Pilgrim's Pride Corporation

Good morning and welcome to the first quarter 2023 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 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 Rogeski, Head of Strategy, Investor Relations, and Net Zero Programs for Pilgrims.

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.programs.com, along with the slides for reference. These items also have been filed as Form 8Ks and are available online at sec.gov. Bobby Osondre, President and Chief Executive Officer and Matt Galvinoni, 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 $4.7 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 ingrained 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 business 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 improve its profitability relative to prior quarter in a very challenging environment. In our US business, diversification with Small Bird and Case Ready, along with our branded offerings in Prepare, moderated the impact of depressed commodity cut-out values. In addition, our key customer strategy was instrumental in driving improvements in our production volumes and in our supply chain. In the UK 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 with supply demand fundamentals become more balanced and inflation slows. In addition, we continue to improve our efficiencies as we map our issues in our live operations. We also benefited from favorable exchange rates and our diversified portfolio, as both our fresh and branded offerings grew throughout the quarter. Turning to feed ingredients, recent USDA reports show ending stocks are estimated steady at a historical tight 1.34 billion bushels. Demand has been impacted by the high prices in the first six months of the crop year, with U.S. exports down approximately 37% year-over-year. Domestically, core demand for ethanol was also 5% down, and feed resistance was down 7% versus the same period in prior years. The ending stocks are expected to increase to more normal levels, depending on Brazil's second crop, planting success and weather here in the U.S., and continued exports flows from the Black Sea. Although critical development stages are still ahead, current weather is favorable for the large planted area in Brazil. In U.S., USDA's prospective planting report show a favorable response to the elevated prices and the corn to soybean price ratio, with the planting intentions of 92 million acres, and planting is well underway. With tidal crops in U.S. and much time ahead, the market currently carries a relative large weather risk premium. With the confirmation of more normal conditions and with the current market scenario, we expect those premiums to reduce. Regarding soy, key ones are price volatility, as soybean production estimates diverge across South America. Brazil is harvesting a record crop, while Argentina crop is down 19 million tons versus last year. While South America's soybean production was net larger and global soybean stocks are at acceptable levels, the soybean meal supply is constrained, as Argentina is dependent on soybean imports to run their crushing industry. However, tepid soybean demand from China and weak soybean meal demand outside U.S. have kept soybean meal prices from returning to the Q1 highs. USDA prospective planting show intentions for the 23 to 24 soybean acres at 87.5 million acres. essentially flat year over year. Crop conditions will be critical as the US will enter the new crop year with historical tight ending stocks of 210 million bushels or 4.8% stocks to use. On the wheat, globally, balance sheets have been relatively well supplied and offer alternatives for global feed grain importers. The US hard red winter wheat is the main concern for northern hemisphere due to the lingering dry conditions, while EU wheat conditions are promising. Much like corn, an operational Black Sea export corridor should be mentioned before, beyond mid-May. In the first three months of 2023, ready-to-cook production on U.S. chicken experienced an increase of 3.4% relative to Q1 2022. The more substantial year-over-year growth occurred in January, before slowing in March and recent weeks. Growing first quarter headcounts were bolstered by year-over-year improvements in hatchability in late 2022, supporting mild cheek placement increase during the same period. Considering more recent trends, the rate of industry exits has slowed and it has been flat year-over-year. The industry's hatch rate has declined year-over-year despite our own improvements. Taken together, Aggregate cheek placements over the training month has remained relatively flat year over year to negative numbers on recent weeks. And the USDA 2023 outlooks indicated lower growth for Q2 and a decline in production during the second semester of 2023. On the cold storage, reported USDA inventories indicated an 8.3% reduction from the end of 2022 throughout the end of March, bringing inventories back near the five-year average after seeing some rapid buildups towards the end of 2022. When analyzing the overall supply of protein, the USDA maintains the expectation of reducing domestic protein availability. This outlook includes the growth of chicken during Q1 and the growth of turkey production after the AI events of last year. When factoring only the red meat supply, USDA expects decline in the availability primarily due to the contracting US beef production of 4.5%. As for pork, availability is expected to remain flat in the US year over year. US domestic demand showed mild growth in the first quarter of 2023. The retail channel experienced stable volume sold, albeit at higher sales prices. In the fresh department, steadily increasing promotional activity provided volume support, enabling sales volume to remain on par with a year ago, while still maintaining elevated dollar sales. As a result, chicken was able to grow both volume and dollar share in the meat category over the past year, demonstrating its remarkable resilience despite a trend of reduction in unit purchases among consumers. Overall, frozen dollar sales grew on mild volume declines. However, we see divergent trends for the frozen value-added and the frozen commodity categories. Dollar sales for the frozen value added category continued to trend positive as both increased volumes and higher price. Meanwhile, the opposite remains true for the frozen commodity category, as declining dollar sales were the result of significant volume declines that were not offset by year-over-year price increases. From a location standpoint, the deli emerged as the fastest growing location for chicken, as it simultaneously grew price and units. Equally important, it increasingly became a destination for shoppers as the number of daily chicken trips increased 2.5%, a considerable increase relative to the same period last year, reflecting a broader consumer trend to seeking affordability and convenience. We are encouraged by the potential of the retail channel given the continued tightening of competing proteins and above average wholesale markup for chicken. As such, retailers can further drive promotional activity to gain momentum with consumers who are looking for more affordable protein options, especially in this inflationary environment. The food service category also showed increased demand. Throughout the first quarter, food service demand grew volumes of 7%, as both QSR and full-service restaurants experienced year-over-year growth. Consumer traffic has been stable but we have seen more promotions of chicken items. In the commercial segments, these promotions have generated volume growth of nearly 5%. Raw wings, tenders, legs, and dark meat have experienced an exceptional rebound, as all have grown volume double digits. Value-ended tenders, strips, and legs have also enjoyed a strong growth rate. The non-commercial segments continue to grow towards the pre-pandemic levels. with volume zero over year increasing nearly 12%, led by the business and industry and the lodging segments. As workers increasingly return to the office, we expect these segments to continue to increase. On the export, we see demand is increasing strongly for U.S. chicken after posting year-over-year growth in early 2023. Through the first two months of Q1, Export volumes were at an all-time high, with 3.3% growth year over year. Year-to-date export performance has also enabled cold storage inventories of dark meat to reduce significantly since the end of 2022, with February volumes 21% below December. We expect this inventory trend to continue for 2023 as export supply chains continue to improve. Regarding the prevalence of high path AI in the U.S., this continues to be of great concern to all industry participants. However, the number of total birds depopulated since the beginning of 2023 is less than 1 million, and the last reported case found in a commercial broiler flock was mid-February. Most of our trading partners are also responding by lifting the high path AI trade restrictions in accordance with our agreements, with many greatly reducing their restrictions from state to county level and some to zones, as well as following the World Organization of Animal Health guidelines of limiting vans to 28 days post-clean and disinfected. With the exception of China, this easing and lifting of restrictions are also aiding the industry record export performance. We have yet to make headway with China on releasing states from high-path AI restrictions, even as all the parameters for lifting these vans have been met. Our geographical and China diversification in the U.S. continues to benefit our exports, allowing us to access over 80 markets globally, including China. Our U.S. business continues to adjust to these prolonged challenges in commodity supply and demand fundamentals. While market dynamics improved throughout the quarter, January was exceptionally difficult, giving elevated grain costs and significantly low market prices, especially for breast, meat, and wings. Our Big Bird business was the most impacted by these conditions, as revenues and profitability continue to suffer. Nonetheless, the business improves each month throughout the quarter, giving enhanced fundamentals and intense focus on operational excellence. Although significant progress has been made, substantial work remains to achieve sustainable margin levels. Our diversified portfolio across bird sizes and branded offerings moderated the impact of these challenging conditions. In our small bird segments, we continue to improve our results compared to last quarter and last year, giving our growth with key customers continued recovery of inflation costs and operational performance. In case ready, our growth with key customers continue to outpace industry averages. We expect additional opportunities to accelerate this growth through increased promotional activity, improvements in mix, and partnership with key customers. Our prepared food business realized similar success as sales and profitability improved throughout increased business with key customers, operational enhancements, and lower raw material costs. Our fully cooked brand bed business continues to have strong momentum as our Just Bear and Pilgrim's offerings increased 68% year-over-year. Despite extended challenges in market fundamentals, elevated input costs, and stubborn inflation, We remain committed to profitable growth in our US business. Our expansion in Athens, Georgia to support key customer growth remains on track. Also, our investments to support operational excellence through automation and our new protein conversion plant in the South Georgia are progressing as planned. Throughout our UK and Europe business, inflation continues to be at the highest level seen over the past 40 years. Despite these challenges, the chicken and pork categories remain resilient as consumers continue to shift into those categories from other proteins. These categories benefit are further amplified by our growth with key customers as we have outpaced channel averages in both retail and food service. From a supply chain standpoint, the team continues to mitigate costs through operational efficiencies and cost recovery. Overall demand across our total portfolio has remained relatively stable across both branded and private label offerings, even as cost increases have been passed through the shelf or menu. The team continues to drive growth through innovation with both customer and branded offerings. Moipark recently became the supplier of choice for a key customer, involving a dedicated brand with distinct animal welfare standards throughout our entire supply chain. Our Pringles Foodmasters team have continued to drive and expand usage through flavor and pack formats, innovations in the refrigerator's line. In addition, the Richmond brand continues to increase share for its recent introduction of meat-free liners. The team has made significant progress in operational excellence throughout our network optimization, given the substantial headway in the consolidation of our production facilities. To date, we have realized margin improvements for enhanced line efficiencies, increased overhead utilization, and better raw material sourcing. In addition, the integration of our back office support activities has taken a step forward as our new shared services support center is now functional. We will continue to explore alternatives to further enhance our efficiencies and realize the full potential of the business. Progress may also be amplified by continuous stabilization of input costs, increasingly steady staffing levels, and enhanced market fundamentals. Pork and chicken supply demand is becoming increasingly balanced where utilities and wheat prices have recently moderated from all-time highs. Our Mexico business also rebounded solidly throughout the quarter as protein availability stabilized and our difficulties in live operation diminished. These factors were further augmented by increasingly favorable foreign exchange rates and inflation moderation. The team's branded fresh portfolio continues to perform as it grew in double digits again compared to the same period last year. Given our progress and desire to further diversify our portfolio into branded offerings, we launched two new brands, Unique Taste and Favoritos, and we will introduce the JustBear into the Mexican market. The performance of our branded Prepare portfolio also has respectable performance given its sustained growth. We are driving promotional activity to broaden our presence in value-added and across retail and food services. We're continuing to invest capacity and operational excellence to drive profitable growth. Our footprint expansion in the Yucatan Peninsula remain on track, and we anticipate production to become available in the second half of this year. As part of our journey to become an industry leader in sustainability, we've expanded our efforts beyond our processing facilities, and we work with the entire supply chain to achieve our ambitious sustainability targets. As an example, in Europe, our team recently unveiled state-of-the-art poultry farm in the UK. This site employs a variety of innovative designs, technologies, and equipment that can effectively enable the farm to be completely self-sufficient in energy when operating at full capacity. We will continue to evaluate opportunities and bring innovation throughout our supply chain across all regions. With that, I would like to ask our CFO, Matt Galvanone, to discuss our financial results. Thank you, Fabio.