Q3 2020 Pilgrims Pride Corp Earnings Call
[music].
Good morning, and welcome to the third quarter Twentytwenty Pilgrim's Pride earnings conference call and webcast.
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Please note that the slides let me sorry during today's call are available for download from the Investor Relations section of the company's website at Www Dot feel green Dot com. After today's presentation, there will be there you're looking to keep to one question.
And now I'd like to turn the conference over to Don I'm, a we know to have any investor relations Fluffier games fried. Please go ahead Sir.
Good morning, and thank you for joining us today.
We are already mentioned results for the third quarter ended September 27.
20.
Yesterday afternoon, we issued a press release for running an overview of our financial performance for the quarter, including a reconciliation of any non-GAAP measures we may discuss.
A copy of the release is available in the Investor Relations section of our website along with the slides we will reference during this call. Please.
These items have also been probably they paid are available online at www <unk> and you see that go.
Turning to you today are Fabio Sandri, President and Chief Executive Officer, and Chief Financial Officer and go up is there.
Commodity risk management.
Before we begin our prepared remarks, I'd like to remind everyone of our safe Harbor disclaimer.
Today's call, we can pay certain forward looking statements represent our outlook and current expectations as of the day of this release.
I've heard additional factors some anticipated by management and cause actual results to differ materially from those projected in these forward looking statements.
Information concerning those factors has been provided in today's press release, NK and our regular filings with the FCC I.
I like to turn the call over to Fabio Sandri.
Hey, Dan Good morning, everyone and thank you all for joining us today.
Therefore, do you have kids Twentytwenty reported net revenues of 2.08 billion and adjusted EBITDA of 205 million or a 9.9% margin 18% higher than in April and then adjusted GAAP EPS was 66 cents.
Well, let you express my sincere gratitude to our global team for their continued commitment dedication and hard work in supporting our ability to keep on T. nimble safe and healthy I mean, any or leads to produce and supply customers doing just chunky thing I could not be more proud of our team and they have continued to come together to support one another or customers.
And consumers.
Basically as a condition that there was no team members responded adamant about lead to do any precedent conditions supplying products to our customers look continuously adapting our global operations to the change in channel demand, while adjusting our positions to be able to maintain the operations at all our plants and minimize any significant disruption due to labor.
In health issues, we remain diligent in implementing the cautionary proactive steps to better safe guard, the wellness and help us each team member Russell feeling or official duty as a food they do seem to consumers in every region, where we operate.
We could do that coordinating litigation costs of roughly 27 million for the quarter and close to 77 million year to date, the direct costs related to the extra cleaning of our production and common areas. The extra P.P. oneq, including next and features that we have provided you all all of our team members and this.
Deletion of physical balancing our production there as well.
Also stalled due technology, you ve and bipolar I and his nation in every plant to future de air and neutralize potential buyers as well.
Offering free light help online services that allow for Vivitrol doctor visits and low cost and above all CDC guidelines, we moved vulnerable team members from facilities with full pay and benefits doing community outbreaks.
These figures includes a indirect costs. They are more there are a lot of indirect costs that are more difficult to precisely quantify such as overall disruptions to our operations less optimal mix and production efficiencies that are not included in these numbers also we are supporting our communities with our home strong.
The initiative.
It is an example of how we value the importance role we play in the communities, where our team members live and work we understand it was supposed to be that comes with being a major employer in rural communities and he will help to contribute to the well being of those communities by not only providing gainful employment opportunities, but also participating evolve.
For his donation and sponsorship opportunities this quarter, we accrued $50 million in this journey from this initiative.
Turning to the specifics of our business despite continued volatility and challenging market environments in Q3 and added operating costs have continued to generate a superior relative performance to the competition has remained resilient to market fluctuations is the reflection of our portfolio approach, including the strategy on well diversified brothers.
Broad geographical footprints and then let let's focus on key customers.
For the full quarter operating performance, both in U.S., and Mexico significantly improve sequentially and you also continue to increase despite the challenge due to coffee, making.
In Q3, we saw market conditions continue to recover across all of our global operations with the U.S. and particularly Mexico experienced seem to slow to rebound in performance relative to weak conditions. During the first half of the year.
We are pleased with the results, especially when taking into account all the disruptions less than optimal product mix and added operating costs when compared to the environment in 2019.
Despite continued challenging global market conditions due to calculating our consolidated results have also.
Remain well balanced and the result of our vision to become the best and most respected company, creating the opportunity for a better future for our key members to support our vision, we are continuing to implement our strategy of developing a unique portfolio diverse componentary business models continued to relentless pursuit of operational excellence, becoming a more value.
Partnering with key customers and creating an environment environment for safe people safe products and Hell catheters.
While market conditions in all our global operations that continue to improve during the quarter foodservice demand globally steel has not reached prior levels and the environments are still quite challenging some sectors, where we operate this.
Disruptions from COVID-19 has continued to present a significant challenge on each individual countries demand for protein consumption as well as for the flow of global trades and generate volatility far beyond normal seasonal factors.
We will maintain our strategy well continue to improve the portfolio to better respond to the video market dynamics and generate a relative increase in performance over our peers. We believe this approach will give us higher and more consistent results for the mid to long run and it minimizes the full peaks and troughs of the commodity sectors.
During the third quarter in the U.S., we have continued to see demand recovery at our fresh operations, including from some sectors within food food service with more space gradually losing travel and government restrictions QSR volume has been especially strong and demand from our customers has been outperforming the industry.
Similar to last quarter commodity large bird de boning, let's also again the most challenge during Q3 operationally. However, we continue to improve our relative performance versus the industry across all business units.
We're continuing to adapt to the shipping channel demand by increasing our volume mix to key customer retailers. In addition, a large portion of our food service customers and also within the QSR segment, which have further debt ending backed across our fresh business in models, our portfolio of differentiated products along with our peak.
Customer model are giving us better insulation against the volatility.
We're also a much better position to adjust product and channel mix, even our presence across all bird sizes from small to large.
Within the small bird and case ready segments market supply and demand was again very well balanced during Q3 demand from retailers, especially from our key customers with strong support and improve the performance of our case ready business our market leadership in this category and more differentiated product portfolio has continued to shrink in the growth of our competitor.
In the adventure.
As the industry.
Well we commit.
Lets do our key customer strategy has been reflected in the consistency for past results developed this approach has never be more relevant to our growth during the current time, great uncertainties and challenges.
To further support the growth of key customers, we are doubling our case ready capacity at our plant in Minnesota by increasing the number of heads processed at the plant while also raising the mix of more stable margin case ready products.
With this addition, we also expect to increase by 20% our production of our differentiated higher attribute just bad brand products. It is also supporting our conversion of one plant from the Commoditized large body Bonnie to a key customer QSR in the small bird segment.
The strong relationships are heavily kicker Smith, and giving us many opportunities to sustain our volume increase since this customer rely on us to satisfy their needs for growth. In addition, many of our key customers maintain a little bit she position in their respective categories. As a result, we have direct beneficiaries of their ability to outgrow their competition.
Beyond driving future growth our key customer strategy also promotes trust enhances long term relationships and strengthens our margin structure.
Do you have prepared foods business revenue declined 23% on 26% less volume year over year, a large part of this decrease 70% of the volume was driven by schools remaining clothes, partially offset by strength in the retail demand on the other hand, our margin from sales have improved 29%.
Driven by more favorable price and mix, we continue to simplify our portfolio to improve efficiencies and shift resources towards branded growth in the retail channel. Our pilgrims brand sales grew 52% now just bear brand gaining new distribution, resulting in dollar share growth in the retail.
Check.
Penetrate cold storage data at the end of August broiler inventory was up 2% from the close of Q2, but down 1% from the previous year leg quarter inventories were up 10% compared to last year. This is not surprising considering the mix simplification do into ongoing labor constraints seen during Q3 and overall lab.
Of worldwide financial liquidity as a result of coffee lighting has.
So markets reopen and the pipelines are empty, we are seeing some increasing like what the sales during a cover and a reduction in inventories and upward movement in pricing.
US both to exports, including parts were up 4.7% year over year throughout August.
Only meet alone was up 3% in.
In contrast.
Through Q3, our experts have increased by 14% year over year outpacing the market China continues to be a significant growth driver and we believe the impact of Adss and South East Asia and now Germany can provide further support to export demand.
As we approach the one year anniversary of China reopened in key west poultry producers are presented with a vastly different market landscape than a year ago. China has solidified itself is one of the largest is core to this nation's for poultry second only to Mexico, China's present as a significant buyer keeps diversification of our EPS.
Portfolio a high priority we.
We have added 95, new direct clients in Twentytwenty and have also continued to diversify our product and destination mix sales of non traditional export items are up 30% year over year, which strengthening the cut out margin. We entered Q4 with optimism as we continue to place commodity items fish.
Gently leveraged business overall portfolio diversity and prioritize exceptional customer service to meet the needs of our key customers around the world.
After a very challenging for staffing 2020, our Mexican operations delivered a great results in Q3.
And we recorded one of the strongest Q3 in the company's history. Despite the unfavorable mix impacted and added operating costs relative to the same period last year more.
More normalized economic activities and improved supply demand balance in the market.
Our increased share of low commodity products and a very good operational performance all contribute to the results. Although overall demand is improving we remain agile and are continuing to adapt our facilities by shifting production to those channels with our experienced better relative demand.
They possibly Mexico experienced some challenges, especially in the value categories due to less traffic or retail combined with the contraction in the QSR volume, but he began to see some signs of improvements towards the end of the quarter and we believe the positive trend can be sustained into Q4.
We remain committed in loan growth and demand prospects in Mexico. We have continued to invest in auto Dia and premium furious brand both in fresh and prepared as well as seen king more market share in the modern channel, which will bring more stable margins to our operations.
However, pmts chicken operations delivered an EBITDA in Q3, there was 13% sequentially above Q, which both volumes and revenue, 7% and 18% higher respectively supported by our exposure to retail and the continued recovering foodservice and QSR demand in particular relative to Q3 of 2018.
EBITDA was still higher 2%, despite 8% lower volumes and 5% lower revenue.
The evening of COVID-19 restrictions due to reduction of UK government incentive directed towards foodservice as well as the consistent improvement in food service demand within Continental Europe have all contribute to a better sequentially improved performance versus the prior quarter. The steel have not yet reached prior less.
Given during this challenging time, we continue to be relentless in investing in innovation, delivering labor and yield improvements driving better efficiencies managing our cost base and offsetting cost increases to lean manufacturing techniques and capital investments around automation and process flow without sacrificing the health and BGR for our team members.
Which remains appropriate.
We are committed to delivering the safest work environment possible, improving the quality of our products, while achieving our sustainability agenda and bird welfare targets.
Our relative performance to the industry measure as the result of the last 12 months continues to show was improving and outpacing the average of the competition in Europe, but.
For next quarter, we expect further improvements coming from the food service and QSR segments. As this segment's adapt to the situation in each country and we remain vigilant and prepare to react and adapt in case market conditions change.
The performance of our newly acquired accrue European pork operations have continued to improve with EBITDA on an upward momentum.
We have now being profitable on an EBITDA basis for the last six quarters in a row with margins also increasing on a consistent basis. The improvement in performance was driven by robust demand at retail partially offset by a reduction in foodservice continued strength in pork exports, especially to China as well as the implementation of operational improvements and capture.
Synergies exports to China remained strong in Europe, and 100% in Q3 also exposed to China have double as a percentage of our total pork sales and we expect demand from China to continue driving the strength in the waterfall overall exports in the near future.
All of our work.
PIV fresh pork for fleets are approved to export from China. So we are well positioned to benefit from those opportunities.
We also continue to evolve in our strategy and it will significantly increase our volumes with a new key customer in the next quarters.
Integration of the assets is on track to expectations over the next few years, we expect to generate an EBITDA improved improvement to achieve a level that is competitive with leading companies with similar portfolio. We have expanded our distribution capability for the newly acquired therapy methods to some recent wins to increase our returns.
Boozer and strengthening our partnership with key customers, we're optimistic about building upon our operational improvements by continuing to optimize our manufacturing footprint extract a best in class operational excellence capitalize exportable.
Please opt.
Optimize the portfolio of channels segments and products as well as strengthening our growth business with key customers to drive innovation and value added and higher margin areas. We have a great team in Europe dedicated to generating the best possible relative results by focusing on factors within our control, while ensuring protecting the safety.
And health of our team members.
All classes has been rising since August driven higher by a combination of stronger than expected export demand and smaller than expected old crop ending stocks in the us we are projecting new crop ending stocks at two point 17 billion bushels.
Versus 1090 9 billion last year, which includes a 550 million bushels increase in export demand.
The current corn crop is projected at 14.7 billion bushels, the highest in four years and over 1 billion bushels larger than last year, although corn prices have risen from the lows. We saw in August dresses are very similar to where they were this time last year.
So the new prices have also rise and since August driven higher by a larger than expected export demand primarily to China.
You asked is projecting the current soybean crop at 4.3 billion bushels of over 700 million from last year. Despite the large increase in production you have FDA projecting new club ending stocks at 290 million bushels, the lowest level in four years.
Certainty over the size of the Chinese import program is causing increasing uncertainty and volatility in the oil seeds market globally with prices in Europe has also risen recently, despite the larger than expected Russian wheat crop and projected increased supply in other major wheat exporters like Australia, a slow start to the planting season.
In Russia, and larger than expected export demand out of the U.S. are contributing to the rise prices in the weak market.
On the chicken production. According to the FDA Q3 was down half a percent relative to Q3 2019 as increased lightweight did not offset head count reductions. The industry continues to maintain a larger layer flock with current levels, 4.4% above last year in line with the trends observed in Q will exceed the.
Industry has also managed to reduce the average age of Lehan promoting a younger more efficient breeders. This has allowed industry to maintain flexibility to manage supply of eggs in the short term, while enabling growth in the low teens as the demand environment improve as well.
Overall, the train has show a slowing of pullet placement growth, which is in line with expectations given that most of the pullet placement increases in 2019 and equally to Twentytwenty were expected to be supportive of new capacity that has come on line over that period.
From Q2 to Q3 coordinating related restrictions have slowly been rolled back with many businesses and restaurants opening under modifier environments to protect worker and consumer health.
Throughout this process consumers has proven highly adaptable to the new normal and have continued to modify their shopping and spending habits in response to the new norm over this.
This new consumer environment favors the retail channel has many consumers are still required to work from home and choosing to limit exposure to potentially more crowded areas. As a result retail demand for chicken like that off all proteins have remained supportive throughout the quarter.
While food sales demands to trail below years ago level Dicerna has proven highly adaptable and continues to improve each month from the low point in April.
Led by the QSR segment.
And thank you for DSD expect production to be flat for the quarter on a year over year basis before it reiterated guidance to one in which the U.S., we expect oil production to grow 0.9% versus 2020.
Hi, unemployment and consumer uncertainty contributed to food macro environment and the fallout effects of COVID-19 will impact the channels differently.
Expect a reflection of restaurant capacities, social justice the guidelines consumer concern for individual health and the addition of consumers to their personal economic situations to continue favoured favoring increased frequency frequency of at home years since.
Since chicken continues to be one of the most affordable and versatile proteins retail demand is likely to remain above year ago levels. When we expect overall sales demand to remain more volatile and remained below year ago levels at least in the near term QSR is the ability to adapt quickly to the new environment in a positive.
And for the chicken industry moving from late 30, 22 23 to one.
Our strategy is designed to adapt well to the challenging macroeconomic conditions, while minimizing the impact from volatility in market conditions.
While we are already well balanced in terms of our both sides exposure, we will remain diligent and seeking opportunities to incrementally diversify our product mix and reduced the commodity portion of our portfolio by increasing the number of differentiated products to key customers, while optimizing our existing operations by pursuing operational improvement targets are key.
Customer approaches strategic and creates the basis for further accelerate growth in important categories by promoting more customized high quality innovative products to give us a clear long term sustainable competitive advantage, while further improving the resilient to market for patients.
With that let alone two additional details to our financials I see an eight in the third quarter was higher versus a year ago as we improve the efficiencies of our expenses, but increased support for expanding the just bear brand nationally and the investment for our new prepared foods products, both in us and Mexico as well as the inclusion of the new assets in Europe.
Also included in the quarter the F G and H is our $50 million contribution to the home our strong initiative and the DJ.
We will continue to prioritize our capital spending plan. This year just demise, our product mix that is aimed at improving our ability to supply innovative less commoditized products and strengthening partnerships with key customers. Even during these uncertain times, while the company continue to evaluate all capex projects and deferred those with.
The loan essential we reiterate our commitment to investing on strong return on capital employed projects that will improve our operational efficiencies and tailored customer needs to further solidify competitive advantages for customers.
Our balance sheet continues to be robust.
Given our relentless emphasis on cash flows from operating activities focus on management of working capital and disciplined investment in high return projects, our liquidity position remains very strong in more than $1.3 billion in total cash and availability. We have no short term immediate cash requirements without bonds maturing in 20 to 25 and 2020.
Seven and our term loan maturing in Twentytwenty tree.
During the quarter, our net debt was 1.9 billion the lowest since 2016 and the leverage ratio for 2.5 times last 12 months EBITDA.
Our leverage remains at a manageable level and we expect to continue to produce positive cash flows this year, increasing our financial capability to pursue strategic actions, we expect capitalized interest expense of around $130 million to $140 million.
We have a strong balance sheet and the leverage that is within our target which are supportive for us to act on great opportunities. During these uncertain times, we will remain focused on exercising great care, ensuring that we create shareholder value by optimizing our capital structure, while preserving the flexibility to pursue our growth strategy and will continue to consider and evaluate all.
All relevant capital allocation strategies that will match the pursuit of our growth strategy and continue to review each prospect accordingly to our value creating centers offer.
Operator. This concludes our prepared remarks, please open the call for questions.
We will now begin the question there are no further questions.
In the interest of allowing equal access we request that you limit your questions to that regard the queue for any follow up to.
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Okay, well, that's momentarily to assemble our sales tax.
First question is from bank, an entire with Barclays. Please go ahead.
Hi, Good morning, how are you doing them incidentally on unless some capital for Ben products.
Decentralizing Koby 19, how is your current level of absenteeism plans, how has that evolving recent weeks considering that continuously high number of cases in the us almost so if you can provide some awful.
Our grown greater more protective measures for data to COVID-19 during the quarter and what do you see.
Going forward. Thanks.
Yes, Thank you and good morning first as we face this global corn on a virus pandemics, we have been guided by three principles.
Yes, and Uncompromised commitment to the safety of our team members.
Second recognizing and embracing our responsibility to provide quality food for the country and of course in endeavoring to provide continuing employment opportunities and benefits to our team members. During a time of firm precedent economic appeal. So the direct costs that we are related to the extra cleaning and in our production and common areas.
We also providing the PPL needs, including the masks and features to all of our team members and we install physical barriers in our production area and of course, we are maintaining a social distancing whenever wherever.
As we can we do more than 10000 bears within the first 30 days of the pandemic and we continue to upgrade those barriers. We also fall that dual technology and by coronary ionization in every plant to filter the air and neutralize potential.
Viruses.
As I mentioned, we are offering free lives help online services for all of our team members that allow for virtual doctor visits zero costs and above all CDC guidelines will move the vulnerable team members from facilities with full pay and benefits during community outbreaks and that is creating some challenges.
Corporations, because by removing those people we have less people at our plants.
Yes, it's a good situation is very fluid.
It varies from plant to plant, but over the last months, we have increased our staffing too close to the levels that we were before okay. So.
We are already running a much better mix that we wore during the Q2.
And we are seeing a very good increase in our absenteeism levels as people are more familiar with what we are doing as we are gaining the trust of the entire communities people are.
That's a really.
Reluctant to return to work and with that we'll be.
Improving our ability to execute the optimal mix.
Of course, we are also working with our key customers to simplify our mix to create a more optimal footprint and with the frequent communication with with them. We are ensuring that our team members, we expect to return to the optimal operation.
In this quarter.
Corporate fansler uncovered some new sales.
Your next question is from 10000 <unk> with bank of Montreal. Please go ahead.
Hi, good morning, everyone working.
Okay.
Just two questions one is.
As you make you change your mix what is what was the mix between big small and medium sales.
Hey.
Last year and then what do you think it's going to be now and what do you think it's going to be in about a year from now as you adjust your ear product mixes.
Yeah, Ken we are well balanced between small birds tray pack and large towards reporting what we are doing is as the as the demand has been shifting to more retail we've been shifting shifting our operations also the EBITDA growth of QSR with that also adapt to those conditions, what we are doing.
Our Twentytwenty one is to first a move that plant from big Bird debone into small bird debone, which will increase our presence in that segment. We are also doubling the capacity in our Minnesota plant.
To.
[noise] complier comply or support the growth of our key customers and are just fare brand, which has doubled the sales in the online channel over this quarter look.
Looking into overall portfolio, we move from 46% of our total sales in retail to around 51% adjusting 2020 with small changes in our operation for next year, we expect.
2% increase in that portfolio to the retail and that once a 2% increase in the small bird with those two conversions.
Great. My next question is can you talk about the sustainability of the Mexican margins I, particularly I did see that there was a little bit of a FX benefit how do you think about the Mexican operation I think you did say that it's gonna, it's still continuing the momentum into the fourth quarter and how do you think about it for 2000.
21, how do we frame in our minds yeah.
Yeah, sure Ken and we've been talking about Mexico over the last year is that they are very volatile quarter over quarter, but they're more stable. If you take a longer period of time or within a year what happened in the first quarter or the first semester in Mexico was a complete imbalance between supply and demand so the industry increase supply.
During the first semester and at the same time demand because of the Cove in 19 really create a challenging environment as you remember in Mexico, There was no.
So both from the government with the COVID-19, like we had in U.S. in Europe, there was no government or stimulus or unemployment benefits, which created a shark.
Slowdown and recession in the region with really affected the the the demand both in the foodservice and retail why within U.S., we saw an increasing retail compensate at least partially the shutdown in foodservice that didn't happen in Mexico, and that's why the supply and demand.
When was completely off balance as the industry adapted their supply.
So for the Q3 and we are at payments.
Opted to that situation as well, we reduce our costs and we also cut production the supply and demand improved a lot and we saw the rebound in the food service end demand in Q3 and now we have very stable prices. During this time index.
We expect this to continue during.
Q4, Q4 has always been a stronger quarter for Mexico at the festivities, we don't know at which point and that will be a reduced because of the the coverage restrictions we've seen some increase in cases in Mexico.
So there could be some more restrictions in into Q4, but given the supply and demand situation that we are right. Now the results are sustainable now for Q1, we expect the industry to increase production to a greater supply and demand and the return to more normal levels.
Mexico is really volatile quarter over quarter again, but we expect to be very stable.
Year over year of course, our strategy is supportive of the growth to increase the higher margin differentiated products as well, we saw a little bit of impact in the prepared foods.
Especially on the more affordable products during Q1, but we continue to invest and highly differentiated feeling its products continue to sell really well longer term. Despite the volatility Mexico is a growing economy and as the population increase their disposable income it leads to significant growth in protein consumption.
Great I really appreciate the answer thanks.
Thank you okay.
Your next question is from Ben Bienvenu with Stephens, Inc. Please go ahead.
Hi, good morning.
Okay.
I want to ask and you touched on in your opening comments with asset in China, and Germany, I went out on Germany, and more specifically I would think that's a nice burn for the two look I was just curious on what you're seeing in that business. Both as it relates to the impact on the domestic market in their uptick and and coal demand from that market as well I think your position.
To capture that benefit.
Yes, Thank you and the operations in Europe are more focused on the retail so we produce most of our products in UK for the retail UK market and because of the high welfare, We command a premium in that region. The big competition as you hear us refer is on the foodservice.
Yes so.
Sector of imported products from Poland, and Germany, mainly in Spain on the pork side.
As the Germans or had these issues with their production and because of the ban in China. It actually increases the sales are in the UK market.
It also creates the opportunity for our UK products to be sold into China. So what we saw the is that on the when we call fist quarter products.
Significant increase in pricing, but on the normal products like loins and orders, we see the prices more stable because it's a zero sum game at the end of the day.
So it increases the opportunity to China. So that was a welcome I think our sales have like we mentioned have doubled during Q3 and we're seeing some some very stable pricing.
But it also includes the competition in the foodservice segments in UK.
Okay. Great. My second question is related to grain and apologies if I missed this in Europe, and I comment that your year over year. The market could you talk about how you're positioned relative to the markets are you more hand to mouth at the moment do you have any pay for secured any color you could offer there on how your position.
Through the balance of fourth.
Fourth quarter and into next year would be helpful.
Awesome, Thanks, and best of luck.
Thank you again.
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The next question is from Michael Pecan with Cleveland Research. Please go ahead.
Yeah, Hi, good morning, I, just wanted to touch faith, a little bit more in terms of you know the move but I guess, you know into retail and you know some of that big bird product is that being chopped up and put into tray. Then you'll how has that impacted you know some of the margins on the commodity business.
[noise], Yeah snake, there's a lot of credits in the big box, especially during a promotional C seasonality during the senior.
The big names and that'd be putting the tray should be so into retailers. We continue to do that so I think the the challenge to the industry is that we need to have the label available and the facilities, we're able to do more of that and that's why the industry has not increase more the connection to the tree.
Back as we as we walk or as the demand continues to grow. It's also because of that that we are increasing the capacity in our <unk>, Minnesota plant.
As of today, Yes, we are buying big better meet and we continue to include it on the on the tray, especially duty Saturdays and I think the whole industry is doing that.
Okay, Great and then my second question is you know just looking at the you mentioned that your absentee rates are starting to go down and you're starting to get back to your normal next in terms of some of the bones dark neat do you are you starting to returned that you know a historical levels and what could that mean for the <unk>.
The prices, which is saying you know the most pressure cannot help or is the you know the fact that China is taking more poor can that help with like quarters that or why haven't like quarter prices moved if there's more the bones darkening perpetually being produced and yeah. It seems like you know the at the very least trying to thinking more you ask for.
Yes, you're right, Mike because of the <unk> and also the food service industry in U S. Ah the industries produce 3% more leg quarters in July and August than the same period last year. Despite a little a total production puzzolana pressure intellect.
Fancy.
As we are seeing more the reopening of the scissors and as of your <unk> stashing it for plants, increasing for us and for the whole industry, we are seeing more.
<unk>, we are already at levels comparable to last June and subsequently, which will reduce the pressure intellectually.
Of course, China has been also more active intellect quantum market over the last month and they're seeing deaths in the quarter inventory that was on.
On a sequentially basis up to August, but we are seeing a reduction and also be inventories today's down 9% compared to the peak Q1 message that we have so those two factors can contribute to the reduction intellect erection, which is a commodity.
As I mentioned in the China interests I think we saw over the last.
Weeks, although not today the increase in the oil prices and a reduction in the in the dollar which increase the.
Availability just dollars from the yeah.
Developing countries. We can also increases the demand for it like portraits so.
<unk> could help them the less partisan going formed it's both on supply and demand and supply is exactly what you said last law quarters because of the improvement in labor efficiencies.
And the more sales in the domestic market in the food service and on demand because of low prices and because of more of a federal income in the in the developing of colors.
The next time, you come repeat that asthma with bank of America. Please go ahead.
Hey, guys. Good morning, Thanks for taking the question.
Pardon me I'm, just as I'm thinking about it you know the the the small burden resale channels, obviously has been tremendously profitable <unk> for you guys. During this time period.
You know with the plant conversion claim, but you know with with commodity Big bird remaining and it cut out by you have your remaining under such pressure just.
At what point does it make sense to start talking about converting another plant, whether that's two retail or or to small bird because it just it just seems like that thing for a portion.
Is not going to improve without more capacity either being converted are taking out of the market and in some capacity.
Sure. Thank you Peter I think the decision to go over to Glenn as a more long term decision and we always make those decisions combined with Archie customer strategy as we feed the demand.
Of this keith customers to growing.
We take action in our portfolio. So in in that makes a lot of sense for us to do their conversion right now from that from that operation. Some big bird too small budget to support their skills. I think again, you need to look into a more for all day long term perspective, if we continue to expect that foot service set.
Or to rebound if you look at the service sector today, the foodservice restaurants have down 13%.
Over here and that is impacting the big party bony for sure why are the <unk> at 9%.
We go to a more normal operations as we see maybe the development of things, we don't know whether that's gonna happen. There are receive more openings of the restaurants, we expect a full service restaurants, especially on the full service to regain some market share that they're not.
Operating today, so I think it's a low Tim decision and it's also a very.
Difficult decision to move from Big Bird to a smaller because we have the growers and we have the feed mills, it's all built.
Net specific birds are plants in United States that are really customized to that specific segments. So any cohesion.
It really requires significant capital and requires some sickness significant changes in the overall supply chain will starting from the growers your feet meals and if field operations. So if that is the high capital investment that is needs to be supported in the for the long run so that's.
And we will see a lot of conversions.
In our industry of course, if this situation.
And continued for for a longer period of time, you can see some conversions.
I think also it's important to know that Sen. All their players don't have the key customer relationships that we have in moving from the big power to the small board or to the keys ready require a customer.
And.
A key customer to support and since they don't have those relationships is harder for them to do some conversions.
No. That's that's that's helpful. And then maybe just to follow up you know given where the balance sheet is now.
Talk about your repaired remarks.
How should we think about M&A central maybe from a geographic perspective or does it make sense to get bigger and pork and in Europe, and you know going into 2021.
Just any help there and then and then maybe you can also comment on any updates on your CFO search thanks very much.
Sure in terms of strategy I think are strange a continuous sales and their growth strategy continues in fact I knew it as I mentioned I have a very strong balance sheet, we're looking to increasing our prepared fits operation and they're branded operation.
To.
To create a more balanced portfolio and we're also looking for chicken assets, where we can extract.
More fairly from operational efficiencies.
We're seeing targets Bolton, new with an outside U S geographical diversification and to growth in Europe, and we will evaluate all up in queue. So too are fairly creation standards.
In terms of the C. A for we are in the process of.
Finding another stage CFO, we already engaged.
Recruiting firms and it should have some some news in the near future.
Great. Thanks, very much guidance.
Okay.
The next question is Adam Sandler Sun, We'd got my facts Inco. Please go ahead.
Yeah. Thank you good morning, everyone.
Morning or them.
Alright, so so maybe first just a clarification and are a little more detail on the expansion on the Minnesota plant for for cancer already and the conversion from Texas plant small bird from Big Bird.
What's the net impact on your production volume and what's the capital costs of those projects.
Yeah in terms of total avoiding when I think we should be just a little bit up we expect to be to grow in line with the USTA expectations in the industry for 2021, which is only a bit lower than 1%.
As we have more birds in Minnesota, but we will also reduce the weights in our operation on the Big Bird that we are just for them into a small part so we expect to be for 2002 into one in line with.
With those true in terms of investments, it's not very significant two hour total capex.
As the conversion of the small boat plant, it's not it's a simpler conversion.
Of course that <unk> requires some via science, which is unfortunately equipment and some Mary nation equipment, and we're going to investing automation in depth Plenteous file today is emanuel if only operation and we're going to invest in Keith Ultimate.
Tomato Devonian sold the investments as close to $20 million to $25 million in that operation and in the.
In the case of the kids ready operation in schools to $70 million. So overall it is a total of $100 million that we go to invest in those Chico versus.
Okay. That's a Catholic color and then the the follow up was I just want to make sure I heard something right.
<unk> remarks talk with parents, whose business in the U S declining 26% I think is what I heard and maybe helping to just to expand on that that's a business that to think of that.
They're more challenges over the years and just.
Is.
Do we is it really just a question of returns a school in foodservice traffic or how do we think about that business from a margin profile moving forward.
Yeah.
That's exactly it we you know potassic business, we have a strong brand, which is the discipline that as meaning of foodservice.
Brian. We also are very strong into school without gold Kiss brand. Both those segments are the ones that are most affected by the the COVID-19, no commercial foodservice that includes the schools, where now 66% at the Q too and now they're 12, 42%.
We are seeing some school reopens, which could help but it's this segment that is $2, 40% on what we call the commercial considering us which is the street's business fair or pier sprained. His is a leading branding wings and chunks, we saw that in the queue to the end up 36.
Percent lower than the prior year, but they're rebounding and then today they are close to 4% lower than the same period less this year. So the food service business has been recovering and with that.
Ah brand has.
Cover and our volumes, but the school system, it's too close to 40% lower than the prior year and that's why we're investing in more retail branded business. As we mentioned are it has been has increased more than 30% and we have been.
Very successful spending the just bear brand fresh category, what is being suggested first on on the whole line segments and also on the on the higher attribute second maintain teacup.
The customers to be prepared foods segments.
Alright, great that the type of color person on thank you take care of it.
The next question come from God.
Like I said that we take them all again. Please go ahead.
Hi, My questions regarding your library age that three times as target how comfortable are are how highly you'd be comfortable taking that in the event of additional M&A and are you seeing any.
More M&A opportunities just given the volatility in worldwide protein market.
Yeah, I think we we said this pockets of two to three times because this is the best.
Capital structure that can protect and reduce our interest payments well not creating any any.
Any problem for for our bonds and for our leverage uhm.
The two to three times as in normal operations of course doing some acquisition if we have.
Great plan on how to reduce that back we can go further.
I don't think there is a number that the specific.
Or on where we go I think it's more about what is the plan to dig leverage and of course the plan to deleverage could include.
The issue of stock and that's why he wants is a publicly traded company have that opportunity to use the stock as a courtesy not to increase the leverage too.
Two points, where we don't think it is prudent indicators of significant acquisition that will be transformational for the company.
Okay, and just one last part.
No intent sorry in terms of M&a's as we are seeing more targets of course, the the whole situation about traveling has.
Created some challenges in terms of seeing and visiting assets, but we are seeing some targets that are still very interesting to us and could create a lot of value for our shareholders.
Okay, Great and then just in the event that Jbs's able to the less the less dangerous would that caused any need for changing your structure.
Yeah, We don't believe so I think Jbs's said many times that they continue to support the films to be publicly traded company and just as I mentioned it is a great way for us to to keep our growth. We can use the equity as a currency in the case of a very important and transformational.
For parents.
Okay. Thank you.
Once again, if you have a classroom that's perfect.
On your furniture.
[noise] Center number nobody called that's tried to pick up this time I would like to turn the conference back Oh, that's still part of your family for a couple of remarks.
Well. Thank you all we would like to reiterate that can meet continued commitment to our valued team members to provide them with the safe and healthy work environment, while supporting our duty to maintain food production and supply to customers.
Looking forward to closing 2020 with good results in spite of the volatility a diverse portfolio of differentiated products tailored to support a key customer strategy in conjunction with a broad geographic footprint, we continue to generate consistent performance and many minds margin volatility in challenging market conditions relative to competitor.
We will continue to seek new growth potential both organically and through our conditions offering even more differentiate products portfolio within our business to support key customers needs by cultivating a culture of constant innovation.
You would like to thank everyone in the business family, including our family Farm partners suppliers, and our customers who make our business possible is always we appreciate your interest in our company. Thank you for joining us today.
Have you done tetramer account preference now concluded.
Quite common today's presentation you may now just come on.
Okay.
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