to see a list of between $75 and $1,000 to our bottom-line. We still we still expect that to happen and we're actually more confident in our ability to grow our business in China really for off for a couple of reasons and and they're willing to you know, adopt to the guidelines. They relate to the regionalization and the event of a high path break they've already they've they've already shown that they will follow through with that that was great news for us and they've implemented a duty payment process for the Chinese Imports of poultry and so yep.

take those two I think those

Two things Michael really showed that there is intent for China and and the us to continue to do business in in the poultry. The poultry said, you know, look China. They're they're still they're still importing a lot of a lot of proteins exports a port to China by the four major portion of countries in January. They're up 129% beef exports in January by the major 70th exporting countries are up 55% year-over-year off and exports poultry to China by the three major exporting countries were up 77% just in March beef exports to China was a hundred and 13% year-over-year increased park with 202% and chicken was over a hundred percent. So, you know Michael I think all indications for me are that wage?

China will be there and I don't see any reason why that's going to change and we're still continuing to be a net net and a large net importer of protein in the office just to add to this the exporter great great compliment to the overall count. So we typically exported parts that we don't typically consumed the United States. So Paul and Major Lazer leg quarters, so it's not reducing the availability of chicken in the United States. It's actually complimenting the overall cut out for the chicken producers.

Thank you.

Our next question will come from Adam Samuelsson with Goldman Sachs, please go ahead. Yes. Thanks. Good morning, everyone. Yeah, so it's just kind of wrap-up kind of the comments around kind of Market environment cost Dynamics. I mean feed become more favorable, but that takes some time to roll through cuz we think about what we think about the second quarter. Just how how our margin in aggregate when you roll those pieces up in April into the first quarter average and I'm thinking mostly in the US business. Um, but any commentary on Mexico and the U is also appreciated

I'll give you the I'll give you the landscape. Right right now Adam terms of what we're seeing in the marketplace. And again, this has been a a very volatile, you know past four months and we're still we're still in this volatility. But you know, like we're seeing several reasons that are driving improved markets today first off retail demand continues to be robust. You know, that was 70% at its peak and most recently, you know, it's still running 20% and pushing higher wage day in year-over-year numbers. That's just the retail environment, you know, the que es our business it, you know, it went through through its soft and you know that business is now dead reckoning and as I said this earlier those businesses are now operating at or very near levels

You didn't draw the line.

We're starting to see increases. So we're seeing a seventy $65 70% negative range and those levels are now actually the deficit cut in half or wage to see even our Broadline business starting to come back with the Fairly strong trajectory of improvement as the shelter-in-place orders are expiring left. We're seeing the less wage availability of other proteins that's hitting the markets today cutbacks in the chicken industry. We've talked about talked about those there now a double digits below pre covid-19 has you know talked about this should be you know, um pork, you know at the retail levels or Twenty 25% higher year-over-year and the Chicken Shack right now. It's the value option for many households where the budget is budgets are straps. So, you know these factors what we're seeing is a increase wage.

To cut out. It's been driving through the breast meat markets that market has improved 25% just just over the last week and we know that's a major driver in in the value of the predominant. I think people are looking right now for you know, healthy healthy foods. Um, and and I think that, you know, add to their well-being and I think chicken right now Falls, you know directly into into that category.

Okay. So with what we know of how April pricing has played out and your view of main I get that it's incredibly volatile right now and things are changing. All right in the US business with between the mix Dynamics probably our net positive to you, but also the commodity price movements which have the negative. Do you actually think you could have margins up quarter-on-quarter in the

in the June quarter

I think it will depend a lot on how the market will react to all the factors that Jason just mention right? We have a very sharp decline in the cut out in the beginning of April unprecedented levels, but we are seeing the market recovering and we expect that back to normality with everything that Jesus said as you also mentioned, the feed-in puts me at today prices will be a benefit of close to two hundred million dollars for the rest of the year. So we're not looking only to YouTube we're looking into the rest of the year and I think the recovery

Okay. All right. I appreciate the the car. I'll pass it on. Thank you.

This will conclude our question-and-answer session. I would now like to turn the conference back over to Jason pen for any closing remarks.

Thank you. We would like to reiterate our continued commitment to our team members to provide them with a safe and healthy work environment while supporting our duty to maintain food production and Supply to customers. We're looking forward to a solid earth twenty twenty despite volatility a diverse portfolio of differentiated products tailored to support our key customers strategy in conjunction with our broad Geographic footprint will continue to generate consistent performance and minimize Market volatility and challenging market conditions relative to competitors. We will continue to seek new growth potential both organically and direct positions offering even more differentiated product portfolio within our businesses to support key customers needs by cultivating a culture of constant Innovation. We would like to thank everyone in the children's family, including our family for Life Partners suppliers, and our customers can make our business possible as always. We appreciate your interest in our company. Thank you for joining us today.

The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.

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