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Operator: Good morning, and welcome to the First Quarter of 2026 Pilgrim’s Pride Earnings Conference Call and Webcast. [Operator Instructions] At the company’s request, this call is being recorded. Please note that the slides referenced during today’s call are available for download from the Investors section of the company’s website at www.pilgrims.com. After today’s presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Andrew Rojeski, Head of Strategy, Investor Relations and Sustainability for Pilgrim’s Pride.

Andrew Rojeski: Good morning, and thank you for joining us today as we review our operating and financial results for the first quarter ended on March 29, 2026. 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 this release is available on our website at ir.pilgrims.com, along with slides for reference. These items have also been filed as Form 8-K and are available online at sec.gov. Fabio Sandri, President 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 have been provided in yesterday’s press release along our Form 10-K and our regular filings with the SEC. I would now like to turn the call over to Fabio Sandri.

Fabio Sandri: Thank you, Andy. Good morning, everyone, and thank you for joining us today. For the first quarter of 2026, we reported net revenues of $4.5 billion with adjusted EBITDA of $308 million. Our adjusted EBITDA margin was 6.8% compared to 12% last year. During the quarter, we were able to navigate a volatile market in the commodity segments, protecting the downside with the most stable parts of our portfolio. We also drove extensive progress in our growth investments, strengthening our portfolio of differentiated products that could provide higher and more stable margins while supporting the growth of our key customers. In the U.S., demand for key customers for retail tray pack remains strong in fresh. Prepared Foods grew from expansions across retail and foodservice.

However, sales and profitability fell as jumbo commodity cutout and deli small bird values were significantly lower than last year. Margins were also impacted by planned downtime from plant upgrades to improve the mix and interruptions from winter storms during February. Europe’s diversified portfolio maintained steady sales and margins compared to last year amid changing consumer confidence towards more value offerings, especially poultry and fresh and frozen meals. Back-office integration and network optimization continues to improve productivity and support further growth. Mexico fresh sales remained steady and branded sales increased double digits compared to last year. Prepared Foods continued to grow in retail and QSR. However, margins were compressed as excess production in the live commodity market and increased imports persisted throughout the quarter.

Our projects to diversify our footprint in fresh to different regions of the country and increase our presence in prepared foods remain on track. Once fully operational, these projects will unlock additional sales growth and further diversify our profitability, enhancing our margins and reducing volatility. Turning to the supply in U.S. USDA reported ready-to-cook production increase of 3.4% year-over-year from increased headcounts, continued improvement in live performance and higher average life weights. Egg sets grew 1.1% compared to the same period last year, extending recent gains from a more productive layer flock. Similarly, chick placements increased 1.7% versus last year, reflecting modest improvements in hatchability during the period.

Going forward, given the size of the layer flock and the growth in pullet placements, combined with the elevated hatchery utilization, the USDA expects chicken production to increase 2% for 2026, primarily driven by growth during the first half of the year. As for the other proteins, the USDA anticipates minor increase in beef supplies as higher imports offset domestic production headwinds and limited growth in pork production. When these factors are combined with additional chicken supply, the USDA expects net protein availability to rise by 1.6% compared to last year. Within the U.S., consumer sentiment declined to a 3-month low at the end of the first quarter as inflation rose amid higher energy prices. Consumers saw more value-oriented offerings.

With this environment, chicken remained attractive given its relative affordability, resulting in increased volumes across channels. In retail, the fresh meat department posted dollar sales growth across proteins as volume grew in chicken, beef and pork. Results were uneven during the quarter as strong performance in January was followed by softer-than-expected demand in February and March as winter storms disrupted shopping patterns and pulled some purchases forward as customers stock up early. Chicken maintained a compelling value advantage on shelf compared to the other proteins. Boneless, skinless, breast pricing remained steady and spreads against ground beef continue to be at record levels. Boneless thighs continued their multiyear trend of strong volume growth, given sustained consumer interest.

Deli continues to grow at a steady pace, given its role as a convenient and affordable meal solution for consumers. Appetizers, particularly popcorn chicken formats, along with gains in whole birds drove moderate growth. Frozen prepared products continue to deliver positive volume growth, led by popcorn chicken, chunks and nuggets. In foodservice, chicken offerings expanded again as operators lean into value proposition and responded to elevated beef pricing. As such, adoption extended beyond traditional chicken-focused chains, particularly among QSRs. While menu penetration increased, volume growth was constrained by inventory levels and uneven traffic patterns. Going forward, chicken continues to be well positioned as consumers increasingly prioritize strong perceived value.

Chicken-focused QSRs delivered volume growth in the first quarter and outperformed full-service restaurants as inflation-constrained consumers continue to favor value-oriented quick service formats. Noncommercial channels also posted growth, supported in part by favorable pricing conditions. As a result, chicken volumes in foodservice remained stable to slightly higher overall, even as broader sector performance and traffic trend stays mixed. In exports, we continue to monitor global trade movements. In the Middle East, all vessels operating to the Gulf Coast countries were suspended at the end of February, given the military conflict. While the GCC is an important market for U.S. broilers export, strong domestic demand for dark meat, along with robust exports to Mexico mitigated this disruption.

To date, we have not seen any material changes to dark meat values as pricing remained above 5-year average for the back half of the bird. Moving forward, we expect several international markets to reopen as the occurrences of commercial high path avian influenza has recently slowed and previously restricted control zones are no longer subject to limitations given the absence of new cases. Nonetheless, we remain vigilant on biosecurity, and we continue to leverage our geographical footprint and cooperate with various governments to ensure international customer needs are continuously met. Turning to the feed inputs. Pricing support for corn emerged from higher energy and fertilizer markets. However, generally favorable crop development in South America, along with larger-than-expected prospective corn plantings in the U.S. reduces risks of significant price increases.

As a result, corn stay consistent with the 2025 level pricing. Stocks remain above 2.0 billion bushels, and the market focus is quickly shifting to planting and growing conditions in the U.S. for the upcoming season. In soy, both beans and meal appreciated during the first quarter, given the expectations that China will make additional purchases from the U.S. for the 2025 and 2026 crop year. Better-than-expected exports demand, along with increasing domestic interest for U.S. soybeans also provided further support. However, above-average yields from South America kept global soybean markets well supplied, limiting market upside. Like corn, the market focus for soy will be growing conditions in the U.S. The USDA currently forecasts soybean ending stocks to reach 350 million bushels, up 7% prior year.

When combined with the expansion of the U.S. soy processing capacity and growth in global soybean stocks, meal prices are expected to remain manageable. As for wheat, global stock remained well supplied, increasing 24 million metric tons versus last year. Nonetheless, futures appreciated from relatively low levels throughout the first quarter, given geopolitical risks. Moving forward, favorable growing conditions in the Eastern Hemisphere for winter wheat, along with an increase in planted acres and a historic yield in the U.K. should unlock additional value. In the U.S., demand for chicken continued to grow across retail and foodservice. Equally important, we made significant headway in projects to reduce volatility, enhance margins and drive sales of our portfolio.

Our progress has also improved our ability to meet increased key customer demand, especially during the upcoming months. In Big Bird, we implemented a variety of plant layout changes, equipment improvement and operation procedures across many locations to increase dark meat deboning and portioning capabilities to support key customers and our Prepared Foods operation that were previously done by external companies. Because of these investments, each site incurred planned downtime, along with additional expenses from project mobilization and production ramp-up. During this time, we also continue to invest in our team members through training and education on revised plant operations. In case-ready, both sales and volume grew as tray pack retail offerings to key customers grew above category.

In early April, we also completed our conversion at the Russellville facility from Big Bird to retail to support the growth of one of our key customers. Our investments in Russellville and throughout the Big Bird network will create a more resilient portfolio, given our expanded capability to meet the growth needs of prepared foods, strengthening leadership presence in higher attribute offerings and portions and enhanced production efficiencies. In Small Bird, overall demand remained strong as volume increased compared to prior year. However, consumers are increasingly transitioned from bone-in to boneless offerings. When this factor is considered with the existing supply, the value for deli WOGs continue to be below the 5-year average impacting our sales.

Moving forward, we’ll continue to evaluate our production mix and ensure if sufficient flexibility exists to meet market demand. In addition, we will explore alternatives to reinvigorate the category through promotional investments and innovation, especially with our key customers. The recent inclusion in the Farm Bill that hot rotisserie will be included in the SNAP eligibility also provides a significant opportunity for the category. During the quarter, many sites were impacted by weather-related events, resulting in unplanned downtime and reducing service levels. When these factors are combined with weakened commodity market fundamentals, impact of our growth projects and small bird deli values, the U.S. fresh sales and profitability was reduced compared to last year.

In Prepared Foods, our growth accelerated as we drove the highest retail volume in any quarter. Just BARE continues to lead growth in the frozen fully cooked category as retail sales rose nearly 40% compared to last year from increased distribution and improved velocity. In foodservice, our business continued to expand through growth in branded offerings along with increased distribution in schools and national accounts. Our efforts to support further growth through the construction of our new facility in the Walker County, Georgia remains on schedule. In the interim, we continue to rely on our network of co-packers to support the strong demand for our products. In Europe, our diversified portfolio drove steady volumes and margins compared to last year.

Given persistent inflation, consumers increasingly migrated toward value and convenience. As such, our poultry and meal offerings resonated through groceries and each category grew faster than the overall channel. While fresh pork experienced similar growth, bacon and sausage categories declined. In our branded portfolio, Rollover benefited from marketing investments and grew faster than the category average, whereas Fridge Raiders maintained its presence in snacking. Margins for the Richmond remained strong. However, volumes were challenged as promotional activity intensified and consumers changed to more private label offerings. To foster growth in the category, we’ll continue to drive our investments in marketing and innovation, given Richmond’s growth potential and market positioning.

In foodservice, challenges exist as consumers increasingly opted away from dining out and reduced visits to QSRs. Nonetheless, our poultry business remained strong as affordability and limited time offerings resonated throughout the marketplace. Even with the poultry’s performance, overall volumes declined as demand for beef fell in Europe, limiting our growth. Moving forward, we will continue to drive distribution through new offerings and promotional support. Our operational excellence efforts made progress as we exceeded our budgeted improvement targets. We’ll continue to focus on improvements in productivity, yields and overall costs. In Mexico, we continue to drive our strategies for profitable growth and reduced volatility. To that end, our fresh branded offerings continue to gain traction as sales increased double digits compared to last year.

Just BARE led this growth as volume rose over 80%. In Prepared, sales rose nearly 9% compared to last year, further diversifying our portfolio. Like Fresh, our value-added branded offerings grew as sales from Pilgrim’s rose 14%. While we’ve made progress in transforming our portfolio, elevated supply levels in the live commodity market and import pressures persisted throughout the quarter, reducing margins and overall profitability compared to last year. Our expansion efforts remain on track with expansions to different regions in South and Peninsula part of the country and our prepared expansion in Porvenir. Based on these investments, we can improve our ability to grow with key customers, reduce operational risk and further diversify our portfolio.

Turning to sustainability. We continue to drive accountability and ownership down the organization to each of our plants. Based on this approach, with investments and operational improvements, we have surpassed our 2025 reduction targets against Scope 1 and 2 emissions intensity set at our sustainability-linked bonds. This achievement reflects our team’s mindset and ability to leverage sustainability as a means to create a more efficient operation. With that, I would like to ask our CFO, Matt Galvanoni, to discuss our financial results.

Matthew Galvanoni: Thank you, Fabio. Good morning, everyone. For the first quarter of 2026, net revenues were $4.53 billion versus $4.46 billion a year ago, with adjusted EBITDA of $308.1 million and a margin of 6.8% compared to $533.2 million and a 12.0% margin in Q1 last year. Adjusted EBITDA margins in Q1 were 7.0% in the U.S. compared to 14.3% a year ago. For our Europe business, adjusted EBITDA margins came in at 7.8% for Q1 compared to 8.1% last year. In Mexico, adjusted EBITDA margins in the quarter were 3.1% versus 8.4% a year ago. U.S. net revenues were $2.64 billion versus $2.74 billion a year ago, a 3.9% decrease. U.S. adjusted EBITDA came in at $185.5 million compared to $392.5 million in Q1 2025. U.S. margins declined due to significant reduction in the jumbo cutout value, lower sales prices in deli for small birds, impacts of the winter storms that hit the Southeast during the quarter, bird health issues and plant downtime from the implementation of our many growth projects.

Our U.S. Prepared Foods business continues to demonstrate robust growth with retail sales of — Just BARE increasing nearly 40% in the quarter compared to last year. In Europe, coming off strong seasonal results in Q4, adjusted EBITDA in Q1 was $105.8 million versus $99.5 million in Q1 2025, a 6.3% increase. The business has benefited from strength in poultry and meals during the quarter, along with the benefits of its structural reorganization, including integration of support functions and manufacturing optimization programs. Mexico generated $16.8 million in adjusted EBITDA in Q1 compared to $41.2 million last year and $8.5 million in Q4 2025. Sequentially from Q4, the Mexican business profitability improved with marginally better supply-demand fundamentals by the end of the first quarter.

SG&A in the quarter was higher year-over-year, primarily due to an increase in legal settlements, associated legal defense costs, true-ups for year-end 2025 incentive compensation and unfavorable FX impacts for both Mexico and Europe. Our effective tax rate for the quarter was 23%. As I noted in our February call, we anticipate our full year effective tax rate to approximate 25%. We have a strong balance sheet, and we’ll continue to emphasize cash flows from operating activities, management of working capital and disciplined investment in high-return projects. Our liquidity position remains very strong as we had nearly $1.75 billion in total cash and available credit as of the end of the quarter. Our liquidity position provides flexibility as we pursue our growth ambitions.

As of the end of Q1, our net debt totaled $2.55 billion with a leverage ratio of 1.25x our last 12 months’ adjusted EBITDA, below our target of 2 to 3x adjusted EBITDA. Net interest expense for the quarter totaled $31 million. Following the completion of our $250 million tender offer of the 2033 notes here in April, we anticipate our full year net interest expense to be between $105 million and $115 million. We spent $235 million in CapEx during the quarter, a substantial increase from Q1 2025 when we spent $98 million. The spending this quarter is primarily associated with the conversion of Russellville to support a retail key customer, progress on our new prepared foods plant in Georgia and the previously mentioned enhancements to a number of our Big Bird plants to improve our product mix and to support the growth of Prepared Foods.

At this time, we maintain our full year CapEx estimate of approximately $900 million to $950 million. As we face macroeconomic volatility, we are proactively managing cost headwinds in freight, packaging and other key input costs with productivity initiatives and through procurement actions. Through our key customer relationships, we have regular interactions to discuss structural cost changes in our business. We always focus on what we can control, which is operational excellence with cost discipline. Our team is resilient, and we have consistently demonstrated that we can navigate changing market conditions. Our capital allocation approach will remain disciplined as we continue to align our investment priorities with our overall strategies to drive growth, enhance margins and reduce volatility.

Operator, this concludes our prepared remarks. Please open the call for questions.

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Operator: [Operator Instructions] The first question comes from Ben Theurer with Barclays.

Benjamin Theurer: Two relatively quick ones. So first, you’ve talked about it in the opening remarks as well as in the press release about some of the initiatives you’ve been doing in the first quarter, which caused downtime. But then at the same time, there were issues around weather, the cold front and all that kind of stuff. Could you help us understand maybe a little bit more as to what the financial impact was in the first quarter within your U.S. business on one side, like kind of like the onetime weather related and then on the other side, like these like transition costs that you were having. So just that we understand what the impact was between those on the results? And then I have a quick follow-up.

Fabio Sandri: Yes, sure, Ben. I think we have significant impacts. I think, like I said, it is to improve our portfolio. So the impact is normally we overstaff the plants at the beginning because we need more people for the deboning operations and for the portioning operations. So we carry a heavier staff during at least 3 weeks before the shutdown. So we are prepared for the beginning of the operation. So there is a cost impact in terms of labor. Also, there is a ramp-up cost because after we start, we need to train all the people and we need to get to the efficiency that we expected. That takes up to 2 to 3 weeks. And of course, there is the 1 to 2 weeks where the plants were shut down. So that was significant in those plants that we shut down for improving the portfolio.

On the cold front, I think it is multifaceted. We have the direct impact, which is the plants don’t operate on the days that we have those ice storms because in the south, they are not prepared for ice and storms. So to keep the people safe, we decided not to operate during 1, 2 or 3 days depending on the locality. And that impacts our cost, but also impacts on the live operations because we have the birds on the field and those birds will need to be processed. And when we have 2 or 3 days without operating, you change the sizes of the birds that you expect. And those birds end up being processed on a Saturday or over time, and that impacts overall costs. It’s interesting to mention that — and we have on the prepared remarks on the very strong January that we have.

And when you look at every week, I think there was also an overstocking or a pantry loading on those regions on retail to prepare for the storm. And that’s why we have a weaker-than-expected February as people start consuming what they have loaded in their freezers during January. If you look at week-over-week, actually on week 4 of January, you have an increase of 25% of sales in retail. So that created out of stock for the retail, but also pantry loading for the consumers. So that’s what created less than expected growth during February on the retail sales. So I think it is a multi vision of impact in terms of our operations because of the changes that we have on our portfolio and in the operations also because of the storm.

Benjamin Theurer: Okay. Got it. But you can’t really quantify that, correct, just to confirm.

Fabio Sandri: Yes. I think we can quantify the operation on the shutdowns, but then the impact on the market, which is actually the most impactful one or the impact on the live operations when we have birds that are not the exact size that we want, you need to downgrade them for a commodity sales rather than a specific sales for a key customer, which a much better pricing. It is the biggest impact. So that’s why it is hard to quantify the overall impact.

Benjamin Theurer: Okay. And then just as we moved into March and maybe into April, things from a normalization point of view, clearly, we still have the very high production data. So what’s that kind of like your outlook as you think into what you saw in the first couple of weeks of the second quarter and how to think about the second quarter in general, given just we’re still running at a relatively high exits and placements data?

Fabio Sandri: Yes. I think that’s a great question. When we look at Q1, we were expecting a 2% increase on the quarter. But looking at the latest numbers from USDA, we are experiencing a 3.4% growth during the quarter. Most of this growth was in March. And as you mentioned, we started with exits that were limited at 1.1%. But after the storms and especially during the end of February, beginning of March, we saw some great growing conditions. And that increased livability that accounted for another 1% in terms of growth, another live weights that accounted for another 0.7%. And we saw an improvement — a rapid improvement in hatchability also during February that accounted for another 0.6%. More impactful than that is that almost all that growth came in March.

So when you look at the growth in March, it was close to 5% to 6%. And when you account for where that growth was impacted heavily the commodity segment. So that’s why we saw some significant improvement in the prices during January and then a mild February and some challenges in March and early April. As we mentioned, given the egg sets that we are seeing and given the trend more to a normal levels of hatchability coming back during the summer and also livability as the weather gets warmer, we have lower livability and lower growth in the birds. We expected a more muted growth from those factors and more growth concentrated only on exits that we are running around 1.9%. So when you factor all those, USDA is expecting growth in the range of 2.5% for Q2.

Then going forward to Q3 and Q4, we are seeing more moderate growth. USDA is forecasting a total growth for the year of 2%, and we are seeing on the second semester growth below 1% on a year-over-year basis.

Operator: The next question comes from Peter Galbo with Bank of America.

Peter Galbo: Sorry to beat the dead horse on this. But Fabio, please, can we get a quantification on what the downtime at a minimum was worth? I think it’s just important to have that given you don’t want folks probably to capitalize that going forward. So just kind of what that discrete item was worth in the quarter and then whether there’s any kind of lingering impact into 2Q?

Fabio Sandri: Yes. On the lingering effect, I think we don’t have any significant lingering effect. The network changes during — at the beginning of the year because we knew that we want to do those changes before the grilling season. We don’t want to impact the market or our operations during the grilling season. The only ramping up operation is still on the Russellville front where we’re still ramping up, but we don’t expect a significant impact. Like I said, I think it is is multifaceted. There is a lot of impact on our operations in terms of yields, in terms of growth, in terms of downgrading birds that end up in the commodity segment rather than a more specific production. That’s why it’s so hard, but I will say that it’s significant.

Peter Galbo: Okay. Okay. And then maybe just to switch gears a little bit. You talked a little bit in your remarks about some of the SNAP changes that may be coming on rotisserie in particular. I would think that’s — given your expertise in that space, just that could be a nice tailwind. So maybe you can expand. I know it’s really early days. There’s nothing even formalized yet, but just kind of how you view that opportunity, particularly going forward in the U.S.

Fabio Sandri: Thank you, Peter. Yes, that’s significant for our Small Bird operation. As I mentioned, that has been a long-term trend of moving away from bone-in category to a more boneless category on the small birds. We’ve been talking about this for years on the chicken wars and as the bone-in category has been declining. And I think our strategy has always been to balance the bone-in on the 8-piece and 9-piece with the growth in the deli section of the retail, especially on the rotisserie. I think that has been a great strategy for us. But lately, we’ve been seeing a slower growth on the rotisserie on the retail. If you look at — in Q1, it was only 1.2% growth, and we expected a much higher growth on the rotisserie birds than that.

And I think the SNAP can help a lot. I think it is an important tool for the consumers to be able to combat inflation, being able to get a hot rotisserie, which is a competition for the foodservice, but it is a much better value for them. So I think that could give a boost on — especially on the — it’s a bone-in category, right? Because it’s a whole bird for the whole category.

Operator: The next question comes from Andrew Strelzik with BMO Capital Markets.

Unknown Analyst: This is Ben on for Andrew. So my first question is about the vaccination of the birds. And I was just wondering what kind of impact, if any, you’ve seen on your own supply chain productivity now that you started vaccinating.

Fabio Sandri: Yes. I think I’ll just take a step back. There are many types of vaccination, right? I think there has been a lot of discussion about vaccination against high path avian influenza. And that is something that we don’t believe it is beneficial for the whole industry as it is isolated events, we have strong biosecurity and that could hamper or could reduce our ability to export our products as vaccination prevent us from access some important markets for the United States. So vaccination for high path AI, we don’t think it is a good alternative. And we don’t think that is meaningful for the broilers market. Now on respiratory diseases, AMPV and some others, we vaccinated the birds last year after some big events, especially in Georgia.

And I think that has helped the livability in the industry. If you look at the overall livability, as I mentioned, it contributed for 1% of the growth quarter-over-quarter. So I think the vaccination against AMPV was important in some specific regions. And I think that helped on our livability and the industry livability, especially in some parts of Georgia. It is a significant cost to the live operations. And as we are seeing less occurrences and a more resilient bird, we may stop those vaccinations going forward.

Unknown Analyst: That’s super helpful. And my follow-up question is around freight and your exposure to — or potential exposure to spot market rates for refrigerated freight. We’ve seen others in the industry deal with some pressure there. So just wanted you to remind us what your exposure is there? Are you more contracted out — and are you not concerned with the availability of refrigerated freight in the near term here?

Fabio Sandri: Yes. In terms of supply of freight, I think we’re not concerned. I think we have a big fleet in the United States. We have a very efficient company. So I don’t think that there is an availability issue. As for the cost, and I think there is an impact on the freight and there is surcharges, and we have contracts where we have the surcharge based on gasoline or diesel costs. And that is a significant cost to the whole nation. I think just in terms of the portfolio of freight that we have, more than 70% of our sales are with freight included as a specific number. So that is a direct pass-through because freight is not part of our cost. It is just a delivery cost that the buyer will pay. And some of those also are picking up at our operations.

So the whole freight, it is a cost — or from the buyer. So in terms of direct freight to the customers, it’s either a specific line on the invoice that is a pass-through or is a pickup order that is not our cost. I think there is some impact on internal freight when we see the delivery of the birds and we see the delivery of feed to our growers. So there is that direct cost that impact us. But I think as we mentioned, we control what we can control. We’re trying to identify opportunities to reduce the travel, reduce the freight, get more efficient trucks. So we were trying to reduce the impact of those in our direct cost.

Matthew Galvanoni: I think, Ben, it’s important just as Fabio talked about the freight costs that go direct to our customers, that freight cost is just from an overall freight spend is a much higher proportion than freight internally to move birds or to move feed between farms, et cetera. So…

Operator: The next question comes from Pooran Sharma with Stephens.

Unknown Analyst: This is Adam on for Pooran. For my first question, with the Russellville conversion complete now, are you able to give any more details on the expected ramp in volumes and margins with that new case-ready capacity?

Fabio Sandri: Yes. I think on the retail, we’ve seen over time is the more stable margin. And I would say it is double-digit margins, and it’s much more resilient and stable than the Big Bird. And when you look at the overall portfolio, right, and this is what we’re always talking about, we like the exposure we have to the big bird complex. But we understand that it’s very volatile. So in Q1 last year, we see some very strong profitability in that segment. Actually, it was the most profitable part of our portfolio. In this quarter, we see that profitability was much lower than that. And that’s why we converted the plant is to have higher and more resilient earnings. It’s also important to support the growth of our key customers.

We talk about the growth in retail. And as retail increased on the fresh more than 1% this quarter, our key customers increased more than 3%. And I think that’s important to mention that we will need to continue to support their growth. So we will need more capacity on the tray pack business. So it’s a growth opportunity for us to support our key customers, but it’s also an opportunity for us to have more stable, higher margins.

Unknown Analyst: Okay. And then for my follow-up, with Just BARE retail sales up 40%, you noted it was on distribution and velocity. Are you able to give any more details on how much of that growth is coming from distribution velocity or pricing or innovation and how you expect those drivers to perform in the back half?

Fabio Sandri: No, I think it’s a great point, right? Just BARE is a great part of our portfolio is on the prepared side, as we talk about more profitable and more stable. We just reached the $1 billion threshold. And I think that’s over the last 5 years, which is an amazing growth. And as we mentioned, there is velocity and there is distribution. We continue to gain distribution. I think the velocity is more a sales tool for Just BARE because if the retailers have Just BARE in their portfolio and their freezers, they see the velocity of the category going up because that the velocity of Just BARE is much ahead of the overall velocity of the category. So it is a sales tool that helps us gain distribution. It is our strategy, right?

How can we help our key customers to grow faster than the overall categories. We do that on Fresh, and we do that also on the Prepared. And you also mentioned very important is innovation. We just launched the roasted category on the Just BARE. The Just BARE started as a lightly breaded product as you can — as you all know. And we just launched the roasted part of that portfolio. That helps with having more shelf space. And we are looking into also on the nugget side, if the presence of Just BARE can be very, very complementary to our overall portfolio.

Operator: The next question comes from Leah Jordan with Goldman Sachs.

Leah Jordan: But see if you could provide more detail on what you’re seeing in terms of consumer behavior across your different regions. We’re hearing about softness in Mexico and the U.K. and pressures could be building here in the U.S. So have you seen any notable shifts in products or channels that you would call out?

Fabio Sandri: Yes, sure. I think it’s a global trend, if you look, that consumers are looking and are over concerned about inflation, about the wage growth and overall consumer sentiment. And what they are looking is as food away from home keeps increasing faster than food at home, we’re seeing a shift from foodservice to retail. I think the good news for chicken on that trend is that the penetration on the foodservice despite lower traffic has increased, and that’s why chicken has been growing in the foodservice category. But then going to the retail, as we mentioned, the consumer is doing more trips and lower baskets. So that is the trend that we are seeing and we continue to see, and I think that is global. When you go more in the details by geography, demand in Mexico was strong during the quarter.

I don’t think that the pressure on prices in the region was because of demand. Chicken is the most affordable protein in the category. I mentioned about the spread between ground beef and chicken to the record levels. Ground beef increased more than 30% over the last year and chicken prices are stable. So the demand for chicken continues to be really strong even in Mexico. In Mexico, it was more about the availability of other proteins like eggs and pork at the same price as chicken and the availability of chicken. As we mentioned that the growing conditions in Mexico are typically very difficult during this time of the year because of drought conditions. We’ve been seeing more rains in Mexico, and that has helped with the growing conditions.

So the availability of chicken in Mexico was north of 10% in quarter-over-quarter. So that’s what impacted the profitability in Mexico. But as we mentioned in Mexico, it’s very volatile quarter-over-quarter, but it adjusts itself throughout the year, and we continue to expect in a growing economy, just like Mexico with good demand for our products for the supply and demand to be more in balance. Europe, it’s similar. I think the difference is that the volumes are not growing as fast. It’s not a growing economy just like Mexico, but the chicken continues to be the best category for us and for the industry compared to the beef and even pork prices because of affordability. And then it comes to the U.S., and I think the same trend remains, right?

The consumer looking for stretching their budgets, doing more trips with smaller baskets and chickens continue to be a great value for it. And I think we talked — just talked about Just BARE and I think the frozen category has been growing on the — as well because it’s affordable, but also convenient. And we have the perspective of the growth in the whole birds or the deli segment rotisserie in the retail if the SNAP vote goes.

Matthew Galvanoni: And Leah, it’s Matt. I’ll just complement something that Fabio talked about with the U.K. I think also chilled meals is doing quite well there. We’re seeing the consumer there going back to what Fabio was talking about with at-home eating and the chilled meals where we have a nice presence. We’ve seen that increase quite a bit, and it’s been a good play for us, too.

Operator: The next question comes from Thiago Duarte with BTG Pactual.

Thiago Duarte: My question is related to CapEx. And the first part of my question is really what’s the timing for the conclusion of the ongoing investments in the mix enhancements and capacity addition? And the reason I’m asking is because you’re still running well above last year and what I believe your sustaining CapEx should be. So the timing for the conclusion of these main investments would be interesting to get. And the second part of the question is related to how much incremental capacity or production volumes you effectively believe these investments will bring and how much it’s actually basically the conversion of your fresh mix into more prepared mix? That would be an interesting color to get as well.

Matthew Galvanoni: Thanks, Thiago, for the question. It’s Matt. When you think about timing on CapEx, we provided the guidance that this year will be about $900 million to $950 million in total CapEx. Our sustaining CapEx generally runs in that $400 million range. So you can do the math that the growth or the efficiencies kind of payback CapEx is $500 million to $550 million in a year. We spent $235 million in the quarter. We mentioned a lot of the different projects we have. We’ve got a lot of that behind us. We’ve got more to come just as you kind of finalize some things and get builds to come in, et cetera, et cetera. So we’ll still see some of that roll through. But that $235 million, I think it really does sort of set up nicely for the pace that we talked about for the year.

Now of course, we’ve got the big spend we have relative to our prepared foods plant that we’re building in Georgia. That’s not planned to go online until the end of the first half of next year. So we will still be spending quite a bit there. As it relates to kind of our — the mix of our capital and the growth, I think what’s been important we talked about, we want to support Prepared Foods, both by building the plant that we talked about in Georgia, but also a lot of the enhancements that we’re doing to our Big Bird plants right now are to support that growth by doing portioning and things that external companies had done for us in the past. And so some of that meat that we would be selling in the past on the market will be sold more so to our Prepared Foods business internally as we think about it that way.

So I don’t know, Fab, if you want to complement anything on that?

Fabio Sandri: No, I think on the incremental capacity, if you think about the conversion of Russellville actually reduces a little bit the overall tonnage because a big bird plant runs 9 to 10 pound bird and a case-ready plant it’s between 6.5 and 7. So I think that reduces a little bit. And that’s why we’re also investing in our Big Bird plants to be able to run a little bit more pounds. Our intention is always to support the growth of our key customers. And when you look at the expectations on the market, it’s around 2%, and that’s what we want to continue to grow to support them. So around 2% in line with the market.

Operator: The next question comes from Heather Jones with Heather Jones Research.

Heather Jones: I wanted to go back to what you were saying about the price spread for — between ground beef and breast meat in the U.S. And there’s been a lot of feature at food service and et cetera. But one of the things that I’m hearing and honestly seem to see it in the data is that the pickup in breast meat demand or chicken demand in general at retail hasn’t been as pronounced as would have been expected given that price gap. And one, wondering if you agree with that? And two, if so, why do you think that is?

Fabio Sandri: An increase from $4.70 a pound at retail to $6.29. And at the same time, chicken price boneless breast has remained stable at $4. So I think there is some elasticity that we see. But what I believe it’s happening is that as consumers are, like I said, stretched on their budget, they’re moving from foodservice to retail. And when they move from food service to retail, they have more available income because the price of a food away from home is 3x the price of food at home. So they go to the retail, and they are buying the more expensive parts of beef, right? So they are getting the nice cuts. And then you have consumers that are trading down inside beef from expensive cuts to ground beef, and that is supporting the volume of ground beef.

So it’s a moving from food service to retail that supports the high parts of the beef. And then you have some trading down on the beef category from the high end to the ground beef. And then we see some trading down from ground beef to chicken. But I agree with you, I don’t think that the elasticity has been as prevalent as we expected given the spread in prices. And I think there is a limit to it, right? I think that is — it reached a point where it’s so high, the distance that I don’t think is creating any more demand for chicken. But the demand for chicken continues to grow, again, in all categories in retail, not only boneless breast. And I think another factor is what we — the growth that we are seeing on dark meat deboning. And I think this is important to mention as well.

We are doing that investment in our operations. I think the whole industry did that investment. The growth in the dark meat or in the boneless ties has been phenomenal at retail. And if you look at the prices at retail, the price of dark meat is actually higher than the price of boneless. But overall, it is a growing category. So you need to take both of those cuts in combination. And when you look at those cuts in combination, I think you see a much better elasticity and a much better demand on the chicken category.

Heather Jones: Okay. That makes sense. And then my follow-up is, if I remember correctly, you were converting — you converted Russellville to case-ready and to NAE. And so oftentimes, when companies convert to NAE, there’s an adjustment period. And so wondering if that — if you anticipate any impact like livability, whatever to continue into Q2? Or is all of that now back at normal levels?

Fabio Sandri: That’s a great point. We converted to NAE because we want to differentiate our key customers, right? I think just to justify the NAE change. It is a growing category. It is to make the differentiating factor for that key customer is a different package as well. So it’s a saddle pack. So I think that’s a differentiating factor as well, very convenient for the end user. At the beginning, we see some reduction in livability and in growth, but we have great housing. We have great procedures, and we expect to be similar growth conditions and similar mortality. There is always a little impact, but I don’t think it is significant. And I think it makes sense when you look at the higher attribute and it helps our key customer to be differentiated in the marketplace.

Operator: The next question comes from the line of Priya Ohri-Gupta with Barclays.

Priya Ohri-Gupta: Two quick ones for me. One, I was wondering if you could just give us some more color around some of the competitive dynamics you’re seeing in the European market? And then secondly, Matt, if you could just walk us through some of the thought process around the — taking out the 33s and how we should think about maybe your debt profile going forward, just given how underlevered you are?

Fabio Sandri: Yes. Thank you. Again, on Europe, because of our differentiated portfolio, we are seeing different dynamics in each category. As I mentioned, chicken continues to be favored throughout the world, but also in Europe because of affordability and availability. So we saw some growth in volumes and in prices. The more challenging segment has been on the branded portfolio, especially on the Richmond side, the competition from private label. Private label sausage is made with imported meat, especially from Germany and Spain, and we’re seeing some very cheap imported pork meat from those geographies because of some challenges to get into China. So because of the lack of exports from Europe to China, we’re seeing more available fresh pork from other countries other than U.K. U.K. has a high welfare.

So on the retail, we see all the high welfare and it’s well priced, and we have key customers and is actually doing well. But on the imported meat that goes into the whole — on the food service and into sausages, we saw some very cheap pricing. And that with the lower price on the private label, that impacted our volumes in the branded, especially on the Richmond. But we are working with innovation. We’re working with gaining distribution, and we’re working with more promotional activity to gain those volumes back. And as Matt mentioned in another Q&A, the meals business is also doing really well. As the consumer is staying more at home and meals is a great affordable option for them. We’re seeing our meal business, both the fresh and frozen to grow, and we also gained distribution on that.

So I think it is how we expected our portfolio to work. So we have similar margins or resilient margins compared to the same year — same period last year because of the diversification of our portfolio.

Matthew Galvanoni: And Priya, regarding your question on the tender offer, our thinking was we had room under the previous authorization from the Board on debt buybacks. There’s an opportunity to take some higher coupon debt out. We’re confident in our future cash generation. And I think as you mentioned, our balance sheet right now is underlevered. And I think as we look at other growth opportunities, we’re always looking to grow the company, could be through M&A and opportunities that we see out there. Our balance sheet is in the right spot to be able to do that if necessary to go back out to the market if necessary.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Fabio Sandri for any closing remarks.

Fabio Sandri: Thank you, everyone, for attending today’s call. During the quarter, we were able to navigate a volatile market in the commodity segments, protecting the downside with the most stable parts of our portfolio. More important, the underlying fundamentals of our business remain attractive, given chicken’s affordability, continued consumer momentum across retail and foodservice and ample grain supplies. We continue in our journey, investing in our operations and in our teams to strengthen our portfolio, ultimately creating a higher return and reducing risk. This quarter, our team members simultaneously drove the business while navigating significant operational changes. This task was even more difficult given extensive weather challenges.

As such, I would like to thank our team members for their determination, discipline and commitment to our company. We must continue those efforts with an unwavering focus on team member safety and well-being, along with an unyielding attention to quality, service and sustainability. Given continued progress, we can continue to build our legacy and achieve our vision to be the best and most respected company in our industry, creating the opportunity of a better future for our team members. Thank you, everyone.

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

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