Q3 2024 Pilgrim's Pride Corp Earnings Call
It will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
At the company's request this call is being recorded.
Good morning, and welcome to the third quarter of 'twenty 'twenty, four Pilgrim's Pride earnings conference call and webcast.
Note that the slides referenced during today's call are available for download from the investors section of the company's website at Www Dot Pilgrim's Dot com. After today's presentation, there will be an opportunity to ask questions.
All participants will be in listen only mode.
Would you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
At the company's request this call is being recorded.
Speaker Change: I would now like to turn the conference over to Andrew for Jetski head of strategy Investor Relations and sustainability for pilgrims Pride. Please go ahead.
Good morning, and thank you for joining us today as we review our operating and financial results for the third quarter ended on September 29, 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 Dot Pilgrim's Dot com along with slides for reference.
These items have also been filed as a form eight Ks and are available online at SEC Dot Gov, Fabio Sandri, President and Chief Executive Officer, and Matt Galvin Oni, Chief Financial Officer will present on today's call.
Speaker Change: Before we begin our prepared remarks, I would like to remind everyone of our safe Harbor disclaimer.
Today's call may contain certain forward looking statements that represent our outlook and current expectations as of the 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.
Speaker Change: Further information concerning these factors have been provided in yesterday's press release, our Form 10-K, and our regular filings with the SEC.
Speaker Change: I would now like to turn the call over to Fabio Sandri.
Fabio Sandri: Thank you Andy and good morning, everyone and thank you for joining us today for.
Fabio Sandri: For the third quarter of 2024, we reported net revenues of $4 6 billion, a five 2% increase over the same quarter last year.
Our adjusted EBITDA was $660 million versus 324 million in Q3 of 2023.
Adjusted EBITDA margin was 14, 4% compared to seven 4% last year.
Our Q3 results demonstrates the benefit from consistent execution of our strategies are.
Speaker Change: Our diversified portfolio continued to capture the upsides of positive commodity market fundamentals.
Whereas our key customer partnerships enable collaboration.
Speaker Change: Continuously drove demand and unlock value for consumers.
Speaker Change: The efforts were further amplified through the growth of our brands and continued focus on operational excellence and quality service and innovation.
Speaker Change: In the U S. Billboard benefited from sustaining the improvements in production efficiencies and lower input costs and enhanced commodity cutout values case ready continue to reinvest with key customers, resulting in greater than category average growth the.
The momentum of our small bird increased given continued interest in chicken in the daily and among <unk>.
Speaker Change: Europe expanded margins from benefits in manufacturing network restructuring and optimize our organizational structure.
Vacation efforts continued to gain traction given the growth from our leading brands and extensive industry recognition and awards from our recently launched innovations.
Speaker Change: These efforts will further defined by incremental distribution with key customers.
Speaker Change: While Mexico experienced a decline in demand given normal seasonality and disruptions from the Hurricanes, we continue to grow our business with key customers across retail and foodservice from diversification and operational excellence efforts remain on track as our brands grew ahead of the market and our investments in growth and risk mitigation.
Speaker Change: See that schedule.
Speaker Change: Turning to supply USDA indicated ready to Cook production for the West Chicken grew two 7% compared to the third quarter of 2023.
Increases in head count and average live weight to drove production growth.
Speaker Change: Throughout 2024, the industry layer flock has consistently declined year over year, however, a more efficient flock along with reductions in egg exports have increased exits pushing hatchery utilization to record levels, while pullet placements have grown by 7% year to date.
Increased mortality is muted potential production gains.
Like trends early in the year hatch ability challenges have prevented the full.
Utilization of increased sets.
Based on the recent trends along with projections for the remainder of 2024 USDA data suggests growth in chicken production of approximately one 7% for the full year. This growth indicates a response to firm demand exited during the quarter.
As for overall protein availability do SBA anticipates, two 3% growth as the expected increase in chicken supply is augmented by increased beef imports and additional pork production.
Speaker Change: Domestic chicken demand was strong throughout the quarter with inflation is still a major concern consumers continue to shift.
Shopping towards retail and eating patterns in foodservice.
Chicken demand in the retail channel improved volume across all departments in fresh consumers continue to rely on chicken fulfilling their everyday center of the plate protein needs in a challenging environment as volume rose in both white and dark meat cuts.
For boneless skinless breast everyday retail pricing per USDA has continued to decline and fell below $4 per pound a five 4% reduction from last year and over 16% reduction since September 2022.
In contrast.
Speaker Change: Other proteins consistently rose during the quarter and throughout the past two years as an example, the retail spread between boneless skinless breast versus ground beef recently hit another all time high surpassing the previous record set in the second quarter of 2024.
Speaker Change: This coincided with a strong quarterly performance from boneless, skinless breasts, which saw sales post notably year over year growth.
Speaker Change: The remainder of chicken at retail continued to build on the strong foundation set earlier in the year growth in both the deli and frozen value added demonstrated chickens ability to meet the needs of consumers seeking to rationalize spending without sacrificing convenience.
In foodservice revenue and volume sales both grew in commercial and noncommercial distributions sub channels the.
Speaker Change: The commercial distribution sub channels realized large dollar increases while non commercial continued to build steadily as business and industry activity increased.
Speaker Change: Breast meat tenders and wings, all continued to post positive volume growth at current prices given the relative affordability of poultry.
Speaker Change: Within the foodservice channels <unk> continues to drive the most volume growth, suggesting consumers continue to seek more affordable meals.
Given the chickens propensity towards <unk> and overall versatility. It has continued to post strong growth. Despite a reduction in the away from home eating occasions.
Speaker Change: Tenders and wings, all continued to post positive volume growth at current prices given the relative affordability of poultry.
In export U S. Broiler volume was 11, 3% lower while pricing is at strong levels.
Speaker Change: Within the foodservice channels <unk> continues to drive the most volume growth, suggesting consumers continue to seek more affordable meals.
Robust demand for dark meat in the US continued to shift production from local markets.
Limiting availability for export.
Speaker Change: <unk> chicken's propensity towards <unk> and overall versatility. It has continued to post strong growth. Despite a reduction in the away from home eating occasions.
Speaker Change: We anticipate the export demand will remain strong as competing protein prices continued to make chicken the most appealing global option given its relative affordability.
Speaker Change: In expert U S. Broiler volume was 11, 3% lower while pricing is at strong levels.
While the potential for a port strike in the east coast and Gulf disrupted some shipments late in the quarter. It had a limited impact disruptions to the supply chain were not material to the market as shipments quickly rebounded in the beginning of Q3 and overall cold storage remains relatively low at <unk>.
Speaker Change: Robust demand for dark meat in the US continued to shift production from local markets.
Speaker Change: Limiting availability for export.
Speaker Change: We anticipate the export demand will remain strong as competing protein prices continue to make chicken the most appealing global option given its relative affordability.
Speaker Change: <unk> are down 7% compared to last year, and 9% below the five year average breast meat and dark meat inventories both fell year over year.
Speaker Change: While the potential for a port strike in the east coast and Gulf disrupted some shipments late in the quarter. It had a limited impact disruptions to the supply chain, where non material to the market as shipments quickly rebounded in the beginning of Q3 and overall cold storage remains relatively low at <unk>.
Speaker Change: Despite recent outbreaks of high path avian influenza in the Western U S. The majority of chicken producing states have not been affected Nonetheless, we continue to take the necessary precautions to safeguard our farms given seasonal changes in migratory park patents did.
Speaker Change: <unk> are down 7% compared to last year, and 9% below the five year average breast meat and dark meat inventories both fell year over year.
Speaker Change: Geographic diversification of our production facilities provides flexibility to shift the business should any isolated commercial breaks surface.
China remains the exception on trade restrictions.
And no movement on lifting current bands has emerged nevertheless, the majority of U S trading partners continue to reduce Ben two zones at the county level with only a few.
Speaker Change: Spanning the entire state.
Turning to feed.
Input prices were fairly straight stable throughout the quarter as the U S realized generally favorable weather for the development of the corn and soybean crops give.
Given the low price of corn relative to recent years stronger than expected demand for U S. Corn exports emerge pulling down stocks from previous years and cutting to supplies from the current year.
Speaker Change: While the US began with a smaller initial supply record U S corn yields create a still comfortable new crop carryout estimated of about 2 billion bushels moving forward the core market, we respond to south American weather and the magnitude of China imports.
Both globally and in the U S. Soybean stocks continued to build despite a record U S soybean crop and lower board future prices changes in the exchange rate encourage expansion in South America soybean planting.
The soybean processing industry also continued to expand.
Speaker Change: Leaving the soybean meal market, well supplied and limiting the upside in meal prices.
Speaker Change: In wheat, 'twenty four 'twenty five production increased marginally.
Speaker Change: However, this was offset by a decrease in initial supply, creating expectations that global wheat, ending stocks will be down slightly versus prior year global import demand for wheat is lower this year given better crops from several traditional wheat importers in the middle East and North Africa regions as a result, we.
Speaker Change: Prices remain basically flat in Q3, reflecting balanced supply and demand.
Speaker Change: While the currency was the projections suggest growing stocks in U S for all major crops and relatively narrow price ranges for feed inputs. There are still risks as such we will continue to monitor changes in global Green demand progression, whether it's South America exchange rate changes and geopolitical events.
In the U S consumers are still aware and concerned about high prices and continued inflation within retail grocery buyer behavior syndicate consumers are purchasing less per trip, while shopping more frequently indicated a straight <unk>.
Speaker Change: Hold budget. Additionally, many consumers indicated cutting foodservice spend as a top method of cost savings, reducing dining out occasions are adjusting their food habits to enable their spending to grow Florida.
Given the affordability of chicken and our diversified portfolio, our team was well positioned to unlock value for the consumer to that end. Our team continued to focus on operational excellence efforts across all locations to enhance quality service and mix equally important we overcame disruptions late in the quarter from Hurricane Helene.
To ensure superior few rates to our key customers.
Speaker Change: Keith already benefited from increased protein demand throughout retail.
Interest in chicken was amplified given the reduction in price of chicken that create a new record spreads between ground beef and boneless skinless breasts.
Furthermore, our approach with key customers adapted to reflect changes in input cost creating opportunities for additional investments in promotional activity generating more demand.
Our case ready business grew together with our key customers has increased distribution and continued consumer interest in our differentiated higher attribute offerings drove volumes are have the fresh category averages and small birds <unk> demand for chicken continue to grow with better penetration despite softening traffic too.
Foodservice, whereas daily remained the fastest growing category in retail.
When these factors are combined with expansion of our key customers along with improvements in operational excellence Smart bird grew significantly compared to last year and big but we continue to drive improvements from capital investments and team member retention and training. These efforts were further aided by mixing estimates throughout our facilities and.
Speaker Change: Across our customer base.
Speaker Change: These efforts are combined with strong commodity cutout values, along with a reduction in input costs, our business improved considerably from depressed margins last year.
Our prepared foods continue to gain momentum, we have expanded our marketplace presence and diversification throughout retail deli and foodservice driven by incremental distribution and leading consumer innovation.
Commerce continue to play a role as digital sales increased by 32% compared to prior year.
In Europe, we have completed a variety of actions to enhance our agility and innovation capabilities to further cultivate partnerships with key customers as part of these efforts, we have increased our integration and synergies throughout the diversified portfolio across protein and channels.
On fresh offerings will have strong presence in poultry pork and land. These segments constitutes roughly one third of overall net sales in Europe.
Poultry is the largest with approximately two thirds of the segment's net sales were.
Speaker Change: We are a major player in the retail value added and prepare segment.
With UK, leading brands, such as Richmond, and innovative protein snacking brands with free generators, and we are a category leader in both the chilled and frozen meals business taken together. This business comprises nearly half of the total net sales in Europe.
Speaker Change: Foodservice is.
Speaker Change: The third part of our business and includes a variety of frozen and prepared offerings designed to meet the needs for retail daily leading <unk> and other distribution channels.
Speaker Change: Turning to the consumer confidence improved year over year as wage growth continues to outpace inflation, helping our branded products to continue to grow faster than the category average demand for offerings in poultry and chilled meals outpace total retail growth, whereas demand in pork both for.
<unk> and prepare continued to lag.
Within foodservice sales have not yet returned to pre COVID-19 levels. Nonetheless, consumers are becoming increasingly interesting food away from home options.
Average spend frequency per week and participation rate have all increased over past year.
Speaker Change: Our diversified portfolio across brands proteins and prepare items benefit from these trends.
Sales of our branded offerings increased 7% from last year as Frigerator enrichment continue to grow faster than card category average similarly.
Our poultry and chilled meals offering grew ahead of the market in pork, we have secured several new awards and Bacon could meet and sausages across retail and foodservice.
Speaker Change: Yeah.
Speaker Change: Our diversified portfolio across brands proteins and prepare items benefit from these trends sale.
We have complemented this diversification efforts to continued expansion of our exports business in both pork poultry inland to that end. We now have over 150 claims open 18 additional markets and increase our customer base by 53%.
Sales of our branded offerings increased 7% from last year as Frigerator enrichment continue to grow faster than car category average similarly.
Speaker Change: Our poultry and chilled meals offering grew ahead of the market in pork, we have secured several new awards and Bacon could meet and sausages across retail and foodservice.
We continue to cultivate our innovation pipeline to enhance mix and drive profitable growth during the quarter, we launched over 280, new products, many of which received awards from various leading retailers for best product quality and innovation.
We have complemented this diversification efforts to continued expansion of our exports business in both pork poultry inland to that end. We now have over 150 claims open 18 additional markets and increase our customer base by 53%.
Our efforts to unlock value from our manufacturing network optimization and integration of our corporate support activities continued to remain on track as we have realized the anticipated benefits.
We continue to cultivate our innovation pipeline to enhance mix and drive profitable growth during the quarter, we launched over 280, new products, many of which received awards from various leading retailers for best product quality and innovation.
Speaker Change: Moving forward, we will continue to evaluate additional opportunities to enhance our production efficiencies and drive a more innovative agile and responsive organization to meet customer and key customer needs.
Our efforts to unlock value from our manufacturing network optimization and integration of our corporate support activities continued to remain on track as we have realized the anticipated benefits.
Speaker Change: In Mexico, we experienced some market volatility as chicken demand for typical seasonal changes combined with some disruption from hurricanes during the late September.
Moving forward, we will continue to evaluate additional opportunities to enhance our production efficiencies and drive a more innovative agile and responsive organization to meet customer and key customer needs.
In fresh we experienced significant key customer growth above category in both retail and foodservice.
Speaker Change: Our branded efforts continued to gain momentum as sales from prevalence and <unk> grew 20% and 60% respectively.
Speaker Change: Yes.
In Mexico, we experienced some market volatility as chicken demand for typical seasonal changes combined with some disruption from hurricanes during the late September.
Just bear has realized similar success as sales are up nearly 30% from previous quarter.
Speaker Change: We continue to diversify our portfolio through value added sales increased 7% compared to last year.
Current standard branded prepared offerings also had the most momentum our sales grew almost 40% compared to last year.
Our investments in operational excellence to expand capacity and mitigate operational risk remain on track, we ramp up our production in merida.
Relocation of a breather firms continue to proceed as planned. We also supported the continued growth of our prepared business in par Fry and fully cook offerings through building new capacity.
Speaker Change: Earlier this year. This week, we published our 2023 sustainability report to provide an update on our efforts to became an industry leader in environment.
Social and governance matters, we continue to embed sustainability is a core component to our overall business strategy as a means to drive a moral boost food system through industry, leading initiatives to that end, we have decreased our absolute scope, one and two emissions by 17% since 2009.
And now we use over 14% renewable electric city in our global operations.
We have also certified 100% of our facilities in the United States and Europe. According to the <unk> standards by independent third parties and improve our global safety index performance by 24% since 2022.
Our better future program has continued to be exceptionally well received as over 500 team members have signed up for the program since inception.
Speaker Change: With that I'd like to ask our CFO, Mark <unk> to discuss our financial results.
Thank you <unk> good morning, everyone for the third quarter of 2024, net revenues were $4 $5 8 billion versus $4 $36 billion, a year ago with adjusted EBITDA of $664 million and a margin of 14, 4% compared to $324 million and a seven 4%.
Margin in Q3 last year.
Relative to net revenues, we experienced year over year sales growth of approximately 12% in the U S. In the quarter driven by higher commodity chicken pricing and growth with our key customers in case ready and small bird Mexico's revenues were down year over year due to the decrease in market pricing for chicken in Europe year over year net revenues were essentially flat as we've.
Just 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 number will be reduced accordingly.
Speaker Change: Adjusted EBITDA margins in Q3 were 18% in the U S compared to 7% a year ago for our Europe business adjusted EBITDA margins came in at eight 6% for Q3 compared to six 1% last year in Mexico. Adjusted EBITDA margins in Q3 were nine 7% versus 12, 4% a year.
Speaker Change: Got it.
Moving to the U S. Our adjusted EBITDA for Q3 came in at $499 4 million.
Speaker Change: Compared to $174 $1 million, a year ago year over year recovery in the commodity chicken markets, along with lower grain input costs and continued operational improvements drunk.
Strong year over year profitability improvement in our big Bird business.
Our case ready and 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.
In our U S. GAAP results related to specific financial impacts from Hurricane Halloween in the quarter, we did incur $8 million of charges, primarily related to writing down inventory lost in the storm.
Also we recorded a $10 $7 million charge in the quarter associated with determination and settlement of our U S. Pension plans, we anticipate that we will incur an additional approximate $14 million charge in the fourth quarter. When the settlement of the U S. Pension liabilities is finalized note that the cash outlay for this settlement is anticipated to be less than.
$1 million.
In Europe adjusted EBITDA in Q3 was $112 million versus $84 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 has also benefited from its network optimization programs and administrative reorganization efforts.
We incurred approximately $38 million of restructuring charges during the quarter and support these programs.
We anticipate the restructuring activities will continue through at least the end of the year.
Mexico generated $49 million and adjusted EBITDA in Q3 compared to $69 $5 million last year.
Although Mexico had strong EBITDA margins approaching 10% in the quarter profitability decreased year over year, primarily due to more normal seasonal trends this year.
Relative to our SG&A cost incurred higher year over year advertising and marketing costs in support of our branded products in the quarter.
Our effective tax rate for the quarter was 27, 3% with our year with our year to date effective rate of 25%, which we expect to approximate our full year effective tax rate.
Speaker Change: We had a strong balance sheet and we continue to emphasize cash flows from operating activities management of working capital and disciplined investment in high return projects.
Speaker Change: As of the end of Q3, our net debt totaled $1 3 billion with a leverage ratio of approximately 0.65 times, our last 12 months adjusted EBITDA.
Net interest expense for the quarter totaled $19 $5 million, excluding the impact of any net gains or losses on debt repurchases that occurred during the year, we anticipate our full year net interest expense to be between 90 and $95 million.
Speaker Change: At the end of the quarter, we had nearly $3 billion in total cash and available credits driven by the strong free cash flow generation during the year.
We have no short term immediate cash requirements of their bonds maturing between 2031 in 2034, and our U S credit facility not expiring until 2028, our liquidity position provides us flexibility during times of volatility and newest commodity markets and allows us to pursue our growth strategy, including organic growth to meet our customer our key customers' needs.
We spent $104 million in capex in the third quarter. This amount of cash spend in the quarter is considerably less than forecasted. However, we are continuing with our plan to pursue additional capital projects with attractive returns through the end of the year and into 2025.
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 finished growing children's competitive advantage. Our capital project review process is very detailed and as such it takes time for larger projects.
Speaker Change: <unk> organic growth to meet our customer our key customers' needs.
Speaker Change: We spent $104 million in capex in the third quarter. This amount of cash spend in the quarter is considerably less than forecasted. However, we are continuing with our plan to pursue additional capital projects with attractive returns through the end of the year and into 2025.
To commence we will remain disciplined in our capital allocation approach and our cash management and we'll proceed with our plan and prudent manner. We now estimate our full year capex spend to approximate $475 million.
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.
Speaker Change: We are intently focused on growth opportunities first over the last few years, we've invested in our plants to meet both growth targets and 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 risks.
These projects are seen as growing Pilgrim's competitive advantage. Our capital project review process is very detailed and as such it takes time for larger projects to commence we will remain disciplined in our capital allocation approach and our cash management and we'll proceed with our plan in a prudent manner. We now estimate our full year capex spend to approximately 475 million.
Reducing our exposure to outside protein conversion operators.
We are intently focused on growth opportunities first over the last few years, we've invested in our plants to meet both growth targets and 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.
Speaker Change: Finally, as we've discussed extensively our U S prepared foods business has grown our branded portfolio through innovative and differentiated products and we anticipate expanding our capacity to meet the growth trajectory of this portfolio also we have a great business in Mexico, and if organic growth opportunities in both fresh and prepared these.
And manage risk by reducing our exposure to outside protein conversion operators.
These near term growth opportunities aligned to our overall strategy as a portfolio diversification focus on key customers operational excellence and our commitment to team member health and safety.
Finally, as we've discussed extensively our U S prepared foods business has grown our branded portfolio through innovative and differentiated products and we anticipate expanding our capacity to meet the growth trajectory of this of this portfolio.
This concludes our prepared remarks, please open the call for questions.
Also we have a great business in Mexico, and they are organic growth opportunities in both fresh and prepared.
Speaker Change: We will now begin the question and answer session.
In the interest of allowing equal access we request that you limit your questions to two then rejoin the queue for any follow up.
These near term growth opportunities aligned to our overall strategy as a portfolio diversification focus on key customers operational excellence and our commitment to team member health and safety.
To ask a question you May Press Star then one on your Touchtone phone.
Operator. This concludes our prepared remarks, please open the call for questions.
Speaker Change: You are using a speaker phone please pick up the handset before pressing the keys to minimize background noise.
We will now begin the question and answer session.
To withdraw your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
In the interest of allowing equal access we request that you limit your questions to two then rejoin the queue for any follow up.
To ask a question you May Press Star then one on your Touchtone phone.
The first question comes from Ben Theurer from Barclays.
Please go ahead.
Ben Theurer: Yes, good morning, Fabio Matt Congrats on another outstanding quarter here first of all.
Ben Theurer: First question really would be just around Europe, and the strength that you've seen here.
Obviously, the marginal adjusted EBITDA round about eight 5% a nice improvement also.
Versus just about a year ago, but also sequentially.
Speaker Change: Maybe help us.
Understand what what are you seeing in the market is that the combination of just all the restructuring that you've put in place.
Speaker Change: That is helping you to get those those better profitability levels.
Just the consumer that got better as it cost what what's driving and how should we think about it also go forward I'd like kind of a normalized margin environments of Europe that would be my first topic and then I have a quick follow up.
Of course, good morning, Ben.
It's a combination of all of the above of course, we are seeing consumer confidence increasing in Europe as we mentioned as the.
As the salaries are growing faster than inflation for the first time I think in the past over the last two years or so inflation growing over than the salary growth. So that was created compression on the spending for the consumer, especially on the utilities sector.
Speaker Change: Sector now we are seeing a deflation in Europe, we're seeing utilities coming down and were seeing the price everyday prices of grocery and other.
Spending going down so again, we are seeing the confidence increasing is not at the same levels. It was before but it is increasing compared to last year that is helping our portfolio, especially.
The meals side and on the branded side, so consumers as they have more confidence theyre going back to some of the refrigerated meals, where we are a leader in that market. Also we are seeing the growth of our brands as consumers are coming back from spending.
Speaker Change: More on brands.
And less on private label.
Speaker Change: Offerings.
Speaker Change: I think also we are seeing in terms of cost and competitiveness that the chicken business, which is one of the largest component of our portfolio, they're winning in the marketplace and continue to grow and similar to everywhere in the world. We are seeing the decrease in prices of chicken because we have a lot of.
Contracts in Europe. They are connected to cost so as we passed that advantage to the retailers and we are seeing the growth of the chicken, which is benefiting our portfolio and also different than in U S. That we will for sure talk about consumers in Europe are coming back to foodservice.
So we're seeing the foodservice market growing faster than what's happening or rebuild will reboot rebounding faster than what's happening in the U S and some of our key customers are experiencing some some tremendous growth in the foodservice segment. So the foodservice segment in chicken is growing in Europe and the consumer.
Speaker Change: And this is helping with our portfolio.
Speaker Change: And of course, as we mentioned we spent the last two years reorganizing our manufacturing network. We have some redundancies in some of operations specialty sliced meats and some sausage production that we rationalized and created a structure with the <unk>.
Speaker Change: Central shared services that is both nimble and more efficient to help as we said and we mentioned more than 200, new products in terms of innovation with a lower cost to our key customers.
Speaker Change: That eight 9% is that a good benchmark should we think about go forward is a good target level, probably yes, yes.
As we mentioned I think that we always compare ourselves to the best on those regions and that's what they're trying to do and we see companies in Europe that could achieve that type of profitability and we think that is what it should be sustainable.
Then we had in the past.
Speaker Change: EBIT margins of six 8% in this quarter, our adjusted EBIT margin was five eight so the team is really getting to those targeted levels.
Tastic good and then on the U S and that's actually you made a nice nice commentary and just wanted to talk about a little bit.
Speaker Change: Trends, what youre seeing.
With increased production, but then a little bit that foodservice weakness as we as we go into the fourth quarter that usually should be seasonally a little bit weaker, but we haven't seen much. Unlike pricing declines its holding in can you help us understand what youre seeing in the market why why prices have been so stable.
Speaker Change: From <unk> into <unk>, so far and a little bit of what's your expectation on the demand side retail versus foodservice in the nearer term <unk> and then heading into <unk>.
Speaker Change: Sure sure sure, but I think the price stability that we're seeing in Q4 in relative terms right. We always see some seasonality in the chicken.
Prices and we are seeing the cut out on the commodity value to coming down from the levels that we had in Q3 is mostly because of the strong demand that we're seeing I think I mentioned, the foodservice and starting with foodservice foodservice has been struggling with foot traffic.
When we look at the chicken consumption in the foodservice, we are seeing some increase in penetration and growth.
As a matter of fact.
The overall foodservice growth in terms of volume of chicken is 4% higher than the same period last year.
Speaker Change: I think that 4% there is a lot of growth in the non commercial as we mentioned, but isn't that the commercial which is the <unk> and full service restaurants, there is an increase of 2% and volume of chicken.
The segment that is really struggling is the full service restaurants, where the consumption of chicken in volume is down 0.8%.
Speaker Change: So overall, despite the struggle in foodservice in general in terms of traffic, we are seeing strong penetration of chicken and we're seeing some strong demand there.
Speaker Change: I think overall the consumer is as I mentioned looking to stretch their budgets and what's happening is the foot traffic that is lowering foodservice is moving to the retail.
Speaker Change: The segment that is really struggling is the full service restaurants.
Where the consumption of chicken in volume is down to 0.8%.
So overall, despite the struggle in foodservice in general in terms of traffic, we are seeing strong penetration of chicken and we're seeing some strong demand there.
We're seeing more trips.
Speaker Change: Albeit with smaller baskets, but we're seeing more trips to the retail and the fresh category I think the overall protein fresh category is winning.
Speaker Change: I think overall the consumer is as I mentioned looking to stretch their budgets and what's happening is the foot traffic that is lowering foodservice is moving to the retail.
We saw an increase in fresh chicken of close to 3% in volume in retail and that strong retail it is.
We're seeing more trips.
Supporting the prices of breast meat in the commodity market because as we always have during the summer we have a lot of big bird meat commodity going to the retail market because of strong demand and with that continuation that is happening even during Q4. So we're seeing some commodity.
Bit with smaller baskets, but we're seeing more trips to the retail and the fresh category I think the overall protein fresh category is winning.
We saw an increase in fresh chicken of close to 3% in volume in retail and that strong retail it is supporting the prices of breast meat in the commodity market because as we always have during the summer we have a law.
Products Big bird products going to the retail.
In the trade areas so.
Speaker Change: So when you look at the Jumbo cutout.
Very well supported right now despite a little bit lower than Q3, which is normal for this time of the year.
A lot of big bird meat commodity going to the retail market because of strong demand and with that continuation that is happening even during Q4. So we're seeing some commodity.
Speaker Change: And you expect that to hold also into <unk> spectrum rebounding a little bit right.
Products Big bird products going to the retail.
Yeah, well, we'll also drill down into the supply right and I think the supply of chicken has been higher than the same period last year, but it is in line with the strong demand that we're seeing and giving the egg sets the size of the layer flock, we expect to have a very.
Speaker Change: In the tray pack.
So when you look at the Jumbo cutout.
It's very well supported right now despite a little bit lower than Q3, which is normal for this time of the year.
And you expect that to hold also into <unk> spectrum rebounding, a little bit right yeah.
Speaker Change: Balanced supply and demand then.
You mentioned the prices over the last two weeks have been steady which is not the seasonality we expected for this time of the year.
Speaker Change: Yeah, well, we'll also drill down into the supply right and I think the supply of chicken has been higher than the same period last year, but it is in line with the strong demand that we're seeing and giving the egg sets the size of the layer flock, we expect to have a.
Speaker Change: Okay. Thank you I'll pass it on Congress again.
The next question is from Peter Galbo with Bank of America. Please go ahead.
Balanced supply and demand and as you mentioned the prices over the last two weeks have been steady which is not the seasonality we expected for this time of the year.
Speaker Change: Okay.
A little bit more into I'm, sorry, there you go.
Okay. Thank you I'll pass it on Congress again.
Speaker Change: Delayed getting you in there you can begin now.
The next question is from Peter Galbo with Bank of America. Please go ahead.
Oh, Hey, guys can you hear me okay.
Thanks, David Good morning, Hey, Hey, good morning, good morning.
Speaker Change: Just one question.
For me.
Speaker Change: Particularly around.
Speaker Change: Okay.
U S price realization in the quarter I think pricing was up about about 10%.
Speaker Change: Okay.
A little bit more into I'm, sorry, there you go.
Speaker Change: You spoke about retail prices being down.
Delayed getting you in there you can begin now.
In the mid teens.
Speaker Change: Obviously, we can we can kind of obviously with the commodity market did.
Speaker Change: Can you hear me okay.
Speaker Change: Yeah, no. Thanks, David Good morning, Hey, Hey, good morning, good morning.
And so that implies.
Speaker Change: Some.
Just one question.
Speaker Change: Maybe improvement in what's happened in small bird pricing kind of as the fallout. So I was hoping you could.
Speaker Change: For my part.
Speaker Change: Securely around.
U S price realization in the quarter I think pricing was up about about 10%.
And a little bit on what you saw a small bird in the quarter as it relates to price just given that's probably the hardest piece of the business for us to track externally.
Speaker Change: You spoke about you know retail prices being down I think in the mid single digits. Obviously, we can we can kind of see what the commodity market did.
Speaker Change: And I know that that Tidewater near key customers, but any broad comments there on small bird pricing would be very helpful. Thank you.
Speaker Change: And so that implies.
Speaker Change: Yes, sure on the small bird pricing, what we're seeing and it is connected to the trend that I've mentioned on the foodservice.
Maybe improvement in what's happened in small bird pricing kind of as the fallout. So I was hoping you could expand a little bit on what you saw a small bird in the quarter as it relates to price just given that's probably the hardest piece of the business you know for us to track externally.
I think as consumers try to stretch their budgets and less trips to the foodservice. There is a component of the retail there is winning which is the deli segment I think if you look at the numbers in Delhi.
Speaker Change: And I know that that Tidewater near key customers, but any broad comments there on small group pricing would be very helpful. Thank you.
The volumes are up close to 6%.
Yeah sure on the small bird pricing, what we're seeing and it is connected to the trend that I've mentioned on the foodservice.
Speaker Change: Year over year.
As I mentioned, our key customers that are actually growing faster than that category with close to 14%, but as consumers move the traffic away from foodservice theyre going to the deli as well as a great substitute for it for a very convenient meal for their households, and chicken.
I think S consumer threat to stretch their budgets and less trips to the foodservice. There is a component of the retail that is there is winning which is the deli segment I think if you look at the numbers in Delhi.
Speaker Change: The volumes are up close to 6% year over year.
Speaker Change: Is a big.
Speaker Change: Portion of the daily.
And the whole birds, especially for the small bird category. It is the largest part of this daily. So we're seeing the daily walks growing really fast and we're seeing strong demand for the small birds, which is translating to.
Speaker Change: As I mentioned, our key customers that are actually growing faster than that category with close to 14%, but as consumers move the traffic away from foodservice theyre going to the deli as well as a great substitutes for it for a very convenient meal for their households, and chicken is it.
Prices of the small birds are the walls right is as we as we call. So I think that.
Speaker Change: Big.
Portion after daily.
And the whole birds, especially for the small bird category. It is the largest part of this daily. So we're seeing the daily walks growing really fast and we're seeing strong demand for the small birds, which is translating to.
Bind on the small bird category with the de Boning for the <unk>, especially our key customers that are the ones that continue to grow.
We're seeing some strong demand for small birds of course, as we look into production over the last.
Speaker Change: Prices of the small birds are the walk right is as we as we call. So I think that combined on the small bird category with the de boning for the <unk> specialty our key customers that aren't the ones that continue to grow.
Let's say decade, we're seeing a reduction in the smaller production for Q3 in terms of heads the reduction was close to 4%.
Speaker Change: Little bit higher rate.
That doesn't.
Affect too much the daily walk market, but we are seeing a reduction in supply. So the supply demand structure for the small birds is very well supported.
We're seeing some strong demand for small birds of course, as we look into production over the last.
Let's say decade, we're seeing a reduction in the small bird production.
Thank you for that that's actually Super Super helpful. If I can just click on that a bit more so.
For Q3 in terms of heads the reduction was close to 4%.
A little bit higher weight.
Im hearing you correctly as it pertains to Delhi.
That doesn't.
Affect too much the daily walk market, but we're seeing a reduction in supply so the supply demand structure for the small birds is very well supported.
Speaker Change: The consumer insight that you're seeing.
It is essentially that rotisserie birds for small birds in the Delhi are on are a more convenient meal option may be at that $5 price point.
Thank you Pablo that's actually Super Super helpful.
Speaker Change: Its what you are observing the consumer at least within the box.
Speaker Change: I can just clicking on that a bit more so.
Speaker Change: Theyre going into the grocery channel from <unk>.
Speaker Change: Even within the box are translating into deli I just want to make sure that I understand that's exactly right. It is a very convenient meal, it's very affordable and so.
Speaker Change: I'm hearing you correctly as it pertains to Delhi.
The consumer insight that you're seeing.
It is essentially that rotisserie birds for small birds in the Delhi are on are a more convenient meal option, maybe at that $5 price point and Thats. What you are observing the consumer at least within the box if theyre going into the grocery channel from acuity or even within the box are translating into deli I just want to make sure I understand.
Speaker Change: An easy fix for the family.
Got it thanks very much guys.
Speaker Change: Our next question comes from Andrew Strauss Zick with BMO. Please go ahead.
Hey, good morning, Thanks for taking the questions.
Speaker Change: That's exactly right. It is a very convenient meal is very affordable and so on.
I was hoping you could maybe share some color on how the recent hurricanes in the southeast and Florida are impacting supply demand.
Speaker Change: Easy fix for the family.
Speaker Change: Got it thanks very much.
And how you expect that to play out from here and maybe if you could give us an update on the status of impact to your plants and operations I know you called out some of the charges, but just specifically operationally kind of how that's playing out and I guess lastly, within that you know I appreciate all the color on the demand side, which sounds really great. But I was just wondering if you think.
Speaker Change: Okay.
Speaker Change: The next question comes from Andrew's Strauss Zick with BMO. Please go ahead.
Hey, good morning, Thanks for taking the questions.
Speaker Change: I was hoping you could maybe share some color on how the recent hurricanes in the southeast and Florida.
Some of that supply disruption from the hurricanes could be contributing to that recent stabilization or maybe I'm, making too much of that.
Are impacting supply demand and how you expect that to play out from here and maybe if you could give us an update on the status of impact to your plants and operations I know you called out some of the charges, but just specifically operationally kind of how that's playing out and I guess lastly, within that you know I appreciate all the color on the demand side, which sounds really great. But I was just wondering if you think.
Yeah, Okay. Thank you Andrew yes.
First of all we will relieve that all of our team members who are safe. Despite that there was a direct hit from the Hurricanes Helane the Milton in two of our communities. He was LIBOR, Florida and Douglas, Georgia. So.
Speaker Change: Just.
Some of that supply disruption from the hurricanes could be contributing to that recent stabilization or maybe I'm, making too much of that.
How we prepare for those in those this is not our first hurricane ride we have many of them eating our operations in the past, especially because we have a lot of operators in the south. So we have our preparedness plan that include the preventive shutdowns of course too to help our team members and in.
Yeah, Okay. Thank Andrew Yeah. So first of all we were relieved that the all of our team members who are safe. Despite that there was a direct hit from the Hurricanes Helane the Milton in two of our communities. He was LIFO, Florida and Douglas Georgia.
Speaker Change: Many of our locations, we have emerging emergency generators and fuel tanks, we have the population crews and we have several trailers of supplies located around in strategic positions to be use in case of need our facilities were not directly impacted by the hurricanes, we have minor damage.
Speaker Change: So.
Speaker Change: Just.
Speaker Change: How we prepare for those in those this is not our first hurricane right. We have many of them eating our operations in the past, especially because we have a lot of operators in the south. So we have a preparedness plan that include the preventive shutdowns of course to to help our team members and in.
Speaker Change: From those hurricanes, but the issue has been on the partner growers. Many of them were severely impacted especially on the Douglas Georgia area and many houses were totally destroyed not only for us, but some in the industry as I mentioned.
Many of our locations, we have emerging emergency generators and free of tanks, we have depopulation crews and we have several trailers of supplies located around in strategic positions to abuse in case of need our facilities were not directly impacted by the hurricanes, we have minor damage.
Speaker Change: I think also it was really important to see that many of these growers were out of electricity for several days.
From those hurricanes, but the issue has been on the partner growers. Many of them were severely impacted especially on the Douglas Georgia area and many houses were totally destroyed not only for us, but some in the industry as I mentioned.
Speaker Change: We were impacted.
Again, like I mentioned specialty and Douglas, but we were able to rebalance our production to other facilities. We have 23 operating facilities and we maintain an excellent level of service to our key customers. So there was no disruption to our key customers what will take time it is.
I think also it was really important to see that many of these growers were out of electricity for several days.
Is to build this grow out base back to 100% again. It will we believe will take from nine months to 12 months for that.
Speaker Change: We were impacted.
Speaker Change: Again, like I mentioned, especially in Douglas, but we were able to rebalance our production to other facilities. We have 23 operating facilities and we maintain an excellent level of service to our key customers. So there was no disruption to our key customers what will take time. It is to build this grow out base back.
Speaker Change: Grow out base to be rebuilt to help it we have engaged with the local congressman and the GA Ed Commissioner because these growers need financial assistance to rebuild their housing. We also put a crew together to help them with design and building.
100% again, we believe it will take from nine months to 12 months for that.
As soon as we have the financial assistant we're also.
Speaker Change: Grow out base to be rebuilt to help it we have engaged with the local Congressman and Georgia are commissioner because these growers need financial assistance to rebuild their housing. We also put a crude together to help them with design and building.
Help the impacted communities with basic supplies like I mentioned on the on.
Speaker Change: The trailers are suppliers that we have.
Speaker Change: 122 shot out to our key.
Retailers keep customer retails do they help us with those supplies and we were able to help the community we need and we are also committing committing to a $1 million to support the necessary repairs in the Douglas community.
Speaker Change: As soon as we have the financial assistant we're also.
Speaker Change: Help the impact communities with basic supplies like I mentioned on the on.
Speaker Change: Matt mentioned, we included $9 million loss, meaning loss of live births and inventory in our financials.
The trailers are so bad that we have.
122 shot out to our key.
Speaker Change: Retailers keep customer retails do they help us with those supplies and we were able to help the community need and we are also committing committing to a $1 million to support the necessary repairs in the Douglas Committee.
As how much that is impacting the market I think during that week I think we have a little reduction in the overall production, but at the same time. We also have some disruptions from the consumers right a lot of operations retail foodservice were down during during that week some even.
Speaker Change: Matt mentioned, we include a $9 million loss, meaning loss of live births and.
Speaker Change: Four weeks without electricity, so we saw an impact in demand as well.
Speaker Change: Centaury in our financials.
Speaker Change: And how much that is impacting the market I think during that week I think we have a little reduction in the overall production, but at the same time. We also have some disruptions from the consumers right a lot of operations retail food service were down during during that week some even.
For the foreseeable future, let's say for the next months I think the industry has enough capacity to support the growth I think we will continue to rebuild those houses. So I don't expect a significant impact into the marketplace because of the Hurricanes of course, there was a.
Four weeks without electricity, so we saw an impact in demand as well.
Disruptions during that week, but we saw some companies kilian on Saturdays to recover from the days that we award they were down we were going to see a little bit of reduction in Douglas facility, but we are.
For the foreseeable future, let's say for the next months I think the industry has enough capacity to support the growth I think we will continue to rebuild those houses. So I don't expect a significant impact into the marketplace because of the hurricane of course, there was a disruption.
Redirecting production from other facilities to make sure that we have we don't have a significant impact into our key customers into and to the community in Douglas.
During that week, but we saw some companies kilian on Saturdays to recover from the days that the reward they were down we were going to see a little bit of reduction in Douglas facility, but we are.
Speaker Change: And I guess just quick.
Speaker Change: Quickly following up on that last point before I ask my other question.
Would that not really just from utilization rate perspective, or what have you would not really impact your margin capture either I just wanted to confirm that.
Redirecting production from other facilities to make sure that we have we don't have a significant impact into our key customers into and to the community in Douglas.
Speaker Change: Yeah.
I think we will redirect of course Douglas will need to.
Have lower volumes for for a while but we can redirect some some chicks from chickens from our nearby locations. So we will maintain a level of utilization and Douglas that will make sense for all the team members in our production there.
Speaker Change: And I guess just.
Quickly following up on that last point before I ask my other question that would then not really just from utilization rate perspective, or what have you would not really impact your margin capture either I just wanted to confirm that yeah.
Speaker Change: Got it Okay. That's extremely helpful and then my.
Speaker Change: Yeah.
I think we will redirect of course Douglas will need to.
My other question on the topic of capital allocation can you just maybe review again, how you are thinking about.
Speaker Change: Your capital allocation priorities obviously.
Cash balance continues to grow very nicely how much cash you need on the balance sheet to run the business.
Speaker Change: And maybe if you could talk about with I believe the Capex number for this year comes down a little bit.
Speaker Change: And Youre looking at some internal growth projects, our Capex next year might shape up thank you.
Speaker Change: Okay, and just in terms of how much cash we need to run the business of course much less than what we have today, but so looking into all options to create shareholder value right. I think the option that we believe can create the most in the long term is to continue to grow our company and we can go into the details.
Our growth strategy I think.
Matt already mentioned, we are seeing a lot of opportunities with key customers. We mentioned the growth in the retail that has been phenomenal growth.
Speaker Change: Growth.
It's much higher than the industry average, while the industry increased by 3% in the fresh category.
<unk> grew 17% in the retail category, which is a great statement to how much value, we're creating in terms of differentiated offerings and the key customers for quality and service. So we see tremendous opportunities. There. We also have seen the growth of the prepared foods.
The frozen fully cooked area in the retail is growing close to 10% and pillars is growing close to 18% is once again because of the innovation and the partnership with key customers because of the growth of our just bare brand. So we're seeing a lot of opportunities in organic growth in the prepared foods as well.
We are creating in terms of differentiated offerings and the key customer quality et cetera. So we see tremendous opportunities. There. We are also seeing the growth of the prepared foods.
And also there is acquisitions, we are seeing some M&A activity, especially outside the U S, mainly in Mexico, and Europe, where we can improve our portfolio and reduce the volatility of our results. So we have a great growth strategy.
Frozen fully cooked area in the retail is growing close to 10% and permanence is growing close to 18%. It's once again because of the innovation and the partnership with key customers because of the growth of our just bare brand. So we're seeing a lot of opportunities in organic growth in the prepared foods as well.
That can create value for the shareholders on the long run now in the short term given the excess cash that we have we're also looking for opportunities. We have some acquisition of debt that we did in the past.
Speaker Change: And also there is acquisitions, we are seeing some M&A activity, especially outside the U S, mainly in Mexico, and Europe, where we can improve our portfolio and reduce the volatility of our results. So.
Because of the difference in yields we thought that that opportunity is not as.
Speaker Change: We have.
Rate growth strategy that can create value for the shareholders on the long run now in the short term given the excess cash that we have we're also looking for opportunities. We have some acquisition of debt that we did in the past.
Great today of course, we have share buybacks, but I think even the liquidity that we have in the marketplace is also limited and we have special dividends.
As we.
We have those discussions at our board, we are seeing opportunity for dividends for the future as well.
Speaker Change: Because of the difference in yields we thought that that opportunity is not.
Great. Thank you very much.
Speaker Change: As great today of course, we have share buybacks, but I think even the liquidity that we have in the marketplace is also limited and we have special dividends and <unk>.
Speaker Change: <unk>.
The next question is from Heather Jones with Heather Jones Research LLC.
Please go ahead.
Good morning, congratulations on a great quarter.
Speaker Change: As are we.
Speaker Change: We have those discussions at our board, we are seeing opportunity for dividends for the future as well.
Speaker Change: Thank you good morning.
Speaker Change: Good morning.
Heather Jones: I have a couple of questions on the production side and I guess I wanted to follow up on the.
Great. Thank you very much.
Speaker Change: Helene and Paris.
Speaker Change: Yes.
Speaker Change: The next question is from Heather Jones with Heather Jones Research LLC. Please.
Speaker Change: So your U S volumes were up about 1% in the half during Q3.
Please go ahead.
Speaker Change: But given the impact of Douglas and I know you. All are new then checks around two to keep that plant running but how should we think about your production growth in Q4.
Good morning, congratulations on a great quarter.
Speaker Change: Thank you good morning.
Speaker Change: Good morning.
I have a couple of questions on the production side and I guess I wanted to follow up on the Helene in Paris.
Speaker Change: Given that you have a new checks around clearly there's some impact on supply. So just how should we think about that for you guys. In Q4, I know youre comping against an extra week, but adjusted for that.
Speaker Change: Yes.
As I mentioned I think the big impact to us in Q4, we have in Douglas we stay close to a week down at the beginning of the quarter and that impacted the volumes. We went back to the volumes for the quarter for sure and we have some damage to the hatchery, which we lost a lot of <unk>.
Speaker Change: <unk> in the hatchery. So I think that is the biggest impact that we have as we mentioned we lost.
A lot of houses in that region I think the industry lost maybe close to what we lost.
So we will see some reduction in Douglas total production, but as I mentioned, we will try to reduce our time.
First in some of the houses we have an optimal all time that maintain we can reduce so we'll gain some of the square footage back we will rebuild the houses for sure I know you are asking about the specific Q4, but I think over the long term over the next six to nine.
12 months, we will rebuild this housing, but I think more important again, we will maintain and.
Speaker Change: An operation that makes the Douglas plant efficient, albeit a little bit lower by moving some birds around from a nearby locations that we have so I think all in all we can expect that the volumes in Q4 to be close to the same volumes. We have last year I don't think we are.
Would be a significant impact again, because we were trying to diluted impact from one specific plant with birds that we have in all others.
Speaker Change: Okay. Thanks for that.
And then I just wanted to ask about broader industry.
We can expect that the volumes in Q4 to be close to the same volumes. We have last year I don't think it will be a significant impact again, because we were trying to diluted impact from one specific plant with birds that we have in all others.
Production trends, so and I'm sure you all have noticed the same thing, but since the very beginning.
Speaker Change: September so we've been having this improvement in hedge.
Speaker Change: But since the beginning of September there has been.
A very pronounced gap between what chicks placed let's suggest versus what has actually been slaughtered.
Speaker Change: Okay. Thanks for that.
And then I just wanted to ask about broader industry.
Speaker Change: I mean, some of that can be explained by the hurricane but my understanding is that mortality has dramatically improved at the industry from the first half.
Production trends, so and I'm sure you all have noticed the same thing, but since the very beginning of September. So we've been having this improvement in hatch, but since the beginning of September there has been.
And yet we've got this big gap between chicks placed and has honored.
A very pronounced gap between what chicks placed with suggest versus what has actually been slaughtered and I mean, some of that can be explained by the hurricane but my understanding is that mortality has dramatically improved at the industry from the first half and yet we've got.
Speaker Change: And so I was wondering what you all think is going on and when will that resolve itself and just any any thoughts you have on that.
Okay and then this is.
Great discussion that were having since.
Speaker Change: Two years ago, and again everything started with these new genetic as I mentioned it is a great genetics. It has a great feed conversion it has great yields but it comes with a price let's say.
Speaker Change: This big gap between chicks placed and had slaughtered.
And so I was wondering what you all think is going on and when will that resolve itself and just any any thoughts you have on that.
And the price has been the hatch ability.
And as you already mentioned that you believe has improved but it has been a very slow improvement over this year. We went from really low 77% to kind of <unk> 77, and a half and I think.
Okay and this is a it's a great discussion we were having seems.
Two years ago, and again everything started with these new genetic as I mentioned it is a great genetics. It has a great feed conversion he has great yields but it comes with a price let's say.
Part of the improvement it is the seasonality of the weather. So we're seeing the hatch ability improvement just like prior years, you always see them.
And the price has been the hatch ability.
And as you already mentioned the hatch ability has improved but he has been a very slow improvement over this year. We went from really low 77% to kind of 77, and a half and I think part of the improvement is the seats.
The improvement during the fall.
Coming into the winter so.
Speaker Change: Part of this is slow improvement is even seasonality, but nonetheless as I mentioned I think the industry will learn how to manage this breed.
That is like I mentioned, a great conversion, but on dealing with it on the life side in terms of fertility it is really difficult and.
Speaker Change: The analogy of the weather. So we're seeing the hatch ability improvement just like prior years, you always see him an improvement during the fall.
Again, the industry structure in the U S is not prepared to take care of individual animals, just like Europe due for Brazil, thus in those.
Geographies there is a very detail in let's say specific treatment separating the birds by weight in the in the houses and they have a much better ability than the industry in U S.
Speaker Change: So we know how to do it it's just complicated and expensive and that's why the industry news haven't figured out yet how to improve the hatch ability at a faster pace as I mentioned I think there is the mortality staying at all I think as improve it a little bit but.
The mortality has been a big issue.
Since this new breed was.
Speaker Change: Incorporated into our production at the mortality is happening on the hatching layers. So we're seeing increase.
Speaker Change: Pullet placements, because we need to replace the high mortality that we are seeing on this hatching layer.
Speaker Change: But also we are seeing mortality.
In the.
The broilers and Thats whats.
Creating this little gap between what we are placing them and what is coming to production.
Speaker Change: And if you're looking to the number of ads right.
Speaker Change: Heather we're seeing.
Speaker Change: As I mentioned, an increase in excess close to 3%, but then if you look at number of heads during Q3, we actually produce.
Speaker Change: Almost minus 1% in terms of ads, we compensated with weight.
And a little bit of mix, because we are producing more.
Big birds than small birds as I mentioned the production of small birds have been reducing but in total heads year over year, we're down 1% and in the quarter was close to 0.7%. So it is the mortality that is impacting.
These spurts of course, they convert really well and they have great yields. So we're seeing the in terms of weeks, we're seeing a little bit of the compensation for that but I think that is difficult to manage the spread it is like.
Its year over year, we're down 1%.
And in the quarter was close to 0.7%. So it is the mortality that is impacting.
Speaker Change: Like I said, a very efficient rate, but really difficult the industry, we will learn how to manage it or there will be a new genetic.
The spurts of course, they convert really well and they have great yields. So we are seeing.
It happens every three or four years.
But we don't expect fast improvement in the hatch ability or even the mortality in the shorter term which is.
In terms of weights were seeing a little bit of the compensation for that but I think that is difficult to manage the spread it is like.
Speaker Change: Preventing.
The industry to increase production of them, even more as we mentioned right R.
Like I said, a very efficient rate, but really difficult the industry, we will learn how to manage it or there will be a new genetic that happens every three or four years.
Speaker Change: Our hatchery utilization as Matt comment is that the highest ever.
So it is really difficult for the industry to increase overall production in a significant way and Thats why the USDA is expecting the growth of chicken for next year to be close to 151, 7%.
But we don't expect fast improvement in the hatch ability or even the mortality in the shorter term which is.
Speaker Change: Preventing.
The industry to increase production of them, even more as we mentioned a REIT or had our hatchery utilization as Matt.
Bobby I, just wanted to clarify something really quickly.
Speaker Change: Comment is that the highest ever.
Speaker Change: Earlier in the year.
Speaker Change: So it is really difficult for the industry to increase overall production in a significant way and that's why the USDA is expecting the growth of chicken for next year to be close to 151, 7%.
Speaker Change: Italian was really bad and there were all these diseases gene, but if we use this gap that you highlighted.
As a proxy for mortality is as bad as it was earlier in the year and yet all the disease issues have abated. So did you just.
Think that producers.
Bobby I just wanted to clarify something really quickly so.
Speaker Change: I had just gotten worse.
So earlier in the year and.
Speaker Change: <unk> I mean, just and this is a weird trend and.
Mortality was really bad and there were all these diseases gene.
And things that should actually be improving and so I just I'm not trying to belabor this but obviously it's important.
Speaker Change: But if we use this gap that you highlighted.
As a proxy for mortality is as bad as it was earlier in the year and yet all the disease issues have abated. So do you just.
Of course, it has improved but the mortality is still higher.
Speaker Change: I think that is.
Think that producers.
My point and as we start and we have some vaccination against the <unk>.
Speaker Change: That starting.
Speaker Change: Against.
Speaker Change: The new more virus I think as you vaccinate at the beginning actually create even lower or higher mortality, because we vaccinate, but we should improve over time.
So vaccination sometimes have actually.
A negative effect in the short term.
Speaker Change: Okay alright, thank you.
The next question is from foreign Sharma with Stephens, Inc. Please go ahead.
Speaker Change: Hi, guys. Thanks.
Speaker Change: Thanks for taking my questions and congrats on a strong quarter.
Thank you Barbara.
Speaker Change: Sure.
If we could just touch base on Mexico, I think you've shared a lot of color on the U S. Throughout the call. So just wanted to focus my attention on Mexico. If you could just kind of remind me of seasonality I know you called it in the press release, but any color.
You could share in regards to Mexico, and then kind of what youre seeing so far would be helpful.
Speaker Change: Yeah sure I think as we always talk about Mexico is really.
Speaker Change: Challenging and volatile quarter over quarter, but year over year has been a great market for us, it's a growing economy or continue to invest into growing that region, but Q3 is typically the weaker quarter for Mexico as the consumer.
As the schools going to reset we have a shift in the consumer behaviors.
And that creates a little bit lower demand at the same time because of the seasonality of diseases and live production, we see more production.
Speaker Change: In Mexico.
That was also combined with a really strong Q2, which incentivize, especially on the live markets a bigger production.
Speaker Change: So what we had in Mexico during Q3, this year, which happened.
Every year, it's a higher production with lower demand and we saw prices, especially during September to be really compressed.
In Q2, which incentivize, especially on the live markets a bigger production.
Speaker Change: Specially on the life market, which is really volatile I think going forward as we see every year, we see the rebound in demand.
So what we had in Mexico during Q3, this year, which happens.
Speaker Change: The schools go back in the families continue to to go to their normal behavior and buying more.
Every year, it's a higher production with lower demand than we saw prices, especially during September to be really compressed.
Speaker Change: Our out of home.
And we are seeing also the economy doing well I think going into Q3. We also saw some volatility in Mexico because of the local elections, so not the American elections, but the local elections in Mexico create a little bit of volatility in terms of the currency, which impacted our cost but.
Especially on the life market, which is really volatile I think going forward as we see every year, we see the rebound in demand as.
The schools go back in the families continue to to go to their normal behavior and buying more.
Also in terms of the behaviors of the families I think people trying to save more money and we saw the impacting demand or volatile demand during that time.
Speaker Change: Food out of home.
And we are seeing also the economy doing well I think going into Q3. We also saw some volatility in Mexico because of the local elections, so not the American elections, but the local elections in Mexico create a little bit of volatility in terms of the currency, which impacted our cost but.
Time now as we have more.
Speaker Change: Information about where the new government is going to do as a continuation of the current government.
We're seeing the demand and the economy overall.
Also in terms of the behaviors of the families I think people trying to save more money and we saw the impacting demand or volatile demand during that.
Back so I think that's what why despite being.
A good return in Mexico are good results. It was a little bit lower than same time last year and lower than Q2, but there is normal seasonality and then we have those effects there was a little bit of impact of the hurricane which reach that region earlier than United States, which was right at the end of the quarter.
Speaker Change: It's time now as we have more.
Information about what the new government is going to do as a continuation of the current government.
The demand and the economy overall going back so I think that's what why despite being a good return in Mexico are good results. It was a little bit lower than same time last year and a little lower than Q2, but there is normal seasonality and then we have those effects there was a little bit of.
Speaker Change: But.
I think we are seeing again, a growing economy.
Chicken is a great place in Mexico will continue to invest to grow in the region just complementary slightly just.
We think back to Q3 of 23 that was a bit of a counter seasonal quarter.
Speaker Change: <unk> of the hurricane, which reach that region earlier than in the United States, which was right at the end of the quarter.
Quarter for Us in Mexico is a little bit stronger than it normally is and then I think we just got back to more seasonal trends here in Q3 of 24, just relative to the last but still really very happy with nearly 10% EBITDA margins for the business this quarter.
Speaker Change: But.
We are seeing again, a growing economy.
<unk> is a great place in Mexico, and we'll continue to invest to grow in the region just complementary slightly just.
Speaker Change: Okay. Thank you I appreciate the detail.
Yes for the last one if I could just.
Speaker Change: Kind of focus on.
On the on the U S here.
Speaker Change: And just kind of honing in on the supply side here.
Speaker Change: You mentioned.
An improvement in your own kind of production efficiencies I was wondering if you could kind of just share some color on that like what are you doing operationally.
And are you seeing kind of the.
The improvement in hatch rates that we're seeing.
In the public data like half a percent.
That you quoted are are you able to kind of outpace that.
Speaker Change: Yes, I think.
As we mentioned it is named individual attention to the animal on the breeder side that is making the difference on the hatch ability and we are testing some changes to our houses by separating the some of the birds by weight and changing and adapting their feed.
They are individual wage, let's say fitbit for chicken.
So we are seeing some increase in the in the hatch ability actually a little bit higher than what the industry is improving I think we always looking to the cost of producing the egg and in that we are already better than the industry. So as the overall cost that we look not necessarily only hedge.
So I think we're seeing some improvements over there, but as the whole industry I think the level is too much lower than previous periods.
Speaker Change: Alright. Thank.
Thank you for the color guys.
I'll just hang it up there so it's sort of a bit over congrats again on the quarter.
Thank you.
The next question is from or just.
Speaker Change: As Lonnie with Barclays. Please go ahead hi.
Speaker Change: Hi, Thank you for taking the question. This is August asking for pre op and just to follow on on one of the prior questions given that net leverage is well below your target. How are you thinking about it and what does the current landscape for M&A in Mexico looks like thank you.
Speaker Change: Yes, I'll go back to the growth opportunities that <unk> talked about and I talked about in our <unk>.
Prepared remarks.
Speaker Change: As I mentioned in my prepared remarks, our capex spend is less than what we had forecasted.
Coming into the second half of the year, but that's really just timing and we are.
Well on our way and our plans to.
Speaker Change: Increase.
Speaker Change: Increase our capacity and relative to our key customers.
Prepared foods business and then when you talk about Mexico.
Speaker Change: It's both looking from an organic and inorganic growth perspective.
Coming into the second half of the year, but that's really just timing and we are well on our way and our plans to.
As mentioned in the past some opportunities we see in the M&A side on some.
Complementary businesses in Mexico, but it's also the growth of both our fresh and prepared business in Mexico.
Increase our capacity and relative to our key customers our prepared foods business and then when you talk about Mexico.
<unk>, so we see a lot of opportunities.
Speaker Change: From a growth perspective, and where that cash would be utilized.
It's both looking from an organic and inorganic growth perspective.
Speaker Change: Little bit more just relative to timing right now in the amount of detail, we spend and getting through our capital projects and that really disciplined approach. It just takes a little bit of time to kind of get that off the ground.
As mentioned in the past some opportunities we see in the M&A side on some.
Complementary businesses in Mexico, but it's also the growth of both our fresh and prepared business in Mexico are organically.
Speaker Change: Thank you.
Speaker Change: Organically, so we see a lot of opportunities from a growth perspective, and where that cash will be utilized.
Speaker Change: Okay.
This concludes the question and answer session.
Speaker Change: I'd like to turn the conference over to Fabio Sandri for any closing remarks.
Little bit more just relative to timing right now and the amount of detail, we spend and getting through our capital projects and that really disciplined approach. It just takes a little bit of time to kind of get that off the ground.
Fabio Sandri: Thank you and thank you everyone for attending today's call our portfolio designed to capture is attractive market fundamentals, while mitigating the downside risks we built on this approach to investments in our key customer partnerships that collectively grew our business and drive value for consumers. This riders are further amplified by.
Speaker Change: Thank you.
Speaker Change: Okay.
This concludes the question and answer session.
Speaker Change: I would like to turn the conference over to Fabio Sandri for any closing remarks.
Our consistent improvement in people and operational excellence.
Thank you and thank you everyone for attending today's call. Our portfolio is designed to capture attractive market fundamentals, while mitigating the downside risks we built on this approach to investments in our key customer partnerships that collectively grew our business and drive value for consumers. This riders of Florida and amplify.
While we've made progress we remain relentlessly.
Executing those strategies living our values and driving our commitment to team member safety and the Melbourne based on these efforts we can achieve our vision to be the best most respected company in our industry, creating a better future for our team members and their families. Thank you everybody.
By a consistent improvement in people and operational excellence.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
While we've made progress we remain relentlessly executing those strategies living our values and driving our commitment to team member safety and the wellbeing based on these efforts we can achieve a reason to be the best most respected company in our industry, creating a better future for our team members and their families. Thank you everybody.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.