Good morning, and welcome to the First Quarter of 2024 Pilgrim's Pride Earnings Conference Call and Webcast. [Operator Instructions] 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 Investors section of the company's website at www.pilgrims.com. After today's presentation, there will be an opportunity to ask your questions. .

I would now like to turn the conference over to Mr. Andrew Rojeski, Head of Strategy, Investor Relations and Sustainability for Pilgrim's. You may proceed, sir. .

Good morning, and thank you for joining us today as we review our operating and financial results for the first quarter ended on March 31, 2024. .

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 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 have been provided in this morning'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 2024, we reported net revenues of $4.4 billion, a 4.7% increase over the same quarter last year. Our adjusted EBITDA was $372 million, up 145% versus Q1 of 2023. Our adjusted EBITDA margin was 8.5% compared to 3.6% last year. .

Our Q1 demonstrates the results of consistent execution of our strategies. Over the past quarters, we experienced significant volatility in the commodity cutout values, persistent inflation and challenging labor markets.

Nonetheless, we maintain a focus on key customers' partnerships, portfolio diversification, growth of value-added offerings and a relentless pursuit of operational excellence. While these efforts reduce downside risk, they are also further strengthening our competitive advantage.

As a result, our business became increasingly well positioned to realize potential upside as enhanced market fundamentals emerge. .

In U.S., Case Ready increased its marketplace presence, given key customer growth supported by our differentiated offerings, whereas Big Bird improved profitability through continued progress in operational excellence and stronger commodity cutout values. Small Bird remains strong, given significant growth in the deli and steady performance by QSRs.

Prepared Foods further diversify our portfolio as our brands grew across Retail and foodservice. .

Our European business continued to make progress on its profitability journey. During the quarter, the team secured additional business with several key customers in Retail. Efforts to further diversify our portfolio continue to gain traction as our brands grew faster than category averages.

These efforts were augmented through the optimization of our manufacturing network and integration of corporate support activities. .

Mexico's results improved through a combination of enhanced commodity fundamentals, exchange rate favorability and consistent execution of our strategies. Led by key customer partnerships, the business continued to grow across both Retail and foodservice. .

Branded offerings rose double digits compared to the same period last year, further diversifying our portfolio. Operational excellence efforts to enhance production efficiencies and reduce biosecurity risks remain on track. .

We also continue to drive sustainability efforts. During the quarter, a third-party conducted a limited assurance audit of our GHG emission related to our sustainable linked bond. Based on this work, our emissions intensity declined by 15.6% from 2019 to 2022.

Moving forward, we will continue to invest in infrastructure, operating procedures and training that can reduce our emissions intensity. .

Also, our investments in organic growth continued progress as we initiated startup and production at our protein conversion facility in South Georgia. Similarly, our expansion efforts in Mexico to drive profitable growth and access new geographies remains as our new projects have progressed as scheduled. .

Looking at feed inputs. Global corn prices fell as additional demand for U.S. corn did not emerge in export market and South America growing season experienced suitable growing conditions. As for the U.S., a normal growth season for corn should enable for a build on the '24, '25 ending stocks above less crops already comfortable levels. .

Like corn, U.S. and world soybean stocks are set to build in both the '23, '24 and the '24, '25 crop years, reaching historical comfortable levels. The South American soybean crop achieved record production, limiting U.S. export demand. .

As for the U.S., soybean acreage is expected to increase in this crop year, further increasing supply. Additional soybean crushing capacity is also expected to emerge, which may also lower the value of soybean meal. .

On wheat, balance sheets are somewhat more sensitive given the overall increase in demand and slight decrease in production in last crop year. However, the increase in global stocks of all grains may serve as a counterbalance.

Moving forward, weather and crop conditions also suggests an increase in yields versus last year despite lower planted acreage potentially increasing the supply. .

In the first 3 months of 2024, the USDA estimates indicated ready-to-cook production for the U.S. chicken decreased 1% relative to the first quarter of 2023, impacted by less production base than the prior year.

Production was also impacted as head counts did not pace at levels equivalent to last year, mainly driven by reductions in Small Bird and Case Ready categories. Contrary to the other segments, the Big Bird segment grew production during the same period. .

Since early in the first semester, improved flock productivity amplified egg production, translating into increased egg sets. Even with the high flock productivity, hatchability and mortality continues to be a challenge, offsetting a significant portion of increased sets. .

Based on the recent trends in egg sets, higher average lightweights and low feed pricing, USDA data suggests a 1.5% growth in chicken for the full year, assuming normal season patterns. However, continued hatchability and livability challenges may limit the ability of the industry to grow accordingly to the USDA estimates. .

For semi-cold storage supply of chicken, USDA-reported inventories indicated a 13% reduction from the end of 2023 through the end of March. Given this reduction, inventories are almost 11% below March 2023 levels.

Inventory depletion came from both front and back half, allowing the industry to enter the second quarter with significantly reduced stock levels. .

As for overall protein availability, USDA anticipates limited growth as increased imports of beef, additional pork production and the expected increase in chicken supply are more than offset by a significant decline in beef production, given reduced health herd size and increased retention. .

Domestic volume of chicken demand showed steady growth in the first quarter of 2024. The Retail channel experienced improved volumes. In the fresh department, demand has remained robust, while pricing remained stable. Volume has grown despite a lower share of chicken on promotion, suggesting consumer everyday purchases are improving year-over-year.

Volumes rose across the category, especially on the boneless breast category, where the volume growth of our key customers outpaced the overall industry growth. .

Overall frozen sales also experienced higher volumes. Consumers continue to favor frozen value-added over the frozen commodity category as value-added volumes more than offset the volume declines in commodity.

Within the value added, our key customers also outpaced category growth rates, suggesting that our branded offerings are well suited to capitalize with further growth as the consumer looks for convenience and differentiated solutions in the frozen aisle. .

As for the Retail deli, unit and dollar growth remained robust as the department can offer strong value to consumers who may be looking to trade out of traditional foodservice meals to rationalize spending without sacrificing convenience. .

In the foodservice channel, revenue and volume sales improved in both commercial and noncommercial foodservice distributions subchannels. The commercial distribution subchannel experienced larger dollar growth as rising fresh wholesale prices were able to be passed through to operators.

Within the subchannel, the QSR category drove the majority of volume growth, also suggestive of consumers looking for more affordable meals. .

The noncommercial distribution subchannels continue to build steadily, especially education and health care, adding incremental volume relative to the first quarter of 2023. .

In the export channel, the value of export shipments remained steady, while higher pricing, while volumes declined on a year-over-year basis. Despite the volume decrease, leg quarter and dark meal -- meat inventories fell more than seasonal norms and ended March significantly below the 5-year average.

Combined exports and domestic dark meat remain supportive of pricing as USDA leg price -- quarter prices averaged 18% higher than the first quarter of 2023. .

Since combined domestic Retail and foodservice volume sales growth outstripped the supply growth experienced in the quarter, further cold storage inventories were drawn, more than the seasonal norm.

As a result, the pricing for commodity chicken experienced above-average seasonal improvements, along with jumbo cutouts value above the 5-year average beginning in the second quarter. .

Our U.S. business experienced another strong quarter through a combination of enhanced market fundamentals and consistent execution of our strategies. .

Case Ready increased its market presence as our key customers grow faster than category averages. Additional opportunities exist, given continued consumer interest in differentiated higher attribute offerings, growth in consumer-specific products and increasing retail spreads between chicken and other proteins. .

Small Bird remains strong given the robust growth by key customers in Retail deli and QSR. The team continues to drive operational excellence and growth, especially at our recent expanded facility in Athens, Georgia, as production continues to improve and ramp-up remains on schedule. .

Big Bird has continued its focus on operational excellence efforts to improve plant efficiencies, upgrade product mix and optimize live operations over the past year. When these efforts are combined with enhanced commodity cutout values, profitability increased dramatically from prior year.

Moving forward, we'll continue to invest in our operations to accelerate margin expansion. .

On Prepared Foods, it demonstrated yet another strong performance as volume and profitability grew through increased distribution in both Retail and foodservice. Diversification to brands remain the key driver as the Just Bare and Pilgrim's portfolio collectively grew 30% in Retail relative to prior year.

Equally important, our efforts in digital continue to gain traction as sales increased 20% compared to last year. .

Turning to Europe. Our diversification lineup enable our business to meet the evolving needs of consumers and customers alike. Chicken grew more in volume and value than any other protein offering. While overall fresh pork demand fell, bacon, sausage and gammon all increased volume throughout the quarter.

Our branded portfolio also benefited from rising consumer confidence as net sales rose 6% compared to last year. Richmond and Fridge Raiders were particularly well received, as each great 6.5% and 9.6%, respectively. .

Growth with key customers continue to be a priority as the team secured multiple awards for new business in Retail throughout the quarter. Several potential opportunities remain, and the team will continue to cultivate partnerships to drive innovation. .

Our operational excellence efforts are becoming increasingly durable as margin improved compared to last year. While we've made progress in all areas, our advancements in ready meals have been the most pronounced as our network optimization has evolved, and the consumer starts returning to differentiated options. .

The integration of our European business continued to progress well as we are already realizing benefits. Moving forward, we will continue to invest in growth, develop our innovation pipeline and evaluate opportunities to continue to optimize our network and enable a more customer focused, nimble organization. .

Mexico's results given -- also improved, given more balanced supply and demand fundamentals in commodity markets, favorable exchange rates and continued execution of our strategies. Led by the Retail channel, key customer partnerships grew over 13% during the quarter. .

Additional opportunities for growth remain in Retail and focuses through continued excellence in quality and service. .

Our diversification efforts to brands and prepared continues to make progress. Fresh branded net sales grew over 10% from last year, driven by both established offerings and recent launches.

Pilgrim's grew in double digits through increased investments in promotion and social media, whereas Favoritos grew over 4.5x, and UNIQUE taste rose 59% compared to last year. .

Similarly, Just Bare is realizing strong traction as the lineup sold up during the quarter. Prepared Food grew by nearly 20% from last year's level, driven by success in QSR, foodservice and select retail lineups.

The team also further cultivated its branded portfolio of value added through the range of the principally Italian meats, both retailers and consumers have been robust to date. .

Operational excellence efforts continue to drive improvement in production and fixing. To that, the team has implemented a series of projects to optimize the manufacturing footprint in fresh and enhance production efficiencies in prepared. .

We continue to invest in profitable growth throughout our business. In the U.S., our recently constructed protein conversion plant in South Georgia initiated its production, further diversifying our portfolio. We also invested in plant-specific upgrades in Case Ready to strengthen our relationship with key customers. .

Europe has also implemented a series of projects to improve labor efficiency, mix and yields over the past year, all of which are progressing as planned. And these efforts are combined with our potential opportunities, we can accelerate our ability to scale our presence of differentiated offerings, especially with key customers. .

In Mexico, our progress to expand capacity are also on schedule. The hatcher and feed mill in the Merida region are slated for startup during the second quarter, whereas the boiler farms are scheduled for full completion in the second half of the year.

Similarly, new pullet and breeder farms remain on track as production is already underway in several locations. .

Finally, we continue to drive sustainability in our business to enhance operating procedures, capital investments and improved team member training. When these efforts are combined with improvements in energy and infrastructure, our greenhouse emissions in density declined by 15.6% from 2019 to 2022.

Moving forward, we will continue to identify opportunities and implement projects to reduce our emission footprint. .

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 2024, net revenues were $4.36 billion versus $4.17 billion a year ago, with adjusted EBITDA of $371.9 million and a margin of 8.5% compared to $151.9 million and a 3.6% margin in Q1 last year. .

Adjusted EBITDA margins in Q1 were 9.4% in the U.S. compared to 1.8% a year ago. For our Europe business, adjusted EBITDA margins came in at 6.4% for Q1 compared to 5.3% last year. In Mexico, adjusted EBITDA margin in Q1 was 9.2% versus 8.5% a year ago. .

Moving to the overall U.S. results. Our adjusted EBITDA for Q1 came in at $242.9 million compared to $43.6 million a year ago. Recovery in the commodity chicken market, along with continued operational improvements, drove strong year-over-year profitability improvement in our Big Bird business. .

As mentioned in our previous earnings call, our Case Ready and Prepared Foods businesses have continued to increase distribution with key customers, driving both year-over-year and quarter-over-quarter profitability improvement. .

In Europe, coming off strong seasonal results in Q4, adjusted EBITDA in Q1 was $81.5 million versus $66.2 million in Q1 2023. As disclosed last year, included in the Q1 2023 results was approximately $10.6 million of insurance proceeds recognized in that period. The European business has shown resiliency in its profitability growth journey.

The business has benefited from its continued structural reorganization, including back-office integration and its network optimization programs. We incurred approximately $14.6 million of restructuring charges during the quarter in support of its network optimization program.

We anticipate that restructuring activities will continue through at least the end of the year. .

Mexico generated $47.5 million in adjusted EBITDA in Q1 compared to $42.1 million last year and $6.8 million in Q4. Sequentially, from Q4, the Mexican business profitability improved primarily due to more balanced supply-demand fundamentals and reductions in SG&A costs. .

Overall, our SG&A in the quarter was lower year-over-year, primarily due to a decrease in legal defense costs and other operational efficiencies achieved in all regions, partially offset by increased incentive compensation costs recorded this quarter. .

We spent $108 million in CapEx in the first quarter. During the quarter, we completed construction of our new protein conversion point in South Georgia. We will continue to prioritize our capital spending plans to ensure the safety of our team members, optimize our product mix and strengthen our partnerships with key customers.

We reiterate our commitment to invest in strong ROCE projects that will drive operational efficiencies and tailor our operations to address key customer needs to further solidify competitive advantages for Pilgrim's. At this time, we are not changing our full year CapEx spend estimate of between $475 million and $525 million. .

We have a strong balance sheet, and we'll 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. At the end of the quarter, we had over $1.95 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. Our liquidity position provides us flexibility during times of volatility in U.S.

commodity markets and allows us to explore further growth opportunities, including organic growth to meet our key customers' needs. .

As of the end of Q1, our net debt totaled approximately $2.4 billion with a leverage ratio of slightly less than 2x our last 12-month adjusted EBITDA. Net interest expense for the quarter totaled $31 million. We anticipate our full year net interest expense to be between $120 million and $130 million. .

Our effective tax rate for the quarter was 22.9%. As I noted in our February call, we anticipate our full year effective tax rate to be between 23% and 25%. .

Our capital allocation approach will remain disciplined as we look to grow the company and we'll continue to align our investment priorities with our overall strategies of portfolio diversification, focus on key customers, operational excellence and commitment to team member health and safety. .

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

[Operator Instructions] And today's first question comes from Ben Theurer with Barclays. .

Fabio, Matt, congrats on a very strong first quarter. So 2 questions. Number one, just on Europe, and you talked about some of the restructuring initiatives you've been doing, improving that, that roughly $50 million charge that you had in the first quarter.

Just wanted to understand if you could elaborate in a little more detail what you expect from this going forward? How is that going to help you profitability down the road once you've completed this program by year-end?.

And in light of that, do you think the cost of it to be each quarter around about that $14 million, $15 million? Or is this coming down over the next couple of quarters? That would be like just conceptually the first question. So the cost and the benefits afterwards to this. And then I have a quick question on the U.S. as well. .

Ben, thank you for the question. Yes, looking to the Europe, when we acquired first, the Moy Park business and then the old Tulip business and then later on, the Kerry Foods business, what we looked was there, there was a lot of overlap. And so there was some competition between the 3 companies, especially on the sliced, cooked meats. .

Based on that, we identified some opportunities in optimizing our network. And what we are doing is concentrated some production in the most productive facilities. So we're shutting down some very small facilities that were not competitive and putting the production into bigger facilities. .

Also, because of the weakness of the Meals business, we consolidated some sites, especially in the region around London. With those network optimization, we expect to reach the leadership in terms of bottom line in the region. .

I think we are also integrating our back office and I think that implementation, that started probably in 2020, when we started integrating the 2 companies that we already have. But with the further acquisition of Kerry Foods, we integrated all those 3 entities into just 1.

And that's creating a more -- like I said on the prepared remarks, a more nimble and customer-focused structure. .

Yes. And Ben, you talked about costs. We've incurred about $90 million of restructuring costs since fourth quarter of '22. This quarter was $15 million, as I mentioned, $14.6 million, which is kind of strange, but it's the average between the 6 quarters has been about $15 million. .

We have a few more activities that we're looking to do as we go forward. Fabio went through a number of them that we've already either completed or initiated. So I think if we assume that $15 million is not a bad estimate to kind of look forward on a quarterly basis.

But it's not perfect math, just because of some timing that you have to do in recognition of costs for accounting rules and just some of the projects that we've got to accomplish, maybe things could vary a bit from there. .

I think it's important to mention then that we -- throughout all this integrating initiatives, we are not reducing production in the region. Actually, we are being able to expand some of the larger sites, so we have more capacity now to grow. .

Okay. Very clear. And then my second question, just coming back on the U.S. business. And you kind of alluded to that, egg sets have obviously reacted and producers have put -- trying to put out more product just given where profitability has been, and you've called about -- talked about the Big Bird being very strong.

But the hatchability is still an issue. So help us understand what would be like a kind of like an oversupply scenario or a scenario where there might be too much coming in as some of those egg sets can actually be hatched as hatchability improves.

What are the risks? And how much of a risk do you see of any incremental capacity being built just given where profitability has been trending towards sequentially and as we see these improvements?.

Okay. Yes. Right then, thank you again. Yes, the profitability in the industry has been really strong, especially in the commodity segments over the last weeks. When you look at what's happening in terms of egg sets, it's mainly due a more productive layer flock as we look. It's not the number of hatching layers that is producing more eggs.

It is a more productive layer flock. And that is because it's a little bit younger than it was last year and also a little bit of a breed change. So this breed produces a little bit more eggs than the other breed. .

But that is countered by a lower hatchability. And the hatchability problem, then we've been discussing this hatchability issue for a year right now or more than a year, since the beginning of 2022, started as the breeding companies react to the demands of the industry. And the demand of the industry, as we mentioned, is our quality. .

Of course, you would remember then, in 2017, 2018, we have the muscle issue that we have on the Big Birds producing the woody breast. So the breeding companies reacted to that with some genetic selection. But they also try to improve both the feed conversion and the [ why-to-live ] production, which is the demand for the American industry. .

I think with that, we are seeing a very productive breed, but it comes with a set of challenges. And you know that one is the hatchability. That is the factor of the managing of the males. I think it is a breed that is very difficult to manage and requires a constant intervention in tubes, especially on their weights.

And that is something that our industry is not used to. I think we see that a lot stronger in Europe and in Brazil, where we have a lot more management of those males, so they can get a better hatchability. .

The industry in the United States is not used to that. We don't have the housing to separate the males by weight. We don't have the labor to individually weigh all those males to make sure that they are at the optimal weight for the reproduction. So that's what's creating the hatchability.

And of course, like I mentioned, there is a little bit of the structural hatchability of this breed. When both things are combined, we are seeing this low hatchability close to 78%, 79% over the last 2 years. .

I believe that with time, the industry will adjust to this breed, and we will learn how to manage it better, getting to better hatchability, but it's not something that happens in the short term. I think it's something that is a steady improvement that will take a long time to happen.

Or I think what can happen if there is a new male that comes from the breeding companies that have a different behavior in terms of hatchability, then it can improve. .

But to improve hatchability once again, it requires either a change on the breed or better management. That'll -- both, I believe, will take time. .

In terms of an increasing in egg sets, that is also a possibility. It will depend on the number of pullets that we'll need. And I will tell you that the hatchability and fertility problem has also been a problem to the breeding companies. So I don't think that there is enough layer flock available for a significant growth in the short term. .

The next question comes from Peter Galbo with Bank of America. .

Fabio, maybe you could just key in on your comments around QSR, in particular, in the U.S. Obviously, I think the commentary that's come out just in the past few days for a number of the QSR guys has been a bit weaker. I think you've said you noticed more steady performance.

So maybe you could just kind of give us your latest thoughts there and if there is any disconnect or if chicken is outperforming the rest of QSR. Any additional detail would be very helpful. .

Sure. Yes. Thank you, Peter. Yes, we've been seeing some data suggesting that the whole commercial foodservices are a little weaker based on food traffic.

And I think that is being a benefit as I mentioned, on the deli, where you see customers trading down from commercial foodservice to the deli segment, which is a great value on the Retail, it's a great value for the families. .

But when you look at the chicken specifically on the QSRs, what we saw in Q1 was an increase of 6%. So despite the lower food traffic, we're seeing that the QSR sales of chicken increased by 6%. The segment that we are seeing that is struggling is the foodservice restaurants. And we're seeing that trade down from the foodservice restaurants to the QSR.

.

Nonetheless, in the foodservice restaurants, what we are seeing is a bigger penetration of the chicken offerings because I think they provide the value and they are in good supply when you compare to the other proteins, when you're seeing very high prices year-over-year, and you're seeing also a limited supply. .

Got it. Okay. No, that's helpful. And Matt, obviously, I know you took the net interest number down, I think a touch. But like a lot of cash sitting on the balance sheet.

Just kind of how you're thinking about deploying that over the rest of the year? Maybe you just let it earn 5% on your balance sheet, but curious kind of how you're thinking about that?.

No, it's a great question there. What we're -- how we're thinking about this is really through the evaluation and assessment of a number of potential organic growth CapEx projects to really support our key customer strategy and their needs. We haven't taken up the CapEx spend yet. I was kind of clear on that.

I would say at this time, we're not changing our CapEx view on the year. But we are going through a lot of analysis to make sure we're getting the right returns, but we see a lot of opportunities to grow with our key customers. And so where we kind of see our cash use here would be for growth and growth in an organic manner with those key customers. .

And also, Peter, I'll just add that we are always looking for ways to increase shareholder value, right? And we're looking -- and we discussed this in the past about special dividends, share repurchase and bond repurchases. So we're always looking for those alternatives and looking what is the best.

But at the end of the day, what we want is to continue to grow our company and create shareholder value. .

Our next question comes from Ben Bienvenu with Stephens. .

I thought I'd ask a little bit about the [indiscernible] equation.

In light of red meat price inflation and the prospect of that intensifying, particularly in beef as we move forward, do you think we've already seen the switching demand that occurred in that backdrop transpire? Or is there more switching demand to come? Kind of how linear is the relationship of incremental demand for chicken relative to pricing increases for beef, say?.

Yes. Thank you, Ben. I think, yes, we've been seeing this trend, I believe, since mid last year. I think if you look into the spread in the retail to the end user, or specialty ground beef, pork chops and boneless, skinless breast, it was really compressed by July 2022.

We saw the retailers increasing the prices of chicken over 2022 and the prices really get to a level that were similar. .

Since then, I think with the reduction in the cost of producing chicken and more operational efficiencies, we were able to support our key customers with a lower-cost product. And with that, they've been testing that advantage to the end user through the reduction in prices.

And today, we have a very wide spread between specialty ground beef and boneless breast. And that is sparking some demand for our product. .

How much sensible that is or the sensitivity to prices is a very difficult calculation. Of course, we are seeing more demand for our product, and we're seeing actually less promotional activity on the boneless, which is suggesting that the everyday purchase of chicken is happening more from the end user. .

Now if the spreads continue to widen, I think it can help a little bit more on the demand, especially on boneless breast. But the sensitivity is really difficult to calculate. .

Okay. I appreciate your thoughts there. Shifting gears a little bit to Mexico, a really nice bounce back quarter as you expected.

As we look through the rest of the year, to the degree that you have visibility, what are your expectations for performance in that business?.

Yes. What we are seeing in Mexico, and we've always mentioned this volatility quarter-over-quarter, but a steady and very healthy operations profit from year-over-year. And I think we saw the same thing last year, and we've seen this year. .

I think we're seeing some significant volatility month-over-month. And I think that is exchange rates, the price of corn, but also, as you remember, there is a big portfolio in Mexico that is live birds.

And I think the -- what this segment creates, it's more volatility on the month-over-month because it's an easy operation, and you have very small players that can come and go with the changes in price of grain and with the changes in exchange rates and the change in profitability for sure. And we saw a significant change in -- from January to March.

We started January really weak in that segment, but we saw a steady increase and a very strong ending in March. .

We also see a little bit of an increase in the consumer demand for chicken. We saw a little bit of a lull in January, but we saw a very strong increase during March.

So I think those 2 facts combined, especially on the live segments, once again, we produce these birds and we sell these birds live to wholesalers that slaughter those, but in smaller slaughterhouse because the Mexican consumer really values the freshness of the product. It's a very important segment, especially close to the Mexico City.

So we're seeing a lot of volatility in that segment. .

But once again, we expect a strong demand for our products. I think it is a growing economy. Mexico economy is doing well. It is an election year, so there is always some expected increase in demand during election years. So we're expecting very strong results for Mexico this year. .

The next question comes from Andrew Strelzik with BMO Capital Markets. .

This is [ Ben ] on for Andrew. So I guess I'll start with feed cost layout.

Do you expect it to get better sequentially in second quarter? And how are you thinking about the layout of your feed cost for the balance of the year?.

Yes, Ben, thank you for the question. We expect the feed performance or the live cost to be better. I think what we are seeing in terms of the feed cost, we reached a level of $4.30 a bushel for corn. And we think that, that is a good level of pricing.

We are seeing the December pricing still ahead of what we expect it to be given all the conditions that we are seeing in terms of yields and planting and supply and demand, so we're seeing a little bit of a high December. But -- and we see that there is some potential downside into the feed pricing. .

If that happens, I think we can have a little bit of improvement in terms of the ingredient pricing. But what we believe is that our performance should improve over the year.

As we mentioned early, the beginning of the year, we created action plans to improve the feed conversion in all of our complexes, and we are seeing those actions happening as we speak, and we're seeing some significant improvement in performance. .

Just to give you a color, year-over-year in this quarter compared to the same quarter last year, we improved our performance by $20 million, not including the price of the ingredients, just in performance in feed conversion and livability and other indicators. .

Great. And then I guess my last question here is about the E.U., U.K. business.

Just like how are you continuing to think about progression of the margin profile there? And if you could just walk us through some of the pieces that you're currently working on to improve that could get the business back to like a mid-single-digit plus margin profile over the next year or 2?.

Of course. Yes, we have internal and external factors. Let's start with the internal and the internal are the ones that we already mentioned in terms of network optimization, making sure that we have the best manufacturing sites with scale. And we have all of our gap-ups, meaning closing the gaps and operating at a higher standard, as I mentioned.

That is internal. .

I think we're also coming to a more mature shared services operation. I think we started implementing the shared services in Europe, just like we have in U.S. and Mexico over the last 2 years. And I think we're coming into a more mature operation now, which is way more efficient than we have before. That's what we can do on the internal side. .

On the external side, we are seeing that, one, poultry has been growing faster than all other proteins because of its versatility and its affordability. And our pork business, especially on the fresh side, we saw a little bit of a lower demand during Q1.

After a very strong Q4, we saw a little bit of a lower demand on the Q1, but we are seeing that improving as we are seeing the improvement of the consumer confidence. As the consumer confidence increases in Europe, they tend to move to high-value proteins, and that helps with our pork business and also help with our branded business. .

As I mentioned on the call, we are already -- on the prepared remarks, we are already seeing an increase in terms of our branded portfolio, especially the Richmond brand growing close to 7% year-over-year. .

Over the last 2 years, because of all the inflation, we saw some European consumers trading down to more private label. And now, with the consumer confidence, we are seeing them trading up again to the more branded higher-value products. .

So it's a combination of both internal initiatives that we are doing in terms of efficiency, but also an improvement on the market, especially on the pork side, on the branded side. .

The next question comes from Heather Jones with Heather Jones Research LLC. .

So really quickly, Fabio, going back to a comment you made in your prepared comments about hatchability possibly limited the ability of the industry to reach the USDA projected production increase this year. I was wondering if you could give us some sense of where you all think it could -- the year could end up.

And how you're thinking about that in second half versus first half given the disease issues that the industry has had, along with the hatchability challenges?.

Yes. What we're looking into the USDA numbers, I think they are expecting an increase during the third and fourth quarter. And once again, I think that the hatchability problems will continue to be prevalent over that time.

As I mentioned, I think for the hatchability to have a significant change, we would need either a breeder change, which is structural, and it takes time, and we haven't heard about a new breed coming, or on the management side. And I think the importance of the -- on the management side is that it's a cost structure.

Once again, this is a very difficult animal to handle and you need the individual, let's say, attention. And to have that, you need to increase the cost of your operation.

So you need to have either more housing because you need to segregate those males by weight and give individual feed formulation for each one, or you need to have more people managing those males, which translate into higher cost.

So I think it's an efficiency/cost discussion because you may have more -- a better hatchability, but your cost is going to be much higher as well. .

So at the end of the day, your egg costs could increase if you have all this labor and more housing involved. And that is the challenge of the industry. Of course, when the profitability of the complex is really high, that increase in egg cost makes sense. But that is maybe not true during Q4 or Q1 next year or over time.

So that is the biggest challenge that our industry has in terms of balancing cost of the eggs and the hatchability. .

And that's what makes you think the Q3, Q4 numbers USDA is putting out there could possibly be a challenge?.

Exactly. .

Okay. Moving over to Q2. So as you guys noted, the commodity market strengthened considerably late in the quarter, and they've like started strengthening again over the past week. So I was just wondering -- and then you've had really strong Retail feature of chicken, or at least in the things that we're tracking.

So I was just wondering, is it feasible to think that U.S.

pricing for Q2 could be materially higher than what you saw in Q1?.

Yes, Heather. I think when you look at the average prices during Q1, we started from a low position during January. When we saw a steady increase up to maybe mid-February, when we saw -- when we normally see a reduction in the normal seasonality, we saw steady prices. And now as I mentioned, we are seeing the prices increasing.

So every year, we expect the grilling season to help on the pricing. .

And as we mentioned, we tend to augment the demand on the Retail side with the Big Bird. We've put a lot of, let's say, pressure on the commodity prices to go up. And I think before the grilling season, we are seeing this right now over the last 3 weeks, and that started really early. And that is what's putting pressure on the commodity meat.

I think the foodservice, as I mentioned, continue to be strong and good demand, especially on the QSR side. And we're expecting more promotional activity on the foodservice as well putting pressure on the commodity segment. .

I think it's interesting to see that through the USDA numbers, the volume in terms of chicken for the Q1 was down, but the volume in the Big Bird was up. So we saw very strong pricing in Q1 on the commodity segment even with an increase in production on the Big Bird complexes. .

So yes, I think we are seeing that, that is the potential, of course, for a great grilling season and an increase, especially on boneless breast. I think wings continue to increase year-over-year, for sure with the return to the menu on several of the foodservice operators. .

The last quarters continue to be very strong, given the competitiveness of the chicken meat on the international markets and the reduction in frozen inventories that we are seeing and the tenders also continue to be really strong on the marketplace with some tender concepts really growing.

So I think the weakness has been on the white meat on the boneless breast. But to your point, the strength in the Retail has been what's affecting the pricing on the commodity segment. .

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

First, I was wondering if we could just touch on the CapEx again. So Matt, I know you said that you are leaving your outlook for CapEx unchanged at this point. There are additional projects that you're exploring, which suggest that there could be some upward pressure on that number.

But as we look at where CapEx spend came in for the first quarter, it feels a little light.

So I was just wondering if you could touch on sort of what prompted or what led to this lower CapEx spend earlier in the year? And sort of what that suggests for the pipeline?.

Yes. No, thanks, Priya. I think it's really just a little bit on timing when cash is expended. We're finishing up some projects, notably South Georgia. So some of those bills will be coming through here in April and May to finish and consume actual CapEx cash dollars out the door. .

But no, I think that the overall view of the $475 million to $525 million is the best one we have right now. But as you -- as I noted, and as you just repeated, we are exploring some opportunities that would -- that could potentially take that number up a little bit here this year. Well, let's see. .

Okay. And then just on the working capital side, that was a pretty nice source of cash year-over-year.

Is that the kind of trend that we should expect to persist for the remainder of the year, just as we think about sort of where free cash flow generation could be by the end of '24?.

I think you saw -- yes, I think that generally, the trend is in that direction, but we have to consider, though, here in the first quarter, we really saw some reductions in some of our finished goods inventories.

And we've also seen that reduction in the grain cost, right? That's really started to get itself -- the site into inventory or live inventory costs.

And that -- in grain right now has been a little flat, right? So to try to say will it continue that trend yes, directionally, but probably not at the pace we've seen just because of the live costs and the grain has been -- it sort of flattened out a little bit over the last month or so. .

And at this time, we are showing no further questioners in the queue. And this does conclude our question-and-answer session. .

I would now like to turn the conference back over to Fabio Sandri for any closing remarks. .

Well, thank you. Thank you, everyone, for attending the call. Over the past several years, our business has faced volatile market conditions, given changes in commodity cutout values, persistent inflation and changes in consumer behavior.

Throughout these times, our teams have continually focused on execution of our strategies to minimize downside risk while being able to capture market upside as conditions evolve. .

Given our approach, we can simultaneously reinforce our competitive advantage, drive profitable growth and generate more resilient earnings.

When these efforts are combined with our focus on values, along with our relentless commitment to safety and well-being, we can become the most trusted and respected company in our industry, creating opportunities for a better future for our team members. .

Thank you very much. .

Thank you. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect..