Q2 2024 Pilgrim's Pride Corp Earnings Call

Operator: Good morning, and welcome to the second quarter of 2024 Pilgrims Pride earnings conference call and webcast. Please note that the slides referenced during today's call are available for download from the investor section of the company's website at www.pilgrims.com. I would now like to turn the conference call over to Andrew Rojeski, Head of Strategy, Investor Relations, and Sustainability for Pilgrims Pride. Further information concerning these factors has been provided in this morning'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 Sandri.

Operator: Good morning and welcome to the second quarter of 2024 Pro Grims Pride earnings conference call and webcast. Our participants will be in listen normally mode. Should you need assistance, please signal our conference specialist by pressing the star key, 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 investor section of the company's website at www.pilgrims.com.

Fabio Sandri: Our adjusted EBITDA was $666 million, up 164% versus Q2 of 2023. Our adjusted EBITDA margin was 14.4%, compared to 5.8% less. To that end, we continually invest in our business throughout cycles and market volatility, further strengthening our competitive advantage and creating opportunities to drive profitable growth as market conditions change. In the U.S., our case-ready business continues to grow key customer partnerships in retail through differentiated offerings, promotional activities, and innovation. Margins in Big Bird expanded as commodity cut-out values increased and operational efficiencies improved. Small Bird also grew, giving increased demand from key customers in QSR and Delhi.

Fabio Sandri: Prepared Foods further diversified our portfolio, giving increased distribution of branded offerings and innovation across retail and food service channels. In Europe, the profitability journey continues to move forward. Throughout the quarter, the team optimized MIGs through key customer partnerships and further diversified our portfolio through a combination of branded offerings and innovation.

Fabio Sandri: The team also identified and implemented opportunities to enhance our manufacturing network, reinforcing our ability to scale for profitable growth. Sales with key customers grew double digits throughout retail, and diversification efforts in branded offerings across fresh and prepared continue to be exceptionally well-received as all have grown ahead of the market. Turning to feed inputs, grain prices declined throughout the quarter with a favorable start to the U.S. corn growing season and more normal weather to finish the second crop in Brazil, further pressuring the market and raising confidence that both U.S. and global corn stocks will grow in the next crop year to very comfortable levels. Expanded acreage in both Argentina and Australia have also increased opportunities for additional growth and supply. Taken together, these gains have more than offset When these factors are combined with the ample corn supply, wheat prices have drifted lower and reflect adequate prices.

Fabio Sandri: While favorable conditions currently exist for increased stock levels, risks still remain. Production growth was supported by larger average life weights, while all segments experienced minor declines in head counts relative to prior years. Nonetheless, the younger and more efficient flock has supported increased egg production and domestic egg availability. Based on recent trends in layer flock, egg sets, and live weights, USDA data suggest a 0.8% growth in chicken production for the full year, assuming a normal season. In boneless, skinless breasts, retail pricing has steadily declined since the end of 2022 and reached its lowest level over the past 18 months in June.

Fabio Sandri: As a result, the retail spread between boneless breast versus ground beef recently hit an all-time high at the end of this quarter. This coincided with a strong quarterly performance from Brown Bonus, which saw sales growth post-material year over year. Consumers continue to favor frozen value-added over the frozen commodity category, as value-added volumes more than offset the volume's decline. As for the retail deli, unit and dollar growth remain robust, as the department can offer strong value to consumers who may be looking to trade out of traditional food service meals to rationalize spending without sacrificing convenience.

Speaker Change: Good morning and welcome to the second quarter of 2024 Programs Pride Earnings Conference Call-In Webcast.

Fabio Sandri: Within the sub-channel, the QSR category drove the majority of volume growth, suggesting consumers are seeking more affordable meals. As for exports, volumes have decreased almost double-digit as domestic demands continue to grow for both bone-in and boneless dark meat and replace exported cuts.

Fabio Sandri: When volumes have declined, demand continues to be strong, and the supply chain is fluid with minimal disruption. In the U.S., inflationary wary customers increasingly saw chicken given its relative affordability, flexibility, and availability. These factors were augmented by continued elevated pricing from other products. As such, our diversified portfolio across bird sizes was well-positioned to realize upsized, Furthermore... Our Big Bird business improved through continual optimization of mix, yields, line efficiencies, and labor productivity, along with enhanced commodity cut-out values and reduced grain input costs. These combined factors draw a significant margin against them.

Fabio Sandri: Similar to Case Ready, Small Bird's cost efficiency supported our key customers' initiatives to further drive trafficking in their restaurants or retail deli locations. A recent Athens expansion continues to drive improvements in production efficiency. Furthermore, our innovation initiatives under the Pilgrims brand garnered increased distribution from the new line of products, especially with Kiko. The team also identified new export markets to further cultivate demand. Our business has also developed a robust innovation pipeline to further drive profitable growth and diversify our portfolio. Our Waitrose Popcorn Chicken with Hickory BBQ Sauce was awarded as the best ready-to-eat product by Food Management Today.

Fabio Sandri: Given these efforts, we can further scale profitable growth. Our branded offerings continue to gain significantly market-price traction as pilgrims and unique tastes have grown well ahead of the market compared to last year. Given Mexico's growth potential and status as a net importer of protein, we continue to invest and explore opportunities to increase our presence. In FRESH, our construction of a new hatchery, feed mill, and broiler farm in the Merida region is on track, and our efforts to enhance BR's security through the relocation of the breeding farms are on schedule.

Fabio Sandri: In PREPARE, we continue to evaluate multiple options to expand our presence in both fully cooked and par-fried at either existing or new locations. Based on these efforts, we will further diversify our portfolio, reduce operational risks, and drive production efficiency. As we have discussed in the past, in both the U.S. and Europe, many of our contracts have some level of cost-plus element. As such, with declining key input costs, our top-line sales numbers will be reduced accordingly.

Fabio Sandri: For our Europe business, adjusted EBITDA margins came in at 7.4% for Q2, compared to 5.2% last year. And in Mexico, adjusted EBITDA margins in Q2 were 19.4% versus 12.2% a year ago. Moving to the U.S., our adjusted EBITDA for Q2 came in at $444.6 million, compared to $113.5 million a year ago.

Fabio Sandri: Year-over-year recovery in the commodity chicken markets, along with lower grain input costs and continued operational improvements, drove strong year-over-year profitability improvements in our Big Bird business. Our case-ready, small bird, and prepared foods businesses have continued their momentum with increased distribution with key customers, driving both year-over-year and quarter-over-quarter profitability. The business has also benefited from its network optimization programs and administrative reorganization efforts. We anticipate that restructuring activities will continue through at least the end of the year. Mexico generated $115.1 million in adjusted EBITDA in Q2, compared to $67.2 million last year.

Fabio Sandri: The Mexican business profitability improved primarily due to more balanced supply and demand fundamentals and lower grain inflation. After thorough analysis that began in Q2, we changed the functional currency for our Mexican business from the U.S. dollar to the Mexican peso, effective April 4th. The impact on the transition date was recognized in Other Comprehensive Income and was not material.

Fabio Sandri: The primary effect of the change is that the impacts of the translation of Mexico's balance sheet at the end of applicable reporting periods are no longer recorded through the income statement. This is consistent with how we treat Pilgrims Europe. For further information on this change, please refer to Note 1 in our financial statements included in the Form 10-1. Relative to our SG&A costs in the quarter, excluding the year-over-year increases in legal settlement costs and incentive compensation accruals, SG&A was lower year-over-year by almost 5%.

Fabio Sandri: Although we anticipate some increased advertising and marketing costs in the second half of the year in support of our new, innovative products under our Pilgrims brand, we remain disciplined in our cost structure. Our effective tax rate for the quarter was 23.6%, which included certain net favorable discrete items.

Fabio Sandri: With the increase in our earnings ratio to our higher tax jurisdictions, we anticipate that the full-year tax rate will approximate $26 billion. We have a strong balance sheet, and we continue to emphasize cash flows from operating activities, management of working capital, and disciplined investment in high-return products. Net interest expense for the quarter totaled $15.3 million.

Fabio Sandri: However, that amounted to a net of $11.2 million of gains recognized as part of the open market debt repurchase. Excluding the impact of any net gains or losses on debt repurchases, we anticipate our full-year net interest expense to be between $100 million and $110 million. Even following the debt repurchases at the end of the quarter, we had nearly $2.4 billion in total cash and available credit, driven by the strong free cash flow generation during the first half of the year.

Speaker Change: At the company's request, this call is being recorded.

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

Andrew Rojeski: I would like to turn the conference call over to Andrew Rojeski, head of strategy, investor relations, and sustainability for Pilgrim's Pride. Good morning, and thank you for joining us today as we review our operating and financial results for the second quarter ended on June 30th, 2024. Yesterday afternoon, we issued a press release providing an overview of our financial performance for the quarter, including a reconciliation of any non-GAAP measures we may discuss. A copy of the release is available on our website at ir.pilgrims.com, along with the slides for reference. These items have also been filed as Form 8-Ks and are available online at sec.gov.

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Speaker Change: A copy of the release is available on our website at www.ir.pilgrims.com along with this slide for reference. These items have also been filed as Form 8Ks and are available online at www.sec.gov.

Operator: Bobby O'Sondry, president and chief executive officer, and Mac Alvinoni, chief financial officer, will present on today's call.

Operator: 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 expectations as of the day 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 this morning's press release, are form 10K and are regular pilots with the SEC.

Speaker Change: Further information concerning these factors have been provided in this morning'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 Sandri.

Bobby O'Sondry: I would now like to turn the call over to Bobby O'Sondry. Thank you, Andy. Good morning, everyone, and thank you for joining us today. For the second quarter of 2024, we reported net revenues of 4.6 billion. A 5.8% increase over the same quarter last year. Our adjusted EBITDA was 666 million, up 164% versus Q2 of 2023. Our adjusted EBITDA margin was 14.4% compared to 5.8% last year. Our Q2 results reflect the structure of our portfolio and our strategies to capture market upside while minimizing downside risks. To that end, we continually invested in our business throughout cycles and market volatility.

Fabio Sandri: Our adjusted EBITDA was $666 million, up 164% versus Q2 of 2023. Our adjusted EBITDA margin was 14.4%, compared to 5.8% last year.

Fabio Sandri: Our Q2 results reflect the structure of our portfolio and our strategies.

Speaker Change: to capture market upsides while minimizing downside risks. To that end, we continually invested in our business through all cycles and market volatility, further strengthening our competitive advantage and creating opportunities to drive profitable growth as market conditions change.

Bobby O'Sondry: Further strengthening our competitive advantage and creating opportunities to drive profitable growth as market conditions changed. In the U.S., our case-ready business continued to grow key customer partnerships in retail through differentiated offerings, promotional activities, and innovation. Margins and big bird expanded as commodity cutout values increase and operational efficiencies improve. Smolberg also grew, given increased demand from key customers in QFR and L.E. Prepare foods further diversify their portfolio, given increased distribution of branded offerings and innovation across retail and food service channels. In Europe, the profitability journey continues to move forward. Through all the quarter, the team optimised MEX through key customer partnerships and further diversify their portfolio through a combination of branded offerings and innovation.

Fabio Sandri: In the U.S., our case-ready business continued to grow key customer partnerships in retail through differentiated offerings, promotional activities, and innovation. Margins in Big Bird expanded as commodity cut-out values increased and operational efficiencies improved.

Speaker Change: Small Bird also grew given increased demand from key customers in QSR and Delhi. Prepared Foods further diversified our portfolio given increased distribution of branded offerings and innovation across retail and food service channels.

Fabio Sandri: In Europe , the profitability journey continues to move forward.

Bobby O'Sondry: The team also identified an implemented opportunity to stream hands on manufacturing network, reinforcing our ability to scale for profitable growth. Mexico's results improved, given continued balance in market supply and demand, and consistent execution of our strategies. Fails with key customers grew double digits throughout retail, and diversification efforts in branded offerings across fresh and prepare continued to be exceptionally well received, as all have grown ahead of the market. Operational excellence efforts to increase capacity for profitable growth and reduced buying security risks all remain on track. Turning to feed inputs, green prices declined throughout the quarter with a favourable start to the US corn growing season and more normal weather to finish the second crop in Brazil.

Fabio Sandri: Sales with key customers grew double digits throughout retail, and diversification efforts in branded offerings across fresh and prepared continue to be exceptionally well-received as all have grown ahead of the market.

Fabio Sandri: Operational excellence efforts to increase capacity for profitable growth and reduce biosecurity risks all remain on track.

Bobby O'Sondry: Increased acreage for US corn versus original March forecast further pressured the market and raised confidence that both US and global corn stocks will grow in the next crop year to very comfortable levels. Similarly, the site complex prices got lower as a sharp increase in the Argentine soybean crop offset slightly smaller production in Brazil, triggering a build for the 23-24 crop year. Likewise, a notable 3 million acre increase in US soybean plantings, coupled with a favourable start to the growing season, raised confidence that both US and global soybean stocks will also build further in 24-25. In weeks, consolidated US and Canadian production are increasing compared to prior year.

Speaker Change: Increased acreage for U.S. corn versus original March forecast further pressured the market and raised confidence that both U.S. and global corn stocks will grow in the next crop year to very comfortable levels.

Speaker Change: Similarly, the soy complex prices got lower, as a sharp increase in the Argentine soybean crop offset slightly smaller production in Brazil.

Speaker Change: triggering a build for the 2023-2024 crop year.

Speaker Change: In wheat, consolidated U.S. and Canadian production are increasing compared to prior year.

Bobby O'Sondry: Expanded acreage in both Argentina and Australia have also increased opportunities for additional growth and supply. Taking together, these gains have more than offset production losses in Europe and the Black Sea. When these factors are combined with ample corn supply, which prices have drifted lower and reflect adequate stock levels. My favourable conditions currently at this point increase stock levels; risk still remain. As such, we continue to monitor weather conditions, global uncertainty related to conflicts in Europe and the Middle East, impact of regulations, and movement in exchange rates. As for supply, UFDA indicated ready-to-cook production for the US chicken to increase 0.9% relative to the second quarter of 2023.

Speaker Change: Expanded acreage in both Argentina and Australia have also increased opportunities for additional growth and supply. Taken together, these gains have more than offset production losses in Europe and the Black Sea.

Speaker Change: As for supply, USDA indicated ready-to-cook production for the U.S. chicken to increase 0.9% relative to the second quarter of 2023.

Bobby O'Sondry: Production growth was supported by larger average life weights, while all segments experienced minor declining head counts relative to prior year. The reduction in head counts reflects the challenge in the life side. Most notably, the hashability and mortality issues experienced across the industry over the life. Last year. Since early 2024, the industry layer flock has shown consistent year-over-year declines. Nonetheless, the younger and more efficient flock has supported increased act production and domestic ag availability. These layer efficiencies have pushed hatchery utilization to record levels, but being offset by ongoing hatchability mortality headwinds, resulting in lower heads reaching the plants.

Speaker Change: Production growth was supported by larger average live weights, while all segments experienced minor declines in head counts relative to prior year.

Speaker Change: The reduction in headcounts reflects the challenge in the lifecycle, most notably the hatchability and mortality issues experienced across the industry over the last years.

Bobby O'Sondry: As for overall protein availability, USDA anticipates mild growth as increasing ports of beef and pork, additional part production, and the expected increase in chicken supply expect to offset a declining beef production from reduced herd size and increased retention. The domestic chicken demand maintain firm growth throughout the quarter. The retail channel, experiencing poor volume across all departments. In the fresh department, the demand has remained robust. Consumers have relied on chicken fulfilling their everyday center of plate, protein needs in a challenging environment. Within the category, volumes rose in both white and dark meat costs. This coincided with a strong quarterly performance from boneless breast, which saw sales growth post mature year-over-year improvements.

Speaker Change: The Retail Channel, experiencing improved volume across all departments.

Bobby O'Sondry: Overall, the frozen sales also experienced higher volumes, driven by the frozen value added category. Consumers continue to favor frozen value added over the frozen commodity category, as value added volumes more than offset the volume declining commodity. As for the retail daily, unit and dollar growth remain robust, as the department can offer strong value to consumers who may be looking to trade out of traditional food service meals to rationalize spending without sacrificing convenience. In the food service channel, revenue and volume sales improve in both commercial and non-commercial food service distribution channels. The commercial distribution sub-channel experienced large dollar growth, as rising fresh wholesale prices were able to be passed through operators.

Bobby O'Sondry: Main meat types include ingress meat, panders, and wings. How continue to post positive volume growth, even with current prices given the competitiveness of poultry. Within the sub-channel, the QSR category drove the majority of volume growth, suggesting consumers are seeking for more affordable meals. The non-commercial distribution sub-channel continued to build steadily as business and industry activity continues to increase. As for exports, volumes have decreased almost double digit, as domestic demands continue to grow for both bone-in and boneless dark meat and replace exported cuts. When farmers have declined, they may continue to be strong, and the supply chain is fluid with minimal disruptions.

Speaker Change: Main meat types, including breast meat, tenders and wings, all continue to post positive volume growth, even with current prices, given the competitiveness of poultry.

Speaker Change: Within the sub-channel, the QSR category drove the majority of volume growth, suggesting consumers are seeking for more affordable meals. The non-commercial distribution sub-channel continued to build steadily as business and industry activity continues to increase.

Speaker Change: As for exports, volumes have decreased almost double-digit as domestic demands continue to grow for both bone-in and boneless dark meat and replace exported cuts.

Speaker Change: When volumes have declined, demand continues to be strong, and the supply chain is fluid with minimal disruptions.

Bobby O'Sondry: Based on these factors and seasonality, cold storage supplies of chicken reported by USDA indicates a 12.6% reduction from the same year levels. To date, there has been no new, even influenza outbreaks in commercial growing reforms, which continues to enable export supply. Nonetheless, there still have been no movement in China lifting its restrictions. Moving forward, we will continue to monitor bird health, domestic demand for dark meat, and exchange rates to identify and capture export opportunities. In the UF, inflationary, wary customers increasingly sought chicken given its relative affordability, flexibility, and availability. These factors were augmented by continued elevated pricing from other programs. As such, our diversified portfolio across bird sizes was well positioned to realize upsides from enhanced market conditions.

Speaker Change: Based on these factors and seasonality, cold storage supplies of chicken reported by the USDA indicates a 12.6% reduction from the same year levels.

Speaker Change: Moving forward we will continue to monitor bird health, domestic demand for dark meat and exchange rates to identify and capture export opportunities.

Speaker Change: In the U.S., inflationary wary customers increasingly saw chicken given its relative affordability, flexibility, and availability.

Speaker Change: These factors were augmented by continued elevated pricing from other programs. As such, our diversified portfolio across bird sizes was well positioned to realize upsides from enhanced market conditions.

Bobby O'Sondry: In case ready, our team worked closely with key customers to ensure value through promotional activity and innovation. These efforts were also supported by efficiencies and cost improvements in production, that provides additional opportunities for our key customers to invest in stored traffic and shopper activation and reduce the overall prices to consumers. Our portfolio of differentiated, higher attribute offerings also continue to resonate with consumers, creating additional demand. Given these dynamics, our key customers experience growth in fresh chicken well above category averages. Furthermore, it is ready to continue to secure new business through operational excellence in quality and service.

Speaker Change: These efforts were also supported by efficiencies and cost improvements in production that provides additional opportunities for our key customers to invest in store traffic and shopper activation and reduce the overall prices to consumers.

Speaker Change: Furthermore, he is ready to continue to secure new business through operational excellence in quality and service.

Bobby O'Sondry: The team also deepen relationships with key customers to invest in the manufacturing network. As such, it is ready to seamlessly realize considerable improvement in net sales and profitability, compared to prior year, a reinforced foundation for future growth. Our big bird business improves through continual optimization of mix, yields, line efficiencies, and labor productivity, along with enhanced commodity cutout values and reduced grain input cost. These combined factors drove significant margin expansion. In the small bird, our business grew from increased demand from key customers in QSRs and Delhi. Similar to QSRs, small bird's cost efficiencies supported our key customer's initiatives to further drive traffic in their restaurants or retail-deli locations.

Speaker Change: The team also deepened relationships with key customers through investments in a manufacturing network. As such, K3D simultaneously realized considerable improvements in net sales and profitability.

Bobby O'Sondry: Small bird's performance was further amplified through operational excellence. A recent, Athens expansion continues to drive improvements in production efficiencies. The increased capacity has also generated additional profitable growth with key customers. Our diversification efforts to value added offerings and prepare continue to gain traction from increased distribution across retail and food service and extensive customer recognition of our branded offerings. Just bear remains a key driver as net sales grew over 20% compared to prior year. Furthermore, our innovation initiatives under the Pugans brand garnered increased distribution from the new line of products, especially with key customers. customers. We continue to strengthen our presence through commercial as digital grew by 30% for our branded value added offerings from last year.

Speaker Change: The increased capacity has also generated additional profitable growth with key customers.

Speaker Change: JustBear remains a key driver as net sales grew over 20% compared to prior year. Furthermore, our innovation initiatives under the Pilgrims brand garnered increased distribution from the new line of products, especially with key customers.

Speaker Change: We continue to strengthen our presence through commercial as digital grew by 30% for our branded value-added offerings from last year.

Bobby O'Sondry: In Europe, consumer sentiment began to improve as wage growth for past inflation. Our diverse five portfolio enable us to meet the needs of customers and consumers alike as our key customers deliver growth in the marketplace. Our branded business rose over 7% from last year, as both refrigerators and richmen grew faster than the category average. Our two meals business also improved margins to mix optimization and emphasis on convenience by consumers. Similar to other places of the world, fresh chicken continues to drive profitable growth as consumers reorganize its relative affordability compared to other proteins. Our fresh part business was consistent over year.

Bobby O'Sondry: Nonetheless, the team identified multiple opportunities to accelerate growth and manage to secure several new awards from key customers. The team also identified new export markets to further cultivate demand. Our business has also developed a robust innovation pipeline to further drive profitable growth and diversify our portfolio. To date, the team has launched over 85 new products in retail. Our wait rules, popcorn chicken, wihikori, beer, beer, beer, beer, sauce was awarded as the best ready-to-eat product by Food Management Today. These efforts are further amplified by progressing food service as the team continues to build business with both key customers and QSRs.

Speaker Change: Nonetheless, the team identified multiple opportunities to accelerate growth and managed to secure several new awards from key customers.

Bobby O'Sondry: The team has also developed plans to scale current relationships throughout Europe with new and existing offerings. After four operational excellence, the integration of our PM business continued to progress really well. The team continues to realize benefits from a more customer-focused, efficient organization. Their extensive focus on quality, service, safety, and excellence in production are also being increasingly recognized throughout the industry as they recently received Processor of the Year at the UK National Ag and Poetry Awards. Moving forward, the team will continue to advance with key customers, diversify our portfolio through innovation, and drive opportunities to operational experts.

Speaker Change: The team has also developed plans to scale current relationships throughout Europe with new and existing offerings.

Speaker Change: Their extensive focus on quality, service, safety and excellence in production are also being increasingly recognized throughout the industry as they recently received Processor of the Year at the UK National Ag and Poultry Awards.

Bobby O'Sondry: Given the efforts, we can further scale profitable growth. Turning to Mexico, profitability improves significantly through balanced supply and demand from the mentors in the commodity market, favorable input costs, and continue the execution of our strategies. In Fresh, our key customer partnerships continue to strengthen, as net sales are up double digits compared to prior year. Our branded offerings continue to significantly market praise traction, as pilgrims and unique tastes have grown well ahead of the market. Similarly, the Favoritos and Just Bear brands have grown more than 20% since the beginning of the year. Diversification through prepare continues to progress, as net sales have increased across all channels compared to less.

Bobby O'Sondry: last year. Branded offerings continue to play a key role as the overall portfolio has grown by 8% compared to last year. Given Mexico's grow potential and status as a net important of protein, we continue to invest and explore opportunities to increase our presence. In fresh, our construction of a new hatchery, Sydneyo and broiler farmers in the Merida region remain on track, and our efforts to enhance BR security through relocation of the breeding farms are on schedule. On fully operational, this project is showing hand service and geographical diversification for the Mexican market. In prepare, we continue to evaluate multiple options to expand our presence in both fully cook and par fry at either existing or new locations.

Speaker Change: On Fully Operational, this project should enhance service and geographical diversification for the Mexican market. In Prepared, we continue to evaluate multiple options to expand our presence in both Fully Cooked and Par-Fry at either existing or new locations.

Bobby O'Sondry: We continue to identify opportunities to further drive profitable growth throughout our strategies. In the US, our protein conversion teams successfully ramped up production in our new Douglas facility in South Georgia. Demand from key customers remains strong, and additional growth opportunities continue to emerge from the growth of the pet food category. Given our progress and market potential, we're also expanding our protein conversion facility at our center location. Based on these efforts, we will further diversify our portfolio, reduce operational risks, and drive production efficiencies. As a result, we can differentiate and add value to our products to reduce the impact of industrial cyclicality in our business, creating a more resilient earning stream.

Speaker Change: In the U.S., our protein conversion team successfully ramped up production in our new Douglas facility in South Georgia.

Matthew Galvanoni: With that, I'd like to ask our CFO, Matt Galvanoni, to discuss our financial results. Thank you, Fabio. Good morning, everyone. For the second quarter of 2024, net revenues were $4.56 billion versus $4.31 billion a year ago. With the adjusted EBIT of $655.9 million in a margin of 14.4%, compared to $248.7 million in a 5.8% margin in Q2 last year. Relative to net revenues, we experienced year-over-year sales growth in the US and Mexico in the quarter. In Europe, year-over-year net revenues were down less than 1%. As we've discussed in the past, in both the US and Europe, many of our contracts have some level of cost-plus element.

Matt Galvanoni: With that, I'd like to ask our CFO , Matt Galvanoni, to discuss our financial results. Thank you, Fabio. Good morning, everyone. For the second quarter of 2024, net revenues were $4.56 billion versus $4.31 billion a year ago.

Speaker Change: Relative to net revenues, we experience year-over-year sales growth in the U.S. and Mexico in the quarter.

Matthew Galvanoni: As such, with the climbing key input costs, our top line sales numbers will be reduced accordingly. Adjusted EBIT that margins in Q2 were 16.7% in the US compared to 4.6% a year ago. For our Europe business, adjusted EBIT that margins came in at 7.4% for Q2 compared to 5.2% last year. And in Mexico, adjusted EBIT that margins in Q2 were 19.4% versus 12.2% a year ago. Moving to the US, our adjusted EBIT for Q2 came in at $444.6 million compared to $113.5 million a year ago. Year-over-year recovery in the commodity chicken markets along with lower green input costs and continued operational improvements drove strong year-over-year profitability improvements in our Big Bird business.

Speaker Change: Adjusted EBITDA margins in Q2 were 16.7% in the U.S., compared to 4.6% a year ago.

Speaker Change: Moving to the U.S., our adjusted EBITDA for Q2 came in at $444.6 million, compared to $113.5 million a year ago.

Matt Galvanoni: Year-over-year recovery in the commodity chicken markets, along with lower grain input costs and continued operational improvements, drove strong year-over-year profitability improvements in our Big Bird business.

Matthew Galvanoni: Our case ready, small bird, and prepared foods businesses have continued their momentum with increased distribution of key customers driving both year-over-year and quarter-over-quarter profitability.

Speaker Change: Our case-ready, small bird, and prepared foods businesses have continued their momentum with increased distribution with key customers, driving both year-over-year and quarter-over-quarter profitability improvements.

Matthew Galvanoni: In our U.S. gap results, we did record a $71 million charge in the quarter associated with reaching a settlement associated with the previously disclosed growers litigation. In Europe, adjusted EBITDA on Q2 with $96.2 million versus $68.1 million last year. Our European business took another step in its profitability growth journey through focus on key customer partnerships and innovative offerings. The business is also benefited from its network optimization programs and administrators' reorganization efforts. We incurred approximately $36.7 million of restructuring charges during the quarter in support of these programs. We anticipate that restructuring activities will continue through at least the end of the year.

Matt Galvanoni: In our U.S. GAAP results, we did record a 71 million dollar charge in the quarter associated with reaching a settlement associated with the previously disclosed growers litigation.

Speaker Change: In Europe, adjusted EBITDA in Q2 was $96.2 million versus $68.1 million last year. Our European business took another step in its profitability growth journey through focus on key customer partnerships and innovative offerings.

Matt Galvanoni: We incurred approximately $36.7 million of restructuring charges during the quarter in support of these programs.

Matthew Galvanoni: Mexico generated $115.1 million in adjusted EBITDA on Q2 compared to $67.2 million last year. The Mexican business profitability improved primarily due to more balanced supply and demand fundamentals and lower grain input costs. After thorough analysis that began in Q2, we changed the functional currency for our Mexico business from the U.S. dollar to the Mexican peso effective April 1st. The impact on the transition date was recognized in other comprehensive income and was not material. The primary effect of the change is that the impacts the translation of Mexico's balance sheet at the end of applicable recording periods are no longer recorded through the income statement.

Matt Galvanoni: Mexico generated 115.1 million dollars in adjusted EBITDA on Q2 compared to 67.2 million dollars last year. The Mexican business profitability improved primarily due to more balanced supply and demand fundamentals and lower grain input costs.

Matt Galvanoni: After thorough analysis that began in Q2, we changed the functional currency for our Mexico business from the U.S. dollar to the Mexican peso, effective April 1st.

Matt Galvanoni: The primary effect of the change is that the impacts of the translation of Mexico's balance sheet at the end of applicable reporting periods are no longer recorded through the income statement. This is consistent with how we treat Pilgrims Europe .

Matthew Galvanoni: This is consistent with how we treat Kelvin's Europe. For further information on this change, please refer to Note One in our financial statements included in the Form 10-Q. Relative to our SG&A costs in the quarter, excluding the year-over-year increases in legal settlement costs and incentive compensation accruals, SG&A was lower year-over-year by almost 5%. Although we anticipate some increase advertising and marketing costs in the second half of the year in support of our new innovative products under our Pilgrims brand, we remain disciplined in our cost structure. Our effective tax rate for the quarter was 23.6%, which included certain net favorable discrete items. With the increase in our earnings ratio to our higher tax jurisdictions, we anticipate the full year tax rate will approximate 26%.

Matthew Galvanoni: We have a strong balance sheet, and we continue to emphasize cash flows from operating activities, management of working capital, and disciplined investment in high return products. During Q2, we reduced our gross leverage by $164 million through open market purchases of our own debt for approximately $150 million in cash. As at the end of Q2, our net debt total of less than $1.9 billion with the leverage ratio of approximately 1.1 times or last 12 months is just at EBITDA. Net interest expense of the quarter total of $15.3 million. However, that amount is net of $11.2 million of gains recognized as part of the open market debt repurchases.

Speaker Change: We have a strong balance sheet and we continue to emphasize cash flows from operating activities, management of working capital, and disciplined investment in high return products.

Matthew Galvanoni: Excluding the impact of any net gains or losses on debt repurchases, we anticipate our full year net interest expense to be between $100 and $110 million. Even following the debt repurchases at the end of the quarter, we had nearly $2.4 billion in total cash and available credit driven by the strong free cash flow generation during the first half of the year. We have no short-term and media cash requirements with our bonds in the churn between 2031 and 2034, and our US credit facility not expiring until 2028. Our liquidity position provides us flexibility during times of volatility in the US commodity markets and allows us to pursue our gross strategy, including organic growth to meet our customers.

Fabio Sandri: We have no short-term immediate cash requirements, with our bonds maturing between 2031 and 2034 and our U.S. credit facility not expiring until 2028. Our liquidity position provides us flexibility during times of volatility in the U.S. commodity markets and allows us to pursue our growth strategy, including organic growth to meet our customers' needs. We spent $105 million on CapEx in the second quarter. With the increase in our free cash flow during the first half of the year, we plan to pursue additional capital projects with attractive returns during the second half of this year.

Matt Galvanoni: We have no short-term immediate cash requirements with our bonds maturing between 2031 and 2034 and our U.S. credit facility not expiring until 2028. Our liquidity position provides us flexibility during times of volatility in the U.S. commodity markets and allows us to pursue our growth strategy, including organic growth, to meet our customers' needs.

Matthew Galvanoni: needs.

Matthew Galvanoni: We spent $105 million in cat-backs in the second quarter. With the increase in our free cash flow during the first half of the year, we planned to see additional capital projects with attractive returns during the second half of this year. These projects are focused on optimizing our product mix, growing with our key customers to meet specific products, attributes they require, increasing operational efficiencies, and supporting our sustainability efforts. These projects are seen as growing Pilgrims' competitive advantage. As such, we are increasing our full year cat-back spend estimate to $525 to $575 million. We have a strong focus on growth opportunities.

Fabio Sandri: These projects are focused on optimizing our product mix, growing with our key customers to meet specific product attributes they require, increasing operational efficiencies, and supporting our sustainability efforts. These projects are seen as growing Pilgrim's competitive advantage. As such, we are increasing our full-year CapEx spend estimate to between $525 and $575 million.

Matt Galvanoni: These projects are seen as growing Pilgrims' competitive advantage. As such, we are increasing our full-year CapEx spend estimate to $525 to $575 million.

Operator: We have a strong focus on growth opportunities. Finally, as we have discussed extensively, our U.S. prepared foods business has grown its branded portfolio through innovative and differentiated products, and we anticipate expanding our capacity to meet the growth trajectory of this portfolio. These near-term growth opportunities align to our overall strategies of portfolio diversification, focus on key customers, operational excellence, and our commitment to team member health. Operator, this concludes our prepared remarks. Please open the call for questions. To ask a question, you may press star, then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys to minimize background noise.

Matthew Galvanoni: First, over the last few years, we have invested in our plans to meet product attributes requested by our key customers, and we will continue to do so as we cultivate these relationships. Also, we foresee investments in additional protein conversion capacity to both upgrade our product mix and manage risk by reducing our exposure to outside protein conversion operators.

Matt Galvanoni: First, over the last few years, we've invested in our plants to meet product attributes requested by our key customers, and we will continue to do so as we cultivate these relationships. Also, we foresee investments in additional protein conversion capacity to both upgrade our product mix and manage risk by reducing our exposure to outside protein conversion operators.

Matthew Galvanoni: Finally, as we have discussed extensively, our U.S. prepared food businesses grown are brained portfolio through innovative and differentiated products, and we anticipate expanding our capacity to meet the growth trajectory of this portfolio. These near-term growth opportunities align to our overall strategies of portfolio diversification, focus on key customers, operational excellence, and our commitment to team member health and safety.

Matt Galvanoni: These near-term growth opportunities align to our overall strategies of portfolio diversification, focus on key customers, operational excellence, and our commitment to team member health and safety.

Operator: Operator, this concludes our prepared remarks. Please open the call for questions. We will now begin the question-and-answer session.

Operator: 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.

Speaker Change: To ask a question, you may press star, then 1 on your touchtone phone.

Operator: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Ben Theurer of Barclays. Go ahead, please. Yeah, good morning Fabio and Matt.

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

Speaker Change: To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.

Ben Sarah: Our first question comes from Ben, Sarah, of Barclays. Go ahead, please. Good morning. Thank you very much for the presentation. Thanks for taking my question. The first one is just about the growth opportunities and the CAPEX. You've just up to, I mean, obviously it's a relatively small increase in quotation marks. If you go, let's say to the higher end of this. In your press release, you stated that obviously leverage is very low right now, and that you have a great foundation to execute on your growth strategy. So I wanted to ask if you could maybe elaborate a little bit more as to what are the opportunities you're looking at.

Speaker Change: Our first question comes from Ben Theurer of Barclays. Go ahead, please.

Ben Theurer: Thank you very much for the presentation. Thanks for taking my question. The first one is just about the growth opportunities and the CapEx you've just increased. I mean, obviously, it's a relatively small increase in quotation marks if you go, let's say, to the higher end of this.

Fabio Sandri: In your press release, you stated that, obviously, leverage is very low right now and that you have a great foundation to execute on your growth strategy. So I wanted to ask if you could maybe elaborate a little bit more as to what are the opportunities you're looking at, be it M&A, be it buybacks, maybe a special dividend, just where leverage stands right now in terms of cash flow generation. I mean, whatever, a 10% increase in CapEx is probably not going to bring your leverage significantly higher. So I just wanted to understand what those growth opportunities that you're seeing are. That would be my first question. Yeah, thanks, Ben.

Bobby O'Sondry: Be it M&A, be it buybacks, maybe a special dividend, just where leverage stands right now, the cash flow generation. I mean, whatever 10% increase in CAPEX proudly, not going to bring your leverage significantly higher. So just want to understand what are those growth opportunities that you're seeing. That would be my first question.

Ben Theurer: Whatever 10% increase in capex probably not going to bring your leverage significantly higher So just wanted to understand what are those growth opportunities that that you're seeing that would be my first question

Bobby O'Sondry: Yeah, thanks, Ben. As we're seeing strong demand for chicken, and as we are seeing our key customer demand growing even ahead of the market, we're seeing a lot of opportunities to support their growth. And I think with that, we saw the investment we did at the Athens facility, and we're thinking about a lot of investments in other facilities to support that growth with differentiated products.

Fabio Sandri: As we're seeing strong demand for chicken, and as we are seeing our key customers' demand growing even ahead of the market, we're seeing a lot of opportunities to support their growth. And I think with that, and we saw the investment we did at the Athens facility, and we're thinking about a lot of investments in other facilities to support that growth with differentiated products. But as you mentioned, that's not going to significantly change our debt profile.

Speaker Change: And we are thinking about a lot of investments in other facilities to support that growth with differentiated products. But as you mentioned, that's not going to change significantly our debt profile.

Bobby O'Sondry: But, as we mentioned, that's not going to change significantly our debt profile. I think we're always looking for ways to create shareholder value, right? Since in the past we mentioned that we'll look for opportunities for acquisitions in three major. Building blocks. One is on the chicken track, where you can operate better than the other markets and create value. The second one is to differentiate our portfolio in branded, prepared food offerings. We look to grow that business. We are growing organically, and as we mentioned, just bare brands and the pure ones are growing ahead of the market.

Fabio Sandri: I think we're always looking for ways to create shareholder value, right, since in the past for acquisitions in three major building blocks. One is on the chicken track, where you can operate better than the other markets and create value. The second one is to differentiate your portfolio in branded, prepared food offerings. We look to grow that business. We're growing organically.

Speaker Change: I think we're always looking for ways to create shareholder value, right, since in the past we mentioned that we'll look for opportunities for acquisitions in three major areas.

Speaker Change: building blocks. One is on the chicken track where you can operate better than the other markets and create value. The second one is to differentiate our portfolio in branded.

Fabio Sandri: And as we mentioned, the Just Bear brands and the Pilgrim brands are growing ahead of the market, but we're always looking for opportunities either in the West or abroad to increase the portfolio of prepared food, branded business. And we're also looking for different geographies in the chicken categories. So those three, main themes, let's say, continue to be our focus for our acquisition targets. Of course, we'll always be a prudent acquirer.

Bobby O'Sondry: But we are always looking for opportunities either in the US or abroad to increase the portfolio of prepared food branded business. We are also looking for different geographies in the chicken categories. Those three main teams continue to be our focus on our acquisition targets. Of course, we will always be a prudent acquirer. I think in the past, we have proven that we can create value on the acquisitions that we do. We are always looking for opportunities, and we are seeing a lot of opportunities out there. I think I mentioned the organic growth potential. We will continue to grow on the prudent conversion sign.

Speaker Change: branded business.

Speaker Change: And we're also looking for different geographies in the chicken categories. So those three...

Fabio Sandri: I think in the past, we've proven that we can create value through the acquisitions that we do. So we're always looking for opportunities, and we're seeing a lot of opportunities out there. I think I mentioned the organic growth potential. We'll continue to grow on the protein conversion side. I think we just ramped up our operation in Douglas, Georgia, very successfully.

Speaker Change: I think...

Speaker Change: I mentioned the organic growth potential will continue to grow on the protein conversion side. I think we just ramped up our operation in Douglas, Georgia, very successfully.

Bobby O'Sondry: I think we just ramp up our operation in Douglas, Georgia, very successfully. I think that operation added value to our products, especially the rendering products, when we have great partnerships with the pet food industry. So we will continue to do that. I think that added value and reduced risk for our business as we don't rely on external renders for our products.

Fabio Sandri: I think that operation added value to our products, especially the rendering products, when we have great partnerships with the pet food industry. So we'll continue to do that. I think that operation added value and reduced risk for our business as we don't rely on external renderers for our products.

Speaker Change: I think that operation added value to our products, especially the rendering products, when we have great partnerships with the pet food industry.

Speaker Change: So we will continue to do that. I think that added value and reduce risk for our business as we don't rely on external renderers for our products.

Fabio Sandri: And I think the other ones are the ones you mentioned, dividends, share buybacks, and buying back some of our debt. We're always looking for opportunities, and we'll do as we can to create value for our shareholders. Sure, thank you. I will start with Mexico.

Bobby O'Sondry: I think the other ones are the ones you mentioned, and dividends and share buybacks, and buying back some of our debt. We will always looking for opportunities, and we will do as we can create value for our shareholders.

Speaker Change: And I think the other ones are the ones you mentioned, and dividends, and share buybacks and buying back some of our debt. We're always looking for opportunities and we'll do as we can create value for our shareholders.

Bobby O'Sondry: Perfect. And then my second question is really if you could share a little bit trends for what you are seeing in the third quarter, particularly in the US commodity market, but also Mexico. I mean, way above 100 million in Mexico and operating income. I think you've never had that in the past. So how fast are some of the life bird operators reacting to such levels of profitability? And similarly in the US, we've seen a little bit of an increase in exits.

Speaker Change: I think you've never had that in the past, so how fast are some of the live bird operators reacting to such levels of profitability? And similarly in the U.S. we've seen a little bit of an increase in exits, so maybe any comments you can you can shed on like on as to like 3Q and then into 4Q capacity, what you're what you're seeing and how that potentially impacts the market?

Bobby O'Sondry: So maybe any comments you can share on last two, like 3Q and then into 4Q capacity, what you're seeing and how that potentially impacts the market. Sure. Thank you.

Fabio Sandri: Because it's a growing economy, we're seeing the demand for chicken growing faster in Mexico, and we're excited about the opportunities and connected to your first question about growing with the investment that we had in the Merida region, so we can further diversify our geography locations and grow in Mexico. Mexico is a great or big importer of protein and will continue to grow in the region. But, as you know, it can be very volatile quarter over quarter.

Bobby O'Sondry: I'll start with Mexico because it's a growing economy. We're seeing the demand for chicken growing faster in Mexico. I'm very excited about the opportunities and connected to your first question about growing with the investment that we had in the Maria region, so we can further diversify our geography locations and grow in Mexico. Mexico is a great or big importer of protein and will continue to grow in the region, but as you know, it can be very volatile quarter over quarter. As we always mentioned, we expected a year over a year to be more sustainable, and we'll see very strong profitability and growth in the region.

Speaker Change: diversify our geography locations and grow in in Mexico. Mexico is a great or big importer of protein.

Speaker Change: and we will continue to grow in the region, but as you know, it can be very volatile quarter over quarter. As we always mention, we expect that year over year to be more sustainable and we will see...

Fabio Sandri: As we always mention, we expect it year over year to be more sustainable, and we'll see very strong profitability and growth in the region, but quarter over quarter, it can be very volatile for exactly the reason that you mentioned, which is the live bird market. About 30% of the market in Mexico is for live birds.

Bobby O'Sondry: But quarter over quarter can be very volatile for exactly the reason that you mentioned, which is the live bird market. about 30% of the marketing in Mexico is of live birds with cell live birds to distributors and those distributors move those birds to small slaughterhouses throughout the around the field of Mexico mainly and the consumers will buy what they believe is a fresh product. I think that the market continues to be really volatile for what you mentioned, which is small operators that can come and go as the prices go up and down. I think we saw great profitability in that segment during Q1 and Q2, and we're seeing some continued profitability during Q3 as the live challenges continue to be big throughout the world.

Fabio Sandri: We sell live birds to distributors, and those distributors move those birds to small slaughterhouses throughout the country, mainly in Mexico, and the consumers will buy what they believe is a fresh product. I think that market continues to be really volatile for what you mentioned, which is small operators that can come and go as the prices go up and down. I think we saw great profitability in that segment during Q1 and Q2, and we're seeing some continued profitability during Q3, as the live challenges continue to be big throughout the world. We're seeing some live challenges in terms of diseases, growth conditions, and mortality throughout the world, and that's not different in Mexico. We're seeing some challenges on the live market. The challenge continues to be hatchability.

Speaker Change: About 30% of the market in Mexico is of live birds. We sell live birds to distributors, and those distributors move those birds to small slaughterhouses throughout.

Speaker Change: around the city of Mexico mainly and the consumers will buy what they believe is a fresh product.

Speaker Change: I think that market continues to be really volatile.

Speaker Change: Go up and down. I think we saw great profitability in that segment during Q1 and Q2 and we're seeing some continued profitability during Q3.

Bobby O'Sondry: We were seeing some live challenges in terms of diseases, growth, conditions, mortality throughout the world, and that's not a different in Mexico. We're seeing some challenges on the live market in that region, and that is being flowing down. I believe the fast increase on those small operators, but I think they will eventually show up, and the market will be a little bit more volatile. But so far during Q3, we're seeing some strong demand and continuous balance in the supply and demand. Q3 usually starts with schools off, which is a little bit different in terms of demand for chicken, but prices continue to be well-supported, and we're seeing good profitability in Mexico, not as volatile as we had in the past.

Speaker Change: [inaudible]

Speaker Change: eventually show up and the market will be a little bit more volatile but so far during Q3 we're seeing some strong demand and continuous balance in the supply and demand.

Bobby O'Sondry: In terms of US, I think we have the leading indicators right. So the layer flock is smaller than the same period last year by 3.8 percent, but it is more productive because it's a little bit younger. So we're seeing more X per hand being produced. So a bit, we have a smaller layer layer layer flock; we have more X being available for our industry. The challenge continued to be the hatch ability. I think we did increase in number of eggs our hatching usage or the use in our hatching, which has reached, I think, many times over, which is downtime high over 96 percent. But we're still seeing some very low hatch ability, and that is because, what we mentioned in the past, as the performance of Deathbird. And it is structural, right? So there, as we mentioned, there are structural components, which is this new genetics that came to answer for a higher quality, higher yield bird. But we have been struggled with the performance in terms of the hatchability, and we're seeing the lowest hatchability we ever seen. And despite some improvements here and there, we believe that will be really difficult in the short term to overcome that hatchability number.

Speaker Change: In terms of the U.S., I think...

Speaker Change: being available for our industry. The challenge continues to be the hatchability. I think with this increase in the number of eggs, our hatching...

Fabio Sandri: I think with this increase in the number of eggs, our hatching, and the use in our hatchery retail is rich. We have also seen some increased livability issues, meaning mortality. We are seeing more mortality. So we will start with a lower mortality rate. [inaudible] Reaching the planet.

Speaker Change: I think 96%, which is all-time high, over 96%, but we're still seeing some very low hatchability. And that is because of what we mentioned in the past, as the performance of that bird and the...

Speaker Change: It is structural, right? So there, as we mentioned, there is structural components, which is this new genetics that came to answer for a higher quality, higher yield.

Speaker Change: But, we have been in struggle with the performance in terms of the hatchability and we're seeing the lowest hatchability we've ever seen. And despite some improvements here and there, we believe that it will be really difficult in the short term to overcome that hatchability.

Bobby O'Sondry: We also seen some increase livability issues minimal mortality we're seeing more mortality. So we'll start with a lower Breeding Flock or Layer Flock, but it's more productive, so we have more X. That put pressure on our hatching system. Then we have the hatchability issue producing last chick. And as we play thing, those chicks, I think we're seeing some high mortality as well. So despite a little bit higher chick's placement, we're seeing a lower number of heads reaching the plants. They have a little bit higher weight, again, because the conversion of this bird is really better than the previous birds.

Speaker Change: We are also seeing some increased livability issues, meaning mortality, we are seeing more mortality. So we will start with a lower percentage.

Speaker Change: Breeding Flock or Layer Flock

Speaker Change: But it's more productive, so we have more eggs. That puts pressure on our hatching system.

Speaker Change: Then we have the hatchability issue, producing less chicks. And as we're placing those chicks, I think we're seeing some high mortality as well. So despite a little bit higher chicks placement, we're seeing a lower number of heads.

Speaker Change: Reaching the Plants

Speaker Change: They have a little bit higher weight, again, because the conversion of this bird is really better than the previous birds, but we are seeing a lower number of...

Bobby O'Sondry: But we are seeing a lower number of birds reaching our plants. And that is being what's keeping the production actually flat to a little bit over the same number last year.

Speaker Change: of Birds Reaching Our Plants, and that is what's keeping the production actually going.

Bobby O'Sondry: As going forward, we expect the industry to do the normal seasonal cuts. As we see, there is a strong demand for chicken in retail, in food service. But, as a normal seasonality, we expect the industry to follow the same patterns. And that's what we are seeing on the USDA numbers.

Speaker Change: Flat to a little bit over

Speaker Change: the same number last year as going forward.

Bobby O'Sondry: Thank you very much.

Speaker Change: Thank you very much.

Peter Galbo: The next question comes from Peter Galbo of Bank of America. Go ahead, please. Hey guys, good morning. Thanks for taking the question. And maybe just one from me on a broader thought. You know, Fabio, I think the big question we're getting, particularly with the run that the stock has had, as people try to put it into historical kind of context. Like, what's the best analogy in your mind to kind of the current cycle relative to past cycles where we have a situation with expensive ground beef or expensive beef and maybe a lower availability relatively benign or even helpful grain cost and then high chicken prices with limited supply growth.

Peter Galbo: Thank you very much. The next question comes from Peter Galbo of Bank of America. Go ahead, please.

Speaker Change: The next question comes from Peter Galbo of Bank of America. Go ahead, please.

Peter Galbo: Hey guys, good morning. Thanks for taking the time to answer the question. And maybe just one from me on a broader thought. Fabio, I think the big question we're getting, particularly with kind of the run that the stock has had, as people try to put it into historical kind of context, like, what's the best analogy in your mind to kind of the current cycle relative to past cycles where we have a situation with expensive ground beef or expensive beef and maybe a lower availability, relatively benign or even helpful grain costs and Like, is there a good historical?

Peter Galbo: Hey guys, good morning. Thanks for taking the question, and maybe just one from me on a broader thought. You know, Fabio, I think the big question we're getting, particularly with kind of the run that the stock has had, as people try to put it into historical kind of context,

Speaker Change: What's the best analogy in your mind to kind of the current cycle relative to past cycles where we have a situation with expensive ground beef or expensive beef and maybe a lower availability, relatively benign or even helpful grain costs and then high chicken prices with limited supply growth? Is there a good historical...

Fabio Sandri: Like, is there a good historical frame of reference for folks to use? I think it would just be helpful in terms of how you're thinking about it at this point. Thanks very much. Sure, yeah. If you look into the past and I think you can try to get similar conditions, maybe in 2014, 2017, 2004. I think those are yours. But I think the structure of this market changed a lot, right? As we always mentioned, especially for parents, we have a differentiated portfolio. I think in the past, we used to see a lot of contracts based on markets, based on commodity markets, even on the retail or on the small birds.

Speaker Change: frame of reference for folks to use, I think would just be helpful in terms of how you're thinking about it at this point. Thanks very much.

Fabio Sandri: You can try to get similar conditions maybe in 2014, 2017, 2004. I think those are years. But I think the structure of this market has changed a lot, right? As we always mention, especially for pilgrims, we have a differentiated portfolio. I think in the past, we used to see a lot of contracts, based on market, based on commodity markets, even retail or on small birds.

Speaker Change: Sure, yeah, if you look into the past and I think you can...

Speaker Change: Based on Markets

Fabio Sandri: I think what we had today is a very differentiated portfolio where we have two businesses, which are the small bird and the case ready business in the United States that are more stable. And, as we mentioned, that is giving our key customers a lot of efficiency and giving the possibility for them to invest in traffic and in promotional activities with the reduction in the price of feed inputs mainly. While the commodity market will always be driven by supply and demand, and that is the big bird. So, as we see less of the market only driven by the commodity pricing or the supply and demand or the commodity pricing, I think we have a differentiating factor in terms of what was the profitability back in 2014, 2004, 2017, to what we have.

Fabio Sandri: I think what we have today is a very differentiated portfolio where we have two businesses, which are the small bird and the case ready business in the United States that are more stable. And as we mentioned, that is giving our key customers a lot of efficiency and giving the possibility for them to invest in traffic and in promotional activities, with a reduction in the price of feed inputs mainly, while the commodity market will always be driven by supply and demand, and that is the big part.

Speaker Change: Based on commodity markets, even on the retail or on the small birds, I think what we have today is a very differentiated portfolio where we have two businesses, which is the small bird and the case ready business in the United States that are more stable.

Speaker Change: to with the the reduction in the the price of feed inputs mainly. While the commodity market will always be driven by supply and demand and that is the big bird. So as we see less

Fabio Sandri: So as we see less of the market only driven by commodity pricing or supply and demand or commodity pricing, I think we have a differentiating factor in terms of what was the profitability back in 2014, 2004, and 2017 compared to what we have. But in terms of what is happening in the market, once again, and I think that's similar. We're seeing less available beef, right, with a reduced herd and with a higher price, as we are seeing the live prices of beef and the Live Animals Geohistorical Hive. This is also true in the food service industry.

Speaker Change: of the market only driven by the commodity pricing or the supply and demand of the commodity pricing. I think we have a differentiating factor in terms of what was the profitability back in 2014, 2004, 2017 to what we have today.

Fabio Sandri: today. But in terms of what is happening in the market once again, and I think that's what is similar. We're seeing less available beef right with a reduced herd and with a higher price as we are seeing the live prices of beef, the live animals to historical highs. And we're seeing the price to the end user higher, as we mentioned with the difference between the cost of beef and the cost of chicken. The difference or the gap between ground beef and boneless kimono's breast for the end user has reached record high, hacker highs in terms of gap.

Speaker Change: But in terms of what is happening in the market, once again, and I think that's what is similar, we're seeing less available beef, right, with a reduced herd, and with a higher price, as we are seeing the live prices of...

Peter Galbo: Beef

Peter Galbo: and the live animals to historical highs.

Peter Galbo: And we're seeing the price to the end-user higher, as we mentioned, with the difference between the cost of beef and the cost of chicken.

Peter Galbo: The difference or the gap between ground beef and boneless, skinless breast for the end-user has reached record highs, in terms of gap. And I think what's different is that the consumer today, different than in the past, it is looking for quality.

Fabio Sandri: And I think what's different is that the consumer today different than in the past, is looking for deals because they are feeling the pressure of inflationary scenarios, especially on the interest rates of prices, gasoline, and everything. So they are looking for better opportunities. This is also true in the food service. So we saw a little bit of a struggle on the food service industry in terms of food traffic. But the demand for chicken, so the penetration of chicken has increased and actually chicken is increasing in demand in the food service despite the challenge that we are seeing with food traffic, especially on the food service restaurants.

Peter Galbo: So we saw a little bit of a struggle in the food service industry in terms of food traffic. But the demand for chicken, so the penetration of chicken, has increased, and actually chicken is increasing in demand in the food service industry despite the challenge that we are seeing with food traffic, especially in food service restaurants. Great, thanks very much. The next question comes from Andrew Strelzik of BMO. Go ahead, please. Hey, good morning.

Peter Galbo: This is also true in the food service.

Peter Galbo: So we saw a little bit of a struggle on the food service industry in terms of food traffic.

Peter Galbo: But the demand for chicken, so the penetration of chicken, has increased, and actually chicken is increasing.

Peter Galbo: in demand in the food service, despite the challenge that we are seeing with food traffic, especially on the food service restaurants.

Fabio Sandri: Great, thanks very much.

Andrew Stelsnick: The next question comes from Andrew Stelsnick of BMO. Go ahead, please. Thanks. Thank you, morning. Thanks for taking the questions. My first one, the press release noted momentum and branded and value added, and basically every one of your segments.

Peter Galbo: The next question comes from Andrew Strelzik of BMO. Go ahead, please.

Andrew Strelzik: Thanks for taking the questions. My first one, you know, the press release noted momentum and branded and value added in basically every one of your segments. So I was curious how your mix of those products has changed over the last couple years within your portfolio, where you see that headed in the next couple years, and how does that impact your overall margin profile? Sure, thank you Andrew.

Andrew Stelsnick: So I was curious how your mix of those products has changed over the last couple of years within your portfolio where you see that headed in the next couple of years. And how does that impact your overall margin profile over time? Sure, thank you, Andrew. As we mentioned, it's one of the sources of growth we had to expect in the future. We always talk about our portfolio in all the regions and prepare food branded. It is a differentiating factor for us because it's more stable. As we have the exposure in the United States and other regions to the commodity segments, which is more volatile, we want to have a bigger portion of our portfolio with more stable margins, and that is the branded value added category.

Fabio Sandri: As we mentioned, it's one of the sources of growth that we expect in the future. We always talk about our portfolio in all the regions and prepare food branded, it is a differentiating factor for us because it's more stable, whereas we have exposure in the United States and other regions to commodity, which is more volatile.

Fabio Sandri: We want to have a bigger portion of our portfolio with more stable margins, and that is the branded value-added category. I think we've been investing in differentiating factors and I think the Just Bear brand is a great example, is a great product with differentiating attributes of clothing, reduced breading, and in the higher tier, and it's both in the fresh and in the prepared foods categories, and also we are launching new and innovative products in the Pilgrims brand which will really excite the category. I think what we've been seeing over the last years is that the value-added prepared Chicken category has been, let's say, boring.

Speaker Change: as we have the exposure in the United States and other regions to the commodity segments.

Peter Galbo: Andrew Rojeski, Andrew Rojeski, Matthew Galvanoni, Andrew Rojeski, Matthew Galvanoni, Andrew Rojeski,

Andrew Stelsnick: I think we've been investing in differentiating factors, and I think the Just Bear brand is a great example. It's a great product with differentiating attributes of reduced breading and in the higher tier, and it's both in the fresh and in the prepared foods. Also, we are launching new and innovation products, innovative products in the Pure News brand which to really excite the category. I think what we've been seeing over the last year is that the value added prepared chicken category has been, let's say, boring. I think that's the word that most of our partner key customers have used, and I think we're trying to excite the category with new and innovative products.

Speaker Change: Just Bear Brand is a great example. It's a great product with differentiating attributes.

Speaker Change: reduce breading and in the higher tier and it's both in the fresh and in the in the prepared foods

Fabio Sandri: I think that's the word that most of our partner key customers have used. And I think we're trying to excite the category with new and innovative products. As you can see, more velocity and more...

Andrew Stelsnick: As we see more velocity and more and Martin distribution. We're seeing better margins for that segment for us.

Speaker Change: As you can see, more velocity and more...

Andrew Stelsnick: Thank you, that's helpful.

Andrew Strelzik: Thank you, that's helpful. And then my second question is... talked about some of the, I guess, you know, structurally attractive attributes of the Mexico market and the opportunity for growth there, some of the current actions you're taking to expand your presence. I guess the question is, you know, kind of what are your ultimate aspirations in Mexico?

Andrew Stelsnick: And then my second question is who talked about some of the, I guess, structurally attractive attributes of the Mexico market and the opportunity for growth there. Some of the current actions you're taking to expand your presence. I guess the question is, you know, kind of what are the ultimate aspirations? In Mexico, how do you see kind of the longer term opportunity for the business there? And, you know, what are the different mechanisms that you'll use to get there? Is it just through your current expansions? Is there more that you look to do there? Either internally or in other ways, so I guess, how do you frame that opportunity?

Speaker Change: We've talked about some of the, I guess, you know, structurally attractive attributes of the Mexico market and the opportunity for growth there, some of the current actions you're taking to expand your presence. I guess the question is, you know, kind of what are the ultimate aspirations in Mexico? How do you...

Fabio Sandri: How do you see kind of the longer-term opportunity for the business there, and, you know, what are the different mechanisms that you'll use to get there? Is it just through your current expansions? Is there more that you look to do there? You know, either internally or in other ways. So I guess, how do you frame that up? No, thank you.

Speaker Change: either internally or in other ways. So I guess, how do you frame that opportunity?

Fabio Sandri: Yeah, again, like I mentioned, Mexico is growing. [inaudible] I think we're seeing some opportunities for acquisitions, but we're also seeing opportunities for organic growth in the region. Great. Thank you very much. The next question comes from Jordan Lee of Goldman Sachs. Go ahead, please. Hey, good morning.

Andrew Stelsnick: Thank you. Again, like I mentioned, Mexico is a growing economy, a huge importer from the United States and other places in terms of protein. Our ambition is to be a more food company in Mexico. I think we have a great presence and a great visibility in the chicken category. But we also have some products in the value-added, prepare food category. So, as we mentioned, the Favoritos brand and some other brands, we do some tacos, we do some frozen pizzas. So I think the ambition in Mexico is to really grow as a food company. I think we're seeing some opportunities of acquisitions, but we're also seeing opportunities to organic growth in the region.

Speaker Change: Again, like I mentioned, Mexico is growing.

Speaker Change: Andy Rojeski, Andrew Rojeski, Matthew Galvanoni, Andrew Rojeski, Matthew Galvanoni, Andrew Rojeski,

Speaker Change: I think we're seeing some opportunities of acquisitions, but we're also seeing opportunities to organic growth in the region.

Andrew Stelsnick: Great. Thank you very much.

Jordan Lee: The next question comes from Jordan Lee of Goldman Sachs. Go ahead, please. Good morning. Thanks for taking my question.

Speaker Change: The next question comes from Jordan Lee of Goldman Sachs. Go ahead, please.

Jordan Lee: Thanks for taking my question. Can you talk about how you see disease pressure across the world affecting pull-to-trade, particularly in Newcastle and Brazil? Yes, I think we're seeing some increase in diseases, like I mentioned, especially live operations in some of the regions, but, mainly, they create problems in the trade, and we're seeing even influenza impacting a lot of regions from Southeast Asia to Europe to the Americas. I think those issues have been resolved in trade negotiations.

Jordan Lee: Can you talk about how you see disease pressure across the world affecting pull-to-trade, particularly in Newcastle and Brazil? Yes. I think we're seeing some increase in diseases, like I mentioned, that is especially the life operations in some of the regions, but mainly they create problems in the trade. And we're seeing even influenza impacting a lot of regions from Southeast Asia to Europe to the Americas, mainly the United States and Mexico. I think those issues have been resolved in trade negotiations. I think a lot of the key importers of meat have regionalized the impact of the even influenza places different than China that tends to be a little more aggressive on trade.

Jordan Lee: Hey, good morning. Thanks for taking my question. Can you talk about how you see disease pressure across the world affecting pull-to-trade, particularly in Newcastle and Brazil?

Speaker Change: Yes, I think we're seeing some increase in diseases, like I mentioned, that is especially the live operations in some of the regions, but

Speaker Change: Mainly the United States and Mexico.

Jordan Lee: I think a lot of the key importers of meat have regionalized the impact of avian influenza in places different than China, which tends to be a little more aggressive on trade, but all the other partners have identified where the region is and the risk of that particular disease, being Newcastle or high path AI, and have cut borders to where they accept exports. I think the recent example was in Brazil; I think they have a Newcastle case there, but I think they have regionalized to the Rio Grande do Sul region where that disease was found.

Speaker Change: The impact of the avian influenza, places different than China that tends to be a little bit more aggressive on trade, but all the other partners have identified where is the region and the risk.

Bobby O'Sondry: But all the other partners have identified where is the region and the risk of that particular disease being Newcastle or Hypat AI and have cut borders to where they act at exports.

Speaker Change: and have...

Bobby O'Sondry: I think the recent example was in Brazil. I think they have a Newcastle case there, but I think they regionalized to the Rio Grande do Sul region where that disease was found. So I think the trade has been impacted in the short term, but in the long term and in the medium term, I think the trade negotiations have identified what is the region and have minimized major disruptions. Great. Thank you.

Speaker Change: cut borders to where they accept exports. I think the recent example was in Brazil, I think they have a Newcastle case there, but I think they regionalized to the Rio Grande do Sul region where that disease was found.

Fabio Sandri: So I think trade has been impacted in the short term, but in the long term and even in the medium term, I think the trade negotiations have identified what the region is and have minimized major disruptions. Great, thank you. And focusing more on the UK, can you discuss the key drivers of and scope for further margin expansion in that region? And how does that differ between poultry, pork, and your prepared foods operations? Thank you for the question.

Speaker Change: So, I think the trade has been impacted in the short term, but in the long term and even in the medium term, I think the trade negotiations have identified what is the region and have minimized major disruptions.

Bobby O'Sondry: And focusing more on the UK. Can you discuss the key drivers of and scope for further margin expansion in that region? And how does that differ between poultry, poor, and your prepared foods operations?

Speaker Change: Great, thank you. And focusing more on the UK, can you discuss the key drivers of and scope for further margin expansion in that region? And how does that differ between poultry, pork, and your prepared foods operations?

Bobby O'Sondry: Yeah, thank you for the question. Yeah, in UK we have a more diversified portfolio, not even in the chicken side, but as I mentioned we have the meal business, the prepared food business, the fresh pork and poultry, and we have also a strong food service operation. I think we've been working on the integration over the last few years and the integration in the manufacturing network but also the integration in the back office. I think we're simplifying our structure there, and I think what we want to differentiate ourselves is true innovation. As I mentioned, there was a lot of praise, let's say, for the innovation that we launched over the last year to really excite or create more excitement on the category.

Fabio Sandri: In the UK, we have a more diversified portfolio, not even on the chicken side, but as I mentioned, we have the meals business, the prepared food business, fresh pork and poultry, and we also have a strong food service operation. I think we've been working on integration over the last two to three years, and integration in the manufacturing network, but also integration in the back office. I think we're simplifying our structure there, and I think what we want to differentiate ourselves is through innovation.

Speaker Change: Yeah, thank you for the question. In the UK, we have a more diversified portfolio, not even in the chicken side, but as I mentioned, we have the meals business, the prepared food business, the fresh pork.

Speaker Change: I think we've been working on the integration over the last two to three years and the integration in the manufacturing network, but also the integration in the back office.

Speaker Change: I think we're simplifying our structure there, and I think what we want to differentiate ourselves is through innovation. As I mentioned, there was a lot of praise, let's say, for the innovation that we launched over the last...

Fabio Sandri: As I mentioned, there was a lot of praise, let's say, for the innovation that we launched over the last two years of the Year to really excite or create more excitement in the category. As we are seeing demand in the UK getting better with consumer sentiment, I think we mentioned in the prepared remarks that we are seeing consumer sentiment improving as we are seeing wages growth ahead of inflation for the first time in Europe, we're seeing more excitement about which we are seeing for the first time this year, branded offerings growing ahead of the private label offerings, which usually, the private label offerings provide a better cost but not necessarily a better experience. So I think we're really excited about the Fridgerators brands and the Richemont brand.

Speaker Change: Have a great evening.

Bobby O'Sondry: As we are seeing the demand in the UK getting better with consumer sentiment, I think we mentioned in the prepared remarks that we are seeing the consumer sentiment improving as we are seeing wages growth ahead of inflation after a long time in Europe. We are seeing more excitement about the prepared foods and the brandy category. I think that's being really important for our Richmond offerings, which we are seeing for the first time, I believe, this year: the branded offerings growing ahead of the private label offerings. That's usually the private label offerings provide a better cost, but not necessarily a better experience.

Speaker Change: to really excite or create more excitement on the category. As we are seeing the demand...

Speaker Change: In UK, getting better with consumer sentiment, I think we mentioned on the prepared remarks that we are seeing.

Speaker Change: Consumer Sentiment Improving, as we are seeing.

Speaker Change: wages growth ahead of inflation after.

Speaker Change: I don't know.

Speaker Change: a long time in Europe , we're seeing more excitement about

Speaker Change: The Prepared Foods and the Branded category. I think that's been really important for our Richmond offerings.

Speaker Change: which we are seeing for the first time, I believe, this year, the branded offerings growing ahead of the private label offerings. Usually the private label offerings provide a better cost.

Bobby O'Sondry: So I think we're really excited about the Fridge Raiders brands and the Richmond brand. So I think the growth in profitability in the UK is driven by the network integration and the back office integration, so it's our efficiencies but also by leading innovation for our key customers. Thanks for the help.

Speaker Change: but not necessarily a better experience. So I think we're really excited about the Fridge Raiders brand and the Richemont brand.

Fabio Sandri: So I think the growth in profitability in the UK is driven by network integration and back office integration. So it's our efficiencies, but also leading innovation for our customers. Thanks for the help. I'll pass it on. Mom!

Speaker Change: So I think the growth in profitability in the UK is driven by the network integration and the back office integration, so it's our efficiencies, but also by leading innovation for our key customers.

Operator: I'll pass it on.

Speaker Change: Thanks for the help. I'll pass it on.

Heather Jones: Our next question comes from Heather Jones of Heather Jones Research. Go ahead, please. Good morning. Thanks for the question. Good morning.

Speaker Change: Our next question comes from Heather Jones of Heather Jones Research. Go ahead, please.

Bobby O'Sondry: I want to follow up on this US supply and thanks for all the detail you provided on hatchability and hatch utilization all but just thinking about Q4 particularly given how strong industry profitability has been, how you're thinking about how the industry is going to do as far as seasonal cuts. The profitability would suggest that the industry may not do the typical seasonal cuts, but I've also spoken with some producers that they're so limited on egg availability, due to disease, hatch, etc. There's going to be forced to do the seasonal cuts. So just wondering how you're thinking about that and what we should expect there.

Speaker Change: Good morning. Thanks for the question.

Speaker Change: Mom!

Heather Jones: Good morning. I wanted to follow up on the U.S. supply and

Speaker Change: Thanks for all the detail you provided on hatchability and hatch utilization and all, but just thinking about Q4, particularly given how strong industry profitability has been, how you're thinking about how the industry is going to do as far as seasonal cuts.

Heather Jones: The profitability would suggest that the industry may not do the typical seasonal cuts. But I've also spoken with some producers that they're sort of going to be forced to do the seasonal cuts. So just wondering how you're thinking about that and what we should expect there. Yeah, sure.

Speaker Change: The profitability would suggest that they...

Speaker Change: that the industry may not do the typical seasonal cuts, but I've also spoken with some producers that

Speaker Change: They're so limited on egg availability due to disease, hatch, etc. that

Speaker Change: They're sort of going to be forced to do the seasonal cuts, so just wondering how you're thinking about that and what we should expect there.

Fabio Sandri: I think, you know, the normal seasonality of our industry is that the demand for chicken during the Thanksgiving and the Christmas period and the winter is lower than what we see during the grilling season and even in January. So that's normal for our industry to make seasonal cuts. As you mentioned, there is an additional issue that we are seeing in our industry in terms of hatchability and viability. And during the wintertime, we always have some struggles in growing because of the temperature.

Speaker Change: Yeah, sure. I think, you know, the normal seasonality of our industry is that the demand for chicken during the Thanksgiving and the Christmas period and the winter is lower than what we see during the grilling season and even in January .

Bobby O'Sondry: So that's normal for our industry to do the seasonal cuts. As you mentioned, there is the additional issue that we are seeing in our industry in terms of hatchability and livability. And during the winter time, we always have some struggles also in the growing because of the temperatures. So we can speak for us, and we are seeing strong demand for chicken, but we partner with our customers and we always supply what is needed for their features and for their demand.

Speaker Change: So that's normal for our industry to do the seasonal cuts. As you mentioned, there is the additional issue that we are seeing in our industry in terms of hatchability and livability. And during the wintertime we always have some struggles also in the growing because of the temperatures.

Fabio Sandri: So, we can speak for ourselves, and we are seeing a strong demand for chicken, but we partner with our key customers, and we always supply what is needed for their futures and for their demand. So, the overall growth for the year to be less than 1%, 0.9%. That's what the USDA data suggests, and that's what the size of the layer flock suggests.

Speaker Change: So, we can speak for us and we are seeing a strong demand for chicken, but we partner with our key customers and we always supply what is needed for their features and for their demand.

Bobby O'Sondry: I think when you look into the USDA data, I think what they're suggesting is moderate improvement or increasing terms of supply for the second half of the year. So the overall growth for the year to be less than 1%: 0.9%. That's what the USDA data suggests, and that's what the size of the layer flocks suggests.

Speaker Change: I think when you look into the USDA data, I think what they're suggesting is a moderate improvement or increase in terms of supply for the second half of the year, close to one percent.

Speaker Change: Less than 2%

Speaker Change: So, to the overall growth for the year to be...

Speaker Change: less than 1%, 0.9%. That's what the USDA...

Bobby O'Sondry: And I think Heather also, the demand for chicken right now, just with where the spreads are compared to ground beef, we sort of see that continue to flow in the second half of the year to demand perspective. And then moving to Europe, so a large component of that business has cost passed through. And so I was just wondering, you know, typically in those kind of contracts, pricing lags on the way up with cost and then vice versa on the way down.

Fabio Sandri: And I think, Heather, also the demand for chicken right now, just with where the spreads are compared to ground beef, we sort of see that continue to flow in the second half of the year, too, from a demand perspective. OK, really strong during the quarter. How should we think about the second half for that, like was there margin help as pricing is lagging costs on the way down, and how should we think about like a normalized margin level for that business? Yeah, you're right.

Heather Jones: Data Suggests, and that's what the size of the layer flock suggests. And I think, Heather, also the demand for chicken right now, just with where the spreads are compared to ground beef, you know, it's just, we sort of see that continue to flow, you know, in the second half of the year too, from a demand perspective.

Speaker Change: Okay. And then moving to Europe , so a large component of that business is cost pass-through. And so I was just wondering, you know, typically in those kind of contracts, pricing lags on the way up with cost and then vice versa on the way down. And so as we're looking at your margins, which were...

Bobby O'Sondry: And so, as we're looking at your margins, which were really strong during the quarter, how should we think about the second half for that? Like, was there margin help as pricing is lagging cost on the way down? And how should we think about like a normalized margin level for that business? Yeah, you're right. There's always a lag, and I think we mentioned that when the inflation was really strong and fast, and we see some sharp increases, this lag is more pronounced, let's say. I think as we are seeing a more gradual reduction in terms of cost, that lag, albeit it's too exist, will be not as big, let's say.

Speaker Change: really strong during the quarter.

Speaker Change: How should we think about the second half of that, like was there a margin help as

Speaker Change: Pricing is lagging costs on the way down and how should we think about like a normalized margin level for that business?

Fabio Sandri: There is always a lag, and I think we mentioned that when inflation was really strong and fast, and we saw some sharp increases, this lag was more pronounced, let's say. I think as we are seeing a more gradual reduction in terms of cost, that lag, albeit it still exists, will not be as... I think the improvements that we are seeing in the bottom line are really based on the manufacturing improvements that we did and the restructuring and the simplification of our structure and on the growth, as I mentioned, of the innovation that we are launching on the market and some partnership with key customers that are growing ahead of us. So there is a little bit of a lag, you're right, on the contracts. And there is a lot of pass-through in Europe.

Speaker Change: Yeah, you're right. There is always a lag. And I think we mentioned that when the inflation was really strong and fast and we see some sharp increases.

Speaker Change: This leg is more...

Speaker Change: I think as we are seeing a more gradual reduction in terms of cost, that lag, albeit it still exists, will be not as significant.

Bobby O'Sondry: I think the improvements that we are seeing in the bottom line are really based on the manufacturing improvements that we did and the restructuring and the simplification of our structure. And on the growth, as I mentioned, on the innovation that we're launching on the market and some partnership with key customers that are growing ahead of the market. So there is a little bit of a lag you write on the contracts and there is a lot of pass through in Europe. And I think Matt also mentioned that they impacted a little bit of revenue there, but maintain our margins.

Speaker Change: I think the improvements that we are seeing in the bottom line are really based on the manufacturing improvements that we did and the restructuring and the simplification of our structure and on the growth.

Speaker Change: As I mentioned, on the innovation that we are launching on the market and some partnership with key customers that are growing ahead of the market.

Matt Galvanoni: So, there is a little bit of a lag, you're right, on the contracts, and there is a lot of pass-through in Europe , and I think Matt also mentioned that it impacted a little bit of revenues there, but maintain our margins, so that's the most important part.

Bobby O'Sondry: So that's the most.

Matthew Galvanoni: Corp. Thank you for taking the questions.

Speaker Change: Okay, wonderful. Thank you.

Fabio Sandri: And I think Matt also mentioned that it impacted a little bit of revenues there but maintained our margins. So that's the most. Okay, wonderful. Thank you. The next question comes from Priya Ohri Gupta of Barclays. Go ahead, please. Good morning and thank you for taking the questions. Matt, I'd love to start with you.

Speaker Change: The next question comes from Priya Ohri Gupta of Barclays. Go ahead, please.

Matthew Galvanoni: Now I'd love to start with you. So it looks like you guys had an authorization to buy back about 200 million worst of bonds on net use. I guess can you just walk us through sort of the thought process behind how that was seen as the best use of cash given that you're trending below your leverage, like meaningfully below your leverage target and why sort of the bulk of that was targeted in the 31 note given that there are potentially lower dollar bonds that are in your structure. Yeah, nice. So good question. You know, we were meeting with our board in the first quarter meeting that we had with, you know, we talked about a cash generation is going strong.

Priya Ohri: So it looks like you guys had an authorization to buy back about $10,000 in bonds on net. You bought back a, Yeah, no, so good question. You know, we were meeting with our board in the first quarterly meeting that we had with them. You know, we talked about, hey, cash generation is going strong. One of the outlets that we have, one of the options that we have for cash usage is to, you know, buy back some debt. I spoke with the board about that.

Speaker Change: Good morning, and thank you for taking the questions. Matt, I'd love to start with you. So it looks like you guys had an authorization to buy back about $200 million.

Speaker Change: Worse of Bonds.

Speaker Change: On net, you bought back $150 million. I guess, can you just walk us through sort of the thought process behind how...

Speaker Change: That was seen as the best...

Speaker Change: and the Use of cash given that you're trending below your leverage, like meaningfully below your leverage target and why sort of the bulk of that was targeted in the 31 notes given that there are potentially lower dollar bonds that are in your structure.

Speaker Change: Yeah, so good question. You know, we were meeting with our board in the first quarter meeting that we had with them. You know, we talked about, hey, cash generation is going strong.

Matthew Galvanoni: One of the outlets that we had when the options that we have for cash usage is to buy back some debt spoke with the board about that, and you know they authorized the 200 million. We looked to the market at that point, you know, the debt market at point said what you know what bonds are liquid, what do you feel has the best NPV for us and where can we see kind of most value, shall we say, on those repurchases. And that's why we bought what we bought, and as you noted, most of it was the 2031s. Those are also the ones that are most near due, although not for a while, of course.

Matt Galvanoni: One of the outlets that we have, one of the options that we have for cash usage is to buy back some debt.

Priya Ohri: And, you know, they authorized the $200 million. We looked at the market at that point, the debt market at that point, and said, you know, what bonds are liquid? What do we feel is the best NPV for us?

Matt Galvanoni: spoke with the board about that and you know they authorized the 200 million.

Matt Galvanoni: We looked to the market at that point, the debt market at that point, and said, what bonds are liquid? What do we feel has the best NPV for us?

Fabio Sandri: And where can we see the kind of most value, shall we say, on those repurchases? And that's why we bought what we bought. And as you noted, most of it was the 2031. Those are also the ones that are most near due, although not for a while, of course.

Matt Galvanoni: and where can we see kind of most value, shall we say, on those repurchases and that's why

Fabio Sandri: But, you know, we looked at that $200 million as, you know, that's something. But, you know, as we've alluded to, we've got sort of bigger views on some of the things we want to do from a growth strategy. But this was just an option that we could take here in the short term to utilize some of that cash to reduce gross leverage. Okay, that's really helpful.

Speaker Change: We bought what we bought.

Matthew Galvanoni: But you know we looked at that 200 million is you know that's something, but you know as we've alluded to, we've got sort of bigger views on some of the things we want to do from a growth strategy. But this is just an option that we could take here in the short term to utilize some of that cash to reduce growth leverage.

Matt Galvanoni: near due, although not for a while, of course.

Matthew Galvanoni: Okay, that's really helpful, and I think as we look at the working capital contribution during the quarter for your cash flow, it's strongest we've seen in quite some time, I mean even stronger than my model suggests back in 2020. So how should we think about that benefit flowing through the rest of the year? Should we sort of see the normal seasonality with that coming down a bit but potentially better than what we've seen historically. I think that's right. I think it. I don't foresee as strong a cash generation in the second half of the year as we did in the first, although be a stronger than historical norms for sure.

Priya Ohri: And I think if we look at the working capital contribution during the quarter for your cash flow, it's the strongest we've seen in quite some time. I mean, even stronger than my model suggests back in 2020. So how should we think about that benefit flowing through the rest of the year? Normal.

Speaker Change: Okay, that's really helpful. And I think if we look at the working capital contribution during the quarter for your cash flow, it's the strongest we've seen in quite some time, I mean even stronger than

Speaker Change: My model suggests back in 2020. So how should we think about that benefit flowing through the rest of the year? Should we sort of see the normal?

Speaker Change: seasonality with that coming down a bit but potentially better than what we've seen.

Fabio Sandri: I think that's right. I don't foresee as strong a cash generation in the second half of the year as we did in the first, although it will be stronger than historical norms, for sure. So I think this one, you know, we ended up having just a little bit of a confluence of grain prices declining. But you know, that certainly has been one, and now that'll start to, we believe, kind of flatten out here.

Speaker Change: and Historically.

Speaker Change: I think that, I think that, sorry.

Matt Galvanoni: Sorry Priya, I think that's right. I think it, I don't foresee as strong a cash generation in the second half of the year as we did in the first, although be it stronger than historical norms, for sure. So I think this one, you know, we ended up having just

Matthew Galvanoni: So I think this one you know we we ended up having just a little bit of the consequence of the grain pricing declining that you know that certainly has been won and now that will start to we believe kind of flat now here. So I think that we experience some very strong free cash flow. I think we all could mention we're going to also have higher second half cat back spending when you kind of look at the you know from where we've been added about I think about two 13 for the first half of the year and the second half of the year we kind of got it you know you all the 525 to 575. So we'll see some of that cash utilized there too. So as you said very strong in the first half we see it to be seasonally you know to be stronger than historical norms the second half of probably not quite the same pace.

Speaker Change: and a little bit of a confluence of the grain pricing declining.

Speaker Change: That certainly has been one, and now they'll start to, we believe, kind of flatten out here. So I think that we experienced some very strong free cash flow. I think also I mentioned we're going to also have higher second half CapEx spending when you kind of look at the, from where we've been at it, I think about 213 for the first half of the year. And then the second half of the year, we kind of got it all to 525 to 575, so we'll see some of that cash utilized there too. So as you said, very strong in the first half.

Fabio Sandri: So I think that we experienced some very strong free cash flow. I think, also, as I mentioned, we're going to also have higher second half CapEx spending when you kind of look at where we've been at it about, I think, about $213,000 for the first half of the year. And then in the second half of the year, we kind of got it, you know, all the $525,000 to $575,000. So we'll see some of that cash utilized there too.

Fabio Sandri: So, as you said, very strong in the first half. We see it to be seasonalally, you know, to be stronger than historical norms in the second half, but probably not quite at the same pace as the first half. I think we also have the benefit of the reduction in inventories; as you mentioned, there is a strong demand for export, and even our inventories of prepared food have been reduced. We built a little bit of inventory now for the school lunch program that starts later in September, but I think, as Matt mentioned, I think we expect normal working capital from the. Great, thank you so much.

Matthew Galvanoni: Just Pat One, I think we also have to benefit on the working capital of the reduction of inventories and mentioned there is a strong demand for export, and even our inventories on prepared food had been reduced as we build a little bit of inventory now for the school lunch program that starts later in December. But I think, as mentioned, I think we expect normal working capital from the second semester.

Speaker Change: We see it to be seasonally, you know, to be stronger than historical norms in the second half, but probably not quite the same pace as the first half.

Speaker Change: have won.

Speaker Change: I think we also have to benefit on the working capital of the reduction of inventories, as you mentioned there is a strong demand for export and even our inventories on prepared food have been reduced. We build a little bit of inventory now for the school lunch program that starts.

Matt Galvanoni: later in September , but I think, as Matt mentioned, I think we expect normal working capital from the second semester.

Speaker Change: Great, thank you so much.

Operator: This concludes the question and answer session.

Fabio Sandri: This concludes the question and answer session. I would like to turn the conference over to Fabio Sandri for any closing remarks. Given our continuing investment and disciplined execution throughout industry cycles, we have increased the potential and resilience of our earnings, reinforced our competitive advantage, and elevated the foundation for profitable growth.

Fabio Sandri: I would like to turn the conference over to Fabio Sandri for any closing remarks. Thank you, everyone, for attending the call. We will build a portfolio and set up strategies focus on capturing market websites while minimizing downside risks. Even our continuing investment and disciplined execution throughout industry cycles, we have increased the potential and resilience of our earnings, reinforced our competitive advantage, and elevated the foundation for profitable growth.

Speaker Change: This concludes the question and answer session. I would like to turn the conference over to Fabio Sandri for any closing remarks.

Fabio Sandri: Thank you everyone for attending the call. We've built a portfolio and set of strategies focused on capturing market upsides while minimizing downside risks.

Fabio Sandri: Given our continued investment and disciplined execution throughout industry cycles, we have increased the potential and resilience of our earnings, reinforced our competitive advantage and elevated the foundation for profitable growth.

Operator: When these efforts are combined with the commitment to our values and relentless focus on team member safety, while being, we can become the best and most respected company in our industry, creating the opportunity for a better future for our team members. Thank you very much.

Speaker Change: When these efforts are combined with the commitment to our values and relentless focus on team member safety and well-being, we can become the best and most respected company in our industry, creating the opportunity for a better future for our team members.

Speaker Change: Thank you very much.

Operator: The conference is now concluded. Thank you for attending today's presentation.

Operator: You may now disconnect.

Speaker Change: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.