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Good morning and welcome to the First Quarter of 2025 Pilgrim's Pride Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] At the company's request, this call is being recorded. Please note the slides referencing 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 a question-and-answer session. I would now like to turn the conference over to Andrew Rojeski, Head of Strategy, Investor Relations and Sustainability for Pilgrim's Pride.

Good morning, and thank you for joining us today as we review our operating and financial results for the first quarter ended on March 30th, 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 disclose. 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 8-Ks and are available online at sec.gov. Fabio Sandri, President and Chief Executive Officer; and Matt Galvanoni, Chief Financial Officer will present on today's call. Before we begin our prepared remarks, I would like to remind everyone of our Safe Harbor disclaimer. Today's call may contain certain forward-looking statements that represent our outlook and current expectations as of the 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 has 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 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 capture benefits from elevated commodity values and improvements in production efficiencies where skills ready grew given strong demand in retail and expanded key customer partnerships. Small Bird improved with QSR growth and operational excellence efforts. Diversification efforts to prepare accelerate through portfolio expansion across retail and food service. Improve -- In Europe, last year through sustained benefits from business integration, mix enhancements, and network optimization. Opportunities to scale profitable growth further develop 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 and fails to keep customers in 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 headcount. Similar to 2024, increased mortality and reduced hatchability challenge our broiler production. To offset these impacts and provide production growth, hatcher utilization remain at record highs. Considering continued growth in sets and placements, USDA currently projects growth of 1.7% for 2025, reflecting the 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 ties have experienced record double-digit growth based on availability and consumer acceptance. Not only has fresh chicken grown materially, both deli and frozen departments has 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. US 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 pet 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 band. Assuming typical seasonality, the second quarter may experience an increase in high Pet AI activity. Nonetheless, our geographic diversity of production locations across US will continue to provide the flexibility to transition production for export if outbreaks occur. As for China, the relationship with the US 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 US chicken products, notably the paws has significantly declined since 2023, given the high PE AI band. 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 US corn and soy yields. However, this gain subside 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 US supply, wheat pricing is expected to decline. Moving forward, US weather will be the primary driver of corn and soybean meal prices. Trade disruption to tariffs disputes would also be important with the soybean complex more exposed to tariff changes compared to the corn market. In the US, 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 foodservice, declines in traffic suggests a reduction in dining out occasions among customers, which enabled their spending to go further 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, given lower grain costs and operational efficiencies especially at our expanded operation in Athens. Despite strong volumes in QSR and Delhi throughout the quarter, prices for whole birds and Delhi were lower compared to last year, unlocking value for key customers and consumers. Equally important, we are launching a variety of innovations to further strain our competitive advantage. He's ready to 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. Prepared foods grew over 20% compared to prior year from increased distribution across retail and food services. Diversification through brands play a critical role at sales of Just BARE and Pilgrim's collectively rose over 50%. Commerce continues 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 footers production. In Europe, profitability improved compared to last year through business integration, mix enhancements and manufacturing optimization. During the quarter, the consumer environment remain attractive as wage growth exceeded inflation. In grocery, poultry, pork and chill meals category grew, benefiting our portfolio. While Foodservice experienced a decline in visits, our demand increased. We continue 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 continue to gain traction as both sales and volume grew compared to last year. Fridge Raiders continue 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 Pilgrim's and Just BARE brands continue to gain distribution and market share and the sales of 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 Greenfield. 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 existing locations, and we also committed to convert one of our commodity plans to differentiate trade 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 Dallas, Georgia. In Mexico, our investment in capacity expansion for fresh in Veracruz and Mérida remains on schedule and we anticipate completion in the first half of 2026. Based on those investments, we can further enhance our biosecurity 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 1 and 2 emissions intensity below target levels. Moving forward, we'll continue to explore alternatives to enhance our climate resiliency throughout our value chain. With that, I would like to ask our CFO, Matt Galvanoni, to discuss our financial results.

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 of $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 US 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. US net revenues were $2.74 billion versus $2.58 billion a year ago, a 6.2% increase. US 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 of 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 to 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 17, 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 US credit facility not expiring until 2028. Our 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 2 to 3 times adjusted EBITDA. Net interest expense for the quarter totaled $17 million. We anticipate our full year net interest expense to be between $110 million 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 US, we recently completed a plant conversion to an air chill operation. We are now the largest NAE, organic and air chill producer in the US, demonstrating our focus on offering differentiated product attributes to our key customers. Our plans to increase capacity in the US 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 we'll 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 [Operator Instructions] And the first question comes from Ben Theurer with Barclays.

Yes, good morning, Fabio, Matt. Thank you very much for taking my quesino 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 1Q. 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, 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 take some time. We are going to see -- we do anticipate seeing a ramp-up of capital spend over the next number of quarters. The $750 million, 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, 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 has 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 from just like the general geopolitical/tariff noise affecting somehow consumption in a good or in a bad way?

Okay. Yes, I think it's is the 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 in 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 are 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 is happening right now. And that is pressuring also the commodity market because by buying this Big Bird 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're increasing their promotional activities and they are increasing the number of low price items in their menu. And with that chicken is gaining traction and gaining manual penetration. So chicken also increase 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 we are 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.

Thank you. And the next question comes from Andrew Strelzik, 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 a 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 let's see 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 businesses 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 to moderating and we're 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 some the Richmond brand and the Refrigerators brands are growing ahead of the market. And that indicates that the consumer has more confidence. I think, specifically, in UK there was an increase in the national insurance that created some uncertainty about jobs and inflation and grocery lately. I think we saw many reports from retailers 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 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 all the trade chatter? Just trying to get a better sense of how you're framing up Mexico, I guess, a month after we last saw you at the Investor Day. Thank you very much. Appreciate it.

Sure. Sure. Yes. 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 here 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 growth as well for us. So that's why we are expanding with a new line in our operations. There that 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 to 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, impact our results during any given quarter.

And Ben, I would just say, relative to Q2 last year, in Mexico, it's a very, very strong quarter. Last year, FX impacts kind of year-over-year Q2 to Q2 of this year, we'll still probably be in that 15-ish percent area depending, of course, where the peso goes from now forward. But if -- 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 been seeing that Mexico is one of the largest trade partner 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 tariff. 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 want 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 2024 too And so 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 2025?

Yes, 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 strong growth in retail, especially for our differentiated offerings and with such we increase our volumes in the real 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'll continue with that strategy Heather, and yes, you're right with the conversion of a Big Bird plant to a 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, you 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 US?

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

Okay. And then go on to your greenfield plants. So I think you're pursuing one and prepared and then and another protein conversion and just wondering, it's the timing uncertain, because I read like in local media reports of you all getting pushed back 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's 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 municipality. I think there is still a lot of, let's say, preconceived ideas about what a rendering operation is that sometimes triggers some of this 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 our 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're having a great partnership with the location there with the municipalities. So if there is any 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. The next question comes from Pooran Sharma with Stephens.

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 and in breast, and the back half of the Bird but seems like wings are head the other way. Just wondering if you could give us some color? What are you hearing from like the commercial side of the business? And do you expect seasonal demand to kick in, you have NFL season starting here in the fall. Would love to hear your thoughts on that cut?

No. Sure, Pooran. 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 foot traffic that impacted directly wings. Also last year, we saw some strong pricing and demand for wings, which trigger 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 the wings and boneless breasts on the food service. As we see the low prices of wings, we are seeing more feature activity on the wing, 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 time, we have always this seesaw issues on wings where one year we have significantly 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.

Right, no, I appreciate that color. I guess my follow-up will be, I guess on the lines of that, you're being challenged on production that's, obviously, helping with the elevated price situation along with relative affordability. But just wanted to see if 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 production up call it mid-single digits since March, but despite that you continue to see these elevated price points for breast. So just wondering, if you could tease that dynamic out a little bit more for us?

Well, of course, I think the first going into the cold storage. I think, first, if you look at the live quarters and other items the code storage numbers are significantly lower than last year and very low compared to normal five-year averages. I think the increase in boneless was more a promotional activity, especially one food service operator that puts 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 the 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 we're seeing more eggs per hand, so we increased the number of egg sets, but then we are being challenged with the hatchability one of the lowest we've 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 egg sets on the range of 2.4% 2.5% and then you go to the number of birds or head count is actually down. So all that growth is being muted by the challenges in hatch ability 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 there's nothing that is significant and we'll go back to prior numbers of hatchability and mortality.

All right. Thanks for the color.

Thank you. And the next question comes from Jasmin Andrade with Bank of America.

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

Oh, Sure. And I think it 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 of the commodity everyday pricing. And I think that 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 on 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 have 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 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 just pure commodity portfolio. You don't see the same spikes in prices. And you don't see the same challenge, when the prices are lower.

Okay, got it. And I guess to follow-up on that a little bit, you talked earlier about shifts and 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 mix headwind in the quarter. So if you have to supplement the retail channel with commodity meat. Yeah. …

Yeah. 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 to the commodity. 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 is higher than the profitability of the more stable segments.

Great. Thank you, guys.

Thank you. And the next question comes from [indiscernible].

Good morning, Fabio and Matt and Andrew. Thank you for taking my questions. Two questions here. The first one is if you could give me 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 to 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 ham, because it seems that this is also impacting the supply of chickens 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 at Investor Day, 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 would 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, do you want to take the next one?

Yeah. Of course, Lim, and I think it's 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 thing, right? I think also the breeding flock is not growing as much as expected, given the very strong profitability in our segment because of the high utilization of our hatcheries. So an older bird will always have even lower hatchability than we are seeing in the current optimal hand. 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 clock. And also, when we look at the genetics, we believe that there is less of the resistance being passed from generations. So this broilers are a little bit weaker in terms of respiratory diseases. But as the time goes by, we will learn how to manage, we will adjust our houses, and we will get back to a better mortality situation that we had before.

Thank you very much, Fabio.

The next question comes from Priya Ohri-Gupta with Barclays.

Hi. Good morning. Thank you for the call. Just two questions from me, mostly for 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 and I admittedly a 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 5, 6 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 more 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 work 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 we'll say benefited and we also had a very purposeful reduction of finished goods inventories 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. Relatively 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 related to how to handle our capital allocation which does include repurchases of debt which we did last year. And we just had a couple 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. 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 in 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 members’ 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.