Good morning, and welcome to the Second Quarter of 2025 Pilgrim's Pride Earnings Conference Call and Webcast. Please note that the slides referenced during today's call are available for download from the Investors section of the company's website at www.pilgrims.com. I would now like to turn the conference call over to Andrew Rojeski, Head of Strategy, Investor Relations and Sustainability for Pilgrim's Pride. Please go ahead.

Good morning, and thank you for joining us today as we review our operating and financial results for the second quarter ended on June 29, 2025. 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 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 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 second quarter of 2025, we reported net revenues of $4.8 billion, a 4.3% increase over the same quarter last year. Our adjusted EBITDA was $687 million, up 4.7% versus Q2 of 2024. Our adjusted EBITDA margin was 14.4%, in line with last year. Our performance reflects our commitment to our values, disciplined execution of our strategies, and extensive application of our management metrics. In the U.S., our diversified Fresh portfolio across segments benefited from favorable commodity cutout values, continued affordability of chicken compared to other proteins, strong key customer demand, and sustained progress in operational excellence. Diversification efforts through Prepared accelerated as our branded offerings continue to drive growth across retail and foodservice. Our Europe business drove margin expansion through realization of cost efficiencies in manufacturing and optimization of product mix. Sales to key customers rose faster than channel averages and our branded offerings in Fridge Raiders and rollover continue to grow, further diversifying our portfolio. Mexico drove strong results given attractive fundamentals in the commodity market, extensive growth with key customers, and continued momentum of branded offerings in Fresh and Prepared. Given the strong demand, along with our vision of becoming the best and most respected, we are pleased to announce the initial wave of investments to further unlock our growth potential. We have also announced a special dividend of approximately $500 million. As a result, we can continue to create a better future for our team members, bolster our competitive advantages, and further unlock value for our shareholders. Turning to supply in the U.S. The USDA indicated ready-to-cook production for the U.S. chicken that grew 1.9% compared to the second quarter of 2024 from increased headcount and higher-than-average lightweights. Despite an increase in egg sets with a more productive layer flock, chick placements continue to be challenged as hatchability remained at historical low levels and hatch utilization continued at record rates. As such, production growth was driven by increased lightweights and improved livability during the later half of the quarter, expanding production by the 1.9%. Considering the most recent sets and placements data, the USDA estimates growth of 1.5% in 2025, suggesting sufficient supply to meet strong chicken demand experienced in recent quarters. As for overall protein availability, the USDA anticipates 1.3% for 2025 growth as increased chicken and pork production offset significant declines in beef production. As for demand, the cost of eating out continues to increase more rapidly than eating at home. As such, retail propelled further growth for chicken. In Fresh, both tenders and wings gained traction, whereas boneless skinless breast continued to grow given continued record spreads against ground beef. Momentum for boneless thighs continued as it grew faster than all cuts compared to the prior year. Similar to Fresh, both the deli and frozen departments also added demand at a sustainable rate. Frozen fully cooked led chicken growth across all of retail, primarily through increased velocity, whereas deli benefited from increased distribution and demand for wings. In foodservice, the increase in the cost of eating out impacted restaurant traffic, especially for full-service restaurants. However, chicken demand grew as operators strategically lean into value offerings, limited type production, promotions, and menu revisions to either trigger or maintain momentum. Value-added chicken-focused QSRs continue to leverage the affordability of chicken, outperforming the broader dining sector and capturing traffic and share. In exports, broiler volume continues to lag previous years. Nonetheless, pricing remained resilient as domestic demand for dark meat continues to be healthy. Given the relatively minimal outbreaks of high path avian influenza, many of our trading partners continue to ease or remove trading restrictions on several major poultry producing states, increasing the access. While opportunities arise from trade restriction from the outbreak of high path AI in Brazil, the overall impact was muted as export markets quickly adjusted to different policies and restrictions across countries. Our trading partners continue to navigate tariffs. To date, there have been no significant disruptions other than China. We anticipate potential benefits to U.S. chicken when a trade agreement is reached between these countries. Turning to feed. Corn pricing moved lower throughout the quarter as the U.S. saw a large rebound in planted acreage. As a result, the USDA forecasted a record high in U.S. corn production, along with the rebuild in domestic stocks. When combined with increased production from Brazil, the USDA expects global corn stocks to be relatively flat year-on-year. Soybean meal pricing also moved lower as record South American production drove a sharp rise in global soybean stocks. When combined with increased soybean processing capacity for biofuels worldwide, meal prices have become further depressed. In wheat, global stocks, including China, are expecting a slight rebuild this crop year as production was close to or above initial expectations in all major northern hemispheres. In the U.K. alone, output increased by 12% compared to the prior year. As a result, increased production is expected to offset slightly lower beginning stocks. Since ample supply exists and is more readily available at the point of origin, risks related to physical supply of wheat have been reduced. Throughout the remainder of the year, grain and oilseed markets will take direction based on U.S. weather and its impact on corn and soy crop yields, along with any possible disruptions related to ongoing trade negotiations. In the U.S., consumers continue to seek value in their eating occasions. As such, the relative affordability, availability, and flexibility of chicken compared to the other proteins continue to resonate across both retail and foodservice channels. Given the environment, Case Ready experienced strong demand as consumers increasingly migrated towards retail to stretch their budgets. This trend was amplified by record spreads between boneless, skinless breast and ground beef pricing. Nonetheless, our differentiated portfolio continued to gain traction as our sales to key customers grew significantly higher than industry averages. The performance of our branded Just Bare Fresh offering was particularly strong as net sales rose nearly 20% compared to the prior year. In Small Bird, overall margins remained strong as our business benefited from extensive demand from key customers in QSR. In Deli, wind velocity improved, but we experienced some reduction in the growth of rotisserie birds, impacting prices to a lower level than in 2024, but still close to the historical 5-year average. We are working on new innovation to help growth with our key customers in this category. In Big Bird, jumbo cutout values remained favorable despite volatility in the quarter. During the first two months, values were the second highest on record. After a rapid decline in June, values returned to normalized levels consistent with the 5-year averages. Nevertheless, our team remained focused on operational excellence as yields and labor efficiency both improved. Given our progress and constructive market conditions, profitability increased significantly compared to the prior year. Prepared continued to realize significant growth as net sales increased by 20% compared to last year. In Retail, Just Bare recently achieved over 10% market share given incremental distribution and category-leading velocity. Pilgrim's momentum also continues to build as trial and velocity increased throughout the quarter. Both brands continue to receive industry recognition for innovation and consumer preference. Just Bare achieved the number one ranking in Circana's 2024 Product Platform list, whereas Pilgrim's received the People Magazine's 2025 Food Award for Best Chicken Nugget for our Cheesy Jalapeno offering. Prepared Foods also continues to drive profitable growth through incremental distribution, portfolio expansion, and branded offerings in Pilgrim's and Gold Kist brands. As such, sales grew over 25% compared to last year. More importantly, substantial opportunities remain with leading distributors, selected QSRs, and schools. Commerce also continues to be a growth driver as digitally enabled sales rose over 26% compared to last year through continued expansion and efficiency of media investments with leading retailers, food service providers, and various online platforms. Turning to Europe. The environment improved as consumer sentiment grew as wages outpaced inflation. Within retail, overall demand remained steady across the proteins with poultry and chilled meals experiencing the highest growth, while lamb and pork were the most challenged. Given this environment, our team continued to drive profitable growth through our strategies. As such, we are strengthening key customer relationships through incremental distribution and new product development, generating sales growth that outpaced the overall grocery channel. Our diversification through key brands in retail also continues to progress. Rollover grew over 10% compared to last year from additional distribution and new offerings. Fridge Raiders also continued its marketplace momentum as net sales growth surpassed the category average. Innovation remains a key pillar to drive growth. During the quarter, our higher attribute differentiated chicken offerings developed for a key customer were recognized as the best new poultry product by Food Management Today. We continue to cultivate our new product pipeline. As such, we expanded our rollover portfolio into chicken, created additional eating occasions for Fridge Raiders through packaging, and worked in close collaboration with the key customers to create a series of premium new ethnic meal offerings. These items and several others are slated for launch in Q3 and will be supported by investment in media and promotion to foster growth. Foodservice remained challenging as total visits fell compared to the prior year. We additionally secured awards from our customers, increasing our sales in the channel by 10% versus last year. Moving forward, we will look to further cultivate our presence with food operators within the pub and bar category. Our integration of corporate support activities and optimization of our manufacturing network are nearing completion. Based on these efforts, we have improved production efficiencies and created a more agile key customer-focused organization. Given our enhanced foundation, we will look to accelerate opportunities to drive profitable growth. Mexico experienced another strong quarter as commodity fundamentals in the live and retail market remain attractive given seasonality, reduced availability of imports, and volume growth. In Fresh, key customer relationships strengthened as net sales increased double digits, driven by the foodservice rotisserie channel. Our retail Fresh branded portfolio also continues to drive diversification and sales have increased over 6% compared to last year, led by Just Bare, which is up 2.5 times. Our diversification efforts through value-added have seen similar success as Prepared continued to grow. In retail, the Pilgrim's brand increased double digits compared to last year. Growth in the foodservice was driven by QSRs, which were up nearly 10% versus the prior year. During our Investor Day in March, we highlighted a variety of products to reinforce our strategies and enhance our competitive advantage. As part of this, we announced an investment of $400 million last week to build a new fully cooked Prepared food plant in Walker County, Georgia. Given this investment, we can further capitalize on long-term growth trends for chicken in retail and foodservice. Prepared is a large category with an estimated size of $14 billion. An attractive growth profile also exists as net sales have grown annually by 6% since 2019. Furthermore, consumer interest appears to be accelerating as sales have risen by 7% between the first half of 2024 and 2025. During the same period, our net sales have grown 21%. Momentum for our retail brands has been remarkably strong. Over the past 5 years, household penetration has increased from 2.4% to 10%. Similar momentum exists in foodservice for our brands as Gold Kist volume has risen 15% annually since 2021. When our growth prospects are combined with strong consumer enthusiasm for our brands, we have a remarkable opportunity to accelerate the expansion of our Prepared Foods business. This investment will further diversify our portfolio, reduce reliance on outside suppliers, and leverage our Fresh production capabilities. As a result, we can drive growth, enhance margins, and reduce volatility across our entire U.S. business. In the meantime, we will expand fully cooked production in our existing prepared facilities in Moorefield and Waco. Given these investments, we will still expect to have sufficient capacity to meet our growing demand across retail and foodservice. Within retail, over one-third of Fresh chicken is sold as antibiotic-free or organic chicken. Given extensive consumer interest, our Case Ready business has become the leading provider of this higher attributed differentiated offering. To further strengthen our competitive advantage and reinforce our leadership position, we have announced the conversion of a Big Bird plant to support key customer growth to an NAE and veg-fed program in the Case Ready segment. We remain committed to diversification across bird sizes and our ability to capture market upside in the big bird commodity market. As such, we reviewed our manufacturing footprint and identified opportunities to enhance our mix and unlock additional capacity to meet our growth in demand in that segment. Based on this effort, we can maintain our current portfolio across all bird sizes, further increasing our upside potential while limiting downside risk. Equally important, we can generate higher, more consistent margins in the low to mid-double digits for our U.S. Fresh business. In Mexico, our capacity expansion efforts also continue. Our projects in Veracruz and Merida remain on schedule, and we still anticipate each will become operational in the first half of 2026. Similarly, our prepared expansion continued to proceed as planned, and initial production is slated for the beginning of 2026. Given this work, we can continue to drive sales growth and reduce volatility of results. When all these projects are at full capacity, we increase the size of our business in Mexico by 20%. We remain committed to the other key projects and potential strategic acquisitions as discussed during our Investor Day. As such, we will continue to evaluate various alternatives and provide updates when available. With that, I would like to ask our CFO, Matt Galvanoni, to discuss our financial results.

Thank you, Fabio. Good morning, everyone. For the second quarter of 2025, net revenues were $4.76 billion versus $4.56 billion a year ago, with adjusted EBITDA of $686.9 million and a margin of 14.4% compared to $656.9 million and a 14.4% margin as well in Q2 last year. Adjusted EBITDA margins in Q2 were 17.1% in the U.S. compared to 16.7% a year ago. For our Europe business, adjusted EBITDA margins came in at 8.2% for Q2 compared to 7.4% last year. In Mexico, adjusted EBITDA margin in Q2 was 16.3% versus 19.4% a year ago. U.S. net revenues were $2.82 billion versus $2.66 billion a year ago, a nearly 6% increase. Adjusted EBITDA in the U.S. for Q2 came in at $482.7 million compared to $444.6 million a year ago. Strength in the commodity chicken markets, along with moderate grain input costs and continued operational improvements drove strong year-over-year profitability improvement in our big bird business. Our Case Ready and Prepared Foods businesses have continued their momentum with increased distribution with key customers. Case Ready profitability improved year-over-year. However, even with increased sales volumes, higher commodity chicken input cost was a headwind to Prepared Foods profitability. Small Bird's performance in QSRs remained very strong, offsetting a more challenging pricing environment in deli walks. In our U.S. GAAP results, we did incur legal settlement expenses of $58 million in the quarter, primarily due to reaching settlements with certain parties associated with the ongoing boilers litigation. In Europe, adjusted EBITDA in Q2 was $111.8 million versus $96.2 million last year. The business has benefited from its continued structural reorganization, including the integration of support functions and manufacturing optimization programs, while cultivating key customer partnerships with continued innovative offerings. As we begin to wind down our reorganization efforts, restructuring charges trended lower to $3.5 million during the quarter. Mexico generated $92.3 million in adjusted EBITDA in Q2 compared to $115.1 million last year. The Mexican business continued to demonstrate strength with adjusted EBITDA margins greater than 16%, even though facing year-over-year FX headwinds of 13% and bird disease challenges during the quarter. SG&A costs in the quarter were lower year-over-year, primarily due to a decrease in the previously mentioned legal settlement costs. Also in the quarter, we incurred marketing investment costs and additional incentive compensation expense based on the progress of our year-to-date results. Our effective tax rate for the quarter was 25.1%. We continue to anticipate that the full-year effective tax rate will approximate 25%. We have a strong balance sheet, and we continue to emphasize cash flows from operating activities, management of working capital, and disciplined investment in high-return projects. During Q2, we reduced our gross leverage by $90 million through open market purchases of our own debt. Even with the payment of the $1.5 billion special dividend in April, our net debt totaled less than $2.3 billion with a leverage ratio of less than 1x our last 12 months adjusted EBITDA at the end of the quarter. Following the April dividend payment and debt repurchases during the period, we had over $1.9 billion in total cash and available credit at the end of the quarter. We have no short-term immediate cash requirements with our bonds maturing between 2031 and 2034 and our U.S. credit facility does not expire until 2028. With the strength of our liquidity position, the Pilgrim's Board yesterday declared a special dividend of $2.10 per share or approximately $500 million. The record date for the dividend will be August 20, 2025, with a payment date of September 3, 2025. When adjusting for this dividend, our net leverage ratio would be 1.15x adjusted EBITDA, still well below our target of between 2 to 3x. Net interest expense for the quarter totaled $31.5 million. With the announcement of the upcoming dividend, we anticipate our full-year net interest expense to be between $115 million and $125 million this year. As discussed at Investor Day in March and demonstrated by our announcement last week of our new U.S. Prepared Foods plant in Walker County, Georgia, we will continue to invest in growth. We are very excited to move forward in Georgia. And with this project, it will create over 630 jobs and will expand our branded Prepared Foods capacity beginning in the first half of 2027. Upon reaching full capacity at this new plant, we estimate that U.S. Prepared Foods business will increase its net sales by over 40% from its current levels. We spent $161 million of CapEx in the second quarter, an increase of $63 million from the first quarter. In the U.S., we made progress towards the conversion of our Russellville plant to support a retail key customer in the first quarter of 2026. Also in Mexico, our investments in Fresh and Prepared continue to progress and remain on schedule. Once these projects finalize and are at full utilization, we estimate the Mexican business will increase its net sales by approximately 20% from its current levels. These projects in Prepared Foods, Case Ready, and Mexico taken together require approximately $650 million of incremental growth capital. We will continue to ramp up capital spending throughout this year to support these various projects. However, we anticipate total CapEx spending in 2025 to be slightly less than our original estimate of $750 million, likely closer to $650 million to $700 million. These near-term growth projects align with our overall strategies of portfolio diversification, focus on key customers, operational excellence, and our commitment to team member health and safety. Operator, this concludes our prepared remarks. Please open the call for questions.

The first question comes from Ben Theurer from Barclays.

Congrats on another very strong quarter. So first one, actually just following up on some of your closing comments right now, Matt, in terms of the CapEx outlay and so on. So just wanted to clarify, the investment in Georgia that you've announced last week. So how should we think about the spend of the $400 million? You said it's going to ramp up somewhat in the second half and then probably going to go hiring in 2027. So the bulk of it, I guess, will be in 2026 CapEx. But just to understand a little bit the cadence of those $400 million and associated to this investment, is that using chicken that you already produce? Or does it include additional chicken slaughter capacity just on that one? And then I have a quick follow-up question.

Sure. Thanks, Ben. Regarding the $400 million we announced last week, this year is expected to be in the $50 million to $70 million range, and next year around $250 million to $300 million, with some remaining in 2027. The timing may vary a bit. Most of the spending will take place in 2026, as we expect operations to start in the first half of 2027. That's my general overview. Fabio, would you like to address the chicken aspect?

Yes. Ben, thank you for the question. As we mentioned, we want to improve our portfolio by increasing our presence in the Prepared Foods and branded arena. I think this plant is in time for us to support us in the growth of our Just Bare brand. The Just Bare brand is a differentiated brand. It is no antibiotics ever, minimally processed. And as we mentioned, it has experienced phenomenal growth. And since it has no antibiotics ever meat, and we are the largest producer of no antibiotics ever meat in the United States, it will be normal for us to support these prepared foods with our internal production. But of course, in all of our prepared foods, we operate as an independent business. We have independent P&Ls. We actually have independent P&Ls by client, but the prepared food business is operated as an independent business, and it can source meat from any supplier as long as it is in line with our superior quality standards.

Okay, I understand. In general, you've noted that some production metrics are improving, and we're observing an increase in supply. It appears that larger birds are gaining market share, which is contributing to the supply side. Considering the current supply and demand dynamics, and setting aside the beef shortage for now, are we approaching a point where supply might be exceeding demand? With recent changes leading to more chick placements and weight gains, could we risk an oversupply, or is the strong demand for chicken maintaining balance?

Yes. I think that's a great point, Ben. I think when you go and step back and look at the expectations for supply of chicken in Q3, I think we continue to see the same structure as we saw last year and this year. So we have a lower layer flock, but it's more productive because it's younger. So we're seeing more egg sets. We've been seeing this throughout 2024 and 2025. But we're still with the hatchability issue and 2025 has actually been lower than 2024. We always have an improvement because of seasonality and the weather pattern, and we have an improved hatchability, but so as we had last year, but we're still below the 2024 levels that were already record low. So because of that, even with an increase in the egg sets, the chick placement has not followed. But as you mentioned, we also have an improvement in livability in this period of the year, once again, because of the weather, which translated to close to a 1% increase in headcounts. I think because of the profitability of the segments, we are seeing an increase, especially in the big bird segment. And that increase in that segment accounted for 1% in increase in live weight. So that's why we saw close to a 2% increase in the overall availability of meat for the domestic market. If you look at the demand and you look at what's happening in both retail that is gaining market share because of the living increases in inflation and the concerns of the consumers about spending, retail was increasing by 2.4%. And in the foodservice, despite the reduction in traffic, we're seeing chicken gaining market share and increasing menu penetration to the accounts that we increased the sales of chicken in the foodservice by 2.7%. So when you look at that increase in demand and as you mentioned, all the challenges in pricing and availability of the other proteins, I think the expectation increase of USDA of close to 1.5% for the year is in line with the demand. And I think that's been what we've seen lately on the prices of boneless breast meat.

The next question comes from Andrew Strelzik from BMO Capital.

I wanted to ask another U.S. chicken supply chain question. We've seen pullets placed are down year-over-year 3 of the last 4 months, and that comes on the heels of what was an extended period of pretty consistent increases. So is there something changing there? Or what is driving the reversal? Maybe you can kind of talk through what the dynamics are at play there? And more broadly, can you give us an update on the industry production constraints and where the industry stands with those now versus maybe a year ago or so?

Thank you, Andrew. As I mentioned, the structure of the industry is evolving, particularly regarding pullet placements. The goal is to establish a more productive flock. The hatchability issue has had a significant impact. We have observed the highest level of hatcher utilization ever, and we may be at or beyond capacity. Hatcheries are operating more days than optimal, which means some maintenance is being reduced. If eggs fail to hatch or if the layers are less productive, it creates challenges, particularly with the bottleneck at the hatchery. Consequently, the industry is focused on enhancing the productivity of younger layer flocks to boost overall production capacity. Additionally, the industry is looking to increase production through live weights, which contributes to the growth in the big bird segment. This approach allows us to expand production without increasing the number of birds. Matching this with chicken demand, we see that the bone-in category is facing more growth challenges compared to the big bird category. Chicken's versatility in retail and foodservice remains significant, serving not just as the center of the plate but also as an ingredient. Big bird breast meat is especially suited for this purpose. We are also observing an increase in the deboning of dark meat. There has been a notable shift in consumer demographics and preferences in the U.S. market over recent years. We have transitioned from a predominantly white meat-focused market to one with significant growth in dark meat consumption. Currently, boneless thighs are priced similarly to boneless breasts at retail, indicating strong demand for boneless thighs and supporting the big bird category. Additionally, we can debone leg quarters, adding more value than merely exporting them.

Okay. That's super helpful. And then switching gears to Europe. I'm curious how you're thinking about the margin progression from here. You had been expecting a slower pace of year-over-year margin expansion, and we did see that this quarter. But sequentially, it was only up very slightly. And so I guess, what caused that slower pace of sequential margin improvement? And are you expecting to see that reaccelerate over the rest of the year sequentially to get to kind of a steady year-over-year improvement? I know I'm mixing sequential and year-over-year, but I'm trying to get a sense for how to think about the improvement in EU margins from here over the back half of the year.

Yes. We always have a little bit more seasonality in Europe. And typically, the second semester is better, with Q4 being much stronger than the first semester. What happened in Europe is that we saw consumer sentiment improve a little, but it's still at a lower level. We saw the growth at grocery really limited in this quarter. There was a significant increase in the cost of living in Europe because of the increase in the national security cost for companies. And that impacted a little bit both the consumer sentiment and the demand. But nonetheless, we saw chicken continue to be the fastest-growing category in there. We saw a little bit of reduced demand in the lamb and pork categories, which are more expensive than chicken. But going forward, we continue to see the improvement of our operations with the consolidation of our back office and our operational network. And we are continuing to see more innovation. I think that's the most important point for Europe. We will continue to innovate to help our key customers grow faster than category averages. But to your point, there is always seasonality in Europe, and Q2 typically is superior or better than the first semester with Q4 being the strongest of all.

The next question comes from Pooran Sharma from Stephens.

And congrats on the quarter. I appreciate the question here. Just wanted to first start out and sorry to belabor the point on eggs set here. But you mentioned earlier on that we're maxed out in egg sets. And just looking at the data, there was a pretty big jump from the start of 2024 to 2025. I think we went from like $240 million a week to about $250 million a week. So I just wanted to get a sense of how much more growth do you think we can see in egg sets without seeing any major investment in any sort of hatchery capacity?

Yes, you are absolutely correct. It will be very challenging for us to increase our egg sets or chick placements if we do not invest in hatchery capacity. The industry aims to develop a younger layer flock that is more productive and has better hatchability. If hatchability remains a bottleneck, we will struggle to meet the rising demand from production. In Q3, USDA forecasts indicate about a 1.9% increase, which together with our current data suggests we will remain balanced in supply and demand. However, the hatchability issue persists. Typically, we see some improvement in the summer, but overall, year-over-year, hatchability hasn’t improved much. We continue to face challenges with the new breed, and there’s no indication that a new breed will emerge soon. This current breed offers the best performance, feed conversion, and yields. Therefore, our industry has no plans to revert to older, less productive breeds for better hatchability. We will likely continue to face struggles in this area. We are learning to manage better, especially with the males, which are challenging due to their weight gain. Over time, I anticipate some improvements in hatchability, which will help our industry align with the strong demand we're experiencing.

Thank you for that insight. As a follow-up regarding the egg set and supply, it's generally during the fall to winter when the industry tends to implement seasonal production cuts. However, you mentioned earlier that the USDA's estimates are up by 1.5%, which indicates an adequate level of demand. Do you believe the industry will have to implement deeper production cuts compared to last year, or do you expect the cuts to be similar to what we experienced last year? I'd appreciate your thoughts on the seasonal production cuts.

Yes, I think it's typical for our industry to experience seasonal cuts in Q4. With Thanksgiving and Christmas approaching, we usually see a surge in demand for turkey, hams, and other meats. However, we anticipate a decline in chicken promotional activity, which will lead to lower demand as expected. This pattern of seasonality is consistent year-over-year. We will always align our production with the needs of our key customers. Based on our discussions about their promotional activities, we will continue to support their plans as we do annually. Additionally, in Q3 and Q4, we are facing increased challenges with beef and pork. We expect a significant reduction in beef production for Q4, and there have been operational issues in pork due to the PED virus affecting some facilities. There are ongoing discussions about weights and head counts in the pork industry. Overall, we expect Q4's total meat availability in the U.S. to be around 1%, one of the lowest figures we've encountered, which typically benefits chicken demand. However, as I noted earlier, it's common to see a dip in chicken demand during Q4.

The next question comes from Guilherme Palhares with Santander.

Just a quick one. You reported a 5% growth in COGS in the U.S. with a 1% growth in volumes, right? So if you could go through a bit of the main drivers here. And going forward, looking at all the discussions that we're having about visas and the situation of labor in the U.S., what could you expect going forward in terms of wage inflation on the sector, and if you're seeing some of that already or not?

Yes, we have been closely monitoring the labor market in the United States. Our strategy has been to align with all the policies implemented in the U.S. We noticed that some humanitarian visas were revoked, particularly for individuals from Nicaragua, Venezuela, Cuba, and Haiti. We have employees affected by this change, which has necessitated alterations within our team. To mitigate these possible labor market impacts, we decided to overstaff our plants during the second quarter. Despite achieving one of our best turnover rates, we consistently focus on maintaining competitiveness in the marketplace. We assess each plant and region individually to ensure our wages are competitive. We successfully staffed our plants, running at an average of 105% capacity in Q2 to prepare for the government actions. We manage staffing levels carefully at every plant using effective methods to achieve optimal staffing based on our operational needs. Looking ahead, labor inflation does not seem to be a major issue at this time, but we will continue to observe the economy's progress. We are also seeing some decrease in labor within the foodservice sector, which has been advantageous for us. As stated, we are competitive in the regions where our plants operate.

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

I wanted to ask about the Waco plant and your plans to supply it. It seems that most of your nearby slaughter plants are focused on small birds, but there are some larger facilities in Alabama. My question is whether you intend to convert some small bird capacity, especially considering the demand in that segment. Are you planning to make such conversions, or would you source it from farther plants? I would appreciate any insight you could provide on this.

Yes. I think we're always looking into the portfolio. Heather, what is the segment that is growing, what is the segment that is more challenging. As I mentioned, I think the bone-in category has been the one that has been challenged over the last period of time. We are the leader in that category. You have great key customers. We saw some of these key customers in the food service arena growing much faster than the category averages. So we're seeing great profitability in those plants. Nonetheless, we see that the market that is growing is more for us, the Case Ready and the big bird segments. And as always, we will adjust our portfolio to what we look at, not only the right now impact but also looking forward. I think when we look at where we are growing, we are growing in retail ahead of the category in the Fresh segment, more than five times what the industry grew; we actually improved way ahead of the category average once again, because of the differentiated offerings that we have. So it's not only the region, it is about the offerings that we have. We have the no antibiotic offerings. We have the veggie-fed offerings. We have the organic offerings. So it's more about where you are rather than just the region.

And I think, Heather, Fabio was mentioning before that relative to our Prepared Foods business, they really do look and source from multiple places. They'll source both internally from our own plants, but they also source quite a bit outside of Pilgrim's facilities, too. So it's really making sure that they have the best cost profile. And so sourcing of the plant in Waco County will come from a variety of different places.

Okay. But you mentioned that it's going to be NAE and that you all are the largest supplier and producer of NAE in the U.S.

Yes, that is correct.

Okay. And for years, you guys had said in the U.S., your target was 1/3, 1/3, 1/3. And clearly, there are some changes going on, pretty big changes. So I was wondering if you could maybe not definitively, but sort of qualitatively give us updated thoughts on what does that ideal mix look like now for you guys in the U.S.

Yes. I think like I mentioned, we're always looking at what you mentioned in terms of the portfolio, right? And when you look at the market, it is kind of 1/3, 1/3, 1/3 with the big bird growing faster than the other segments. On the small birds, as I mentioned, the challenges on the bone-in category, but we are also seeing the food service for small birds, especially on the QSRs, we talk about for many years. We saw some growth in that category. And that is another thing that we can do, increase a little bit the light weight on the small bird category to support the growth in the food service, both distribution and QSR on the small birds. So we still believe that being a balanced approach is the right approach. As we mentioned, we are growing faster in retail because of our differentiated offerings and because of our key customers growing faster than the categories, and we will need to convert one big bird plant to a Case Ready plant. But we are finding bottlenecks in all of our big bird plants so we can continue to have this balanced approach without losing our exposure to the commodity markets that we know are very strong right now.

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

Question for you on Mexico specifically in the quarter and then as we kind of bridge to the second half. Just want to understand how we should kind of think about the profitability there. It seems like at least in 2Q, FX obviously was a pretty material drag on the revenue side, but you also got a pretty sizable benefit on the cost side. So just now that the currency is going the other way, how we should think about the impact that could have on profitability amongst market dynamics in Mexico for 2H?

Sure. Thank you, Peter. Yes, as we mentioned, Mexico is a volatile market quarter-over-quarter. But year-over-year, when we look, it's pretty stable, and it's a double-digit market because it's a growing economy. And as the consumers get more available income, they improve their diets, and chicken is the most affordable way of increasing the protein diet. We saw some volatility in the live markets in Mexico during the quarter and I think not only on the demand side but on the supply side. We saw some increase in diseases during this quarter in the live market. And we have these small operators that will come and go as the live market is strong or weak, which we always mention amplifies the volatility in the live market in Mexico because the diseases impacted companies with a lower biosecurity. These small players were impacted and that created a small reduction in supply during this quarter, which increased prices in the live market. So the live market was actually the most profitable segment in Mexico during this quarter. Going forward, again, we continue to execute our strategy of growing in Mexico. As I mentioned, we are expanding our Merida production or extending our production to the Peninsula in Merida. We are expanding our production in Veracruz to support the live markets and the small bird markets. And we're also expanding our Prepared Foods operation in Mexico that is growing double digits to further diversify our portfolio and reduce a little bit the volatility of results in the region. When all those projects are at full speed, we expect our operations in Mexico to be 20% higher than what we have today.

And Peter, just to complement what Fabio said, just kind of relative to FX, you had mentioned, and I had mentioned in my prepared remarks, the 13% kind of headwind that we saw year-over-year in the quarter. When we look at Q3, of course, I cannot predict where the peso will go for the rest of the quarter, but kind of where it sits right now versus where the average was in Q3 of last year, it's basically on par. So we really, at this point, don't see a real big FX impact one way or the other at this very stage for Q3 of 2025.

Yes. And building on the FX, FX also impacted a lot of the grain in Mexico that is imported from the United States. So FX was actually a benefit. But on the other hand, there is a big export of meat from the United States to Mexico. 20% of the exports of U.S. are to Mexico. So it's an important market for especially like quarters, but also some boneless breast. I think with the FX will create the American meat to be a little more expensive in Mexico, which creates the opportunity for our Mexican operations.

Okay. And then maybe just to pivot, obviously, the special dividend now a second quarter in a row, which I think this one was maybe a bit more of a surprise than the last one. Just Fabio, like a change in capital allocation philosophy, like this is pretty abnormal, I guess, to do 2 in 1 year. It's going to be about $2 billion, at least at this point. So I just want to understand if there's been a change in how the Board views capital allocation, how the relationship with the parent company has changed as you contemplate kind of another round of special dividend.

Sure, Peter. No, I don't think that there's been any change. We're always looking to create shareholder value, right? And as we mentioned and as we discussed at our Investor Day, we have several avenues of growth in our business. So we're always looking for acquisitions, of course. We're looking to grow our Prepared Foods brands and to diversify the geographies where we're in. I think as we're seeing multiples and some of the acquisitions a little more difficult, especially in the United States, we engage in organic growth. And that's why we announced the new plant for Prepared Foods, again, to grow and diversify our portfolio, and we are growing in Mexico. And we are looking for opportunities in Europe as well. So I think that avenue of growth will continue. In the meantime, I think the business has been really strong. We're all discussing the results, right? And I think we've been increasing our cash, and that position is not efficient for us. Matt mentioned that we are below 1x levered, and we always have the target of being 2x to 3x. With the expectations that we have for the rest of the year and the strong cash flow generation that we had, we got to a position where our balance sheet is out of where we think is optimal. We decided to do this special dividend that we will continue to do the special dividends when we believe that our leverage ratio is getting to a place that is not the optimal capital for us. We also have share buybacks, potential share buybacks that we discussed. We have bond purchases that we discussed. I think we're always looking for all the alternatives to create shareholder value.

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

Actually, I would love to just follow up on that very last point that you made. With regards to bond repurchases, Matt, you were just commenting, and Fabio, you mentioned as well, how sort of underlevered you are versus the target. So could you walk us through sort of why you guys have been utilizing open market bond repurchases just given that there really isn't any sort of immediate need to reduce your debt balance?

Priya, it's Matt. We have been more opportunistic with bond repurchases. We noted in our 10-Q that the Board authorized us towards the end of the first quarter to continue repurchasing as we see fit. At that time, we noticed some market availability and decided to buy bonds when we believed the pricing was favorable. While the amount repurchased isn't substantial, we have the authorization to do more. However, moving forward, with the dividend in consideration, our strategy may shift compared to what we executed in Q2.

Okay. That's helpful. And then just on the interest expense guidance, is it fair to assume that the increase relative to what you talked about before is being driven by the lower cash balance? Or is there anything else going on?

Absolutely correct. It's the lower cash balance. Our gross interest expense is actually coming down a little bit because of the buybacks of the debt we discussed, but the cash balance will be lower, and the assumed interest income will also be lower due to the dividend that will be paid at the beginning of September.

Okay. And then just one final question on the Mexico CapEx piece, you talked about the $650 million in aggregate. Can you just remind us sort of how to think about the cadence of that year-by-year? Sort of when are we going to hit the $650 million in total and what we should be thinking about for that piece for this year and next year?

When considering the overall $650 million, it encompasses Mexico, Walker County, the new prepared plant, and the conversion of Russellville that we've previously discussed. For 2025, we anticipate spending around $200 million to $225 million, with projections for 2026 at approximately $350 million, and the remainder in 2027. It's important to note that both Mexico and Russellville will be completed as scheduled. Russellville is expected to finish in the first quarter of 2026, while most of the work in Mexico will be done in the first half of 2026. The Waco County plant is set to open in the first half of 2027, and some of that capital will naturally extend into that timeframe.

This concludes the question-and-answer session. I would like to turn the conference over to Fabio Sandri for any closing comments.

Yes. Thank you, everyone, for attending today's call. In the second quarter of 2025, we achieved strong operational and financial performance. As such, I would like to thank our team members for their continued discipline and ownership of our values, strategies, and methods. Given the solid foundation, we can continue to make investments to grow our company, strengthening our competitive advantages, enhancing margins, and reducing volatility of results. These efforts must continue with a relentless focus on team member safety and well-being. As a result, we can achieve our vision to be the best and most respected company in our industry, creating a better future for our team members. I look forward to accelerating our efforts during the second half of 2025 and beyond. Thank you, everyone.

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