Q2 2025 Pilgrim's Pride Corp Earnings Call

Good morning.

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At the company's request this call is being recorded.

please note that the slides refer uh, reference during the today's call are available for download from investor section of the company's website at www.pilgrims.com

After today's presentation, there will be an opportunity to ask question.

Good morning, and thank you for joining us today. As we review our operating and financial results for the second quarter ended on June 29, 2025,

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 slides for reference. These items also have been filed as Form 8K and are available online at sec.gov

Bobby, oand and chief executive officer and Matt. Galvanoni Chief Financial Officer will present on today's call.

Before we begin, our prepared remarks. I would like to remind everyone of our Safe. Harbor disclaimer.

Today's call may contain certain forward-looking statements that represent our Outlook and current expectations as of the 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 has been provided in yesterday's press release, Form 10-K, and our regular filings with the SEC.

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

Thank you, Andy. Good morning, everyone, and thank you for joining us today.

For the second quarter of 2025 we reported net, revenues of 4.8 billion a 4.3% increase over the same quarter last year. Our adjusted ibida was 687 million up to 4.7% versus Q2 of 2024. Our adjusted Eva margin was 14.4% in line with last year, our performance reflects our commitment to our values, discipline, execution of our strategies, and extensive application of our management metrics.

In the US, our Diversified fresh portfolio across segments benefited from favorable commodity cutout values. Continued, affordability, of chicken compared to other proteins.

Strong key customer demand and sustained progress in operational. Excellence diversification efforts through prepared accelerated as our branded offers, continue to drive growth across retail and food service.

Our era of business, drove margin expansion, through realization of cost efficiencies in manufacturing and optimization of product mix sales to key customers. Rose faster than Channel, averages and our branded offerings. In refrigerators and roll over. Continue to grow further diversifying our portfolio.

Mexico, drove strong results, giving attractive fundamentals in the commodity Market extensive growth with key customers and continued momentum of branded offerings in fresh and prepared.

Given the strong demand along with our vision of becoming the best and most respected. We are pleased to announce the initial wave of Investments to further unlock our growth potential.

we have also announced a special dividend of approximately 500 million as a result we can continue to create better future for our team members, both are competitive advantages and further, unlock value for shareholders,

Turn to supply in us. Do FDA indicated, ready to cook production for the US chicken that grew 1.9%, compared to the second quarter of 2024 from increased head count and higher than average light weights.

Despite an increase in leg sets with a more productive layer. Flock cheek, placements, continue to be challenged as hatchability remained at the Historical low levels and Hatcher utilization, continued at record rates, as such production, grew growth was driven by increased light weights and improved livability. During the later half of the quarter expanding production by the 1.9%,

Considering the most recent sets and placements data. The USDA estimates growth of 1.5% in 2025 suggesting sufficient Supply to meet strong chicken demand experiencing recent quarters.

As for overall protein availability, the USDA anticipates. 1.3% for 2025 growth as increased chicken and pork production, offset significant declines in beef production,

As for demand, the cost of eating out continues to increase more rapidly than eating at home.

As such retail Propel further growth for chicken in fresh.

Both tenders and wings gain traction, whereas Bond boneless skinless, breasts continue to grow, giving continued record, spreads against ground beef.

Momentum for boneless thighs, continue as it grew faster than all Cuts compared to Prior year.

Rate Frozen fully cooked let Chicken growth across all of retail primarily through increased velocity. Whereas daily benefited from increased distribution and demand for wings.

In food service, the increase in the cost of eating out impacted restaurant traffic, especially for full-service restaurants. However, chicken demand grew as operators strategically leaned into value offerings. Limited type productions, promotions, and menu revisions were either triggered or maintained to sustain momentum, with a value-added chicken focus. QSRs continue to leverage the affordability of chicken, outperforming the broader dining sector and capturing traffic and share.

In exports, the oiler volume continues to lag. Previous years, nonetheless, pricing remained resilient as domestic demand for dark meat continues to be healthy.

Given the relatively minimal or outbreaks of High pet, even influenza, many of our trading partners continue to ease or remove trading, restrictions on several major poultry producing some states, increasing the access.

While opportunities arise from trade restriction, from the outbreak of high path, AI in Brazil, the overall impact was muted as export markets, quickly adjusted to different policies and restrictions across countries.

Our trading partners continue to navigate tariffs to date. There have been no significant disruptions other than China. We anticipate potential benefits to the US. Chicken, when a trade agreement is reached between these countries

32 feed corn prices moved lower throughout the quarter as you as saw a large Rebound in planted acreage as a result. The USDA forecasted a record high in US corn production, along with the rebuild in domestic stocks

When combined with increased production from Brazil USDA, expect Global corn stalks to be relatively flat to your own over the year.

Soybean meal pricing also moved lower as records. South American production, drove a sharp rise in global soybean stocks

When combined with increased soybean processing capacity for Bio fused worldwide meal prices. Have become further depressed.

In wheat, global stocks, including China, are expecting a slight rebuild this crop year, as production was close to or above initial expectations in all major Northern hemispheres. In the UK alone, output increased by 12% compared to the prior year. As a result, increased production is expected to offset slightly lower beginning stocks.

Since impulse Supply exists and is more readily available at the points of origin, risks related to physical supply of wheat have been reduced.

Throughout the remaining of the Year grain and oil seed markets will take Direction based on us weather and its impact on corn and soy crop yields along with any possible disruptions related to ongoing trade negotiations.

In the US consumers, continue to seek value in their eating occasions as such the relative affordability, availability and flexibility of chicken compared to the other proteins, continue to resonate across both retail and Food Service channels.

Given the environment kids ready, experience strong demand as consumers, increasingly migrated towards retail to stretch their budgets. This trend was Amplified by record spreads between boneless skinless breasts, and ground beef pricing nonetheless are differentiated portfolio continue to gain traction as our sales to key customers, grew significantly, higher than industry averages

The performance of our branded just bare or fresh operate was particularly strong as net sales, Rose nearly 20% compared to Prior year.

In small birds overall. Margins remain strong as our business benefited. From extensive demand from Key customers in qsr.

In Delhi, Wing, velocity improved. But we experienced some reduction in the growth of rotisserie Birds, impacting prices to a lower level than 2025 2024, but still close to the historical 5 year average. We are working in new innovation to help growth with our key customers on this category.

In Big Bird jumbo cutout values remain favorable despite volatility in the quarter during the first few months value words. Second highest on record, after a rapid decline in June values, returned to normalize levels consistent with the 5 year averages.

Nevertheless, our team remain focused on operational excellence as views and labor efficiency. Both improved.

Increase significantly compared to Prior year.

Prepare continue to realize significant growth as net sales increased by 20% compared to last year, in retail, just bare recently achieved over 10% market share given incremental distribution and category leading velocity.

pilgrims momentum also continues to build a strong velocity increased throughout the quarter, both Brands continue to receive industry recognition for Innovation and consumer preference just bare achieve the number 1 ranking in serana's 2024 product Pace Setters list,

We are speaking with the people Magazine's, 2025 food Award for best chicken nugget for our cheesy jalepeno offering.

Prepare Foods.

Also continues to drive profitable growth through incremental distribution portfolio expansion and branded offerings in pilgrims and go kiss Brands as such sales grew over 25% compared to last year. More importantly, substantial opportunities remain with leading Distributors selected, qsrs and schools.

Commerce also.

Continues to be a growth driver as digitally enables sales. Rose over 26% compared to last year through continued expansion and efficiency of meeting Investments with leading retailers food, service providers, and various online platforms.

Turn into Europe.

The environment improved as consumer sentiment grew as wage outpacing inflation within retail overall demand remained, steady across the proteins with poetry and chilled meals experienced the highest growth while lamb and pork were the most challenged.

Given this environment. Our team continued to drive profitable growth through our strategies as such with strengthening key customer relationships to incremental distribution and new product development, generating sales growth, that outpaced the overall groceries Channel

Our diversification through key brands in retail, also continues to progress roll over grew over 10% compared to last year from additional distribution and new offerings. Refrigerators also continued its Marketplace momentum as net sales growth surpassed the category averages.

Innovation remains a key pillar to drive growth?

During the quarter, our higher attribute differentiated chicken offerings developed for a key. Customer was recognized as the best new poultry product by food management today.

We continue to cultivate our new product pipeline, as such we expanded, our rollover portfolio into chicken created, additional eating occasions for f refrigerators to packaging and working close collaboration with a key customers to create a series of Premium new ethic meal offerings.

This items and several others are slated for launch in Q3 and will be supported by investment in media and promotion to Foster growth.

Food Service, remain challenging as total visits fail compared to Prior year.

We additional secure awards from our customers, increasing our sales in the channel, by 10% versus last year. Moving forward. We will look to further, cultivate our presence with food operators within the pubs, and bars category.

Our integration of corporate support activities and optimization of our manufacturing Network are nearly in complexion.

Based on these efforts, we have improved production efficiencies and create a more agile key customer focused organization, given our enhanced Foundation. We will look to accelerate opportunities to drive profitable growth

Mexico, experienced another strong quarter as commodity fundamentals in the life and Retail Market remain attractive. Given us is anality reduce the availability of imports and volume growth in fresh. Tea, customer relationships strengthening as net sales increased double digits driven by the Food Service rotisserie Channel.

Our retail, fresh branded portfolio. Also continues to dry diversification and sales have increased over 6% compared to last year. Led by just bare, which is over up 2.5 times.

Our verification efforts to value added had experienced similar success as prepares continue to grow in retail. Pilgrims brand increased double digits compared to last year.

Growth in the food service was driven by qsrs which were up nearly 10% versus prior year.

Fully cook prepared, food plant in Walker County, Georgia.

Given this investment, we can further capitalize on long-term growth trends for chicken in retail and Food Service. Prepare is a large category with an estimated size of 14 billion, an attractive growth profile also exists as net sales. Have grown annually by 6% since 2019.

Furthermore, consumer interest appears to be accelerating as sales have risen by 7% between the first half of 2024 and 2025 during the same period. Our net sales have grown 21%.

Momentum. For our retail brands, has ALS been remarkably strong over the past 5 years. Household penetration has increased from 2.4% to 10%.

Similar momentum in the existing food service for Our Brands, as gold. Kids volume has risen, 15% annually since 2021.

When our growth prospects are combined with strong consumer, enthusiasm for Our Brands, we have a remarkable opportunity to accelerate the expansion of our prepared foods business.

This investment will further diversify our portfolio. We reduce Reliance on out by the outside, suppliers and leverage, our fresh production capabilities. As a result, we can drive growth enhancement margins and reduce volatility across our entire us business.

In the meantime, we will expand fully cooked production in our existing prepared facilities at Moorefield and Waco.

Giving this investments will still expect to have sufficient capacity to meet our growing demands.

Across retail and food service.

Within retail over 1/3 of fresh chicken is sold as antibiotic free or organic. Chicken giving extensive consumer interests. Our case. Ready business has become the leading provider of this higher attributed differentiated offerings.

Further strengthen our competition competitive advantage and reinforce our leadership position, we have announced the conversion of a big bird plant to support key customer growth to an mie and veg fed program. In the case, where this segment,

We remain committed to diversification across board sizes and our ability to capture Market upsides in the Big Bird commodity Market as such. We reviewed our manufacturing footprint. Any big identified opportunities to enhance our mix and unlock additional capacity to meet our growth in demand in that segment.

Based on this effort, we can maintain our current portfolio across all board sizes further increasing our website potential while. Limiting downside risk equally important, we can generate higher more consistent margins in the low to mid double digits for our us fresh business.

In Mexico, our capacity expansion efforts, also continue.

our projects in Veracruz and medida remain on schedule, and we still anticipate each will become operational in the first half of 2026,

Similarly, our prepare expansion continued to proceed as planned. And initial production is slated for the beginning of 2026.

Given this work, we can continue Drive sales growth and reduce volatility of results. When all these products are at full capacity, we increase our the size of our business in Mexico by 20%,

we remain committed to the other key projects and potential strategic Acquisitions as discussed during our investor day. As such, we will continue to evaluate various Alternatives and provide updates when available

With that, I would like to ask our CFO at galvanoni to discuss our financial results.

Thank you, Fabio. Good morning, everyone. For the second quarter of 2025, net revenues were $4.76 billion versus $4.56 billion a year ago, with adjusted EBIT of $686.9 million and a margin of 14.4%, compared to 656.94% margin as well in Q2 last year.

Adjusted ebit D. Margins, in Q2 were 17.1% in the US compared to 16.7% a year ago.

For our Europe business, adjusted EBITDA margins came in at 8.2% for Q2, compared to 7.4% last year. In Mexico, adjusted EBITDA margin for Q2 is 16.3%, versus 19.4% a year ago.

Us, net revenues were 2.82 billion dollars versus 2.66 billion a year ago and nearly 6% increase adjusted ebit down the US for Q2 came in at 4 8, 2. 7 2.

Case ready and prepared foods, businesses have continued their momentum with increased distribution with key customers.

Case studies profitability improved year-over-year. However, however, even with increased sales volumes higher commodity chicken input costs was a headwind to prepared foods profitability.

Small birds performance and qsrs remain, very strong. Upsetting a more challenging pricing environment in Delhi walks,

In our us, gaap results, we did incur legal settlement. Expenses of 58 million in the quarter from primarily due to reaching settlements with certain parties associated with the ongoing boilers litigation.

In Europe, adjusted ebit on Q2 was 111.8 Million versus 96.2 Million last year.

the business has benefited from its continued structural reorganization including integration of support functions and Manufacturing optimization programs, while cultivating key customer Partnerships with continued Innovative offerings

As we begin to wind down or reorganization efforts restructuring charges trended lower to 3.5 million during the quarter.

Mexico generated 92.3 million in adjusted ebit on Q2 compared to 115.1%.

The Mexican business continued demonstrated strength with adjusted ebaa margins greater than 16% even though facing year-over-year FX headwinds of 13% in bird disease, challenges during the quarter.

SCA costs in the quarter were lower year-over-year, primarily due to a decrease in the previously mentioned legal settlement costs.

Also, in the quarter, we incurred marketing investment costs and additional incentive compensation expense based on the progress of our year-to-date results.

Our effective tax rate for the quarter was 25.1%. We continue to anticipate that the full-year effective tax rate will approximate 25%.

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 projects.

During Q2, we reduced, our gross leveraged by $90 million through open market purchases of our own debt. Even with the payment of the 1.5 billion. Special dividend in April. Our net debt, total less than 2.3 billion dollars with the leverage ratio of less than 1 time. Our last 12 months adjusted IBA at the end of the quarter,

Following the April dividend payment and debt repurchases during the period, we had over $1.9 billion in total cash and available credit. At the end of the quarter, we have no short-term immediate cash requirements, with our bonds maturing between 2031 and 2034, and our U.S. credit facility does not expire until 2028.

With the strength of our liquidity position, the pilgrims board yesterday declared a special dividend of 2 dollars per share or approximately 500 million. The record date. For the dividends will be August 20th 2025 with a payment date of September 3rd 2025.

When adjusting for this dividend, our net leverage ratio would be 1.15 times adjusted ibitta still, well below our Target of between 2 to 3 times.

Net, interest expense for the quarter total of 31.5 million with the announcement of the upcoming dividend. We anticipate our full year. Net interest expense to be between 115 and 125 million this year.

As discussed investor day, in March and demonstrated by our announcement last week of our new US prepared, foods plant in Walker County Georgia. We will continue to invest in growth,

We are very excited to move forward in Georgia with this project that will create over 630 jobs and will expand our branded prepared foods capacity beginning in the first half of 2027 upon reaching full capacity. At this new plant, we estimate that the U.S. prepared foods business will increase its net sales by over 40% from its current levels.

We spent 161 million dollars of capex in the second quarter, an increase of 63 million from the first quarter.

In the US, we made progress towards the conversion of our Russellville plant to support a retail. Key customer in the first quarter of 2026.

Also in me.

Schedule.

Once these projects finalized and are at full utilization, we estimate the Mexican business will increase its net sales by approximately 20% from its current levels.

These projects and prepared foods case. Ready in Mexico taken together. Require approximately 650 million dollars of incremental growth capital

We will continue to ramp up Capital spending throughout this year to support these various projects. However, we anticipate total capex spending in 2025 to be slightly less than our original estimate of 750 million, likely closer to 650 to 700 million.

These near-term growth projects aligned to our overall strategies and portfolio diversification focused on key, customers, operational excellence, and our commitment to team member health and safety.

Thank you.

We will now begin the question and answer session.

in the interest of allowing equal access,

Request that you limit your questions to do then. Rejoin the queue for any follow-up.

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

The first question comes from Ben thorough from Bless. Please go ahead.

Yeah, good morning, uh Fabia MF. Thanks for taking my question, congrats on another very strong quarter. Um,

so first 1 actually, just following up on on some of your closing comments, right now. Um, Matt in terms of like the capex, um, outlay and so on. So just wanted to clarify the investment in um, in Georgia that you've announced last week. Um, so how should we think about the, the spend of the 400 million you said it's going to ramp up uh and somewhat in the second half and then probably going to go higher in 2027. So the bulk of it, I guess uh will be in 2026 capex but just to understand a little bit the Cadence of of those 400 million and assoc.

CA to this uh to this investment is that using chicken that you already produced or Does it include additional chicken Slaughter capacity, just on that 1 and then I have a quick follow-up question.

Sure, thanks. Good morning. Um, you know, I think when you think about that 400 million that we announced, uh, last last week, think think this year, kind of in that, you know, 50 to 70 million range, you know, next year so that 250 to 300 with the residual in 2027. You know, it's always timing can can fluctuate a little bit, you know, the vast majority of the spend will be in 2026 because our we anticipate this, um, becoming up and running in the first half of 2027. So I'd give you that as my kind of Basics and then I don't know if I'll be able to talk about the chicken side of it.

Yeah. Uh, been

Thank you for the question.

As we mentioned, we want you.

Improve our portfolio by, increasing our presence in the prepared foods, uh, and branded Arena. And I think this plant is is

In time for us to support us in the growth of our just bare bread, the just bear brand is a differentiated brand, it does no antibiotics, ever minimally processed.

And um, as we mentioned it has experienced phenomenal growth. And since it used, no antibiotics ever meet. And we are the largest producer of no antibiotics ever meet, uh, in the United States. It would be normal for us to support this, uh, prepare foods with our internal production but of course, in all of our prepared foods, we operate as an independent business, we have independent p&ls. We actually have Independent p&ls by by client, but the prepared Food business is operated as an independent businesses and he can Source uh meat from any uh supplier as long as it is.

Uh, in line with our um superior quality standards.

Okay, got it. And then I mean, just in general, you've you've highlighted in your prepared, remarks. That, that some of the production data is I mean, livability is getting better. We're seeing more Supply. Um, it it seems like that particularly the the big bird weight, uh, the birds with big birds. The big birds are gaining a lot of share. Uh, so obviously, um, there there's another boost, um, to to the supply side here. So if you look at the supply versus demand situation and maybe putting that beef shortage aside for a moment, uh, are we getting to the point that there is coming, too much Supply on because now all these exits, as of a sudden do turn into into chicken placements. Plus, we have that weight gain and and we're getting a little bit of an oversupply situation.

Here we are, not yet, because the demand for chicken is so strong.

Yeah, I think that's that's that's a great Point been. I think, when we're going to go and step back and, and look at the expectations for supply of chicken in, um, Q3. I think we continue to see the same structure as, as we saw and last year, and this year. So we have a lower layer flock, but it's more productive.

Ability issue and 2025 has actually been lower than 2024. We always have an improvement.

Uh, because of seasonality and the weather pattern and we have an improved hatchability. But so as we have last year, but there's still below the 2024 levels that were already record low. So because of that, even with an increase in the exits, the chick placements has not followed.

but as you mentioned we always have also an improvement in livability in in this uh period of the year because once again of the weather which translated to close to 1% increase in head counts

I think because of the profitability of the segments, we are seeing an increase especially in the Big Bird segment and that increase in that segment accounted for 1% in increasing lifeways. So that's why we saw 2% increase close to 2% increase in the overall availability of meat for for the domestic Market.

if you look at the demand,

And you look at what's happening in both retail that is gaining market share because of the.

Leaving. Uh,

Increases in inflation and the concerns of the consumers about spending. Um, retail was increasing by 2.4% and on the Food Service, despite a reduction in the traffic. We're seeing chicken, gaining market, share, and increasing menu penetration

To the account that we increase the sales of chicken in the food service by 2.7%. So when you look at that increase in demand, and as you mentioned,

All the challenges in pricing and availability of the other proteins. I think the expectation increase of USDA of clothes to 1.5% for the year, it's in line with the demand. And I think that's being what we are seeing lately on the prices of bonus, press meet.

Okay, perfect. Thank you very much Fabio. I'll pause it on.

The next question comes from Andrew scholz from BM, BMO Capital. Please go ahead.

Hey, good morning. Thanks for taking the questions. Um, you know, I I wanted to ask another us chicken supply chain question. We've seen poets, placed or down year-over-year 3 of The Last 4 months and

Comes on the heels of what was an extended period of pretty consistent increases. So, you know, is there something changing their or or what is driving the reversal? Maybe you can kind of talk through what, what the Dynamics are at play there and and more broadly, can you give us an update on the industry production constraints and where the industry stands with those, uh, uh, Now versus maybe a year ago or so? Thanks.

Yeah, thank you Andrew. Yeah. Um like I mentioned on the um on the structure of the industry and and you write on bullet placements. Um I think what the industry is trying to have is a more productive flock. I think the hatch ability issue has been very impactful. If you look at the Hatchery utilization, we had the highest level ever. And I think we're

We're probably past the capacity. I think all the hatchers are operating more days than they than they should reducing a little bit the maintenance. So if you have eggs that will not hatch or lower productive,

Uh, layer.

You you're in trouble because you're compromising the bottleneck, which is the the Hatchery. So that's why the industry is trying to get a more productive and younger.

Layer flock.

And it's all from, uh, from there. In terms of the capacity of the industry to increase production, I think what the industry is trying to do is to gain production through the live weights. I think that is what, uh, creating this, uh, higher growth in the big bird segment. It is our industry's way of trying to expand production without being able to expand the number of heads that we are producing.

Brass meat is a perfect match to to as an ingredient at the same time. We're also seeing more deboning of the dark meat. I think, uh, we've been talking for this for for many years about the changing demographics and the change in tasting in the in the domestic Market US market. We used to be in the past uh, White only white meat, only Market exporting, the black quarters. But over the last 5 to 10 years, we saw it. Uh, a significant growth in the dark meat consumption today at retail boneless ties are at the same price as boneless breasts. So you you can see that there is a strong demand for the Boneless ties in the retail. And, and that is helping the big bar category as well as we are being able to debone, uh, the the leg quarters and gaining, um, uh, a, a better value than

Exporting leg quarters.

Because that that's super helpful and then Switching gears. Um to Europe,

I'm curious how you're thinking about the margin progression from here. Um, you had been expecting a slower pace of year-over-year, margin expansion and you know we we we did see that um this quarter but sequentially. It was only a very slightly. And so I guess, you know what, what caused that slower pace of sequential

Margin Improvement, and are you expecting to see that re-accelerate over the, the rest of the year sequentially to get, to, kind of a steady year-over-year Improvement? I, I know I'm, I'm mixing sequential in year over year, but I'm, I'm trying to get a sense for, for how to think about the Improvement in in any EU margins from here, over the back half of the year, thanks.

Yeah, we always have a little bit more seasonality in Europe and typically the second semester is better with Q4 being much stronger than the first semester. Uh, what happened in Europe is, is that we saw the consumer sentiment improved the little, but it's still at a lower level, and we saw the growth at grocery really Limited in this quarter. There was a significant increase in the cost of living in in Europe because of the increase in the National Security, uh, cost for companies and that impacted a little bit, the both the both, the consumer sentiment and the, and the demand.

Uh, but um, nonetheless, we saw chicken continue to be the the fastest growing category in there. We saw a little bit of uh uh reduced demand in the lamb and pork categories which are more expensive than than chicken. But, um, going forward, we continue to see the Improvement of our operations with the consolidation of our back office and our, uh, operational Network. And we

Continue to see more Innovation and I think that's the most important point for Europe. We will continue to innovate to help our key customers to grow, faster than category averages

But to your point, there is always a seasonality in Europe and Q2 typically is Superior or better than the first semester with Q4 being the strongest of all.

Got it. Okay, thank you very much.

The next question comes from puran. Sharma from Stevens. Please go ahead.

Congrats on the quarter. I'm appreciate the question here. Um, just wanted to first start out and and sorry to the labor. The point on egg set here. But um, you know, you you mentioned earlier on that we're maxed out um, in in egg sets and just looking at the data, there was a pretty big jump from the start of 2024 to 2025. I think we went from like 240 million a week to about 250 million a week. So I just wanted to get a sense of, you know, how how much more growth do you think we can see in egg sets without seeing any major investment in any, any sort of Hatchery capacity?

Yeah, I think you you absolutely right for it. Um it is really going to be really hard for us to get any more exits. Um if or or chicks placed, right? If we don't have investments in, in Hatchery capacity, and as I mentioned the what the industry is trying to to have is a, is a younger layer flock that it's also more productive but have better hatchability.

Industry is the, uh, the the hatch. Um, we were not being able to capture all the all the demand upside that we are seeing with production. When, when you look into to the numbers, in Q3, we are seeing a, there's an expected from USDA. Close to 1.9%, as well, together with what we have, uh, as of today. So I think we'll be pretty much in balance in terms of supply and demand but you're right the the the issue for us continue. I think we always have this question when you have the hatchability back, right? And I think what we're seeing here over here, it is that the hatchability has not improved that there is some seasonality. So we always see some improvement during the summer time. And I think it continues to be the challenge that we have dealing with this new breed. And as we mentioned, uh, until a new breed comes and, uh,

We haven't seen any evidence of a new breed coming. This is the best breed in terms of performance, in terms of feed conversion, and in terms of yields, so there is actually no.

Intention on our industry to to go back to older breeds that are less productive just to get a better hatch.

So, I think we'll continue to be struggling.

Uh, with this, we we're learning how to manage better specially the male. Um, it is, uh, once again an animal that gains weight, and then managing the live part is very difficult, uh, but I think we'll get some improvements, um, and we'll get hability a little improvements here in there, over time, which will, uh, allow our industry to get in line with the strong demand that we are seeing

Appreciate the call there. Um just as a a follow-up. Um and on that um you know the the egg set and just the supply I I think you know ball to winter time is when you typically see seasonal production uh cuts by the industry but in your comments earlier uh when you talked about USDA being up their their estimates being up 1.5% that, you know, being an adequate level of demand. Um, I was wondering if you think that the industry will need to see deeper production Cuts than they, than they enacted last year, or do you think production Cuts will be at a similar Pace to, to what we saw last year, would love to, uh, get your thoughts around the seasonal production cuts.

Yeah, I think it's it's the normal um seasonality of our industry, right? To have seasonal cuts for the Q4 as we know. Um there is uh the Thanksgiving which is uh uh and Christmas which we see a lot of demand for turkey for hams for other types of meat and we see a decrease in the promotional activity of chicken, which we will need to lower demand. As as expected, I think is the normal seasonality Euro very year and there is the normal uh, seasonal Cuts. Uh, uh, from our industry. We will always match our production to the demand of our key customers. And as we saw the, the numbers that we discussed with them, what are their promotional activity? Uh, we will, um, support that. Those those those uh, those plans as we do every year.

I think during Q3 and Q4, we are also seeing that we'll be uh, even higher challenges on on beef and pork. I think we're expecting or yesterday is expecting a sharp reduction in the production of beef beef.

4. And there is being some, some issues with the live operation of Park where we're seeing the PD virus impacting, some of the operations, there is a discussion about weights and heads in the pork, but we're seeing that Q4 in terms of uh availability of total meat. Uh, for the United States will be close to 1% which is 1 of the lowest numbers with with with seen.

Which tends to benefit uh the demand for chicken but as I mentioned it is normal to see a reduction in the demand.

For chicken during Q4.

Appreciate the caller.

The next question comes from guler. Polaris from Santander. Please go ahead.

Has this 1, uh, you reported a 5% growth in the cogs in the US.

We go 1% growth in 1, right? So if you could go through a bit of the main drivers here and uh, going forward, uh, looking at all the discussions that we're having about visas and the situation of Labor in the US. But could you expect going forward in terms of wage inflation on the factory in the if you're seeing some of that already or not?

Yeah, I think that's something that we've been uh, looking closely right on the labor market in the United States. Um,

Our strategy has been to to follow, of course all the all the policies from United States. We saw some humanitarian visas uh being um relocated in in United States especially for Nicaragua Venezuela, Kuba Haiti. We have some uh,

Employees with those visas. And uh, because of the revocation, we will need to we we had change uh from from those uh team members. Our strategy has been to over staff our plans during Q2 to prepare for those, uh, potential impacts in the labor market. And that's how we've been operating all in in Q2, despite 1 of the best turnovers we we ever had. I think we always have a, a policy of being competitive in the marketplace. We are inserted. We have a process where we look plant by plant.

And the region by region and we are competitive with wages. In those regions, we've been able to fully staff, our plans, actually, during Q2 to prepare for those uh, actions by the government. We were overstating, our plans. So we run as a number at a 105% staff. We we, we control the Staffing and every single plant. We have great methods to, to staff to perfectly, to the mix that we are running. And during Q2, we are 105% staffed.

Especially if you prepare for those impacts.

So far we've been able to fully staff our plants, like I mentioned, uh, we are running, um, the the best mix that we can and that's what we saw in in the performance during this quarter.

As far as going.

Yeah, as as far as going on in the future on, on labor inflation, I think what the numbers we are seeing for the entire United States is that that has not been a significant issue, of course. Uh, we we need to wait and see how the the economy continues to to, to go. We are seeing some, some reduction in labor in the Food Service Arena. And we've been benefiting from that. Like, I mentioned, we are very competitive where we are, we have our plans,

That's super clear. Fabulous. Thank you.

The next question comes from Heather Jones from Heather Jones, research. Please go ahead.

Morning, thanks for the question. Um,

how how y'all are gonna be supplying that and

It looks like.

The majority of your Slaughter plants that are located around that area are are small bird. Um, but then there's some larger ones, I guess in Alabama. So I guess my question is, are you

Planning on converting, maybe some small bird capacity, particularly given the demand Dynamics in that segment. Are you planning on converting to capacity? Or would you pull it from plants that are further away? Just

Just hoping, wonder if you could give us more insight on that.

Yeah, I think we're always looking into the portfolio right together. Um, what, what is the segment that is growing? What is the second? There is more challenging. As, as I mentioned, I think the bone in category has been the 1 that has been challenged over the last, uh, uh, period of time. We are the leader in that category, you have great key customers. We saw some of these customers in the food service or in a growing much faster, than the category averages.

So we're seeing uh a great profitability. In those plans, nonetheless, we see that the the market there is growing is more for us, the case ready and the Big Bird segments. And as as always, we will adjust our portfolio to what we look. And not only the

Category in the fresh.

Um, more than than 5 times. What the industry? Uh, grew. We, we actually improve way ahead of the, the category average once again, because of the differentiated offerings that we have. So it's not only the region. It, it is about the offerings that we have. We have the non-biased ever offerings. We have the veggie fed offering so we have the also, the organic offerings. So it's more about where you are rather than just, uh, the region and I think Heather, you know, Fabio was mentioning before relative to our prepared foods business. Um, they really do look and Source from multiple places, they'll Source both internally from our own plants, but they also Source quite a bit outside of pilgrims facilities to. So it really, um, making sure that they have the best cost profile. And so the sourcing of the of the plant and um, in Walker County of, it will come from a variety of different places.

Okay, but y'all are a lot. You said that's going to be Nae, and y'all are the largest supplier of Nae, largest producer of any in the US.

Yeah, that is correct.

Okay? And, and for years, you guys had said in the US, your target was a third, a third, a third. And clearly, there's some changes going on pretty big changes. So I was wondering if you could

um,

Maybe not definitively, but sort of qualitatively, give us updated thoughts on what that ideal mix looks like now.

Um, uh, for you guys in the US.

yeah, I think, um, like I mentioned we're always looking at at, at, at

The market. It is kind of a third, a third, a third with the big bird growing faster than the other, uh, segments on the small birds. As I mentioned, the, the challenge is on the bone in category, but we are also seeing the food service for small birds, especially on the qsrs. We talk about the sandwich Wars, right? For many years, we saw some growth in that category and that is another thing that, uh, we can do increase a little bit, the live weights on the smaller category to support the growth, in the Food Service, both distribution and qsr on the small board. So we still believe that being a balanced approach. It is the the, the right approach. As we mentioned, we are growing faster in retail because of our differentiated offerings and because of our key customers growing faster than the categories and we will need to convert 1 Big Bird plant to a case. Ready? Plant. But we are finding uh bottlenecks in all of our big board.

Plan. So we can continue to have the balance. This balanced approach without losing our exposure to the commodity markets that we know are very strong right now.

Thank you so much.

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

Hey guys. Good morning um question for you on Mexico specifically um in in the quarter and then as we kind of Bridge to the second half, just want to understand how we should kind of, think about the profitability there. Um, it seems like at least in 2 Q FX. Obviously, it was a pretty material drag on the revenue side, but you also got a pretty sizable benefit on on the cost side. So, just now that the currency is, is going the other way, you know, how how we should think about the impact that could have on, on profitability, amongst, you know, market dynamics in Mexico for for 2 h.

Sure. Thank you Peter. Yes, as as we mentioned Mexico is is a volatile uh, Market quarter over quarter. But um year over year when we look, it's pretty stable and there's a double digit Market because this is a growing economy and as the consumers, get more available income, they improve their diets and chicken is the most, uh, affordable way of increasing the, the, the protein, uh, of diet. We we, we saw some volatility in the live markets.

In Mexico during the quarter. And I think not only on the demand side but on the supply side we saw some increase in diseases and during this quarter in in the live market. And we have this small operators that we will come and go as the live market is strong or weak, which we always mention amplify the volatility in the live market in Mexico because the diseases impacted the companies with lower. Let's say, um, uh

Small reduction in the supply during, uh, the this quarter, which increased prices in, in the live market. So the live market was actually the most profitable segment

In Mexico during this quarter going forward.

Again, we continue to execute our strategy of growing in Mexico. As I mentioned, we are expanding our Merida, uh, production or extending our production to the peninsula. In the Merida. We are expanding our production in Veracruz uh to support the live markets and the small uh bird markets and we're also expanding our prepared foods operation in Mexico. That is growing double digits. Uh, to further diversify our portfolio and reduce a little bit, the volatility of results in the region. We when all those uh, projects are at at full speed, we expect, uh, our operations in Mexico to be 20% on uh,

Higher than what we have today. And, and Peter just a compliment. What Fabio said, just kind of relative to FX, you know, what you had mentioned. And I had mentioned my prepared remarks, the 13% kind of headwind that we saw year-over-year in the quarter when we look at Q3, you know, and of course, I cannot predict where the peso will go, you know, the rest of the quarter, but kind of where it sits right now versus where the average was in Q3 of last year. It's basically on par. So it really at this point, don't see a real

Big FX impact 1 way, or the other, at this very stage for Q3 of 2025.

Yeah, and building. The FX also impacted a lot of the grain in Mexico, which is imported from the United States. So, it affects—uh—was actually a benefit, but on the other hand, there is a big export of meat from the United States to Mexico, which accounts for 20% of the exports of the U.S.

Uh, are to Mexico. So it's an important Market.

For special like quarters but also some boneless breast. And I think with the FX, uh, we will create a the the American meat to be a little more expensive in Mexico, which creates the opportunity for the max our Mexican operations.

Okay, thank thanks for that guys. And then may maybe just to Pivot, um,

Obviously, the special dividend. Now, a second quarter in a row. Um, which I think this one was maybe a bit more of a surprise than the last one, just.

Fabio like a a change in in capital allocation philosophy, you know, like this is this is pretty abnormal, I guess to do 2 in 1 year, it's going to be about 2 billion dollars at least at this point. So just want to understand if there's if there's been a change in how the board views Capital, allocation, how the relationship with the parent company has has changed as you as you contemplate, kind of another round of special dividends. Thanks very much.

Sure, Peter know, I don't think that there's been any change. We always looking into create shareholder value, right? And as, as we mentioned, and as we discuss in our investment day investor day, we have several Avenues of growth in in in our business. So we always looking for Acquisitions, of course. Um, we're looking to grow or prepared foods Brands and to diversify the geographies where we're in. I think, as we're seeing most people and some, uh, of the Acquisitions a little bit more difficult, especially in the United States. We engage in in organic growth. And that's why we announced the the new plant, uh, for prepared foods again, to grow and diversify our portfolio and we are growing in Mexico and we're looking for opportunities in Europe as well. So, I think that Avenue of growth will continue in the meantime, I think the, the business, uh, has been really strong, we all discussing the results, right? And I think,

I think we we've been increasing our cash and that position is not efficient for us. Matt mentioned that we are below 1-time levered and we always have the target of being 2 to 3 times. And with the expectations that we have for for the rest of the year and the strong cash flow Generations.

That we had uh uh once again we got to to a position where our balance sheet is is out of where we think is optimal. And we decided to do this uh this special dividend. We will continue to do uh this special dividends. When we we believe that our leverage ratio is getting to, to a place that it's not the optimal capital for us. We also have share BuyBacks potential, share BuyBacks, that we discussed, we have a bond purchases that we discussed, and I think we will always look for for all the alternatives to create shareholder value.

Thank you.

The next question comes from Priya Ori Gupta, with Bless please. Go ahead.

Hey, good morning. Thank you.

Give me in. Um, actually I would love to just follow up on that very last.

State. Um with regards to bond repurchases that you know you were just commenting and and Fabio you mentioned as well. How sort of under levered you are versus the target. So could you walk us through through why you guys have been utilizing open market Bond repurchases? Just given that they're really isn't any

immediate need to to produce.

Your debt balance.

I think. Yeah, hyper, it's Matt. I, I think really it's just been more opportunistic. Um, we disclosed in the 10 q that um, you know, the board and we discussed this towards the end of the first quarter. You know, they just gave us more of an authorization to um continue to re you know, repurchase as we deem, you know, you know appropriate. Uh I think at the time we just found that there has been some availability, you know, some you know the market was good and we we would buy when we felt it was the right price uh and just take a more opportunistically than anything else. Um, not a huge number of dollars, you know? And I, you know, we've got authorization to do more. But with the dividend here, a little bit more of a pivot on that 1. I think, you know, going forward uh, then what we did here in Q2.

Hey, that's helpful. And then just on the interest expense guidance, um, is it fair to assume that the increase relative to what you talked about before? Um, is being driven by the lower cash balance? Or is there anything else going on? Absolutely correct. It's the lower cash balance. Um, you know, just, you know, we are, you know, we'll say, our gross interest expense is actually coming down a little bit because of the, the BuyBacks of the debt that we were just talking about, but the cash balance will be lower and that interest, you know, the assumed interest income will be lower just with that, uh, with the dividend to be paid here in the beginning of September.

Okay and then just 1 final question on on the Mexico capex piece um you talked about the 650 million in aggregate. Can you just remind us sort of how to think about the Cadence of that year by year. Um sort of when are we going to hit the the 650 in total and what we should be thinking about for that piece for this year and next year

Um when we're thinking about this, the 650, you know, kind of in general because it's you know it's mechs that number really included Mexico, Walker County uh the new prepared plan and also our conversion of Russellville that uh we've been talking about, you know, where where we're at for 2025 is somewhere, you know, in that 200 225 range, you know, 2026.

In the 350 and then the kind of residual in 2027. But you know, do do you understand that Mexico and Russellville will be completed here. You know the dates, we were talking about Russellville will will really be finished here in the first quarter of 26 and most of Mexico will be done uh in the first half of 26. It's the The Walker County which you know, we talked about opening the plant in the first half of 27. Some of that Capital will drag of course in

Okay, that's very helpful. Thank you.

Thank you.

This concludes the question and answer session. I would like to turn the conference over to Fabio Sanji for any closing comments.

Yeah, thank you everyone for attending today. In the call for the second quarter of 2025, we achieved strong operational and financial results.

As such, I would like to thank our team members for their continued discipline and ownership of our values strategies and methods.

Given the solid foundation we can continue to make investments to grow our company, strengthening our competitive advantages enhancing margins and reducing volatility of results.

These efforts must continue with a Relentless, focus on team member safety and well-being.

As a result, we can achieve our vision to be the best and most respected company in our industry creating a better future for our team members. I look forward to accelerating our efforts during the second half of 2025 and Beyond. Thank you, everyone.

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