Pilgrim's Pride Corporation

Good morning, and welcome to the first quarter of 2025 Pilgrims Pride Earnings Conference Call and Webcast. All participants will be in listen-only mode. Should you need assistance, please see to a conference specialist for pressing the star key followed by zero. At the company's request, this call is being recorded. Please note that 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 a question and answer session. I would now like to turn the conference over to Andrew Radjeski, Head of Strategy, Investor Relations, and Sustainability for Pilgrims Provide.

Andrew Radjeski Good morning, and thank you for joining us today as we review our operating and financial results for the first quarter ended on March 30, 2025. 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 slides for reference. These items have also been filed as Form 8Ks and are available online at sec.gov. Bobby Osandre, 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 the 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 410 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 2025, we reported net revenues of $4.5 billion, a 2.3% increase over the same quarter last year. Our adjusted EBITDA was $533 million, up 62% versus Q1 of 2024. Our adjusted EBITDA margin was 12% compared to 8.5% last year. Our performance reflects our discipline execution of our strategies, emphasis on our teams, and our focus on what we can control throughout our business. In the U.S., sales and adjusted EBITDA increased compared to prior year. Big Bird captured benefits from elevated commodity values and improvements in production efficiencies, whereas Case Ready grew given strong demand in retail and expanded key customer partnerships. Small board improved with QSR growth and operational excellence efforts. Diversification efforts to prepare accelerated through portfolio expansion across retail and food service. Improved in Europe last year through sustained benefits from business integration, mix enhancements, and network optimization. Opportunities to scale profitable growth further developed giving multiple awards from key customers and launch of robust innovation. Sales of core branded offerings also rose, further diversifying our portfolio. Mexico continued to drive our strategies as sales to key customers increased double digits, and sales of our branded portfolio and prepare continues to grow. To support this growth and diversify our geography in Mexico, our efforts to expand capacity in fresh and prepared foods remain on schedule. Turning to supply in the U.S., USDA indicated ready-to-cook production for the U.S. chicken that grew 1.1% compared to the first quarter of 2024, as increased average live weights offset declines in head count. Similar to 2024, increased mortality and reduced hatchability challenged our broiler production. To offset these impacts and provide production growth, hatchery utilization remained at record highs. Considering continued growth in sets and placements, the USDA currently projects growth of 1.7% for 2025, reflecting a response to the supportive demand environment that chicken has experienced through all recent quarters. As for overall protein availability, the USDA anticipates 1.6% growth due to expected growth of chicken along pork production increases. Regarding demand, The cost of eating out increased more rapidly than eating at home. As such, retail propelled further growth for chicken. Within the fresh aisle, boneless skinless breast, the anchor of the fresh category, realized substantial growth in demand, even with less promotional activity, giving its record price spreads to other proteins. The remainder of the fresh category in chicken also experienced momentum for 2025. producing strong growth across almost all major meat groups. Boneless thighs have experienced record double-digit growth based on availability and consumer acceptance. Not only has fresh chicken grown materially, both deli and frozen departments have also added demand at a sustainable rate. In exports, winter weather port disruptions in January Concerns over potential port strike and increased domestic demand for dark meat products reduced the volumes throughout the quarter and compared to prior year. However, these dynamics enable further momentum in pricing during the early stages of the second quarter and may be further amplified by strong domestic demand for boneless dark meat. U.S. inventories are slightly below the five-year average, potentially adding more support to domestic and international pricing, thereby limiting export volume. While the potential of a high path avian influenza outbreak still exists, the first quarter of 2025 was relatively muted compared to the second half of 2024. As such, several markets released their temporary county and state level bans. Assuming typical seasonality, the second quarter may experience an increase in high path AI activity. Nonetheless, Our geographic diversity of production locations across U.S. will continue to provide the flexibility to transition production for export if outbreaks occur. As for China, the relationship with the U.S. is currently in transition, and it appears both countries are positioning themselves for a broader negotiation in the future. While China is an important global agriculture importer, the potential impact may be limited as exports of U.S. chicken products, notably the paws, have significantly declined since 2023, given the high pet AI bans. To date, other trading partners around the world continue to navigate tariffs, enabling strong demand. This is partially attributed to the attractive value of chicken compared to more expensive proteins, along with disease and supply issues in other chicken-producing countries. Turning to feed, Corn prices experienced volatility throughout the quarter. In January, a strong rally emerged, giving reductions in the final U.S. corn and soy yields. However, this gain subsided by the end of the quarter, as South America realized greater than expected production. Moving forward, more corn supply is anticipated, as the March USDA prospective plantings report indicated additional acreage for the 2025 growing season. As for soybean meal, Prices fell during the first quarter as South America realized record high production given favorable weather. Increased soybean processing capacity across the globe also drove further soybean meal production, resulting in ample supply. In wheat, global stocks may contract for the nearly completed crop year. However, strong crops in Australia and Argentina should limit the likelihood of a significant price increase in the short term. Major wheat-producing regions, including the EU, Ukraine, and Russia, are primed for higher crops in the upcoming year. The UK also anticipates higher production in 2025. Given these anticipated increases, along with a substantial build in U.S. supplies, wheat pricing is expected to decline. Moving forward, U.S. weather will be the primary driver of corn and soybean meal prices. Trade disruption due to tariffs disputes would also be important, with the soybean complex more exposed to tariffs changes compared to the corn market. In the U.S., consumers are still aware and concerned about high inflation and higher prices. Within retail, grocery buyers' behaviors indicate a growing habit of purchasing less per trip while shopping more frequently, signifying a stretched household budget. In food service, declines in traffic suggest a reduction in dining out occasions among customers, which enable their spending to go farther in other areas. Given the affordability of chicken and our strategies, our team was well positioned to continue to unlock value for the consumer. As such, our team maintained their focus on driving differentiation through quality and service for our key customers. In Big Bird, we focus on operational excellence to upgrade mix enhance yields, and maximize throughput. These efforts were further amplified by improvements in live operations. Based on our progress and attractive market fundamentals, profitability in Big Bird grew considerably. Small Bird also improved profitability compared to the prior year, giving lower grain costs and operation efficiencies, especially at our expanded operation in Athens. Despite strong volumes in QSR and Delhi throughout the quarter, Prices for whole birds and deli were lower compared to last year, unlocking value for key customers and consumers. Equally important, we are launching a variety of innovations to further strengthen our competitive advantage. Keys Ready experienced strong retail demand throughout the quarter. As such, we work closely in partnership with key customers to ensure increasing availability. Considering the traction of our higher attribute offerings in the marketplace, along with improvements in production efficiencies, we experienced an improvement year over year. Repair foods grew over 20% compared to prior year from increased distribution across retail and food service. Diversification through brands played a critical role as sales of Just Bear and Pilgrim collectively rose over 50%. Commerce continued to be a key enabler for branded growth as sales rose over 35% compared to last year. As such, we will continue to accelerate our growth through our relationship with leading online suppliers, traditionally tailors and food service providers. In Europe, profitability improved compared to last year through business integration, mix enhancements and manufacturing optimizations. During the quarter, the consumer environment remained attractive as wage growth exceeded inflation. In grocery, poultry, pork, and chill meals category grew, benefiting our portfolio. While food service experienced a decline in visits, our demand increased. We continued to cultivate growth through partnership with key customers. As such, we secured long-term arrangements with selected retail partners, many of which were driven by our differentiated sustainability and animal welfare practices. We further amplify our growth through innovation as we launch over 80 new products through March. Diversification through key brands continued to gain traction as both sales and volume grew compared to last year. Frigerators continued to grow ahead of category averages and recently became one of the top 100 brands in the UK market. Richmond also realized similar success, where rollover increased distribution through new accounts. Moving forward, we will continue to invest in promotional activities and media efforts to increase brand awareness among consumers. In Mexico, overall profitability remained steady year over year, but with significant volatility throughout the quarter. The increase in exchange rate between the peso and dollars impacted our costs, and we experienced demand pressure in the live commodity market during the month of March. Nonetheless, we drove profitability growth through our strategies. As such, sales to key customers in retail increased by 11%. Diversification efforts through branded and value-added offerings also accelerated. In fresh, our branded portfolio grew by 15% compared to last year. In prepared, net sales rose 9%. Both pigments and just bear brands continue to gain distribution and market share, and the sales of a la mesa, our tacos and typical Mexican food, have grown nearly 50%. establishing a new record sales for the quarter. We also continue to invest and evaluate opportunities to further drive profitable growth. In US, our growth in prepared foods is exceeding our current capacity, and we are committed to expand our production both in our existing plants and through a green field. In fresh, we're also growing faster than the category, especially with our differentiated offerings to key customers. We are always looking for opportunities to unlock additional processing within the existing locations, and we also committed to convert one of our commodity plants to differentiated tray pack for a key customer. We continue to evaluate alternatives to expand our protein conversion capacity and add value to our products. To that end, we are assessing multiple sites and refining our analysis to assess best alternatives, just as we did with our new plant in Douglas, Georgia. In Mexico, our investments in capacity expansion for FRESH in Veracruz and Merida remains on schedule, and we anticipate completion in the first half of 2026. Based on those investments, we can further enhance our buyer security and supply chain capabilities, strengthening our relationship with key customers. Similarly, our investments in PREPARE are proceeding as planned, with our new line expected to be operational at the end of Q4. further enabling branded growth. In sustainability, we continue to drive operational efficiency throughout our supply chain to reduce our greenhouse emissions footprint. Equally important, third-party reports have demonstrated that they've decreased our scope one and two emissions intensity below target levels. Moving forward, we'll continue to explore alternatives to enhance our climate resiliency throughout our values chain. With that, I would like to ask our CFO, Matt Galvanone, to discuss our financial results.

Matt Galvanone Thank you, Fabio. Good morning, everyone. For the first quarter of 2025, net revenues were $4.46 billion versus $4.36 billion a year ago, with adjusted EBITDA $533.2 million and a margin of 12.0% compared to $371.9 million and an 8.5% margin in Q1 last year. Adjusted EBITDA margins in Q1 were 14.3% in the U.S. compared to 9.4% a year ago. For our Europe business, adjusted EBITDA margins came in at 8.1% for Q1 compared to 6.4% last year. In Mexico, adjusted EBITDA margins in Q1 were 8.4% versus 9.2% a year ago. U.S. net revenues were $2.74 billion versus $2.58 billion a year ago, a 6.2% increase. U.S. adjusted EBITDA came in at $392.5 million compared to $242.9 million in Q1 2024. Recovery in the commodity chicken markets compared to a year ago, along with moderate grain costs and continued operational improvements, drove strong year-over-year profitability improvement in our Big Bird business. The case-ready and prepared foods businesses have continued to increase distribution with key customers, driving both year-over-year and quarter-over-quarter profitability improvements. These improvements offset a $10 million headwind from challenging weather conditions in the southeast during the first half of the quarter. In Europe, coming off strong seasonal results in Q4, adjusted EBITDA in Q1 was $99.5 million versus $81.5 million in Q1 2024. The business has benefited from its continued structural reorganization, including integration of support functions and manufacturing optimization programs, while cultivating key customer partnerships with continued innovative offerings. We incurred $16.6 million restructuring charges during the quarter in support of this integration program. Mexico generated $41.2 million in adjusted EBITDA in Q1, compared to $47.5 million last year, and $36.9 million in the fourth quarter. The year-over-year negative FX impact for Mexico approximated $8.5 million. Sequentially from Q4, the Mexican business profitability improved primarily due to more balanced supply-demand fundamentals. SG&A in the quarter was higher year-over-year primarily due to an increase in legal settlement and defense costs and increased incentive compensation costs. Our effective tax rate for the quarter was 24.1%. As I noted in our February call, we anticipate our full-year effective tax rate to approximate 25%. We have a strong balance sheet, and we will continue to emphasize cash flows from operating activities, management of working capital, and disciplined investment in high-return projects. Our liquidity position remains very strong. Even following our $1.5 billion special dividend paid on April 17th, we have over $1.6 billion in total cash and available credit. We have no short-term immediate cash requirements with our bonds maturing between 2031 and 2034 and our U.S. credit facility not expiring until 2028. A liquidity position provides flexibility and allows us to explore various growth opportunities. As of the end of Q1, our net debt totaled approximately $1.1 billion with a leverage ratio of less than 0.5 times our last 12 months adjusted EBITDA. When adjusting for the $1.5 billion special dividend, Our leverage ratio was 1.1 times, still below our target of two to three times adjusted EBITDA. Net interest expense for the quarter totaled $17 million. We anticipate our full year net interest expense to be between $110 and $120 million. As discussed at our investor day, we will continue to invest in growth. While additional considerations have emerged, we will continue to enable our growth ambitions through financial discipline. In the U.S., we recently completed a plant conversion to an air chill operation. We are now the largest NAE organic and air-chilled producer in the U.S., demonstrating our focus on offering differentiated product attributes to our key customers. Our plans to increase capacity in the U.S. in small bird, prepared foods, and protein conversion also remain on track. As such, we continue to pursue site selections, refine capital estimates, and progress engineering work. In Mexico, our investments in fresh and prepared continue to progress and remain on schedule as we have secured a variety of long lead equipment. We spent $98 million of CapEx during the quarter and will continue to ramp capital spending in support of our growth projects. At this time, our full year CapEx estimate remains at approximately $750 million. Our capital allocation approach will remain disciplined as we continue to align our investment priorities with our overall strategies to drive growth, enhance margins, and reduce volatility. Operator, this concludes our prepared remarks. Please open the call for questions.

Yes, thank you. 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. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please grip your hands up before pressing the keys to minimize background noise. To try your question, please press star, then 2. At this time, we will pause momentarily to assemble the roster. And the first question comes from Ben Thurer with Barclays.

Yeah, good morning, Javier, Matt. Thank you very much for taking my question and congrats to another strong quarter. First question, maybe just for you, Matt, following up on your comments you just made around capital allocation progress, et cetera, just maybe can you elaborate a little bit more as to what has caused the probably a slightly lower level of CapEx in one queue. You said a couple of considerations here, but at the same time, you're still sticking to the $750 million. So how should we think about the CapEx over the next couple of quarters, and what are those additional considerations? So that would be my first question, just around CapEx, and then I have a quick one.

No, no, that's fair. Thanks, Ben, for the question. The way we're looking at this, it's more timing-related, right? I mean, one of the things we talked about during Investor Day was, it takes a while sometimes just to get to the starting line for some of these bigger CapEx projects. And us working on site selection and overall estimates and permitting and things of that nature takes some time. We do anticipate seeing a ramp up of capital spend over the next number of quarters. The 750, we're not going to come off that number right yet. We'll see how things progress, but we're committed to the growth projects and just kind of moving forward. But we're going to be disciplined, right? I mean, we really want to make sure that we're spending the right amount for the right pieces of equipment at the right sites, et cetera, et cetera.

Okay. Got it. Very clear. Thank you very much. And then just maybe on the current market dynamics, and obviously, I mean, we're seeing cutout values and pricing in general still at very good levels. Now, Have you seen, and maybe there's been a little bit of a weakness in certain items, is there anything related to consumer softness? Are you seeing anything that even within chicken drives down trading, or have you seen any impact on just like the general geopolitical slash terrorist noise affecting somehow consumption in a good or in a bad way?

Okay. Yeah, I think it's... is an evolving market condition, right? So just like I mentioned on the prepared remarks, I think there is a concern for the consumer about high prices and inflation. It started some years ago. It's not something new. And as they are watching their spending closely, they are moving more from food service to retail. We're seeing higher inflation on the food away from home when compared to the food at retail. So we're seeing a movement from one segment to another. That is leading to the shift of meal occasions. And with that, we are seeing some very strong demand on retail. The biggest portfolio or the biggest part of the chicken that is sold in retail is breast meat. And we're seeing some very strong demand there in the retail. Despite that strong demand on breast meat, we're seeing some very strong demand also on boneless dark meat. We're seeing some double-digit growth on the dark meat category. So that strong demand on retail is pressuring the promotional activity and is pressuring the supply. And because that happens every grilling season where we buy Big Bird meat to augment the supply for retail, that is happening even before the grilling season. It's happening right now. And that is pressuring also the commodity market because by buying this big bar meat and putting on the retail, that reduces the supply on the food service category. We're talking about this movement from food service to retail impacting the demand for chicken in retail, but also on food service. as operators are trying to respond to this reduction in food traffic, they are increasing their promotional activities, and they are increasing the number of low-priced items in their menu. And with that, chicken is gaining traction and gaining menu penetration. So chicken also increases in food service, mainly on the QSRs and the non-commercials, but we are seeing traction also in the food service despite the reduction in the food traffic that everybody is experiencing. So chicken is winning on the retail because of the movement of food away from home to food at home, but also gaining traction in food service with menu penetration and more promotional activities.

Okay, perfect. Thank you very much for that call, Fabio. I'll pass it on.

Thank you. And the next question comes from Andrew Strelzik with BMO Capital Markets.

Hi, good morning. This is actually Ben on for Andrew. So my first question has to do with the EU-UK business and the margin performance there. You guys have spoken in the past about more of like a steady state 7%, 8% margin that you can eventually reach. I'm just wondering when you think about the cadence for this year, do you anticipate the next three quarters kind of looking similar in terms of margin expansion to what we saw in first quarter? And how do you view the local consumer in Europe? We've heard a couple of anecdotal reports about some potential weakness there. So I'm just hoping you can kind of bridge that together. Thanks.

Sure. Just on our operations. So we integrated our three business over the last few years and with that, and I think Matt mentioned some of the restructuring. So we're putting all this business together and we are seeing the benefits coming to the bottom line of that streamline. on our back offices and streamline on our operations. We're also seeing that we change the momentum there from integration, now we're moving to a more expansion and through innovation. So that's exactly what we expected when we put these three business together to realize all the benefits from the integration at the beginning and now moving to a more rapid expansion through innovation. So we expect the growth in performance from year over year to continue. In terms of the consumer, I think we were seeing the inflation in Europe moderating, and we were seeing the wages increasing ahead of the inflation. That was creating a better scenario, especially for our portfolio on the branded side. When the consumer in Europe are facing challenges in inflation, they typically tend to go for private labels on the prepared food side. So our Richmond brand was not growing as expected in the past, but now we're seeing the Richmond brand and the Fridgerator's brand are growing ahead of the market. And that indicates that the consumer has more confidence. I think specifically in the UK, There was an increase in the national insurance that created some uncertainty about jobs and inflation at grocery lately. I think we saw many reports from retailers that that will cost some billions of dollars for them, and there will be some layoffs because of that. So that was maybe a momentary issue in UK. But overall, in Europe, we're seeing an improvement in consumer confidence.

Thank you. And just my last question, in terms of Mexico, obviously you had a big FX hit there during the quarter. But just from a fundamental standpoint, how do you think about the cadence for the rest of the year in terms of kind of rolling in some of your investments And then also versus just, you know, the flow of supply and demand in the local market. Do you think things are getting stronger there in the economy? Is there some hesitation amongst consumers given, you know, all the trade chatter? Just trying to get a better sense of how you're framing up Mexico, I guess, you know, a month after we lasted. saw you at the investor day. Thank you very much. Appreciate it.

Sure, sure. Yeah. As I mentioned, Mexico is a growing economy. We are seeing growing in the consumer spending over there. And chicken has always been the entry point in the protein. As the consumer has more available spending, they will go to a higher protein diet and chicken is the entry point. So We're really excited about the opportunities to continue to grow in Mexico. With that, as I mentioned, we are expanding our operation in Veracruz, and we are expanding to a new geography, which is the Merida region in the peninsula, so we can diversify our operations and reach a bigger market in there. We also believe that with the expansion in consumer spending, prepared foods and convenience becomes a source of of growth as well for us. So that's why we are expanding with a new line in our operations. There, there will be fully operational by Q4. So over the long term, we're really excited about the growth perspectives in Mexico. Now, quarter over quarter, as we mentioned, it could be quite volatile. And the biggest source of the volatility is the live market that still exists in Mexico. That creates lower biosecurity than we see in all other places of the world. Because of that, the supply and demand can be mismatched in any given quarter because of diseases and because that market is really easy for entrants to get in and to get out. So when you see very high profitability, as we saw in Q2 last year, we see these marginal players who come and produce live chicken to be sold to the consumers. And that creates more volatility in that market. And in a way, that's why we're trying to diversify from that segment with more branded and more prepared foods. But it's still a very profitable segment. So that volatility in the live market impacts our results during any given quarter.

And Ben, I would just say, relative to Q2 last year, Mexico had a very, very strong quarter last year. FX impacts kind of year over year, Q2 to Q2 of this year will still probably be in that 15-ish percent area, depending, of course, where the peso goes from now forward. But to my crystal ball, that's kind of how I would think about it. But it's a very, very strong Q2 last year. Business is great, but just keep that FX impact in mind for Q2 this year.

And in terms of consumer confidence because of trade, I think we've seen that Mexico is one of the largest trade partners with the U.S., and I think there was a lot of talk about all the products, aside from steel and cars, being off any type of tariffs. So I think there is less uncertainty in Mexico than in other places.

Thank you. And the next question comes from Heather Jones with Heather Jones Research, LLC.

Good morning. Thank you for the question. I guess I wanted to start with the U.S. as far as volumes. They were much stronger than I was looking for. And then you had good growth in the U.S. year-on-year in Q1 of 24, too. And so I'm just wondering if you could help us think about how we – to think about your pounds growth in the U.S. as you bring Douglas on back up to speed, but then I guess you're having your conversion of Russellville to a smaller bird at some point this year. So just how should we be thinking about pounds in the U.S. for 25?

Yeah, Heather, I think we have a strategy of always supporting the growth of our key customers. And as I mentioned, we are growing ahead of the market. So we saw a strong role in retail, especially for our differentiated offerings, and with such, we increase our volumes in the retail category. I think the whole industry continues to be constrained in terms of overall growth, but I think we're all working really hard to get a better live operation, and that's what we've been doing. During Q1, I think despite a lot of challenges, especially in terms of respiratory diseases that we are seeing throughout the South, we were able to improve our live operations and improve our volumes, especially to, as I mentioned, in the retail segments. Going forward, I think we will continue with that strategy, Heather. And yes, you're right. With the conversion of a big bird plant to case-ready plant. We will reduce the volumes in that operation, but we expect that to be more impactful for next year.

Okay, so just to finish up on that question, y'all are expecting, if these continued improvements in live go along, you're expecting to have meaningful volume growth for the full year in the U.S.?

We expect to be a little bit ahead of the markets.

Okay. And then going to your greenfield plants. So I think you're pursuing one and prepared and then another protein conversion. And just wondering, is the timing uncertain? Because I read like in local media reports of y'all getting pushback on like some locations on the protein conversion side and all. Like, is that side proving more difficult for permitting approvals? Or what's the primary driver of timing on those two fronts?

I think there is always some negotiation with local municipalities, right? I think we heard some noise, too. But a protein conversion plant today is a very – Good operation without any smell. I think the technology has improved really well. So there is minimal disruption, if any, in terms of the smell to the municipalities. I think there is still a lot of, let's say, preconceived ideas about what a rendering operation is that sometimes trigger some of these problems. bad breath, sort of say. But I think as we go to locality, we explain our strategies, we explain our vision of creating better future for team members to help the communities. And with the new technologies, I think then we can move along. And a great example was the Douglas, Georgia operation that we just started. We are having a great partnership with the location there, with the municipalities. So if there is anything pushback from municipalities is sometimes a short-term operation. The timing, it is about finding the right location and starting and having all the permits.

Okay. Awesome.

Thank you so much. Thank you. And the next question comes from Proran Sharma with Stevens.

Great. Thanks for the question. I'm just going to start off with maybe if you could discuss wings in general. We're seeing strong strength in breasts and the back half of the bird. But it seems like wings are headed the other way. Just wondering if you could give us some color. What are you hearing from the commercial side of the business? And do you expect seasonal demand to kick in? You know, you have NFL season starting here in the fall. Would love to hear your thoughts on that cut.

Sure, sure, Perrant. Thank you for the question. And you're right. I think when you look at the cutout for the Big Bird, we see some really strong fundamentals. But when you go into the parts, I think the boneless has been the strongest part. The leg quarters, as I mentioned, continue to be very well supported both internationally and domestically. I mentioned the growth in boneless ties in the retail that is double digits. And the wings have been the category that has been less strong. And it's actually lower than last year, significantly lower than last year, lower than five-year average. And the reason for that is the shift that we mentioned on the food away from home to food at retail. Wings are mainly a food service item. So when we see some weakness in the food traffic, that impacted directly wings. Also, last year, we saw some strong pricing and demand for wings, which triggered some promotional activity and manual substitution to boneless. Because when they say, Boneless wings is actually boneless breast. So we see then the seesaw impact on wings and boneless breasts on the food service. As we see the low prices of wings, we are seeing more feature activity on the bone in wings, and we're seeing more promotional activity for the food service, especially the wing concepts. So we expect the price of wings to go back into the normal seasonality. It's normal to see this behavior on the wings, and I think when you analyze a long, long term, we have always these seesaw issues on wings where one year we have significant higher prices than the averages, and then the next year we see some softening And then what we see in the following year is that the prices come back to the previous level and even higher. Because as we always mention, there are only two wings per bird, and we are being challenged by heads in our industry.

Great. No, I appreciate that, Collar. I guess my follow-up will be, I guess on the lines of that, you're being challenged on production. That's obviously kind of helping with the elevated price situation along with relative affordability. But just wanted to see if, you know, you're concerned at all about the uptick in cold storage, particularly in breast that we've seen over the past couple months. We've also seen, you know, production up, call it mid-single digits since March. But despite that, you continue to see these – elevated price points for breasts. So just wondering if you could tease that dynamic out a little bit more for us.

Of course. I think first going to the cold storage, I think first if you look at the leg quarters and other items, the cold storage numbers are significantly lower than last year and very low compared to normal prices. five-year averages. I think the increase in boneless was more a promotional activity, especially one food service operator that put a lot of breast meat for the promotional activity. But also, it is a little bit of the food service operators expecting higher prices and building inventories so they don't have to buy breast meat in the commodity market when the prices go even higher. When you look at overall production, for the US, we and USDA are expecting the growth that we saw in Q1 to moderate during the next quarter to an annual growth of 1.4%. We'll continue with the same issues as we mentioned with this new breed. We're seeing more eggs per hen, so we increased the number of egg sets, but then we are being challenged with the hatchability, one of the lowest we ever seen, and one of the highest mortality we ever seen. I alluded a little bit to the respiratory diseases, and that's what we are seeing throughout our operations. But that is impacting feed conversion, but it's also impacting a lot of the mortality of the birds. And that's when you see the increase in exits on the range of 2.4%, 2.5%, and then you go to the number of of birds or headcount is actually down. So all that growth is being muted by the challenges in hatchability and livability, and we have not seen a significant improvement on those. Of course, as I mentioned, we've been improving our operations. We've been really pushing on having a better care of the individual birds. I think this is a bird that needs individual management rather than a flock management. And we're seeing some improvements, but it's nothing that is significant and will go back to prior numbers of hatchability and mortality. Great. Thanks for the color.

Thank you. And the next question is from Yasmin Dizwandi with Bank of America.

Hey, guys. Thank you so much for the question. So I wanted to dig in a little bit to your U.S. business. Sales and pricing came in a bit better than expected this quarter, but this is the second quarter where U.S. gross profit was a little bit behind. So could you possibly outline some puts and takes of the quarter as to why on a gross profit perspective things were a bit behind?

Oh, sure. And I think we need to remind everyone of our portfolio. As we always mention, we have a diversified portfolio of sizes of birds, diversified portfolio of offerings, and diversified portfolio of pricing. So in the big bird category, we see very strong pricing because it's a commodity, everyday pricing. And I think there is little differentiation in that segment. We have some differentiation through no antibiotics ever offerings, but it is a category that moves more in line with the commodity markets that we can see every day. So in that segment, it is an immediate, let's say, price change compared to the market. On all the other segments, we have more stable pricing and more stable margins, as we've proven when the commodity markets were weak and when we have significant changes in food service and in retail. So our pricing is way more stable because we base our pricing to our retailers for reinvestment levels and with the changes in cost. And as we saw, the cost of our products coming down because of the moderating in prices of grain over the last several months, we passed that advantage back to our key partners. And as you see in the retail to the end user pricing, Chicken prices are lower year over year. So our portfolio don't follow 100% the commodity market. And that was on purpose because we believe that we can capture the upsides, as we've proven with a very strong profitability in Q1, but we can protect the downsides when we have more stable pricing. And that is when you compare our portfolio to a just pure commodity portfolio. You don't see... the same spikes in prices, and you don't see the same challenges when the prices are lower.

Okay, got it. And I guess to follow up on that a little bit, you talked earlier about shifts in meal occasions and spend moving from food service to retail. So I'm also wondering if growing faster in retail versus commodity created a gross profit mixed headwind in the quarter. So if you had to supplement the retail channel with commodity meat,

I think that is a great point. Yes, if we compare the profitability of the more stable business that we have with the profitability of the commodity segment, that will not follow the same trajectory. But, of course, if you look at the same quarter last year, then the profitability of those more stable segments will be far superior than And once again, that's how we created the portfolio. But you're absolutely right. The profitability of a commodity operator or a commodity portfolio right now, it is higher than the profitability of the more stable segments.

Great. Thank you, guys.

Thank you. The next question comes from William Perez with us and then there.

Good morning, Fabio, Matt. And Andrew, thank you for taking questions. Two questions here. The first one is if you could give a bit more detail on the CAPEX for the year in terms of expansion and maintenance and what would be the main locations here in terms of expansion so we could have some sense in terms of capacity going into 2026. And the second question here, Fabio, you mentioned a lot about mortality. If you could just try to explain to us a bit how much of that is related to diseases, how much is about genetics, and what we could expect going forward on mortality, mainly on hands, because it seems that this is also impacting the supply of chicks as well.

Yeah, I'll take the first question relative to the CapEx. I think it's important to understand relative to this growth CapEx that we laid out and invested a many of those dollars and many of that effort will be for projects that really will not expand capacity until 2027 or later. We will have some things that will be more impactful next year. We talked about the conversion of one of our Big Bird plants to a case-ready facility for a key customer. That will be more impactful starting in 2026. But really right now when we think about capacity expansions and the time it would take to get many of those up and running and finished. We're not talking 2026 type of changes in general. We're talking more outer years from there. I don't know, Fabio, you want to take the next one?

Yeah, of course, Lemmy, and I think it is a good question. As you see the higher mortality in the broilers, but we are seeing the same higher mortality on the breeder, and that's why from the pullet placements that we are seeing, we're not seeing the size of the flock growing in the same sink, right? I think also the breeding flock is not growing as much as expected, giving the very strong profitability in our segment because of the high utilization of our hatcheries. So a older breeders, bird will always have even lower hatchability than we are seeing in the current optimal hen. So when you have that, then we will put a lot of stress in our hatchers. So that's why we are seeing the commercial flock or the layer flock smaller than in prior years. And that, you mentioned the distinction between diseases and genetics, but they are connected. I think we always take one step back on where we got here, and that was this new breed. As we try to solve the problem that we have in the years before in terms of quality of the meat, what we call the woody breast, we introduced this new breed. This new breed is also great for conversion and great for yields. So we don't think that we will go back to previous breeds just because of the mortality. Because, once again, what the industry looks is for a more better conversion and better yields, which is a more, let's say, sustainable bird and more competitive bird. But the genetic and the diseases are somewhat connected. I think we've been talking about managing individual birds, as these birds grow so fast, we need to keep an eye on individual birds, even on the laying flock. And also, when we look at the genetics, we believe that there is less of the resistance being passed from generations, so this breed broilers are a little bit weaker in terms of respiratory diseases. But as the time goes by, we'll learn how to manage, we'll adjust our houses, and we'll get back to a better mortality situation that we had before.

Thank you, Matthew and Fabio. Thank you. And the next question comes from Priya Auri Gupta with Barclays.

Hi, good morning. Thank you for the call. Just two questions from me, mostly from Matt. Matt, can you talk a little bit about the working capital swing that we saw in the quarter? It was fairly sizable. It looks like a number of the line items seem to have contributed and how we should think about that flowing into year end. And then the second one is just around your open market bond purchases in the quarter. So what's the thinking there? It was a little bit surprising. Admittedly, it's small size, but just how you're thinking about that going forward, thanks.

Yeah, Priya, and the first question relative to working capital, if you go back five, six years, and I was going back to 2020, you look at first quarter on a working capital change, other than last year, it's always been challenging, right? It's always negative. First quarter is always one of those ones between paying out incentive compensation and other changes that happen. We see more of a negative trend in the working capital changes in Q1. So we anticipate that to turn around. Last year was a bit of an anomaly in that grain pricing kind of dropped precipitously last year, which really kind of will save benefit. And we also had a very purposeful reduction of finished goods inventories last during Q1 of last year. So that was really more of the driver last year being a bit more of the anomaly of very favorable working capital change during Q1. Relative to the open market purchase, that was just more opportunistic. I think there's some things that we're looking at and considering. We do believe we'll be generating a fair amount of cash here this year. We look at the view relative to how the year should play on, and we consider a lot of different options relative to how to handle our capital allocation, which does include repurchases of debt, which we did last year. And we've had a little bit of a small opportunistic opportunity during the Q1. And we'll be kind of assessing what we're doing here going forward.

Great.

Thank you. Thank you. And this concludes the question and answer session. I would like to return the conference back over to Fabio Sandri for any closing comments.

Thank you, everyone, for attending today's call. 2025 started off on a strong note for PPC. As such, I'd like to thank our team members for their commitment to living our values, driving our methods, and executing our strategies. We must continue these efforts and maintain our unwavering focus on team member safety and well-being. Given this approach, we can grow sales, enhance margins, and reduce volatility in our business. More importantly, we can achieve our vision to be the best and most respected company in our industry, creating a better future for our team members. To that end, I look forward to accelerating our efforts in the remainder of 2025 and beyond. Thank you, everyone.

Thank you. This concludes this conference call. You may now disconnect your lines.