Good morning, and welcome to the First Quarter 2023 Pilgrim's Pride Earnings Conference Call and Webcast. [Operator Instructions] At the company's request, this call is being recorded. Please note that the slides referenced during today's call are available for download from the Investors section of the company's website at www.pilgrims.com. After today's presentation, there will be an opportunity to ask questions. I would now like to turn the conference call 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 first quarter ended on March 26, 2023. 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 on our website at ir.pilgrims.com, along with the slides for reference. These items also have been filed as Form 8-K and are available online at sec.gov. Fabio Sandri, President and Chief Executive Officer; and Matt Galvanoni, Chief Finance Officer, will present on today's call. Before we begin our prepared remarks, I would like to remind everyone of our safe harbor disclaimer. Today's call may contain certain forward-looking statements that represent our outlook and current expectations as of the day of this release. Other additional factors not anticipated by management may cause actual results to differ materially from those projected in these forward-looking statements. Further information concerning these factors have been provided in yesterday's press release, our Form 10-K 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 first quarter of 2023, we reported net revenues of $4.17 billion, which was slightly below the same quarter last year. Our adjusted EBITDA was $151.9 million with margins of 3.6% compared to 11.8% last year. Our overall portfolio of geographies and business demonstrated its resilience over the last years. During this time, we experienced all-time highs as well as near-record lows in commodity values. We've also faced dramatic inflation throughout our supply chain, including grain inputs, labor and utilities, along with other distinct challenging economic conditions in each of our regions. To mitigate these challenges, we've also consistently driven our strategy of key customer focus and operational excellence. Our businesses were able to capture the benefits of exceptionally favorable markets while minimizing the impact of extremely adverse market conditions. As a result, we can generate a more resilient earnings profile over the long term. Throughout Q1, our strategies demonstrated their criticality as our overall business -- in each region improved its profitability relative to prior quarter in a very challenging environment. In our U.S. business, diversification with small bird and case-ready, along with our branded offerings in Prepared moderated the impact of depressed commodity cutout values. In addition, our key customer strategy was instrumental in driving improvements in our production volumes and in our supply chain. In the U.K. and Europe, our focus on operational excellence and the restructuring of our manufacturing network helped us increase production efficiencies. These efforts were extended beyond our production locations as we drove synergies in our back-office support activities as well. Our innovation also continued to gain traction with key customers, further diversifying and adding value to our portfolio. As for Mexico, performance improved in supply-demand fundamentals become more…

Thank you, Fabio. Good morning, everybody. For the first quarter of 2023, net revenues were $4.17 billion versus $4.24 billion a year ago, with adjusted EBITDA of $151.9 million and a margin of 3.6% compared to $501.8 million and an 11% -- 11.8% margin in Q1 last year. Adjusted EBITDA margins in Q1 were 1.8% in the U.S. compared to 15.9% a year ago. For our U.K. and Europe businesses, adjusted EBITDA margins came in at 5.3% for Q1 compared to 1.2% last year. In Mexico, adjusted EBITDA in Q1 was 8.5% versus 16.1% a year ago. Moving to the U.S. results, our adjusted EBITDA for Q1 came in at $43.6 million compared to $411.7 million a year ago. Our U.S. big bird business was impacted by continued volatility in the commodity chicken markets. We entered the first quarter on a downward slope of the commodity market pricing. As we hit the end of January, we began to experience steady improvement in cutout pricing until we saw flattening of the curve towards the end of the quarter. Our diversified U.S. product portfolio across bird sizes and brands, along with our key customer partnerships, helped us capture the upside of the strong commodity market prices in Q1 2022, while helping us mitigate the impact of volatility in market prices in our big bird business during this quarter. In the U.K. and Europe, adjusted EBITDA in Q1 was $66.2 million versus $14.8 million in 2022. The U.K. and Europe business continues to face inflationary cost pressures. However, through its previously discussed mitigation efforts in 2022, the business has shown resiliency in its profitability growth journey. The business has benefited from the back office integration and its network optimization programs. We incurred approximately $8 million of restructuring charges during this quarter in support…

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

Congrats on the results. So my 2 questions, let's start off with the U.S. And obviously, there was a nice sequential improvement. And you kind of called out that January was still soft, but things got better. The question is if we look into a second and then may be a little bit of a sneak preview into the third quarter, how confident are you of the ability to drive higher profits, maybe getting that profit margin into mid-single-digit range? Do you think there's some potential just given maybe some of the grain costs on a year-over-year basis coming down? Prices seem to have started to go into the right direction. So how should we think about the onset of summer in the grilling season and PPC's positioning as to the profitability? That would be my first question.

Of course, thank you, Ben, for the question. Yes, looking into the future, right? We need to also think about the segments that we operate. I think we've always talked about the portfolio that we have. And when analyzing Q4 and Q1, we see that the supply and demand has been in balance for the small birds and for the case-ready category. I think the segment that is suffering from an imbalance in supply and demand is the commodity segment or the big birds. Looking into the data on the Q1 increase in production, we can see that almost all of the growth occurred in that same segment in the big bird category. So what we are seeing is that a stable demand in food service and in retail, which once again has been very positive for the small bird and case-ready categories of our portfolio, but the commodity category is completely out of balance. We're seeing an increase in production, and we don't see a strong demand for the commodity segment, especially on the boneless breast and on the wings. As we are seeing the exits coming down in our industry, and we believe it is in that category because of the severe losses that the category is suffering, we will see the overall portfolio to go up. I think the main drivers for that is going to also be the grilling season, right, as we know, demand during the grilling season increases, increases both in the foodservice and on the retail front. And when the demand on the retail front increases, we can augment our offerings on the case-ready size buying meat from the big bird category. So we expect that more promotional activity on the retail, the increased demand in foodservice and on the retail during the grilling season, coupled with a moderation in the increase of production or even a reduction as USDA is expecting to put more supply and demand balance for the commodity category, which will take our portfolio higher.

Okay. Perfect. Very good, very clear. And my second question is on the European/U.K. business. It was interesting to see because I think that $8 million restructuring was still part of that U.K. business, which you've talked about in the last conference call. So just wanted to understand, where do you are right now on the restructuring? Is there still more to come and maybe the magnitude of it? And what do you think as the business normalizes as you get your production to the levels where you want to be. What's like kind of a level of operating income on a quarterly basis or annual basis, you think is reasonable for that business, just given that you acquired the Kerry business, but we never saw the business like in full swing performing properly with the legacy Moy Park plus the Kerry. So what's like that go-forward run rate? Because I remember prior to the issues, Moy Park was a very steady, stable, easy to forecast. So how does that combined with Kerry look like?

Yes. Great point. I think there's a lot of moving parts in Europe, right? I think we do -- we were over the last year, restructuring our activities. We have some plants that have spare capacity. So we moved some of the capacity to more efficient plants. And that's what we saw on the restructuring. And that's the improvement in the results that we are seeing because we're still facing some very high inflation on that, which we need to translate into prices, and we are always behind when capturing those inflationary impacts into the prices, right? I think we also saw an increase in wheat over the last year. But now I think the benefits are also -- we are expecting are going to happen with the moderation of inflation, with reduction of the utilities reduction of wheat. In terms of the network, we're always looking into opportunities of what we can do, especially because we are combining 3 businesses. As we mentioned, there are some benefits from the back office integration as well. But we believe that the majority of the restructuring that we need to do was already done. So in terms of what we expect from this business, I think we have the clear vision of being the best operator in Europe as we have the same vision here in U.S. and Mexico. And margins in the range of 6% to 8% are with what we believe to be achieved in that segment.

That's operating, correct?

Operating, yes.

The next question is from Ben Bienvenu of Stephens.

I want to ask Fabio, thanks for giving that kind of framework as we think about demand and supply moving through the summer. I want to ask about cold storage. Inventory levels are still elevated. In light of that supply-demand framework that you gave us, how do you think about cold storage levels whittling down? And how many months do you think we have before we start to see those inventories become more reasonable on a path to what sounds like a stronger back half of this year.

Yes. Thanks. Looking into the cold storage, I think the overall levels, we saw an increase in the 2022. But I think over the beginning of 2023, we're seeing some significant decreases, right? The most impactful part on the cold storage has always been on the legs, right, or leg quarters because that's a big impact for the export. We've been seeing significant demand on the export front, and we're seeing the leg quarter inventory at record lows. The areas that we saw some increases are in the breast meat and on the wings and a category called other. I think what we believe is in this other category. It's a lot of fodder processing. So fodder processing wings or fodder process bones -- boneless breast. So when analyzing the size of that, it's almost a week of production. So it's not a significant amount. But we believe it is in this inventory. It's some fodder processors that took the advantage of very low commodity pricing to build some inventories. So the magnitude of that inventory compared to the overall consumption in the domestic market is not something that we believe will be burdensome for the market to absorb. It's more an opportunistic in our view, strategy of some fodder processing to put some wings and some boneless breasts at very nice prices into inventory.

Okay. That's great. My second question is on Mexico. A nice sequential improvement. You discussed kind of the snapback and fundamentals there to a more balanced level. What's your outlook at the moment on the visibility you have for that business as we move into the second quarter?

Yes. Thank you. Mexico has been very volatile lately. And I think it's something that we always mentioned that they can be very volatile quarter-over-quarter, but year-over-year, they tend to be more stable. I think we are seeing a more balanced supply and demand in Mexico. I think we're still seeing a lot of imports from pork from U.S., from breast meat from Brazil, reaching the Mexican market. But yet, I think the industry in Mexico adapted their supply and demand to what they expect on the economy. The economy is doing better in Mexico lately. And as we always mentioned, chicken is the most resilient to the inflationary events. I think in Mexico, there was a little bit of trade down out of proteins actually during the Q4 because of the economic environment. But we are seeing that economic environment improving. And most of that operation is trading back into the protein and chicken is the entry protein in Mexico.

The next question is from Peter Galbo of Bank of America.

Fabio, I was wondering maybe if we could just get an update with regards to Athens, maybe a couple of details there. One, I think if I have it correctly, you kind of announced the expansion program around this time last year, just when you would expect that kind of to be completed and that we would start to see that showing up in the numbers? And then the second part of that is just upon completion, if you can give us a rough estimate, we've always thought about your business as 1/3, 1/3, 1/3, but between kind of the 3 segments. Just upon completion of that, where small bird will kind of land as a percentage of your overall U.S. mix?

Yes. Thank you, Peter. Yes, so the Athens project is really important for us because it is to support the key customer growth, right? We always mention about our strategy of growing together with our key customers. The -- we are expecting to increase around 20% on our small bird category with that plant. 20% in Athens with that expansion. So it's one extra line that we add there. It's not going to change considerably our portfolio. So it would be a little -- some points into the small bird category for us. I think the most important part is to continue to evolve our portfolio to something that is more profitable, more stable and allow us to grow in connection with our key customers. We expect -- sorry, we expect -- I think we announced during July last year, and we expect that plant to start running in Q4 this year.

Yes. Most -- Peter, most of the benefits will start seeing more beginning of next year because as we ramp up in Q4, it will just take a little bit of time. But by Q1, we'll be seeing the -- sorry, should be seeing the full benefits of that expansion.

Got it. No, that's helpful, guys. And maybe just to go back to Ben Theurer's question. U.S. in 2Q. I just want to make sure that we're kind of all on the same page here. You're expecting U.S. operating profit to be positive, I would imagine, in the second quarter. And then if I can just get you to comment, consensus for the second quarter right now is around $250 million of EBITDA. Just any comment you could make there on how you think -- see things shaping up relative to consensus in the quarter.

Sure. I think we're seeing all the positive drivers in the market, right? We're seeing the industry reducing production. We are seeing some more demand in terms of retail with more feature activity and on the foodservice as we go to the grilling season. So the drivers are there, and we expect that to be in line with those expectations.

The next question is from Adam Samuelson of Goldman Sachs.

So maybe coming back on the -- just the seasonal kind of improvement that we're seeing in boneless breast. And I guess I would just maybe push back or kind of test a little bit. I mean, we're sitting here at the end of April, prices have kind of stalled out for a couple of weeks and pressing pricing around $1.40 a pound. Obviously, that's considerably better than the lows you saw in December and January as it should be at this time of year. And so just relative to where things were last year at this time relative to industry production, which I know I mean more of the production increase is in big bird, but industry production on a year-on-year basis is still -- has now slowed down relative to where it was several months ago. So just help me think about kind of -- it still seems like a pretty sluggish kind of demand environment for boneless breast and that reflecting just weaker food service, kind of further processing demand, just lack of pull-through of incremental boneless breast into retail for tray-pack at this point? I'm just trying to make a sense of seasonally the magnitude of the increase that we're seeing has not been that significant. And I'm trying to just reconcile that with your point that demand generally seems pretty good.

So yes, I think you hit the correct drivers, right? So looking into the supply, we're expecting the increases to moderate and on the second semester to actually last year increases are bit down year-over-year. So in terms of supply, we're expecting a reduction compared to last year on the second semester. And we can't forget that at this same time last year, with the same production and sufficient demand for sure, we see some record pricing in boneless breast and also on wings. So we are expecting similar conditions to last year in terms of supply and demand. Of course, we're coming from a very low -- much lower price point as last year. But again, the fundamentals of supply and demand continue. I think you hit the right point. It's more feature activity from the retailers as we are seeing retail pricing is record high and much higher than the same time last year, which is refraining the consumer to increase its spending. They're spending more in dollars, but not a lot more in pounds. So we expect that to change with more promotional activity, especially as we are seeing the pricing of the other proteins to go higher as we are seeing lower production for both beef and pork on the second semester. So we expect more promotional activity on the retail. You mentioned the foodservice as well. We're seeing a lot of promotional activity being expected for the QSRs, especially on the second semester of this year, again driven by the lower availability of other proteins, especially beef and higher price. So we expect more demand there as well. And on the -- we call it industrial segments, it's the fodder processors. We saw some slowdown, especially because of the same factors on the retail, higher pricing, not creating a lot of demand. We saw some industrial category to also be flat year-over-year, and we expect that to resume during the second semester. So when looking into the excess and chicks place, we are seeing some moderation actually some negative numbers compared to the same period last year, and we're seeing some strong signals of improving demand. That's why we believe that there is some good perspectives for the boneless breast. On the wings side, I think it's the lingering and the lower price has been a lot longer than we expected. Usually wings rebound much faster than what's happening this year. But I believe that we're seeing more and more wings going back to the menu. I think what impacted the wing pricing was during last year shortages and higher prices, we saw a lot of foodservice to take wings out of the menu, and we're seeing those wings coming back into the menu, and we're seeing more promotional activity from the wing concept -- foodservice as well.

Okay. And then just maybe come back, I think in response to an earlier question, you talked -- I thought I heard you say a 6% to 8% kind of operating margin in Europe was kind of where you thought the business could get to? And if I missed it, I apologize. Did you say a time by which you thought you could get there? And maybe as a related point, how would you frame -- I mean, given a lot of the changes in portfolio and mix that you kind of accomplished over time and understanding it's volatile, how would you frame that kind of margin potential of the U.S. business over time?

Yes. I think Europe is a more stable business when we look into the history. So that's why it's easier to talk about some expected margins, right? So we look at the reinvestment level, we look at our portfolio, right, we have beef, pork and prepared foods, we are well balanced there. So there is a lot of portfolio that we can talk about to differentiate ourselves to the competitors in Europe and do a better job of being a partner to the key customers. So that's why it's easier to talk about the results in Europe. Of course, we expect that to be more towards Q4 and next year as we see those inflationary impacts moderating to a more normal level. I think as we mentioned, we have a lot of -- and if we look at our portfolio of contracts, is also important. We have a lot more contracts in Europe that are cost plus. I think we've mentioned before that a lot of those that we believe were cost plus was more feed and grain plus because there was not a lot of inflation in the other areas as packaging, utilities and labor. And we already moved all those contracts to a more holistic view of whole costs to be cost-plus. That's why it's easier to talk about expected margins in Europe than in U.S. In U.S., we have our portfolio. And as we saw the volatility in the commodity segment has been extreme, right? All the other segments in the U.S. on the prepared foods, small bird, case-ready, fresh food services has been very stable. But the volatility in the commodity segment has been extreme over the last 2 years, right? And we saw record high prices last summer, and we are seeing some very significant low prices during Q4 and Q1. That's why it's more difficult to talk about the expected profitability in the U.S.

All right. Worth a shot. I appreciate the color.

Thank you, Adam.

The next question is from Andrew Strelzik of BMO.

I wanted to go back to the U.S. chicken margins and try to put together all of what you just said. So it sounds like demand is good, supply is going to be lower and feed costs, at least on the forward curve, are coming down. So -- and I understand what you're saying about the grilling season. But when we get post the grilling season, if I take those 3 things together, are you anticipating that kind of your all-in portfolio in U.S. chicken margin would be back to normal levels? And if not, I guess, what would it take to get that back there from -- based on your expectations?

So yes, we expect that to be back to what we used to see in the past or normal levels. As I mentioned, looking into our portfolio, and we are well balanced, but the commodity segment has been extremely volatile. And that's the segment that we expect to stabilize over the next quarters. The small bird and the case-ready business has been stable year-over-year. And actually, we're seeing some nice improvements in our Prepared Foods offering. For that to happen, once again, we expect more -- or normalization on the demand side, especially in that segment of larger birds and more future activity on the retail side and a lot of more promotions of chicken and chicken sandwiches in the foodservice.

Okay. Great. That's helpful. And then my other question is just on how you're thinking about the fee cost side with backwardation, particularly on the corn side. Are you thinking of maybe getting more aggressive locking those in? Do you feel like you're in a good position to continue to let that ride? Any kind of change in your approach as we get to potentially more favorable feed cost environment?

Yes. We're always looking into the market and the drivers to establish a position more or less aggressive, right? What we are seeing, the indication today is a good acreage. I think the high prices that we saw, especially on corn worked and we saw some record acreage or planting intentions here in U.S. I think it's all going to be depending on the weather, as usual. The crop is actually evolving really well right now. The planting is going ahead of the 5-year average. So we're seeing some good conditions on the crop. I think there's also a change in the weather patterns from the La Nina to El Nino, which typically brings good weather for the planting here in the U.S. We're starting from a very tight carryout. But we expect with normal yields and with the acres that we are seeing in USDA planting intentions, a much better stocks-to-use ratio and a much better carryout for the next crop. Of course, that will impact more the end of Q4, beginning of Q1 as there is a lag between refeeding the birds and the birds being processed. So we expect that benefit to be late Q4 and beginning of Q1. But there is some very positive perspectives in terms of the grain cost for our operations.

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

Thank you again. Although we faced exceptionally difficult market conditions, our strategies of diversification, key customer focus and operational excellence are designed to mitigate these challenging transitory issues and cultivate long-term profitable growth opportunities. Throughout Q1, these strategies were once again affected as we drove improvements across all regions despite depressed market pricing, elevated input costs and continued inflation. Moving forward, we will continue to drive these strategies, along with unwavering commitment to our values and our team member wellbeing. Given continued focus on relentless execution, we can further cultivate competitive advantages for our business, enabling a better future for all of our team members. Thank you for joining us today.

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