Good morning, and welcome to the Third Quarter 2016 Pilgrim’s Pride Earnings Conference Call and Webcast. All participants will be in 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.

Good morning and thank you for joining us today as we review our operating and financial results for the third quarter ended September 25, 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 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, 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 has 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. Good morning, everyone and thank you all for joining us today. For the third quarter of 2016, net revenues were $2.03 billion versus $2.11 billion from a year ago, resulting in an adjusted EBITDA of $211 million or 10.4% margin versus $274 million a year ago or 13% margin. Our net income was $99 million compared to $137 million in the same period in 2015, while adjusted earnings were $0.40 per share compared to $0.58 per share in the year before. In quarter three, we saw continued strength in our fresh business driven by our portfolio strategy of well-balanced exposure to different bird sizes and geographical coverage, in conjunction with the diversity of our product and customer mix. Exports are improving compared to last year which supports the commodity markets. In Mexico, demand was as expected and tracked in line with normal seasonality than last year. Our year-to-date operating performance proves we are on the right track in delivering to our strategy. Addressing individual markets, our case ready and small bird operations continue to perform well and our leadership in those markets provides us competitive advantage. Despite greater availability of other proteins, demand for chicken particularly at retail remains very strong. Orders from our retail customers have been robust despite fewer features which is a positive indication that consumers’ appetite for chicken, despite concerns about competing protein has remained undiminished. Within large bird debone, prices and demand which have been relatively weak during the first half had been improving as well driven by the strengthening across all export markets. Although profits for large bird debone are still not yet at comparable level to the other categories, these strengths from the back half in wings will help returns in this segment. We believe our portfolio strategy of having…

Thank you, Bill and good morning, everyone. We reported $2.03 billion in net revenue during the third quarter of 2016 resulting in an adjusted EBITDA of $211 million or 10.4% margin. That compares to $2.11 billion in net revenue and an adjusted EBITDA of $274 million or a 13% margin the year before. Net income was $99 million versus $137 million at the same quarter of 2015 or a 28% year-over-year decrease resulting in an adjusted earnings per share of $0.40 compared to $0.58 in the same quarter of last year. Operating margins were 8.2% in U.S. and 7.4% in Mexico. Our fresh chicken operations continue to generate very competitive results. Demand for our case-ready and small bird were strong, while the commodity markets continue to improve as the environment for U.S. exports improved which is supportive for the back of the bird price, overall cut out and margins. Inventories of leg quarters and all the export oriented cuts are down significantly which is a positive for cold storage numbers while the stock prices have nearly doubled compared to a year ago. Including our quarter results, on a market to market impact of $80 million due to the impact of unrealized positioning of asmall portion of the fixed price we assumed during the year. It is an example of how volatile the feed market has become, but the fall in input prices do compensate in the coming quarters, as we produce and deliver the fixed price products to our customers. As we continue to transform our portfolio for the future, we continue to ramp up our largest prepared foods facility to full capacity, and now expect this facility to be fully operational by the end of Q1 together with our new line in West Virginia. While the ramp up impacted…

We will now begin the question-and-answer session. In the interest of allowing equal access, we request that you limit your questions to two then rejoin the queue for any follow-ups. [Operator Instructions]. The first question comes from Farha Aslam of Stephens. Please go ahead.

Hi good morning.

Good morning.

Good morning, Farha.

First question is on the U.S. Bill, you noted that there is strong demand for chicken despite competing proteins. Could you highlight your outlook for the contracting season, especially given Pilgrim’s revamped portfolio, how are you looking at that for 2017?

Farha, it’s looking very well right now. We’re seeing great demand especially at retail as we move our portfolio into differentiated categories like ABF and veg-fed. We’re finding that our key customers are coming to us more frequently for that differentiated portion of our portfolio and it gives us a strategic advantage. And even though we’ve seen a decline in features on chicken, chicken still maintains 43% share in the fresh, case-ready meat case and our pork is about 22% and beef is about 35% and we’ve seen volumes year-to-date just overall case-ready chicken and fresh meat case increase just under 2%. So, what that tells us is especially at retail, chicken remains in strong demand, it’s the less volatile offering in the meat case and it’s a better value for consumers and we think that they realize that. On foodservice, we’ve been very careful over the last few years to not try to be everything to every customer in foodservice. We’ve chosen well I believe our key customers in that segment and we’re realizing good growth, good demand at foodservice. And our customers there continue to come to us again for differentiated offerings and we see demand is continuing to be strong in 2017.

And so your outlook for pricing?

Pricing remains good. We don’t typically talk about price as the first subject with our key customers and so, we don’t see a lot of changes in our portfolio with our key customers. On the commodity side, we believe that pricing in 2017 will look a lot like 2016. It will be fairly lumpy given the seasonality of pricing trends on a normal basis, but when you aggregate all of that up through the year, we don’t see it to be largely different from 2016.

In the exports market, we expect the prices to be actually a little bit higher in ‘17 compared to 2016 as we started 2016 very soft.

That’s a good point. We’re going to realize export pricing much stronger in the backhalf of 2016 versus 2015, we think that’s going to carry on into 2017 as some of our competitor countries like Brazil are still experiencing a combination of the lower feed supplies and higher currencies relative to the dollar.

That’s helpful. And then just on to Mexico, your outlook for the Mexican profitability going into the fourth quarter here?

We see it as normal as it relates to seasonality. October is usually relatively weak compared to the other two months. We see pricing picking up in November and getting stronger in December and actually we’ve seen it may be a week or two earlier in terms of strengthening in the live market, which is a good positive indication right now for the Mexican market.

We saw the exchange rate also moderating a little bit Farha which is very positive for the Mexican economy.

That’s helpful. Thank you.

The next question comes from Ken Zazlow of the Bank of Montreal. Please go ahead.

Hey good morning to everyone.

Good morning, Ken.

Good morning.

Just couple of questions, one is can you talk about the conversion to the fans[ph] and if you had any issues in your version to the fans and if you had any issues -- what the operational challenges are? Where we are with the conversion? And just giving us some sort of timeline what they’ll dissipate?

Ken, I’m not sure which conversion you’re talking about, but I’ll talk about the three that we’re doing right now. On our organic chicken production, we’re on schedule and on target. We expect to deliver the first organic bird to the market place on or about March 1, 2017. That project is going very well. We actually have our first couple of cargoes of organic corn purchased and on the way to the port. On the Mayfield Kentucky conversion, that project has gone fairly smooth. We’re supposed to start that plant back up end of this week so I don’t see any issues there, that project is in support of again one of our key customers our new fully cooked line in Moorefield Virginia is on target as well. We expect it to be operational early Q1 2017 that line will support our popular and profitable Pierce brand chicken primarily fully cooked wings, so we see that as being supportive. One other facility that is not yet in full operation is our Waco Texas plant. We’ve been doing a lot of projects in that plant. We currently have three of our five lines running with the last two to start up later this year and we expect it to be fully operational some time in Q1 of 2017.

Perfect. Thank you. And then just on the export side, what’s your thinking on China reopening? What’s the timing of that? How much of an impact will that have to?

We don’t currently have an idea in terms of timing. We’ve heard reports that China is closed to opening up. If that happens, we see that as supportive primarily for wing markets, wing tips specifically and chicken feet and we see that as a positive move and look forward to it.

Great. Thank you. Those were my two questions.

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

Great. Thanks. Good morning everyone.

Good morning.

Good morning, Adam.

May be returning to, taking Ken’s question a little bit differently. Hoping just to quantify a little bit more, the impact that these plant conversion and upgrades had both in the quarter as well as may be a full year kind of sizing of what kind of the headwind has been this year and as you think about those plants presumably returning to more normal operations for most of calendar ‘17. How to think about the next wing in terms of your P&L from those plants?

Thank you, Adam. The two plants that have impacted profit are Mayfield Kentucky plant, we’re just finishing our shutdown of actually a couple of weeks. So that will impact Q4 in terms of volume. The other one is our Waco Texas facility and the impact there has been in our prepared foods business and that’s why we realized a decline in our prepared foods volume, primarily in quarter three that will extend on into our current quarter and somewhat into Q1 2017. But as we get the last two lines of that facility back up, we believe that volumes will then return to normal and that being a relatively stable and higher margin category, we think that’s supportive to our profit.

Okay. And then, in the quarter itself I was wondering if you look based on the disclosures in the Q, it seems that good part of the margin decline in the U.S. would have been fairly, at least on the unit margin basis, would have been attributable to both the feeds and derivatives or the derivative losses that you incurred in the quarter. Is that actually correct if I tried to do a comparison unit margins year-over-year and just talk about where you think you are today on the cost side versus where you’re going to be heading into ‘17?

Well actually that’s true, but you have to realize that derivatives loss was a point in time loss and as we produce and sell the product to which that was attached and we’ll recover most if not all of that money over time, I would tell you the other two categories where our volume and margins have been all from a historical basis had been on a large bird deboning business and that’s reflective of lower commodity pricing that the entire market has realized. And then our prepared foods business which was impacted by Waco Texas plant not running at full capacity and again, as I’ve addressed before, we expect that to be rectified some time during the quarter one of 2017.

And just a quick follow up there, on the big bird volumes, how much are you down about, is it heads weight combination?

It’s a combination of both but as we get into 2017, we’ll bring those facilities back up to normal production levels.

There’s the fact that we are also moving one of our big bird plants to the case ready organic facility.

Right.

Thank you.

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

Yeah, hi good morning. Just wanted to touch base a little bit more on Mexico and your outlook for 2017 and even in the fourth quarter I know you said Tyson was going to improve in the fourth quarter. But if you could just talk about your volume growth expectations for yourselves next year as opposed to the industry and where you are on your synergies with some of the Tyson plants?

Sure. Thank you, Mike. As Fabio reported, we captured already 90% of our synergies. So we’re pretty much done there in terms of getting those synergies collected. We’re very pleased with the performance of our entire Mexican business particularly the integration of the newly acquired assets that’s going very smooth. We intend to grow our value added business in Mexico as Mexican consumers increasingly demand that type of product as they mature in their consumption habits relative to history. As we said, our growth potential is much greater in the Southeast of Mexico with our new facility in Veracruz. We have aggressive plans to grow in that area of Mexico which is fairly new for us. So we expect chicken production to be normal in terms of growth, it’s typically between 2% and 3%. We think that we’ll grow in line with the market if not slightly more given our growth in Veracruz. So we’re looking forward to another great year in Mexico as we experienced during the last few.

And just to add, Mexico is the largest partner of U.S. it accounts for more than 20% of all U.S. exports.

Great. That’s helpful. And then shifting back here to the U.S., there has been a recent tick up in some of the weekly exit numbers over the last month and a half. How much of that is due to the number of big bird debone operators may be not cutting back production as much as last year versus may be the start of the trend? Thanks.

If you look at it over the long period of time, let’s say the past five months, we’ve actually seen the bigger flock size decline by about 1.64%. I think the last couple of weeks increases more of a timing issue around holiday cuts in Christmas and Thanksgiving moving around a bit. Hatchery utilization has stayed roughly the same. So I don’t really see a big change in exits or production going forward relative to where we’ve been throughout the year.

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

Good morning. Thanks for taking the questions. I just wanted to follow up on the impact of these plant closures. So let me just ask it in a different way. So far this year industry conditions have been pretty solid I would say, costs are down, pricing especially in third quarter cut out was up after having some challenges in the first two. So I believe you’ve made a conscious decision to go through some maintenance projects and you’ve done them more sort of upfront instead of periodically. So can you just help me understand sort of relative to what you’re expecting in terms of timing where you are? Because it seems like the first quarter there was like a weather related impact in one of your plants, second quarter the main issue was prepared foods issue and I think that same prepared foods plant has continued to impact volumes and profits in 3Q. So can you just help me understand how much of the profit performance you expected? How much of it is somewhat taking a little bit longer because it is costing you I guess money right to keep these plants or to go through maintenance for a extended period of time. So can you help me with that because it seems like it had a huge impact in 2Q, I’m estimating $0.07 $0.08 in EPS, three points to volume. I don’t know what the impact of prepared foods plant was exactly in 3Q but it seems like it was larger because industry margins got better in 3Q by a pretty significant amount and your margins got worse. So just trying to understand how much of that is really company-specific and planned versus market related.

Most of these projects were planned and they’re strategic in terms of continuing to change our portfolio to more value added products particularly ABF, veg-fed and organic. On the prepared foods side, you’re correct. We are doing a lot of work inside our Waco Texas plant, getting that plant in really good shape for the future. It’s our largest prepared foods plant in volume and we look forward to getting it and running at full capacity sometime in Q1 of 2017 which we do believe will be added it to margins. But other than the Waco plant, all the others were strategic in nature and were planned. You can see that as reflected by our increase in capital spending and obviously that sets us up very well for growth and margin expansion in the future.

And so, can you help us understand the market dynamics of this prepared foods plant being closed or is that -- obviously that volume has been seeded to your competitor or how is that playing through in the market and is it as simple as one you turn that plant back on that the demand is there. How should we think about that?

We do believe that demand is there and we don’t see any issues with retaining and increasing our business once that plant is in full production. And one of our competitors had an issue a couple of years ago in a similar nature and that demand remained the same and continues to grow. So we don’t believe that’s a significant issue going forward.

And just in terms of what you mentioned, we buy raw material on the external market as well, so we buy wings, we buy breast meat on the open markets. During this time what’s happening is that we’re just not buying so it was not that we were selling more or less fresh meat on the market.

Okay. I’ll get back in queue. Thanks.

[Operator Instructions]. The next question is from Bryan Hunt of Wells Fargo. Please go ahead.

Thank you. Good morning. And my two questions are, Bill, you talked about a lot of projects ABF, case-ready, fully cooked and ongoing Mexican extension projects. I was wondering if you just give us a preview of what 2017 CapEx may look like, if you don’t have an absolute number, may be directionally relative to 2016.

Thank you, Bryan. Yeah, we expect next year to repeat this year so around $220 million in CapEx is a little bit higher than the initial expectation of $190 million as our strategic projects are moving much faster than anticipated.

Thanks, Fabio. And then my next question is your balance sheet remains very strong, I was wondering, could you talk about the potential for balancing potential M&A opportunities with dividends and share repurchases considering your larger shareholders desire to deleverage?

Well we have, as you noted, a lot of capacity on our balance sheet to grow. The last couple of years we’ve returned lot of cash to shareholders both in the form of dividends and share repurchases, but I can tell you that from a Pilgrims standpoint, we still have a burning desire to grow through acquisition. We just – we’re going to make sure that whatever acquisition we undertake is a good value an example most recently being the one in Mexico and I can assure if we find good value and strategic acquisitions, then we’re likely to move forward and get those done.

And just to build on that Bryan, we have the two strategic fronts, the chicken track and the prepared foods track and we continue to see targets or options on both those tracks and clearly execute the strategy just like you mentioned when we can create for all of our shareholders.

So it sounds like you have the capacity to do both return on cash to shareholders on an ongoing basis and do M&A?

Absolutely.

Thank you. I’ll get back in the queue.

The next question is from Carla Casella with JP Morgan.

Hi. You talked a bit about the large bird deboning. What percentage of this today is large bird?

On our fresh business Carla, we’re evenly split across our case-ready business, our small bird business and large bird deboning business. So it’s roughly equal proportions.

Okay, great. And then, did you say specifically what the plant shutdown impact was on margins, did I miss it?

We did not specify that but it largely was responsible for the decline in our volume.

Okay, great. Thank you.

And next we have a follow up from Akshay Jagdale. Please go ahead.

Hey, thank you. Thanks for taking the follow up. Just to play devil’s advocate on the industry data, so you’re right the breeder flock’s down and obviously the pullet placements still up 3% but the September number was down significant amount. But isn’t that a function of the age of the breeder flock coming down aggressively over the last year and aren’t we towards the end of that trend? So that’s my first question on the breeder flock. And the second on the exits, I know there’s a lot of seasonality but since mid-August, you’ve seen a sharp increase the exit numbers on a year-over-year basis, that seems to be coinciding with the lapping of the export growth that we saw in eggs that were being exported to Mexico. Isn’t that also a contributing factor now that it looks like Mexico -- eggs exported to Mexico which today I think are like 7% or 8% of all eggs available, that was 4% or something like that four years ago. That seems to have peaked so as we’re lapping that and exports are down, it seems to be coinciding with the exit data, sort of accelerating. So those are my two questions, one on the breeder flock and one’s more on near term related to Mexico, would love to get your thoughts. Thank you.

Thank you, Akshay. So if you look at export of hatching eggs to Mexico, it’s up about 1.5% year-to-date. And so then if you translate that back into what is the domestic availability of hatching eggs, it’s up again year-to-date only about 1% as you pointed out, we reduced the age of the breeding flock and for five months consecutively, the breeder flock size has been less than the same month a year ago. So I believe what’s taking place is we’ve gotten that breeder flock age to where it should be. If you look at pullet placements, they are not up significantly year-over-year so, I believe that the breeder flock is pretty much set where it’s going to be in 2017. If you look at exits, just in the past few weeks, I think again that’s reflective of two holidays being on Sunday, Christmas and New Year’s, and we’re not alarmed by the fact that it’s going up the last couple of weeks, so I don’t see if you take everything into account the number of hatching eggs that we’re exporting to Mexico and that will continue, the relative size of the breeder flock and the hatchery capacity utilization, I don’t really see any alarms come to mind that we’re going to significantly produce more in 2017 than we did 2016.

And just one last one on retail chicken demand, I hear you on sort of the volumes been good, the Georgia Dock I mean it’s ticking down but it’s held in really well, so that’s also supportive of relatively strong demand. But when you look at the competing prices at retail for beef and pork, it really haven’t come down and it looks like retailers are holding on to a ton of margin because the wholesale cuts beef and pork are down massively. So isn’t there a risk that competition at the retail level and leave these retailers to lower the price of beef and pork more so than they have and that might further impact the demand for chicken. Is that a – I mean I know there’s a lot of concerns but is that something that concerns you significantly or just would love to get your thoughts on that.

Sure, great question. With what we see, from what prices are actually doing, and the relative drop in feature activity chicken versus beef, so chicken’s dropped about 4% in chicken feature activity but it’s increased over 3% for beef. And as you correctly pointed out, beef retails have not dropped significantly, pork retails have actually gone up relative to chicken. So with that, plus what we’re hearing from our retail customers, we believe retail demand for chicken’s going to remain strong in the foreseeable future. And I think from a consumer standpoint, consumers in their minds can go to the grocery store and they know that chicken is going to be less volatile in terms of price and it’s a better value than beef and pork and for those reasons we think that demand will continue to be strong going into 2017.

And just to add actually, despite potential drop in the prices of beef, the spread between the two proteins are still very large.

Yeah, that’s a good point. If you look at retail, composite retail of ground beef, it’s still a $1.10 per pound higher than boneless skinless chicken breasts in the fresh meat case.

Thank you. Thanks for taking all the follow ups. Appreciate it.

You’re welcome.

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

Thank you. Market conditions are playing out largely as we had expected both in the U.S. and Mexico so far in 2016 and we expect market environment the rest of the year to remain solid. Prices in the commodity markets have been strengthening in recent quarters due to better exports which will help drive improvements in large bird cut out. In case ready and small birds should continue to perform well. In 2017, with feedstock expectations remain --, our outlook for chicken demand continue to be very solid as we believe the increase in total U.S. production across all protein complexes will be met with greater export demand as well as strong U.S. economic conditions driving more protein consumption across the board and absorbing the supplies. We will continue to refine our strategy of partnering with our key customers, broad customer and product mix and geographical footprint to better accelerate our growth potential in key categories above and beyond our presence in different bird sizes. We’ll also seek ways to deliver higher margins through improved operational excellence. We’d like to thank our team members and customers as always and appreciate your interest in our company. Thank you all for joining us today.

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