Q3 2023 Pilgrim's Pride Corporation Earnings Call

Good morning, and welcome to the third quarter 'twenty twenty-three Pilgrim's Pride earnings conference call and webcast all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the Starkey followed by zero at the company's request. This call is being recorded.

Please note that the slides referenced during today's call are available for download from the investors section of the company's website at Www Dot Pilgrim's dotcom. After today's presentation, there will be an opportunity to ask questions I would like now to turn the conference call over to Andy Rachesky head of strategy Investor Relations and net zero.

Programs for Pilgrim's.

Good morning, and thank you for joining us today as we review our operating and financial results for the third quarter ended on September 24, 2023 yesterday, 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, it's available on our website at IR Dot program Dot com, along with Bae for reference.

These items have also been filed as a form 8-K and are available online at SEC knockout, Bobby or Don Murray, President and Chief Executive Officer, and Matt Galvin, 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.

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

I would now like to turn the call over to Fabio salary.

Thank you Andy and good morning, everyone and thank you for joining us today for the third quarter of 2023 reported net revenues of $4 4 billion with adjusted EBITDA of $324 million translating to a seven 4% margin.

All of the quarter, we experienced very good long term market fundamentals and persistent consumer inflation. Nonetheless, we remain focused on our strategies of diversification keep customer partnerships and operational excellence, even though consistent execution with good margins relative to Brian quarters across all regions in the U S.

Our key customer partnerships drove significant growth in case ready and strong performance in small birds, where our operational excellence efforts improved our efficiencies in big box. We continue to further diversify our portfolio in both branded fresh products and prepared offerings, given our growth with leading retailers and foodservice.

Providers based on disciplined related efforts in the U S.

It improved its profitability compared to previous quarters.

The U K and Europe, we further diversify our marketplace presence to branded innovation and recently launched new products secure additional long term supply arrangements with key customers and drove further efficiencies in our manufacturing network and back office.

Through operational excellence as a result, we have reinforced our foundation for profitable growth.

In Mexico, we experienced a strong third quarter given improvements in live operations.

We're building feed inputs and currency and both supply and demand fundamentals our diversification.

Asia through branded and prepare offerings continue to gain market traction and our operational excellence efforts to drive efficiencies and expand capacity remain on track.

In the third quarter of 2023 ready to Cook production U S chicken experienced a decrease of one 9% relative to the same period last year.

He estimates primarily influenced by fewer head count along with more typical changes in industry production given seasonal trends.

The most recent USDA outlook for Q4 'twenty to 'twenty three indicates that the industry continues to reduce exits and chicks placements relative to last year, suggesting a more restrained supply scenario in the near future.

Well certainly our cold storage supply reported September 2022 USDA cold storage inventories are below prior year and indicate the levels have declined relative to June 'twenty 33.

Breast meat remains in line with the end of June levels, and dark meat inventories continued to trend below last year.

Considering the overall supply of protein U S. Do you expect a slight reduction in domestic protein availability for the remainder of the calendar 'twenty 33.

This reflects our view of slow growing broiler supply paired with contracting beef and pork availability.

With relative lower beef and pork availability food inflation higher than historical average and current economic uncertainty chicken, maybe advantage given its availability affordability and flexibility.

Domestic volume demand for chicken improved significantly in the third quarter will still be twenty-three the retail channel momentum continue providing more balanced growth in volumes across all departments. The fresh department was supported by volume growth coming across both front half and back half cuts anywhere finally see.

Increased promotional activities.

We remain positive on the potential of this category effectively competing protein supplies, increasing competing meat prices and more normal promotional activity that contribute to consistent sales volumes over the quarter.

Elsewhere in the retail category. The frozen Department has added incremental volume and unit sales and we are now seeing volume sales growth from both the commodity and value added frozen segments.

Meanwhile, the daily prepared Department has steadily added in both units and dollar sales.

In the Foodservice channel runs sales also increased.

Commercial distribution volume demand has improved as the number of operators are choosing chicken, it's grill and those operators already with chicken have experienced an increase in velocity.

He led to retail.

Three of this year it was reflective of a more balanced volume growth across the same cost cuts and back that's the known commercial distribution channel increased volumes that'd be that relative lower prices.

Back to the record prices of last year.

As a result of improving retail with foodservice volume sales and bandwidth supply during the fourth or wholesale pricing for commodity chicken experienced price improvements during August and September, especially in breast meat and tenders.

Lifts to cut out pricing <unk>.

Commodity prices have recently reverted to the normal seasonal pricing patents and are now close to historical average, which is not sustainable level, considering the industry's elevated cost from green labor and other inputs relative to pre pandemic levels. Nonetheless, the supply demand balance appears to be improving as we enter Q4.

The title III.

On the exports Youtube was remarkably stable and solid demand 40 west broiler.

The reduction of two 2% on year over year exports with many driving by China, where she.

Sales were down 28%, mainly due to ongoing high path avian influenza and relative limited eligibility for export among poultry producing states. Excluding this impact U S exports, who hadn't been up two 5% year over year, a good indication that strong demand exists for your west products globally.

Hi, Beth even if Wednesday, reemerging commercial Turkey flocks toward the end of September beginning of October.

So these would be the first detection since mid April and of course far from major broiler producing states. It does increased vigilance Walgreens.

That's the business implications most of our trading partners have adjusted their trade restrictions to reflect the impact zones are states in the event of a commercial auto brake other than China, we do not expect to see.

I'm not sure if disruption trade in the event of an H H D. A break in commercial drivers.

Consistent with the previous quarter as volume sales have maintained growth in the channel U S. Cold storage inventories of combined dark meat has trended below year ago, and 19% below the five year average driven by a 32% reduction in year over year leg quarter inventories at the end up to Denver.

Based on our current trajectory, we expect exports to continue to outpace last year as.

As we further diversify our client base and country of destination portfolios with exporting supporting an already healthy U S. Dark meat market potential exists for relative strong pricing and demand typical expected in the fourth quarter.

Suddenly to feed ingredients.

It's progressing in the U S. Despite the below trend yields the historically large corn acreage has contributed to a recovery in U S corn ending stocks for the 23000 for crop year.

Production is forecast at just over 15 billion bushels, making it the largest scrub since 2016, ending stocks I couldn't really forecasted at two 1 billion bushels, an increase of 55% year over year.

The luxury west production consistently after a record Brazilian corn crop that has to compete.

<unk> global ending stocks for 'twenty three 'twenty four are forecasted to smell 14 million metric tons, assuming favorable south American weather in Argentina production returns to normal levels after a remarkably weak prior year.

Absolutely soybeans U S. Scrap is estimated to be nearly 4% lower year over year.

Because of our reduced acreage and limited use improvements, resulting in another year with historical low ending stocks Nonetheless.

Last year's record crop in Brazil remain competitive in export markets, creating a less demand for the U S production.

Well all in the planning stage, both Brazil, and Argentina, soy crops are expected to be larger year over year boosting global supply like <expletive> South American weather will be key realizing grill.

U S soybean meal markets should be well supply given continued crush industry expansion, assuming argentina's forecast rebound in soybean production is realized for the price pressure could arise.

Both soybean oil flows can be heavily influenced by a few policies the girlfriend production and diversification are important tools should balance supply and demand.

Turning to meet global production is currently forecast to fall by 6 million metric tonnes from last year, largely driven by a drop from Russia Records crop.

With production increased $4 4 million metric tons from last year, whereas in Australia, and Argentina estimates have been reduced slightly favorable growing conditions blacks.

Black Sea exports continue without an agreement between Russia, and Ukraine, but should be monitored.

Our U S business continued to navigate very volatile market fundamentals and big Bird segment, along with persistent consumer inflation.

Our diversified portfolio across both sides have mitigated this prolonged challenges and we've maintained our intense focus in operational excellence and cultivation of keep customer customer partnerships.

We didnt Big Bird the team continued to drive action plans to further enhance operational excellence in our manufacturing locations during the quarter, we achieved improvements in production efficiencies both at the live operations and at that point.

These efforts were also aided by enhanced market fundamentals during the quarter, but work still remains to consistently realize sustainable margin levels.

In case ready the team improve our volumes to keep cutting customer partnerships increased distribution and additional promotional activity and improving mix. In addition, the team maintained its operational excellence in both quality and service levels. Despite the significant disruptions from Hurricane Ike Dahlia in the cell that eastern.

United States.

Equally important we further diversify our sales pipeline with differentiated high after the death of airframes.

It helps driving traffic and differentiation to our key customers.

Small bird remains strong even stable demand from <unk> robust daily performance with key customers and sustained operational excellence.

Even the consistent quality and service levels the team secured additional business throughout the quarter and beyond across retail and foodservice.

Our efforts to further diversify our portfolio to prepared foods continues to gain momentum.

The team to realize significant growth to increase distribution and promotional activities and innovation in retail our fully cooked branded offerings, just bear and tumors collectively grew 65% compared to last year, we didn't foodservice the team reinvigorated growth with distributors screws and <unk>.

No change to our targeted expansion teams.

Digitally influenced sales continue to play a role on Congress for prepared branded offerings.

Our key customer media partnerships and investments have demonstrated better effectiveness as click through rates are nearly double industry standards and consumer acquisition costs have fallen off.

An important digital sales increased 90% over the past year.

Given the exceptionally well receive sharper reaction, we look forward to increased partnership through the trade to further diversify our portfolio through branded offering.

Similar to the U S UK and European business experienced an environment, we continued consumer inflation.

<unk> fundamentals and relative affordability of chicken helped mitigate this impact but the team remains focused on our strategies.

Did that in the business into these key customer partnership with leading retailers and food service providers to targeted promotional activities and customer specific offerings. The team also secured additional long term business with selected retails to efficient supply chain capabilities and differentiated product offerings.

Our diversification through branded products continue to progress as bulk foods radars and the regional brands gained share throughout the quarter.

Innovation also continues to play a key role as we mentioned will be 100 items, many of which are designed to reinvent our fresh meats category.

Our new product performance is becoming increasingly recognized throughout the trade as we received multiple awards for development and launch execution.

We continue to drive diversification and key customer focus to operational excellence efforts to date, we've made significant progress in the optimization of our manufacturing network and back office support activities.

Moving forward, we are exploring additional opportunities throughout their production footprint to increase efficiencies and drive scale to meet our growth aspirations.

We will also continue to closely monitor the various economic indicators wage growth is well ahead of inflation and consumer confidence has resumed its upward trajectory.

Based on these factors.

There's may be willing to increase protein consumption trade up within retail or pursue away from home eating opportunities in foodservice.

Neither diversified portfolio and key customer presence across channels.

Our regional capabilities, we're all positioned to adjust to these strengths and accelerate their growth.

Turning to Mexico, the business experienced a strong performance in the third quarter given improvements in live operation grain.

Currency favorably.

And more balanced supply and demand fundamentals in the region.

The business shrinking its key customer focus given continued growth with leading theatres in Q S. Ours equally important our diversification efforts to branded offerings continues to gain traction among retailers and consumers alike.

In prepared foods, the pivot has been double digits compared to last year, whereas we seem to just bear launch has been exceptionally well received through the marketplace.

Moving forward.

Refer to cultivate our branded presence two additional marketing support for the unique taste and how what he does and the introduction of our just bare fresh offering.

We continue our commitment to driving profitable growth to continue investment in operational excellence, we have completed our expansion in the region and expect to initiate production first quarter of 2020 to increasingly geographical diversification of our brothers also our projects to enhance by executing four live operation a promise.

As planned and it should be completed according to schedule.

Operator: Good morning and welcome to the third quarter, 2023 Pilgrims Pride Earnings Conference Call and Webcast. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. At the company's requests, this call is being recorded. Please note that the slide's reference during today's call are available for download from the investor section of the company's website at www.pilgrims.com.

We're also proud to have published our sustainability report in September to highlight our continued progress on our journey to become a leader in environment, social and governance matters. We have made significant progress against the United Nations' sustainability development goals since 2019 as our team members global safety in the.

Improved by 54% and there was scope one and two greenhouse emissions intensity fell by 20%.

Operator: After today's presentation, there will be an offer to community to ask questions.

We continue to invest in the communities in which we serve as he has founded funded over $15 million and projects to our hometown of strong initiatives and they provided higher education tuition fees for 350 team members are members of their families who are better futures.

Andy Rojeski: I would like now to turn the conference call over to Andy Rojeski, head of strategy, investor relations, and net zero programs for Pilgrims. Good morning and thank you for joining us today as we review our operating and financial results for the third quarter ended on September 24, 2023. Yesterday, we issued a press release providing an overview of our financial performance for the quarter, including a reconciliation of any non-gap measures we may discuss. A copy of the release is available on our website at ir.doderms.com along with slides for reference. These items have also been filed as form a case and are available online at sec.gov.

Hey, good morning, everyone. This is Mac albinoni for the third quarter of 2023, net revenues were $4 $36 billion versus $4 $47 billion, a year ago with adjusted EBITDA of $324 million and a margin of seven 4% compared to 460 <unk>.

$5 million and a 10, 3% margin in Q3 last year.

Andy Rojeski: Bavio Staudray, president and chief executive officer, and Matt Galmononi, 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 foreign-looking statements that represent our outlook and current expectation as of the day of this release.

Adjusted EBITDA margins in Q3 were 7.0% in the U S compared to 14, 7% a year ago for UK and Europe business adjusted EBITDA margins came in at six 1% for Q3 compared to 4.0% last year.

In Mexico adjusted EBITDA margins in Q3 was 12, 4% compared to a loss of one 5% a year ago.

Andy Rojeski: Other additional factors, not anticipated by management, may cause actual results to differ materially from those projected in these foreign-looking statements. Further information concerning these factors have been provided in yesterday's press release, our form 10K, and our regular filings with the SEC.

Moving to the overall U S results, our adjusted EBITDA for Q3 came in at $174 $1 million compared to a quarterly profit of $418 $3 million a year ago and the jumbo cutout was just starting to come off as all time highs over.

Over the last three quarters, we've grown U S profitability sequentially, despite volatile market conditions.

Andy Rojeski: I would now like to turn the call over to Bavio Staudray. Thank you, Andy.

Our key customer partnership helped drive strength in our case ready business during Q3, and we see further momentum in retail volumes continuing.

Fabio Sandri: Good morning, everyone, and thank you for joining us today. For the per quarter of 2023, we reported Matt revenues of $4.4 billion, with adjusted EBDA of $324 million, translating to a $7.4% margin. Through all the quarter, we experienced very volatile market fundamentals and persistent consumer inflation. Nonetheless, we remain focused on our strategies of diversification, key customer partnerships, and operational excellence. Given our consistent execution, we proved margins relative to prior quarters across all regions.

Also the U S small bird and prepared to each businesses continued their strong 2023 performance during the third quarter.

Our big bird business realized quarter over quarter improvements through a combination of operational excellence programs and enhanced market fundamentals.

In the U K and Europe adjusted EBITDA in Q3 was $84 million versus $48 $5 million in 2022.

Through its previously discussed operational excellence efforts the business improved profitability over 65% year over year and it is the sixth consecutive quarter of sequentially increasing profitability.

Fabio Sandri: In the US, our key customer partnerships drove significant growth in case ready and strong performance in small birds, where our operational excellence efforts improves our efficiencies in Big Bird. We continue to further diversify our portfolio in both branded fresh products and prepare offers, given our growth with leading retailers and food service providers.

During Q3, the distance also continued to benefit from the back office integration and its network optimization programs as inflation moderates do U K consumer should return to more normal shopping patterns, enabling further growth for our business.

Fabio Sandri: We will just condemnated efforts. We will have to improve its flexibility compared to previous quarters. As for the UK and Europe, we further diversify our marketplace presence through branded innovation and recently launched new products, secure additional long-term supply arrangements with key customers, and draw further efficiencies in our manufacturing network and back off.

Mexico generated $69 $5 million and adjusted EBITDA in Q3 compared to a loss of $6 $3 million last year. The Mexican business has experienced more balanced supply demand fundamentals a reduction in burden or disease challenges in live operations due to the team's extraordinary efforts and foreign currency favorability.

Overall, our SG&A in the quarter was lower year over year, primarily due to a decrease in incentive compensation and legal defense costs in the U S as well as other targeted cost efficiencies achieved in the U S and UK Europe.

Fabio Sandri: Justice, True Operational Excellence. As a result, we have reinforced our foundations for profitable growth. In Mexico, we experience a strong third quarter, given improvements in live operations, favorability in fit inputs and currency, and by the supply and demand from the mentors. Our diversification to brand it and prepare offerings continue to gain marketplace traction, and our operational excellence efforts to drive efficiencies and expand capacities remain on track. In the third quarter of 2023, ready-to-cook production of U.S, chicken experience a decrease of 1.9 percent relative to the same period last year.

We spent $146 million in capex in the third quarter, which is higher on a more normalized run rate basis, primarily due to our investments in the Athens, Georgia expansion and construction of a new protein conversion plant in South Georgia.

We reiterate our commitment to invest in strong our oce projects that it will improve our operational efficiencies through automation and tailor operations to address key customer needs to further solidify competitive advantages for Pilgrim's.

Fabio Sandri: USDA estimates primarily influenced by fewer headcounts, along with more typical changes in industry production, given seasonal trends. The most recent USDA outlook for Q4 of 2023 indicates that the industry continues to reduce excess and cheap displacement relative to last year, suggesting a more restrained supply scenario in the near future. Confirmed our cold storage supply, reported September 2023 USDA cold storage inventories are below prior year, and indicate the levels have declined relative to June 23rd.

Although the U S chicken commodity market has been quite volatile over the last year, our overall balance sheet and liquidity position remains strong as of the end of third quarter, we had over $2 billion in total cash and revolver availability after quarter end in early October we completed a $500 million long 10 year notes.

Offering and paid off our 2027 notes through a tender offer and call process.

Also in October we entered into a new five year U S credit facility, which was upsized by $50 million to $850 million is now unsecured.

Fabio Sandri: Breast meat remains in line with the end of June levels and dark meat inventories continue to trend below the last year. Considering the overall supply of protein, USDA expects a slight reduction in domestic protein availability for the remainder of the calendar of 2023. This reflects a view of slow growing briler supply paired with contracting beef and pork availability. With relative lower beef and pork availability, food inflation higher than historical average and current economic uncertainty, chicken may be advantage, given its availability, affordability, and flexibility.

We are pleased with the results of these recent transactions and the overall interest in our debt offerings.

Following these transactions our next debt maturity is now not until 2031.

Our liquidity position provides us flexibility during times of volatility in the U S commodity markets allows us to explore further growth opportunities.

As of the end of Q3 and net debt was approximately $2 8 billion with a leverage ratio of three five times. Our last 12 months adjusted EBITDA, which is outside of our target ratio range of two to three times.

We anticipate this quarter to be the peak of our leverage ratio is really about the way a very challenging fourth quarter 'twenty two in first quarter 2023 results given the depressed U S commodity market pricing during those periods.

Fabio Sandri: The domestic volume demands for chicken improves significantly in the third quarter of 2023. The retail channel momentum continues, providing more balanced growth in volumes across all departments. The fresh department was supported by volume growth coming across both front half and back half cuts, and we are finally seeing increased promotional activities. We remain positive on the potential of this category, expected in competing protein supplies, increasing competing meat prices, and more normal promotional activity has contributed to consistent sales volumes over the quarter.

Net interest net interest expense for the quarter totaled $33 $5 million, we anticipate our full year net interest expense to be approximately $160 million excluding refinancing cost.

Our effective tax rate for the quarter was 26, 8% and nine 8% year to date, we are now estimating full year effective tax rate to be approximately 14%.

As a reminder, this amount could fluctuate depending on the final mix of earnings across our tax jurisdictions.

Fabio Sandri: Elsewhere in the retail category, the frozen department has added incremental volume and unit sales, and we are now seeing volume sales growth from both the commodity and value added frozen segments. Meanwhile, the daily prepared department has steadily added in both unit and dollar sales. In the food service channel, volume sales also increased. Commercial distribution volume demand has improved, as the number of operators purchasing chicken has grown, and those operators are ready with chicken, have experienced an increasing velocity.

Our capital allocation approach will remain disappointed to look to grow the company and will continue to align our investment priorities for their overall strategies and portfolio diversification key customer growth 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 up to ask a question. You May Press Star then one on your Touchtone phone if youre using a speakerphone. Please pick up your handset before pressing the keys to minimize background noise.

Fabio Sandri: Similar to retail, Q3 of this year was reflected on a more balanced volume growth across front half cuts and back half cuts. The no commercial distribution food channel increased volumes will be that relative lower prices compared to the record prices of less, last year. As a result of improving retail and food service, volume sales and balanced supply during the quarter, wholesale pricing for commodity chicken experience price improvements during August and September, especially on breast meat and tenders, providing a lift to cut out pricing.

To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.

Our first question comes from Ben <unk> from Barclays. Please go ahead.

Hi, Good morning, Flavio, Matt Congrats on the very strong results on the two questions. So first of all we saw a very nice improvement and continued improvement just sequentially as it as it relates to the business in the U S I'm coming from an operating income perspective.

Fabio Sandri: Commodity prices have recently reverted to the normal seasonal pricing patterns and are now close to historical average, which is not sustainable level considering the industry elevated costs of grain, labor, and other inputs relative to pre-pandemic levels. Nonetheless, the supply demand balance appears to be improving as we enter Q4 of 2023. On the exports, Q2 was remarkably stable and with solid demand for a West broiler. The reduction of 2.2% on year-over-year exports was mainly driving by China, where sales were about 28%, mainly due to ongoing high-pad even influenza and relative limited eligibility for export among poultry-producing states.

We look into next year, and assuming maybe Mexico to stay as strong in the U K to as well to continue to improve how do you think about the potential of profitability in 'twenty 'twenty four or in other words do you think it's achievable to reach what would be.

More of a normalized level of 6% to 8% operating income margins in 'twenty 'twenty four and that would be my first question.

Sure. Thank you. Thanks for the question, but as always we look at a Jewish differentiated portfolio. We created this portfolio a long time ago, where we target to have a portfolio that can capture upsides on the commodity market. So we have a big exposure to the commodity in the west with the big.

Fabio Sandri: Excluding this impact, UF exports who have been up 2.5% year-over-year are good indication that strong demand exists for West products globally. High-pad even if influenza re-merging commercial 30 flocks toward the ends of November and beginning of October. Although these were the first detections since mid-April and occurred far from major oil producing states, it does increase visionless throughout the industry. As for business implications, most of our trading partners have adjust their trade restrictions to reflect impact zones or states in the event of a commercial outbreak.

But the operation, but we can.

The downsides and have more stable business with our keys ready or prepared foods and our small bird business. If you look at the performance. This year the small bird the prepared foods and the case ready has performed really well at the same levels as the year before.

It has been very volatile has been the commodity business what are the big boat segments.

Looking into the next year.

Fabio Sandri: Other than China, we did not expect to see mature disruption to trade in the event of an HPAR-HDAI-breaking commercial broilers. Consistent with the previous quarter, as volume sales have maintained growth in the channel, U.S, cold storage inventories of combined dark meat have trended below year-a-go, and are 19% below the five-year average, driven by a 32% reduction in year-over-year-led quarter inventories as the end of September. Based on our current trajectory, we expect our exports to continue to alter base last year, as we further diversify our client base and country of destination portfolios.

Things that I think are very important for us to identify and to monitor I think one is the competing proteins as as we see by the USDA numbers released yesterday, we're expecting a limited growth in the domestic availability of total protein in the United States being beef.

Really down compared to year over year and at the very expected high price, which tends to favor chicken.

In promotional activities both in the retail and food service I think we're also seeing a moderation in the high prices of grain as we stand here, having very favorable.

Fabio Sandri: With exporting, supporting on already healthy U.S, dark meat market, potential exists for relatively strong pricing and demand that typical expected in the fourth quarter. 22-feet ingredients, farthest is progressing in U.S. Despite remote trend yields, the historically large corn acreage has contributed to a recovery in U.S, corn ending stocks for the 23-24 crop year. Production is forecast at just over 15 billion bushels, making the largest crop since 2016. Ending stocks are currently forecasted at 2.1 billion bushels, an increase of 55% year-over-year.

Production, especially on the corn side, which should help our costs overall.

Also the promotional activity towards the chicken both in the retail and food service also our operations have improved I think we were lapping the big problem that we have in staffing them because of it depend mek all of our operations are now fully staffed.

Still have a lot of operational improvements should capture based on training and based on our food operations and better mix, but I think that should help our operations next year.

So what we have is the scenario that is that is posing some headwinds for chicken overall shoot me a bit more and more tailwind.

Fabio Sandri: The large U.S, production comes shortly after a record Brazilian corn crop that is still competitively priced. Global ending stocks for 23-24 are forecasted to slow 14 million metric tons, assuming favorable South American weather and Argentina's production returns to normal levels, after a remarkably weak priority. As for soybeans, US crops are estimated to be nearly 4% lower year over year because of reduced acreage and limited use improvements, resulting in another year with historical low ending stocks.

In terms of.

Now what can change of course, the the economy can be different if the consumer has less available money.

Money to spend but on the overall chicken has been.

More resilient to even economic downturn scenarios.

Okay Perfect and then my second question I guess I wanted for Matt just coming back on the capital allocation side. Then you just sit on the call are to continue to invest in high returning projects et cetera.

Fabio Sandri: Nonetheless, last year's record crop in Brazil remain competitive in export markets, creating a last demand for the US production. Though only in the planty stage, both Rosina and Argentina's cyclops are expected to be larger year over year, boosting global supply, like corn, South American weather will be key in realizing growth. US soybean yield market should be well-supply, given continuing crush industry expansion. Affiming Argentina's forecast rebound in soybean production is realized, for the price pressure could arise.

Can you update us on what you were expecting a full year, our capex are too to come out I mean, obviously, where we're year to date already almost at the levels, we were and full year last year or so is that run rate of about 150 million from the fourth quarter should we expect that to come in as well and how do you.

You think about Capex into next year is there a normalization or you would still expect some elevated levels.

Yeah. Good question Ben.

Fabio Sandri: Although soybean oil flows can be heavily influenced by a few policies, the growth in production and diversification of import inflow should balance supply and demand. Turning to wheat, global production is currently forecast to fall by 6 million metric tons from last year largely driven by a drop from Russia's record crop. In US, wheat production increased 4.4 million metric tons from last year, whereas Australia and Argentina estimate have been reduced, giving slightly unfavorable growing conditions. Black fee exports continue, without an agreement between Russia and Ukraine, but should be mounted.

As I look at the fourth quarter I'd look I think in total for the year will definitely be north of $5 50.

Our run rates should maybe slightly slow down as we wind down the app.

Construction, but we still will be finalizing our construction and our south Georgia facilities, which are two of the bigger strategic projects, which we've been mentioning over the last year. So the run rate that we've been having and kind of just 140, its probably pretty close to what I would see kind of going into the fourth quarter and full year.

North of $5 50.

I think relative to next year I think what we'll do as we get through our budget process and are strategic.

Fabio Sandri: Our US business continued to navigate a very volatile market for the mentals in Big Bird segment, along with the system's consumer inflation. Our diversified portfolio across bird sizes mitigated this prolonged challenges, and remain paying our intense focus and operation excellence and cultivation of key customer partnerships. Within Big Bird, the team continued to drive action plans to further enhance operational excellence in our manufacturing locations. During the quarter, we achieved improvements in production efficiencies both at the live operations and at our point.

Our focus here as we wind to our budget here in the fourth quarter and meet with our board, we'll be giving updates to you guys on that.

Our earnings call in February, but generally speaking you know we right. This minute you don't have those larger strategic projects that it had been initiated similar to the Athens, and South Georgia protein conversion, which would tell us to probably be down slightly for sure year over year.

And also over the last several years.

We invested heavily in automation has been talking about especially on the rest of the building automation and as we have the plants fully staffed of course, we're always looking to pay.

Fabio Sandri: These efforts were also added by enhanced market fundamentals during the quarter, but works still remains to consistently realize sustainable margin levels. In case ready, the team improve our volume of industry to keep cutting the customer partnerships and increase distribution, additional promotional activity, and improve the next. In addition, the team maintained its operational excellence in both quality and service level, despite the beneath-com disruptions from Hurricane Idleia in the southwest eastern United States.

Payback of those projects.

We don't expect a significant investments in that.

Samir.

Okay. Thank you congrats again.

Thank you Ben.

Our next question comes from Ben <unk> of Stephens incorporated.

Please go ahead.

Yeah. Thanks, so much good morning.

Arlington.

Fabio Sandri: Equally important, we further diversified our sales pipeline, we differentiated high-attribute efforts that helps driving traffic and differentiation to our customers. Small Bird remains strong, given stable demand from QSRs, robust valley performance with key customers, and sustained operational excellence, given their consistent quality and service levels between secure additional business throughout the quarter and beyond across retail and food services. Our efforts to further diversify our portfolio to prepare food continue to gain momentum as the team realized significant growth to increase distribution, promotional activities and innovation.

Although I want to pick up on some comments you made just around the fourth quarter. You noted that Oh supply production levels are trending down for kind of most of the third quarter and it looks to be continuing into the fourth quarter based on our leading indicators.

You noted.

Prices are at you know a historically average level relative to grain prices seem unsustainably low in light of that and the demand backdrop that you laid out do you think we could have a counter seasonal moves in breast meat prices as we move through the quarter recognizing I know there.

<unk> prices are under pressure a bit to start the quarter.

Fabio Sandri: In retail, our fully-cooked branded offerings just bear and pilgrims collectively grew 65 percent compared to less. Strelzik. With infant service, the team re-invigorated, grow to the distributors, schools, and commercial chains throughout targeted expansion teams. Digital and infinite sales continue to play a role on commerce for prepared branded offerings. Arty, customer media partnerships and investment have demonstrated their effectiveness as click-through rates are nearly double industry standards and consumer acquisition costs have fallen off. Equally important, digitally sales increase 90% over the past year. Given the exceptionally well-received shopper reaction, we look forward to increased partnership through the trade to further diversify our portfolio through branded offerings.

Yeah, I think it's a great point, but usually Q4 is the lowest price.

For chicken because of all the events that we have Thanksgiving and Christmas it's typically not the.

The best sales moment for chicken as we have a lot of features on the other proteins I think starting mid November and beginning of December what we usually see in our industry is a big increase in terms of demand because of the expectations for the beginning of the year I think people talk about a new era.

Solution, but I think it's more after the Christmas and after new year's people go back to the normal buying patterns and chicken is a is the everyday items that it is very important for our families. So what we expect similar to prior years is a reduction in supply and we are seeing as I.

Fabio Sandri: Finger to the US, our UK and the European business experience and environment we continue consumer inflation. We prove pork from the mentors and relatives affordability of chicken health mitigators impact, but the team remains focused on our strategies. To that end, the business standard is key customer partnership with leading retailers and food service providers through targeted promotional activities and customer-specific offerings. The team also secure additional long-term business with selected retailers through efficient supply chain capabilities and differentiated product offerings.

And that's on the egg sets are that are informed by USDA and we're seeing a pickup in demand starting mid November beginning of December and Thats. When we expect the prices to start increasing.

The volatility has been a really strong on the breast meat. If you look at the cut out there. The other parks, where we are seeing a much bad there supply and demand scenario I think wings that was very low last year as it was priced out of the menu and many food service.

Fabio Sandri: Our diversification through branded products continue to progress as both fridge raiders and the rich moment brand don't share throughout the quarter. Innovation also continues to play a key role as we mentioned over 100 items, many of which are designed to reinvent our fresh news category. Our new product performance is becoming increasingly recognized throughout the trade as we receive multiple awards for development and launch execution. We continue to drive diversification and key customer focus through operational excellent efforts to date with made significant progress in the optimization of our manufacturing network and back office support activities.

It's coming back to the menu. So we're seeing a steady increase in the price of wings of course, the wing season that just started also helps and we're seeing as we mentioned a steady improvement in the exports as the leg quarters from the United States are very competitively priced.

Compare to all the other proteins are available on the export scenario. So when you think about think about the cut out we're seeing more volatility on the breast meat, but very well supported on leg quarters and on the wings.

Okay very good and my second question is related to Mexico, another strong quarter there.

Fabio Sandri: Moving forward, we explore additional opportunities throughout our production footprint to include efficiencies and drive scale to meet our road aspirations. We will also continue to closely monitor various economic indicators. Weight growth is now ahead of inflation and consumer confidence has resumed its upward trajectory. Based on these factors, consumers may be willing to increase protein consumption, trade up within retail or pursue away from home eating opportunities in food service, giving our diversified portfolio a key customer presence across channels and operational capabilities.

Can you provide any color on the go forward outlook for <unk>, and then hurricane Otis I I. It doesn't look like you guys have operations, where that made landfall in animals, but most.

Of the devastation was concentrated but.

Do you expect that to have any impact on operations at all.

Yeah sure on the Mexico, as we always mention it can be very volatile quarter over quarter, but do we expect to be really strong year over year and that's not different this year I think last year, we saw very strong first quarter and a very weak second quarter of course that was based on some internal issues that we have on.

Fabio Sandri: We are all conditioned to adjust to these strengths and accelerate our growth. Turning to Mexico, the business experience the stroke performance in a third quarter, given improvement in live operation, grain, and currency flavorability, and more balanced supply and demand for the metals in the region. The business strengthening with key customer focus, giving continued growth with leading retailers and QSRs. It is important our diversification efforts to brand it offerings continue to gain traction among retailers and consumers alike.

The live operation at the first half and second half yes.

Yes.

But this year, but we are seeing is a strong demand for chicken as I mentioned I think the first semester and even Q3, which is not normal because what happens normally the seasonality in Mexico is that at the schools are out.

People change their buying patterns and we see a weakness in the purchasing of chicken and as the school come back we're seeing a lot of available income coming for school.

Fabio Sandri: If prepared foods, the business brand will double digits compared to last year, whereas our recent just bare launch has been exceptionally well received through the market. Marketplace. Moving forward, we'll further cultivate our brand of presence to additional marketing supports for the unique taste and favoritos and the introduction of our just bare fresh offering. We continue our commitment to driving profitable roads to continue investment and operational excellence.

Supplies and also an impact in demand, but this year has been.

Different than other years, and we see a very strong Q3 October September and October has always been the lowest.

Levels of pricing in Mexico, and that was not different this quarter. This year, but we are seeing prices already recovery, there's always the competition of competing proteins and imports from both the United States and Brazil impacting D. The demanding Mexican.

Fabio Sandri: We have completed our expansion in the metadata region and expect to initiate production in the first quarter of 2022, increasing the geographical diversification of all brothers. Also, our projects to enhance by a security of our live operation, our progress has planned and it should be completed according to schedule.

So as well, but I think that we are seeing a very favorable scenario coming in the next quarter yeah.

Just a couple of things to follow up one is I should say also you know foreign currency volatility is something that we're currently always wanted monitoring there in Mexico and your question relative to the storm.

Fabio Sandri: We also proud to have published our sustainability report in September to highlight our continued progress on our journey to becoming a leader in environment, social and governance matters. We have made significant progress and as the United Nations Sustainability Development Scrolls, since 2019, as our team members, mobile safety index improved by 54% and our scope won a two greenhouse emissions intensity, fell by 20%. We continue to invest in the communities in which we serve, as we have founded over $15 million in projects through our home town strong initiatives and it provided higher education tuition fees for 350 team members, our members are their families to our better future story.

I understand that the storm hit the Acapulco area, which does not it's not an area that has a lot of production for us and it has now thankfully dissipated the storm is not nearly as severe so we're not seeing at this point.

The severe impacts to our operations at this time.

Okay, great. Thanks, so much.

The next question comes from Andrew <unk> of BMO capital. Please go ahead.

Hey, good morning, Thanks for taking the questions.

My first one is on some of the operational improvements and in the press release, you alluded to on covering some incremental opportunities can you elaborate a little bit on what those are and is there any way to.

Matthew Galvanoni: Good morning everyone, this is Matt Galvanoni. For the third quarter of 2023, Met Revenues were $4.36 billion versus $4.47 billion a year ago with a just a few bit of $324 million and a margin of 7.4% compared to $460.5 million and a 10.3% margin in Q3 last year. Adjusted EBITDA margins in Q3 were 7.0% in the US compared to 14.7% a year ago. For our UK and Europe business, adjusted EBITDA margins came in at 6.1% for Q3 compared to 4.0% last year.

Quantify I guess.

The magnitude of those and the contributions of those improvements that you've realized so far this year and then the new ones going forward.

Sure. Thank you for the question Andrew Yeah every year in the budget time, we identified the opportunities for operational improvements, we called that opening the gaps and then also doing the budgeting, we created action plans to close those gaps and the capture of those operations.

Typically we expect around $100 million to $200 million in improvements every year doing things more efficiently capturing better yields.

Matthew Galvanoni: In Mexico, adjusted EBITDA margins in Q3 were 12.4% compared to a loss of 1.5% a year ago. Moving to the overall US results are adjusted EBITDA for Q3 came in at $174.1 million compared to a quarterly profit of $418.3 million a year ago when the jumbo cutout was just starting to come off its all-time highs. Over the last three quarters, we've grown US profitability sequentially despite volatile market conditions. Our key customer partnerships have drive strength in our case-ready business during Q3 and we see further momentum in retail volumes continuing.

Better life operations and better mix.

So last year was no different we didn't find a lot of operational improvements that we can take I think the biggest challenge was the staffing of our plants. So we were not fully staff. It was very difficult to attract talent to our operations.

And as the 'twenty to 'twenty three started we're seeing an improvement in that scenario and as I mentioned right. Now we are fully staffed so I think the challenge right now is to train all of our team members to operate efficiently.

Matthew Galvanoni: Also, the US small bird and prepared food businesses continued their strong 2023 performance during the third quarter. Our Big Bird business realized quarter-over-quarter improvements through a combination of operational excellence programs and enhanced market fundamentals. In the UK and Europe, adjusted EBITDA in Q3 with $80.4 million for $48.5 million in 2022. Through its previously discussed operational excellence efforts, the business improved profitability over 65% year over year and it is the sixth consecutive quarter of sequentially increasing profitability.

And captured those improvements as a mission.

Okay. Okay, great that's helpful and then.

I had a question more broadly on your market share I mean, given.

Some of the dynamics in the sales trends in distribution et cetera that you've called out it would seem certainly like.

You're gaining share in the U S and I'm in particular interested on the distribution side with respect to case ready. If you could talk maybe about what's going on there. I mean are you do you think that you're taking share from from other key players in the industry are or is there a broader growth year that you're servicing with the key customers that that fits into how would you characterize those.

Matthew Galvanoni: During Q3, the business also continued to benefit from the back office integration and its network optimization program. As inflation moderates, the UK consumers should return to more normal shopping patterns, enabling further growth for our business. Mexico generates $69.5 million in adjusted EBITDA on Q3 compared to a loss of $6.3 million last year. The Mexican business has experienced more balance, supply, demand fundamentals, a reduction in bird disease, challenges, and its live operations through the team's extraordinary efforts, and foreign currency favorability.

Going on there. Thanks Yep Yep, that's a great question and what I'm thinking about market share. We don't look overall, we're looking to the individual segments right.

As we mentioned we have a very well balanced portfolio. We are the leaders in the small bird category.

And we've been gaining market share as our presence with key customers.

Has been increasing so we're gaining market share with our key customers and all key customers are winning in the marketplace and that's no different on the keys ready segment, we've been growing our market share because we've been increasing our market share with our key customers and all key customers that are growing faster than all the other.

Matthew Galvanoni: Overall, our S.G, and A and the Quarters lower year over year primarily due to a decrease in incentive compensation and legal defense costs in the U.S., as well as other targeted cost efficiencies achieved in our U.S, and UK year of businesses. We spent $146 million on CAPEX in the third quarter, which is higher on a more normalized run rate basis, primarily due to our investments in the Athens-Georgia expansion and construction of our new protein conversion plant in South Georgia.

Customers or players in that segment as an example, we increased the market increase in Q3, three 4% in the fresh category on the retail and we increased 9%.

Matthew Galvanoni: We reiterated 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 residents. Although the U.S, chicken commodity market has been quite volatile over the last year, our overall balance sheet and liquidity position remains strong. As of the end of the third quarter, we had over $2 billion in total cash and revolver availability.

Because of our penetration in those key customers again that are growing faster than others.

On the Big boat category, I think theres been a lot of additions in the last four or five years in this industry and we have not increased in number of plans of course, we have improved in terms of number of pads and we have improved in terms of yields but in that category I think we've been having a very stable.

Matthew Galvanoni: After quarter-end in early October, we completed a $500 million long 10-year notes offering and paid off our 2027 notes through a tender offer and call process. Also in October, we entered into a new five-year U.S, credit facility, which was upsized by $50 million to $850 million, which is now unsecured. We are pleased with the results of these recent transactions and the overall interest in our debt offerings. Following these transactions, our next debt maturity is now not until 2031.

Market share.

Great very helpful perspective, Thank you very much.

The next question comes from Peter Galbo of Bank of America. Please go ahead.

Hey, guys good morning.

Peter.

Hum, maybe maybe to actually follow up or asking Andrew's question, a bit a bit different on on market share one of the dynamics I feel like we're seeing at least within within U S. Retail. It is maybe a shift from kind of the center store or some of the frozen categories to the perimeter just as consumers are kind of being more choosy with with dollars.

Matthew Galvanoni: Our liquidity position provides us flexibility during times of volatility in the U.S, commodity markets and allows us to explore further growth opportunities. As of the end of Q3, our net debt was approximately $2.8 billion, but the leverage ratio of 3.5 times our last 12 months adjusted even up, which is outside of our target ratio range of two to three times. We anticipate this quarter to be the peak of our leverage ratio is we're about to laugh very challenging fourth quarter 22 and first quarter 2023 results, given the depressed U.S, commodity market pricing during those periods.

You know given you guys kind of have exposure in both parts of it just.

It seems like that that kind of is what you're seeing as well maybe that's at the perimeter is gaining share relative to the frozen or in center store categories, but I'm wondering if you can just comment on kind of that dynamic and what you're seeing.

No I think it's a great question, Peter and yes, I think we are seeing customers shifting from the frozen category through fresh cut or maybe on IQ west to.

Two the fresh category.

I think we have a great offering that differentiates our key customers as we mentioned we produce tailored products to our customers that are differentiated and targeted towards their specific segments.

Matthew Galvanoni: Net interest expense for the quarter total $33.5 million, we anticipate our full year net interest expense of the approximate $160 million, excluding refinance and costs. Our effective tax rate for the quarter was 26.8% and 9.8% year to date. We are now estimating the full year effective tax rate to be approximately 14%. As a reminder, this amount could fluctuate depending on the final mix of earnings across our tax jurisdictions.

So we have a fresh from Florida would have freshman, Texas, we have.

Differentiate offerings in terms of no antibiotics ever in terms of veg fed that we tailor our products to their specific customers, we augment that with our just bare brand, which has a higher attribute our.

Matthew Galvanoni: Our capital allocation approach for the main disappointments we look to grow the company and will continue to align our investment priorities with our overall strategies and portfolio diversification. Key customer growth, operational excellence, and commitment to team member health and safety.

Offering that complements the portfolio of our key customers and that's why I mentioned, we've been growing on the fresh category now on the frozen category.

Really cook category for feelings.

Matthew Galvanoni: Operator, this concludes our prepared remarks.

Operator: 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-up. To ask a question, you may press star then one on your touch-tone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to minimize background noise. To withdraw your question, please press star then two.

<unk> been increasing year over year, which are just their launches and just better penetration.

So for us, but we are seeing is the growth in the frozen fully cooked category through our just bare and diverse brands.

And our growth in our fresh offerings with our partnership with key customers on customer brands, what it's reducing anywhere absolutely right. This is what they call <unk>, which is more commodity.

Operator: At this time, we pause momentarily to assemble our roster.

Operation that it's a frozen offering off.

Ben Bienvenu: Our first question comes from Ben Toyet, from Barclays. Please go ahead. Good morning Fabio, Matt.

Non value added.

That's me toward weighing more tender.

Fabio Sandri: Congress on the very strong results. On the two questions, so first of all, we saw very nice improvement and continued improvement just sequentially as it relates to the business and the US from an operating income perspective. Now, as we look into next year, and assuming maybe Mexico to stay as strong in the UK to as well to continue to improve, how do you think about the potential of profitability in 2024, or in other words, do you think it's achievable to reach what would be more of a normalized level, six to eight percent operating income margins in 2024?

Got it no that's helpful and and Matt you know your comments just around the balance sheet right. The leverage position is can they improve your or should continue to improve here you know into the next quarter or two.

Just given where you know the cash position sits on the balance sheet how.

How are you thinking about opportunities to redeploy the cash whether that be opportunistic share buyback, but you guys have done in the past.

Or potentially you know M&A opportunities are out there.

Yeah, I think just one thing just to make sure everyone's cognizant of you know we see the cash balance at the end of the quarter. You know that number will be down three 350 ish million dollars with.

The tender offer we did because we did the bond offering for 500 million in pay down debt for 850. So just to make sure people are confident that our cash balance was closer to that $505 50 area. Just at this stage. Our view on this look is we want to grow.

Fabio Sandri: That would be my first question. Sure. Thank you. Thanks for the question, Ben-M. As always, we look at a different, differentiated portfolio. We created this portfolio a long time ago, where we target to have a portfolio that can capture websites on the commodity market, so we have a big exposure to the commodity in the US with a big-board operation, but we can protect the downsides and have more stable business with our keys ready, our prepare foods and all small bird business.

But we're going to grow in a disciplined manner.

We've done some nice capex with some key customers for some different attributes.

One and their products that where he had some higher capex run rate that's more of an organic growth perspective, and we see more of those opportunities coming and so the way we look at it from a cash perspective right now.

Fabio Sandri: If you look at the performance this year, the small bird, the prepare foods and the keys ready has performed really well at the same levels that year before. What has been very volatile has been the commodity business, or the big bird segments? Looking into the next year, three things that I think are very important for us to identify and to monitor. I think one is the competing proteins, as we see by the USDA numbers released yesterday, we're expecting a limited growth in the domestic availability of total protein in the United States, being these really down compared to year over year, and at a very expected high price, which tends to favor chicken in promotional activities, both in the retail and food service.

In a disciplined manner I don't know Bob do you want to add anything further.

I think that's absolutely right, we're always looking for creating value for all team members and our shareholders and we look for acquisitions that complement our portfolio. We are always looking for things that we can add value and operate better or.

Complement our portfolio of brands or geographies. So I think the market has been really strong when the M&A activity and we.

We will do an acquisition when we believe that will create value for.

For our company.

The next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.

Yes. Thank you good morning, everyone.

Fabio Sandri: I think we're also seeing a moderation in the high prices of grain, as it said, we are having very favorable production, especially on the corn side, which should help our costs overall, and also the promotional activity for the chicken book, again, in the retail and food service. Also, our operations have improved. I think we're laughing the big problem that we have in staffing because of the pandemic. All of our operations are now fully stacked.

And when you add them up.

So if there's no discussion of on boneless market and you've alluded to to the volatility in the market and you did see some.

Brain notable in an almost some unusual counter seasonal strength through our through the third quarter.

I would love to just get kind of your thoughts on kind of how what was really driving kind of the market at just as we think about incremental potential sources of volatility moving.

Moving forward kind of more recently was an interesting one that would be helpful. Just to frame thinking.

Fabio Sandri: We still have a lot of operation improvements to capture based on training and based on food operations and better mix, but I think that should help our operations next, last year. So, what I'm going to ask is a scenario that is posing from headroom for chicken overall. In terms of what can change, of course, the economy can be different if the consumer has less available money to spend, but overall chicken has been more resilient to even economic and don't turn scenarios. Okay, perfect.

Think about what could how that could recur if at all.

Yeah sure. Thanks for the question, yes, we've been seeing that the vault out part of the cut out has been the breast meat as I mentioned last quarters has steadily increased wings resumed their growth tragic story with being back to the menus and more featuring but breast meat has been really volatile we saw.

Big increases that at the end of the quarter and that was mainly restocking off the.

Both the foodservice distributors and B, what we call industrial so the further processors.

In the branded companies that sell into retail I think over the beginning of the year. What we saw was high prices at retail.

Matthew Galvanoni: And then my second question, I guess I once format just coming back on the capital allocation side and you just said on the call to continue in this and high returning project, et cetera. Can you update us on what you're expecting full-year CapEx to come out? I mean, obviously, we're here today already almost at the levels we were in full-year, last year. So, is that run rate about 150 million full-of-fourth quarter?

Our industrial customers as we mentioned, we're actually buying less I mean, you saw that in every single earnings release from the Big brand names that they were selling at the higher price, but the lower volume.

And I think that was combined.

With lower production with a reduction in their inventories as well. So I think we saw during the end of the quarter a little bit of restocking of those and we saw some pickup in the demand on the retail I think we saw a lot of features we always mentioned that the commodity segment.

Matthew Galvanoni: Should we expect that to come in as well? And how do you think about CapEx into next year, is there normalization, or would still expect some elevated levels? Yeah, a good question, Ben. As I look at the fourth quarter and look, I think in total for the year, we'll definitely be north to 5.50. Our run rate should maybe slightly slow down as we wind down the Athens construction, but we still will be finalizing our construction in our South Georgia facility, which are two of the bigger strategic projects which we've been mentioning over the last year.

It was.

It was always augmented by the case ready demand during the grilling season, and I think we saw that late after labor day.

This year, but we are seeing that as of now as well, where the case rated category or the retail category with increasing features is actually buying big bird breast meat from commodity players to augment their offerings on the retail so I think that the big increase.

Matthew Galvanoni: So in the run rate, you know, that we've been having kind of a 140, probably pretty close to what I would see kind of going in for the fourth quarter, so in full-year, north to 5.50. I think relative to next year, I think what we'll do is we get through our budget process and our strategic focus here, as we wind through our budgets here in the fourth quarter and meet with our board, we'll be giving updates to you guys on that at our earnings call in February.

Based on these two factors more industrial AR for the rebounding or rebuilding of stocks more retail.

Based on the features and the foodservice continued to be strong I think the distribution.

Matthew Galvanoni: But generally speaking, we rate this minute, we don't have those larger strategic projects that have been initiated similar to the Athens and South Georgia protein conversion, which would tell us to probably be down slightly for sure year-over-year. And also over the last few years, Ben, we invested heavily in automation as we've been talking about, especially on the breast-deboding automation. And as we have the plans fully staff, of course, who are always looking to the payback of those projects, but we don't expect significant investments in that scenario. Thank you. Comments again. Thank you, Ben.

On the foodservice as we see the number of service centers see penetration on the menu chicken has improved once again because of the availability and the higher price of the competing proteins.

Well that's helpful. And then if I could have a second question on on the UK and Europe and are the margins had a nice kind of sequential improvement.

But again just help us think about that.

The visibility that you have on on the margin on the profit side moving.

Moving into the into the first half of next year is there any concern on volatility and hog markets or do you think that you're now at a in a better balance between the network and in the fresh.

Ben Bienvenu: Our next question comes from Ben, the Envenue of Stevens Inc. Please go ahead. Yep. Yeah, thanks so much. Good morning. I got it. Good morning, Ben. Pablo, I want to pick up on some comments you made just around the fourth quarter. You noted that supply production levels are trending down through most of the third quarter and it looks to be continuing into the fourth quarter based on the leading indicators. You noted prices are at a historically average level, but relative to grain prices seem unsustainably low.

The fresh poultry.

Baird.

<unk> foods in the Parkman wells.

Ben Bienvenu: In light of that and the demand backdrop that you've laid out, do you think we could have a counter-seasonal move in breast-date prices as we move through the quarter, recognizing I know their prices are under pressure a bit to start. Corp. Yeah, it's a great point.

Yeah, that's a that's a great.

Point out them, yes, as we do this portfolio, we have a very well balanced between chicken between the fresh pork and prepared foods, both to meet and meals.

I think we have.

Invested in innovation as well I think that has been one of the great strides that we've made on helping our key customers to seed just like we do in U S.

<unk> into innovation as I mentioned, we have more than 100, new products launch, especially on the on the news.

Scenario.

On the fresh I think what we are seeing that pork has help with a more balanced supply and demand I think now the live operation of park is profitable in Europe, and it was negative for a significant amount of time and we are the highest and have the highest integration of all players in the U K.

Fabio Sandri: It's what usually Q4 is the lowest price for chicken because of all the the events that we have comes giving and Christmas is typically not the best sales moment for chicken as we have a lot of features on the other proteins. I think starting a mid-November and beginning of December what we usually see in our industry is a big increase in terms of demand because of the expectations for the beginning of the year.

And on the fresh chicken, what we're seeing is a significant increase in demand because of the affordability of chicken as we are seeing inflation in Europe was really high and it was over the wage inflation, but right now that change and we're seeing that wages are actually out.

Fabio Sandri: I think people talk about New Year's resolution but I think it's more after the Christmas and after New Year's people go back to the normal buying patterns and chicken is a everyday item that is very important for our families. So what we expect similar to prior years is a reduction in supply and you're seeing as I mentioned that on the exits that are informed by USDA and we're seeing a pickup in demand starting mid-November beginning of December and that's when we expect the prices to start increasing.

Based on inflation. So the consumer must have more available income we are seeing the translation of that into the consumer confidence in the region and we expect an overall increase in the demand of protein.

Okay, Great. That's that's helpful I'll pass it on thanks.

Thank you Adam.

Yeah.

The next question comes from Priya <unk> Gupta from Barclays. Please go ahead.

Thank you so much for taking my question one for you if I could start.

Fabio Sandri: I think the volatility has been really strong on the breast meat. If you look at the cutout there are the other parts where we are seeing a much better supply and demand scenario. I think wings that was very low last year as it was priced out of the menu in many food services. It's coming back to the menu so we're seeing a steady increase in the price of wings. Of course the wings season that just started also helps and we're seeing as we mentioned steady improvement in the exports as the leg quarters from the United States are very competitively priced compared to all the other proteins available on the export scenarios. So when you think about the cutout we're seeing more volatility on the breast meat but very well supported on leg quarters and on the wings. Okay very good.

And your free cash flow performance has been coming in better largely driven by strengthen in working capital just given some of the commentary you made around that.

Market, how should we think about working capital for the full year as it relates to cash from operations could could we end up being in a more neutral position on working capital or is there a scope for it to possibly be part.

Thank you for your question I think it would probably be overall more net neutral I do see though is as you pointed out you know grain moderating.

We have already started to see some of that started to hit our P&L here, we'll call it towards the second half of the quarter our Q3.

And we do see a little bit more moderation here on the green side, so that should be beneficial to us both from a P&L perspective, but also as you point out a working capital perspective, So we do see a little bit of continued improvement.

Fabio Sandri: My second question is related to Mexico. Another strong quarter there. Can you provide any color on the go-forward outlook for Q and then Hurricane Otis. It doesn't look like you guys have operations where that made landfall and most of the devastation was concentrated but do you expect that to have any impact on operations at all? Yeah sure on the Mexico as we always mentioned it can be very volatile quarter over quarter but we expect to be really strongly over here and that's not different this year.

From where we sit today, but I wouldn't.

Take that just too too far at this stage.

Okay. That's helpful and then.

Okay I just wanted to follow up around some of the more constructive comments around the European consumer and you just talked about how you know wages are outpacing inflation youre starting to see increased consumer confidence.

Really sort of dovetails with some of them more cautious commentary, we've heard from others around the European consumer versus the U S consumer.

Fabio Sandri: I think last year we saw a very strong first quarter and a very weak second quarter. Of course that was based on some internal issues that we have on the live operations. It's first half and second half yes. First half and second half yes. But this year what we were seeing is a strong demand for chicken as I mentioned I think the first semester and even Q3 which is not normal because what happens normally this is another thing Mexico is that as schools are out people change their buying patterns and we see a weakness in the purchasing of chicken and as the school come back we're seeing a lot of available income coming for school supplies and also an impact in demand but this year has been Different than other years, and we see a very strong Q3 October, September and October has always been the lowest levels of pricing in Mexico and that was not different this year, but we are seeing prices already recovering.

Consumer.

So how I guess, how sustainable do you think some of these.

Stronger trends in terms of the U S consumer.

Relative to sort of up listing.

And should we think about this is a quarter to quarter thing that we should track or is there something more sustainable.

So think about as we model out into 'twenty four.

Yes, I think in Europe, what we were seeing it with an overall reduction in demand, especially on the red meat category in a little bit of sport to because it was more expensive than all other chicken was actually steady or gaining a little bit of let's say market share in the overall printing category and as I mentioned.

And as we're seeing the the economy, improving we were seeing that a consumer with more available income and we expect a better overall.

In both in retail and foodservice.

Fabio Sandri: There's always the competition of competing proteins and imports from both United States and Brazil impacting the demanding Mexico as well. But I think that we are seeing a very favorable scenario coming in the next quarter. Yeah, and Ben, just a couple of things to follow up. One is actually also, you know, foreign currency volatility is something that we're currently always monitoring there in the Mexico and in your question relative to the storm, you know, my understanding is storm hit the heck of apropocal area, which does not not an area that has a lot of production for us and it has now thankfully dissipated. The storm is not nearly severe, so we're not seeing at this point any severe impacts to our operations at this time. Okay.

I think also when we were seeing a little bit of higher inflation in Europe, what we were seeing people trading out of some branded and going to more.

Ben Bienvenu: Great. Thanks so much.

The retail brands, which typically are more.

Portable <unk>.

And despite that we saw growth in our reach more because of the strength of the brand, but we believe that that could be.

Nice change and we can see consumers going back to some branded offerings, which could help, especially the wish bone brand and our free to read their brand in the region.

This concludes our question and answer session I will now turn the call back over to Fabio for closing comments.

Andrew Strelzik: The next question comes from Andrew Strilsick of BMO capital. Please go ahead. Thank you, morning. Thanks for taking the questions. My first one is on some of the operational improvements in the press release you alluded to uncovering some incremental opportunities. Can you elaborate a little bit on what those are? And is there any way to quantify, I guess, the magnitude of those and the contributions of those improvements that you've realized so far this year and then the new ones going forward?

Thank you very much over the past year, we've experienced many challenge, while soybean ranging from volatile market fundamentals persistent inflation elevated input costs and compressed spread across proteins. Nonetheless, we continue to invest in our business and building the best team in the industry driving profitable growth through key customer partnership diversity.

<unk> and operational excellence, making off of in basin, even stronger as conditions change moving forward with continental market condition improvements as wage growth is on beef inflation coatings, president returning to more normal levels in grain production has increased.

Fabio Sandri: Sure. Thank you for the question, Andrew. Yeah. Every year in the budget time, we identified the opportunities for operational improvements. We call that opening the gaps. And then also during the budgeting, we created action plans to close those gaps and capture those operation improvements. Typically, we expect around 100 to 200 million dollars in improvements every year, doing things more efficiently, capturing better you, better live operations and better mix. So last year was no different.

Regardless of external factors, we remain relentless in our focus and execution of our strategy reinforcing our competitive advantage and becoming the best and most respected company in our industry, creating a better future for our team members.

You for joining us today.

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

Fabio Sandri: We didn't find a lot of operational improvements that we can take. I think the biggest challenge was the staffing of our plans. So we were not fully staffed. It was very difficult to attract talent to our operations. And as the 2023 started, we're seeing an improvement in that scenario. And as I mentioned right now, we are fully staffed. So I think the challenge right now is to train all of our team members to operate efficiently and capture those improvements as a mission. Okay, great. That's helpful.

[music].

Yes.

Fabio Sandri: And then I guess I just had a question more broadly on your market share. I'm given some of the dynamics and the sales trends and distribution, et cetera, that you've called it would seem certainly like your gaining share in the US. And I'm in particular interested on the distribution side with respect to case ready. If you could talk maybe about what's going on there. I mean, do you think that you're taking share from from other key players in the industry or or is there broader growth here that you're servicing with the key customers that that fits into how would you characterize what's going on there.

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Fabio Sandri: Thanks. Yeah. That's a great question. Let me think about market share. We don't look over all. We're looking to the individual segments, right? And as we mentioned, we have a very well balanced portfolio. We are the leaders in the small board category. We've been growing our market share because we've been increasing our market share with our key customers and our key customers are growing faster than all the other customers or players in that segment.

Fabio Sandri: As an example, we increase the market increase in Q3 3.4% in the fresh category on the retail and we increase 9%. Because of our penetration in those key customers again that are growing faster than all others. On the big board category, I think there being a lot of additions in the last four or five years in this industry. And we have not increased in number of plants. Of course, we have improved in terms of number of heads and we have improved in terms of yield. But in that category, I think we've been having a very stable market share. Great. Very helpful perspective. Thank you very much.

Peter Galbo: The next question comes from Peter Galbo of Bank of America. Please go ahead. Hey, guys. Good morning. Peter. Thank you very much. [inaudible] So, for us, but we are seeing is the growth in the frozen, footical category through our just their end-to-earth brand, and a growth in our fresh offerings with partnership with key customer on customer brands. What it's reducing, anyway, absolutely right, is what we call IQS, which is more a commodity operation, that is a frozen offering of a non-value added breast meat or winged war. Got it. No, that's helpful.

Matthew Galvanoni: And Matt, your comments just around the balance sheet, right? The leveraged position is going to improve here or should continue improve here, you know, into the next quarter or two. Just given where, you know, the cash position sits on the balance sheet, you know, how are you thinking about opportunities to redeploy the cash, whether that be opportunistic share buyback, which you guys have done over the past, or potentially, you know, M&A opportunities throughout there.

Matthew Galvanoni: Yeah, and I think just, you know, one thing just to make sure that the cognizant of, you know, we see the cash balance at the end of the quarter, you know, that number will be down $350-ish million with the tender offer we did, because we did the bond offering for 500 million, then, you know, paid down debts for 850. So just to make sure people are cognizant, our cash balance is closer to that $500-550 area at this stage.

Matthew Galvanoni: You know, our view on this look is we want to grow, but we're going to grow in a disciplined manner. We've done some nice catbacks with some key customers for some different attributes that they may want in their products that we've had some higher catbacks from rate, you know, for more of an organic growth perspective. And we see more of those opportunities coming. And so, you know, the way we look at it from our cash perspective right now, it's growth in a disciplined manner.

Matthew Galvanoni: I don't know if I want to add anything further. I think that's absolutely right. Well, I was looking for creating value for all key members in our shareholders, and we look for acquisitions that complement our portfolio. We're always looking for things that we can add value and operate better, or complement our portfolio of brands or geographies. So I think the market has been really strong on M&A activity, and we will do an acquisition when we believe that will create value for our company.

Adam Samuelson: The next question comes from Adam Samuelson of Goldman Sachs. Please go ahead. Yes, thank you.

Fabio Sandri: Good morning, everyone. There's a lot of discussion on the bonus market, and you alluded to the volatility in the market, and you did see some pretty notable and some unusual counter seasonal strength through the third quarter. We'd love to just get kind of your thoughts on kind of how what was really driving kind of the market, just as we think about incremental potential sources of volatility, moving forward kind of more recently was an interesting one that would be helpful just to frame, think about how that could recur if at all.

Fabio Sandri: Yes, sure. Thanks for the question. Yes, we've been seeing that the volatile part of the cutout has been the breast meat. As I mentioned, that quarters have steadily increased. Wings resumed their growth trajectory with being back to the menus and more featuring, but breast meat has been really volatile. We saw some big increases at the end of the quarter, and that was mainly restocking of both the food service distributors and what we call industrial, so the further processors and the branded companies that sell on the retail.

Fabio Sandri: I think over the beginning of the year, what we saw was with high prices at retail, those industrial customers, as I mentioned, were actually buying less. And we saw that in every single earnings release from the big brand names that they were selling at the higher price, but the lower[inaudible] and I think that was combined with more production, with a reduction in their inventory as well. So I think we saw during the end of the quarter a little bit of restocking of those and we saw some pickup into demand on the retail.

Fabio Sandri: I think we saw a lot of features. We always mentioned that the commodity segment was always augmented by the case-ready demand. During the grilling season and I think we saw that late after Labor Day this year. But we are seeing that as of now as well where the case-ready category or the retail category with increasing features is actually buying Big Bird breast meat from commodity players to augment their offerings on the retail.

Fabio Sandri: So I think that big increase was based on these two factors, more industrial for the rebounding or rebuilding of the stocks, more retail based on the features. And the food service continued to be strong. I think the distribution on the food service as we see the number of servings and the penetration on the menu chicken has improved once again because of the availability. And the higher price of the competing proteins. That's helpful.

Fabio Sandri: And then if I use a second question on the UK in Europe and the margins had a nice sequential improvement. But again, just help us think about the visibility that you have on the margin on the profit side moving into the first half of next year. Is there any concern on volatility in hog markets or do you think that you're now at a better balance between the network and the fresh poultry, the prepared foods and the pork business?

Fabio Sandri: Yeah, that's a great point Adam. Yes, as we do this portfolio, we have a very well balanced between chicken, between the fresh pork and prepared foods both meat and meals. I think we have invested in innovation as well. I think that has been one of the great strides that we made on helping our key customers to succeed just like we do in US. That's investing into innovation. As we mentioned, we have more than 100 new products launch especially on the on the news scenario on the fresh.

Fabio Sandri: I think what we are seeing is that pork has helped with a more balanced supply and demand. I think now the live operation of pork is profitable in Europe and was negative for a significant amount of time. We are the highest integration of all players in the UK. On the fresh chicken, what we are seeing is a significant increase in demand because of the affordability of chicken. As we are seeing inflation in Europe was really high and it was over the wage inflation.

Fabio Sandri: But right now that change and we are seeing that wages are actually outpacing inflation. So the consumer must have more available income. We are seeing the translation of that into the consumer confidence in the region. And we expect an overall increase in the demand of food.

Matthew Galvanoni: Thank you so much for taking our question. Not one for you if I could start. You know, your free cash flow performance has been coming in better, largely driven by strengthen in working capital, just given some of the commentary you guys have made around the brain market. How should we think about working capital for the full year as relates to cash from operations? Could we end up being in a more neutral position on working capital or is there even scope for it to possibly be positive?

Matthew Galvanoni: Thank you very much for the question. I think it would probably be overall more net neutral. I do see those as you pointed out, you know, grain moderating. We have already started to see something that started to hit our PNL here. We'll call it sort of the second half of the quarter of Q3 and we do see a little bit more moderation here on the grain side, so that should be beneficial to us both from a PNL perspective, but also as you point out, a working capital perspective. So we do see a little bit continued improvement from where we sit today, but I wouldn't take that just too far at this stage. Okay, that's helpful.

Fabio Sandri: And then, you know, I just wanted to follow up around some of the more constructive comments around the European consumer. You know, you just talked about how wages are outpacing inflation, you're starting to see increased consumer confidence. It's really sort of dot-tales with some of the more cautious commentary we've heard from others around the European consumer versus the US consumer. So how I guess how sustainable do you think some of these these stronger trends in terms of the US consumer could be relative to sort of uplifting protein demand?

Fabio Sandri: Should we think about this? Is, you know, quarter to quarter thing that we should track? Or is there something more sustainable that we could, you know, think about as we model out into 24? Thanks. Yeah, but thinking here of what we were seeing, it was an overall reduction in demand, especially on the red meat category, and a little bit of poor Q because it was more extensive than all other. Shukin was actually steady-organing a little bit of the market share in the overall protein category.

Fabio Sandri: As I mentioned, as we're seeing the economy improving, we were seeing that the consumer with more available income can we expect a better overall demand, both in retail and in food service? I think also when we were seeing a little bit of higher inflation in Europe, what we were seeing people trading out of some branded and going to more the retail brands, which typically are more affordable. And despite that, we saw a growth in our reach moment because of the strength of the brand, but we believe that that could be a nice change and we can see consumers going back to some branded offerings, which could help, especially the rich moment brand and our free traders brand in the region.

Operator: This concludes our question and answer session.

Fabio Sandri: I will now turn the call back over to Fabio for closing comments. Thank you very much. Over the past year, we've experienced many challenges throughout our business, ranging from volatile market for the mentals, persistent inflation, elevated input cost and compressed spread across proteins. Nonetheless, we continue to invest in our business and giving the best in the industry, driving profitable growth through key customer partnership, diversity, sophistication and operation of excellence, making our firmation even stronger as conditions change.

Fabio Sandri: Moving forward, we're confident on market condition improvements as wage growth is of facing inflation, protein spread and return to more normal levels and great production has increased. Regardless of external factors, we remain relentless in our focus and expectation of our strategies, reinforcing our competitive advantage and becoming the best and most respected company in our industries, creating a better future for our team members.

Operator: Thank you for joining us today. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.