Release Date: October 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pilgrims Pride Corp (PPC, Financial) reported a 5.2% increase in net revenues to $4.6 billion for Q3 2024, demonstrating strong financial performance.
- Adjusted EBITDA more than doubled to $660 million, with a margin improvement from 7.4% to 14.4% year-over-year.
- The company benefited from improved production efficiencies, lower input costs, and enhanced commodity cutout values in the US market.
- European operations saw expanded margins due to manufacturing network restructuring and increased consumer confidence.
- Pilgrims Pride Corp (PPC) continues to focus on operational excellence and innovation, launching over 280 new products and receiving industry recognition and awards.
Negative Points
- Mexico experienced a decline in demand due to normal seasonality and disruptions from hurricanes, impacting overall performance.
- Despite improvements, hatchability challenges in the US continue to prevent full realization of increased sales potential.
- The company incurred $8 million in charges related to Hurricane Helene and anticipates additional charges in Q4 due to pension plan settlements.
- US chicken production faces challenges with increased mortality rates, affecting potential production gains.
- The geopolitical landscape, including trade restrictions with China, continues to pose challenges for export markets.
Q & A Highlights
Q: Can you explain the factors driving the improved profitability in Europe, and what should we expect as a normalized margin environment?
A: Fabio Sandri, President and CEO, explained that the improvement is due to a combination of increased consumer confidence, cost competitiveness, and restructuring efforts. Consumer confidence is rising as wages outpace inflation, leading to increased spending on branded products. The chicken business is growing, and foodservice is rebounding faster in Europe than in the US. The restructuring has optimized operations, leading to better profitability. The company aims for sustainable margins similar to the best in the region, around 6% to 8% as indicated by CFO Matthew Galvanoni.
Q: What are the current trends in the US market, particularly regarding production and pricing stability?
A: Fabio Sandri noted that despite some seasonal price declines, strong demand is maintaining price stability. Foodservice is seeing increased chicken consumption, with a 4% growth in volume compared to last year. Retail is also strong, with more frequent shopping trips, supporting chicken prices. The supply of chicken is balanced with demand, and prices have been steady, which is unusual for this time of year.
Q: Can you elaborate on the impact of recent hurricanes on your operations and the supply/demand balance?
A: Fabio Sandri reported that while facilities had minor damage, partner growers were severely impacted, especially in Douglas, Georgia. The company is working to rebuild the grow-out base, which may take 9 to 12 months. Despite disruptions, the company maintained service levels to key customers by rebalancing production. The hurricanes caused temporary supply disruptions, but the overall market impact is expected to be minimal.
Q: How are you approaching capital allocation given your strong cash position?
A: Fabio Sandri emphasized the focus on growth opportunities, both organic and inorganic. The company is investing in capacity expansion to meet key customer needs and exploring M&A opportunities, particularly in Mexico and Europe. While the cash needed to run the business is less than current levels, the company is considering options like share buybacks and dividends to create shareholder value.
Q: What are the current challenges and improvements in hatchability and production efficiencies?
A: Fabio Sandri explained that the industry is dealing with challenges from a new chicken breed that has lower hatchability but better feed conversion. The company is making improvements by focusing on individual animal care and adapting feed strategies, achieving better hatchability rates than the industry average. However, overall hatchability remains lower than previous breeds, and the industry is still learning to manage these challenges.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
