Good morning, and welcome to Pilgrim's Pride's Earnings Conference Call for the Third Quarter of 2023. This call is being recorded at the company's request. The slides mentioned during today's call can be downloaded from the Investors section of the company's website at www.pilgrims.com. After the presentation, there will be time for questions. I will now hand the call over to Andy Rojeski, who is the Head of Strategy, Investor Relations, and Net Zero Programs for Pilgrim's.

Good morning, and thank you for joining us today as we review our operating and financial results for the third quarter ended on September 24, 2023. Yesterday, 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 the slides for reference. These items have also been filed as Form 8-Ks and are available online at sec.gov. Fabio Sandri, President and Chief Executive Officer; and Matt Galvanoni, Chief Financial Officer will present on today's call. Before we begin our prepared remarks, I would like to remind everyone of our safe harbor disclaimer. Today's call may contain certain forward-looking statements that represent our outlook and current expectations as of the date of this release. Additional factors not anticipated by management may cause actual results to differ materially from those projected in these forward-looking statements. Further information concerning these factors has been provided in yesterday's press release, our Form 10-K and our regular filings with the SEC. I would now like to turn the call over to Fabio Sandri.

Thank you, Andy. Good morning, everyone. And thank you for joining us today. For the third quarter of 2023, we reported net revenues of $4.4 billion with adjusted EBITDA of $324 million, translating to a 7.4% margin. Throughout the quarter, we experienced very volatile market fundamentals and persistent consumer inflation. Nonetheless, we remained focused on our strategies of diversification, key customer partnerships, and operational excellence. Given our consistent execution, we improved margins relative to prior quarters across all regions. In the U.S., our key customer partnerships drove significant growth in case-ready and strong performance in Small Birds, where our operational excellence efforts improved our efficiencies in Big Bird. We continue to further diversify our portfolio in both branded fresh products and prepared offerings given our growth with leading retailers and food service providers. Based on these combined efforts, the U.S. improved its profitability compared to previous quarters. In the U.K. and Europe, we further diversified our marketplace presence through branded innovation, recently launched new products, secured additional long-term supply arrangements with key customers, and drove further efficiencies in our manufacturing network and back office to achieve operational excellence. As a result, we have reinforced our foundations for profitable growth. In Mexico, we experienced a strong third quarter due to improvements in live operations, favorable feed inputs and currency, and balanced supply and demand fundamentals. Our diversification through branded and prepared offerings continues to gain marketplace traction, and our operational excellence efforts to drive efficiencies and expand capacities remain on track. In the third quarter of 2023, ready-to-cook production of U.S. chicken experienced a decrease of 1.9% relative to the same period last year, primarily influenced by USDA estimates regarding fewer headcounts, along with typical seasonal trends. The most recent USDA outlook for Q4 of 2023 indicates that the industry continues to reduce excess and chick placements relative to last year, suggesting a more restrained supply scenario in the near future. Concerning our cold storage supply, reported September 2023 USDA cold storage inventories are below those of the prior year and indicate levels have declined relative to June 2023. Breast meat remains in line with the end of June levels, while dark meat inventories continue to trend below last year. Considering the overall supply of protein, the USDA expects a slight reduction in domestic protein availability for the remainder of calendar 2023. This reflects a view of slow-growing broiler supply compared with contracting beef and pork availability. With relatively lower beef and pork availability, higher food inflation than historical averages, and current economic uncertainty, chicken may be advantaged due to its availability, affordability, and flexibility. Domestic volume demand for chicken improved significantly in the third quarter of 2023. The retail channel momentum continued, providing more balanced growth in volumes across all departments. The fresh department was supported by volume growth coming from both front-half and back-half cuts, and we are finally seeing increased promotional activities. We remain positive about the potential of this category as competition for protein supplies increases and competing meat prices normalize. Elsewhere in the retail category, the frozen department has added incremental volume and unit sales, and we are now observing volume sales growth from both the commodity and value-added frozen segments. Meanwhile, the dairy-prepared department has steadily added both units and dollar sales. In the foodservice channel, volume sales also increased. Commercial distribution volume demand has improved as the number of operators purchasing chicken has grown, and those operators already with chicken have experienced an increase in velocity. Similar to retail, Q3 of this year reflected more balanced volume growth across front-half and back-half cuts. Non-commercial distribution sub-channel increased volumes, albeit at relatively lower prices compared to the record prices of last year. As a result of improving retail and foodservice volume sales and balanced supply during the quarter, wholesale pricing for commodity chicken experienced price improvements during August and September, especially on breast meat and tenders, providing a lift to cut-out pricing. Commodity prices have recently reverted to normal seasonal pricing patterns and are now close to historical averages, which is not a sustainable level considering the industry's elevated costs from grain, labor, and other inputs relative to pre-pandemic levels. Nonetheless, the supply and demand balance appears to be improving as we enter Q4 of 2023. In export markets, Q3 was remarkably stable with solid demand for U.S. broiler. The reduction of 2.2% in year-over-year exports was primarily driven by China, where sales were down 28%, mainly due to ongoing high-path avian influenza and relatively limited eligibility for export among poultry-producing states. Excluding this impact, U.S. exports would have been up 2.5% year-over-year, indicating that strong demand exists for U.S. products globally. The emergence of high-path avian influenza in commercial turkey flocks towards the end of September and beginning of October has increased industry vigilance. Most of our trading partners have adjusted their trade restrictions to reflect impact zones or states in the event of a commercial outbreak. Other than China, we do not expect to see material disruptions to trade in the event of an HPAI outbreak in commercial broiler operations. Consistent with the previous quarter, volume sales have maintained growth in the channel, and U.S. cold storage inventories of combined dark meat have trended below a year ago and are down 19% from the five-year average due to a 32% reduction in year-over-year inventories at the end of September. Based on our current trajectory, we expect our exports to continue to outpace last year as we further diversify our client base and country of destination portfolios. Our exports supporting an already healthy U.S. dark meat market may potentially experience relatively strong pricing and demand than typical expectations in the fourth quarter. Turning to feed ingredients, harvest is progressing in the U.S. despite below-trend yields. The historically large corn acreage has contributed to a recovery in U.S. corn ending stocks for the '23, '24 crop year, with production forecasted at just over 15 billion bushels, marking the largest crop since 2016. Ending stocks are currently forecasted at 2.1 billion bushels, an increase of 55% year-over-year. This large U.S. production follows a record Brazilian corn crop, which remains competitively priced. Global ending stocks for '23, '24 are forecasted to fall by 14 million metric tons, assuming favorable South American weather and Argentina's production returns to normal levels after a remarkably weak previous year. Regarding soybeans, the U.S. crop is estimated to be nearly 4% lower year-over-year due to reduced acreage and limited yield improvements, resulting in another year with historically low ending stocks. Nevertheless, last year's record crop in Brazil remained competitive in export markets, creating considerable demand for U.S. production. Although only in the planting stage, both Brazilian and Argentine soybean crops are expected to be larger year-over-year, boosting global supply, where, like corn, South American weather will be key in realizing growth. The U.S. soybean meal market should remain well supplied due to continued crush industry expansion, assuming Argentina's forecasted rebound in soybean production is achieved. Further price pressures could arise, although soybean inflows can be heavily influenced by biofuel policies. Growth in production and diversification of import inflows should balance supply and demand. Turning to wheat, global production is currently forecasted to fall by 6 million metric tons from last year, largely driven by a decline in Russia's record crop. In the U.S., wheat production increased by 4.4 million metric tons from last year, while estimates for Australia and Argentina have been reduced due to slightly unfavorable growing conditions. Black Sea exports continue without an agreement between Russia and Ukraine, which should be monitored closely. Our U.S. business continues to navigate very volatile market fundamentals in the big bird segment, alongside persistent consumer inflation. Our diversified portfolio across bird sizes mitigates these prolonged challenges, and we maintain our intense focus on operational excellence and the cultivation of key customer partnerships. Within big bird, the team has continued to drive action points to further enhance operational excellence in our manufacturing locations. During the quarter, we achieved improvements in production efficiencies, both in live operations and other clients. These efforts were also aided by enhanced market fundamentals during the quarter, but work still remains to consistently realize sustainable margin levels. In case-ready, the team improved our volumes to maintain customer partnerships. We increased distribution, additional promotional activity, and improved mix. Additionally, the team upheld its operational excellence in both quality and service levels, despite significant disruptions from Hurricane Idalia in the Southeastern United States. Equally important, we further diversified our sales pipeline, differentiating our high-attribute offerings that help drive traffic and differentiation for our key customers. Small Bird remains strong due to stable demand from QSRs, robust daily performance with key customers, and sustained operational excellence. Given their consistent quality and service levels, the team secured additional business throughout the quarter and beyond across retail and foodservice. Our efforts to further diversify our portfolio to prepared foods continue to gain momentum. As the team realized significant growth through increased distribution, promotional activities, and innovation. In retail, our fully cooked branded offerings Just BARE and Pilgrim's collectively grew 65% compared to last year. Within foodservice, the team reinvigorated growth with distributors, schools, and commercial chains through our targeted expansion teams. Digitally influenced sales continue to play a role in our commerce for prepared branded offerings. Our key customer media partnerships and investments have demonstrated their effectiveness as click-through rates are nearly double industry standards, and consumer acquisition costs have decreased. Equally important, digital sales increased 90% over the past year. Given the exceptionally positive shopper reaction, we look forward to increasing partnerships to further diversify our portfolio through branded offerings. Similar to the U.S., our U.K. and European business experienced an environment marked by continued consumer inflation. Improved pork fundamentals and the relative affordability of chicken help mitigate this impact, but the team remains focused on our strategies. To that end, the business trended its key customer partnerships with leading retailers and foodservice providers through targeted promotional activities and customer-specific offerings. The team also secured additional long-term business with selected retailers through efficient supply chain capabilities and differentiated product offerings. Our diversification through branded products continues to progress, as both Fridge Raiders and the Richmond brands gained market share throughout the quarter. Innovation also continues to play a key role as we launched over 100 items, many of which are designed to reinvent our fresh meals category. Our new product performance is becoming increasingly recognized throughout the trade as we receive multiple awards for development and launch execution. We continue to drive diversification and key customer focus through operational excellence efforts. To date, we've made significant progress in the optimization of our manufacturing network and back-office support activities. Moving forward, we will explore additional opportunities throughout our production footprint to increase efficiencies and drive scale to meet our growth aspirations. We will also continue to closely monitor various economic indicators. Wage growth is now ahead of inflation, and consumer confidence has resumed a supportive trajectory. Based on these factors, consumers may be willing to increase protein consumption, trade up within retail, or pursue away-from-home eating opportunities in foodservice. Given our diversified portfolio and key customer presence across channels and operational capabilities, we are positioned to adjust to these trends and accelerate our growth. Turning to Mexico, the business experienced a strong performance in the third quarter due to improvements in live operations, grain and currency favorability, and more balanced supply and demand fundamentals in the region. The business is strengthening its key customer focus, given continued growth with leading retailers and QSRs. Equally important, our diversification efforts through branded offerings continue to gain traction among retailers and consumers alike. In Prepared Foods, the Pilgrim's brand grew double digits compared to last year, while our recent Just BARE launch has been exceptionally well received in the marketplace. Moving forward, we'll further cultivate our branded presence through additional marketing support for Unique Taste and Favorites, as well as the introduction of a Just BARE fresh offering. We continue our commitment to driving profitable growth through continued investment in operational excellence. We have completed our expansion in the Merida region and expect to initiate production in the first quarter of 2022, increasing the geographical diversification of our progress. Additionally, our projects to enhance biosecurity for live operations are progressing as planned and are expected to be completed according to schedule. We're also proud to have published our sustainability report in September, highlighting our continued progress on our journey to become a leader in environmental, social, and governance matters. We have made significant progress against the United Nations Sustainability Development Goals since 2019, as our team members' Global Safety Index improved by 54%, and our Scope 1 and Scope 2 greenhouse emissions intensity fell by 20%. We continue to invest in the communities we serve, having funded over $50 million in projects through our Hometown Strong initiatives, and we provided higher education tuition for 350 team members and all their family members to our Better Futures initiative.

Hi, good morning, everyone. This is Matt Galvanoni. For the third quarter of 2023, net revenues were $4.36 billion versus $4.47 billion a year ago, with adjusted EBITDA of $324 million and a margin of 7.4% compared to $460.5 million and a 10.3% margin in Q3 last year. Adjusted EBITDA margins in Q3 were 7.0% in the U.S. compared to 14.7% a year ago. For our U.K. and Europe business, adjusted EBITDA margins came in at 6.1% for Q3 compared to 4.0% last year. In Mexico, adjusted EBITDA margins in Q3 were 12.4% compared to a loss of 1.5% a year ago. Moving to the overall U.S. results, our adjusted EBITDA for Q3 came in at $174.1 million compared to quarterly profit of $418.3 million a year ago when the Jumbo Cutout was just starting to come off its all-time highs. Over the last three quarters, we've grown U.S. profitability sequentially despite volatile market conditions. Our key customer partnerships helped drive strength in our case-ready business during Q3, and we see further momentum in retail volumes continuing. Also, the U.S. Small Bird and Prepared Foods businesses continued their strong 2023 performance during the third quarter. Our Big Bird business realized quarter-over-quarter improvements through a combination of operational excellence programs and enhanced market fundamentals. In the U.K. and Europe, adjusted EBITDA in Q3 was $80.4 million versus $48.5 million in 2022. Through its previously discussed operational excellence efforts, the business improved profitability over 65% year-over-year and it marks the sixth consecutive quarter of sequentially increasing profitability. During Q3, the business also continued to benefit from back-office integration and its network optimization programs. As inflation moderates, the U.K. consumer should return to more normal shopping patterns, enabling further growth for our business. Mexico generated $69.5 million in adjusted EBITDA in Q3 compared to a loss of $6.3 million last year. The Mexican business experienced more balanced supply-demand fundamentals, reduction in bird disease challenges, and improvement in its live operations due to the team's extraordinary efforts and foreign currency favorability. Overall, our SG&A in the quarter was lower year-over-year, primarily due to a decrease in incentive compensation and legal defense costs in the U.S., as well as other targeted cost efficiencies achieved in the U.S. and U.K. and European businesses. We spent $146 million in capital expenditures during the third quarter, which is higher on a more normalized run rate basis primarily due to our investments in the Athens, Georgia expansion and the construction of our new protein conversion plant in South Georgia. We reiterate our commitment to investment in strong ROCE projects that will improve our operational efficiencies through automation and tailor our operations to address key customer needs to further solidify competitive advantages for Pilgrim's. Although the U.S. chicken commodity market has been quite volatile over the last year, our overall balance sheet and liquidity position remain strong. As of the end of the third quarter, we had over $2 billion in total cash and revolver availability. After quarter-end in early October, we completed a $500 million long 10-year notes offering and paid off our 2027 notes through a tender offer process. Also, in October, we entered into a new five-year U.S. credit facility, which was upsized by $50 million to $850 million and is now unsecured. We're pleased with the results of these recent transactions and the overall interest in our debt offerings. Following these transactions, our net debt maturity is now not until 2031. Our liquidity position provides us flexibility during times of volatility in the U.S. commodity markets and allows us to explore further growth opportunities. As at the end of Q3, our net debt was approximately $2.8 billion with a leverage ratio of 3.5 times our last 12 months adjusted EBITDA, which is outside of our target ratio range of 2 to 3 times. We anticipate this quarter to be the peak of our leverage ratio as we're about to last very challenging fourth quarter of '22 and first quarter 2023 results, given the depressed U.S. commodity market pricing during those periods. Net interest expense in the quarter totaled $33.5 million. We anticipate our full-year net interest expense to be approximately $160 million, excluding refinancing costs. Our effective tax rate for the quarter was 26.8% and 9.8% year-to-date. We are now estimating the full year effective tax rate to be approximately 14%. As a reminder, this amount could fluctuate depending on the final mix of earnings across our tax jurisdictions. Our capital allocation approach will remain disciplined as we look to grow the company and continue to align our investment priorities with our overall strategies and portfolio diversification, focusing on key customer growth, operational excellence, and commitment to team member health and safety. Operator, this concludes our prepared remarks. Please open the call for questions.

Our first question comes from Ben Theurer from Barclays. Please go ahead.

Good morning, Fabio and Matt. Congrats on the very strong results. I have two questions. First of all, we saw a very nice improvement and continued improvement just sequentially as it relates to the business in the U.S. from an operating income perspective. Now, as we look into next year, and assuming maybe Mexico to stay as strong in the U.K. as well, to continue to improve, how do you think about the potential profitability in 2024? In other words, do you think it’s achievable to reach what would be more of a normalized level of 6% to 8% operating income margins in 2024? That would be my first question.

Sure. Thanks for the question. Ben, as always, we look at our differentiated portfolio. We created this portfolio a long time ago to capture upside in the commodity market. We have a significant exposure to commodities in the U.S. with the Big Bird operation, but we can protect the downside and have a more stable business with our case-ready, Prepared Foods, and Small Bird offerings. Looking at this year's performance, Small Bird, Prepared Foods, and case-ready have performed really well, maintaining their levels. The Big Bird segments have been very volatile. Looking into next year, three things are very important for us to monitor. First, the competing proteins. Based on USDA numbers released yesterday, we expect limited growth in the domestic availability of total protein in the U.S., with beef down year-over-year and at expected high prices, which tends to favor chicken in promotional activities, both in retail and food service. We are also seeing moderation in the high prices of grain. As we've mentioned, we're experiencing favorable production, especially on corn, which should help overall costs. Lastly, the promotional activity for chicken, in retail and food service has improved. Our operations have also improved, as we are now fully staffed after having challenges during the pandemic. We still have a lot of operational improvements to capture through training and better operational efficiencies, which should help next year. So, overall, while some headwinds persist for chicken, it has proven to be resilient even in economic downturn scenarios.

Okay, perfect. And then my second question, I guess that one is for Matt. Just coming back on the capital allocation side, you just said on the call to continue to invest in high-returning projects, etc. Can you update us on what you're expecting the full-year CapEx to come out? I mean, obviously, year-to-date we're already almost at the levels we were in the full year last year. So, is that run rate about $150 million for the fourth quarter, should we expect that to come in as well? And how do you think about CapEx into next year? Is there a normalization, or do you expect some elevated levels?

Yes. Good question, Ben. We expect our total CapEx for the year to be north of $550 million. Our run rate should slightly slow down as we wind down the Athens construction, but we are finalizing our construction in our South Georgia facility, two of the bigger strategic projects we've been mentioning over the last year. I expect the run rate we have of about $140 million to continue into the fourth quarter, putting us at north of $550 million for the year. Relative to next year, we will provide an update during our earnings call in February after going through our budget process and strategic focus. Generally, however, we anticipate a slight reduction in CapEx year-over-year, as we wind down our larger strategic projects.

Additionally, over the last two years, Ben, we've invested heavily in automation, especially in breast deboning automation. Now that our plants are fully staffed, we will be keenly monitoring the payback of those projects and do not expect significant new investments in that area.

Okay, thank you. Congrats again.

Thank you, Ben.

Our next question comes from Ben Bienvenu of Stephens Incorporated. Please go ahead.

Yes. Thanks so much. Good morning.

Hi Ben. Good morning.

Fabio, I want to pick up on some comments you made just around the fourth quarter. You noted that supply production levels are trending down through most of the third quarter, and that trend appears to continue into the fourth quarter based on the leading indicators. You noted prices are at a historically average level, but they seem unsustainably low relative to grain prices. In light of that and the demand backdrop you’ve laid out, do you think we could have a counter-seasonal move in breast meat prices as we move through the quarter, recognizing the pressure on prices at the start of the quarter?

Yes, that's a great point. Typically, Q4 is the lowest price for chicken due to seasonal events like Thanksgiving and Christmas, which usually do not favor chicken sales. However, I expect starting in mid-November and early December, we will see a significant increase in demand as people return to their normal buying patterns and chicken recaptures its importance as an everyday item for families. We expect to see a reduction in supply, as indicated by USDA reports. Additionally, we're seeing some recovery in demand beginning mid-November, which is when we usually anticipate a price increase. The volatility in breast meat has been notable, while other parts are showing a more stable supply and demand scenario. For instance, wing prices, which were low last year, are now recovering, supported by the seasonal demand for wings, and leg quarters from the U.S. are competitively priced compared to other proteins available in the export market.

Okay, very good. My second question is related to Mexico. Another strong quarter there. Can you provide any color on the go-forward outlook for Q4? Also, regarding Hurricane Otis, it looks like you don’t have operations where that made landfall and where most of the devastation occurred, but do you expect that to have any impact on operations at all?

Yes, sure. On Mexico, as we've always mentioned, it can be very volatile quarter-over-quarter, but we expect to see strong year-over-year performance. This year has been different than previous years. We're seeing strong demand for chicken, and October typically sees the lowest price levels, which is consistent this year. However, we're already seeing prices starting to recover this month. Competition from alternate proteins and imports still impacts demand in Mexico. However, we anticipate a favorable scenario moving into next quarter.

Yes. Just to follow-up on that, foreign currency volatility is always something we're monitoring in Mexico, and regarding the storm, my understanding is that it hit the off-coast area, which isn't one of our production areas, and it has now thankfully dissipated. So, at this time, we're not expecting any severe impacts to our operations.

Okay, great. Thanks so much.

The next question comes from Andrew Strelzik of BMO Capital. Please go ahead.

Hi. Good morning. Thanks for taking the questions. My first one is on the operational improvements mentioned in the press release. Can you elaborate a little on what those are, and is there any way to quantify the magnitude of those or the contributions of those improvements that you've realized so far this year and the new ones going forward?

Sure. Thank you for the question, Andrew. Every year during our budget process, we identify opportunities for operational improvements, which we refer to as opening the gaps. We then develop action plans to close those gaps and capture those operational improvements. Typically, we expect around $100 million to $200 million in improvements every year through better efficiency, improved yields, and enhanced live operations. This year was no different. The largest challenge we faced was staffing our plants. We have now fully staffed all operations. The current challenge is to ensure all team members are efficiently trained to operate the facilities and capture those improvement opportunities.

Okay, great. That's helpful. And then I have a broader question about your market share. Given some of the dynamics and sales trends and distribution you've highlighted, it appears you're gaining share in the U.S., specifically on the distribution side with respect to case-ready products. Can you elaborate on what’s occurring there? Do you believe you're taking share from other key players in the industry, or is there broader growth that you're servicing with key customers?

That's a great question. In terms of market share, we don't look at it overall but rather within individual segments. We are the leaders in the Small Bird category, and we've been gaining market share, particularly through our key customer relationships that are growing faster than others in the marketplace. Specifically in the case-ready segment, we've increased our market share because of our deepening penetration with key customers, which has allowed us to outperform in that segment. For example, the market increased in Q3 by 3.4% in the fresh category in retail, whereas we increased 9% driven by our customer partnerships, who are also winning in the marketplace. As for the Big Bird category, we haven't significantly expanded our number of plants, but we've improved yields and operations, resulting in a relatively stable market share.

Great. That’s very helpful perspective. Thank you.

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

Hi, good morning.

Good morning, Peter.

To follow up on Andrew's question regarding market share, I’ve noticed a shift within the U.S. retail landscape, where there's potentially a transition from center store or frozen categories to the perimeter. Consumers appear to be more selective with their spending. Since you have exposure in both areas, could you comment on that dynamic and share what you're observing?

Yes, that’s an excellent question, Peter. We are indeed seeing customers shift from frozen categories to fresh categories. We have a strong offering that differentiates our key customers. For instance, we produce tailored products for customers based on specific segments, with offerings like Fresh from Florida and Fresh from Texas, alongside no antibiotic ever options. We’ve also expanded our Just BARE brand, which complements our portfolio with a high-quality offering. That's why we've seen growth in the fresh category. The frozen side, particularly our fully cooked line, has been increasing year-over-year through our Just BARE and Pilgrim's brands, while the IQS category—more commodity-level frozen offerings—has been decreasing as customer preferences shift.

Just to clarify on the balance sheet: while our cash position looks strong at the end of the quarter, it will decrease by approximately $350 million due to the tender offer we completed. So, our cash balance is more in the $500 million to $550 million range right now. In terms of growth, we are focused on disciplined growth. We’ve done significant CapEx with key customers for unique products, which has led us to a higher CapEx run rate. Organic growth opportunities similar to what we've done with existing customers are still emerging, and our cash will be used in that disciplined manner.

We remain committed to creating value for our team members and shareholders. We're actively looking for acquisitions that complement our portfolio. M&A activity is strong, and we will pursue acquisitions believed to create value for the company.

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

Yes, thank you. Good morning, everyone.

Good morning, Adam.

There’s been a lot of discussion around the boneless market, and you've alluded to the volatility within that sector, especially with some unusual counter-seasonal strength reported through Q3. I'd like your thoughts on what has been driving that market and potential sources of incremental volatility moving forward.

Yes, certainly. As mentioned, the volatility in the cut-out has primarily been with breast meat. As for leg quarters, they've shown steady growth with increased demand as food service returns, and reduced supply is expected from the big bird sector. We’ve also seen a big increase at the end of Q3 due to restocking by foodservice distributors as they manage their inventories. Earlier in the year, high prices led to reduced purchases, which we consider the industry-wide trend. Fortunately, now we're seeing improvements in demand for chicken, particularly retail features augmenting our case-ready demand. Overall, we anticipate prices to stabilize and recover as foodservice continues to gain ground.

That's very helpful. Additionally, regarding the U.K. and Europe, you've mentioned a nice sequential margin improvement. Could you provide visibility into profit margins moving into the first half of next year? Are there concerns regarding potential volatility in the hog markets, or are you now in a stronger balance between the network and Fresh poultry, prepared foods, and pork business?

Great question, Adam. As we've built this portfolio, we've ensured it is well-balanced among chicken, fresh pork, and prepared foods. Recent investments in innovation have played a significant role in helping our key customers succeed, just like we observe in the U.S. We've seen more than 100 new product launches, particularly in fresh categories. The pork sector is providing more balance to our supply-demand, and we are currently witnessing a profitable status for our live pork operations in Europe. Inflation in Europe has been relatively high, recently outpacing wage growth. Still, we forecast increasing consumer confidence and demand for protein as these trends continue into 2024.

That's excellent. Thank you. I’ll pass it on.

Thank you, Adam.

The next question comes from Priya Ohri Gupta from Barclays. Please go ahead.

Hi. Thank you so much for taking my question. Matt, one for you if I could start. Your free cash flow performance has been coming in better, driven largely by strength in working capital. Given some of the commentary you’ve made around the grain market, how should we think about working capital for the full year concerning cash from operations? Are we expecting a more neutral position on working capital, or is there scope for it to possibly be positive?

Thanks for the question. Overall, I would predict working capital to be more neutral. However, as you pointed out, grain prices are moderating, which has already positively impacted our P&L. That began to materialize in the second half of Q3. We expect a bit of continued improvement in working capital as we move forward, but I wouldn't take that too far at this stage.

Okay. That’s helpful. I’d like to follow up on your comments about the European consumer. You noted wages are outpacing inflation, and improved confidence is contrasting with more cautious outlooks from others about the European consumer compared to the U.S. How sustainable do you think these stronger trends in protein demand could be moving toward 2024? Should we consider this a quarter-over-quarter trend, or is this more sustainable?

I believe we're witnessing overall increases in demand, especially for chicken. This sector’s relatively resilient compared to red meat and pork, which have both been more expensive. As consumer incomes start recovering, we're likely to see an increase in demand across retail and food service channels. While we've observed recent trading down to retail brands due to higher prices, we anticipate a reversal back to branded offerings as inflation eases. This trend should favor our Richmond and Fridge Raiders brands in the region.

This concludes our question-and-answer session. I will now turn the call back over to Fabio for closing comments.

Thank you very much. Over the past year, we've experienced many challenges throughout our business, ranging from volatile market fundamentals, persistent inflation, elevated input costs, and compressed spreads across proteins. Nonetheless, we continue to invest in our business and build the best team in the industry, driving profitable growth through key customer partnerships, diversification, and operational excellence, reinforcing our foundations as conditions evolve. Moving forward, we are confident about market condition improvements as wage growth outpaces inflation, spreads return to more normal levels, and protein production sees growth. Regardless of external factors, we remain relentless in our pursuit of executing our strategy, reinforcing our competitive advantages, and becoming the best and most respected company in our industry, ensuring a better future for our team members. Thank you for joining us today.

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