Dunham Winoto - Director, Investor Relations William W. Lovette - President, Chief Executive Officer & Director Fábio Sandri - Chief Financial Officer.

Farha Aslam - Stephens, Inc. Adam Samuelson - Goldman Sachs & Co. Kenneth B. Zaslow - BMO Capital Markets (United States) Brett Michael Hundley - BB&T Capital Markets Michael Leith Piken - Cleveland Research Co. LLC Bryan C. Hunt - Wells Fargo Securities LLC Hale Holden - Barclays Capital, Inc..

Good morning, and welcome to the Third Quarter 2015 Pilgrim's Pride Earnings Conference Call and Webcast. All participants will be in listen-only mode. At the company's request, this call is being recorded.

Please note that the slides referenced during today's call are available for download from the Investor Relations section of the company's website at www.pilgrims.com. After today's presentation, there will be an opportunity to ask questions.

I would now like to turn the conference over to Dunham Winoto, Director of Investor Relations for Pilgrim's Pride. Please go ahead..

Thank you. Good morning, and thank you for joining us today as we review our operating and financial results for the third quarter ended September 27, 2015. 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 this release is available in the Investor Relations section of our website along with the slides we'll reference during this call. These items have also been filed as 8-Ks, and are available online at www.sec.gov. Presenting to you today are Bill Lovette, President and Chief Executive Officer; and Fábio Sandri, Chief Financial Officer.

Before we begin our prepared remarks, I'd like to remind everyone of our Safe Harbor statement. 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 those factors has been provided in today's press release, our 10-K, and our regular filings with the SEC. I'd like now turn the call over to Bill Lovette..

Thank you, Dunham, and good morning, everyone. Thank you for joining us today. Our net revenue was $2.11 billion for the third quarter of 2015, resulting in an adjusted EBITDA of $274 million or 13% margins.

Our net income was $137 million as compared to $256 million in the same quarter of 2014, with an adjusted earnings per share of $0.58 cents compared to $1.01 in the same quarter last year. Our team delivered solid Q3 results despite ongoing challenges in the export markets.

Additionally, our results were also impacted by some non-routine start-up and facility maintenance costs.

However, in the face of the lowest cutout value seen over the last five years and ongoing challenges in major export markets coupled with a pricing environment comparable to 2011, our operations continued to produce respectable margins last quarter.

This is a validation of the benefit of our diverse portfolio model and all the operational improvements we've have achieved in the past four years, giving us confidence that we are on the right track in implementing and executing our strategy.

As we said many times before, our well-balanced portfolio and approach to bird sizes, customers, end markets and geographies reduces the impact of individual segments and gives us lower overall volatility and much more consistent performance over an extended period of time.

A critical element of the portfolio is our leading position in high growth categories, which is proven to be the correct strategy for Pilgrim's by deploying our resources against the needs of our key customers and offsetting weaker commodity price.

In our retail tray pack segment, our business remains strong and we are continuing to work with key retail customers to develop innovative solutions to meet their needs, while enhancing our ability to diversify our customer base and broaden our portfolio.

Supporting the diversity in bird sizes, our operating strategy in fresh chicken of matching key customers with specific plant locations and adaptable pricing approach are further optimizing our profitability and risk management across the entire business while delivering the best quality products possible to consumers.

Beyond fresh chicken, we are also continuing our progress with prepared food sales and operations. We remain on track sustainably to grow profitably and support increasing demand from our key customers.

Our team is focusing their efforts on leading regional and national chain operators, school food service and main broad-line distributors as the major customer segments.

To support this strategy, a significant portion of our CapEx over the next two years will be dedicated on investments that will enhance our prepared foods capacity and efficiency and improve our well-regarded Pierce brand.

We believe this approach when paired with our enhanced agility to grow versus buy when financially optimal, will create an earnings profile that is much more resilient to volatility. This was definitely reflected in this quarter's results.

Although the major – the majority of the export markets remain challenged, we look forward to the possibility of a reopening of these markets soon depending on the domestic avian influenza situation.

We can see the potential for an improvement in export, as bulk leg quarter prices are already reaching a level that is very attractive and should stimulate some demand from consumers in emerging economies who are seeking a cost effective protein. Additionally, lower near term volatility in the U.S.

dollar compared to recent past and more stable oil prices should encourage purchases and translate to improving demand trends from some of the traditionally large chicken importing countries.

That said, despite the expected improvement in exports, we are not standing still but are instead choosing to continue pursuing our four-year proven strategy of growing value-added exports, which have helped us to become less dependent on bulk leg quarter market pricing.

We remain on target to further reduce our reliance on commodity exports by continuing to make investments in increasing our non-commodity leg meat business and expect to have the capacity to debone over half of our jumbo leg quarters by the end of this year for both domestic and export consumption.

And process the rest in the whole legs assuming the best cutout. We see this approach as a learning strategy to leverage our – on shifting U.S. demographics, increase our options for export, and generate higher margins in pure commodity products.

We are excited about the recent PPP agreement as it could further improve market access abroad and also increase the competitiveness of all U.S. protein products.

We are on target to achieve $200 million in operational improvements despite non-routine start-up costs and a large newly retooled plant and an extended shutdown at our largest facility for structural maintenance last quarter.

We will also perform a major equipment upgrade at yet another facility during Q4, modernizing the lines and improving quality through process technology to improve alignment with our key customers. Our Mexican operations posted a good quarter on very difficult comps versus last year when prices were very strong and supplies were tight.

Note that in contrast to 2014, supply and prices in Q3 of this year were much more in line with typical seasonality. Our prospects in Mexico remain bright and we believe the growing trend of chicken demand is intact due to rising per capita income.

The integration of our newly acquired business in Northern Mexico is going well, and we expect synergies of approximately $50 million on an annualized basis, mainly from increased scale and combining our live production, processing plants, logistics, feed sourcing, and back office operations.

Our new complex in Veracruz has begun commercial production of live chickens and the first chickens – the first chicken is coming to the market later this quarter.

Both the acquisition of the Northern Mexico business and Greenfield in Veracruz will allow us to be much stronger player in all geographies in Mexico and well positioned to serve the future growing needs of this market. We remain on the lookout for new U.S.

cases of avian influenza as migratory birds begin to fly southward in the fall and winter seasons. Given the difficulty in predicting which areas of the country are vulnerable, we have to assume that all U.S. flyways are at risk.

As such, we are continuing to place all of our production complexes on a high biosecurity alert and have improved training for all of our team members involved. In addition, as before, we continue to test every broiler flock prior to slaughtering, constantly look for the presence of the virus in our breeders.

We also have a localized response plan ready to employ all production complexes in the event of an active infection in our own birds or those owned by others nearby.

Our expectations are for input costs to remain relatively stable as corn and soybean meal futures are reflecting abundant, global grain supplies given the very healthy corn and soybean carryout levels and the USDA's view of a solid 2015, 2016 crop outlook in the U.S. as well; as well as harvest – positive harvest seasons in South America.

Therefore we expect no material change in our previous outlook and continue to believe feed cost will continue to stay low and present a lower risk to our margins for the rest of the year and into 2016.

Turning to supply, pullet placements, which have been volatile and running at the high end of our expectations, are continuing to reflect ongoing replacement of an older breeder's flock, a breed change, and hatching egg exports.

Industry data released over the past few months have also confirmed continuing strong increases in hatching egg shipments to Mexico.

With that as a backdrop, we continue to feel comfortable with our prior outlook on supply growth since the most recent layer flock and eggs sent data starting to trend lower than last year and are quite modest in relation to the relatively high number of pullets added year-to-date.

Given the larger than seasonal production cuts, as confirmed by recent USDA data, total production should increase by 4% to 5% this year and our expectations for another 2% to 3% growth in 2016, which is consistent with our previous outlook.

As a reminder, the industry is currently reaching capacity utilization on the processing side, which limits the ability to substantially increase slaughter within the short to medium term without significant investments on the whole value chain.

On the live side, there is also less incentives for the industry to increase bird weights compared to this year. We are continuing to see positive demand growth from our key customers, particularly at QSR and food service traffic remains positive.

Therefore assuming existing supply growth rates, we believe supply and demand to remain roughly in balance. Although we see some competition for pork, chicken continues to be very compelling in both retail and food service.

In addition, while we may have seen the end of significant increases in beef prices this cycle, we believe the beef, chicken spread will remain elevated for the foreseeable future. And although cold storage inventory is higher compared to 2014, it is primarily due to the export situation and not a general lack of demand.

Overall we continue to see positive signs for demand and chicken continues to be the most attractive protein option available for retail and food service. We remain committed to creating and maximizing shareholder value while retaining our financial disciple and flexibility.

Year-to-date, we've paid out $1.5 billion in a special dividend, acquired additional operations in Mexico to improve our geographic diversification and competitiveness in one of those strongest emerging markets and instituted a $150 million share repurchase agreement.

And yet, our net debt remains at very low level, allowing us to opportunistically look for new growth prospects, so that we can further improve our margin profile with reduced volatility in earnings. With that I'd like to ask our CFO, Fábio Sandri to discuss our financial results..

Thank you, Bill. And good morning, everyone. We reported $2.11 billion in net revenue during the third quarter of 2015, resulting in an adjusted EBITDA of $274 million or 13% margins. That compares to $2.27 billion in net revenue and an adjusted EBITDA of $442 million, or 19.5% margins, the year before.

Net income was a $137 million versus $256 million in the same quarter of 2014 or a 46% year-over-year decrease, resulting in adjusted earnings per share of $0.58 compared to a $1.01 in the same quarter of last year.

The quarterly results reflect the cumulative work we have done to create a portfolio strategy that will better resist volatility in specific markets. It is worth expanding on the points Bill commented earlier regarding impact of changes we have made to our operations in the past four years.

In conjunction with our portfolio model, we have achieved over $850 million in total operation improvements to enhance our margin profile, our position, and position our business to better withstand volatility and specific market challenges.

On that we are on target to reach our goal of $200 million in operational improvements this year despite the lower value of the cutout as some of these gains are related to better use and not only cost savings.

These changes are contributing to our results and despite the challenges of exports and a cutout comparable to 2011 levels, our business produced double-digit margins in Q3.

Our operations were also impacted by non-routine facility cost of around $30 million last quarter due to the ramp-up of our new leg deboning line, which will help us on reducing our commodity leg quarter production as well as structural maintenance at one of our largest facilities.

We invested $130 million year-to-date in CapEx projects, and we will continue to invest in our business to ensure the sustainability and quality improvements of our operations. During Q4, we expect to make additional improvements to another plant, which will impact our operations but to a much lesser extent.

Our SG&A expenses continue to be close to target at 2.5% of net sales, in spite of the addition of Mexico Norte and some restructuring and integration costs.

The level of competitiveness of our SG&A focusing on adding value to our operations show our commitment to operational excellence, not only in the industrial standpoint, but also from our sales and support team.

The integration process of Mexico Norte is going well, and we are on track to achieve $50 million in annualized synergies, with major opportunities by leveraging our combined scale of purchasing of ingredients and feed inputs, redundancies in distribution and back-office operations.

The overall market in Mexico has reached its seasonal bottom in prices during Q3 and the beginning of Q4, and we are already seeing improvements gearing up towards the end of the year with the usual festivities.

Our balance sheet continues strong due to our relentless focus on cash flow from operational activities, continuous management of working capital and disciplined investments in high return projects.

During the quarter, we generated $196 million in free cash flow after taxes and capital investments, reaching a net debt of $610 million and a leverage ratio of 0.42 times last 12 months' EBITDA. Our strong cash generation leaves us plenty of room to continue to seek the right investment opportunities.

We'll continue to focus on opportunities with a superior return on our investment and projects that increase our efficiency, quality and safety.

As mentioned during Q3, we continue to work on adding leg debone capacity at one of our largest big bird plants and we will continue to invest in our plants to further improve the efficiency of our operation.

Each of these projects improve our ability to provide the best quality products to our customers, lower costs, improved efficiencies, enhance our sales mix opportunities. Given there is no change in existing debt, our interest expense for 2015 should continue to be in the range of $30 million to $40 million.

We continued with our commitment to create shareholder value, our financial discipline and our confidence in the future. This year alone, as Bill mentioned, we returned $1.5 billion back to our shareholders as a dividend, grew our company in the key geographies such as Mexico through acquisition and Greenfield.

And during the third quarter we have repurchased close to a third of the provision under the previously announced $150 million share buyback program, while maintaining a strong balance sheet and a very low leverage.

We will continue to consider and evaluate all relevant capital structure strategies that will enhance and complement the pursuit of our growth strategy. And with the strong cash flow from operations, our commitment to pursue the right growth strategy remains intact. We will continue to review each prospect accordingly to our value creating standards.

Operator, this concludes our prepared remarks, please open the call for questions..

Thank you. We will now being the question-and-answer session. The first question comes from Farha Aslam with Stephens. Please go ahead..

Hi, good morning..

Good morning, Farha..

Question on pricing as you enter the contracting season, could you share with us kind of what you're seeing in terms of pricing for both the food service and the retail market for next year?.

So, on the program business, Farha, that we're talking to our key customers about, I'm very encouraged with the situation that we're moving into.

And that's precisely why that over the past four years, we've been focusing on our key customers' needs because our strategies, simply put, is where we lineup what we have in terms of both product, resources and added value to our key customers and targeted at their specific needs and that's how we've created more stability in our margins.

And so with – what we've talked to customers about so far, I'm extremely encouraged by what we're seeing today, especially contrasting that what the commodity pricing is. So -.

That's helpful. And then as my follow-up, what do you see in terms of the M&A outlook? Do you see anything imminent? What does your pipeline look like? And I didn't catch it if you had told us.

How many shares did you buy back during the quarter? And are you still committed to completing the $150 million in the first year?.

Yeah, on the share buyback, Farha, we bought a third or $49 million during the quarter, which is roughly 2 million shares. We are committed to the $150 million.

In terms of the landscape on M&A, we are seeing targets out there like we're mentioning we have our dual track, where we look at companies that can complement our portfolio of branded products – products in our geography and we are seeing targets out there and we will measure those targets to our value creation standards..

Great. Thank you very much..

Thank you..

The next question comes from Adam Samuelson with Goldman Sachs. Please go ahead..

Yes. Thanks. Good morning, everyone..

Good morning..

Maybe to start, and Bill, in the prepared remarks you alluded to significantly improved margins today relative to 2011, the last time chicken cutout was at current levels.

And I'm wondering, if we can maybe think about a bridge there, because if you go back four years, I mean feed costs were at least – feed costs today are probably 35%, 40% lower than they were in 2011. And you've implemented a – you kind of executed against the $850 million annualized cost savings and cost improvement, margin improvement plan.

And I'm wondering if we could think about how to bridge the margin performance 2011 to today in the third quarter given those two dynamics, because it would seem that the combination of the feed cost reductions that you've had over the last four years as well as those cost improvement actions would suggest that your margins in the third quarter still have been higher than they were.

And I'm wondering if you could help there..

Yeah. I mean, directionally that you are absolutely right, Adam. And I'll talk about the major buckets and Fábio can fill in with more specifics. But if you think about it, you mentioned the feed cost difference.

That's true but more impactful is our operational improvements and that's what we've been talking about in the last four years and reducing our operational cost, improving our yields so that's sort of another bucket. And then the other bucket, which probably has almost as much impact, is our mix change. So mix, sales mix is very important.

And that's where we rely on our focus on our key customers, becoming a more valued partner to key customers and that allows us to move our mix into one that's more profitable. And then the final thing I would mention is, of course, we've dramatically changed our portfolio of products that we sell and export.

Whereas before four years, five years ago, we were pretty much totally dependent on just bulk commodity exports that were sold at whatever the market would bear at the time, we've done, I think, a good job of changing that mix and putting it into a form that is not near as susceptible to those commodity market. So those are the major buckets..

Okay. Maybe I can pick up on that last point and ask the question a different way. Because I mean the commodity markets themselves had a very sharp drop sequentially in the third quarter from the summer months and the spring..

Right..

And you look at your U.S. business and your revenue sequentially was down about $40 million, yet your gross profit was down about $140 million or so.

And I'm trying to just think about the delta, the mix in there and what really changed if you've really reduced and diminished your exposure to those commodity markets?.

Well, we still have some of our business that is priced on commodity markets. And then even within that book of business, you have some program business that is a formula based price and then you have some – we have some spot sales.

And we've been working over the last four years to continue to upgrade those products which are sold on spot to more program sales. We continue to improve that mix and we will continue to do so.

But, again, it's the portfolio diversity that we've mentioned, it's our focus on key customers and their needs that produced a 13% EBITDA margin in a market environment, as you well said, declined dramatically during the quarter. So we're very pleased with how our model operated in that environment.

It's a reflection of what we've been saying for the past three years to four years..

And to build on that Adam, our portfolio, we believe that we have built the best portfolio strategy because we have the upside potential on the up-cycle through our exposure to the spot market and we have the downside protection with the prepared foods and the different fresh segments in a down cycle..

Okay. And then maybe if I could just squeeze one more in. You talked about this a little bit in the prepared remarks, but the pullet placement numbers in the last couple of months have been very high. Last month was the highest month ever, frankly.

And I'm wondering if you could just aggregate those reported results a little bit more at least in your estimation how much you think hatching egg exports to Mexico are contributing versus breed change and what you actually think the breeder flock for domestic production actually looks like in 2016?.

Yes, so while the pullet placement numbers have been extremely volatile, high, and quite frankly, if you only focus on one month or another can be quite confusing. What we tend to look at is the size of the breeder flock in total and it is up about 4%.

To offset that we've seen those exports to Mexico growing quite significantly through the year and so when you flush all of that out, it gets you back to what's domestically available in terms of hatching eggs. There's been fairly tepid growth over the course of this year.

And I think really the most important number that we keep our eye on is egg sales. If you go back to August, we began to see egg sales, and chick placements decline in terms of growth over the previous year in September, egg sets were down 1.7%, placements were down a 0.10%.

First three weeks in October egg sets were down 1.4% and placements were down 1.6%. So, I think if you take all of that into perspective, it tells us that the industry is showing discipline.

As you mentioned earlier, pricing has receded and we're still focused on the fact that the profitability of this industry depends on the supply and demand of chicken and really little from many other factors..

Adam, also to increase a little bit of the volatility on the FDA numbers, the pullet placement number includes the primary breeders. And there's been a battle for market share between the two largest participants in that market. And after 2013 and 2014, where they couldn't fulfill orders, they are expanding their own capacity.

Like Bill mentioned, we have the placements for our industry throughout the benchmarking systems that we have and they have different numbers much more in line with the breeder flock numbers that Bill just mentioned..

Okay. Very helpful. Thanks..

Your next question comes from Kenneth Zaslow with BMO Capital Markets. Please go ahead..

Hey. Good morning, everyone..

Good morning, Ken..

So I have a couple of questions. When I look at your peers, there is one out there in particular that's been vocal about 9% EBIT margin out there.

My question is will you be able to outperform that 9% given your business mix and your cost savings? How do you think about that?.

Well, the way we think about it, Ken, is no different than we've been talking for really the last two years to three years, and that is over a long period of time we believe that our earnings will be higher and more stable than the average chicken company. And we still stick to that.

We've got a great balanced portfolio that allows us, as Fábio said, to take advantage of high commodity prices, and on the down cycle, protects us against the lows.

And one thing in particular that I attempted to emphasize in the prepared remarks is, in our prepared food business, which we intend to grow profitably, we employ a buy-versus-grow strategy.

So when commodity prices for raw materials go below cost of production, then we're going to buy those raw materials from the open market to convert and to further process in prepared foods products and that also gives us more protection against these cyclical pricing seasons..

Because I'm not debating that you're going to be – I think at this point, I think, nobody is out there who thinks that you're not above average. I think you've clearly and unhesitatingly put yourself away from the average. My question more is can you be in the top tier in a down market? And can you hold your margins, I guess is my, kind of, thinking..

Yeah. I mean, we're still – we've said this, we're still in a cyclical business but, we think we'll be a top tier company in the industry and all cycles, all points in the cycle..

Okay.

My second question – hello?.

Hello, yes, go ahead please..

Yeah. My second question is you said that the – just in terms of the pricing environment, you said that the supply is constrained, which we agree with you but you said the demand is strong. So which part is creating the weakness in the pricing? I'm just trying to figure – kind of figure out which side of it is both.

The supply seems contained and you said the demand still seems robust. So – but yet the pricing has come in. So just trying to, again, figure out what exactly is causing the pricing.

Is it just simply the export markets and if that cleans up, we would be off to the races?.

Yeah. So I think export markets definitely has impacted pricing. I think total exports are down about 20% and that's definitely had an impact. We're seeing more leg quarters, more whole legs, even more boneless leg meats sold domestically and that puts some pressure on the complex. We also see more pork available especially at retail.

I think pork futures at retail are up about 16% this year. And we noticed in July a significant increase in pork futures at retail and a decline for chicken futures. But even with that said, we see the retail demand for chicken very strong.

We continue to innovate in that category, move away from just a situation with customers where price is the only part of the discussion. And we think that's helped us in particular. So those are the two main factors, Ken, is the export situation, more pork on the market and some more chicken on the domestic market as well..

Ken, I'll just add that we need to segment a little bit more the market. And when we think about the small birds and when we think about big birds, what we are seeing on the spot market is excess – I'll not say excess but increased production during Q3 of overall close to 5% and that was 100% concentrated on the big bird market or on the spot market.

When you look at the price environment on the big bird market compared by the cutout is what we are seeing. But when we look at Urner Barry or when we look at Georgia Dock, which is more reflective of the small bird market, we can see that the market is still strong and demand and supply are more in balance..

Yeah. That's a good point, Ken, and I think I should probably emphasize that a bit more. If you are a big bird operator and you are caught with a lot of spot volume that you just have to go out and negotiate on any given day, then you're probably not going to be all that happy with the price that you get, at least in recent weeks.

And that's why we've been working the past three years or four years to get a lot more program business, where we are not as exposed to the spot market. We'll keep part of our portfolio on spot because as markets change, we want to be able to take advantage of that. But we won't have good balance between program and spot..

Okay. Thank you very much..

You're welcome..

Thanks, Ken..

Your next question is from Brett Hundley with BB&T Capital Markets. Please go ahead..

Hey, good morning, guys..

Good morning..

Fábio, just a quick housekeeping question. I saw the feed cost change year-on-year in the U.S. market, but I didn't see you guys lift it for Mexico in the Q.

Can you give us the total feed cost change year-on-year in dollars?.

Year-over-year our live cost is $60 million lower than the same quarter of 2014..

I'm sorry, down $60 million?.

Yeah, there is a $60 million benefit year-over-year..

Okay. All right. Thank you. And then, Bill, I just had two questions for you.

The first was that – is there a good proxy for us to sort of think about as far as percentage of big bird business out there that might be spot? In other words, do you think I would be way off base or way out of ballpark here in thinking that maybe about 30% of big bird business is transacted on the spot market? So, that's the first part of my question.

And then secondly, given the work that you guys have done and you just talked about trying to move more towards program business, is there any potential that you see in Q4 here for any of your big bird plans to be in the red?.

On the component of what is spot versus program, I don't know exactly, Brett, but what you said seems reasonable to me that it may be. And the second part of your question, will any big bird operations be in the red in Q4.

I think there's a chance depending on the makeup of that particular plant's business if it's – if it has more spot business and is exposed to commodity leg quarters, yeah, I think there is a reasonable chance that it's going to be red.

But on the other hand, a big bird operation that has more program business and has more flexibility and diversity for the back half, I think they sell through the quarter and be profitable. So, I think it just depends on the mix of that location – given location..

Okay. And then my last question is I wanted to go back into QSR contracts specifically. Because last year during the fall, it was my understanding that because bird weight specs were rising generally speaking, that the QSR operators put some really good terms in place to procure product for their operations.

And that suppliers to the QSR channel really got some pretty solid contract terms. And generally those contracts might have been a year out, but our understanding was maybe some of these contracts could have been further out, maybe even two years or three years.

And if that is the case, I just wanted to revisit what's happening now given that we're in the season, and I just wanted to see if there was any potential in your mind to see reversal in some of the strength of those QSR contracts and kind of what the conversation was at that level featuring wise, price wise, et cetera, so hope that makes sense..

Yeah, sure. Good question. So I can't speak to the entire QSR industry because over the last few years we changed our mix especially in prepared foods such that we decreased rather significantly the amount of frozen further processed product sold to the big national chains.

We found that in times where commodity pricing was lower that that business where – especially where it was required to fix that price for 12 months was just not profitable and there was a lot more risk involved. And so we moved our portfolio away from that segment, in general.

I'm not saying that we don't participate, but we are not near as reliant on that business as the company was four years or five years ago. So I can really only speak to the customers that we deal with. And as I said before, we are very encouraged about the negotiations and the discussions that we've had with the QSR segment that we do business with.

And we think we've got the right product mix, we've got the right pricing strategy that works for our customers. It performs to their needs. And it also provides much less risk and creates much more of a margin opportunity for us at the same time..

Okay. And then as far as the featuring calendar, you continue to remain positive as it relates to your business..

Yeah, absolutely. We see really good demand going into 2016. We think that chicken still is going to be heavily featured at all channels in foodservice and retail as well, especially fresh chicken at retail and remain quite optimistic. Wing season is coming at us. And we see great demand for wings in virtually all forms.

Our fully cooked wing business is really doing well. And so, yeah, we're encouraged by what we see right now..

Okay. Thanks for taking my questions..

Thanks, Brett..

The next question comes from Michael Piken with Cleveland Research. Please go ahead..

Yeah, good morning. Thanks for the question. My first question is regarding kind of the buy-versus-grow.

Just wanted to see to what extent you guys have flexibility to shift to a buy-versus-grow strategy and how much breast meat you could potentially buy in the open market?.

Michael, we can buy virtually all of the need that we have on breast meat, tenders, even some of the wings if the price of that raw material is such that it's more profitable for us to do so. We set up our model that way and we are prepared to do so..

Okay, great.

And then as you look at some of the recent egg set data and obviously they've been trending down in some of the recent weeks year-on-year, is this almost all exclusively coming from big bird deboners or are you guys taking any cuts in any of the other parts in small bird during the retail tray pack?.

We believe it's across the board actually. We've seen a lot more conversions this year, 2015, of smaller and medium sized birds going into the large bird category. So I think just by definition we've seen a lot of cuts coming in that segment.

Especially I believe if producers are relying on the spot market that's probably where you've seen more of the cuts than other segments..

Perfect. Thanks a lot..

Thank you..

The next question comes from Bryan Hunt with Wells Fargo Securities. Please go ahead..

Thank you for your time this morning. Bill, I was wondering if you can quantify some cost information for me.

When you look at stepped up security expenses going into the back half of the year as well as the plant maintenance costs that seem to be discussed in your prepared statements, could you talk about individually those two cost items as well as whether you see ongoing cost or additional costs from maintenance and AI security going into next year?.

Yeah, so I think the AI security cost is really not really significant or material. We were already doing a lot of that. We just enhanced our training. We put more foot baths at all of our farms. We've installed truck spray washes where needed. But it's – still it's been really immaterial.

On the two operations that we mentioned in the prepared remarks, one was a really a complete retooling of one of our largest plants, all the way from the live receiving through pick and kill and kill and pick and eviscerating and then we also installed a dark meat deboning in that operation. And so that was that.

We had some structural issues at our largest operation has caused us some unplanned downtime and also some higher maintenance expenses. That's behind us.

In Q4, as we mentioned we're taking another plant that is really dedicated for a key customer and we are retooling it as well to meet the needs of that key customer and it's down actually as we speak and will be coming back up here in the coming days..

Could you quantify what that expense was in Q3 and what it might be in Q4 and whether those are added back to EBITDA?.

Yeah, in Q3 it was about $30 million. I don't believe it will be all that significant in Q4 though..

It's a combination of expenses and loss of business interruption let's say..

And that is not added back to EBITDA on your calculations?.

That will go through to EBITDA in Q3, but (48:25)..

It was not added back, no, it was not in the adjusted numbers, no, it just won't..

Not in adjusted number? Okay, great.

And my follow-up question after covering expenses, when you look at your potential growth or the USDA's potential growth for the industry next year, 2% to 3%, in your opinion based, on the capacity expansion that you've heard from Sanderson and Koch and , (48:53) and I don't know if there is anybody else that have announced capital projects for 2016, do you think those numbers correlate well? Or is there potential to – we're running full today, is there potential to exceed that 2% to 3% in your opinion? Thanks..

Yeah, no, I think they correlate well. And if you just step back and consider this year, we saw more conversions to the large bird segment this year and that's why we saw more of the component coming from weight gain as opposed to head place. And I think we're going to finish the year at around 4.5% more in 2015 over 2014.

We don't believe that we'll see the same rate of conversions to the big bird category next year, and so we're going to be more reliant on head placed increase without that weight increase component. And that's what gets us to the 2% to 3%..

I think also the two plants that you mentioned are already operational. So, the increase for next year is going to be not as big as just adding from new plant..

Very good. I appreciate your time. Thank you..

Thank you..

The next question comes from Hale Holden with Barclays. Please go ahead..

Thanks for taking the call. I just had two quick ones.

What do you think about the AI impact on exports? I was wondering if you could give any color on when you thought some of those markets might open back up? And on the back of that, when they open up, how long it would take to get through some of the leg inventory that's in freezers right now?.

Yeah. So, I really don't have a great read on timing except what we know is that – I believe the last infection was June, 17. Typically it's around six months from the last break by the time you get all of the negotiations and regulatory things behind. So, it could be toward the end of the year, it's possible. But I don't really know that for sure.

And on the inventory, inventory is definitely up versus the last couple of years. But I don't think it's overly burdensome either. So, I don't think it's an extended time that's all that burden..

Got it. And then, Bill, on your comments on the industry kind of being at full production capacity with no production coming over the next two years to three years, or it would take awhile to get new plants up to make a difference.

How do you view PPC's role in that? Is it something that you would think about to increase capacity? Or would you let others in the industry do it?.

We're focused on our key customers. If we see some of our key customers needing more product then we're going to do what's best for taking care of those customers and taking care of our business..

All right, appreciate the time. Thank you..

Thank you..

This concludes our question-and-answer session. I would now like to turn the conference back over to Bill Lovette for closing remarks..

Thank you. As we get closer to the end of 2015, we remain committed to creating and maximizing shareholder value while retaining our financial discipline and flexibility.

With our portfolio approach and our high growth strategy in place, we are excited about our prospects for 2016 and believe industry supply and demand should remain in relative balance.

While we continue to focus on factors within our control, we have the confidence that our strategies will generate the best opportunities to deliver more consistent results for us regardless of specific market conditions. I would like to thank our team members and customers and shareholders as always and appreciate your interest in our company.

Thank you for joining us today..

This conference is now concluded. Thank you for attending today's presentation. You may now disconnect..