Pilgrim's Pride Corporation

Good morning and welcome to the second quarter 2022 Pilgrims Pride earnings conference call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. 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, today's presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Andy Rajewski. Head of Strategy, Investor Relations, and Net Zero Programs for Pilgrims Pride.

Good morning, and thank you for joining us today as we review our operating and financial results for the second quarter ended on June 26, 2022. 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.pilgrim.com, along with slides for reference. These items have also been filed as Form 8Ks and are available online at sec.gov. Fabio Sangre, President and Chief Executive Officer, and Matt Galvinoni, 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 day of this release. Other additional factors not anticipated by management may cause actual results to differ maturely from those projected in these forward-looking statements. Further information concerning these factors has been provided in today'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 second quarter of 2022, we reported net revenues of $4.63 billion, a 27.3% increase over the same quarter last year, and an adjusted EBITDA of $623.3 million, up 67.7%, versus Q2 of 2021. Our adjusted EBITDA margin was 13.5% compared to 10.2% of Q2 last year. Our Q2 results continue to reflect the benefits of our strategy and portfolio, which enables us to capture upsides in the market despite volatility in particular segments or geographies. In the U.S., we experienced strong market fundamentals in the commodity cutout. Given our relentless focus on operational excellence, Our big bird deboning operation capitalized on those conditions to achieve extraordinary sales and margin performance. Our case ready and small bird drove partnership with our key customer to recover inflationary costs, continuing to produce solid, stable performance. In prepare, just bear and pilgrim's business experienced significant growth in retail, further diversifying our portfolio. Our European business demonstrated improvement as it mitigated unprecedented inflationary headwinds and an extreme challenging consumer environment. The team accelerated operational excellent efforts and conducted multiple rounds of negotiations with food service and retail customers to recover profitability. Our Mexico business also managed through extreme volatile market conditions, further amplified by seasonal challenges in live production at our locations. Nonetheless, the team leveraged our breadth of operational excellence and geographic diversity to ensure sufficient supply to our customers. In line with our vision, we remain committed to enhancing sustainability through our business. We continue to invest throughout our operation to reduce our greenhouse emissions and achieve our net zero commitment by 2040. As part of our Hometown Strong program, we have invested over $15 million in our local communities over the last few years. In addition, more than 370 team members or children of our team members have signed up for learning free higher education degrees or trade certifications through our Better Futures program. We have also formed a sustainability committee on our board of directors to amplify our efforts related to environmental, social, and governance matters. We are grateful for the efforts of our team members to improve performance across all aspects of our business during the first half of the year. We will remain disciplined and drive ownership in the execution of our strategies and continue to implement further improvement of opportunities, all of which must be done with an unwavering commitment to our team member health and safety. Turning to feed inputs, grain and oil seeds markets have moderated lately, but continues to experience extensive volatility. In the U.S., corn planted area is slightly up from the March USDA surveys, where soybeans declined as strong grain prices worked to prioritize corn planting despite a sluggish start. Weather will be extremely critical over the next several weeks, as many key producing states have the potential for good production, where good production is needed to offset the heat stress in the southern U.S. From a global standpoint, western New York is experiencing severe heat, whereas the outcome of a recent agreement between Russia and Ukraine for grain exports remain extremely uncertain. Following recent events, Brazil is currently harvesting record corn production and is pricing competitively into global demand. These unique circumstances contribute to significant market volatility. To assess the potential ramifications on our business and global grain complex, we will continue to monitor the weather in US and Europe, as well as the impact of the Russia-Ukraine conflict. We continue to adapt our grain positions to reflect our view on the risks we see on the market. As for the supply of US chicken, Live weight production increased 0.2% relative to Q2 of last year, driven by additional head counts that were slightly offset by lower average live weights. The industry continues to battle hatchability headwinds that have consistently offset growth in egg sets, but recently we have seen positive signs of hatchability improving quarter over quarter and have paced with the year-ago levels since mid-Q2. Our team implemented actions that developed in partnership with our primary breeder suppliers throughout the quarter. We found these countermeasures effective as our rate of improvement in hatchability exceeded industry averages. We anticipate these improvements to continue, further enabling supply needs to grow our business for the remainder of the year. As for the avian influenza, the impact on U.S. broiler production remains non-neglectable, and supply is still expected to grow nearly 1% in 2022, according to the USDA. Similarly, we did not experience any notable interruptions given the effectiveness of enhanced biosecurity programs throughout the industry and our business. The larger impact for business has been on export restrictions of selected states, some of which have regained eligibility for export given their virus elimination status. Additional opportunities will soon emerge as other states are weeks away from regaining their export status. Overall, export business remain robust as export volumes increased 5% year-over-year in April and May, driven by a 20% increase in leg-quarters volume shipments compared to April and May of 2021. Dark meat inventories decreased 1.8% year-over-year in June and are 21% down from March levels, as leg-quarter inventories declines were the primary driver of fewer dark meat pounds in storage. Inventories could have been reduced even further but for logistical and shipping challenges experienced by the country and the whole industry. The market continues to remain strong, reflective of sustained global demand supported by strong oil pricing, as well as current supply deficits driven by avian influenza in Europe and ASF in critical Southeast Asian markets. Given current demand levels and expected supply limitations, we expect chicken commodity prices to follow seasonal patterns, yet remain elevated above historical norms, which is demonstrated by the jumbo cutout prices that are currently 65% above the five-year average. We believe the domestic protein market will continue to favor chicken as a primary source of protein. While the overall supply of protein available for calendar 2022 is expected to increase 0.8%, according to USDA, availability in the second half of 2022 is expected to remain challenging driven by reduced production expectations in beef and pork in Q4 2022. Industry cold storage supply, for which inventory flows has been inhibited due to supply chain constraints, also remained under pressure, as June values for total protein in cold storage were 2.6% below the five-year average. Overall, demand for chicken remains remarkably strong, as volumes increased despite higher cut-out values. Within the overall U.S. retail channels, fresh volumes were in line with last year, while fully cooked experienced double-digit dollar growth along with a mild increase in volume. Similarly, the daily department unit sales were level to prior year, but dollar sales remain well above year-ago values. Even with increased pricing across retail departments when compared to recent years, we believe additional growth opportunities may still exist as industry supply constraints could have impacted durability to meet this strong demand. We believe consumers are actively adjusting their protein consumption towards more affordable options, and in doing so, favoring chicken. Similarly, the food service channel maintains sales levels above the pre-COVID-19 baseline. In total, despite significantly higher prices, mainly due to a rebound of the non-commercial subchannel that continues to post solid year-over-year gains, especially in the education and lodging segments. When these factors are combined with the limited supply in the broader protein complex, favorable market conditions still exist for our commodity business, albeit following normal seasonality. As consumers increasingly feel the effects of inflation, we anticipated some shift towards retail demand, which we believe already began at the end of Q2. We believe our case-ready business is well positioned to benefit from this potential trend, given our service level to our key customers and differentiated portfolio offerings. In the U.S. business, we realize significant sales growth and margin expansion, given exceptionally strong market fundamentals, especially for our big-budget deboning business, as I mentioned. To ensure more resilient earnings profile over the long term, we maintain our discipline with key customers with a strong service level and quality products. We also drove operational excellence efforts to mitigate the impacts of an extreme volatile and inflationary environment. We continue our focus on improving net staffing through investments in our people and communities, through our hometown strong program, enhancing recruiting and retention efforts, and process automation. Based on these efforts, we experienced solid improvements in our turnover, applicant flow, and absenteeism. Given increased staffing levels, we further optimized our mix and service throughout the quarter. This increased staffing level helped drive our commodity Big Bird deboning business to more fully realize the benefits from outstanding market fundamentals and to improve its overall profitability relative to last quarter and same period last year. The team also used this opportunity to strengthen relationships with key customers throughout retail and food service through service and quality. Although the cutout has recently tapered off in line with normal seasonality, overall business conditions remain strong, given the expected tightness of the overall protein complex, relative strong food service demand compared to pre-COVID-19 levels, and moderating input costs compared to earlier in the year. Our small business continues to grow, given solid demand for QSR and broad-line distributors. Margins improved from growth with key customers, progress in operational excellence, and cost recovery from inflation. In conjunction with the local community, we have made substantial progress at Mayfield from December 2021 tornado. We are extremely grateful for the efforts and look forward to growth opportunities for our people and business. Similarly, our case-ready business delivered solid quarter-over-quarter revenue and profitability growth as it drove operational improvements and recovery inflationary costs. Given the strength of its key customer partnerships and differentiated product portfolio, it is well positioned to benefit from any increase within retail. In prepared foods, revenue grew 25% relative to last year, driven by food service, growth on our Just Bear and Pilgrim's branded innovation in retail, and focus on key customers. Our prepared branded retail business grew 96% compared to last year, and more than doubled our market share driven by strong customer acceptance and customer reaction. In addition, margins expanded given improved product mix and operational efficiencies. E-commerce continued to realize significant gains as total sales are up 50% throughout the first six months of the year, driven by growth in both the retail and club channels. We've also built a significant online presence as e-commerce now accounts for over 20% of our total retail branded volume. In addition, JustBear has become the top e-commerce brand for a key customer and has experienced significant success online in trial and conversion in grocery. Although we continue to face volatile U.S. market conditions and inflationary headwinds, Our diverse portfolio and key customer partnerships provide significant competitive advantages to navigate demand challenges between channels, among customers, and across different bird sizes. These advantages may be further amplified given limited availability throughout the overall protein complex later in this year. Affordability and flexibility of chicken and continued operational excellence throughout our facilities. Throughout Q2, our European business faced unprecedented pressures and inflation reached a four-decade high in the UK and approached nearly 10% in the EU. This factor, when coupled with continued ambiguity from the Russian-Ukraine conflict, created a softening consumer environment across both retail and food service. To address these challenges, the team aggressively implemented a series of supply chain solutions, including network optimization, processing equipment upgrades, enhanced procurement approaches, and revised labor management practices. The team also worked closely with key customers to optimize product mix and ensure sufficient cost recovery for market-driven impacts, such as grain, ingredient, labor, and utilities. Given the continuous waves of inflation throughout the quarter, the team conducted multiple rounds of consumer negotiations. Although significant process was made, work remains as inflationary headwinds persist. As expected, Our live pork operations improved as the price of live pork increased in the region. This factor, when combined with our improvements in operations and cost recovery exports, drove increased profitability. The team also cultivated growth via further diversification of our product portfolio and application of our key customer strategy. Throughout the first half of the year, the combined business has launched over 100 new products in a variety of branded and customer-specific offerings. Our Moetard team has become the sole supplier across fresh and fully cooked for a key customer and one of the leading European retailers. Our Pilgrim's Food Masters Richmond pork and meat-free brand grew market share through the period with the introduction of Richmond Mini and a variety of Richmond meat-free range extensions such as the Richmond meat-free chicken pieces. Consumers continue to embrace the meat snacking category, which also grew across the period with refrigerators. growing double-digit revenue supported by an introduction of the refrigerator's meat-free and limited-edition flavors such as the peri-peri. Our pork operations secured placement of various new seasonal products into a variety of customers. It was also recognized in major industry awards, including Best Red Meat Product at the Food Management Industry Today Awards, and also recognized for sustainability efforts as it won the Net Zero Strategy of the Year by Business Green Leaders. Despite inflationary headwinds and softening consumer demand throughout the UK and EU, our business is well positioned to navigate these conditions, given its focus on key customers, a diverse portfolio, and demonstrated operational improvements. Moving forward, the business will continue to invest in our people to improve staffing, implement supply chain solutions, and conduct customer negotiations for cost recovery from escalated impost. Take it together, these activities should continue to drive margin improvements throughout the year. Our Mexico business experienced seasonal challenges in live production in our locations. Nonetheless, we leveraged the diversity supply base across our regions to ensure superior customer service level. Equally important, our fresh branded volume grew over 40% for the quarter, and our retail sales experienced double-digit growth. Similarly, our prepared food business grew double digits, led by our Pilgrims and Del Día brands. Our previously announced investments in capacity expansion remain on track, which should enable additional sales by the end of the calendar year. Nonetheless, Mexico remains a volatile market given inflationary pressures, an evolving global protein complex, and overall businesses' analytics. To further drive profitable growth, we will make significant capital investments in the U.S. business over the next three years. These investments include a capacity expansion of our Athens, Georgia facility for a key customer to accommodate existing demand. And so it was numerous automation projects through all of our operations to drive operational excellence. We just started building a new plant to expand our protein conversion business given customer demand and supply chain integration that will drive margin expansion and operational improvement opportunities. Also, to further grow our portfolio of branded prepared products and supported the incredible growth of our JustBear product line, we are committed to building a new fully cooked plant in the southeast of the United States. To that end, we are exploring multiple options, ensuring the best logistics, labor, and raw availability. We are confident that these investments will drive further growth for our business, while also enhancing our key customer partnerships, further diversifying our portfolio, and supporting operational excellence. As a result, we can generate stronger, more consistent sales growth and margin expansion that accelerate our business momentum and creates further competitive advantage for our business. With that, I'd like to ask our CFO, Matt Galvanoni, to discuss our financial results. Thank you, Fabio, and good morning, everyone.