Pilgrim's Pride Corporation (PPC) Q3 2014 Earnings Report, Transcript and Summary

Good morning, and welcome to the Third Quarter 2014 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 Investor Relations section of the company's website at www.pilgrims.com. [Operator Instructions] I would now like to turn the conference over to Rosemary Raysor, Investor Relations for Pilgrim's Pride.

Good morning. Thank you for joining us today as we review our operating and financial results for the quarter ended September 28, 2014. 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 in the Investor Relations section of our website, along with the slides we will reference during this call. These items have also been filed as 8-Ks and are available online at www.sec.gov. Presenting to you today are Bill Lovette, President and Chief Executive Officer; and Fabio Sandri, our Chief Financial Officer. 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 the actual results to differ materially from those projected in these forward-looking statements. Further information concerning these factors has been provided in today's press release, our 10-K and many of our regular filings with the SEC. I'd like now to turn the call over to Bill Lovette.

Good morning, everyone, and thank you for joining us today. We generated $2.3 billion of net revenue during the third quarter of 2014, resulting in the EBITDA of $435 million or 19.2% margins. Our net income of $256 million compared favorably to the same quarter of 2013 for the 59% year-over-year increase. Earnings per share reached $0.99 compared to $0.62 in the same quarter of last year. We continue to recognize the benefits of our disciplined execution of our strategy. We remain focused on maintaining our status as a valued partner with key customers, prioritizing their product needs during periods of tight supplies. Our business model is designed to ensure reliable supply of the quality products our customers expect, while creating an environment rewarding that consistency. Our portfolio model yields a diversified sales mix, ensuring we can adapt quickly to changes in market supply and mitigate market volatility, while high-spot prices to parts such as boneless skinless breast and wings benefit our large bird debone business. Some of our other businesses such as Prepared Foods benefit when those prices decline. We have given much critical thought in constructing our broad segment and product portfolio to yield a more consistent earnings stream as chicken supply and demand ebb and flow over long periods of time. We have positioned ourselves to take advantage of high commodity prices and benefit in periods when those markets are not as high. Our total mix during Q3 appreciated only about half as much as what the spot market did, meaning we should expect similar impact on the markets' downside. We believe we are uniquely positioned in the industry to achieve this degree of portfolio effect. In addition to significantly reducing cost in our supply chain, we continue to invest in our facilities, ensuring we have high-quality assets required to meet our customers' growing needs. Some examples include having installed leg and thigh debone lines in nearly half of our plants to capture demand as demographic shifts in consumer preference drive consumption of boneless leg and thigh meat. Going forward, we continue to invest capital in our Prepared Foods plants in order to increase throughput, capacity, quality and yields to meet growing demand for fully-cooked chicken products. We also have a plan to invest in 4 new feed mills over the next few years to take advantage of new technology and freight settings. Our new enterprise Alabama feed mill is the first of this new generation and will begin operation in early January 2015. I want to return to our Prepared Foods business for a moment. Over the past 2 years, we've rightsized this segment by pruning our mix with the result being a more efficient, profitable and sustainable business. This year, we've established benchmarks for creating a culture of brand-building and growth for our Prepared Foods unit. Our vision is to be our key customers' first choice for value-added chicken and, as such, identify unmet consumer needs to sustain profitable growth. We're confident that we now have a strong foundation in our Prepared Foods business and look forward to realizing a greater financial contribution. By creating more value for our key customers, combined with our relentless pursuit of operational excellence, we are now among the most profitable companies in our industry. But even better, our team has identified significant gaps between our current performance and our zero-based budget targets, which create sustainable improvements year-on-year. Our job as a management team is to close those gaps while identifying new ones at the same time. The third pillar of our strategy is to grow value-added export sales. We are pleased with our progress here and see more opportunity for even greater contribution in improving our whole bird return. We continue to diversify and upgrade our export mix. Looking forward, we have plans to market more boneless leg meat, thighs, whole legs and other value-added products, specifically tailored for consumer preferences in key export markets. We have the capacity to meet growing demand and are looking forward to gaining approval from the Mexican government to close the pending Mexican transaction. This acquisition will benefit our Mexican consumer base with expanded product offering at more consistent price points. To address the Russian ban on U.S. chicken imports, simply stated, it has had little, if any, impact on industry sales volume and pricing and even less on Pilgrim's due to our geographic and product diversification. This demonstrates that the U.S. chicken industry is not dependent on Russian imports for chicken leg quarters with the primary evidence being that frozen leg quarter inventories have remained very low, in fact, down 23% versus a year ago through the implementation of this ban. This is in contrast to similar bans over the past 20 years, which had negatively impacted leg quarter pricing and inventories. That said, we remain confident that, over time, demand for U.S.-produced chicken from foreign countries will continue growing as it represents one of the best valued proteins on the planet. Our Mexican operations provided us with strong financial results during what is traditionally a less robust period for the region. July brought a price recovery with stability lasting through the end of September. We see indications that hatching and table eggs continue to flow from the U.S. into Mexico at the rate of 4 to 5 million dozen per month as the Mexican industry has grown dependent in part on the U.S. for its greater needs. Going forward, we anticipate that prices will moderate, but margins will retain support from lower feed costs. As far as the U.S. pricing environment, thus far, in the fourth quarter, we're seeing usual seasonal patterns with wings getting stronger given the inventory buildup necessary for wing season and breast meat adapting to lower demand during the holidays. We continue to see positive signs for the fourth quarter and spot prices are higher compared to the same quarter last year, seeing a good pricing environment for the start of 2015. Having just closed our October monthly results, we're pleased that our strong financial performance continues and we look forward to a strong 2015. Looking at the pending acquisition in Mexico, we are progressing through the required evaluations from regulatory agencies. We don't anticipate final resolution until late this year or early 2015. In the meantime, our energies are directed towards continuing to be a strong operator with profitable growth. We are aware of the strong interest in whether industry production will be increasing next year and want to touch on the fundamentals that underlie the breeder flock. First, while comments have been made about the increase in pullet placements over the last 2 months as well as chick placements increasing, it is important to consider the dynamics within. The breeder flock produces for big birds and small birds. And so while there is some indication that big birds may be increasing both on a head and weight basis, we're seeing signs that the small birds segment is tightening. It takes at least 6 months from a pullet placement to see broader production increase. We don't feel the moderate increase we're seeing in the flock size now will be burdensome overall. We are comfortable with this dynamic as we believe ready-to-cook chicken production may increase up to 3% in 2015 over 2014. The key to Pilgrim's success is having created a portfolio that takes these trends into account and mitigate spot price volatility. We positioned ourselves to take advantage of high commodity prices and benefit in periods when those markets are not as high. Our total mix appreciated only about half as much as the market did, meaning we should expect a similar impact on the markets' downside. We believe this is a meaningful point of difference for Pilgrim's. Looking into the discussion about crop production in the U.S., despite near-term volatility we've seen across all markets, we don't foresee a change in the fundamentals, such as yield and acreage. From our view, a record corn and soybean crop this year, creating global surpluses, we anticipate lower feed costs will be conducive to continued cost decrease in our overall production costs. This time, I'd like to -- our CFO, Fabio Sandri, to address our financial results.

Thank you, Bill, and good morning, everyone. We generated net sales of about $2.3 billion for the third quarter with EBITDA of $435 million or 19.2% of net sales. Our net income of $256 million resulted in earnings per share of $0.99, inclusive of a $134 million in tax expenses this quarter. Our gross profit was strong for both U.S. and Mexican operation units and show the strength of our sales portfolio and the contributions from our operations. Our SG&A expense have continued as 2% of net sales despite the increased incentive accruals for the level of performance our key members have delivered this year. The level of competitiveness of our SG&A focusing on adding value to our operations show our commitment to operational excellence, not only in the industrial standpoint but also from our sales and back-office teams. The strength of our balance sheet is due to the focus on cash flow from operation activities, management of working capital and disciplined investment in high-return projects. During the quarter, we generated $341 million in free cash flow after taxes and capital investments, leading us to a cash position of $869 million and a net cash position of $366 million after accounting for our 2018 notes. Our strong cash position leaves us room to continue to seek the right investments opportunity. It also provides us with the flexibility to increase our plans for capital projects in 2014. Similar to what we are doing in 2014, we will continue to focus on opportunities that increase our efficiency and provides a rapid return on our investment. Currently, we are ahead of our initial CapEx forecast of $150 million since we are investing in our existing operations with projects that improve our safety, quality and efficiency. We've dedicated extra funds to a wastewater facility upgrade, a rail car expansion and various refrigeration and freezer units. Each of these projects improves our ability to provide the best quality product to our customers, returning value to our business. Our interest expense were reduced to close to $10 million in the quarter and depending on market conditions, that could mean retiring or renegotiating outstanding bonds in the future, but we continue to monitor all possibilities to fix -- to find tax efficient ways to improve our capital structure. Looking ahead, we have already started the budget planning for next year. And through the engagement of our teams and the relentless pursuit of excellence in every aspect, we are identifying the next round of opportunities to continue in line with the achievements we have captured over the last 3 years. Our ultimate goal is to create value for our shareholders so we continue to evaluate all possibilities. This includes options such as dividends as well as pursuing profitable growth through acquisitions in complementary geographies or segments, branded products or operations where our expertise and operational excellence can be leveraged. We continue to see some enticing opportunities in the market and we will act when payback is consistent with our targets. Operator, this concludes our prepared remarks. Please open the call for questions.

[Operator Instructions] The first question comes from Farha Aslam from Stephens Inc.

My question focuses on Mexico. Could you share with us, in your 10-Q, you talked about the Marek's disease, what that is, how much that's limited production, how much impact that's going to have going forward as well as kind of your -- a little bit more color on the pricing outlook for Mexico because normally, the fourth quarter is seasonally strong, but you highlighted that pricing might come down. So just some color around Mexico.

Okay. I'll start, Farha. So Marek's disease is a disease that's ubiquitous in the global chicken business. It's an autoimmune disease and it's been over the -- as long as the industry has existed. It's been effectively mitigated by a Dale [ph] or an in-vitro vaccine. We -- on part of a grandparent operation in Mexico and some vaccine was delivered to that operation in the past that was not effective. And therefore, we had several breeders as well as the industry also gets parent stock from that operation in Mexico and the industry has breeders that ended up having Marek's disease. And so it -- we had a lot of mortality in our breeders in Mexico as well as some of our competitors did as well. And so that's what that was referring to. We did get a payment from the vaccine company to help offset that financially and I think we disclosed that in the 10-Q. We're continuing to see some effects of that situation, and that situation won't likely be resolved for another 6 months or so before that cycles through. We've not had any other issues with vaccine since that time, so it'll be about a year-long problem when it's all said and done.

In terms of pricing, Farha, if you remember, the last quarter -- last year's quarter -- you're right, usually Q3 is slow in terms of pricing. But unlike last year, this year, we see very strong pricing in Q3. At the end of Q3, we see some moderation in pricing in October, but we are seeing the usual pattern of increasing prices in November and December happening again.

So back to this Marek's issue, Farha, and setting that aside, due to the past disease issues in Mexico, we've seen a permanent structural shift in reliance of the Mexican industry in part for its hatching egg needs coming from the U.S. That's not likely to change in the foreseeable future or in the future at all. And so even though that we may see increase in breeder production in the U.S., that does not mean that all that hatching egg production stays in the U.S. as, again, we've noticed, on a monthly basis, between 4 and 5 million dozen eggs per month, a combination of table eggs and hatching eggs, are going from the U.S. to Mexico. Again, we see that as a permanent structural shift.

As evidence of the permanent shift, Farha, we see some Mexican companies buying assets in U.S. to provide their operations in Mexico.

That's helpful. And then my second question relates to the U.S. contracting season. Down here at the National Chicken Council, we're hearing a lot of confidence with chicken companies going into the contracting season largely because of tight supplies of pork and beef. Could you just give us some color around how that contracting season is shaping up?

Yes, we see it the same, Farha. We see an increase in demand for chicken consumption next year. We've seen both foodservice and retail operators wanting more chicken across the whole spectrum of products we supply both on the large bird for deboning segment and especially on the small bird segment that goes either into the QSR, fried chicken restaurant industry or the supermarket deli. Supplies remain very tight. We don't see that changing in 2015, even though, as I said in the remarks, there could be up to a 3% increase and we think that's back-half loaded. We see demand staying very firm and we believe beef production, in addition to being down about 5% this year over the last, we think that it -- due to heifer retention and other herd-related issues, we think that these supplies will go down again 2% in '15 over '14. And although there may be some increase in pork production, if you think about a strengthening consumer environment in the U.S. and strong demand for export support, we believe that prices of both beef and pork in 2015 will continue to give chicken a favorable value proposition. So we see the same thing, strong environment for pricing, great demand for chicken now continuing in 2015 and we think that set's up for a great pricing environment, coupled with what we see as declining feed cost going forward.

Next question comes from Adam Samuelson from Goldman Sachs.

Maybe a little bit more color on the quarterly performance with, I think, on margins. Everyone, I think, anyone would look at these and say they're pretty spectacular. Trying to get a sense sequentially, it looks like margin is up about $0.06 a pound on a company basis and I'm trying to get a sense of kind of what are the drivers there. Presumably, feed costs were down sequentially, but help me understand kind of components of the mix benefits and reductions and other growing cost that could have benefited.

Yes. It's really not that complicated, Adam. As we said in the remarks, it's really due to the mix that we've created. We put a lot of thought in how to construct a portfolio of products, both from a customer segment basis and a product portfolio basis, such that we benefit from both high commodity spot pricing, such as we've had during the summer and through the quarter. And even through October when we saw the spot prices decline, our financial performance remained extremely strong and that's because we're the largest player or producer in the small bird segment, we're the largest player or producer in the large bird deboning segment, we're the largest -- one of the largest players in fresh case-ready chicken. And it's that portfolio effect that gives us that strong performance financially as well as consistent -- we believe, more consistent than the average chicken company there. So again, it goes back to the strategy we formulated in 2011. Focusing on our key customers, making sure that our core competencies are aligned with their needs and they reward us for consistent quality, consistent service, serving their needs. We are relentlessly focused on removing non-value-added cost out of our supply chain. I think we've demonstrated that over the past 3 years. Looking forward, we see similar value creation in 2015 over '14. We've demonstrated so far this year. We're going to be on target with those cost reductions and yield improvements. And then we view the marketplace on a global basis, not just the U.S. We don't approach our export business as packing only bulk frozen leg quarters. That's not our deal. We take advantage of our affiliation with JBS, having global -- or having presence globally in key consumer markets and we tailor our export portfolio to meet consumer needs there and we get rewarded economically for doing that. So it really goes back to just executing our strategy.

Okay. That's helpful. And then maybe thinking a little bit about '15 and obviously the market color that you provided a little bit earlier is very helpful. Want -- digging a little bit on the company specific side, on track to hit the $220 million of cost improvement over the 2010 baseline this year. Any way, at this point, to help size what that incremental opportunity could be in '15 versus '14 and the main areas that you're going after there?

Yes, sure. So in the 2011, 2012 and '13, we got more of that contribution from yield improvements than we did plant cost improvements. So I will tell you that, 2014 over '13, we've seen much more come from processing cost improvements. We think that trend will continue into 2015, although yields will continue to do so. For the first time, this past quarter, we're better in all categories of yield from either log [ph] yield or boneless breast yield or leg yield than the average accounting. That's the first time that's happened. And that will continue to create a spread and yield improvement versus the average player in the industry. In 2015, we're still finalizing our zero-based budgeting process. But I'm confident enough to tell you that the GAAP that we'll be targeting in 2015 will be at least as large as it was in 2014 and I'm confident our team is prepared to harvest that target.

That's very helpful. And so maybe just wrapping up from me. How would you synthesize that market outlook and the cost improvements that you're targeting as you think about the normalized margin for the company? Obviously, a lot of variables on the feed cost side that you don't have a crystal ball to multiple years out. But how should we think about the through cycle margin capability of the company now given some of the transformations you've taken -- that have taken place?

Right. Well, with what I've just said about how we operate our business, I think you really have to look at the fundamentals going forward. For example, although in 2014, we've seen -- what about a 2% increase in breeder replacements, we believe the ready-to-cook pounds in '15 over '14 will increase no more than 3% for the whole year. We think it will be back-end loaded, meaning we'll see more of that increase in the fourth quarter of 2015 versus the front-end. We think ready-to-cook chicken consumption domestically will be up 3% for the reasons that I've referred to with beef pricing and pork pricing and strong export demand for all 3 proteins. We think exports for chicken will be up at least 2% in '15 over '14 and we see a significant number of hatching eggs that are produced in the U.S. being exported to Mexico. Again, that's a structural shift that won't change over time. One additional thing on breeders, we continue to see a shift in breeder placements to high-yield breeds and that will continue to put pressure on egg production and hatchability. This is also, we believe, an industry structural shift and primary breeders are continuing to have health-related supply chain issues and we don't know how long it will take to completely resolve this. So for all those reasons directed at the fundamentals of the business, we're excited about the prospects of 2015 being another very good year for our company.

The next question comes from Brett Hundley from BB&T. Omar J. Mejias - BB&T Capital Markets, Research Division: This is actually Omar filling in for Brett. My first question would be -- I would like to get a little bit of -- as a follow-up to the previous question, what are some of the puts and takes to 2015 earnings in terms of, I guess, the opportunities with the assets in Mexico and the likelihood of 2015 being better than '14, given some of that potential for the organic growth?

Okay. I may have to have you repeat that question, but I think I get the essence. So first, on Mexico, with the acquisition of the assets there, what that's going to provide for us is 2 big favorable advantages that we haven't had before. Number one, it gives us geographic diversity. So our operations currently are in the central and south part of Mexico. These assets are located in northern Mexico. So that gives us geographic diversity. That's important both from a market entry standpoint and a disease mitigation risk point of view. It also helps us diversify our portfolio. These assets come with capacity to produce further-processed branded products. We are purchasing a brand with this business, the Del Dia brand, which is proven to have great success early on in its lifetime. So that's the primary benefit and we believe that we can apply our strategy of executional excellence in operations to create more margin with those assets and we think the Mexican consumer will benefit ultimately from that. So we're excited about that acquisition and we continue to see chicken consumption growing at a rapid pace in Mexico. On the U.S. side, as I mentioned in the prepared remarks, we've invested, I think, very wisely in our assets in the U.S. this year. We'll benefit more and more from those investments as we go on, particularly in more dark meat deboning, so that helps us further diversify our mix and not be as dependent on exporting frozen leg quarters. So that increases our whole bird returns both domestically and from an export perspective. As I said, we continue to invest in Prepared Foods. We see demand for further-processed, particularly fully-cooked chicken, increasing with relatively high beef and pork prices. And we'll be well positioned to take advantage of that demand growth. And we'll continue, as I've just said, in improving our base business and creating operational improvements going forward just like we had the last 3 years. Omar J. Mejias - BB&T Capital Markets, Research Division: That's very helpful, guys. My second question is I wanted to get your perspective on -- we've seen a recent spike in soybean meal pricing. Is that expected to continue? And specifically, we're talking about the spot pricing. And would there be any -- if that continues, would there be any need to import soybean meal from Latin America? Also, how are you guys hedged on -- from a base standpoint for soybean?

Yes. So on the soybean meal complex, the supplies got very tight before harvest began. We're very confident that we're beyond now the supplies being extremely tied on soybean meal. There's going to be a huge harvest. There's going to be very large surpluses of soybeans and corn as we continue to harvest. And so we think this volatility is short-lived. And as I said in the prepared remarks, we believe that our feed cost will continue to decline as we move through 2015. If you go back and think about what's happened the last 10 years, globally, we've employed a huge amount of increase in acreage, both for soybeans and corn. Those acres will continue to be planted both in the U.S. and South America and Eastern Europe. And so we think we'll enjoy this surplus corn and soybeans for the foreseeable future. We don't think that's going to change. Those -- that volatility, I think, will diminish as we get further through the harvest.

Next question comes from Bryan Hunt from Wells Fargo.

I'd like to want to, one, ask if you got Pilgrim's fried chicken in the new iPhone 6 because the margins look that way.

Well, I suppose that we may have it, Bryan.

Well, in all seriousness, to continue on maybe the feed discussion, we read a lot of stories out of the Midwest about corn laying on the ground, there's just not enough storage and chuck corn being available $1 or $2 below the CME-quoted rate. Have you all been able to take advantage of that at all? And if so, would that be reflected in Q4 results?

Yes, we were very comfortable with our cash positions and also our derivative activity. As I said, we'll continue to see feed cost decline. In some of our segments, we're already seeing live cost in the mid-30s. I haven't seen that in, golly, several years now. And so we're beginning to see total live cost get down in the mid-30s and that will continue to improve as we move into the future.

And you touched on this -- and just 2 more questions to obey the rules of the road. And you touched on this in terms of efficiency improvements. Can you talk about where you stack up relative on Agri Stats in the most recent quarter? And where do you think you can ultimately get to with this accelerated CapEx plan for 2014 as you move into 2015?

Right. So consistently, we're in the top 1/3 of the industry, moving closer to being consistently in the top quartile. We think our position will continue to improve and the primary driver there is that portfolio effect. So we're -- I guess, you could call our strategy also, 'have your cake and eat it too,' because again, as I've said, we take advantage of high spot price markets and we take advantage of markets where the price declines because of that portfolio. So it's really the best of both worlds, and we did that intentionally. We talked through that. Going back in 2011, when we arrived, we knew that there's going to be inherent volatility in commodity markets and we set out -- we asked ourselves, how can we position our company to take advantage of both? And if you look at companies in our industry, we believe we're unique in that respect.

And my last question is when I look at the balance sheet today, it's a bonanza of cash and is changed dramatically from where you were 3 years ago. When you start to evaluate what you're going to do with the balance sheet, whether it's make acquisitions and you've alluded to doing that obviously with the what happened on earlier in the year and what you've done with Tyson today, delever the balance sheet to very nominal levels and/or return cash to shareholders. That seems like it's very low on the list. Can you talk about those opportunities, whether it's make acquisitions, return cash to shareholders or to delever and/or it sounds like you may even ramp up CapEx. So those 4 opportunities, can you just talk to them quickly?

Sure, Bryan. Like we mentioned, we need to improve our capital structure. Today, we have $800 million -- more than $800 million in cash sitting in our balance sheet. That's not very optimal. We look that the optimal capital structure will be something that reduces our cost of capital and does not compromise our flexibility or increase our risk profile. We've been thinking that sweet spot is you have a leverage between 2x and 3x EBITDA. Said that, our priority is to create shareholder value, so we are looking into all possibilities, including the dividends and the acquisitions. We're seeing some opportunity on the M&A and we are evaluating very different opportunities where we can complement our portfolio of products and geography. We do not see a big change on the M&A environment. We're seeing opportunities. And like you said, we have the cash flow generation and we will take our time and do the acquisitions if they are accretive to our shareholders, if they make sense for our return targets.

Next question will be from Kenneth Zaslow from BMO Capital Markets.

Just following up on that same line of thinking. Let me just ask you, would you still be interested in any sizable acquisition in prepared meats? And in that case, would you be willing to do like a Reverse Morris Trust?

The simple answer is, yes, we are interested in the right acquisition at the right value in the processed meats segment. We're open to look in -- at any financial structure that ultimately adds value to shareholders.

Great. And my next question is, when you go through the rest of the year, when you think about chicken, is there going to be a shift again towards chicken over beef and pork? And how do you see that playing out within the foodservice and retail sectors? Can you just talk about that?

Sure, yes. We continue to see that. While our economy is improving, unemployment is now, I think, for the first time, under 6% in a very long time. Consumers are still not as confident as they were before the financial crisis. And I think we've seen a structural shift in consumer behavior that basically says they're going to be more value shoppers going forward than perhaps in the past. And with chicken being the best value in protein, I think that bodes well for chicken consumption, both in the U.S. and in foreign countries. We continue to see the spread between retail beef price and retail chicken price widen and we don't see that changing in the foreseeable future. From a pork standpoint, while we may realize more production next year, we think demand for pork will remain strong, both domestically and especially on an export basis. So it looks to be out in front of us continued good environment for increasing chicken demand.

I'll just add, Ken, that you see our foodservice operator and they're looking at the environment going to next year, when you're planning your promotions, you're going to lean towards chicken. You're going to -- Bill already alluded to the availability of beef and pork for next year and we're seeing the availability for chicken next year and the comparison in price. So I think the best option for them is the chicken. On the Reverse Morris Trust, we don't see that as a good option to business because one of the things we favor the most is to have a clear accountability and ownership structure. And in that structure, we believe that there is some different incentives. So we don't think that that's the best opportunity for us.

Okay, great. And then just final question. The integration of the Tyson de Mexican operation, can you talk about where you stand on that? And any advice [indiscernible] one way or the other way?

Yes, sure. So we've met with the management team. We had a good understanding of what that business looked like actually before we acquire -- started the process to acquire it. We now are about 30 to 45 days into the approval process from the Mexican antitrust agency. We expect that we'll know something late this calendar year or early in 2015 and we look forward to getting it closed and getting on with improving that business.

[Operator Instructions] Next question comes from Akshay Jagdale from KeyBanc Capital Markets.

This is actually Lubi filling in for Akshay. So I first just have a very quick question. In terms of your outlook on ready-to-cook chicken production in 2015 of around 3%, I was just curious how you're thinking about that in terms of number of heads versus increase in weight.

Yes, I think it will be pretty well balanced. We will continue to see lightweights in the large bird for deboning sector increase over time and there will be some increase in head as well. But I think it will be balanced across weight and head, but I think it will be unbalanced in terms of timing. So we see it more back-end loaded than front-end loaded for the year.

Just on the weight, we see that the only segment in the market where the weight can increase is in the big bird deboning. So in the small bird deboning, what we see -- or the small [indiscernible] what we see is that weight can't increase. So overall, sometimes, people talk about 1% increase in weight and that is only in the big bird deboning segment, which is 30% to 40% of the market only.

Okay. That's very helpful. And then my follow-up is -- so it seems like consensus expectations seem to suggest that supply growth is going to be pretty limited again in 2015. But just in chatting with various industry insiders, we're starting to hear, I guess, a little bit more chatter in terms of potential for industry participants, at least, wanting to expand at a much higher clip than is currently possible. So I was just wondering if you can comment on what you're seeing, at least, in terms of the industry's desire to expand even if it's not currently possible, given the supply constraints.

I don't know really how to address chatter. What I do know is I think our industry has come to realize that the profitability in the chicken business is driven by supply and demand of chicken. In the past, we talked a lot about cost of corn and soy. We've talked about the changing from small birds to big birds. But at the end of the day, I think we have full l realization that supply and demand for chicken is going to be the determining factor of pricing and ultimately profitability. I don't see that changing any time soon.

Next question comes from Pedro Leduc from JPMorgan. Pedro Leduc - JP Morgan Chase & Co, Research Division: Just a quick one. You mentioned earlier on the call that you've taken measures in order to mitigate the volatility of market prices to Pilgrim's prices both on the ups and downs. And so we expect the lesser declines going ahead versus market. Can you elaborate a little bit what these actions were and if it's more related to process and capacity or end client or distribution?

Yes. So when we put in place our strategy 3 -- over 3 years ago, we refocused our efforts in terms of both production and sales and marketing to customer segments. So we've put a lot of focus on the fact that we're the one of the largest operators in case-ready chicken. We view that business as a business. Each plant in that business, like all other areas of our business, has its own P&L. And so we focus on that segment for those plants. And in the small bird category, we take a similar approach looking at the QSR industry for fried chicken and the supermarket deli and each of those plants has its own P&L and its own sales and marketing plan. And then also, we converted several plants to large bird deboning segment. We've acquired talent and brought them to the company that knows that business and knows it well and knows how to create a profitable mix there. So it's really about the operational and customer segmentation that we did over the last 3.5 years that creates that portfolio effect and it's obviously working well and we'll continue to improve on that model.

This concludes our question-and-answer session. I would now like to turn the conference back over to Bill Lovette for closing remarks.

Thank you. Over the course of this year, we continue to see in our team members the determination to improve our business model, the discipline to execute our strategy and the drive to be the best managed and most respected company in our industry. We want to thank -- take this opportunity to thank all of them for their dedication, and thank you for joining us today.

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