Good morning, and welcome to the First Quarter of 2024 Pilgrim's Pride Earnings Conference Call and Webcast. This call is being recorded at the company's request. The slides mentioned during today's call are available for download from the Investors section of the company's website at www.pilgrims.com. After today's presentation, there will be a chance to ask your questions. I will now hand the conference over to Mr. Andrew Rojeski, Head of Strategy, Investor Relations and Sustainability for Pilgrim's. You may proceed, 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 31, 2024. 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 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 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 these factors have been provided in this morning'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 first quarter of 2024, we reported net revenues of $4.4 billion, a 4.7% increase over the same quarter last year. Our adjusted EBITDA was $372 million, up 145% versus Q1 of 2023. Our adjusted EBITDA margin was 8.5% compared to 3.6% last year. Our Q1 demonstrates the results of consistent execution of our strategies. Over the past quarters, we experienced significant volatility in the commodity cutout values, persistent inflation and challenging labor markets. Nonetheless, we maintain a focus on key customers' partnerships, portfolio diversification, growth of value-added offerings and a relentless pursuit of operational excellence. While these efforts reduce downside risk, they are also further strengthening our competitive advantage. As a result, our business became increasingly well positioned to realize potential upside as enhanced market fundamentals emerge. In the U.S., Case Ready increased its marketplace presence, given key customer growth supported by our differentiated offerings, whereas Big Bird improved profitability through continued progress in operational excellence and stronger commodity cutout values. Small Bird remains strong, given significant growth in the deli and steady performance by QSRs. Prepared Foods further diversified our portfolio as our brands grew across Retail and foodservice. Our European business continued to make progress on its profitability journey. During the quarter, the team secured additional business with several key customers in Retail. Efforts to further diversify our portfolio continue to gain traction as our brands grew faster than category averages. These efforts were augmented through the optimization of our manufacturing network and integration of corporate support activities. Mexico's results improved through a combination of enhanced commodity fundamentals, exchange rate favorability and consistent execution of our strategies. Led by key customer partnerships, the business continued to grow across both Retail and foodservice. Branded offerings rose double digits compared to the same period last year, further diversifying our portfolio. Operational excellence efforts to enhance production efficiencies and reduce biosecurity risks remain on track. We also continue to drive sustainability efforts. During the quarter, a third-party conducted a limited assurance audit of our GHG emissions related to our sustainable linked bond. Based on this work, our emissions intensity declined by 15.6% from 2019 to 2022. Moving forward, we will continue to invest in infrastructure, operating procedures and training that can reduce our emissions intensity. Also, our investments in organic growth continued progress as we initiated startup and production at our protein conversion facility in South Georgia. Similarly, our expansion efforts in Mexico to drive profitable growth and access new geographies remains as our new projects have progressed as scheduled. Looking at feed inputs. Global corn prices fell as additional demand for U.S. corn did not emerge in the export market and South America's growing season experienced suitable growing conditions. As for the U.S., a normal growth season for corn should enable us to build on the '24, '25 ending stocks above comfortable levels. Like corn, U.S. and world soybean stocks are set to build in both the '23, '24 and the '24, '25 crop years, reaching historically comfortable levels. The South American soybean crop achieved record production, limiting U.S. export demand. As for the U.S., soybean acreage is expected to increase in this crop year, further increasing supply. Additional soybean crushing capacity is also expected to emerge, which may also lower the value of soybean meal. On wheat, balance sheets are somewhat more sensitive given the overall increase in demand and slight decrease in production in the last crop year. However, the increase in global stocks of all grains may serve as a counterbalance. Moving forward, weather and crop conditions also suggest an increase in yields versus last year despite lower planted acreage potentially increasing the supply. In the first 3 months of 2024, the USDA estimates indicated ready-to-cook production for the U.S. chicken decreased 1% relative to the first quarter of 2023, impacted by a lower production base than the prior year. Production was also impacted as head counts did not pace at levels equivalent to last year, mainly driven by reductions in Small Bird and Case Ready categories. Contrary to the other segments, the Big Bird segment grew production during the same period. Since early in the first semester, improved flock productivity amplified egg production, translating into increased egg sets. Even with the high flock productivity, hatchability and mortality continue to be a challenge, offsetting a significant portion of increased sets. Based on the recent trends in egg sets, higher average lightweights and low feed pricing, USDA data suggests a 1.5% growth in chicken for the full year, assuming normal seasonal patterns. However, continued hatchability and livability challenges may limit the ability of the industry to grow accordingly to the USDA estimates. For semi-cold storage supply of chicken, USDA-reported inventories indicated a 13% reduction from the end of 2023 through the end of March. Given this reduction, inventories are almost 11% below March 2023 levels. Inventory depletion came from both front and back halves, allowing the industry to enter the second quarter with significantly reduced stock levels. As for overall protein availability, USDA anticipates limited growth as increased imports of beef, additional pork production and the expected increase in chicken supply are more than offset by a significant decline in beef production, given reduced herd size and increased retention. Domestic volume of chicken demand showed steady growth in the first quarter of 2024. The Retail channel experienced improved volumes. In the fresh department, demand has remained robust, while pricing remained stable. Volume has grown despite a lower share of chicken on promotion, suggesting consumer everyday purchases are improving year-over-year. Volumes rose across the category, especially in the boneless breast category, where the volume growth of our key customers outpaced the overall industry growth. Overall frozen sales also experienced higher volumes. Consumers continue to favor frozen value-added over the frozen commodity category as value-added volumes more than offset the volume declines in commodity. Within the value-added segment, our key customers also outpaced category growth rates, suggesting that our branded offerings are well suited to capitalize on further growth as consumers look for convenience and differentiated solutions in the frozen aisle. As for the Retail deli, unit and dollar growth remained robust as the department can offer strong value to consumers who may be looking to trade out of traditional foodservice meals to rationalize spending without sacrificing convenience. In the foodservice channel, revenue and volume sales improved in both commercial and noncommercial foodservice distributions subchannels. The commercial distribution subchannel experienced larger dollar growth as rising fresh wholesale prices were able to be passed through to operators. Within the subchannel, the QSR category drove the majority of volume growth, also suggestive of consumers looking for more affordable meals. The noncommercial distribution subchannels continue to build steadily, especially in education and healthcare, adding incremental volume relative to the first quarter of 2023. In the export channel, the value of export shipments remained steady, while higher pricing, while volumes declined on a year-over-year basis. Despite the volume decrease, leg quarter and dark meat inventories fell more than seasonal norms and ended March significantly below the 5-year average. Combined exports and domestic dark meat remain supportive of pricing as USDA leg quarter prices averaged 18% higher than the first quarter of 2023. Since combined domestic Retail and foodservice volume sales growth outstripped the supply growth experienced in the quarter, further cold storage inventories were drawn, more than the seasonal norm. As a result, the pricing for commodity chicken experienced above-average seasonal improvements, along with jumbo cutout value above the 5-year average beginning in the second quarter. Our U.S. business experienced another strong quarter through a combination of enhanced market fundamentals and consistent execution of our strategies. Case Ready increased its market presence as our key customers grow faster than category averages. Additional opportunities exist, given continued consumer interest in differentiated higher-attribute offerings, growth in consumer-specific products and increasing retail spreads between chicken and other proteins. Small Bird remains strong given the robust growth by key customers in Retail deli and QSR. The team continues to drive operational excellence and growth, especially at our recent expanded facility in Athens, Georgia, as production continues to improve and ramp-up remains on schedule. Big Bird has continued its focus on operational excellence efforts to improve plant efficiencies, upgrade product mix and optimize live operations over the past year. When these efforts are combined with enhanced commodity cutout values, profitability increased dramatically from prior year. Moving forward, we'll continue to invest in our operations to accelerate margin expansion. On Prepared Foods, it demonstrated yet another strong performance as volume and profitability grew through increased distribution in both Retail and foodservice. Diversification to brands remain the key driver as the Just Bare and Pilgrim's portfolio collectively grew 30% in Retail relative to prior year. Equally important, our efforts in digital continue to gain traction as sales increased 20% compared to last year. Turning to Europe. Our diversification lineup enables our business to meet the evolving needs of consumers and customers alike. Chicken grew more in volume and value than any other protein offering. While overall fresh pork demand fell, bacon, sausage and gammon all increased volume throughout the quarter. Our branded portfolio also benefited from rising consumer confidence as net sales rose 6% compared to last year. Richmond and Fridge Raiders were particularly well received, as each grew 6.5% and 9.6%, respectively. Growth with key customers continues to be a priority as the team secured multiple awards for new business in Retail throughout the quarter. Several potential opportunities remain, and the team will continue to cultivate partnerships to drive innovation. Our operational excellence efforts are becoming increasingly durable as margin improved compared to last year. While we've made progress in all areas, our advancements in ready meals have been the most pronounced as our network optimization has evolved, and the consumer starts returning to differentiated options. The integration of our European business continued to progress well as we are already realizing benefits. Moving forward, we will continue to invest in growth, develop our innovation pipeline and evaluate opportunities to continue to optimize our network and enable a more customer-focused, nimble organization. Mexico's results also improved, given more balanced supply and demand fundamentals in commodity markets, favorable exchange rates and continued execution of our strategies. Led by the Retail channel, key customer partnerships grew over 13% during the quarter. Additional opportunities for growth remain in Retail and focus through continued excellence in quality and service. Our diversification efforts to brands and prepared continue to make progress. Fresh branded net sales grew over 10% from last year, driven by both established offerings and recent launches. Pilgrim's grew in double digits through increased investments in promotion and social media, whereas Favoritos grew over 4.5 times, and UNIQUE taste rose 59% compared to last year. Similarly, Just Bare is realizing strong traction as the lineup sold well during the quarter. Prepared Food grew by nearly 20% from last year's level, driven by success in QSR, foodservice and select retail lineups. The team also further cultivated its branded portfolio of value-added through the range of principally Italian meats, both retailers and consumers. Operational excellence efforts continue to drive improvement in production and fixing. To that, the team has implemented a series of projects to optimize the manufacturing footprint in fresh and enhance production efficiencies in prepared. We continue to invest in profitable growth throughout our business. In the U.S., our recently constructed protein conversion plant in South Georgia initiated its production, further diversifying our portfolio. We also invested in plant-specific upgrades in Case Ready to strengthen our relationship with key customers. Europe has also implemented a series of projects to improve labor efficiency, mix and yields over the past year, all of which are progressing as planned. And these efforts combined with our potential opportunities can accelerate our ability to scale our presence of differentiated offerings, especially with key customers. In Mexico, our progress to expand capacity is also on schedule. The hatcher and feed mill in the Merida region are slated for startup during the second quarter, whereas the boiler farms are scheduled for full completion in the second half of the year. Similarly, new pullet and breeder farms remain on track as production is already underway in several locations. Finally, we continue to drive sustainability in our business to enhance operating procedures, capital investments and improved team member training. When these efforts are combined with improvements in energy and infrastructure, our greenhouse gas emissions intensity declined by 15.6% from 2019 to 2022. Moving forward, we will continue to identify opportunities and implement projects to reduce our emission footprint.

Thank you, Fabio. Good morning, everyone. For the first quarter of 2024, net revenues were $4.36 billion versus $4.17 billion a year ago, with adjusted EBITDA of $371.9 million and a margin of 8.5% compared to $151.9 million and a 3.6% margin in Q1 last year. Adjusted EBITDA margins in Q1 were 9.4% in the U.S. compared to 1.8% a year ago. For our Europe business, adjusted EBITDA margins came in at 6.4% for Q1 compared to 5.3% last year. In Mexico, adjusted EBITDA margin in Q1 was 9.2% versus 8.5% a year ago. Moving to the overall U.S. results. Our adjusted EBITDA for Q1 came in at $242.9 million compared to $43.6 million a year ago. The recovery in the commodity chicken market, along with continued operational improvements, drove strong year-over-year profitability improvement in our Big Bird business. As mentioned in our previous earnings call, our Case Ready and Prepared Foods businesses have continued to increase distribution with key customers, driving both year-over-year and quarter-over-quarter profitability improvement. In Europe, coming off strong seasonal results in Q4, adjusted EBITDA in Q1 was $81.5 million versus $66.2 million in Q1 2023. As disclosed last year, included in the Q1 2023 results was approximately $10.6 million of insurance proceeds recognized in that period. The European business has shown resiliency in its profitability growth journey. The business has benefited from its continued structural reorganization, including back-office integration and its network optimization programs. We incurred approximately $14.6 million of restructuring charges during the quarter in support of its network optimization program. We anticipate that restructuring activities will continue through at least the end of the year. Mexico generated $47.5 million in adjusted EBITDA in Q1 compared to $42.1 million last year and $6.8 million in Q4. Sequentially, from Q4, the Mexican business profitability improved primarily due to more balanced supply-demand fundamentals and reductions in SG&A costs. Overall, our SG&A in the quarter was lower year-over-year, primarily due to a decrease in legal defense costs and other operational efficiencies achieved in all regions, partially offset by increased incentive compensation costs recorded this quarter. We spent $108 million in CapEx in the first quarter. During the quarter, we completed construction of our new protein conversion point in South Georgia. We will continue to prioritize our capital spending plans to ensure the safety of our team members, optimize our product mix and strengthen our partnerships with key customers. We reiterate our commitment to invest in strong ROCE projects that will drive operational efficiencies and tailor our operations to address key customer needs to further solidify competitive advantages for Pilgrim's. At this time, we are not changing our full-year CapEx spend estimate of between $475 million and $525 million. We have a strong balance sheet, and we'll continue to emphasize cash flows from operating activities, management of working capital and disciplined investment in high-return projects. Our liquidity position remains very strong. At the end of the quarter, we had over $1.95 billion in total cash and available credit. We have no short-term immediate cash requirements, with our bonds maturing between 2031 and 2034, and our U.S. credit facility not expiring until 2028. Our liquidity position provides us flexibility during times of volatility in U.S. commodity markets and allows us to explore further growth opportunities, including organic growth to meet our key customers' needs. As of the end of Q1, our net debt totaled approximately $2.4 billion with a leverage ratio of slightly less than 2 times our last 12-month adjusted EBITDA. Net interest expense for the quarter totaled $31 million. We anticipate our full-year net interest expense to be between $120 million and $130 million. Our effective tax rate for the quarter was 22.9%. As I noted in our February call, we anticipate our full-year effective tax rate to be between 23% and 25%. Our capital allocation approach will remain disciplined as we look to grow the company, and we'll continue to align our investment priorities with our overall strategies of portfolio diversification, focus on key customers, operational excellence and commitment to team member health and safety. Operator, this concludes our prepared remarks. Please open the call for questions.

And today's first question comes from Ben Theurer with Barclays.

Fabio, Matt, congrats on a very strong first quarter. So 2 questions. Number one, just on Europe, and you talked about some of the restructuring initiatives you've been doing, improving that, that roughly $50 million charge that you had in the first quarter. Just wanted to understand if you could elaborate in a little more detail what you expect from this going forward? How is that going to help you profitability down the road once you've completed this program by year-end? And in light of that, do you think the cost of it to be each quarter around about that $14 million, $15 million? Or is this coming down over the next couple of quarters? That would be like just conceptually the first question. So the cost and the benefits afterwards to this. And then I have a quick question on the U.S. as well.

Ben, thank you for the question. Yes, looking to Europe, when we acquired first, the Moy Park business and then the old Tulip business and then later on, the Kerry Foods business, what we looked at was there was a lot of overlap. And so there was some competition between the 3 companies, especially on the sliced, cooked meats. Based on that, we identified some opportunities in optimizing our network. What we are doing is concentrating some production in the most productive facilities. So we're shutting down some very small facilities that were not competitive and putting the production into bigger facilities. Also, because of the weakness of the Meals business, we consolidated some sites, especially in the region around London. With those network optimization, we expect to reach the leadership in terms of bottom line in the region. I think we are also integrating our back office and I think that implementation started probably in 2020 when we started integrating the 2 companies that we already had. But with the further acquisition of Kerry Foods, we integrated all those 3 entities into just 1. And that's creating a more, like I said on the prepared remarks, a more nimble and customer-focused structure.

Yes. And Ben, you talked about costs. We've incurred about $90 million of restructuring costs since the fourth quarter of '22. This quarter was $15 million, as I mentioned, $14.6 million, which is kind of strange, but it's the average between the 6 quarters has been about $15 million. We have a few more activities that we're looking to do as we go forward. Fabio went through a number of them that we've already either completed or initiated. So I think if we assume that $15 million is not a bad estimate to kind of look forward on a quarterly basis. But it's not perfect math, just because of some timing that you have to do in recognition of costs for accounting rules and just some of the projects that we've got to accomplish, maybe things could vary a bit from there.

I think it's important to mention that throughout all these integrating initiatives, we are not reducing production in the region. Actually, we are able to expand some of the larger sites, so we have more capacity now to grow.

Okay. Very clear. My second question is about the U.S. business. You mentioned that egg sets have reacted and producers are trying to increase output due to profitability. You've noted that the Big Bird is performing well, but hatchability remains a concern. Could you explain what an oversupply scenario might look like, especially if hatchability improves and more egg sets can be hatched? What risks are associated with this, and how significant do you believe the risk is of any additional capacity being built considering the current profitability trends and anticipated improvements?

Thank you once again. The profitability in the industry has been robust, particularly in the commodity segments recently. When examining egg sets, the primary factor is a more productive layer flock rather than an increased quantity of hatching layers producing more eggs. This increased productivity is attributed to a younger layer flock compared to last year and a slight breed change, as the new breed yields more eggs. However, this is balanced by lower hatchability, a concern we've been addressing for over a year now, starting in early 2022, as breeding companies respond to industry demands focused on quality. You may recall the muscle issues in 2017 and 2018 affecting the Big Birds, which prompted breeding companies to make genetic selections aimed at improving feed conversion and breeding production to meet U.S. industry requirements. While we have a highly productive breed, it brings certain challenges, particularly with hatchability. Managing the males in this breed is complex and necessitates constant intervention regarding their weights, a practice not commonly adopted in our industry. This is more prevalent in Europe and Brazil, where they manage males more diligently to enhance hatchability. In the U.S., we lack the facilities to separate males by weight and the labor to individually monitor their weights for optimal reproduction. Consequently, this contributes to our hatchability challenges, compounded by the inherent structural issues in this breed. Over the past two years, we have observed hatchability rates hovering around 78% to 79%. I believe that, over time, the industry will adapt to this breed and improve management practices, which will enhance hatchability, but this will not be a quick process. It could take considerable time for these improvements to materialize. Alternatively, if breeding companies introduce a new male that positively impacts hatchability, improvements could occur, but enhancing hatchability will require either a breed change or better management practices, both of which will also take time.

The next question comes from Peter Galbo with Bank of America.

Fabio, maybe you could just key in on your comments around QSR, in particular, in the U.S. Obviously, I think the commentary that's come out just in the past few days for a number of the QSR guys has been a bit weaker. I think you've said you noticed more steady performance. So maybe you could just kind of give us your latest thoughts there and if there is any disconnect or if chicken is outperforming the rest of QSR. Any additional detail would be very helpful.

Sure. Yes. Thank you, Peter. Yes, we've been seeing some data suggesting that the whole commercial foodservices are a little weaker based on food traffic. And I think that is being a benefit as I mentioned, on the deli, where you see customers trading down from commercial foodservice to the deli segment, which is a great value on the Retail, it's a great value for families. But when you look at the chicken specifically on the QSRs, what we saw in Q1 was an increase of 6%. So despite the lower food traffic, we're seeing that the QSR sales of chicken increased by 6%. The segment that we are seeing that is struggling is the foodservice restaurants. And we're seeing that trade down from the foodservice restaurants to the QSR. Nonetheless, in the foodservice restaurants, what we are seeing is a greater penetration of the chicken offerings because I think they provide the value and they are in good supply when you compare to other proteins, when you're seeing very high prices year-over-year, and you're seeing also a limited supply.

Got it. Okay. No, that's helpful. And Matt, obviously, I know you took the net interest number down, I think a touch. But like a lot of cash sitting on the balance sheet. Just kind of how you're thinking about deploying that over the rest of the year? Maybe you just let it earn 5% on your balance sheet, but curious kind of how you're thinking about that?

No, it's a great question. Our approach involves evaluating and assessing several potential organic growth capital expenditure projects to support our key customer strategy and their needs. We haven't increased our capital expenditure spending yet, and I want to make that clear. At this point, we are not altering our capital expenditure outlook for the year. However, we are conducting extensive analysis to ensure we achieve the right returns. We see numerous opportunities for growth with our key customers. Therefore, our cash utilization will be focused on organic growth with these key customers.

Peter, I'll just add that we are always seeking ways to enhance shareholder value. We have discussed options such as special dividends, share repurchases, and bond repurchases. We continuously evaluate these alternatives to determine what is best. Ultimately, our goal is to keep growing our company and maximize shareholder value.

Our next question comes from Ben Bienvenu with Stephens.

I thought I'd ask a little bit about the margin equation. In light of red meat price inflation and the prospect of that intensifying, particularly in beef as we move forward, do you think we've already seen the switching demand that occurred in that backdrop transpire? Or is there more switching demand to come? Kind of how linear is the relationship of incremental demand for chicken relative to pricing increases for beef, say?

Yes. Thank you, Ben. I think, yes, we've been seeing this trend since mid last year. I think if you look into the spread in the retail to the end user, or specialty ground beef, pork chops and boneless, skinless breast, it was really compressed by July 2022. We saw the retailers increasing the prices of chicken over 2022, and the prices really got to a level that were similar. Since then, I think with the reduction in the cost of producing chicken and more operational efficiencies, we were able to support our key customers with a lower-cost product. And with that, they've been testing that advantage to the end user through the reduction in prices. And today, we have a very wide spread between specialty ground beef and boneless breast. And that is sparking some demand for our product. How much sensible that is or the sensitivity to prices is a very difficult calculation. Of course, we are seeing more demand for our product, and we're seeing actually less promotional activity on the boneless, which is suggesting that the everyday purchase of chicken is happening more from the end user. Now if the spreads continue to widen, I think it can help a little bit more on the demand, especially on boneless breast. But the sensitivity is really difficult to calculate.

Okay. I appreciate your thoughts there. Shifting gears a little bit to Mexico, a really nice bounce back quarter as you expected. As we look through the rest of the year, to the degree that you have visibility, what are your expectations for performance in that business?

We are noticing volatility in Mexico from quarter to quarter, but we see a steady and healthy operational profit compared to last year. This year is similar to last year, with significant month-over-month fluctuations likely influenced by exchange rates and corn prices. Additionally, there's a considerable segment in Mexico focused on live birds, which adds to the month-to-month volatility because it's a straightforward operation with many smaller players that can easily enter or exit depending on grain prices, exchange rates, and profitability changes. From January to March, we initially saw weakness in that segment, but it improved steadily, ending strongly in March. Consumer demand for chicken is also increasing; while there was a slight dip in January, March saw a significant rise. This segment is particularly important as we produce and sell live birds to wholesalers for slaughter in smaller facilities, especially around Mexico City, where freshness is highly valued. We anticipate continued volatility but expect strong demand for our products. The Mexican economy is growing well, and since this is an election year, we often see increased demand. Therefore, we anticipate strong results for Mexico this year.

The next question comes from Andrew Strelzik with BMO Capital Markets.

This is Ben on for Andrew. So I guess I'll start with feed cost layout. Do you expect it to get better sequentially in the second quarter? And how are you thinking about the layout of your feed cost for the balance of the year?

Yes, thank you for the question. We anticipate that the feed performance or the cost of live feed will improve. Currently, we have reached a feed cost of $4.30 per bushel for corn, which we consider a favorable price point. The December pricing is still above our expectations due to current conditions related to yields, planting, and supply and demand, resulting in a higher December price. However, we see some potential for a decrease in feed pricing, which could lead to improvements in ingredient pricing. Overall, we believe our performance will enhance over the year. Earlier this year, we implemented action plans aimed at improving feed conversion across all our facilities, and we are already seeing significant results from these efforts. To provide some context, we have improved our performance by $20 million year-over-year in this quarter when compared to the same quarter last year, excluding ingredient prices, focusing solely on improvements in feed conversion, livability, and other indicators.

Great. And then I guess my last question here is about the E.U., U.K. business. Just like how are you continuing to think about the progression of the margin profile there? And if you could just walk us through some of the pieces that you're currently working on to improve that could get the business back to like a mid-single-digit plus margin profile over the next year or 2?

Of course. Yes, we have internal and external factors. Let's start with the internal and the internal are the ones that we already mentioned in terms of network optimization, making sure that we have the best manufacturing sites with scale. And we have all of our gap-ups, meaning closing the gaps and operating at a higher standard, as I mentioned. That is internal. I think we're also coming to a more mature shared services operation. I think we started implementing the shared services in Europe, just like we have in the U.S. and Mexico over the last 2 years. And I think we're coming into a more mature operation now, which is way more efficient than we have before. That's what we can do on the internal side. On the external side, we are seeing that, one, poultry has been growing faster than all other proteins because of its versatility and its affordability. And our pork business, especially on the fresh side, we saw a little bit of a lower demand during Q1. After a very strong Q4, we saw a little bit of a lower demand on Q1, but we are seeing that improving as we are seeing the improvement of the consumer confidence. As the consumer confidence increases in Europe, they tend to move to high-value proteins, and that helps with our pork business and also helps with our branded business. As I mentioned on the call, we are already seeing an increase in terms of our branded portfolio, especially the Richmond brand growing close to 7% year-over-year. Over the last 2 years, because of all the inflation, we saw some European consumers trading down to more private label. And now, with the consumer confidence, we are seeing them trading up again to more branded higher-value products. So it's a combination of both internal initiatives that we are doing in terms of efficiency, but also an improvement in the market, especially on the pork side, on the branded side.

The next question comes from Heather Jones with Heather Jones Research LLC.

Fabio, I want to revisit a point you made in your prepared comments regarding how hatchability might limit the industry's ability to meet the USDA's projected production increase this year. Could you provide some insight on where you anticipate the year to end up? Additionally, how are you considering this for the second half compared to the first half, especially in light of the disease challenges the industry has faced, along with the issues related to hatchability?

Yes. Based on the USDA numbers, they expect an increase during the third and fourth quarters. However, I believe that the hatchability issues will persist during this period. For hatchability to significantly improve, we would need a change in breeders, which is a structural shift that takes time, and we haven't heard of any new breeds being introduced. Alternatively, improvements could come from better management practices, but this also has cost implications. Managing hatchability is challenging because it requires focused attention, which can lead to increased operational costs. This might mean needing more housing to separate the males by weight and provide tailored feed or hiring more staff to oversee them, both of which add to costs. Therefore, while better hatchability is desirable, it comes at a higher expense, potentially raising egg costs. This creates a challenge for our industry in balancing the cost of eggs with hatchability rates.

And that's what makes you think the Q3, Q4 numbers USDA is putting out there could possibly be a challenge?

Exactly.

Okay. Moving over to Q2. As you noted, the commodity market strengthened considerably late in the quarter, and it has started to strengthen again over the past week. I'm curious about the strong retail demand for chicken that we've been tracking. Is it reasonable to expect that U.S. pricing for Q2 could be significantly higher than what you experienced in Q1?

Yes, Heather. In Q1, we started with low prices in January, which increased steadily until mid-February. Normally, we would see a seasonal reduction, but prices remained stable. Now, as I mentioned, we are experiencing rising prices. Each year, we anticipate that the grilling season will positively impact pricing. Additionally, we boost demand on the Retail side with our Big Bird, which has been applying upward pressure on commodity prices. Over the last three weeks, we've noticed this effect starting early. The foodservice segment, particularly QSR, continues to show strong demand, and we expect increased promotional activity there, which will also pressure the commodity segment. Interestingly, USDA numbers show a decline in chicken volume for Q1, while Big Bird volume increased, leading to strong pricing in the commodity segment despite higher production of Big Bird. This suggests a promising grilling season ahead, especially for boneless breasts. We see a year-over-year increase in wings as they return to the menus of several foodservice operators. The last quarters have remained robust, fueled by competitive chicken meat in international markets and decreasing frozen inventories. Tender products also remain strong in the marketplace, with notable growth in some tender concepts. However, there has been some weakness in white meat, particularly boneless breasts. Nevertheless, Retail strength has significantly influenced commodity pricing.

Our next question comes from Priya Ohri-Gupta with Barclays.

First, I was wondering if we could just touch on the CapEx again. So Matt, I know you said that you are leaving your outlook for CapEx unchanged at this point. There are additional projects that you're exploring, which suggest that there could be some upward pressure on that number. But as we look at where CapEx spend came in for the first quarter, it feels a little light. So I was just wondering if you could touch on sort of what prompted or what led to this lower CapEx spend earlier in the year? And sort of what that suggests for the pipeline?

Sure. I believe it's mainly a matter of timing regarding when cash is spent. We are concluding some projects, particularly in South Georgia, so we'll be seeing some bills in April and May as we finalize and use actual CapEx cash. Overall, I think our estimate of $475 million to $525 million remains accurate. However, as I mentioned and you reiterated, we are looking into opportunities that might increase that number slightly this year. Let's see how it plays out.

Okay. And then just on the working capital side, that was a pretty nice source of cash year-over-year. Is that the kind of trend that we should expect to persist for the remainder of the year, just as we think about sort of where free cash flow generation could be by the end of '24?

I think you saw that the trend is generally moving in that direction, but we must consider that in the first quarter, we experienced some reductions in our finished goods inventories. Additionally, we've seen a decrease in grain costs, which has begun to affect our live inventory costs. Currently, grain prices have been somewhat flat. So, while it is reasonable to expect a continuation of this trend, it's unlikely to proceed at the same pace we have observed, mainly due to the stabilization in live costs and the flatness in grain prices over the past month or so.

And at this time, we are showing no further questioners in the queue. And this does conclude our question-and-answer session. I would now like to turn the conference back over to Fabio Sandri for any closing remarks.

Well, thank you. Thank you, everyone, for attending the call. Over the past several years, our business has faced volatile market conditions, given changes in commodity cutout values, persistent inflation and changes in consumer behavior. Throughout these times, our teams have continually focused on execution of our strategies to minimize downside risk while being able to capture market upside as conditions evolve. Given our approach, we can simultaneously reinforce our competitive advantage, drive profitable growth and generate more resilient earnings. When these efforts are combined with our focus on values, along with our relentless commitment to safety and well-being, we can become the most trusted and respected company in our industry, creating opportunities for a better future for our team members. Thank you very much.

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