Good morning, and welcome to the First Quarter 2020 Pilgrim’s Pride Earnings Conference Call and Webcast. 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.

Good morning, and thank you for joining us today as we review our operating and financial results for the first quarter ended March 29, 2020. 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 in the Investor Relations sections of our website, along with the slides we will 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 Jayson Penn, President and Chief Executive Officer; and Fabio Sandri, Chief Financial Officer. Before we begin our prepared remarks, I’d 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 those factors has been provided in today’s press release, our 10-K and our regular filings with the SEC. I’d now like to turn the call over to Jayson Penn.

Thank you, Dunham. Good morning, everyone, and thank you all for joining us today. For the first quarter of 2020, we reported net revenues of $3.07 billion and adjusted EBITDA of $165 million or a 5% margin and a GAAP EPS of $0.27. Before I begin discussing more detailed results of our operations, I would like to express my gratitude to our global team members for their commitment, dedication, and continued hard work in supporting our ability to keep our team members safe and healthy while maintaining production supply to customers during this unprecedented crisis. At this time, while we’ve adapted our global operations to the change in channel demand, we’ve also adjusted our operations to be able to continue the operations at all our plants and minimize any significant disruptions due to labor and health issues. I would like to outline some of the precautionary proactive actions we have implemented that go beyond our already rigid standards at all of our facilities to combat the spread of COVID-19 in accordance with health and disease guidelines recommended by specific government health authorities. We are taking these steps to better safeguard the wellness and health of each team member while fulfilling our central business duty as a food producer to people here in the U.S. and globally. We have increased the frequency of daily sanitation and cleaning at commonly used areas and repeatedly touched surfaces, limited visitors to our operations and offices, performed daily wellness screenings of team members which includes required temperature checks, self-screening and reporting, suspended all non-crucial business travel and meeting attendance and implemented remote work for business office team members where possible. Inside our plants we are promoting social distancing by staggering starts to shifts and breaks, increasing spacing in cafeterias and adding outdoor space to reduce density in our break areas. We’re also requiring masks to be worn 100% of the time while on our property. We are removing vulnerable populations from our facilities and offering them full pay and benefits. For those team members who are not able to come to work due to illness related to COVID-19, we are requiring them to self-isolate and shelter-at-home with short-term disability benefits. We are offering free preventative care to all team members and offering free live help online services that allow for virtual doctor visits at no costs. Turning to our business, despite the volatile and challenging market environment in Q1, we have continued to achieve a solid relative performance to the competition. Operating performance in Europe also improved year-on-year as well as sequentially. However, it was more than offset by weak market dynamics in the U.S. and Mexico. In spite of a difficult global macro conditions, our results have remained well balanced and are the results of our vision to become the best and most respected company creating the opportunity of a better future for our team members. To support our vision, we are continuing our strategy of developing a unique portfolio of diverse complementary business models, continuing to relentlessly pursue operational excellence, becoming a more valued partner for our key customers, and creating an environment for safe people, safe products and healthy attitudes. During the first quarter of 2020, our team members have remained focused on executing and delivering our strategy regardless of market conditions. The disruptions caused by COVID-19 on each individual country’s demand for protein consumption as well as the flow of global trades presented a significant challenge the world has never seen before and generated volatility far beyond normal seasonal factors throughout the quarter. In the U.S. the first half of Q1, the market tracked normal seasonality before wider implementations of travel and movement restrictions due to COVID-19 disrupted retail and foodservice channel demand. The large bird deboning market was especially volatile in Q1 and remained challenging compared to 2019 with quick sharp gains followed by declines towards the end. Operationally however, we continue to improve our relative performance versus the industry across all our business units, including large bird deboning. In Europe, implementation of the strategy of the legacy operations to better mitigate future input cost challenges has continued to produce expected results, while integration of our newly acquired operation is on track. In Mexico, the market was very challenged for much of the quarter. Despite these challenges, the diversity of our portfolio and our global footprint continues to minimize the impact of volatility due to the individual market conditions and increases the resiliency in our operations. We will maintain our strategy while continuing to improve the portfolio to better respond to individual market dynamics and generate a relative increase in performance over our peers. We believe this approach will give us higher and more consistent results for the mid-to-long run and minimize the full peaks and troughs of the commodity sectors. In Q1, we experienced greater than normal volatility within our U.S. fresh chicken business. While the first half of the quarter was mostly in line with normal seasonality, wider implementation of stay-at-home orders nationwide during March drove the fastest ever shifts in channel demand and significantly increased the volatility within our businesses. Despite the sharp decline in foodservice requirements, we were able to quickly respond to the shift in channel demand by increasing our volume mix to key customer retailers. A large portion of our foodservice customers are within the QSR segment, which further dampened the impact across our fresh business units. Our portfolio of differentiated products, along with our key customer model is giving us better insulation against the volatility. We’re also in a much better position to adjust product and channel mix given our presence across all three bird sizes and strong customer relationships. While we continue to make relative operational improvements in our large bird deboning operations, the market was extremely volatile in Q1. The cutout appreciated very quickly during March before reversing to reach close to historic lows by early April. However, the market began to adapt to these changes in supply and demand and prices are already starting to adjust. Within the less commoditized small bird and case-ready segments, market supply and demand balance was better during Q1. Demand from our retailers is very strong. Our case-ready business in particular has continued to be much more stable during the quarter in generating great results, driven by strong demand for our chickens, especially key customers. In Q1, retail volume demand for our case-ready Just BARE chicken, including those online through Amazon, where we are the leading brand was up by 81% compared to last year. Online sales increased 205% versus the same period a year ago in the March quarter and momentum is increasing with the volume in the last four weeks up 498%. Our market leadership in these categories and more differentiated product portfolios have continued to strengthen the growth of our competitive advantage versus the industry. While the commitment to our key customer strategy has been reflected in the consistency of our past results, the value of this approach has never been more relevant to our growth than during the current period of uncertainties and challenges. The strong relationships we have with key customers are giving us many opportunities to sustain our volume increase since these customers rely on us to satisfy their need for growth. In addition, many of our key customers maintain a leadership position in their respective categories. As a result, we are the direct beneficiaries of their ability to outgrow their competition. Beyond driving pure growth, our key customer strategy also promotes trust, enhances long-term relationships and strengthens our margin structure. Within U.S. Prepared Foods in Q1, revenue is relatively flat year-over-year, while volume was up 2%. Foodservice volume is down 6% year-over-year while retail increased 64% in March, driven by our Pilgrim’s and Just BARE brands. The strong start to Q1 in our Prepared Foods operations began to be impacted by the reduction in foodservice demand in March. The escalating closures of foodservice operators throughout the month from schools to commercial restaurants drove a significant demand shift to retail. We will continue to adapt our operation to changes in short-term demand in foodservice. For the period ending Q1, U.S. cold storage was up about 6% versus last year, but 4% down sequentially compared to Q4. During Q1, we began to experience the positive impact of China opening its market for U.S. chicken. Our sales to China began to increase in Q1 to approximately 86 million pounds already accounting for about 20% of our exports which include a broad range of chicken products, not only in paws and dark meat. This is a positive signal for the potential for further growth in the future. The increase in exports to China was further supported by duty abatement by the Chinese government. While there were some volume contractions in some markets, others exceeded expectations and saw significant increases. Most of this growth was likely driven by ASF in several Southeastern Asian countries. But there was also significant growth in Latin America and several African markets. Our export sales are 24% higher in volume year-over-year. Besides the intermittent equipment shortages, our logistics pipeline was mostly uninterrupted due to our scale and close relationships with cold supply chain partners. We believe that we will continue this positive trend in Q2. Our broad product and geographic portfolio allows us to be nimble and proactive in maintaining and growing our export market share while we continue to expand our product mix and export destination by country mix. The market environment in Mexico during Q1 was difficult as the effects of weak macro conditions, which contributed to uncertainties in consumer spending persisted longer than expected. Chicken prices, especially in chicken markets, traditional markets were well below seasonal expectations before reverting to reach closer to normal levels by the end of the quarter. Our increased share of non-commodity products, strong execution and growth in Prepared Foods have all helped to partially offset the market weakness. We continue to believe in long-term growth and demand prospects in Mexico. The results at our Prepared Foods in Mexico have continued to outperform our expectations. We continue to lead in developing the market in Prepared Foods in Mexico by launching significantly more products to meet demand. We are making great advances in our Prepared Foods business with innovation as the core competency of our strategy. We are generating excellent results under premium Pilgrim’s and Del Dia brands, both of which have continued to receive very favorable acceptance by customers at retail club stores and QSRs. We have a strong team in Mexico committed to continued delivery of strong results, focusing on our controllables and making sure that our team members are safe during the current unusual and unprecedented conditions. Our legacy European operations delivered strong results in Q1 continuing the trend achieved in the last three quarters of 2019. We generated revenue that was in line with last year while EBIT improved year-on-year and over prior quarter. The increase in EBIT performance is supported by better operating efficiencies by remodeling our supply manufacturing network, improving labor management and implementing more automation to drive higher yields. We have also invested capital in maintaining existing assets to enhance the safety of our people and share the quality of our products as well as compliance with environmental and bird welfare rules. Our relative performance measured as a result of the last 12 months continues to put us above the average in the competition in Europe, which further validates the effectiveness of our strategy. We have started to experience in the last month of Q1, the initial impact of the slowdown in foodservice on our legacy European business. With some foodservice operator closures starting in Europe during March and with UK foodservice now completely closed, we are expecting some deceleration in our volumes and results in Q2. Despite the partial offset, we start to see an increase on the retail side of our operations. We’re taking the appropriate measures and implementing actions to mitigate this impact as much as possible. Our newly acquired European operations performance continues to improve generating increasing positive EBITDA. The performance is driven by robust demand at retail, which is partially offset by a reduction in foodservice, continuing strength in pork exports, especially to China, as well as the initial implementation of operational improvements and capture of synergies. Exports to China were up by more than 80% in Q1 and we’re seeing improved momentum leading into Q2. All of our European fresh pork facilities are approved for China. So we’re well positioned to benefit from export opportunities. We also continue to evolve in our strategy and we will significantly increase our volumes with new key customers in the next quarters. Integration of the new European operations is tracking well to expectations. Over the next few years, we continue to expect to generate EBITDA improvement to achieve a level that is competitive with leading companies with similar portfolios. We have a proven history of successful and efficient integrations of companies we have acquired and we will apply similar methodologies in integrating the new operations. We’re optimistic about building upon their existing operational improvements by continuing to optimize its manufacturing footprint, extracting best-in-class operational excellence, capitalizing on export opportunities, optimizing the portfolio of channel segments and products as well as strengthening and growing business with key customers to drive innovations in value-added and higher margin areas. We are leveraging resources available through both our legacy and newly acquired operations in Europe in conjunction with our global team in order to further strengthen our competitive advantage by increasing our ability to offer key customers a much wider selection of highly differentiated innovative products to fulfill the growth and consumer demand. We look forward to sharing innovation and best practices internally to enhance our operational and financial efficiency and position Pilgrim’s as a whole for increased profitability and more consistent margins. Corn prices have fallen sharply since the beginning of March, driven by a sharp decline in ethanol and fuel demand. USDA also reported that farmers intend to plant 96.9 million acres of corn, the largest acres ever reported in March. Ethanol production also fell to the lowest reported number ever in April, while ethanol stocks also grew to a record as reported by the Department of Energy. In the latest WASI report, USDA forecasted old crop ending stocks of corn increased to 2.1 billion bushels with future revisions likely to show even more increases. With the shock to fuel ethanol demand combined with record intended planted acres, corn stocks are likely to continue to grow into an even bigger surplus next year, which will weigh on corn prices. Soybean meal futures are also at their lowest price for the year with large South American crops and the record weak currency weighing on U.S. export demand. With a combined 180.4 million corn and soybean acres reported by USDA in March, there should be ample supply of acres for row crops this summer to ensure surplus for both corn and soybeans. Wheat prices in the UK rallied at the end of the quarter as the British pound moved to multi-decade lows against the dollar, pushing wheat prices higher. Also contributing to higher prices were restrictions placed on wheat exports in a few of the larger exporters, which could lead to higher U.S. and EU wheat exports. Weather in Western Europe and the Black Sea has improved recently. And once the market feels more confident that export restrictions recently put in place will not have a major effect on supply, wheat prices should ease to reflect the large surplus of global grains. According to USDA, Q1 industry production was up slightly more than 6% when accounting for the extra workday of production, but will likely moderate over the next few quarters as the market adapts to supply and demand conditions. For the first quarter of this year, larger layer flocks and improved pre-reg productivity contributed to significant year-over-year growth in egg sets and chick placements. Pullet placements were slightly above year-ago levels as new capacity, which is not expected to significantly disrupt the industry’s longer-term supply and demand balance is being ramped up. However, restrictions due to COVID-19 led to more consumers staying at home resulting in more retail demand for all proteins including chicken. This shift in demand away from foodservice has resulted in an unexpected short-term imbalance in supply and demand as some foodservice items cannot be easily redirected towards retail and are causing dislocations among the different bird sizes. More recent numbers from the USDA in egg sets and chick placements are beginning to show reductions versus year-ago levels. The latest weekly slaughter reports also show lower production versus year-ago levels, indicating the industry is already adapting to the change in market conditions. In addition, COVID-19 has also caused supply chain disruptions for competing proteins as beef and pork slaughter numbers have also recently trended downward, which we believe could have a positive benefit to chicken. With the rebalancing of chicken supply and demand, pricing is already rebounding from low points in early April, but the rapid change in macro environment and unemployment rising, consumer uncertainty will likely impact the channels of our businesses differently. Shelter-in-place orders and restrictions on restaurants are causing consumers to stay home and increased consumption of at-home meals favoring retail demand. Chicken is one of the most affordable and versatile proteins. Retail demand is likely to remain strong as consumers continue to be restricted in their access to restaurants, while they also adjust to the change in their personal economic situations. We expect foodservice demand will remain volatile, at least in the near term, until the channel normalizes. However, the QSR segment is holding up relatively well and is expected to drive a faster comparative recovery in demand versus foodservice as the population gradually resumes more normal routines. Our strategy is well suited to the challenging macroeconomic as well as market conditions. While we’re already well balanced in terms of our bird size exposure, we will continue to seek opportunities to incrementally diversify our product mix and reduce the commodity portion of our portfolio by increasing the number of differentiated products to key customers while optimizing our existing operations by pursuing operational improvement targets. Our key customer approach is strategic and creates a basis to further accelerate growth in important categories by providing more customized, high quality innovative products with a clear long-term sustainable competitive advantage. With that, I’d like to ask our CFO, Fabio Sandri to discuss our financial results.

Thank you, Jayson, and good morning, everyone. For the first quarter of 2020, net revenues were $3.07 billion versus $2.72 billion from a year ago, with an adjusted EBITDA of $165 million or 5% margin compared to $204 million or 8% margin for the year prior. Net GAAP income was $67 million, including one-time gain of approximately $22 million after tax for a case settlement versus $84 million a year prior. Operating margins were 4.4% in the United States, negative 7.3% in Mexico and 2.8% in Europe, respectively. Our operating profit in U.S. during Q1 was $85 million versus $115 million a year ago. We experienced significant volatility during the quarter across all of our fresh business units and particularly within the commodity segment. Our case-ready operations were very strong and performed well as demand far outstripped supply at many retailers across the U.S. We further benefit from our strong key customer partnerships as well as our ability to react quickly to the demand shift by moving product to retail from foodservice. Despite some reductions in volume from QSR, during Q1 our small bird business results continue to be on the top of the industry. The market for large bird deboning was the most volatile; as pricing starts under pressure with increased production by the industry, followed by a quick increase in response to pantry loading before reverting to historical lows by early April. Despite the challenging environment, we continue to improve the operating efficiencies of our large bird deboning business while introducing more product differentiation in order to counter the volatility. Our consistent focus on key customer strategy is also yielding positive results, helping us to continue achieving an increasing relative performance against peers. In Mexico, we reported an operating loss of $24 million, as the weak market environment persisted longer than expected and constrained consumer spending and demand. Chicken prices, especially in the traditional markets were weak and meaningful below seasonal expectations for the majority of the quarter before reaching normal levels by the end of Q1. We expect the results to continue to be volatile due to local economy and impacts of the exchange rates, but a full recovery as chicken demand in Mexico improves and the market recovers its balance. We remain the leader in developing the market and operate at our own pace to launch many new products this year. Our strategy is supportive of our goal to increase our higher-margin differentiated products while having product coverage from entry-level to premium across multiple channels in both fresh and prepared in the country. Once again, our strong team in Mexico is our true differentiation with their operational excellence and market leadership, and we expect the strength in relative performance against industry peers to continue in the future. As I mentioned, quarter-over-quarter performance can be quite volatile in Mexico given market conditions, but Mexico has been very consistent on a year-over-year basis and we expect this positive trend to hold. The recovery in legacy Europe’s operation profits continued during Q1 due to improved operational efficiencies and input cost mitigations. We also further developed our key customer strategy, including more integration with our newly acquired operations and enhanced revenue optimization initiatives to give us better management of our mix and increased margin contribution. We will also continue to leverage our marketing and sales infrastructure, to optimize SG&A costs, and we believe we can maintain the lead in relative results to the industry. Our newly applied operation – European assets continue to improve their performance and also again contribute positive EBITDA results, due to the strengthening pork exports and good domestic demand, especially at retail as well as some good returns from the initial implementations of operational improvements. Since all of our European fresh pork facilities are now approved to China, we are well positioned to further benefit from the strength in export opportunities. The integration is tracking well to expectations and over the next few years we are expecting to generate an EBITDA improvement to achieve a level that is competitive with leading companies with similar portfolios. We are proud of our history of successfully and efficiently integrating companies we have acquired and we will apply similar methodologies in integrating the new operations to achieve comparable results. Our SG&A in the first quarter was 3.3% of sales in line with a year ago as we improved the efficiencies of our expenses. Despite more support from expanding the Just BARE brand nationally and the investments for our new prepared foods products both in U.S. and Mexico as well as the inclusion of the new assets in Europe. We will continue to prioritize our capital spending plans this year to optimize our product mix that is aimed at improving our ability to supply innovative, less commoditized products and strengthen partnerships with key customers. Even during these uncertain times, we’re all evaluating all CapEx projects and deferring those that are deemed non-essential. We regulate our commitment to investing in strong return on capital employed projects that will improve our operational efficiencies and projects tailored to customer needs to further solidify our competitive advantage for Pilgrim. Our balance sheets continue to be robust, given our continued emphasis in cash flow from operations, focus on management of working capital and disciplined investments in high return projects. Our liquidity position is very strong with more than $1 billion in total availability. We have no short-term immediate cash requirements with our bonds maturing in 2025 and 2027 respectively, and our term loan maturing in 2023. Despite our continued slow cash flow position, we have up to draw a total of $350 million on the ABL during the quarter at a very attractive rate, purely as a defensive move to protect PPC against potential marketing liquidity issues. During the quarter, our net debt was $2.1 billion with a leverage ratio of 2.2 times less 12 months EBITDA. Our leverage remains at a good level and we expect to continue to produce positive cash flows this year, increasing our financial capability to pursue strategic options. We expect 2020 interest expenses of around $140 million. We have a strong balance sheet in a relatively low leverage that can generate great opportunities during these uncertain times. We remain focused on exercising great care in ensuring that we create shareholder value by optimizing our capital structure, while preserving the flexibility to pursue our growth strategy and we will continue to consider and evaluate all relevant capital allocation strategies that will match the pursuit of our growth strategy and we’ll continue to review each prospect according to our value-creating standards. Operator, this concludes our prepared remarks. Please open the call for questions.

Thank you. We will now begin the question-and-answer session. Our first question today will come from Ben Theurer with Barclays. Please go ahead.

Hey, good morning, Jayson, Fabio, and Dunham. Thanks for taking my question and hope you’re all safe and sound. Two questions. So, one, you’ve talked about the industry reducing capacity within beef, pork, but also within chicken. Can you elaborate within that a little more on what you and particularly have been doing in terms of on your supply side, if you’ve been reducing some line speed output, etc.? And where do you think we’re going to have within the next couple of weeks, particularly on the supply side within chicken and within PPC’s production? That will be my first question.

Yes. Sure, Ben. So we had said on the previous quarter that Q1 in 2020 will be around 6% increases in production, higher on the front-end and lower on the back-end. And with the extra working day allocated, the production for Q1 was 6.4% higher in pounds year-over-year. So that was right where we had expected that to be. Now recently those numbers are showing much, much lower. We’ve seen slaughter pounds 4% to 5% below last year’s numbers, and they’re actually now 11.8% below the pre-COVID level. So the decreases are starting to come through fairly heavily. Chick placements are now showing decreases of nearly 8% year-over-year and they’re 10% down versus pre-COVID level. So we’re going to start to see some midterm cutbacks within our own business. We shifted our head from our commodity sectors into our case ready. So we really – one of the things we did was ramp through our case ready business and we downsized some of our commodity business. So there are a couple of things that we’re doing on the go forward. We’re obviously seeing the other proteins are right now down in production, most recently around 35%. So we’re starting to see those cutbacks cutting through the system on the near-term, and our business is well positioned to capture some of that market that we’re seeing in that space.

Okay, perfect. Very clear. And then one for that would be actually, I guess, for Fabio. Within your and you’ve briefly managed it, but I couldn’t capture it, so clearly income, pretax income benefited significantly from a FX gain as well as this miscellaneous. Can you elaborate more what drove, first of all, the FX gain, but what’s behind miscellaneous? Because that $34 million figure was quite sizable.

Sure, thank you, Ben. So the FX gain is the hedge that we have against the operation in Mexico, the working capital. So we have 100% of our working capital that is in peso hedge in U.S. dollars. That’s what drove the FX gain. On the miscellaneous, it is a legal case. There was a settlement on a stockholder derivative action case brought by minority shareholders on PPC against JBS under the selling of the Moy Park settlement. The settlement was agreed and PPC received a net cash payment of $35 million that created a one-time gain of approximately $0.09 per share.

Okay. Did you in the past somehow provision for that and that’s why you now take it back in?

No, we have not provisioned. So it was a net gain for us.

Okay, perfect. That’s all. I’ll go back into the queue. Thanks.

Thanks, Ben.

Our next question will come from Heather Jones with Heather Jones Research LLC. Please go ahead.

Good morning. Thanks for taking the question.

Good morning.

Hi, Heather.

So just wanted to try again on the volume question. So in your Q4 call, you mentioned that you would be transitioning one of your large bird plants to small bird. So I was wondering if, one, that’s still happening. And two, how should we be expecting Pilgrim’s volumes to trend in coming quarters? I appreciate the color, Jayson, you provided for the industry, but just what should we be thinking about in terms for you guys?

Yes. Heather, so the question around the facility transition, the right thing to do for us now is to push that off due to the added complexity that we would see within our facility. So we made the decision to and the right decision to push that off. And we’ll most likely bring that up in the first quarter of 2021. But until we see the environment clearing up, we’ll push that off. Regarding our volumes, Heather, we’ve cut back slightly as well as moving our headcount from big bird to our case-ready business. So we cut back a few percentage points on the big bird side and a few percentage points on our small bird business. But again, we’re seeing these volumes flowing through the industry as well as our business. So we’ve cut back in two of our businesses in the U.S.

And I think, Heather, we have a significantly lower exposure to the foodservice than most of our competitors. And we have a higher exposure in the foodservice to QSR. As we see the QSR that Jayson mentioned coming back, we are seeing strong demand for our products in, especially our key customers.

Yes. Heather, just to add on, over 50% of our foodservice volume is in the QSR segment and we are seeing those coming back today to very close to pre-COVID levels.

Okay. That’s consistent with what I’ve heard. Awesome. On Mexico, so when I look at the numbers and all, the pricing impact, even including FX, I mean, it wasn’t insignificant, but it wasn’t horrible. It seemed like the bigger driver of the deterioration was on the cost side and also relative performance there in that region deteriorated significantly too. So were there some unusual costs or something that are going to abate as the year progresses? Just if you could help me understand what happened there.

Sure, Heather. As we mentioned, the chicken prices in the traditional markets were weaker and meaningful below the seasonal expectations for the majority of the quarter, but they reached normal levels by the end of Q1. And we expect our results to continue to be volatile and we’ve seen this before due to the local economy and the impact of the exchange rate. The exchange rate impacts our costs in terms of the grain that we purchase. As chicken demand in Mexico returns and the market recovers its balance, we expect the fundamentals to improve. And once again I mentioned that in the prepared remark; our strong team in Mexico are two differentiation. They have strong operational excellence and market leadership. And we expect the strength in the relative performance against the industry peers to continue in the future. We continue to invest in Mexico. We are growing in Prepared Foods. We are growing into fresh with our complex in Veracruz. And longer term, despite the volatility, we continue to see Mexico as a growing economy.

Okay, perfect. Thank you so much. I’ll get back in the queue.

Our next question will come from Ben Bienvenu with Stephens. Please go ahead.

Hey, thanks. Good morning, guys.

Good morning.

Good morning.

I wanted to ask about in light of higher levels of absenteeism and plants grappling with COVID infections as well as kind of the recommendations from the CDC on how to operate facilities and mitigate risks associated with the spread, can you help us think through kind of the productivity and capacity utilization of your plants? And what it might take to get back to normal with respect to that?

Yes. Sure, Ben. Our absenteeism is varied across our business, but our teams have managed this really well. Our commercial teams have worked very closely with our key customers to simplify our mix so that we create a more optimal footprint. So just because we have absenteeism does not mean we have to be less efficient on the back end of our facility. So I will tell you that our key customer relationships have really added a lot of value there. And so the efficiency of our facilities is actually very good due to the working relationships we have with our key customers. That’s been, again, our key customer relationships have given us a very strong competitive advantage in terms of us keeping our operations running smoothly. With regards to, we’ll call it, the new CDC guidelines, we believe that this, the recent executive order will provide a consistent and sound and guided platform for which we can rely upon as we navigate our business across the 14 states in which we do business here in the U.S. And we welcome the consistency, we look forward to working with local health and labor leadership, really, so we can continue to do two things together that we both have in common, which is to keep our team members safe and continue to provide safe food for our communities in our country.

Okay. That’s great color. Thanks. You gave some good detail in response to Heather’s question about the plant conversion. I’m curious as it relates to other capital projects in particular maybe upgrades for automation. Does the current labor environment change the math at all around how you might think about investing in automated deboning equipment, either for the front half or back half of the bird or any other equipment upgrades that you guys can make to make your plants more efficient and less exposed to labor tightness?

Yes. Ben, I think it’s a great question and this is something that pre-COVID we’ve been addressing and doing within our facilities using more automation and more robotics. You’ve been hearing us talk about this for the last several years in terms of taking facilities down and putting in automation equipment. And that’s been, again, another competitive advantage I believe that’s helped us through the current environment. It doesn’t change the way we are going to invest in automation. We believe in automation, we believe in robotics and we’re going to continue to move down that path. It’s the right thing to do from a socioeconomic perspective for our team members and the right thing to do for our business.

Yes. Just as a reminder, we’ve invested more than $30 million in automation last year. And connecting to the absenteeism question, these automation projects helped a lot of our plants to continue to run very efficiently this year.

Okay. Thanks. Good luck.

Thanks, Ben.

Now our next question will come from Ken Zaslow with Bank of Montreal. Please go ahead.

Hey, good morning, everyone.

Hi, Ken.

Hi, Ken.

Just three questions. One is, what are the costs associated with the COVID-19 in your plans? Second, what is the actual impact you think from the beef and pork cycles on chicken prices of late? And then I’ll have one more follow up.

Ken, regarding the costs, I’ll you tell you, they’re fairly minimal. We call it, non-impactful across the enterprise. One of the bigger costs I would say would be that we installed and built over 10,000 barriers inside of our facilities. So our engineering teams, our maintenance teams did an absolutely great job in a short period of time across all of our facilities to build these barriers where there may be 6-foot or less distance between our team members. Again, they built 10,000 of these within 30 days and did an absolutely great job with that. One of the other costs, we did offer a gratitude payment to our team members. And just thank you for doing what they’re doing in the U.S., and that was one of the higher incentives that we gave for gratitude. And that will be a $10 million payment, and we’ll do that. We’ll realize that and recognize that in Q2.

Beef and pork.

Yes, beef and pork. So on the beef and pork side, we’ve obviously seen the breast production. We’re seeing ground beef year-over-year higher numbers at 20% level and pork shops up 23% year-over-year. So we are seeing that that increase at the retail level. So we do believe chicken will be a more competitive product and a better value in the environment that we’re currently in.

And then my last question is, you did say – usually, you’re about one-third – big, small, medium, where are you now? And do you need to change it, given that 50% of your foodservice is QSR, and you said that’s largely back. Can you talk about that? And then I’ll leave it there. And thank you very much.

Yes, thank you. Yes, we’ve been developing and optimizing this portfolio over many years. And you followed us, and you’ve seen the changes in our plant setups and our plant dynamics, moving these products. We believe we’re in a sweet spot today. I think we may wind up tweaking this. We might find people more at the end of this, doing more eating at home. And we might increase our retail shift, but I’ll tell you, we believe we’re in a pretty good spot. And look, we took advantage of this opportunity to do more retail. I’ll attribute that to three things. And you just said it, our portfolio is one of them. We have deep relationships, and we have a deep network into the retail channel. And that enabled us to shift quickly into this channel when we needed to. We reached out to our key customers. Again, that’s another piece of how we were able to shift very quickly into the retail channel. Our key customers gave us our first right of refusal for adding new growth items. We increased our IF business by 150% over the last 30 days. We increased our fresh bag parts to our commodity sector, moving it into the retail sector. We increased that business by over 250%. And I’ll tell you, the last piece of this is the culture of ownership and accountability that we have inside each of our businesses. We’re not a command-and-control operation. We have businesses that are autonomously run and when this opportunity for retail started shifting, we quickly – our teams quickly using a lot of agility, moved a lot of business into the retail channel. And over the last 30 days, our team has introduced and put on shelf 10 new SKUs, adding a significant amount of volume to help our retailers continue to grow their business. So three things, our portfolio, our key customer model and our culture of ownership and accountability really allowed us to take advantage of the current situation. And we believe we’re optimized, and we may not tweak the model a little bit after we see some – maybe there’s some permanent changes in the consumer habits after the pandemic.

Thank you very much.

Our next question will come from Michael Piken with Cleveland Research. Please go ahead.

Yes. Hi. Just wanted to touch base a little bit more on the kind of longer-term production plans. I know some of the exits have been declining, but have you guys made any changes to your breeding flock? And what do you sort of see as kind of the longer trajectory – growth trajectory for the industry?

Yes. Michael, I would say that, again, we’ve made some short to medium-term adjustments, nothing permanent. We believed in the protein, we believed in the markets. And in terms of breeders and pullets, we’ve not made any changes there. We’re going to stick with our plan. And again, we initially said this, 2020’s growth will be around 3% to 4%. We still believe that’s going to be the case and we may see some declines – more declines towards the back end. Again, the first half of was – first Q was 6%. I think we’ll see some lower numbers here in Q2 and it may adjust slightly back up depending on what the market dynamics do. And obviously, the other proteins absolutely play a significant part relative to the protein space. So we’ll see how that – how those proteins react in Q2 and Q3 as well.

Okay, great. And then, shifting over to exports, I know you talked a little bit about the pickup in business to China. Obviously, the dollar has strengthened versus some of these currencies especially some of these oil markets. And you talked about the weakness in Mexico. I mean, how do you sort of see the export picture playing out? Is there a chance in your mind that there might be some restrictions placed on you guys in terms of exports if the domestic meat situation gets really tight, particularly with the red meat production down so much recently? Thanks.

Yes. Michael. So the USDA’s estimate on the front end of the year was around 4.5% growth. And I will tell you from a Pilgrim’s perspective, our perspective, we’ve seen 24% increase in our export sales. And so we’re running a little higher than the 4.5% USDA number, but we anticipate for us for this year to grow our exports by about 15%, primarily driven by China. Our China run rate still shows, and we said this a few quarters back that we’re going to see a lift of between $75 million and $100 million to our bottom line. We still expect that to happen. And we’re actually more confident in our ability to grow our business in China, really for a couple of reasons. And they’re willing to adopt OIE guidelines as they relate to the regionalization in the event of a high-path break. They’ve already shown that they will follow through with that. That was great news for us. And they’ve implemented a duty abatement process for the Chinese imports of poultry. And so I think those two things, Michael, really showed that there is intent for China and the U.S. to continue to do business in the poultry sector. Look, China, they’re still importing a lot of protein exports of pork to China by the four major pork exporting countries in January, were up 129%, beef ports in January by the major seven beef exporting countries were up 55% year-over-year and export to poultry to China by the three major exporting countries were up 77%. Just in March, beef exports to China was 113% year-over-year increased, pork was 202% and chicken was over 100%. So Michael, I think all indications for me are that China will be there and I don’t see any reason why that’s going to change and they’re still continuing to be a large net importer of protein.

Michael, just to add to this, the exports are a great complement to the overall cutout. So we typically export parts that we don’t typically consume in the United States, so paws and major leg quarters. So it’s not reducing the availability of chicken in the United States. It’s actually complimenting the overall cutout for the chicken producers.

Thank you.

Thank you. Our next question will come from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes, thanks. Good morning everyone. So was hoping just to kind of wrap-up kind of the comments around kind of market environment, cost dynamics, I mean feeds become more favorable, but takes some time to roll through. As we think about April, we think about the second quarter just how, how are margins in aggregate when you roll those pieces up in April relative to the first quarter average. And I’m thinking mostly in the U.S. business, any commentary on Mexico and the EU is also appreciated.

I’ll give you the landscape right now, Adam, in terms of what we’re seeing in the marketplace. And again, this has been a very volatile past four months. And we’re still in this volatility period. But, look we’re seeing several reasons that are driving improved markets today. First retail demand continues to be robust, that was 70% at its peak and most recently, it’s still running 20% and pushing higher today in year-over-year numbers. That’s just the retail environment, the QSR business, it went through its trough and that business is now strengthening. And as I said this earlier those businesses are now operating at or very near pre-COVID levels. Even broad line we’re starting to see increases. So we’re seeing a 65% to 70% negative range and those levels are now actually the deficit cut in half. And we’re starting to see given our broad line business starting to come back with a fairly strong trajectory of improvement, as the shelter-in-place orders are expiring. Look, we’re seeing the less availability of other proteins that’s hitting the markets today. Cutbacks in the chicken industry, we’ve talked about those. They’re now at double digits below pre-COVID numbers. We’ve talked about this ground beef, pork, at the retail levels are 20% to 25% higher year-over-year. And the chicken, right now it’s the value option for many households where the budgeted budgets are strapped. So these factors, what we’re seeing is an increase in the cutout. It’s been driving through the breast meat markets. That market has improved 25% just over the last week. And we know that’s a major driver in the value of the cutout. I think people are looking right now for healthy foods. And I think foods that add to their wellbeing and I think chicken right now falls directly into that category.

Okay. So with what we know of how April pricing has played out and your view of May and June, I get that it’s incredibly volatile right now and things are changing. In the U.S. business between the mix dynamics, it’s probably our net positive to you, but also the commodity price movements, which have been negative. Do you actually think you could have margins up quarter-on-quarter in the June quarter?

I think Adam, it will depend a lot on how the market will react to all the factors that Jayson just mentioned. Right? We have a very sharp decline in the cutout in the beginning of April to unprecedented levels, but we are seeing the market recovering and we expect that back to normality with everything Jayson said. As you also mentioned the feed inputs looking at today, prices will be a benefit of close to $200 million for the rest of the year, so we’re not looking only to Q2, we’re looking into the rest of the year. And I think the recovery is already in place.

Okay. All right. I appreciate the color. I’ll pass it on. Thank you.

Thank you.

Thanks, Adam.

This will conclude our question-and-answer session. I would now like to turn the conference back over to Jayson Penn for any closing remarks.

Thank you. We would like to reiterate our continued commitment to our team members to provide them with a safe and healthy work environment while supporting our duty to maintain food production and supply to customers. We’re looking forward to a solid year in 2020 despite volatility, a diverse portfolio of differentiated products tailored to support our key customer strategy in conjunction with our broad geographic footprint will continue to generate consistent performance and minimize margin volatility in challenging market conditions relative to competitors. We will continue to seek new growth potential both organically and through acquisitions while offering even more differentiated product portfolio within our businesses to support key customers’ needs by cultivating a culture of constant innovation. We’d like to thank everyone in Pilgrim’s family, including our family farm partners, suppliers, and our customers who make our business possible. As always, we appreciate your interest in our company. Thank you for joining us today.

The conference is now concluded. Thank you for attending today’s presentation and you may now disconnect.