Q4 2022 Pilgrims Pride Corp Earnings Call
Speaker 2: the quarter and the year, including a reconciliation of any non-depth measures we may discuss.
Speaker 3: A copy of the relief is available on our website at ir.programs.com along with slides for reference. These items also have been filed as form 8Ks and are available online at sec.gov. Bobbiel Sondry, President and Chief Executive Officer, and Matt Galvinoni, Chief Financial Officer.
Speaker 4: We'll present on today's call. Before we begin our prepared marks, I would like to remind everyone of our safe harbor disclaimer. Today's call may contain certain board looking statements that represent our outlook and current expectations as of the day of this release. Other additional factors not anticipated by management.
Speaker 5: may call up actual results to differ materially from those projected in these forward-looking statements.
Speaker 6: regular filings with the SEC. I would like now like to turn the call over to Fabio wrapped in a centimeter in a radius of J.
Speaker 7: For the fourth quarter of 2022, we reported net revenues of $4.13 billion. We had an adjusted EBITDA of $63 million, and our adjusted EBITDA margin was 1.5%. Our Q4 performance highlights the importance of our strategies of portfolio diversification, key customer focus, and operational excellence to mitigate market volatility.
Speaker 8: In the United States, our big bird deboning business experienced unbalanced supply and demand and a period of severely negative margins. However, our diversified offerings and key customer relationships in a more stable, case-ready and small bird business, along with our prepared foods, partially compensated impact.
Speaker 9: generating break-even EBDA margins for the quarter. Are UK and Europe business has completed a variety of steps to enhance our operational excellence through optimization of our manufacturing network and integration of back-off fist activities?
Speaker 10: The team also continues to work in partnership with key customers to mitigate persistent inflationary challenges.
Speaker 11: These steps and future efforts have a real further enhanced margins and reinforce the foundations to scale profitable growth for the next year and beyond. In Mexico, our business faces a challenging quarter, deepened and balanced supply and demand from the mentors, increased pressure for imported chicken.
Speaker 12: and continue to challenge with our live operations. Nonetheless,
Speaker 13: The team strengthening its relationship with key customers and grew its branded presence in the prepared foods by double digits.
Speaker 14: For the fiscal year, the net revenues were 17.5 billion, an 18.2% increase over last year. Adjusted EBITDA was 1.6 billion, up nearly 28% compared to 2021. Adjusted EBITDA margin for the year was 9.4% compared to 8.7% in 2021 and 6.5% for 2020.
Speaker 15: Throughout the year, we experienced remarkable inflationary advance and exceptional market volatility.
Speaker 16: We are pleased with how our team engage with key customers in all regions to ensure superior service levels and mitigating inflationary costs.
Speaker 17: Our diversified portfolio of branded and private label offerings enable us to adjust to rapidly changing consumer needs throughout the year.
Speaker 18: When these efforts are combined with our improvement in operational excellence, we establish growth, voting fails and adjusted in the markets.
Speaker 19: Turning to feeding ingredients. Recent USDA reports have lower, final production estimates for the 2022 US corn and soybean crop.
Speaker 20: December 1st corn stocks were down 7% year on year, where soybean fell 4% versus the previous year.
Speaker 21: Demand estimates were also reduced in line with the production cuts.
Speaker 22: The demand rationing is primarily centered on the export market. US corn exports in the first four months of the crop year were done approximately 30% versus last year. Corn for ethanol demand has also been lowered in that time.
Speaker 23: UF-Fibing export demand estimates were reduced by USDA January while the report absorbing most of the production cuts but still letting Tiner and these stocks from previous estimates and previous years.
Speaker 24: Crush margins remain strong and supporting ongoing crush industry expansion. Globally, a dry start to our gentina side production has their crop estimates shrinking, but Brazil production is expected to help swell global soy stocks. That far we've.
Speaker 25: The USDE's general report increased 2022 and 2023 world carryout by 1 million metric tons. With steady exports from the Black Sea, Russia exports are on pace to hit the expectation of 43 million tons, up 35% year on year.
Speaker 26: Australia's production estimate on nearly 40 million metric tons making it the largest crop in the last 10 years. With markets, look to be well supplied and are providing alternatives to foreign demand. Looking ahead, increased area and production of Brazil crops continue black sea flows.
Speaker 27: and reduce the income cost year over year, offer a pathway to more comfortable supplies and lower prices. But with all the growing season weather risk is still ahead.
Speaker 28: At 40 West she can supply ready-to-cook production increased 6% relative to 2-4 of last year, driven by head count and a higher average life weight.
Speaker 29: This was the continuation of trends beginning mid-year as the industry maintained improved hatchability while continued to increase exits relative to 2021. In addition to the growth in headcounts, industry live-weights materially increased into four, growing on an average 2% relative to last year as the industry continued to reduce its product in our months prior release by September , 2020.
Speaker 30: This growth in chicken production was in response to positive supply and demand for the mental health throughout most of 2022. And expectations for a tight competing protein landscape in Q4. However, both broiler and beef production outpaced USDA expectations, driving total protein availability much higher than anticipated in Q4.
Speaker 31: Combined with smaller demand growth, this additional availability contribute to increasing cold storage levels and apply pressure to commodity markets, resulting severe weak seasonal pricing during the quarter.
Speaker 32: Combined with smaller demand growth, this additional availability contributes to increasing cold storage levels and apply pressure to commodity markets, resulting in severe weak seasonal pricing during the quarter.
With weak market pricing persisting to all November and December , the growth of industry exceeds slow recently. As a result, the most recent USDA outlooks expect production to grow only 1.1% in 2023. It's low downward revision from previous forecasts.
Given the current rate of production, the USDA has suggested a coin in the second half of the year.
Chicken may also benefit from other dynamics throughout the global protein complex.
Beef production is expected to decline 6% in 2023, even the extended herd liquidation over the past several years.
Moreover, the rebuild may take longer than previous cycles, even relatively lower level of beef cows. S4 pork, availability is expected to remain flat in U.S. as production, as protein availability is expected to decline 0.4%.
from 2022 levels. These factors, when combined with pressure consumer available income, suggest chicken may be advantage given its availability, affordability, and flexibility.
Similar to trends experienced in Q3, domestic chicken demand experienced stable volumes in the fourth quarter.
The Ritim channel continued to grow dollar sales at double digit rate while volume sales remain relatively flat
Fresh chicken volume sales were most flat throughout the quarter as continued growth of dark meat volume sales were offset by volume declines from white meat and whole bird options.
In the frozen apartment, voting valid added items, both volume and dollar sales, highlighting the increase in consumer demand for value-added products which has remained robust even in the face of elevated pricing.
Meanwhile, proven these items have provided mild dollar growth, but the material lower volume sales. The retail daily department consistently provided double-digit dollar growth.
Through all the year, MNK is trending here for. More recently, we are seeing additional promotional support throughout the store, which may stimulate further demand and provide price relief to consumers who have experienced elevated grocery bills throughout the year.
The Food Service channel grew volume and dollar sales.
But experienced varying results depending on some channel. In food service distribution, volley demands was able to improve incrementally. As table brass mid demand was offset by improvements in a variety of the other cuts, such as wings, tenders, strips and ties.
We are encouraged by the third channel as it continues to serve a large base of operators relative to the prior year and has shown increased willingness for promotional activity and limited time offers.
The non-commercial sub-channel continues to pose significant year-over your gains, driven by an increasing number of operators buying, as well as an improved buy rate. Both positive signs as the sub-channel looks to reach answer path to 2019 pre-COVID levels of demand.
Although the US has the marketable market fluctuations throughout the year across chicken parts, each experienced relative similar dynamics, albeit different times. Throughout 2021 and early 2022, was shortage of wings given exceptional demand for food service and the whole wing pricing approach or exceed five years
and extended period of relative low prices. Now, more operators are purchasing links to support their manures, and the market is responding as USDA whole wing price has trended upward in January .
As for boneless, skinless breast, it experienced significant run-up throughout the first half of the year and achieved an all-time high in May per the USDA. These record values, combined with a remarkably strong cutout on value, enticed in additional production later in the year despite normal declines in seasonal demand and elevated grain pricing.
In addition, many retailers opted to preserve innovative cheeky pricing, reducing the spreads for boneless, keenless breaths against ground beef and pork.
Despite this threat compression, sales of bonus still grow 1% in volume compared to the same period last year.
As for food service, commercial broad-line volumes grew nearly 2% despite consumers increasingly shifting to at-home consumption given persistent inflation, whereas non-commercial grew at a robust 10%.
Despite growth across both channels, the significant increase in supply, along with suppressed demand, drove a dramatic decline in prices through Q4.
Given this pressing decline, retail and food service customers have adjusted tactics by increasing promotional activity to spur interest.
From a production standpoint, data suggests lower growth rates throughout the second half of 2023, as excess and hedge utilization have dropped compared to prior quarters.
Most recent pool replacements, which are down 8.6% over the past 8 trailing months, also support USDA projections of slower growth rates through the second half of 2023.
These combined factors suggested better supply and demand balance from the mentos may be emerging as overall chicken pricing, including boneless, skinless breasts, has trended upward through all January and February .
US oil and exports continue to outperform expectations in Q4. Despite the continued findings of RIPAD AI in US, Mexico, China, and the Philippines.
as we saw a big volume growing in Q4. Here to date, experts have reached all time highs in both volume and values, according to FDA FAS 3 data.
The markets were supported by progressively favorable exchange rates to US dollar, high price alternative proteins and the need to bolster terminal inventories as the holiday season approached. The industry continued to enjoy an increasing more fluid and export supply chain which we are expecting to continue throughout 2023.
The prevalence of the Hypat AI in the U.S. continues to be of great concern.
The current outbreak, which began in February of 2022, is the largest we have ever seen.
To date, we've seen 754 outbreaks in commercial and backyard flocks in 47 states, with over 51 million birds being depopulated, in contrast to 2015, where we had outbreaks in only 15 states, and just over 50 million birds killed or depopulated.
As in 2015, the greatest impacts in this current break are being seen commercial ag layers ending the dirty industry.
Brawler's had had some events, but the actual impact has not been material for most.
Besides the broilers industry commitment to buy security in our farms, the primary reason we are seeing much less financial harm is due to having regional malization agreements with most of our trading partners, limiting high-pad AI bands to either the state, country or zone level.
In 2015, we have 14 trading partners that placed ban on the entire US. Today, we have only two markets that banned the entire US and they are not materially volume.
We continue to make progress with our trading partners as they need for US pottery considerable.
For example, Taiwan, one of our largest trading partners, recently moved to non-poetry finding as a disqualified forex for.
This new prompted the release of 10 states that are now eligible to export to Taiwan as of January 19th of this year.
Our trading relationship with China remains a concern. Today, China has yet to follow our regionalization agreement, limiting dance to the state for 90 days post an outbreak.
As for today, only four of the significant broiler producing exporting states continue to have access to the China market. We have facilities in these states and we are maximizing our opportunity on pause and boning parts for China from Big Bird, case ready, small bird and fresh Ford service plans.
Our geographic and channeled diversity in the US continues to benefit our business. China is a very important market for the US poultry and we are hopefully for a return to our regionalization agreement in the near future. We have seen some signs of positive moments with more US poultry processing and cost storage being approved for export to China in recent months.
as well as the animation of the COVID-related bands on some of our plans.
After reaching all-time highs learning in the year, are US business faces a challenge quarter giving severe declines in the year?
cutout values, historic elevated input costs, and continued inflationary headwinds.
This impact were especially difficult for a commodity business as revenues and profitability fell significantly from prior quarters and last year to heavy losses.
Despite before, the business grew both top and bottom line relative to 2021, given the record-straining cut-out values in the first eight months of 2022. Moving forward, we will continue to pursue improvements in operational excellence to mitigate weak market fundamentals.
In Smallbird, our focus on growth with key customers, recapture of inflationary costs, and recovery from the Mayfield tornado drove improvements in both the quarterly and annual basis in both net sales and profitability. Our case-ready business continued to grow, and while the market only increased 1% in 2019, April , results were up to an electronic n PLAYFUEANT.
LGBTQ4 2021 and 70%.
compared to prior year through key customer partnerships, new distribution and innovation.
Our presence in e-commerce continued to grow despite lapping significant gains in Q4 last year. Throughout 2022, our e-commerce business grew 48% and now accounts for over 23% of our branded sales.
Despite short-term challenges in the commodity segment, we remain confident in the prospects of the overall we have say portfolio and continue to grow and add value to our business.
To date, we've made significant progress on our Athens expansion in Georgia to support key customers' growth. Similarly, our investment in operational excellence through automation in our new protein conversion plant remains on track.
As for the UK and Europe business, consumers continue to face challenging inflationary headwinds. Given the relative affordability of chicken and pork, many are switching from other proteins into those categories. In addition, our balanced portfolio across retail and food service have provided the flexibility to serve customers.
as they transition among grocery outlets, QSR and local restaurants.
Within retail, our branded offerings have maintained their market share, despite recent price increases to mitigating inflation. Equal important, we have either maintained or secure new business through innovation and superior service.
The team continue to work in partnership with key customers to mitigate costs from continued inflation. Although significant process has been made throughout the quarter and past year, works remain as costs are expected to increase, albeit not as pronounced throughout the 2023. Our team also maintain its focus on operational excellence.
So implementation of a variety of previously announced steps to optimize our manufacturing network and integrate back office activities.
To date, significant progress has been made and future efforts are slated throughout 2023. These ongoing efforts will provide the necessary scale to future acquisitions, expand our portfolio of offerings, and meet growth demands from key customers.
As a result, we now have an enhancement for you to profitably grow our business.
has the ability to profitably grow our business. These efforts...
Maybe furthered by pork and chicken from the mentals, as market pricing appears to be trending towards more sustainable levels.
Similarly,
A variety of input prices such as natural gas and grain have seemed to stabilize, albeit at very elevated levels. Although risk remains, yearly signs throughout the month of January are really promising.
Turning to Mexico, the business experienced a challenging cost environment, giving continued issues in our live operations.
From a demand standpoint, inflationary headwinds continue to pressure consumers while growing domestic supply and growing imports from the United States and Brazil arrive during the quarter.
As a result, the market continued over-supply. Despite this challenge,
the team leveraged our broader geographic portfolio to maintain our service levels, especially with key customers.
The business also grew, its branded presence by double digits.
Demonstrating its ability to resonate with customers and consumers despite a difficult environment.
We are seeing significant improvement in the beginning of 2023, both at our operations and at the market. And we make confident in long-term prospects for both our prepare foods and French branded business, given the growth potential in Mexico over the coming years.
As such, we will continue investments to drive profitable growth and operational excellence.
We also continue to make significant progress on our sustainability efforts, as we receive external recognition for improvements across all facets of our ESG scores relative to last year.
We have conducted a variety of greenhouse emissions assessments throughout our location, and identified multiple opportunities to improve our operations, simultaneously reducing our emissions and enhancing our operational efficiency.
Our HomeTown Strong and Better Futures program continue to be exceptionally well received.
Through our 2022, we have approved the mean investments of $15 million in our communities, and over 1,000 team members have signed up for our free educational programs.
With that, I would like to ask our CAFU member, Vanoni, to discuss our financial results.
Thank you Fabio and good morning everyone. For the fourth quarter of 2022, net revenues were $4.13 billion versus $4.04 billion a year ago, with adjusted EBITDA $63 million in a margin of 1.5%.
compared to $317 million in a 7.8% margin in Q4 last year.
In the quarter, we reported a gap net loss of $155 million versus gap net income of $37 million in 2021.
In the fourth quarter, we recorded a discrete income tax charge of $39 million associated with the previously disclosed Mexican tax matter that dates back to 2009 and 2010, which drove our full year effective income tax rate to 27%.
For the fiscal year, net revenues were $17.5 billion versus $14.8 billion in fiscal 2021. With a drop to deep at $1.65 billion and a 9.4% margin compared to $1.29 billion in an 8.7% margin last year.
We achieved $746 million of net income this year versus $31 million a year ago.
Adjusted EBITDA in the US for Q4 came in at $15.8 million with adjusted EBITDA margin slightly above breakeven.
Throughout the fourth quarter, commodity market pricing fell dramatically, although historical averages for most of the period. Our diversified US product portfolio across bird sizes and brands, along with our key customer partnerships, partially mitigated the impact of declines in market pricing in our Big Bird business.
For the fiscal year, our US net revenues were $10.75 billion versus $9.11 billion in fiscal 21, with adjusted EBITDAV $1.37 billion in a 12.7% margin compared to $896 million in a 9.8% margin last year.
The U.S. had a tremendous full year 2022 demonstrating our ability to participate in the upsides of a strong commodity chicken pricing market during the first eight months of the year while buffering the downside during significant market decline with the diversification of our U.S. portfolio.
In Europe , adjusted either done Q4 with $62.9 million versus $24.7 million in 2021.
Despite continued inflationary headwinds and input costs, the European business delivered its third consecutive quarterly improvement in adjusted EBITDA.
For the full year, Europe's adjusted EBITDA was $168.7 million versus $137.8 million in 2021. Note that the second half of this year's adjusted EBITDA in Europe nearly doubled the first half's profitability.
Also during the quarter we completed ERP system integration of food masters.
You will grow back office integration of the UK and European business will continue into this year, which will provide the foundation for cross savings and further growth opportunities.
Finally, Europe announced a number of restructuring programs pursued a further operational excellence.
The manufacturing network optimization will reduce costs while still allowing the business to maintain sufficient capacity to grow with our key customers moving forward.
We recognize approximately $30 million of restructuring charges in the fourth quarter and anticipate approximately $15 to $20 million additional charges in the first half of 2023 associated with these programs.
Mexico lost $15.8 million in adjusted EBITDA on Q4 compared to making $27 million last year. However, Mexico made $113 million in adjusted EBITDA or 6.1% adjusted EBITDA margin for the full year.
The second half of the year was dramatically impacted by bird disease in our live operations and a more unbalanced supply-domain dynamic in the market.
Our Mexican team did an excellent job in keeping our fill rates high with our key customers while recovering from the live operations challenges.
We've already seen significant improvement in financial results in January as the market has moved more in balance and our operational improvements have taken hold.
Overall, our GAAP SG&A in the fourth quarter was significantly lower than prior, primarily due to the legal settlements recorded in 2021. However, even on an adjusted basis, our SG&A still decreased year over year by approximately 89%.
We finished the year spending $487 million in capex. This included approximately $20 million to rebuild the Mayfield, Kentucky hatchery following the December 2021 tornado, in which we have received insurance proceeds to cover.
As we start off 2023, we plan to be even more judicious in our capital spending prioritization as the U.S. chicken market improves from the steep decline incurred in the fourth quarter.
We will continue to prioritize our capital spending plans to ensure the safety of our team members, optimize our product mix, and strengthen our partnerships with key customers.
We reiterate our commitment to invest in strong ROCE projects that will improve our operational efficiencies through automation and tailor our operations to address key customer needs to further solidify competitive advantages for pilgrims.
One example of this is our previously announced plan to expand our Athens, Georgia facility, which we anticipate completing early in the fourth quarter.
Also, we've made good progress in our construction of our protein conversion point in South Georgia, which we anticipate completing by the end of the year.
As the timing of certain capital spend will depend on U.S. marketing conditions, we are expanding our range of estimated capital spending in 2023 to $400 to $500 million.
As conditions evolve, we may provide spending either way to accommodate our growth aspirations, however we will remain disciplined in capital allocation.
We have a strong balance sheet and will continue to emphasize cash flows from operating activities, management of working capital, and discipline investment and high return projects.
Our liquidity position remains very strong. At the end of the fiscal year, we had approximately $1.4 billion in total cash and available credit.
We have no short-term immediate cash requirements with our bonds of the Turing in 2027, 2031, and 2032, and our Turing loan in the Turing in 2026.
Also in January , following the receipt of our investment grade credit rating in 2022, we announced the registered exchange offers for our 2031 and 2032 notes for all bondholders to exchange the restricted notes for new registered notes.
Bondholders have through February 15th participated in the exchange.
At the end of the fiscal year, our net set was approximately $2.8 billion with a leverage ratio of less than 1.7 times the last 12-1 suggested EBITDA, which is below our target leverage ratio range of 2-3 times.
Net interest expense of the year was approximately $144 million.
We anticipate our 2022 net interest expense to be approximately $155 and $165 million in that range. As I mentioned previously, in the fourth quarter we recorded a significant income tax charge in Mexico that drove our full year effective income tax rate to 27%.
We anticipate effective tax rates to be between 23 and 25% in 2023.
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 strategies of 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.
We will now begin the question and answer session. In the interest of allowing equal access, we request that you limit your questions to two, then rejoin the queue for any follow.
To ask a question, you may press star then one on your touch tone phone. If you're using a speaker phone, please pick up your hands that before pressing the keys to minimize background noise. To withdraw from the question, please press star then two.
At this time, we will pause momentarily to assemble our roster.
Our first question is from Ben Bienvenu of Stevens. Please go ahead.
the end of the new of Steven. Please go ahead. Hey thanks, good morning guys.
We're running back
I want to ask my first question relative to supply demand in the US market. You highlighted the USDA's estimate revision downward yesterday for broiler production this year. You talked about the pullet placements pointing to production cuts as we get to kind of a summer in the second half of this year.
Do you see those cuts staying intact through the balances this year? And then on the demand side, are you seeing any indications of demand shift from beef and red meat to chicken yet, given the value that it offers consumers?
Yeah, thanks for the question, Ben. Yes. I think we need to always go back and look at our portfolio, right? And for people, we have the exposure to the commodity market. And we've always mentioned that it's.
important for us. And we captured the outside when the market was really strong in Q2 and Q3. But of course we were exposed to that segment in Q4. What happened in Q4? I think we could address a little bit on the prepared remarks. Is that the expectations from USDA and from the market? Was that there was a significant reduction?
in the availability of protein in the Q4, giving the lower herd of beef.
and also the AI impact on the turkey.
With that and with the continued record profits on the commodity segment for chicken. The whole industry started placing more chicks than they can see on the chick's placement report from USDA. Around 48 million birds a week more than previous year.
We improved hatchability, but it was also a lot of more eggs.
That came into the market during the Q4. What we saw in Q4 was an increase of close to 12%.
of availability of chicken on the big bird segment or the commodity segment. At the same time, we saw an increase of 8.5%.
availability in the case-ready segment.
And as we saw, because of the higher availability than expected of beef and pork...
the demand on the retail segment only increased by 1%, which means that all this 20% more production.
In the big bird and the case ready segment ended up in the food service segment and the commodity segment which pressured the prices.
to two levels that we have never seen, which created a severe loss for the Big Bird Business CQ4.
Starting in November and mid-November as you can see and you mentioned on the weekly cheek placements from USDA, we saw that a moderation of that increase to actually some reduction. And that's what we are seeing coming as...
production now in Q1. So USDA numbers are expecting an increase of total
chicken production Q1 around 1%, we believe that that is the die of caste on that one, but if the market don't continue to improve, we expect some significant reductions in chicken production for the second summit.
Okay, and now that maybe the pig is through the python on beef and we should start to see shortages. Are you seeing demand shift from red meat to chicken yet? Imagine...
Given where wholesale prices are for chicken, there's a lot of margin for retailers, maybe to feature chicken with more frequency.
Yeah, that's exactly right. I think over the last quarter we also see that the retailers kept the price of chicken elevated and that compressed the spreads between chicken and ground, especially ground beef and pork. So there was not a lot of promotional activity during the quarter, but we are seeing that change.
that they start setting for the year around this time.
If the USDA expectations is correct, we're going to see the reduction of 6% in production of teeth and that should lead to high prices and lower availability, which tends to favor LTOs and promotional activity on the food service for the chicken production.
Okay, great. Thanks so much.
The next question is from Ben. Please go ahead.
Yeah, good morning Fabio Matt.
Good morning, Ben. So just along those lines, and you've talked a lot about obviously what the industry is doing in terms of bringing some of the production down, but at the same time you've talked about spending maybe some $400 to $500 million in CapEx adding capacity. Can you help us reconcile?...
what kind of capacity that actually is you're adding and how you think about this in light of the production cuts and potentially postponing some of the delivery of these capital expenditures just to kind of keep the market in balance.
Sure, then, that is a great question.
I think we need to also come back and tie to our strategy of key customers. We...
plan our production based on the sales to our key customers. I think one good example on the retail side is while the industry only increased by 1% in Q4 on the retail side, we increased by 6% because the demand
for our key customers continue to excel. So I think that is...
despite what the overall market is doing, our key customers continue to grow.
on the graphics expectations. On Arkansas, Georgia, it's a small-board plant to support food service sales to a key customer that continues to grow double digit every year.
On the Capex expectations, on Athens, Georgia, is a small bird plant to support food service sales to a key customer that continues to grow double digit every year. So despite the market...
It on Arten's Georgia is a small-board plant to support food service sales to a key customer that continues to grow double digit every year. So despite the market...
decreasing on the small birds, we continue to see more and more demand for our products. I think the increase in the market was all in the Big Bird category and on the case ready category.
and that is where the market is oversupply and that's where we are seeing some reduction in production because of the severe losses. If you look into our portfolio, compared to the same period last year, actually the results on the smaller case ready and unprepared foods were actually higher than the same period last year.
We offer investments that
The other investment that we announced, it's one on South Georgia project.
to increase our protein conversion offerings, which is...
margin enhancing for us instead of selling to the outside market will produce fat food and will produce. So.
food feed grade from our own operations.
And then within the international operations, you've highlighted it obviously. In the UK, you've seen sequential trends, but then you hit the restructuring in there. Is that something that cost you expect to continue to occur in the first quarter? Or is that all done on the restructuring?
again to the key customers demand. And we thought that we could operate at the higher efficiency and higher operating levels that in one case in a prepared food segment. From three plants, we will reduce to two plants. Therefore, we'll operate at the higher level. There was some invested.
needed to operate on those two plants if that is three plants and there are some write offs
that we had to do because we were shutting down.
one plan. And we expect that now the network rationalization is
And we don't expect any more changes in the upcoming quarters. Yeah, it's done. It's mad. We recorded about $30 million in the fourth quarter. And I commented that we'll anticipate about $15 to $20 million of charges in the first half of the year. Just the timing of when you can record those.
under GAP and when they're incurred. So... Okay, perfect. Thanks, Matt. Thanks, Javier.
I mean, prices have improved a little bit, but still not a challenge, not a kind of great start in January necessarily. Can you help us think about the profitability, especially in TRAPAC, where the demand growth, there's still a bit of oversupply there. Demand growth is maybe a little better, but nowhere near supply log pricing. Look, it's a little bit lower year on year. How to think about the profitability in the non-vigorous parts of your U.S. chicken segment year over year, first quarter, first half, with where the markets are laying out. Sure. And again, when we...
and Evan mentioned, we have a well-diversified portfolio and we can capture the upsides when the commodity markets are really strong and we protect the downsides. And I think once again, we proved that on the Q4 and we can improve that throughout 2020 and 2021 that we.
can counter the big bird or commodity segment losses with the margins on the other business. What we are seeing on the small bird is the reduction of supply overall in the market.
and we are seeing a continuous growth.
for pilgrims with our key customers both on the fresh food side on the eight piece and on the daily side
So our partnership with our retailers and promotions on the daily side has helped a lot the demand on the small bird.
stable margins on the small board. And that's how we built our board. We'll also see significant growth on the small board the morning segment, which is for food service and for QSS, specific QSSR. So we continue to see growth in there. On the case of ready, again, after some really strong growth years in 2020, 2021, we see the demand continues to grow but at a lower pace. I think we saw some new plans in that segment.
And those plants put a little bit of pressure on the market, especially if they don't have a key customer. Because as I mentioned, as the market grew only 1% in the fresh retail in 2022, our sales increased by 6%. That's all driven by helping our key customers to grow.
So we are seeing also moderation on the growth on that segment. Now the big bird once again, it is a supply demand driven. We expected the food service to grow in 2033 as the labor rate continued to be tight. I think we are seeing.
Despite some inflationary impact into the consumer spending, we're seeing the consumers continue to go to the food service and the food service, especially the non-commercial growing at double digits, especially on the leisure and on the governmental side.
And so we are expecting some significant
improvement in the big market for 2023, of course, given the supply demand continuing to continue imbalance and the.
supply in line with the 1.1% expectations by the USDA.
Okay, that's helpful. Can I just quickly on Mexico, obviously challenges in the fourth quarter, just help us think about kind of where profitability...
is there today understanding that the live nature of that market will move quite rapidly, which is helping us think about where we've exited fourth quarter and through January .
Sure, yes. Mexico, we always mention that it is very volatile quarter over quarter, but stable year over year. I think in 2022, the market was in line with that expectation, very volatile, a very strong first quarter, and a very weak second quarter, especially because of increased production.
on the domestic side, but also after a very strong first quarter, there was a lot of exports.
from Brazil that arrived late in Q3 and beginning of Q4 and also with the weak commodity market in US There's a lot of meat that end up in Mexico
We have our operational issues as well on the lives because of some diseases and because of that we restructure our live operations and we expect the benefit from that restructuring to start in Q2 this year. We already seen the market returning to normalization, let's say, in Mexico.
with double digit margins during the quarter. Okay, great. That's all helpful. I'll pass it on. Thank you.
The next question is from Peter Galbo of Bank of America. Please go ahead. Hey!
Hey guys, good morning. Thanks for taking the questions. Good morning.
Fabio, I was just wondering if you could help us understand a little bit. You have a slide in there in the deck around hold storage levels. Obviously, we can track through USDA and breast meat does come to mind. It's pretty much close to all time highs of breast meat and cold storage.
And so I understand that you're seeing the improvement and expecting a back half, but can you just help us frame, you know, from the 250 million pounds of breast meat and cold storage, like, what is the actual timeframe of how that gets worked through? What have you seen historically when, you know, levels get that high? Does it take three months, six months? Just any kind of timeframe around that would be super helpful.
Yeah, we see that especially during Q4 we disincrease introduction on the commodity segments that the inventory for breast meat went up especially on the I.S. I.Q.F. segment.
If you look into the retail numbers, the IQS demand during Q4 was down close to 10%.
and that increased those levels. But if you look at the overall level of breast meat into inventory, that is close to two weeks of production. So it's not a significant number that will take a long time to be absorbed.
Yeah, I think we saw some elevated levels of inflation in getting into the consumer wallets during Q1 and Q2. And that was a reflection of the increasing utilities and in grocery throughout the entire Europe . We adjusted our operations and in partnership with key customers we did some innovation to reduce the cost of our products to mitigate that inflation.
Thank you. To all 2022, we experienced some precedent cost escalation, market volatility and consumer of certain.
I would like to thank all of our team members for consistently leaving our values and driving our strategy despite this challenging times. Their leadership mindset and relentless focus on becoming the best we're instrumental in managing through these volatile times and driving strong results for the year.
We have strengthening our foundation by driving branded growth, optimizing our manufacturing network, implementing synergies, and further expanding our portfolio through innovation. We did efforts that are combined with our yielding, attention on team member safety, product quality, sustainability.
We are well positioned to create a better future for our team members. And achieve our aspirations becoming the best and most respected company for 2023 and beyond.
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