Pilgrims Pride Corporation 2026 Q3 Earnings Call

Good morning, and thank you for joining us today as we review our operating and financial results for the third quarter ended on September 27, 2026. 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 avail 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 the release. Other additional factors not anticipated by management may cause actual results to differ materially from those projected in these forward-looking statements.

Further information concerning these factors have been provided in yesterday's press release, our 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. Our adjusted EBITDA margin was 6.8%. Throughout the quarter, volume remained steady compared to last year as the affordability of chicken continued to resonate among consumers throughout all regions. In the U.S., volume was consistent with last year, even after two consecutive years of near records and the impacts of our plant mix and efficiency investments. Our diversified portfolio mitigated the impact of uneven market fundamentals as supply rose faster than demand across retail and food service. We continue to drive investments to foster a more resilient business and align with market needs. To that end, we completed our expansion at our plant in Ellijay, Georgia, further supporting key customer growth in the higher-value, fastest-growing small boneless chicken category. Operational excellence also strengthened as both live production and yield efficiencies improved compared to the previous quarter.

Diversification efforts through prepared foods continue its momentum as volumes rose double digits and the construction of our new plant continued to progress as planned. In Europe, volume remained stable as consumers saw value benefiting the chicken and meals offerings within our diversified portfolio. Our innovation efforts are becoming increasingly recognized through additional distribution among leading retailers and supplier awards. Operational excellence initiatives continue to exceed targets. Mexico sales rose, given continued momentum on fresh branded offerings within retail. Despite continually improved growing conditions, supply and demand fundamentals in the live commodity market improved, enhancing margins compared to the previous quarter. Expansion projects to grow and diversify our portfolio also continued to progress as planned. Turning to supply in the U.S., the USDA reported ready-to-cook production rose 2.2% compared to the same period last year.

Production peaked with a 4.7% growth in July and subsequently reduced its pace throughout the quarter. The increase was primarily driven by higher egg sets as hatchability, livability, and weights were at the same levels similar to last year. The market continues to absorb additional supply as total freezer inventories fell 5% compared to last year. Boneless breasts fell nearly 8%. Availability of beef rose during the quarter, whereas pork continued to be relatively stable. When combined with chicken and turkey production, overall protein availability increased by 1.5% compared to Q3 of last year. The USDA anticipates chicken production to increase 3.3% for the full year versus 2025. As for other proteins, beef is expected to decline by 0.3%, while pork is estimated to rise by 0.1%.

Taken together, the USDA forecasts that overall net meat availability is expected to grow by 1.8% in 2026 versus last year. For 2027, USDA anticipates chicken growth to decelerate as production is projected to increase only 1.2% for the year. Beef availability is expected to decline 1%, while pork is projected to increase 0.8%. As a result, the USDA estimates growth of net meat availability of only 0.6% for 2027. As for demand within the U.S., chicken continued to grow across retail and food service, even with near record volumes over the past two years. Within retail, the meat and deli departments continue to be the most resilient as volumes rose compared to last year, whereas the total edibles fell. Chicken retail volumes, including fresh and frozen, grew by 1.4% from last year.

While the overall fresh category at retail grew only 0.2%, boneless breasts grew more than 2% year over year, and boneless dark meat grew by close to 10%, compensating lower volumes of bone-in products. As retailers passed through lower wholesale pricing of chicken and started increasing promotions, overall sales dollars fell. In deli, demand continues to be strong across ready-to-eat chicken offerings as all major formats grew, increasing volumes 1.6% year over year. Rotisserie birds and cut up portion volumes also rose compared to last year. Appetizers, including popcorn chicken and wings, led all categories in growth. Frozen prepared chicken also grew consistently with the overall category as volumes rose 1.4% compared to last year, as convenient meal options continue to resonate among consumers. In food service, chicken volumes increased 0.8% despite mixed industry traffic trends.

Higher income consumers supported restaurant spending, whereas low-income consumers became increasingly focused on value amid ongoing budget pressures. Given this environment, chicken growth was concentrated in QSRs and convenience channels, including C-stores, where a combination of affordability and extensive prepared food offerings drove traffic and demand. We anticipate promotional activity for bone-in products, especially wings, to reinvigorate sales volumes. In exports, global demand for chicken remained strong, resulting in 3 consecutive months of year-over-year growth. Equally important, our volumes growth outpaced the channel from our increased presence in several key markets. While the Middle East remained volatile, trade to Gulf Coast countries continues to flow through alternative ocean ports, along with more complex intermodal routes. Trade within this region in recent months has surpassed pre-conflict levels and now only marginally lower year-over-year.

In Asia, recent meetings between government officials from the U.S. and China continue to progress as China has released more states from its avian influenza ban, unlocking further growth opportunities for U.S. raw frozen chicken versus last year. Industry inventories remain relatively lower compared to historical levels, supporting further growth and supportive values. Turning to feed inputs, significant volatility occurred throughout the quarter. In corn, futures initially moved higher in the quarter given concerns regarding U.S. corn yields, continued disruptions in grain shipments from the Black Sea, and a potential return by China to the global market. However, futures retreated from mid-September highs as previous year-ending stocks were higher than anticipated, crop yields exceeded prior estimates, and exports lagged earlier expectations.

The USDA's most recent corn forecasts indicate comfortable inventory levels as the stock-to-use ratio is estimated at 11.3% for the upcoming crop year, limiting upside risk in the near term. In soy, meal futures temporarily rallied late in the quarter, giving strong U.S. exports and interruptions in crush operations from delay in soybean harvest. The USDA currently expects record yields in the U.S. to offset record crush demand and improve export shipments, leaving stocks unchanged compared to prior year. Moving forward, soybean meal pricing will be sensitive to size and pace of U.S. export sales, especially to China. In addition, the ability of the U.S. to secure a large share of the global soybean meal export market and weather in South America will also play a significant role. In wheat, the market is managing the balance between record highs of initial stocks against export challenges from the Black Sea.

To date, better-than-expected crops in Canada, Australia, and Argentina, along with improved local production in major wheat-importing countries, have mitigated supply chain disruptions. In the U.K., the wheat crop finished at a lower than expected level and yet is still virtually flat compared to last year. Planting has already begun for next season's wheat crop under generally favorable conditions, improving prospects for the harvest in the summer of 2027. In the U.S. fresh business, volumes remained steady compared to the previous quarter from increased distribution and key customer promotional support. We made progress in operation efficiencies from recent plant upgrades, improving live operations, and enhanced mix, given our recent Russellville conversion. When combined, these efforts partially compensated for the declines in commodity cutout values and planned downtime for the investments in Ellijay. Case-ready maintained a solid presence in value-conscious environments throughout retail.

To that end, we work closely with our key customers to drive promotional activity and unlock additional value for consumers. As a result, we reinvigorated growth throughout the quarter and enhanced momentum in October. We also secured incremental distribution, further strengthening our sales pipeline for the remainder of the year. Small bird demand continued firm, giving continued support in the boneless category among key customer QSR. in Big Bird, we continue to enhance our mix to increase supply of higher attribute portioning offerings to prepared foods from our recent plant upgrades, further reducing our reliance on external supplier and unlocking additional margin for our business. We also increased the deboning of dark meat, supporting this growing market in U.S. In prepared foods, growth continues to accelerate as volume rose over 15% compared to last year. Our retail-branded offerings led growth throughout the portfolio as volumes increased by over 20%.

Just Bare continues to outpace all other brands in the frozen fully cooked category as retail dollar share grew by over 300 basis points compared to the same period last year. In Pilgrim's, we continue to drive innovation and bring excitement through new product developments and collaboration with industry leaders. To that end, Pilgrim's recently launched its Flamin' Hot Chicken offering in select locations throughout retail and food service. To date, marketplace acceptance has been remarkably strong across consumers and customers alike. As a result, we secure incremental commitments across all channels to drive additional growth for the remainder of the year and beyond. Our food service business has achieved similar success as sales outpace the overall channel. The branded portfolio drove most of the growth as sales increased by over 12% compared to prior year.