Q3 2021 Pilgrims Pride Corp Earnings Call
Good morning, and welcome to the fifth quoted 2021, Pilgrim's Pride earnings conference call and wait cost will participants will be and listen only might shoot.
She'd you need assistance. Please signal a conference specialist I pressing the stocky followed by Sierra.
Peace note that the slides reference junk today's cool are available for download from the company's and basically it's hunt at I R Dot pilgrims dot com and the events and presentations section.
I would now like to turn the conference over to Pilgrim's Pride Chief Financial Officer met Governor Please gonna hate.
Good morning, and thank you for joining us today as we review our operating and financial results for the third quarter ended September 26th 2021.
Yesterday afternoon, we issued a press release, providing 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 on our website at <unk> Dot <unk> dot com along with slides for reference. These items also has been filed this form a case.
And are available online and said Dot Gov.
Fabio Sandri, President and Chief Executive Officer, and I will present on today's call.
Before we begin our prepared remarks, I would like to remind everyone of our safe Harbor disclaimer today's call may contain certain forward looking statements that represents our outlook and current expectations as of the date of this release other additional factors not anticipated by management may cause actual results to differ materially from those projected in these forward.
Looking statements further information concerning those factors has been provided in today's press release or Form 10-K, and a regular filings with the SEC.
I will now turn the call over the past year.
Thank you Matt Good morning, everyone and thank you for joining us today for the third quarter of 2021, we reported net revenues of 3.8 billion or 24% increase over the same quarter last year and adjusted EBITDA of 347 million.
Nearly 14% versus Q3 last few and the 34% compared to Q3 2009 are adjusted EBITDA margin was 91% compared to $9, 9% a year ago adjusted the Dx with 67 cents versus 66 cents in the third quarter of 2020 and 45 cents in Q3 2000.
19, I'm pleased with the performance this quarter as we continued facing challenged resulting from the ongoing endemic and then precedent economic conditions in UK poor overall portfolio perform well in the third quarter. Despite the labor shortages that affected our product mixing bowl B U S. M U K N U S commodity chicken.
Missing remain well above five year averages and a diverse portfolio allow us to capture gift side, while protecting us from future downsides Tony.
So I need to the brother, who works market chicken production in Q3 increase an estimated 1.8% over last year due to a slight increase in hand, along with higher average livelihoods, putting production at 0.3% greater on a year to date September basis.
D. A data indicated that the hatch rate continues to decline 12 recorded suggested mimic a grill in the next month USDA outlook indicates a half of a percent increase in supply in queue for which will take the total increase for the year at 0.3%.
And the U S market retail demand remain extremely strong throughout the quarter mile trip frequency has yet to return to pre COVID-19 levels go somewhere else to buy more units per trip compared to 2019 and demand for such chicken remains that both of the prequels, we'd be wide. Meanwhile, retail daily posted improvement.
Year over year, and frozen category continues to grow even when compared to extremely strong demand levels. In Q3 last year food service and you ask continue to recover as commercial chicken demand was comparable to freak COVID-19 levels. However, the non commercial channel food service is too slow and chicken demand <unk>.
Being below 2019 levels no commercial outlets, such as schools and workplaces cafeterias. The overall increase in demand has maintained pressure on already low cold cold storage stocks, which remained 17% below September 20 levels as.
As a result of robust demand commodity chicken pressing remain significantly above the five year average and only recent begin to align with seasonal trends.
<unk> business. The amendment pricey have been strong however, we have not being able to capture all of this increase in demand and pricing feature continued labor shortages, the labor shortage and its effects are product mix, our ongoing challenges there will be with us for awhile affecting our ability to hand portion and dream products.
That come on to higher margin.
Fortunately Labour is a nationwide problem across numerous industries and it will take time to resolve a great example of our keep customer partnership with a retail customers will should demonstrate our flexibility looked into my eyes are product mix to continue to provide superior levels of services and.
Can the U S market retail sales in Q3 had a difficult comparison versus 2020 entry loading, but still remained cole for to be above 2019 levels in the fresh and frozen segments. However, giving the cheap frequency reduction we killed daily sales are skilled though versus 2019 ledwith see upside potential in this category is zero.
Very improvements in unit sales continue.
Commercial foods, so just in U S. As <unk> continued strength with full service restaurants, demanding proving again in Q3, we'd a second cole.
Keith quarter of double digit year over year growth.
<unk> demanded means robust with Q3, improving 6% versus 2020, and nearly 14% nearly versus 2019, we continue to monitor the commercial foods instead of this demand while the industry address label a short dishes. The local Marshall channel demonstrated strong year over year.
<unk> with the reopening of schools. However, the China continues to lag 2019 levels business has adjusted volume and mix between channels to adapt to changing consumer demand patterns.
We're well positioned to adjust production and channel mix given are patterns across all but find this from large to small commodity large both the boning continuing its momentum throughout the year and once again generated significantly movements.
Your checking remains the most affordable meat voting, which supports the growth in the commodity sector, the volume revenue and profit driven.
Driven by support from Foods service demand and overall so market pricing.
Our case ready business delivered a volume and revenue growth versus the priority but.
But it's pressure by the increasing bringing labor costs, we adjust that prices in the second quarter and continued operation of improvements to adjust this cough headwinds we continue to partner, we keep customers to deliver both growth and value for them.
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And drove year over year improvements in our small blood business. We continue to see strength in this business you need with our partnership with Kiki with our customers in R. U S. Prepare food business Q3 sales grew 45% year over year, driven by price adjustments should cover high input costs, including meat labor and green.
Didn't send supplies.
Year of your sales volume was up 6.5% driven by strong demand of a retail consumer brands, just there and give us our volume in the consumer channel was up 16% versus Q3 last year and more than double 2019 levels. As we are seeing the results of our efforts to put both of the fleet grew a retail brands.
Supported by digital marketing continued to gain distribution and be able to just their brand to e-commerce retail and clubs stores and they had an additional boosting brand awareness from successful social media advertising and great customer reviews.
Horrified corn prices moderated in Q3 have you have to begin harvesting what is expected to be the largest corrupt since 2016 Usda's currently projecting a corn crop of just over 15 billion bushels, which is expected to increase the county out from 1.2 billion bushels last year to 1.5 billion bushels.
This year, even with the large estimate for U S export demand.
China is also expected to see a recovering supply after in 14 28 million tons of corn. This year, while also seeing a 13 million ton increasing their domestic production, although global energy and weak markets are supporting Korn currently global stock funny in a better position that they were less corrupt here.
By being meal process also fell during the quarter on expectations that the U S suppliers, who build from last year Usda's currently projecting a carry out of 320 million bushels up from $256 million last year export demand is also expected to fall, 8% from last year will lower demand from China.
In addition to the west supplies, Brazil is expected to produce a record of 144 million tonnes, which should be global stocks. Even further new prices are also being depressed by the large expected increase in demand for soybean oil instead.
Each of the renewable diesel which is driving soybean oil prices high.
European feed wheat prices increase in Q3, despite that 15 million film increasing domestic production in the UK, specifically, where we source of the majority of for a week, we have seen a 50% increase in production from last year's harvest stocks in the main exporting countries decline again. This year you have lower by a large.
Dropping Russian wheat production X.
Export tariffs in Russia, and also having a negative impact on the production and availability of exportable wheat out of the black fee.
Overall, we feel confident in large supplies of corn and soybean that should be a penguin four feet cost in U S and Mexico and going into 2022 Y wheat prices continue to.
To remain high until we see a relief in global supply as Nixon.
USDA chicken inventory was flat from June to September appear of time in which seasonal increases in total even Tories will be expected and remains down 17% from the previous year.
Combined dark meat inventories have increased by 11% from June.
17% year over year, which is in line with expectations. Despite continue exports supply changes eruptions.
Regarding exports, although the data is too incomplete for Q3 12 August total USDA broiler exports, including Paul grew by six 6% briefing by Mexico up 27% exports to China, B, 4%, primarily due to depaul market, which made up nearly 62% of China U S. Cole.
Imports.
The increasing poultry export volumes and value.
Driven by the competitiveness of U S poetry restrictions due to the avian influenza and shipping bottlenecks around the world, we're optimistic that countries with COVID-19 restrictions with ease through two four and we further support the U S export demand.
Business expert Vitam group combined to alter basically industry.
And we are utilizing additional ports to avoid congestion on the east coast and in the Gulf of Mexico.
How are you S operations has managed to increase labor costs and higher being prices through the benefit of a stroke cut out and increased pricing to our customer base to recover this higher input costs, while effective operations are helping us to control costs. Following our strategy of a diversified portfolio in Dallas of cost-plus.
Market and fix pressing contract structures provide us the platform to manage throughout the volatility of our input costs also our team has done a fantastic job medic navigating both supply chain disruption such as stricker shortages and inflationary pressures to support a key customers and the lever strong quarterly results.
Turning to our international business, Mexico continues to perform well, although evening from the levels achieving Q2 as expected due to the seasonality of the business. In addition, we're beginning to see the effects of inflation on inputs Green pricing. However has moderated since the first half of the year, allowing for more competitors too.
The market also during the quarter, we saw significantly increase in chicken and pork imports into Mexico constant pressure or market pricing. We continue to focus on our business to process improvements in our fresh business as prepared foods salt ongoing growth in <unk> in food service. In addition to growth in a retail brands.
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During Q3, we expand and precedent challenges in UK due to the current economic environment.
We were faced with certain serious labor surfaces as you workers returned home following Brexit affecting our ability process back and transport products. This is in addition to the significant cost pressure from feeding greetings, especially oils and micro blueprints and increased cost for utilities logistics labor and pack.
<unk> with these hits to our cost more Fox EBIT was infected both verses Q3 last year and versus the prior quarter. Although sales were robust they were at significantly reduced margins as we experienced in precedent costs to clear the backlog of birds, we have been unable to practice.
We begin to see pricing covered at the end of the carpet as he opened negotiations with our customers to recoup some of the extraordinarily cost of experience, including where we can 300% increase in C. Two costs due to the much Publicised fertilizer company has slowed down and UK. This should provide support to margin as we move into the queue for.
We will continue to focus on operational excellence initiatives that deliver labor efficiencies, whether agricultural performance and improving yields in order to maintain their supply to keep customers and superior levels of services.
As in previous quarter were seen consistently improvements in the Moorpark Foods service Division and we expect this channel will see significant recovery OS COVID-19 restrictions are lifted across the UK and European markets.
Relative to the industry over the past 12 months my part continues to outperform the average of the competitors in Europe, and we continue to deploy capex some projects that drives quality safety and efficiency to reduce labor intensive disease to the <unk> business.
Give me just UK business continued to be severely impacted by increased green costs and low prices due to the high supply in Europe.
Despite the market challenges, including worsening labor availability and inflationary pressures in UK, we have been profitable and the need to debate. This for the last 12 quarters in a row.
During Q3 fingers UK year over year retail volume remained relatively flat prior to last year, while foods services volumes demonstrated grow back to pre COVID-19 levels also are year over year volumes to China decrease due to the continuous suspension of our export license at two plants as a result of COVID-19.
Like My Park business, who Kay business has been affected by the label and truck driver shortage and soaring energy costs. In addition, pork pricing has been depressed following China's decision to stop accepting Cogs from Germany.
While we continue to make progress within their operations. The improvements were not enough to overcome the external costs that are pressuring results.
We are optimistic about beauty, our operation improvements by continued to optimize our manufacturing footprint extracting best in class operational excellence capitalizing on export opportunities optimizing our portfolio and strengthening.
Doing business with keep customers to drive innovation in value added high margin areas. We have a great team in Europe dedicated to generating results by focusing on factors within their control right in the Sunni and protecting the safety and health of our team members were firmly committed and supporting UK farming industry and supply of key customers in order to feed the United Kingdom.
An island.
We're also excited about our portfolio products in UK and Europe, given that on September 24th we close the carry food groups meet some meals acquisition going forward. This business will be known as <unk> food matters business with Masters will support keep customer relationship by providing on the radio value add the protein products and prepared.
Woods anchored by a portfolio of strong brands is one of the largest protein producers' in UK and Ireland, we see the opportunity to innovate within our key customers and develop new products that will excite consumers in the region.
Under this challenging environment, we're pleased with our overall performance in our results in the third quarter, what committed to being the best and most respected company in our industry and remain focused on producing high quality food for people around the world in a sustainable manner, while creating the opportunity of a better future.
Future for our team members with that I would like to ask our CFO, Mexico Vernonia to discuss our financial results.
Thank you Fabio and good morning, again for the third quarter of 2021, net revenues were $3.83 billion versus $3.8 billion, a year ago with an adjusted EBITDA $347 million and 91% margin compared to $305 million, 99% margin in Q3.
Last year, we achieved $162.5 million adjusted net income in.
In the quarter, we reported GAAP net income of $61 million versus GAAP net income of 34 million in 2020, the most significant adjustment in the quarter was an additional $126 million accrual related to the legal settlements.
Adjusted EBITDA margins were $10, 7% in the us, 13.1% in Mexico, and 3% a year.
Our adjusted EBITDA in the U S in Q3 with $263 million compared to $180 million, a year ago and $176 million in 2019 sales were up too strong market pricing slightly higher volumes compared to about 2000 2002 thousand 19 gross profit margins were higher compared to about 2000 2000 2019 also.
In Mexico, adjusted EBITDA in Q3, with 56 $3 million versus $69.2 million, a year ago, and 45 million in 2019.
Net sales were up due to higher market pricing and volumes.
Over the last five quarters Mexican business has benefited from a balanced market supply demand and the dynamic. However in addition to seasonal pricing decreases recent increases in chicken and pork imports are hesitant to current market pricing.
Normally park adjusted EBITDA in Q3 was 98 million versus 39 $6 million, a year ago, and 37 $9 million between 19 pilgrims.
Pilgrims UK had adjusted EBITDA $8 million in Q3 compared to $15 $4 million a year ago is is Fabio previously reference both Muy Park and pilgrims UK results were negatively impacted by labor shortages energy cost increases in transportation challenges.
As the acquisition of pilgrims food Masters clothes at the end of our third quarter financial reporting period. We've only included our preliminary purchase price allocation of the acquisition within our September 26th balance we will begin recording children's food Masters financial results in the fourth quarter.
In total we incurred COVID-19 related costs of approximately six $2 million in the third quarter. However, this is a decrease of approximately $19 million compared to the prior year overall are SG&A in the third quarter was higher than the prior year, primarily due to an increase in legal defense costs.
We will continue to prioritise their capital spending plans this year to optimize the product mix and strengthened our partnerships with key customers. For example, during the quarter, we invested in automated Deboning technology, and our legal Florida complex.
We anticipate our full year 2021, capex been to be within our previously discussed range of $375 million to $400 million.
We reiterate are committed to investments strong RMC projects that will improve our operational efficiencies and Taylor operations to address key customer needs to further solidify competitive advantages portfolio.
Our balance sheet continues to be robust given a relentless emphasis on cash flows from operating activities focus on management of working capital and disciplined investment high return projects.
Our liquidity position remains very strong following the August increase an extension in our line of credit with approximately $1.7 billion total cash available credit at.
At the end of the quarter of net debt was $2.7 billion with a leverage ratio of approximately two two times. The last 12 months has adjusted EBITDA.
Even after a recent issuance of $900 million of senior notes to purchase securing foods meet the meals business at the end of the quarter are leveraged at the lower end of our target leverage ratio of two to three times.
We expect full year 2021, net interest expense to be approximately 115 million exclusive of the debt extinguishment costs of $24 million, we recorded in the second quarter.
We will stay focused on creating shareholder value as the optimizer capital structure to continue executing a growth strategy R capital allocation strategies will remain aligned with our growth strategy each opportunity will be evaluated against their value creation standards.
I'll now turn the call back over to Fabio for closing remarks.
Thank you Mark the topic of labor shortage check came up several times in our remarks. This morning, and I want to thank all of the business team members around the world, who continued to work diligently to keep producing superior quality products for our customers consumers and communities as they always say people is.
Our most important asset and you made the difference I also like to thank all of our stakeholders firmly foreign partners suppliers and customers everyone. Working together makes our business possible. We appreciate your interest in business that concludes alcohol.
As a company will not taking questions today at the conference has now completed.
You for attending today's presentation you may now disconnect.
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