Q3 2022 Pilgrims Pride Corp Earnings Call

October 27, 2022

Good morning, and welcome to the third quarter 2020 to Pilgrim's Pride earnings conference call and webcast.

All participants will be in Boston on Lima GP.

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Special or assessing that starkey followed by DRAM.

The company's request this call is being recorded.

The slides referenced during today's call are available for download from the Investor Relations section of the company's website at Www Dot Pilgrim Dot com.

After todays presentation, there will be a.

An opportunity to ask questions.

I would like to turn the conference over to Andy for Jackie.

<unk> investor relation and net zero program propels them right. Please go ahead.

Good morning, and thanks for joining us today as we review our operating and financial results for the third quarter ended on September 22020, you.

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 that release is available on our website at IR dot programs Dot com along with the slides for reference.

<unk> also have been filed on form 8-K and are available online at SEC Gov.

Yes, Andre President and Chief Executive Officer, and Matt <unk>, Chief Financial Officer 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 represent 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.

Other information concerning these factors have been provided in today's press release, our Form 10-K, and our regular filings with the SEC.

I'd like now to turn the call over to Fabio Sandri. Thank you Randy Good morning, everyone and thank you for joining us today for the third quarter of 2022, we reported net revenues of $4 47 billion or 16, 8% increase over the same quarter last year and adjusted EBITDA of $460 5 million.

32, 7% versus Q2 of 2021 alright.

Our adjusted EBITDA margin was 10, 3% compared to nine 1% in Q3 of last year.

<unk> results continue to reflect the benefits of consistent execution of our strategies, even with significant volatility of market fundamentals. Our U S business achieved solid results in the quarter with Big Bird Debone off seasonal and historical times, when our key customer partnerships in case ready and small bird and our growth in prepay.

Improve our bottom line, our European business drove improvement despite severe inflationary pressure and prolonged challenges within the consumer environment.

The team continued to accelerate operational improvements to help mitigate some of the inflationary headwinds ingrained utilities and other cost inputs. In addition, the team has announced the plan to optimize our manufacturing footprint to further enhance operational agility and flexibility equally important the combined team launched a variety.

With new innovation and receive a variety of my colleagues for innovation as well as superior quality products.

Our Mexico business was adversely impacted by extensive inflation slowing demand. These challenges were amplified by issues with mortality in our lab operations, mainly on our breeders they.

Taken together the business experienced a decline in volumes prices and profitability. The operations team implemented a significant change in our lives operation footprint and our sales teams are launching new innovation.

Vacation across sales channels and deeper expansion into branded offerings.

We also published our 2021 sustainability report in August .

As highlighted significant progress in our efforts to improve team member safety and wellbeing reduce green emissions intensity enhanced animal welfare.

We have also approved significant investments in our plants to cultivate further momentum in our journey towards the net zero by 2040.

Turning to feed ingredient.

Recent USDA reports have lowered estimates for U S corn and soybean production.

<unk> most recent forecast for corn shows the historical stocks to use ratio of eight 3% and ending stocks of $1 17 billion bushels close to last year and the permit 12 drought stricken crop.

So IBM faces a similar dynamic as stocks are currently at 201 million bushels with a stocks to use ratio of four 5% a little lower than the last few years.

Do you expect that type of crop balance sheets. The focus is now on expected demand currently a combination of factors, including a strong U S. Dollar logistical issues on the Mississippi River is suddenly increasing exports from Ukraine are reducing the export expectations imbalance in the supply and demand.

Factors, such as continued black sea grain flows south American planting and growing conditions and deflationary macro events. Some global import demand will be critical in providing direction for prices and rest stream branding.

As far as U S chicken supply ready to Cook production increased two 8% relative to Q3 of last year driven by additional head Count's beginning in late Q2, the industry began experienced improved hatch ability.

Quarter over quarter and year over year. This trend continued throughout Q3, adding incremental chick placement that support the already elevated exits which have resulted in increased head count throughout the quarter.

The clients from all time highs and margin the jumbo cutout to Daniel's beginning in June considering the recent growth in production. The USDA has revised the 2022 annual poultry production also look up to two 2% year over year driven by growth in both Q3 and Q4.

Actual utilization remained elevated well above historical averages and surpassed 95% in August alone. Furthermore has were kept in service longer as bolt overall age group and Florida levels declined relative to last year. These factors suggest he can production deviated from typical seasonal reductions so.

Realized spark as supply and demand fundamentals throughout most of 2022 and potentially benefit from a tightening competing protein landscape in Q4 from reducing export production in beef and pork.

However.

The increased broiler production of court prior to the industry experienced the expected beef and pork production declines with applied pressure to the beauty market and resulted in more precipitous seasonal price erosion for commodity chicken given these dynamics chicken in cold storage increased 14% year over year. Nonetheless, it remains in line with historical.

Is isn't there is roughly 1% below the five year average.

We continue to monitor the potential impact of industry specific risks, including even influenza. Despite the recent uptick throughout the states are locations have not experienced any significant disruption other than exports risk moving forward. We will continue to vigorously enforce our bias groups protocols and monitor trends to minimize potential.

The risks and impacts.

When the U S demand side domestic chicken demand vary by channel throughout the third quarter relative to the same time last year.

The retail channel continued to grow sales at a rapid rate, but volume sales were stable relative to prior year. Despite very low promotional activity fresh chicken volumes were mostly flat throughout the quarter highlighted by growing dark meat, which offset volume declines from higher price breast meat.

The frozen sub channel maintained growth in value added items, both volume and dollars, which highlights the increased consumer demand for value added products a trend we've seen since early 2020.

Meanwhile, frozen commodity items have experienced dollar growth, but at lower volume sales the retail Deli department posted slight year over year unit sales gains with double digit dollar global sales as well.

Overall trends for chicken consumption in the retail segment remained resilient at the share of spending has increased relative to other proteins.

Both fresh and frozen chicken have increased bias relative to beef and pork. Despite the retail pricing compression among with the competing proteins typically chicken has to be more resilient to inflation and economic downturn weaker than on the protein protein.

Service Channel grew volumes in dollar sales, but experienced January results, depending on sub channel.

In foodservice distribution volume demands was flat relative to Q3, 2021, albeit that's a high dollar sales bag.

However, the Sip shoulder continues to serve a large base of operators relative to 2019, and 2020, which have supported the channel to offset declines in volume phone operator.

The noncommercial assumption continues to post significant year over year gains as it move along the recovery path.

<unk> thousand 18, pre COVID-19 levels of scale.

With the current supply and demand balance opportunity. This is for <unk> and other promotional activities to stimulate chicken demand at food service and retail.

That's where exports emerging trends appear favorable favorable for the remainder of 2022 in early 2023, although we continue to outpace the industry in broiler meat export growth, we did experience a slower periods of demand in the last third of Q3, well some destinations analyze the impact of currency exchange rates as well.

Countries in the Persian Gulf demanded focus Asia is stable and we expect to do strengthening as the bias prepare to buy for January our rivals given you've caught us.

Logistics were stressed during the year, but we are seeing an increase in the availability of dray carriers and ocean carriers offering a greater availability of weaker equipment and most all ports.

Our ability to ship containers recently over the last week has increased significantly and we expect this to continue given.

Given the increased U S production as of late we have additional opportunity to move this product into export markets are supportive of pricing.

The impacts of the continued presence of high path AI have been minimized by the FX and by the efforts APHIS has done with most of our trading partners with the exception of China, Taiwan, and some minor markets. Most all our trading partners are recognizing to the county level or even as old around lending.

That's fine.

For China, the biggest impact is relative to false and it's not a major export market for parts at this point because of our geographic diversity of students were still able to ship for many of our facilities and enjoy historical high pricing due to the lack of available supply.

For U S business, we have a strong quarter, given our combined strategy as a key customer focused portfolio diversification across both sizes and relentless pursuit of operational excellence, our kids ready grew incrementally while ensuring sufficient.

<unk> cost recovery to mitigate inflationary headwinds given the strength of key customer relationships.

The remains relatively affordable compared to other proteins. The team continues to explore promotional activities to drive profitable growth with key customers.

Across both branded and private label.

<unk> category has also solid growth and continued cost recovery from inflation as demand from key customers in <unk> and retail continue to grow.

Our big Bird business improved quarterly profitability relative to last year, even with market fundamentals moderated throughout the period to historical levels. As we entered the fourth quarter current market fundamentals will present near term challenges as such we have continued to cultivate key customer partnerships, which selected <unk>.

<unk> and diversifying its portfolio.

Let's staffing levels have improved in all regions and supported optimization of mix opportunities as they become available moving forward. We will continue to invest in automation, Fortunately and other projects to further improve our operational performance in prepared revenue increased 18% relative to prior year driven by growth in <unk>.

Just bear and Pilgrim's branded innovation and key customer partnerships throughout the retail market share from our retail branded business nearly double from prior years, giving further diversification of our offerings and increased distribution.

Margins expanded from improved mix and continued cost recovery from inflationary headwinds.

E Commerce posted strong sales gains relative to last year as sales increase over 65% given.

Even though our holistic approach to drive conversion with both pure play and omni channels E Commerce, New now accounts for over 20% of our branded volume.

Moving to Europe throughout Q3, our business battle significant inflation as cost pressures continue to escalate from historical high feed energy and labor.

The retail environment became especially challenging as consumers became increasingly price sensitive and transition to lower prices to your values and economy offerings.

Issues were further amplified as concerns rules regarding natural gas costs seemed to have availability, even influenza grey and the impact of the conflict between Russia and Ukraine.

Given these issues the team accelerated its operational excellence efforts to help mitigate cost escalation. We continue our work to give the problems, which should enhance our staffing levels were.

We're also prepared a series of counter measures to lessen the impact of potential availability issues related to natural gas, our seo to including increased Socs extended network of suppliers and improving operating procedures.

Announcements by the UK government to cap natural gas prices and the dedication of food production is a key priority may further aid these efforts.

We also continue to monitor the impact of the avian influenza throughout the region and he has got a bias security protocols.

Our operational excellence efforts extended beyond their production facilities and live operations in September we integrated food Masters information technology systems into the broader appeal to this organization as a result.

We now have a common back office platforms throughout the entire UK and European operations to manage the business increasingly.

Our scale flexibility and agility.

Our diversified portfolio and select macro factors also moderated the impact of challenging market conditions. Although overall protein consumption was challenged consumers transition to chicken and pork given their relative affordability and versatility. In addition, our offering in both branded and private level Hello.

Their business to adjust to rapidly changing customer needs and consumer space.

Lifeboat practice also improved in UK, we heard reduction in exports rebounded as China reopened.

Also drove our key customer strategy to that end, we conduct the multiple session of student to find ways to offset inflation headwinds and reduced time to recover costs from very seamless.

We also recently announced efforts to optimize our manufacturing network. These challenges will absorb this capacity of legacy sites, while improving operational flexibility to further cultivate our growth as a result, we can support our collective efforts with key customers to increase distribution and launching innovative offerings.

Our Mexico business faced a difficult circumstances throughout the third quarter of sustained high inflation impacted overall demand and extended issues with Bud mortality increased production cost and impacted our volumes as a result, Mexico did.

Klein in both revenue and profitability relative to previous quarters and previous years.

To address these challenges the team is focused on increasing key customer partnerships and diversification to strategy channels, notably retail club and food service change given this increased focus the business can fully mitigate the volatility in commodity and enhanced profitability for the overall business depending on market conditions.

Despite increased production costs the team continued to support existing demand and service levels with our key customers using our diversified supply base. We continued to see progress in our fresh products and prepare foods under the leadership of the business and del Dia brands.

From an operation standpoint, the team implemented plans to adjust chicken production in areas with significant mortality issues, including accelerated relocation in affected areas.

Even though short term challenges exist, we remain confident in the long term prospects of our business.

We experienced significant sales growth in our branded offerings over the past year and launch of the variety of innovation with leading retailers during the quarter our investments in new Hampshire improvements at many of them as well as capacity expansion at <unk> and <unk> remain on track.

We also made significant progress in our efforts to drive sustainability throughout the organization over 370 team members or their children is finding up to earn free higher education as part of our better futures program.

We're also partnering throughout their supply chain with growers and other providers to identify and prioritize ways to reduce greenhouse emissions. We continued to drive meaningful progress in safety as they have outpaced industry performance over the past three years as a result.

We are currently on track to achieve the majority of our 2030 sustainable initiatives. We are investing in our business to drive organic growth, especially with key customers and we explore M&A opportunities to further diversify our portfolio across segments and geographies, we're continuing to embed automation throughout our production facilities enhancing our.

Operational excellence taken together those efforts further strengthening our foundation for profitable growth, creating a better future for our team members.

With that I would like to ask our CFO mouth government wanting to discuss our financial results.

Thanks, Bobby.

For the third quarter of 2022, net revenues were $4 47 billion versus $3 $83 billion a year ago.

With adjusted EBITDA of $465 million and a margin of 10, 3% compared to $346 9 million and a nine 1% margin in Q3 last year, we achieved $267 million of adjusted net income compared to $162 $5 million in Q3.

Of 2021.

Adjusted EBITDA in the U S for Q3 came in at $418 $3 million compared to $263 million a year ago. Adjusted EBITDA margins in Q3 were 14, 7% compared to 10, 7% a year ago.

Both gross and operating margins were higher compared to 2021 as.

As we entered Q3, we noted declines in market pricing from all time highs in may during the third quarter market pricing continued to decline. However remained above historical averages for most of the period. Although we noted consumer demand showed normal seasonal movements during the quarter supply grew above expectations, particularly during the latter half of the.

Period.

For our European business adjusted EBITDA margins came in at 4.0% for Q3 compared to 3.0% last year and three 4% in the prior quarter.

We've continued to see improvements in the profitability of this business due to the efforts of the team to both find operational efficiencies and to recover the inflationary impact of key input costs.

Mexico lost $6 3 million and adjusted EBITDA in Q3, compared to making $56 $3 million last year. However, Mexico has made $128 9 million and adjusted EBITDA or a nine 3% adjusted EBITDA margin for the nine months ended in September .

Volumes in the quarter declined given the weakened market weakened market fundamentals and margins decreased given issues with breeder mortality as we've discussed and experienced in the past on multiple occasions, our Mexico results can be quite volatile quarter to quarter.

All businesses across our geographies had been subject to continued inflation and significant market uncertainty.

Although our strategies mitigating these impacts we must continue to monitor cost throughout our supply chain to drive operational efficiency efforts and implement cost recovery measures.

During the quarter, we completed the $200 million share repurchase program announced in March.

So we spent $146 million in capex during the quarter as we made progress on our previously announced organic growth investments and as we rebuild our hatchery in Maysville, Kentucky. Following the tornado in December of last year.

We recognized $16 $2 million of property insurance proceeds in the quarter as miscellaneous income is the accounting for these insurance proceeds is to recognize income at the time, we received the commitment from the insurance carriers to fund. The rebuild we included this is a non-GAAP adjustment to our income statement as the cost of the actual rebuild.

<unk> are accounted for as Capex as monies are spent.

Our overall balance sheet liquidity remained strong as we have over $1 6 billion and total cash and credit available as of the end of Q3, our net debt totaled approximately $2 5 billion with a leverage ratio of 133 times. Our last 12 months adjusted EBITDA, which is below our target ratio of two to three times.

Net interest expense for the quarter totaled $34 million, our effective income tax rate year to date is 22.0%, we anticipate our full year effective tax rate to be between 22 and 23%.

We will continue to follow our disciplined approach to capital allocation as we look to profitably grow the company and will continue to align investment priorities with our overall strategy and portfolio diversification.

Focus on key customers operational excellence and commitment to team member health and safety.

Operator. This concludes our prepared remarks, please open the call for questions.

Yes.

We will now begin the question and answer session.

In the interest of allowing equal access we request you limit your questions to two.

Rejoin the queue for any follow up too.

To ask a question you May press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys to minimize background noise.

She was draw your question. Please press Star then two.

This time, we will pause momentarily to assemble our roster.

Alright.

Your first question comes from Ben Theurer with.

Barclays.

Please go ahead.

Thank you very much good morning, Javier good morning, Matt.

Go ahead.

So my first question really just on the outlook and if you could repeat or clarify the commentary when you sit there are some short term challenges were you referencing short term challenges on the big Bird piece. In particular are you seeing short term challenges also in some of the smaller bird categories in the <unk>.

Medium sized categories, if you could differentiate or.

Be a little more precise on what youre seeing in the market here that would that would be nice. Thank you.

A question and thank you for the question, yes. The short term challenges that we are seeing are mainly on the commodity segment.

I think as always we need to remember that.

One of the most important aspects of our strategy. It is our diversification in terms of portfolio not only across regions, but also across business. So in U S. We have.

<unk> to the commodity segment in close to a third of our volume offerings.

And on that segment and what we've seen is after a very high prices. During Q2 Q3, we're seeing significant pressure in terms of pricing for the Q4.

On the other segments, such as retail and small birds.

<unk> seen very strong demand and continued strong embrace.

Yeah.

Okay, perfect and then.

Just on Mexico, I mean, obviously that was one of those quarters and we all know those happen but.

Aside from the measures you can take short term just to understand better RV issues around the mortality is an industry wide problem is it more of a program specific problem.

And how long do you think it's going to take to get through those those headwinds I mean, obviously inflation, that's tough to call, but particularly on the mortality side.

When do you think you're going to be able to fix this.

Sure.

I think this was a perfect storm for us in Q3 in Mexico, We have of course, the market challenges, which we always remind everyone that Mexico is a very volatile.

Economy, we're seeing some very strong pricing and very strong demand during Q1, and Q2 and we did that we saw some challenges in Q3, both from the demand ASP.

Aspect, because consumers were facing high inflation and high pricing, but also from the supply because there was a lot of.

Product coming out of U S and even Brazil.

Switching the region during Q3.

And our operations were affected more than the we believe the other company.

Companies I think we had a lot of our breeders in some regions that were.

In the past, but doing this avian influenza season, we saw some impact in the in those regions and that's why we.

We diversify all of our breeding operations throughout Mexico, and even in new ways to mitigate those impact in the future. We expect most of the impact was already.

Felt in Q3, there is some residual.

The impact in Q4, and Q1 next year, but mostly the biggest impact was in Q3 as we were bringing eggs from all of our network, including Europe U S to support our key customers in Mexico.

Okay. Thank you very much for IV.

The next question is from Ben <unk> with Stephens. Please go ahead.

Hey, Thanks, good morning, everybody.

Morning, Dan.

I wanted to ask about kind of this dichotomy, we have where.

You said production is ramped in the short term.

But when we look at pullet placement data, it's down pretty substantially in the last several months.

Do you think that's a curbing of Ford production do you think it's a reaction to kind of normalizing hatch rates and hatch ability. What do you think is going on there versus kind of what we're seeing in the short term.

Yes.

Oh a question.

I just want to step back and remind where we were in the first half of 2022. So in the beginning of the year. We have this challenging hatch ability right and we have even lower staffing levels and the supply was very limited in terms of growth of doing deals.

Two quarters I think during Q3, we started to see the improvement that we were expecting in the actual ability and with the high number of days, we saw that increase in production that we mentioned them off two 8% during Q3 with some very high weeks, especially the beginning of September and that fully.

And our challenge on the commodity pricing I think reflecting on the size of the work that we have today and the bed their cash ability the industry can improve its cost by reducing the number of layers. Because now we will have all the eggs that we need for the.

The 2023 season.

Given USDA expectations, we're expecting a little bit less than 2% growth in the size of the breeder flock reflects that.

Okay, great very helpful.

Shifting gears, a little bit to Europe , I thought pretty impressive results in the quarter given some of the challenges that you cited.

I know, there's a continued plan of improvement as we move forward in that business can you give us a little bit more detail around some of the efficiency initiatives you have underway and how you think about kind of a tug of war between that dynamic and just broader inflation in the market pressuring consumer demand.

Sure Yeah. So we saw in Europe .

A reaction from the consumer given all the inflation, where there is a reduction in demand for all proteins. That's been mentioned chicken and pork tends to be more resilient to a downturn and an increase in pricing, we're seeing flat levels of volume now in chicken.

Now in the Red meat, especially on beef, we're seeing double digit.

Reduction.

What we are doing to mitigate that is there is always a lag in terms of our pricing and inflation as we were seeing continuous inflation in Europe , and especially U K over the months, we will always lagging that pass through to our prices I think as we catch up now as we change all of our contracts.

To include other inflationary items, not only green there continues to be elevated but utilities labor packaging and other inputs I think our prices are catching up to Judy inflation right now.

And we are continuing to supporting our key customers with innovation in terms of creating new products and new offerings to support their growth as long as as well.

Well its articles of course, we're also optimizing our network.

Recently.

And now the closure of two operating facilities that were small and were concentrating our operations in other facilities with continued support for growth in the future. We have also consolidated our back office in U K in Europe , We now have one platform with SAP.

Which will create not only better cost for us on the call.

By an entity, but also more agility on supporting our key customers.

Great. Thanks very much.

The next question is from Ken Zaslow with Bank of Montreal. Please go ahead.

Hey, good morning, guys.

Morning, Ken.

Can you talk about your U S. A.

Operations can you talk about if you took any extra.

Extra pricing.

In tray pack or small bird or did you have a business mix.

Mix shift away from.

Our big Bird.

Or do you think that the outperformance was.

The stability and.

All bird and tray pack, how do you kind of frame it at a little bit better, particularly given the pricing dynamics and a little bit of a volume decline that we saw just trying to kind of put it all together.

Yeah.

Great point.

As I mentioned, it's all about the portfolio that we have.

Remind everyone the prices that we see.

Specialty.

Should you be only reflects the commodity segment of the chicken industry.

All their business, our retail <unk> small, but theres not follow those market pricing rather it have.

They have their own pricing models, depending on the type of offering that we have we have differentiated offerings.

Normal non antibiotic sample organic offerings and also the value creation that we're doing in terms of.

Tailored products that we do for our key customers I think one great example of value creation with our key customer strategy was the growth that we have in the fresh retail segment during this quarter.

The industry. According to IRI data was down 1% year over year in terms of volume.

With many chicken producers shaving the high priced commodity segment as we mentioned we continue to support our key customers in this segment and increase our sales in that segment during Q3 by 5% with our growth with our key customers of 9% I think that shows the strength of the Waller products and how.

We can be a differentiating factor for growth and profitability, both for us and our key customers.

We are happy with the footprint that we have Ken I think we have a very well balanced between the small bird the retail and the big bird as we mention at all.

All we can capture the upside in the commodity market to our exposure to the Big Bird segment Lucky demonstrated in previous quarters.

We can protect the downside with the more resilient business on the other segments.

Is there a.

Downside margin that you think that you will not breakthrough in this type of environment given that is there a way to kind of frame. It that you will at the margin.

Big Bird and the Euro.

You guys still be at a five 6% how do you frame that and then my last question would be.

Do you think that Europe .

In 2023, you can hit that two 2.5% margin and I'll leave it there and I really appreciate your time.

Sure can I think of course, what how we.

Track our business is.

Against our competitors, but we believe.

Guidance and what we want is to always be better than our industry and we've been at the top of our industry for some time right now it is all about the portfolio of course, we will always keep our.

Key customers competitive I think we can offer and this is something that has not occurred this year, especially in the retail because of the high pricing of the commodity segments.

Emily we will use some big bird to help promotional activity on the retail and that has always been a great way of.

Supporters of Big Bird business, and a great way for portfolio that'd be doesn't happen this year.

Because of the high prices of the commodities.

Make no economic sense to put that big but a meeting of trade and sell to the retailers.

As I mentioned the price of the retailers never reach the high levels that we saw in the commodities.

So also the retailers were not featuring a lot of chicken and that's why I think the volumes. This quarter was flat for the industry again for us It was up 9% and our key customers.

Compared to last year, I think that can start to happen right now we're seeing a lot of.

Yes, and a lot of intentions on being more promotional activity, which can support the growth in the retail segment and can use some big bird meat and a very profitable way.

And then just on Europe .

Well in Europe , I think we will continue to improve our results are I think we mentioned that we now are catching up to all the cost increases and we are optimizing our network.

The benefits of the network optimization and even the back office integration, we're gonna be seen more in the.

The second quarter of next year in the first quarter of this year, but yes, we expect the margins there to increase to profitable levels and investment levels, we have.

Great expectations for for our European business, and we expect also the economy to start to recovering start from next year.

Thank you very much.

Our next question is from Peter Galbo with.

<unk> of America. Please go ahead.

Hey, guys. Good morning, Thanks for taking the questions.

Good morning, Peter.

Probably maybe if I can just ask on on the go forward.

Pricing in U S I guess I'm a little confused.

In retail and small bird you know keep customer you tend to lag on pricing right on the way up and on the way down so just.

As we've seen the commodity big bird market really materially roll.

Why wouldn't those other channels followed suit even if just directionally.

You know, whether that's a quarter from now two quarters from now at some point next year, but just.

It sounds like Youre expecting that that pricing might might hold into next year and I'm. Just curious why it wouldn't follow the broader commodity market. If it does stay you know what the more normalized levels.

Sure I think it's all about the portfolio of contracts that we have as well.

Most of our contracts with the <unk> and retailers are not based on the commodity pricing. So we never experienced the high pricing that we saw on the commodity.

Segment in the retail over Q1 and Q2 this year.

So that's the main reason of course, we will keep our.

Key customers competitive with.

Taylor made offerings that are not considered commodity what we can do and we will do is to again support promotional activity to help them sell more.

And extract more value with the.

Big Bird meat that we can trade pack and sell to end users that helps on the inflation side and it helps keep.

Keep customers to grow their sales.

Okay. That's helpful. I mean, I guess, if I just think about that.

Dissecting your business right into the three parts like it would imply that if it's a commodity market was slightly down in the third quarter that retail in key customer had to be up again materially year over year pricing. So you would have started to see pricing come through <unk>.

So I guess that maybe just some of the confusion and then maybe just Matt just to clean up a couple of things did you did you guide interest expense for the rest of the year and I think on SG&A. This quarter, you were down a bit from where you've been running so just is that third quarter SG&A number a decent run rate for <unk>. Thanks.

Hi, guys.

Yeah, Peter it's Matt.

I did not guide on net interest, but that $34 million that we had this quarter should be about where we look at next quarter, maybe slightly below that.

Relative to SG&A I think we may be slightly higher on an overall run rate. We had a couple of just somewhat minor credits that came through for an R&D tax credit and things of that nature that hit.

G&A, but it shouldnt be too far off, but maybe just slightly higher than we saw here in Q3.

On the on the.

A bunch of windows in the West we also need to mention that we have a much better staffing level in Q3 definitely have in Q1 and Q2 with allow us to operate better capture better yields and also improve our mix on.

Once again I think the differentiating part of our portfolio is to be able to support our key customers with differentiated products and those products does not follow the commodity pricing either up or down.

The next question is from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes, thanks, good morning, everyone.

Good morning, Adam.

Maybe following up on some of the questions around kind of margin trajectory.

And I guess.

Thinking about the fourth quarter and then the correction that you have seen in that big bird cutout with prices now approaching.

The five year average.

Costs are well above the five year average given feed and broader inflation, so profitability kind of tracking.

Below those are moving to below those levels over time.

I guess.

How do I think about the profitability and big bird kind of stacked against the profitability and the and the retail end and tray pack.

And small bird businesses, and just U S. Marc if pricing and.

Big Bird is that five year averages and profitability kind of getting trending to below five year averages.

As your U S business.

Does the do the margins in the U S business track through the five year averages.

Above in line or better I'm, just trying to how that mix kind of really plays through with the way the contracting works on.

The non big parts of the business.

Yeah. Thanks, Tom Yeah. So I think we've seen a compression of margins on the Big Bird segment, starting late Q3 and studying in Q4 and I think that it's been.

So it's a fast redemption in terms of overall cut out given everything that we mentioned in terms of demand and supply.

Looking forward I think we tend to look into more long term approach and if you think about next year.

All of the drivers that we're seeing.

Leading to a rebound in those prices if you look at the expectations of both beef and pork.

In supply for next year.

This is expected to be down four 7% in terms of domestic availability port is going to be up at just marriage.

So we're seeing a lot of promotional activity being planned and this is the time of the year, where both retail and food service industries Scott.

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Planning for the promotional activity for next year, and we're seeing a lot of interest in promotional activity for chicken next year, because we will have both the availability and we will have the versatility and good pricing that we're seeing today.

So we have great expectations for next year.

Again as for Q4, and we're seeing high volatility in this big Bird segment image exactly what we expected and is a decade why we created the portfolio that we create whether you would capture the upsides that we had in Q1 and Q2 Q2 and protect the downside that we're seeing in Q3 and Q4.

Okay, and if I could just switch gears to Europe , and Robert you talked a bit more optimistic about margin prospects there into next year just.

Just how dependent on the consumer environment, improving in the U K are you on that on that outlook and specifically thinking on the on the food Masters side if that doesn't.

Still faces a sluggish consumer environment and guest relate.

Q3 2022 Pilgrims Pride Corp Earnings Call

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