Good morning and welcome to the First Quarter 2016 Pilgrim's Pride Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [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. After today's presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Dunham Winoto, Director of Investor Relations for Pilgrim's Pride. Please go ahead, sir.

Good morning and thank you for joining us today as we review our operating and financial results for the first quarter ended March 27, 2016. 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'll 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, Chief Financial Officer. Before we begin our prepared remarks, I'd 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 those factors have been provided in today's press release, our 10-K, and our regular filings with the SEC. I'd now like to turn the call over to Bill Lovette.

Thank you, Dunham and good morning, everyone. Thank you for joining us today. For the first quarter of 2016, net revenues were $1.96 billion versus $2.05 billion from a year ago, resulting in an adjusted EBITDA of $234 million or 11.9% margin versus $364 million a year ago or 17.8% margin. Our net income was $118 million compared to $204 million in the same period in 2015, while adjusted earnings were $0.46 per share compared to $0.82 per share in the year before. In line with our expectations, Q1 results have improved meaningfully from a challenging Q4. Both US and Mexican operations contributed to the solid results, driven by gradually improving market environment, which puts us in a strong position for Q2. Pricing in the spot market rose as demand picked up with the reopening of most export markets, coupling to clear some of the cold storage inventories from last fall. With export demand becoming stronger, we expect further improvement in the commoditized part of the market in combination with seasonally stronger demand during the upcoming summer drilling season. It’s worth reminding everyone that once again our portfolio strategy is designed for the mid to long run rather than the short term. More specifically, it’s structured to avoid the full peaks and troughs of the commodity markets. The diversity of our product and customer mix will allow us to capture the strength of up markets and at the same time, be cushioned from the weakness of down markets, which we believe will translate to lower volatility and more consistent earnings and higher margins. As demonstrated over an extended period of time, our broad mix strategy gives us the potential to outperform the competition. Our case ready and small bird performance has remained strong given our unique ability to optimize our…

Thank you Bill, good morning everyone. We reported $1.96 billion in net revenue during the first quarter of 2016 resulting in an adjusted EBITDA of $234 million or 11.9% margin. That compares to a $2.05 billion in net revenue and an adjusted EBITDA of $164 million or 17.8% margin the year before. Net income was $111 million versus $204 million at the same quarter of 2015 resulting in adjusted earnings per share of $0.46 compared to $0.82 in the same quarter of last year. For this quarter, EBIT margins were 10.5% in US and 4.8% in Mexico, which were material improvements versus Q4. In Q1, both US and Mexico business reported strong results than Q4. Our operating performance improved throughout the quarter which position us well for the future. In the US, demand for our case-ready and small birds remain strong while environment in the commodity markets were much better compared to the second half of last year. As low prices foster demand and the industry regained much of the access to export countries resulting in increasing pricing and lower levels of cold storage inventories. Within case-ready, our team leveraged our key customer relationships and differentiated approach in product mix and market segmentation to strengthen our margin opportunities. Like we mentioned much of the external factors that created a challenge in Mexico during the second half of 2015 gradually moderated as we progressed through Q1. Exchange rate impact on our input cost became more favorable and producer quickly adapt to match the supply demand as we had expected. The integration of the newly acquired assets remain on track and we expect to capture $50 million in synergies this year. Our production from the new Veracruz facility is ramping nicely and its performance is exceeding our expectations. We also look forward…

[Operator Instructions] And our first question comes from Farha Aslam of Stephens. Please go ahead.

Hi, good morning. Congratulations on a great quarter. Now just on your volume in the quarter, it seems lower than we had expected. Could you share with us how you’re managing your volume for the quarter and what you expected for the year?

Well, we had one of our big bird plants down for a week installing a new processing system and we also decreased our volume in the big bird segment for this quarter due to some efficiency issues that we had that we’ve since gotten back in line. So that was the primary contributor to that.

Farha, our volumes on the domestic market were flat compared to last year and in addition to what Bill mentioned, we also increased the debone in our big bird plants and that reduces the volume, although increased the value of our product.

That’s helpful. And then just as a follow-up, in terms of your growth plan, could you share with us how much is now kind of organic and ABF following this conversion kind of that value added fresh and then in fully cooked, how much is that new line going to add to your prepared volumes?

We’ll take the prepared first. It’s going to add about 10% capacity for our fully cooked production, for which we’re very excited about, because we see continued demand for Pierce brand fully cooked chicken and it’s a very profitable part of our portfolio as well. On the ABF and organic, as we’ve previously stated in the past, we have a plan to grow our antibiotic free production to become over 25% of our total production by the end of 2018. We estimate that currently we’re about 10% of all ABF production in the US. I expect that once we finish that conversion by sometime in 2019 that we’ll be somewhere over 20% of the ABF production in the US. On organic, this will be our first experience at producing USDA certified organic. When we get the plant completely converted sometime in 2017, we’ll be approximately 20%, if not slightly more than the total organic production in the US as well.

And our next question comes from Kenneth Zaslow of BMO Capital Markets.

Hi. This is Patrick Chen showing in for Ken. Just a follow-up on Farha’s question, in regards to your 10% growth in fully cooked production, does that mean there will be a shift in your strategy, I know you mentioned in the past that you intend to grow chicken production in line with industry expansion.

Could you clarify the question on our strategy? You mentioned a specific strategy and I’m sorry, I missed that.

Your fully cooked line. Does this mean you will tend to buy more chicken, external chicken versus growing more your own?

Yes. That depends on the value or price. If it’s more advantageous for us to buy that raw material on the market and convert it, then that’s what we’ll do which is consistent with what we’re doing now. So as commodity prices decline, if that should be the case, then absolutely, we would buy that raw material on the open market.

Great. Thanks. Switching gears a little bit, in terms of your export markets, I know you put out a favorable outlook for exports, what’s the read through in terms of increased leg quarter exports and to breast prices, does this mean it will coincide the seasonal increase in breast prices and to top that off, I know you’ve installed debone capacity in the past for leg quarters, will that kind of be a headwind going forward since pure leg quarter prices will be higher?

Yeah. On leg quarters, during last quarter, the US industry diversified their exports as mentioned due to the trade barriers and challenges on international economies and that’s helped maintain the inventories at very low levels. The attractive prices fostered demand and improvement in the international market this year created a very good environment for -- in supporting increasing prices. We expect demand to continue to be strong and prices should return to previous level in the next months.

And I would add on the option of selling leg quarters versus boneless leg meat, the first thing we’ll do is satisfy the needs of our key customers and once that’s done, then we’ll -- the option that we’ll take is whatever delivers the best cutout, whether that’s bone and leg quarters sold either domestic or export or boneless leg meat sold either domestic or export.

Great. Thanks. I will pass it along.

And our next question comes from Brett Hundley of BB&T Capital Markets. Please go ahead.

Good morning, gentlemen. This is actually Omar filling in for Brett.

Good morning.

Good morning.

Our first question is related to the US Mexican border and what would fully mean for the border to reopen over the next year and how would that impact pricing in Mexico and overall for your company? We were just wondering if the net effect will still be positive because of the potential benefits to the US market. If you guys could provide a little bit of color there that would be very helpful.

Sure. Well, Mexico is the largest partner of US. Today Mexico accounts for more than 20% of US exports. So the change that happened over the last week was just Mexico reopen some states for exports, but the export is up year-to-date 2016 2% in volume from the same period last year, so Mexico is a very good partner of the US and they will to continue to be.

And if there's an increase in leg quarter sales from those newly opened states, then that just means that there's perhaps a void in another market where they were going previously. So it’s a sort of net zero some gain there.

Got it. That makes a lot of sense. And our second question was with regards to some of the recent news from Costco and their plan to open their own chicken production facility. We were just trying to gauge what were some of the implications for Pilgrim’s Pride and do you guys think this is an isolated incident and could this happen - could they go forward and pursue this opportunity in different competing proteins such as beef, pork, et cetera.

We believe this is part of their strategy to fill deeper into the supply chain of the various commodities that they purchased. What we do know and what they continue to say is chicken is a very strategic product category to support their existing sales and their future growth. We do not - we're not at all bothered by this at all. We have a great relationship with Costco. They are definitely a key customer. Our business continues to grow with Costco and I think they have recently stated that their plans are for Pilgrim’s business to grow even more with them. So we don't feel threatened by this. We think actually long-term it will be a good thing as they learn more about the business and I think they publicly stated as well that this is not necessarily a cost reduction program as much as it is an assurance of supply. The chicken that they sell is a fairly unique sized chicken. And if you look into the various categories of chickens produced in the US, that particular size chicken actually has declined in difference to larger birds and smaller birds.

That makes a lot of sense. And lastly we – can you guys talk about sort of the near term impact and also just give some color on the long-term impact of – on the planned conversion to organic and especially as it relates to volume impacts and margins to the overall company. We were just wondering if you guys could provide a little bit of color there and what were some of the decisions behind that in terms of key accounts and markets. Thank you.

Good question. Thank you. So the consumption of organic chicken is growing very rapidly. While it's still approximately 2% of total production, the CAGR is approximately 31%, 32% and there is very limited supply of both organically grown chickens and feed ingredients that it takes to grow those. Our key customers in conversations with us as a key supplier have told us that their business continues to grow in organic chicken consumption. And so in support of our key customers, we decided that the time was right for us to enter this market, we think that we can be the best producer of organically - USDA-certified organic chicken and we are excited about the prospects of growth. If you look at the two categories of chickens that are growing its antibiotic free and organic. Tradition chicken has experienced fairly tepid growth over the last few years and so this is about our participation in those categories which are growing more rapidly.

I will just add, there is further source of differentiation from our company, from PPC, we will be able to sell our customers with food portfolio that they need rather than specific products.

Would there be any impacts in volumes, in margins over the near-term as you guys ramp and you know converting the facility?

Not really, I mean, it will be a conversion of facility that's currently participating in a different category. So obviously our production there will decline but we see that as a net positive in terms of growth in margin.

Yeah of course we expect the margins of this converting facility be higher than they are currently.

And our next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.

Maybe first I will start on capital allocation and just as a thought, maybe talk a little bit more about the thought process behind the special dividend if you think a reflection at all on the M&A pipeline as you looked out over the next 6 to 12 months. And also I think Fabio you said no change in interest expense, so maybe just a little bit clarification on the financing plan there?

Well sure, it's a good question Adam. We exercise great care ensuring that the dividend payment not only create the shareholder value but preserves our flexibility to pursue the growth strategy. But we have distributing is what we consider excess cash so we have that cash in our balance sheet, so we don't expect an increase in interest expense because we are not creating any new lines of credit, we’re just used to ones that we already have, the bond and the term loan. So our leverage after that will be around one time EBITDA and our commitment to pursue the right growth strategy will remain the same.

So no change on your view on – shouldn’t view this as a reflection of the M&A landscape?

Yes, correct.

And then maybe switching gears on the market and industry outlook. Can you give a little more color on cold storage and specifically around boneless breast meat where the inventories are running pretty elevated relative to last year at the end of April and you haven't necessarily seen some of the moves in both seasonal and boneless breast prices that you’d normally see at this time of the year and I just like to get your thoughts on how comfortable you feel about that part of the market heading into the summer?

I would start out saying that if you go back approximately nine months, we began to see much more retail featuring of pork and that definitely had an effect last summer on demand for chicken. And thereby it reduced the price of breast meat through the winter and to the early parts of Q1. We believe that processors and other users of breast meat bought some what they considered cheap breast meat for use later in the year, put it in the freezer and that's why the inventories of breast meat have remained on a relative basis higher than what they had been running. We are seeing demand pickup seasonally now for breast meat, prices are moving up and we think that we’ll experience the typical summer increase in demand as growing season approaches, it’s just that if you compare breast prices in 2016 to what we saw in ‘14 or ’15, we don't think we will reach the same levels but at the same time from a margin perspective our feed cost is lower than those 2 periods as well. So we are - we'd like for breast meat prices to be higher but we don't see that as problematic significantly from a margin producing standpoint.

That’s helpful. And if I can just squeeze just one final one in, the 185 million or so of kind of cost improvement that you targeted for 2016, can you give a number on how much you actually realized in the first quarter.

We are in line -- we’d realize the 185 and as always we disclose, half of that will manifest in the sales because it will be by improving use and half of it will be in cost by lower cost of production.

And our next question comes from Akshay Jagdale of Jefferies. Please go ahead.

Hi. Good morning. This is Luby filling in for Akshay. My first question was just related to your production this quarter, I think pounds sold were down 4% in the quarter, but I was just wondering how much of your own production changed this quarter?

Yeah. You’re right. In total terms, but the reduction was mainly on the export volume. On the domestic sales, we were flat. And that is due to what Bill mentioned about the production in the big bird plans, but also the volumes will be lower because of more deboning. So again, it’s a little bit less volume, but at a better price and it’s a better mix.

Okay. Thanks. And then on the organic chicken, I think you had said that by the time you’re fully up and running, you guys will probably represent around 20% of US production, if I heard that correctly. Could you just clarify what percentage of your own production that will be? And then also if you could just comment a little bit on who are some of the other major players in that segment that you would be competing against?

Once we get fully converted, the organic production will be approximately 3% to 4% of our total US production. I believe, I may not be totally correct, but I believe Coleman Natural Meats is one of the largest competitors which is a part of Perdue.

Aside from Perdue I think and that’s why we believe this is a game changer for Pilgrim’s, we’ll compete with only small companies that will not have the scale and the distribution capacity of Pilgrim’s and that’s why we think this is a differentiation factor for us.

We believe one of the biggest advantages as Fabio alluded to is that a large retailer can come to us or a large food service operator can come to us and buy the whole portfolio of their needs as opposed to having to do business with a lot of different companies.

Okay. That’s helpful. If I could just ask one last question, you mentioned that you think the industry domestically has been much more disciplined than they have been in the past, I’m wondering if you could just elaborate a little bit more on what sort of drives that view and then maybe what gives you confidence that this discipline will hold. Thank you.

What drives the view is the actual numbers that we see, ready to cook pounds are up about 3.1% year to date. If you look at placements year to date, they’re up 1%, egg sets up 0.7%, hatchery utilization actually declined in Q1 to 91%. So in the phase of coming off two of the most profitable years in the industry, we’re not seeing, not realizing large amount of production increases. If you look at its place, it’s we believe well managed and the breeder flock size is up slightly, about 1.7% year-to-date. So it’s the actual numbers that provide our view with respect.

Yeah. And those numbers are for the overall industry, if you look into Q4 where we see some softening balance in the supply and demand in some specific categories, maybe the big bird deboning, we saw that the industry reacts really fast to that imbalance and reduces the egg sets for that segment during Q4 leading into this position that we are into Q1. And what drove that I believe it is that industry is more geared towards profitability rather than just market share or field growth.

That’s helpful. Thank you.

And our next question comes from Bryan Hunt of Wells Fargo. Please go ahead.

Thanks for your time. Everybody has been talking about your pounds in the States. I was wondering if you could look through growth in Mexico, I think pounds were up 56%, how much of that was organic versus the acquisition of the Tyson assets?

Most of the growth was the acquisition. The organic growth is more related to the Veracruz complex that we just opened. So on the -- let’s say legacy or the essential parts of Mexico like we said, the volumes were in line with last year.

Okay, that’s helpful. Thanks. And then my next question is when you look at exports, food service and retail, exports you were mentioned were down year-over-year. Could you give us an idea of the potential growth in food service and retail domestically to keep those counts flat or was there any shift between the mix there?

Our food service demand in Q1 especially early in the quarter was very soft. We saw the food service demand began picking up in March, particularly later in the month and through April, we are seeing nice improvement in demand at food service. Our retail demand in Q1 and it continues throughout current state has been pretty strong. Our case ready plants are either sold out completely or in most weeks oversold to bring in meat from other plants to put in a tray and so our retail business continues to be very strong. We believe food service demand will pick up as we move through the year, but like Q4, early Q1, food service demand was noticeably weak.

And we continue to see impact to effort [ph] to increase in volume as well as more definitions open to the US and the economy in the developing world is improving.

Great. And then my last question is a little bit of negative price on those recall. Can you talk about whether you’re expecting any material costs associated with the recall in Q2 or is this overwhelmingly covered by insurance? Thanks.

We don’t expect a material financial impact due to the recall. We are working on improving our systems and our processes and our execution. Clearly this was not acceptable to us as our culture is one of accountability. And we are going to work very diligent to improve our systems and prevent us from happening again.

Very good. I appreciate your time.

Thank you, Bryan.

[Operator Instructions] Our next question comes from Michael Piken of Cleveland Research. Please go ahead.

Hi, good morning. I just wanted to talk a little bit more about kind of your thoughts on the grain market, I know you said there continues to be abundance supplies out there. So does that mean you’re largely open on your grain positions and have you locked in any basis?

We are fairly close to the market, Michael, as we believe supplies are more than adequate, both in the US and around the world. We are seeing great planting progress. I think this past Monday we had about 30% of the corn planted and 3% of the soy bean acres planted. We are going to get near record large acreage in both corn and soy beans. Given the positive weather outlook, we think we will see another abundant crop this year on top of more than adequate supplies. And so looking forward, it appears to us that there is little upside risk in our feed cost.

We are just experiencing some volatility in the short term but like Bill mentioned, the supply and demand are very favorable to the cost.

We believe that volatility of late has been unrelated to the fundamental supply and demand numbers for both corn and soy.

Okay, great. And my second question is related to Mexico. I guess as we sort of look out over the remainder of the year when we take into consideration some of the synergies that you guys have started to capture, I mean what – how should we think about the margins versus last year what you put up and how much of a seasonal improvement should we assume for the Mexican market over the next quarter or two? Thanks.

Just as a reminder, the market is much more volatile in Mexico than in US and there is a seasonal pattern to supply and demand there. We believe that production supply is going to be more muted this year versus last year. We saw about 6% increase in production last year. We think it’s only 2% to 3% this year which is absolutely in line with what we think demand will be. We see a fairly normal seasonal pattern and as an example, we had 18% margins in March that were in Q1 and we’ve seen a sequential improvement through April and realizing very good margins right now in Mexico. We are seeing really good demand. We are seeing a few more cases of avian influenza in-country and we think that’s having a positive effect on pricing.

Just overall, Mexico as a developing economy just like the users have more available income, they will tend to consume more proteins, so that’s why we believe that demand for chicken will continue to grow in Mexico. As an overall expectations we expect Mexico margins to be double digit.

And ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to Bill Lovette for closing remarks.

Thank you. As we approach mid-year and the grilling season, we’ve seen market conditions in both US and Mexico continue to improve. Demand from exports is picking up, prices in the commodity markets are increasing while the environment in case ready and small birds remains robust. Our team remains committed to seek creative solutions to maintain our leadership in new consumer demand trends in chickens such as organic and antibiotic-free and support the growth and needs of our key customers. We would like to thank our team members and our customers and always appreciate your interest in our company. Thank you all for joining us today.

And ladies and gentlemen, the conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.