Good morning, and welcome to the Fourth Quarter and Fiscal Year 2022 Pilgrim's Cries 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.pilgrim.com. After today's present patient, there will be an opportunity to ask questions. I would now like to turn the conference over to Andy Rojeski, Head of Strategy, Investor Relations and Net Zero Programs for Pilgrim's.

Good morning, and thank you for joining us today as we review our operating and financial results for the fourth quarter and fiscal year ended on December 25, 2022. Yesterday afternoon, we issued a press release providing an overview of our financial performance for the quarter and the year, including a reconciliation of any non-GAAP measures we may discuss. A copy of the release is available on our website at ir.pilgrims.com, along with the slides for reference. These items also have been filed at Form 8-K and are available online at sec.gov. Fabio Sandri, President and Chief Executive Officer; and Matt Galvanoni, Chief Financial Officer, will present on today's call. Before we begin our prepared remarks, I would like to remind everyone of our safe harbor disclaimer. Today's call may contain certain forward-looking statements that represent our outlook and current expectations as of the date of this release. Other additional factors not anticipated by management may cause actual results to differ materially from those projected in these forward-looking statements. Further information concerning these factors have been provided in yesterday's press release and our regular filings with the SEC. I would now like to turn the call over to Fabio Sandri.

Thank you, Andy. Good morning, everyone, and thank you for joining us today. For the fourth quarter of 2022, we reported net revenues of $4.13 billion. We had adjusted EBITDA of $63 million and our adjusted EBITDA margin was 1.5%. Our Q4 performance highlights the importance of our strategies of portfolio diversification, key customer focus and operational excellence to mitigate market volatility. In the United States, our Big Bird deboning business experienced some down supply and demand and a period of severely negative margins. However, our diversified offerings and key customer relationships in a more stable Case Ready and Small Bird business along with our Prepared Foods, partially compensated impact, generating breakeven EBITDA margins for the quarter. Our U.K. and Europe business has completed a variety of those steps to enhance our operational excellence through optimization of our manufacturing network and integration of back office activities. The team also continue to work in partnership with key customers to mitigate persistent inflationary challenges. These steps and future efforts have and will further enhance margins and reinforce the foundations to scale profitable growth for the next year and beyond. In Mexico, our business faces a challenging quarter given an imbalance supply and demand fundamentals, increased pressure for imported chicken and continued challenges to our live operations. Nonetheless, the team's strengthening its relationship with key customers and grew its branded presence in Prepared Foods by double digits. For the fiscal year, the net revenues were $17.5 billion, an 18.2% increase over last year. Adjusted EBITDA was $1.6 billion, up nearly 28% compared to 2021. Adjusted EBITDA margin for the year was 9.4% compared to 8.7% in 2021 and 6.5% for 2020. Throughout the year, we experienced remarkable inflationary headwinds and exceptional market volatility. We are pleased with how our team engaged with key…

Thank you, Fabio, and good morning, everyone. For the fourth quarter of 2022, net revenues were $4.13 billion versus $4.04 billion a year ago, with adjusted EBITDA of $63 million and a margin of 1.5% compared to $317 million and a 7.8% margin in Q4 last year. In the quarter, we reported a GAAP net loss of $155 million versus GAAP net income of $37 million in 2021. In the fourth quarter, we recorded a discrete income tax charge of $39 million associated with the previously disclosed Mexican tax matter that dates back to 2009 and 2010, which drove our full year effective income tax rate to 27%. For the fiscal year, net revenues were $17.5 billion versus $14.8 billion in fiscal 2021, with adjusted EBITDA of $1.65 billion and a 9.4% margin compared to $1.29 billion and an 8.7% margin last year. We achieved $746 million of GAAP net income this year versus $31 million year ago. Adjusted EBITDA in the U.S. for Q4 came in at $15.8 million with adjusted EBITDA margin slightly above breakeven. Throughout the fourth quarter, commodity market pricing fell dramatically, below historical averages for most of the period. Our diversified U.S. product portfolio across bird sizes and brands, along with our key customer partnerships, partially mitigated the impact of declines in market pricing in our big bird business. For the fiscal year, our U.S. net revenues were $10.75 billion versus $9.11 billion in fiscal 2021 with adjusted EBITDA of $1.37 billion and a 12.7% margin compared to $896 million and a 9.8% margin last year. The U.S. had a tremendous full year 2022 demonstrating our ability to participate in the upsides of a strong commodity chicken pricing market during the first eight months of the year, while buffering the downside during significant market declines…

We will now begin the question-and-answer session. [Operator Instructions] The first question is from Ben Bienvenu of Stephens. Please go ahead.

Thanks. Good morning, guys.

Good morning, Ben.

So I want to ask my first question relative to supply demand in the U.S. market. You highlighted the USDA's estimate revision downward yesterday for broiler production this year. You talked about the pullet placements pointing to production cuts as we get to kind of the summer and the second half of this year. Do you see those cuts staying intact through the balance of this year? And then on the demand side, are you seeing any indications of demand shift from beef and red meat to chicken yet given the value that it offers consumers?

Yes. Thanks for the question, Ben. Yes, I think we need to always go back and look at our portfolio, right? And for Pilgrim's, we have the exposure to the commodity market and I’ve always mentioned that it's important for us. And we've captured the upside when the market was really strong in Q2 and Q3. But of course, we were exposed to that segment in Q4. What happened in Q4? I think we addressed a little bit on the prepared remarks is that, the expectations from USDA and from the market was that there was a significant reduction in availability of protein in the Q4, easing the lower herd of this. And also the AI impact on the turkey. With that and with the continued record profits on the commodity segment for chicken, the whole industry started placing more chicks that you can see on the chicks placement report from the USDA, around 4 million to 8 million a week more than previous year. We improved hatchability, but it was also a lot of more eggs. That came into the market during the Q4. What we saw in Q4 was an increase of close to 12% of availability of chicken on the big bird segment or the commodity segment. At the same time, we saw an increase of 8.5% availability in the case ready segment. And as we saw because of the higher availability than expected of beef and pork, the demand on the retail segment only increased by 1%, which means that all this 20% more production in the big bird and the case ready segment ended up in the foodservice segment and the commodity segment, which pressured the prices, Q2 levels that we've had never seen, which created a severe loss for the big bird business in Q4. Starting in November – mid-November, as you can see, and we mentioned on the weekly chick placements from USDA. We saw that a moderation of that increase to actually some reductions and that's what we are seeing coming as production now in Q1. So USDA numbers are expecting an increase of total chicken production in Q1 around 1%. We believe that the die is cast on that one. But if the market don't continue to improve, we expect some significant reductions in chicken production for the second semester.

Okay. And any -- now that maybe the pig is through the [pipeline] (ph) on beef and we should start to see shortages, are you seeing demand shift from red meat to chicken yet? I imagine given where wholesale prices are for chicken, there's a lot of margin for retailer maybe to feature chicken with more frequency?

Yes, that's exactly right. I think over the last quarter, we also see that the retailers kept the price of chicken elevated and that compressed the spread between chicken and ground -- especially ground beef and pork. So there was not a lot of promotional activity during the quarter, but we are seeing that changing right now. And I think yes, the retailers have a lot of availability to do promotional activity on chicken and we are seeing some trading now from beef to chicken. Also very important is the foodservice promotional activity that they start setting for the year around this time. If the USDA expectations is correct, we're going to see the reduction of 6% in production of beef and that should lead to higher prices and lower availability, which tends to favor LTOs and promotional activity on the foodservice on the -- for the Chicken production.

Okay, great. Thanks so much.

The next question is from Ben Theurer of Barclays. Please go ahead.

Yes. Good morning, Fabio and Matt.

Hi, Ben.

Good morning, Ben.

So just along those lines and you've talked a lot about obviously what the industry is doing in terms of bringing some of the production down. But at the same time, you've talked about spending maybe some $400 million to $500 million in CapEx adding capacity. Can you help us reconcile what kind of capacity that actually is you're adding and how you think about this in light of the production cuts and potentially postponing some of the delivery of these capital expenditures just to kind of keep the market in balance?

Sure, Ben. It's a great question. I think we need to also come back and tie to our strategy of key customers. We plan our production based on the sales to our key customers. I think one good example on the retail side is, while the industry only increased by 1% in Q4 on the retail side. we increased by 6% because the demand for our key customer continue to excel. So I think that is despite what the overall market is doing. Our key customers continue to grow. On the CapEx expectations on Athens, Georgia is a small bird plant to support foodservice sales to a key customer that continues to grow double digit every year. So despite the market decreasing on the small birds, we continue to see more and more demand for our products. I think the increase in the market was all in the big bird category and on the case ready category and that is where the market is oversupplied and that's where we are seeing some reduction in production because of the severe losses. If you look into our portfolio compared to the same period last year. Actually, the results on the food -- on the small bird, case ready and on prepared foods were actually higher than the same period last year. The other investments that we announced, it's one on South Georgia projects to increase our protein conversion offerings, which is margin enhancing for us instead of selling to the outside market, we'll produce pet food and we'll produce food feed grade from our own operations.

Okay, perfect. And then within the international operations, you've highlighted it, obviously, in the U.K, you've seen sequential trends, but then you have restructuring in there. Is that something that cost that you expect to continue to occur in the first quarter? Or is that all done on the restructuring side? And when do you expect the benefits of the restructuring to kind of flow through into operating profit?

Yes, there's some small impact in Q1 on restructuring, but basically what we did was to adapt all of our operations, again, to the key customers' demand. And we saw that we could operate at a higher efficiency and higher operating levels in [indiscernible] in the Prepared Foods segment. From three plants, we will reduce to two plants, that will operate at a higher level. There was some investment needed to operate on those two plants instead of three plants. And there are some write offs that we had to do because we were shutting down one plant. And we expect that now the network rationalization is ready and we don't expect any more changes on the upcoming quarters.

Yes. Ben, it's Matt. We recorded about $30 million in the fourth quarter and I committed that we'll anticipate about $15 million to $20 million of charges in the first half of the year. It's just the timing of when you can record those under GAAP and when they're incurred.

Okay. Perfect. Thanks, Matt. Thanks, Fabio.

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

Yes. Thank you. Good morning, everyone.

Good morning, Adam.

Hi. So I mean, I appreciate the challenges in the big bird market in the fourth quarter. And prices have improved a little bit, but still not a -- not a kind of great start in January necessarily. But can you help us think about the profitability, especially in tray pack where the demand growth -- there's a little bit oversupply there. Demand growth has been a little better, but nowhere near supply log pricing, a little bit lower year on year and how to think about the profitability in the non-commodity parts, the non- Pilgrim parts of your U.S. chicken segment year over year first quarter, first half with where the markets are laying out?

Sure. And again, as I have mentioned, we have a well-diversified portfolio and we can capture the upside when the commodity markets are really strong and we protect the downside. And I think once again, we proved that on the Q4 and proved that throughout 2020 and 2021 that we can counter the big bird or commodity segment losses with the margins on the other business. What we are seeing on the small bird is the reduction of supply overall in the market. And we are seeing a continuous growth for Pilgrim's with our key customers, both on the fresh food side, on the eight piece and on the deli side. So our partnership with our retailers and promotions on the deli side has helped a lot the demand on the smaller. So we're seeing stable margins on the small bird. And that's how we build our portfolio. We also see significant growth on the small bird deboning segment, which is for foodservice and for QSR -- specific QSR, so we continue to see growth in there. On the case ready, again, after some really strong growth years in 2020, 2021 we see the demand continues to grow, but at a slower pace. I think we saw some new plants in that segment and those plants put a little bit of pressure on the market, especially if they don't have a key customer. Because as I mentioned, as the market grew only 1% in the fresh retail in 2022, our sales increased by 6% and that's all driven by helping our key customers to grow. So we are seeing also moderation on the growth on that segment. Now the big bird, once again, it is supply and demand driven. We expected the foodservice to grow in 2033 as the labor rate continued to be tight. I think we're seeing despite some inflationary impact into the consumer spending, we're seeing the consumers continue to go to the foodservice and the foodservice, especially the non-commercial growing at double digits, especially on the leisure and on the governmental side. And so, we are expecting some significant improvement in the big bird market for 2023. Of course, given the supply demand continuing imbalance and the supply in line with the 1.1% expected by USDA.

Okay. That's helpful. Can I just have quickly on Mexico? Obviously, challenges in the fourth quarter. Just help us think about kind of where profitability is there today, understanding that the live nature of that market will move quite rapidly, but just help us think about kind of where we've exited fourth quarter and through January?

Sure, yes. Mexico, we always mentioned that it is very volatile quarter over quarter, but stable year-over-year. I think in 2022, the market was in line with that expectation of very volatile, a very strong first quarter and a very weak second quarter. Especially because of increased production on the domestic side, but also after a very strong first quarter, there was a lot of exports from Brazil that arrived late in Q3 and beginning of Q4 and also with the weak commodity markets in U.S. There's a lot of meat that end up in Mexico. We have our operational issues as well on the live because of some diseases and because of that restructure our live operations. And we expect the benefit from that restructuring to start in Q2 this year. We already see the market returning to more amortization, let's say, in Mexico, with double digit margins during the quarter.

Okay, great. That's all helpful. I'll pass it on. Thank you.

The next question is from Peter Galbo of Bank of America. Please go ahead.

Hey, guys. Good morning. Thanks for taking the questions.

Good morning.

Fabio, I was just wondering if you could help us understand a little bit. You have a slide in there -- in the deck around cold storage levels. Obviously, we can track those through USDA and breast meat does come to mind, it’s pretty much close to all-time highs of fresh meat in cold storage. And so, I understand that you're seeing the improvement and expecting a back half. But can you just help us frame from the 250 million pounds of breast meat in cold storage, like what is the actual timeframe of how that gets worked through? What have you seen historically when levels get that high? Does it take three months, six months? Just any kind of timeframe around that would be super helpful.

Yes, we see that especially during Q4 with this increase in production on the commodity segment that the inventory progress [indiscernible] especially on the [IQF] (ph) segment. If you look into the retail numbers, the IQF demand during Q4 was down close to 10% and that increased those levels, but if you look at the overall level of breast meat into inventory, that is close to two weeks of production. So it's not a significant number that will take a long time to be absorbed into the marketplace.

Got it. Okay. That's helpful. And then maybe just to follow-up on Ben's question around Europe. I think you guys are kind of in a unique position to give an update on just the European consumer, particularly in the U.K. like I think from the seat that we sit in, it was all doom and gloom headed into the fall? It seems like there's been a lot of headwinds that maybe have been alleviated on the consumer there. So maybe just give us an update on what you're seeing European consumer wise from a top line standpoint and then just expectations for the year in that segment?

Yes, I think we saw some elevated levels of inflation getting into the consumer wallet during Q1 and Q2. And that was a reflection of the increase in utilities and in grocery throughout the entire Europe. We adjusted our operations. And in partnership with key customers, we did some innovation to reduce the cost of our products to mitigate that inflation. We're seeing that we have a portfolio that is very well positioned. We talk about this trade down in terms of proteins. We saw the consumption of red meat going down double digit in Europe overall. While the consumption of chicken and pork remains stable. So we have a portfolio that is well positioned to capture that trade down possibility from the consumer in U.K. Now, what we are seeing that inflation is moderating. I think utility costs are actually decreasing in UK right now, albeit from very high levels. And we are seeing some consumer confidence coming up from very low levels recently. So we have good expectation in terms of demand for chicken and pork for 2023. Also, our branded products after suffering a little bit from volume, from price increases they're reaching a level where the retailers are doing some special promotions and we are spending a little bit on trade that is helping the volumes on the branded segment.

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

Thank you. Throughout 2022, we experienced unprecedented cost escalation, market volatility and consumer uncertainty. I would like to thank all of our key members for consistently leading our values and driving our strategy despite these challenging times. Their leadership mindset and relentless focus on becoming the best were instrumental in managing through these volatile times and driving strong results for the year. We have strengthening our foundation by driving branded growth, optimizing our manufacturing network, implementing synergies and further expanding our portfolio through innovation. We did that combined with our new leading attention on team member safety, rather quality and sustainability. We are well positioned to create a better future for our team members and achieve our aspiration of becoming the best and most expected company for 2023 and beyond. Thank you.

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