Good morning and welcome to the First Quarter 2022 Pilgrim’s Pride Earnings Conference Call and Webcast. All participants will be in listen-only mode. 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. I would now like to turn the conference over to Andy Rojeski, Head of Strategy, Investor Relations and Net Zero Programs for Pilgrim’s. Please go ahead, 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 27, 2022. 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 also have been filed with 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 date 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 2021 Form 10-K and in our first quarter 2022 or From 10-Q filings with the SEC. I will now turn the call over to Fabio.

Thank you, Andy, good morning everyone and thank you for joining us today. For the first quarter of 2022, we reported net revenues of $4.24 billion, a 30% increase over the same quarter last year. And adjusted EBITDA of $501.8 million almost double Q1 of 2021. Our adjusted EBITDA margin was 11.8% compared to 7.8% Q1 last year. U.S. GAAP earnings per share was $1.15 versus $0.41 last year, an increase of over 180%. We are pleased with the overall performance in the first quarter. Our U.S. and Mexico business has effectively managed through volatile market conditions and mitigated the impact of inflation in commodity, labor, and ingredient costs. Although our UK business has made significant progress in battling through market conditions, a challenging labor environment, and rapid cost escalation, many of our contracts have a lag or never contemplated the magnitude of inflation that the country is facing. We are proud of our promising start to this fiscal year and remain confident that successful execution of our strategy of portfolio diversification, key customer partnership, and operational excellence will lead to stronger, more consistent results. Nonetheless, improvement opportunities exist, and we must drive our business with an unwavering commitment to our team members, health, and safety. We must continue to manage through extremely volatile market conditions. The global complex across grains and oilseeds markets rallied through the first quarter, as the Russia and Ukraine conflict disrupted shipments and increased the risk that Ukraine will be unable to harvest their current crop and plant new crops. Russia also faces complications in their ability to export, impacting the markets for corn and wheat. Moreover, the region is a leading producer of fertilizer, and prolonged conflict will inhibit delivery to farms throughout the world. These conditions are fully exacerbated by challenges in Brazil, as soybean sales fell short of expectations, coming in at roughly 125 million metric tons as opposed to an estimate of 145 million. We’re closely monitoring the progress of the standards of business second corn crop, and the impacts on the global corn supply. In the U.S., the current focus is on the weather, given its impact on the pace of planting and total acreage for corn, soybeans, spring wheat, and other crops. The current forecast indicates relatively cool and wet conditions, which could delay planting and potentially limit production. In addition, China has not approved certain South American regions for corn shipments. Although we do not believe that this will significantly impact corn supply. The U.S. government also announced some changes to its policy regarding seasonal ethanol use. Given these factors, commodity prices have rallied and been very volatile compared to last year. As always, we have a liquidity position that reflects our view on the risk in the market. In terms of supply-demand conditions for U.S. chicken, lightweight production increased by 2.5% relative to Q1 last year, driven by additional head counts and heavier average weights. The industry continues to experience hatchability challenges and labor constraints, which constrain overall supply growth. As a result, supply is expected to grow less than 1% in 2022 according to the USDA. The overall supply of protein will be impacted due to the limited availability in the other protein complexes, as USDA expects domestic availability of pork and turkey to increase only 0.3% year-over-year. Recent pork availability is expected to remain flat while turkey supply will likely be adversely impacted by the avian influenza according to USDA estimates. Despite logistical challenges that inhibit our inventory flow, total protein in cold storage remains 7% below the five-year average as of the end of March. Domestic chicken demand remains steady throughout the first quarter relative to the same time last year. Although the retail channels are lower compared to the pantry-loading period of last year, it is at pre-COVID levels, and higher prices are supporting revenue gains. Fresh chicken volumes dipped during the year but strengthened later in the quarter. Volume demand for frozen value-added products remains resilient even with increasing prices. The retail deli department posted year-over-year gains with sales also above the pre-COVID 2019 levels. The food service channel exceeded year-ago and pre-COVID baseline levels while in food service distribution, the number of operators purchasing remains below pre-COVID baseline levels; rates per operator remain healthy, and the number of operators increased year-over-year. Our QSR key customers continue to grow. Although the non-commercial segments posted significant year-over-year gains, they are still on a recovery path to achieve pre-COVID levels of sales. As consumers increasingly feel the effects of inflation, we anticipate some shift towards retail demand; despite increasing prices, chicken still remains the most affordable, flexible, and available option relative to the other proteins. As such, we are well-positioned to benefit from changes in customer behavior and spending patterns. The export business will remain robust as overall chicken exports increased 5% from December 2021 to the end of the first quarter, and up 2% from last year. Dark meat accounted for the largest increase as it grew on average 17% from last year, primarily driven by ocean container shipping disruptions throughout U.S. exports. Despite the challenges, USDA export sales increased by 1.7% relative to last year throughout February, driven by Asia and developing economies. Improvement in export volumes reflects a resurgence in global demand and supply deficits driven by avian influenza in Europe and Southeast Asia, as well as ASF in critical Southeast Asian markets. The conditions are further amplified by supply disruptions from the Russia-Ukraine conflict, as both countries produce roughly 34% of their chicken production. Our export business has helped the industry grow, and we expect the continuation of this momentum given our diverse portfolio of bird sizes and broad range of production facilities. Equally important, the impact on the U.S. chicken industry has been relatively muted, as less than 2.5 million growers have been impacted by avian influenza, while other countries have been more severely impacted. As a result, we may have additional opportunities and flexibility when considering export opportunities. We will continue to monitor the impact of avian influenza on our global business. Given sustained demand levels and supply limitations, we expect chicken commodity prices to remain elevated above historical norms, which is demonstrated by the jumbo cutout prices currently being 82% above the five-year average. Turning to our U.S. business, the consistent execution of our strategies of key customer focus, volume diversification, and operational excellence enables us and our teams to navigate volatile market conditions and drive strong results. Even with the challenges in hatchery production, we are holding our hands out longer than the industry average. Although our hatchability suffered, we increased our overall ability to serve our key customers to address this challenge. We have partnered with our primary breeder suppliers to identify the root causes of the declining hatchability. This involves evaluating male and female line, feed formula, equipment, and management practices. Given initial results, we have already seen a positive impact in our production and hatchability, and we continue to implement these solutions. To maintain continued progress, these measures should increase our supply in the second half of this year. Equally important, we continue to aggressively monitor avian influenza and enforce heightened biosecurity protocols. To date, we have not experienced any significant business interruption from avian influenza. We continue to invest in our teams and equipment to enhance yields, improve mixes, and ensure sufficient capacity to support further expansions. Since 2020, we’ve increased hourly wages by close to 20% and have expanded our incentive programs for our hourly team members. This resulted in an approximately $30 million year-over-year increase in U.S. hourly employee costs in the first quarter alone. On the demand side, we will evolve our pricing approaches and product mixes to mitigate the impact of supply limitations and the current inflationary environment. We’ll continue to partner with our key customers to ensure sufficient product availability to satisfy demand, driving top-line growth for our business. We’re also working closely with our supply chain partners to ensure sufficient visibility and timing of cost increases. As a result, we can identify opportunities to offset those impacts and ensure sustainable margins throughout our business while investing in our key customers and delivering value for them. These activities have enabled us to navigate the challenging market conditions throughout the U.S. We have captured opportunities in the commodity market while maintaining margins in other segments of the business. Our commodity big bird deboning business is leading the way as it delivered the largest profit increase relative to the previous quarter and the same period last year. Both volume and revenue growth were driven by the food service channel and the continued development of key customer relationships. This business is especially well-positioned to realize benefits from the current market conditions, as chicken remains the most affordable and flexible offering throughout the protein industry. Our small bird business realized both top and bottom-line benefits from increased traffic from QSRs and broad line distributors. To mitigate the impact of the Mayfield tornado, we relocated birds throughout our network to effectively maintain our operations and service levels to our key customers. We also updated pricing to offset increased grain and other supply chain costs. Moving forward, we continue to evaluate and adjust our mix according to key customer needs and industry trends. Our case-ready business delivered year-over-year revenue growth with stable margins. Facing logistics and labor issues, the team rose to the challenge throughout the quarter and partnered with key customers to ensure superior service levels and operational improvements to partially offset increased costs from grain, labor, and other supply inputs. We expect these changes to generate continued growth from distribution and improved margins. Our prepared food sales grew over 35% relative to last year, driven by prioritization of key customers, pricing recovery, and increased volume. Our consistent focus on service and product quality has paid dividends, especially for our branded offerings, as we increased distribution and market share despite higher prices caused by increased input and labor costs. Margins improved year-over-year as the business lagged, and setbacks from the 2021 winter storm drove operational efficiencies. Even with our continued growth, we initiated work on our previously approved expansion at our more competitive facility, expecting additional capacity to become available in the latter half of the third quarter. The branded retail business for our products has strong momentum, with sales growing 51% year-over-year and an 11% increase from the prior quarter. Our fully cooked business offerings have also gained significant traction. Consumer demand for our branded offerings appears especially resilient at the point of sale, as we have not experienced any drop-off in demand following our pricing adjustments for inflation. E-commerce has enhanced our overall growth in retail and food service, with net sales increasing year-over-year. We are building our presence as we develop new partnerships and optimize relationships with existing providers while cultivating our relationships with key customers. Turning to our European business, significant inflationary headwinds have emerged throughout the supply chain, including feed ingredients, labor, and utilities. The Russia-Ukraine conflict has made those impacts even more pronounced, especially in commodity prices, as UK wheat rose over 40% during the quarter. To lessen the impact and meet key customer needs, the team expanded its procurement and operational reach beyond its traditional supply base. To that end, they identified new suppliers in different countries to ensure sufficient raw material and ingredient availability. This differentiated approach resulted in improved service levels and increased top-line momentum. Excluding the impact of Pilgrim’s Food Masters integration, sales grew 9% relative to last year. Our key customer strategy provided the foundation for further growth as we increased market share and secured additional distribution for our innovations. Our efforts are being recognized by consumers and leading grocers, as Food Masters Richmond brand was recognized as a top 50 brand in the UK. In addition, the team diversified its geographic reach to improve sales and margins. For example, our pork team is now contracting sales in the United States, Asia, and Africa. Furthermore, the team has identified and realized synergies with the recent acquisition of Food Masters in procurement through government and logistics. The team has also diligently evaluated their cost base and undertaken steps to improve productivity; some involve investments in equipment and wages, while others emphasize cost reduction. We expect further alignment of industry supply-demand fundamentals over the remainder of the year. These market conditions, combined with our improvements and ongoing efforts, should generate improving margins in the second half of 2023. Our Mexico business grew net sales by 11.5% relative to Q1 of the prior year, while operating margins declined slightly due to supply chain cost increases and base pricing recovery. Sales grew across all channels, with QSR leading the way, followed closely by retail and food service. Our prepared food business achieved another quarter of double-digit growth, with our Pilgrim’s Del Dia and Alamesa brands. Our branded fresh business unit also experienced similar success, growing at double digits. Like the rest of our portfolio, Mexico faces significant inflationary cost challenges throughout the supply chain, particularly concerning grain. Nonetheless, we will continue to invest in our brands and production, as we believe in the long-term growth of demand in Mexico. We are growing our production with a hatchery and feed mill in the state of Veracruz. Once complete, we can reach all of Mexico with our products. We expect the first loads to reach local markets by the end of this year under the current schedule. We’re also investing in a hatchery in Merida, which is slated to begin operations in December 2022. In addition, we are expanding processing capacity at our popular location, which will further adjust our mix to meet additional demand in both retail and food service channels. This project begins in early Q2, and we expect completion in the latter half of Q3. Moving forward, we need to remain vigilant, given significant inflationary headwinds and challenges to our entire business. Costs have dramatically increased in commodities, labor, logistics, and other operational inputs, and to ensure the business continues to grow and create value for our stakeholders, we must mitigate these impacts through operational efficiencies and grow with our key customers. We will continue to monitor and adjust our business accordingly. With that, I’d like to ask our CFO, Matt Galvanoni, to discuss our financial results.

Good morning, everyone. For the first quarter of 2022, net revenues were $4.24 billion versus $3.27 billion a year ago, with adjusted EBITDA of $501.8 million and an average margin of 11.8%, compared to $253.8 million and a 7.8% margin in Q1 last year. We achieved $287.2 million adjusted net income compared to $103 million in Q1 of 2021. Adjusted EBITDA margins in Q1 were 15.9% in the U.S. compared to 6.5% a year ago. For our UK and European business, adjusted EBITDA margins came in at 1.2% for Q1 compared to 4.3% last year. In Mexico, adjusted EBITDA in Q1 was 16.1% versus 20.6% a year ago. Adjusted EBITDA in the U.S. for Q1 came in at $412 million compared to $131 million a year ago. Both gross and operating margins were higher compared to 2021 due to higher commodity market pricing, strong consumer demand, improved operational efficiencies, and growth with our key customers. Our UK business has experienced increased volatility due to the Russia-Ukraine conflict, a challenging labor market, and rapid cost escalation, all of which negatively impacted margins. The UK business has made significant progress in addressing the recovery of inflationary cost increases through pricing to our customers. As we noted in our last earnings call, the first half of 2022 will be challenging, but we anticipate seeing profit improvement in the second half of the year. Mexico generated $75.3 million in adjusted EBITDA in Q1 compared to $86.4 million a year ago; volumes have remained strong due to balanced supply-demand fundamentals, and although grain and other input costs have increased, the business has undertaken efforts to improve efficiencies and recover these higher costs. As we’ve discussed and experienced in the past, our Mexico results can vary significantly quarter-to-quarter. As Fabio previously mentioned, all businesses have been subject to market volatility and significant inflation. As such, we continue to monitor costs through our supply chain, progress in our operational efficiency efforts, and implement other cost recovery measures as needed to mitigate these impacts. We spent $82 million in CapEx in the first quarter and will continue to prioritize our spending throughout the year to cultivate growth for our business, strengthen key customer partnerships, and realize greenhouse gas emission reduction targets related to our sustainably linked bonds and our net-zero commitments. Our overall balance sheet and liquidity remain strong, with approximately $1.7 billion in total cash and credit available. Moving forward, we will drive cash flow from operating activities, manage working capital, and invest in high return on capital employed projects. As of the end of Q1, our net debt totaled $2.7 billion with a leverage ratio of 1.75 times our last 12 months adjusted EBITDA, which is below our target ratio of 2 to 3 times. Net interest expense for the quarter totaled $35 million. Our effective tax rate in the quarter was 21.1%, which included certain discrete items. As I noted in our February call, we still anticipate our full-year effective tax rate to be between 25% and 27%, albeit likely at the lower end of that range. Our capital allocation approach will remain disciplined as we look to grow the company and align our investment priorities with our overall strategies in portfolio diversification, key customer focus, operational excellence, and commitment to team member health and safety. Operator, this concludes our prepared remarks. Please open the call for questions.

Thank you. Our first question comes from Ben Bienvenu with Stephens. Please go ahead.

Hey, thanks. Good morning and congrats on a nice result.

Good morning, Ben.

I want to ask as it relates to kind of the margin capture, margin realization in the quarter, you know, we’ve had a strong commodity or big bird deboning backdrop for a while. But you highlighted in your commentary in the release and then on this earnings call, some of the operational improvements that you’ve been making. I know mix, labor is still a challenge, but can you talk a little bit about the progress that you’ve made in your ability to potentially continue closing the gap relative to what kind of commodity margins might suggest, and how we should be thinking about the challenges you still face operationally that just might ebb and flow as we move through the year?

Sure. Thank you. As we discussed in previous calls, we have a very diversified portfolio across all of our operations and also have a great geographic portfolio. In the U.S., we operate in all segments: small birds, medium birds, large birds, and also prepared foods. We created this portfolio because we believe that it’s more resilient to downturns when the commodity markets are really weak, but we also have the exposure to the commodity markets through our big bird operations, allowing us to capture the upside when the commodity markets are strong. One of the pillars of our strategy is the relentless pursuit of operational excellence. We are always looking for opportunities to improve our operations; these opportunities arise through our zero-based budgeting approach and action plans created at every single plant, enabling us to improve our operations year-over-year. The primary issue we’ve faced over the last two years has been labor availability. We are seeing strong demand for labor in the U.S.; staffing our plants to full capacity has proven difficult. As a result, we haven’t been able to produce the optimal mix that would maximize our profits. As I mentioned in my remarks, we’ve given some significant increases to our labor force that impacted more than $30 million just in this quarter, and accounts for more than 20% over the last few years. By improving staff levels, we've been able to capture some new improvements, and we are producing a better mix. However, I think the improvements in margins we are seeing are mainly due to our ability to capitalize on the increase in the commodity markets. Demand is strong, and we are seeing very limited increases in production in the United States.

Okay, perfect. My second question relates to the share repurchase program that you all put in place. The diluted weighted average share count during the quarter shows no evidence of you all being active in the market. I see in the 10-Q that came out this morning, the share count as of yesterday was a little lower, so maybe you’ve exercised some of that. But as you think about the cash windfall that you will see in the midst of this cycle and your ability to continue to improve operationally, can you help us think about where share repurchase sits in terms of your capital spending priorities? Thanks so much.

Hey Ben, it’s Matt. Let me rephrase your first question and then you can jump in maybe more on the second. You will see in the 10-Q that we purchased about 1.1 million, 1.2 million shares in the quarter. If you recall, we didn’t really announce this until March 9th or March 10th, and our quarter ended March 27th. We purchased about $27 million worth of shares in the quarter. So we did start the program and executed, but you’re just not seeing much of it in your average since the average is across the entire quarter. We didn’t start until the last two weeks of the quarter.

And I think capital allocation is always one of our priorities here; we want to create value for our shareholders, right, and grow our company to create a better future for our team members. We want to grow our company, so in the absence of any big M&A or significant opportunities, we continue to invest in our organic operations. We mentioned several initiatives being in prepared foods in the West, in fresh and prepared foods in Mexico, and even in Europe. We are looking for opportunities on how to grow. Share repurchases are an option when we believe there is significant value for our shareholders from the buyback. In terms of capital allocation, it comes second to us growing our business and creating value.

Okay. Thank you so much. Best of luck with the rest of the year.

Thank you, Ben.

Our next question comes from Peter Galbo with Bank of America. Please go ahead.

Good Morning. Thank you guys for taking the question.

Sure. Morning, Peter.

Matt, maybe you can just help us from a modeling standpoint. I know Fabio provided some color around USDA expectations for U.S. volume growth, but just how you’re thinking about U.S. volume growth cadence over the remainder of the year. And as a second to that, how we should think about the higher feed costs flowing through. I know you guys are probably hedged for part of the second quarter, but how we should think about those two items over the remainder of the year?

I think regarding volume increases throughout the year, we have a very seasonal business, and you’re going to see that normal seasonality. We expect generally stronger Q2 during the grilling and summer season, with things starting to follow the seasonal trends after that. Related to our hedging portfolio, as Fabio stated, we try to look at the market and evaluate it against our risk management practices. We disclosed certain things in our 10-Q published this morning that will give you an idea of where we’re at relative to this time at the end of the fourth quarter. But we have definitely looked at hedging and adjusted accordingly based on our perception of risk in the market.

In addition to the USDA growth and expectation for our industry, it will depend a lot on hatchability. We have discussed this issue for some time now, and I think we are seeing results from everything we are trying to do. We expect, like Matt said, a little bit of an increase in Q3, and compared to the strong quarter we had in Q4, we expect very muted growth overall—around 1%.

Got it. That’s helpful. Thanks for that. And Fabio, it’s helpful to get the context around hatch. One of the big questions we’re receiving is longer-term, with where chicken prices are right now. You’ve seen an uptick in pullets; it seems like hatchability may start to improve. I don’t know when that starts to show up in some externally reported numbers, but the gap between chicken and some other proteins has really started to close, particularly with beef and pork actually turning deflationary on a year-over-year basis this month. I’m just curious how you are thinking about any limitations on jumbo breast meat prices. $3.30 is obviously a historically high level; but from a seasonal standpoint or based on improved hatchability, when do you see normalization, perhaps down towards something closer to a $2.00 level?

Well, to your point, yes, we’ve been seeing some increasing pricing of chicken, but as you mentioned, the gap between the proteins continues to be wide. I think it’s closed a little bit but it remains broad. It's important to consider the differences between the commodity segments and more stable retail segments. The retailers are not experiencing the price changes we see in the commodity segment. That is a more day-to-day pricing environment that is used for further processing and other operations in the large food service industry. In the retail business, we maintain a more stable pricing model, where we mitigate inflation effects through operational efficiencies and discussions with key customers. So to retailers and end users, we are seeing some inflation effects, but not at the same levels as the commodity segment. What’s happening is that historically we've used commodity meat to enhance retail channel sales during peak seasons, but the current difficulty is sourcing commodity at a loss. The availability of retail is also tightening as we are operating our plants at full capacity, and our growth is outpacing the industry, particularly for our key customers. This will present a challenge for the summer, as retailers will not have sufficient availability at the prices they currently face.

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

Yes, good morning. Just wanted to discuss your outlook for Mexico. Where are they in terms of production and feed availability? I know they import a lot of their grains here. How reliant do you think Mexico will end up being on U.S. chicken, and how might that impact your Mexico performance depending on the amount of product that flows in from the U.S.?

Sure. Thank you. Yes, Mexico, as we always mentioned, is a very dynamic market. Small shifts in supply and demand can create significant impacts on overall pricing. We experienced a weaker Q4, which is not typical, largely due to increased production and some trade shifts from the U.S. We’ve seen export increases during Q1, but given the high prices of other proteins, we expect a challenging season for exports to Mexico because of those high prices in the commodity segment. We continue to increase our production in Mexico, doing everything we can to supply the local market with tailored products. We are expanding production in the fresh category and opening new plants in the Merida region; once complete, we can reach 100% of Mexico with our products. We expect the first loads to local markets by the end of the year under the current schedule. We’re investing in a hatchery in Merida, slated for operation in December 2022. In addition, we are expanding processing capacity at our primary location to better adjust our mix for demand in both retail and food service channels. However, we remain cautious, as we will face tight conditions in Mexico, especially for Q2 and Q3 due to production constraints and the typical seasonal disease challenges in the country. Consequently, we typically see only small supply increases in Q2 and Q3, which impacts pricing. However, we continue to invest in growth in Mexico, which, while volatile, is resilient year-over-year.

Great. Thanks. As a follow-up to that, are they experiencing any issues with avian influenza in Mexico? Has biosecurity improved over the last couple of years, or are you still going to have your breeder flock primarily in the U.S. to support growth in Mexico? Thanks.

Sure. Biosecurity, as we mentioned for the U.S., is quite strong. We have solid protocols in place. The challenge in Mexico is that about 30% of their market is based on live sales. These live animals move through the country to small slaughter facilities, primarily in major cities. This creates a significant biosecurity risk, resulting in higher mortality rates and related issues, which we expect to continue due to the prevalence of live sales. The Mexican consumer often prefers the freshness that comes from slaughter facilities close to the consumer, adding to the biosecurity issue. However, as we continue to grow our brand in Mexico, we are creating strong cold chains and building consumer trust in our branded offerings. The movement of live sales creates challenges for biosecurity in the country.

Your next question comes from Ben Theurer with Barclays. Please go ahead.

Yes, thank you very much and good morning, Fabio, Matt. Congrats on the strong results. One thing I wanted to dig into is the business over in Europe, which you’ve made clear in your prepared remarks as well as the press release about all the challenges around the pork market due to ASF in Germany, but at the same time the labor shortages and other challenges. Just help us understand your outlook for the coming quarters regarding the possibility of raising pricing in the European market to help offset all that cost pressure and return profitability to positive territory. That would be my first question.

Sure. Thank you, Ben. Yes, Europe is currently facing significant inflation, particularly due to rising costs in various areas including utilities, CO2, micronutrients, labor, packaging, and transportation. The Ukraine conflict has exacerbated these impacts, particularly on commodities, with UK wheat prices rising more than 40% during the quarter. To mitigate these issues and meet customer needs, our teams have expanded their procurement efforts beyond traditional supply chains, identifying new suppliers in various countries to ensure the availability of raw materials. This differentiated strategy has led to improved service quality and stronger top-line growth. Excluding the impact of Pilgrim’s Food Masters integration, sales grew 9% year-over-year. Our key customer strategy has laid the groundwork for additional growth as we capture further market share and secure distribution for our innovations. Our efforts are recognized by consumers and notable retailers, such as the Food Masters Richmond brand, which was honored as a top 50 brand in the UK. Additionally, our pork team is now conducting sales in the U.S., Asia, and Africa, and we expect to see further synergies from our integration and ongoing innovations in the European market. We acknowledge the various cost pressures and are actively working with our customers to negotiate pricing adjustments that reflect the current cost structure and inflation we face. Although challenges remain, especially the typical lag when negotiating prices, we have strong relationships with our customers and innovative solutions to support mutual growth.

Yep. Perfect. My second question is really around the leverage profile, cash on hand, and all that kind of stuff. I mean, obviously leverage has come down nicely over the past few quarters, and I think you usually aim for something around two times. At the same time, we’re seeing a significant increase in cash, which is over $750 million. Historically, you’ve been running more like $300 million to $400 million. What are your immediate plans for that cash? Is it paying down debt where you can? And how should we think about leverage toward the end of the year to understand the triggers and drivers of capital allocation?

Well, part of this quarter, we took advantage of our delayed draw that expired in February; we borrowed about $194 million then at very favorable interest rates. We did that to increase our cash balance. Our primary focus is growth, which can take various forms: organic growth in plant build-outs, potential M&A opportunities, and combinations thereof. We are very concentrated on driving that growth. Our Board and management team prioritize this, and we see many opportunities to leverage that cash effectively. Fabio, do you want to add anything?

Yes, as I previously stated, we want to create value for our shareholders. Holding $700 million in cash isn’t creating much value; we can’t effectively utilize that surplus cash. However, it’s essential to maintain sufficient liquidity for any unexpected developments and to support our growth prospects.

Okay. Perfect. Well, Fabio, Matt, thank you very much, and congrats again.

Thank you, Ben.

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

Yes. Thank you. Good morning, everyone.

Morning, Adam.

Hi, Adam.

Morning. So my first question may be coming back to the U.S. As we think about the current environment—obviously, the commodity big bird business is driving tremendous strength—how do we think about breast meat prices impacting the prepared foods business, especially sequentially given the recent run-up? And are you seeing impacts on export balance from AI affecting delayed quarter market pricing that hasn’t seemed as different from 2015 so far in terms of market impact today?

Sure. I think starting with AI, we’re seeing a seasonal wave of the influenza close to what we had in 2015, and we’ve experienced many cases globally. Some nations are even more severely affected than us. Indeed, the AI in some countries, especially in Asia, and also the pork issue is aiding our exports, particularly for leg quarters. In Q1, we’re already seeing increased demand for leg quarters in the Asian region. The demand for these remains strong, and we anticipate significant asks over the next quarters. Now, concerning AI cases in the U.S., despite not impacting our overall production, localized cases can lead to temporary bans or questions about product movement within affected states. However, since most nations have already regionalized their AI protocols, we generally resume exports from unaffected areas after about a week. We have a wide network across 14 states that provides more flexibility for sourcing. As for prepared foods, current prices indicate that prepared foods and frozen fully-cooked products are substantially higher compared to prior periods; in fact, our volumes have increased significantly. We do anticipate an uptick in retail sales resulting from inflationary pressures on consumers, which will benefit both our fresh and fully-cooked offerings. We’ve been adjusting pricing according to the inflation impact on our operational processes while satisfying demand.

Okay. And then just switching over to Europe, I think some comments earlier indicated that hog prices in Germany have started to move more recently while the UK still seems a bit stagnant. If I’m thinking about the Tulip operations specifically, is there a pathway for that business to reach profitability this year, considering both the pricing dynamics on hogs and the cost challenges you’re facing?

Sure. The dynamics we’re facing in the pork segment are indeed influenced by production costs, rising grain prices, and stagnant consumer demand due to inflation, which limits spending capacity. The impact of live animal prices has been particularly noteworthy as they run below cost, resulting in challenges for the operators relying on these prices. In contrast, being one of the most integrated pork operators, we stand to benefit from greater synergies as the prices recover. Our brands are gaining recognition, and we expect synergies from the integration efforts will drive us towards profitability in the coming quarters. It’s crucial that we continue to innovate while addressing the inflationary pressures impacting our operational costs.

The next question comes from Ken Zaslow with Bank of Montreal. Please go ahead.

Hey, good morning, guys.

Hi, Ken. Good morning.

How much profitability do you think you’re leaving on the table by not having the optimal mix and labor? And will you get that back in 2023?

Yes, that’s a difficult question. I think we are potentially sacrificing a couple of points of profitability because of that. Our yields and mix are not optimal; labor shortages mean we prioritize deboning. Instead of deboning all the dark meat as we intend, we export them, which is profitable, but prevents us from maximizing our profits. Yes, we anticipate regaining that ability in 2023. Our increased wages over the past years and comprehensive community programs are designed to engage our workers and enhance productivity. We are actively investing in automation, which should also improve both capacity and efficiency in the long term.

Great. When I think about production beyond this year, aside from improving hatchability, how does production actually increase? And do you think it will remain relatively muted for the next few years?

That’s a great question. Over the past years, many new plants have started to come online, supporting the chicken consumption growth in the U.S. However, at this point, we do not envision new plants being built anytime soon due to high construction costs and labor shortages. It’s challenging for any operator to build new facilities without a readily available workforce to support them. We must study the region to see if sufficient labor can be found for staffing a plant of over 1,000 employees. Given the difficulty in obtaining permits, it's hard for the industry to construct new facilities. However, with increasing consumer demand, production should ramp up. Some operators are even transitioning from small to larger birds, which could increase overall volume. We also anticipate that hatchability will improve over time, leading to more heads available and, ultimately, increased production.

Great. I really appreciate that. Thank you.

Thank you for your questions. I now turn the conference back to Fabio Sandri for closing remarks.

Well, thank you everyone. Although we are pleased with our start of the year, market conditions are extremely volatile, and significant inflationary headwinds present challenges. We must continue to monitor the impacts of global commodity inputs, changes in overall protein complex, and movements throughout the labor market. To date, we have successfully managed these challenges by prioritizing our key customers, leveraging our diverse portfolio, and driving operational excellence. We will utilize this approach as we continue to invest in our business and focus on team member safety and well-being. Even with our demonstrated progress and continued execution, I look forward to supporting our key customers as we grow together. Thank you once again, everyone, and have a good day.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.