Pilgrims Pride Corp (PPC) 2014 Q3 法說會逐字稿

Event ID Good morning, and welcome to the third quarter 2014 Pilgrim's Pride earnings conference call and webcast. All participants will be in listen-only mode. (Operator Instructions). At the Company's request, this call is being recorded. Please note that the slides referenced during today's call are available for download from the Investor Relations section of the Company's website at www.pilgrims.com. After today's presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Rosemary Raysor, Investor Relations for Pilgrim's Pride.

Thank you for joining us today as we review the operating and financial results for the quarter ended September 28th, 2014. Yesterday afternoon we issued a press release providing an overview of our financial performance for the quarter and a reconciliation of any non-GAAP measures we may discuss. A copy of the release available in the Investor Relations section of our website, along with the slides we will reference during this call. These items have also been filed as an 8-K, and are available online at www.SEC.gov. Presenting to you today are Bill Lovette, President and Chief Executive Officer, Fabio Sandri, our Chief Financial Officer.

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 the actual results to differ materially from those projected in the forward-looking statements. Further information concerning these factors has been provided in today's press release, our 10-K, and many of our regular filings with the SEC. I would like to turn the call over to Bill Lovette.

Good morning everyone, and thank you for joining us today. We generated $2.3 billion in net revenue during the third quarter of 2014, resulting in EBITDA of $435 million, or 19.2% margins. Our net income of $256 million compared favorably to the same quarter of 2013, with a 59% year-over-year increase, earnings per share reached $0.99, compared to $0.62 in the same quarter of last year. We continue to recognize the benefits of our disciplined execution of our strategy. We remain focused on maintaining our status as a valued partner with key customers, prioritizing their product needs during periods of tight supplies.

Our business model is designed to ensure reliable supply of the quality products our customers expect while creating an environment rewarding that consistency. Our portfolio model yields a diversified sales mix ensuring we can adapt quickly to changes in market supply and mitigate market volatility. While high spot prices for parts such as boneless skinless breasts and wings benefit our large bird to bone business, some of our other businesses such as prepared foods benefit when those prices decline. We have given much critical thought in constructing our broad segment and product portfolio, to yield a more consistent earnings stream, as chicken supply and demand ebb and flow over long periods of time.

We have positioned ourselves to take advantage of high commodity prices and benefit in periods when those markets are not as high. Our total mix during Q3 appreciated upon only about half as much as what the spot market did, meaning we should expect similar impact on the market's downside. We believe we are uniquely positioned in the industry to achieve this degree of portfolio affect. In addition to significantly reducing cost in the supply chain, we continue to invest in our facilities, ensuring we have high quality assets required to meet our customers' growing needs. Some examples include adding installed leg and thigh debone lines in nearly half of our plants to capturer demand, as demographic shifts and consumer preference drive consumption of boneless leg and thigh meat. Going forward we continue to invest capital in our prepared food plants in order to increase throughput capacity, quality and yields, to meet growing demand for fully cooked chicken products.

We also have a plan to invest in four new feed mills over the next few years to take advantage of new technology and freight trading. Our new enterprise Alabama feed mill is first of this new generation, and will begin operation in early January of 2015. Onto return to our prepared foods business for a moment. Over the past two years we have right-sized this segment by pruning our mix, with the result being a more efficient, profitable and sustainable business. This year we have established benchmarks for creating a culture of brand building and growth for our prepared foods unit.

Our vision is to be our key customers first choice for value-added chicken and as such, identify unmet consumer needs to sustain profitable growth. We are confident that we now have a strong foundation in the prepared foods business, and look forward to realizing a greater financial contribution. By creating more value for our key customers combined with our relentless pursuit of operational excellence, we are now among the most profitable companies in our industry.

But even better, our team identified significant gaps between our current performance and our zero-based budget targets which create sustainable improvements year-on-year. Our job as a management team is to close those gaps, while identifying new ones at the same time. The third prong of our strategy is to grow value-added export sales. We are pleased with our progress here, and see more opportunity for even greater contribution in improving our whole bird return. We continue to diversify and upgrade our export mix.

Looking forward we have plans to market more boneless leg meat, thighs, whole legs, and other value-added products specifically tailored for consumer preferences in key export markets. We have the capacity to meet growing demand and are looking forward to gaining approval from the Mexican government to close the pending Mexican transaction. This acquisition will benefit our Mexican consumer base with expanded product offering at more consistent points. To address the Russian ban on US chicken imports, simply stated it has had little if any impact on industry sales volume and pricing, and even less on Pilgrim's due to our geographic and product diversification. This demonstrates that the US chicken industry is not dependent on Russian imports for chicken leg quarters, with the primary evidence being the close in leg quarter inventories have remained very low, in fact down 23% versus a year ago through the implementation of this ban. This is in contrast to similar bans over the past 20 years which had negatively impacted leg quarter pricing and inventories. That said, we remain confident that over time demand for US produced chicken from foreign countries will continue growing, as it represents one of the best-valued proteins on the planet. Our Mexican operations provided us with strong financial results, during what is traditionally a less robust period for the region. July brought a price recovery with the stability lasting through the end of the September. We see indications that hatching and table legs continue to flow from the US into Mexico at the rate of 4 million to 5 million dozen per month, as the Mexican industry has grown dependent in part on the US for its greater needs.

Going forward we anticipate that prices will moderate, but margins will retain support from lower feed costs. As far as the US pricing environment thus far in the fourth quarter, we are seeing usual seasonal patterns with wings getting stronger, given the inventory buildup necessary for wing season, and breast meat adapting to lower demand during the holidays. We continue to see positive signs for the fourth quarter and spot prices are higher compared to the same quarter last year seeing a good pricing environment for the start of 2015. Having just closed our October monthly results we are pleased that our strong financial performance continues, and we look forward to a strong 2015.

Looking at the pending acquisition in Mexico, we are progressing through the required evaluations from regulatory agencies. We don't anticipate final resolution until late this year or early 2015. In the meantime our energies are directed toward continuing to be strong operator with profitable growth. We are aware of the strong interest in whether industry production will be increasing next year, and want to touch on the fundamentals that underlie the breeder flock. First, while much has been made about the increase in pullet placements over the last two months, as well as chick placements increasing, it is important to consider the dynamics within. The breeder flock produces for big birds and small birds. While there is some indication that big birds may be increasing both on a head and weight basis, we are seeing signs that the small bird segment is tightening. It takes at least six months from a pullet placement to see boiler production increase. We don't feel the moderate increase we are seeing in the flock size now will be burdensome overall. We are comfortable with this dynamic as we believe ready to cook chicken production may increase up to 3% in 2015 over 2014. The key to Pilgrim's success is having created a portfolio that takes these trends into account and mitigates spot price volatility. We positioned ourselves to take advantage of high commodity prices, and benefit in periods when those markets are not as high. Our total mix appreciated only about half as much as the market did, meaning we should expect a similar impact on the market's downside. We believe this is a meaningful point of difference for Pilgrim's.

Looking into the discussion about crop production in the US, despite near term volatility we have seen across all markets we don't foresee a change in the fundamentals such as yield and acreage. From our view, a record corn and soybean crop this year creating global surpluses we anticipate lower feed costs would be conducive to continued cost decrease in our overall production costs. At this time, I would like our CFO, Fabio Sandri to address our financial results.

Thank you Bill. Good morning everyone. We generated net sales of $2.3 billion for the third quarter, with EBITDA of $435 million, or 19.2% of net sales. Our net income of $256 million resulted in earnings per share of $0.99, inclusive of $134 million in tax expenses this quarter. Our gross profit was strong for both the US and Mexican operation units, and showed the strength of our sales portfolio, and the contributions from our operations. Our SG&A expense has continued at 2% of net sales, despite the increase incentive accruals for the level of performance our team members have delivered this year.

The level of competitiveness of our SG&A focusing on adding value to our operations, show our commitment to operational excellence not only in the industrial standpoint, but also from our sales and front office team. The strength of our balance sheet is due to the focus on cash flow from operations at [inaudible], management of working capital, and disciplined investments in higher return projects. During the quarter we generated $341 million in free cash flow after taxes and capital investments, leading us to a cash position of $869 million, and a net cash position of $366 million after accounting for our 2018 notes. Our strong cash position leaves us ready to continue to seek the right investments opportunity.

It also provides us with the flexibility to increase our plans for capital projects in 2015. Similar to what we are doing in 2014, we will continue to focus on opportunities that increase our efficiency, and provide a rapid return on our investment. Currently, we are ahead of our initial CapEx forecast of $150 million, since we are investing in existing operations with projects that improve safety, quality, and efficiency. We have dedicated extra funds to a wastewater facility upgrade, a rail car expansion, and various refrigeration and freezer units. Each of these projects improves our ability to provide the best quality products to our customers, returning value to our business.

Our interest expense were reduced to close to $10 million in the quarter, and depending on market conditions, that could mean retiring or renegotiating outstanding bonds in the future. But we continue to monitor all profitability statistics to find tax efficient ways to improve our capital structure. Looking ahead, we have already started the budget planning for next year, and through the engagement of our teams and the relentless pursuit of excellence in every aspect, we are identifying the next round of opportunities to continue in line with the achievements we have captured over the last three years. Our ultimate goal is to create value for our shareholders, so we continue to evaluate all possibilities. This includes options such as dividends, as well as pursuing profitable growth through acquisitions in complementary geographies or segments, branded products or operations where our expertise and operational excellence can be leveraged. We continue to see some enticing opportunities in the market, and we will act when payback is consistent with our targets.

Operator, this concludes our prepared remarks. Please open the call for questions.

We will now begin the question and answer session. We request that you limit your questions to two, and then rejoin the queue for any follow-up. (Operator Instructions). The first question comes from Farha Aslam from Stephens Inc.

Good morning.

Good morning.

Congratulations on a great quarter. My question is on Mexico, could you share with us in the 10-Q you talked about the Marek's disease, what that is, how much that limited production, how much impact that is going to have going forward, as well as and a little bit more color on the pricing outlook for Mexico, because normally the fourth quarter is seasonally strong, but you highlighted that pricing might come down? Just some color around Mexico?

Thank you. I will start, Farha. So Marek's disease is a disease that is ubiquitous in the global chicken business. It is an autoimmune disease and spend over, as long as the industry has existed, it has been effectively mitigated by an in vitro vaccine. We own part of a grandparent operation in Mexico, and some vaccine was delivered to that operation in the past that was not effective, and therefore we had several breeders as well as the industry also gets parent stock from that operation in Mexico, and the industry has breeders that ended up having Marek's disease, and so we had a lot of mortality in our breeders in Mexico, as well as some of our competitors did as well. And so that is what that was referring to. We did get a payment from the vaccine company to help offset that financially, and I think we disclosed that in the 10-Q. We are continuing to see some effects of that situation, and that situation won't likely be resolved for another six months or so before that cycles through. We have not had any other issues with vaccines since that time, so it will be about a year-long problem when it is all said and done.

And then --

In terms of pricing, if you remember the last quarter, last year's quarter you are right, usually Q3 is slow in terms of pricing but unlike last year, this year we see strong pricing in Q3. At the end of Q3 we see some moderation of pricing in October but we are seeing the usual pairing of increasing prices in November and December happening again.

Back to the Marek's issue and setting that aside, due to the past disease issues in Mexico, we have seen a permanent structural shift in reliance on the Mexican industry, in part for its hatching egg needs coming from the US. That is not likely to change in the foreseeable future, or in the future at all, and so even though that we may see increase in breeder production in the US, that does not mean that all that hatching egg production stays in the US. Again we have noticed on a monthly basis between 4 million and 5 million dozen eggs per month, a combination of table eggs and hatching eggs are going from the US to Mexico. Again, we see that as a permanent structural shift.

As evidence of the permanent shift, we see some Mexican companies buying assets in the US to provide their operations in Mexico.

That's helpful. And then my second question relates to the US contracting season down here at the National Chicken Council, we are hearing a lot of confidence with chicken companies going into the contracting season, largely because of tight supplies of pork and beef. Could you just give us some color around how that contracting season is shaping up?

Well, we see it the same, Farha. We see an increase in tee command for chicken consumption next year. We have seen both food service and retail operators wanting more chicken across the whole spectrum of products we supply, both on the large bird for deboning segment, and especially on the small bird segment that goes either into the QSR fried chicken restaurant industry or the supermarket deli. Supplies remain very tight. We don't see that changing in 2015, even though as I said in the remarks, there could be up to a 3% increase, and we think that is back half loaded. We see demand staying very firm. We believe beef production in addition to being down about 5% this year over last, we think that due to heifer retention and other herd related issues, we think the beef supplies will go down again 2% in 2015 over 2014, and although there may be some increase in pork production, if you think about a strengthening consumer environment in the US, and strong demand for exports of pork, we believe that prices of both beef and pork in 2015 will continue to give chicken a favorable value proposition. We see the same thing, strong environment for pricing, great demand for chicken. now continuing into 2015, and we think that sets up for a great pricing environment coupled with what we see as declining feed costs going forward.

Alright. Thanks for the added color.

Next question comes from Adam Samuelson from Goldman Sachs.

Good morning everyone. Maybe more color on the quarterly performance on margins I think anyone would look at these and say they are pretty spectacular. Trying to get a sense sequentially, it looks like margins up about $0.06 a pound on a company basis, and trying to get a sense of kind of what the drivers there, presumably feed costs were down sequentially but help me understand the components of the mix benefits, and the reductions in other growing costs that could have benefited?

Yes, it is really not that complicated, Adam. As we said in the remarks, it is really due to the mix that we have created. We have put a lot of thought in how to construct a portfolio of products, both from a customer segment basis and a product portfolio basis, such that we benefit from both high commodity spot pricing, such as we have had during the summer and through the quarter, and even through October when we saw the spot prices decline, our financial performance remained extremely strong and that is because we are the largest player or producer in the small bird segment. We are the largest player or producer in the large bird deboning segment, we are one of the largest players in fresh case-ready chicken, and it is that portfolio effect that gives us that strong performance financially, as well as consistent, we believe more consistent than the average chicken company there.

So, again, it goes back to the strategy we formulated in 2011. Focusing on our key customers, making sure that our core competencies are aligned with their needs, and they reward us for consistent quality and consistent service, serving their needs. We are relentlessly focused on removing non-value-added costs out of our supply chain. I think that we have demonstrated that over the past three years. Looking forward we see similar value creation in 2015 over 2014. We have demonstrated so far this year, we are going to be on target with those cost reductions and yield improvements. And then we view the marketplace on a global basis, not just the US. We don't approach our export business as packing only bulk frozen leg quarters. That is not our deal. We take advantage of our affiliation with JBS, having presence globally in key consumer markets, and we tailor our export portfolio to meet consumer needs there, and we get rewarded economically for doing that. So it really goes back to just executing our strategy.

Okay. That is helpful. And then maybe thinking a little bit about 2015, and obviously the market color that you provided a little bit earlier is helpful. One thing on the Company-specific side on track to hit the $220 million of cost improvement over the 2010 baseline this year, any way at this point to help size what that incremental opportunity could be in 2015 versus 2014, and the main areas that you are going after there?

Yes, sure. So in the 2011, 2012 and 2013 we got more of that contribution from yield improvements than we did plant cost improvements. I will tell you that 2014 over 2013 we have seen much more come from processing cost improvements. We think that trend will continue into 2015, although yields will continue to do so. For the first time this past quarter we are better in all categories of yield, from either wad yield or boneless breast yield or leg yield than the average company. That is the first time that has happened. And that will continue to create a spread and yield improvements versus the average player in the industry. In 2015 we are still finalizing our zero-based budgeting process, but I'm confident enough to tell you that the gap that we will be targeting in 2015, will be at least as large as it was in 2014, and I'm confident our team is prepared to harvest that target.

That is very helpful. And so maybe just wrapping up from me, how would you synthesize that market outlook and the cost improvement that you are targeting, as you think about the normalized margin for the Company? Obviously a lot of variables on the feed cost side that you don't have a crystal ball to multiple years out. How should we think about the through cycle margin capability of the Company now, given the transformations this have taken place?

Well, with what I just said about how we operate our business, I think you really to have look at the fundamentals going forward. For example, although in 2014 we have seen about a 2% increase in breeder placements, we believe ready to cook pounds in 2015 over 2014 will increase no more than 3% for the whole year. We think it will be back end loaded, meaning we will see more of an increase in the fourth quarter of 2015 versus the front end. We think ready to cook chicken consumption domestically will be up 3%, for the reasons that I referred to with beef pricing and pork pricing, and strong export demand for all three proteins. We think exports for chicken will be up at least 2% in 2015 over 2014. And we see a significant number of hatching eggs that are produced in the US being exported to Mexico. Again, that is a structural shift that won't change over time.

One additional thing on the breeders, we continue to see a shift in breeder placements to high yield breeds, and that will continue to put pressure on egg production and hatchability. This is also we believe an industry structural shift, and primary breeders continue to have health-related supply chain issues, and we don't know how long it will take to completely resolve this. For all of those reasons directed at the fundamentals of the business, we are excited about the prospects of 2015 being another very good year for our Company.

Next question comes from Brett Huntley from BB&T.

Good morning, guys. This it actually Mark filling in for Brett.

Good morning.

Just wanted to congratulate you guys on the great quarter. My first question would be, I would like to get a little bit of just follow-up to the previous question. What are some of the puts and takes in 2015 earnings, in terms of I guess the opportunities with the assets in Mexico, and the likelihood of 2015 being better than 2014, given some of that potential for the organic growth?

Okay. I might have to have you repeat that question. But I think I get the essence. So, first on Mexico, with the acquisition of the assets there, what that is going to provide for us is two big favorable advantages that we haven't had before. Number one, it gives us geographic diversity. Our operations currently are in the central and south part of Mexico. These assets are located in northern Mexico, so that gives us geographic diversity. That is important both from a market entry standpoint and disease mitigation risk point of view. It also helps us diversify our portfolio. These assets come with the capacity to produce further process-branded products.

We are purchasing a brand with this business. There will be a brand which has proven to have great success early on in its lifetime, so that is the primary benefit. And we believe that we can apply our strategy of executional excellence in operations to create more margin with those assets, and we think the Mexican consumer will benefit ultimately from that. So we are excited about that acquisition, and we continue to see chicken consumption growing at a rapid in Mexico. On the US side as I mentioned in the prepared remarks, we have invested I think very wisely in our assets in the US this year. We will benefit more and more from those investments as we go on. Particularly in more dark meat deboning, so that helps us further diversify our mix, and not be as dependent on exporting frozen leg quarters, so that increases our whole bird returns, both domestically and from an export perspective. As I have said, we continue to invest in prepared foods. We see demand for further processed, particularly fully cooked chicken increasing, with relatively high beef and pork prices. We will be well-positioned to take advantage of that demand growth. And we will continue as I just said in improving our base business, and creating operational improvements going forward, just like we have the last three years.

That's very helpful, guys. Thank you. My second question is, I wanted to get your perspective on we is have seen a recent spike in soybean meal pricing. Is that expected to continue? And specifically talking about the spot pricing, would there be, if that continues would there be any need to import soybean meal from Latin America? Also, how are you guys hedged from a basis standpoint for soybean? Thank you.

Yes, so on the soybean meal complex, the supply has gotten very tight before harvest began. We are very confident that we are beyond now the supplies being extremely tight on soybean meal. There is going to be a huge harvest. There is going to be very large surpluses of soybeans and corn as we continue harvest, and so we think this volatility is short-lived, and as I said in the prepared remarks, we believe that our feed costs will continue to decline as we move through 2015. If you go back and think about what has happened the last 10 years, globally we have employed a huge amount of increase in acreage, both for soybeans and corn. Those acres will continue to be planted both in the US and South America and eastern Europe, and so we think we will enjoy this surplus of corn and soybeans foreseeable future. Don't think that is going to change. And that volatility I think will diminish as we get further through the harvest.

Next question comes from Bryan Hunt from Wells Fargo.

Thank you. I would like to, one, ask if you got Pilgrim's Pride chicken in the new iPhone 6, because the margins look that way?

We may have it, Bryan.

In all seriousness, to continue on maybe the feed discussion, we have read a lot of stories out of the Midwest about corn laying on the ground, there is just not enough storage in trucked corn being available, a dollar or two below the CME quoted rate. Have you all been able to take advantage of that at all? If so, would that be reflected in Q4 results?

Yes, we are very comfortable with our cash positions, and also our derivative activity. As I said we will continue to see feed costs decline, and in some of our segments we are already seeing live costs in the mid-30s. We haven't seen that in, golly, several years now. And so we are beginning to see total live costs get down in the mid-30s, and that will continue to improve as we move into the future.

And you touched on this, and just two more questions to obey the rules of the road. You touched on this in terms of efficiency improvements. Can you talk about where you stack up relative on Agristats, the most recent quarter and where do you think you can ultimately get to with this accelerated CapEx plan for 2014 as you move into 2015?

Consistently we are in the top third of the industry. Moving closer to being consistently in the top quartile. We think our position will continue to improve, and the primary driver there is that portfolio effect. I guess you could call our strategy also, have your cake and eat it, too. Because again, as I said, we take advantage of high spot prices markets, and we take advantage of markets where the price declines because of that portfolio. So it is really the best of both worlds, and we did that intentionally. We thought through that going back in 2011 when we arrived, we knew that there is going to be inherent volatility in commodity markets, and we asked ourselves how can we position our Company to take advantage of both, and if you look at companies in our industry, we believe we are unique in that respect.

And then my last question is, when I look at the balance sheet today, it is a bonanza of cash it has changed dramatically from where you were three years ago, when you start to evaluate what you are going to do with the balance sheet, whether it is making acquisitions, and you have alluded to doing that obviously with what happened earlier in the year, and what you have done with Tyson today, delever the balance sheet to very nominal levels, and/or return cash to shareholders. That seems like it is very low on the list. Can you talk about those opportunities, whether it is make acquisitions, return cash to shareholders, further delever, and/or it sounds like you may even ramp up CapEx. So those four opportunities, could you just talk to them quickly? I appreciate your time. Thanks.

Sure, Bryan. Like we mentioned, we need to improve our capital structure. Today we have more than $800 million in cash sitting on our balance sheet. That is not very optimal. We looked at the optimal capital structure would be something that reduces our cost of capital and does not compromise our flexibility, or increase our risk to file, we have been thinking that switch spot if you have a leverage between 2 and 3 times EBITDA. Said that, our priority is to create shareholder value. We are looking to all possibilities, including the dividends and acquisitions. We are seeing some opportunity on the M&A, and we are evaluating very different opportunities, where we can complement our portfolio of products and geography. We did not see a big change on the M&A environment. We are seeing opportunities, and like you said, we have the cash flow generation, and we will take our time and do the acquisitions if they are accretive to our shareholders, and it makes sense for our return targets.

Next question will be from Kenneth Zaslow from BMO Capital Markets.

July following up on that same line of thinking, let me just ask you, would you still be interested in a sizeable acquisition in prepared meats? And in that case, would you be willing to deal with like a reverse Morris trust?

The simple answer is yes, we are interested in the right acquisition at the right value in the processed meats segment. We are open to looking at any financial structure that ultimately adds value to shareholders.

Great. And my next question is, when you go through the rest of the year when you think about chicken, is there going to be a shift again towards chicken over beef and pork? And how do you see that playing out within the food service and retail sectors? Can you just talk about that?

Sure, Yes, we continue to see that. While our economy is improving, unemployment is now I think for the first time under 6% in a very long time. Consumers are still not as confident as they were before the financial crisis, and I think we have seen a structural shift in consumer behavior, that basically says they are going to be more value shoppers going forward than perhaps in the past, and with chicken being the best value in protein, I think that bodes well for chicken consumption, both in the US and in foreign countries. We continue to see the spread between retail beef price and retail chicken price widen. And we don't see that changing in the foreseeable future. From a pork standpoint, while we may realize more production next year, we think demand for pork will remain strong, both domestically and especially on an export basis. So it looks to be out in front of us a continued good environment for increasing chicken demand.

I would just add, if you are a food service operator and looking to the environment going into next year, and you are planning your promotions, you are going to lean towards chicken. We already alluded to the availability of beef and pork for next year, and we are seeing the a availability for chicken next year and the comparison in price. The best option for them is the chicken. On the reverse Morris, we don't see that as a good option, because one of the things we favor the most is to have a clear accountability and ownership structure, and in that structure we believe that there are some different incentives, so we don't think that is the best opportunity for us.

Okay. Great. And then just final question. The integration of the Tyson's Mexican operation. Can you talk about where you stand on that, and anything going the other way?

Sure. So we have met with the management team. We had a good understanding of what that business looked like, actually before we started the process to acquire it. We now are about 30 to 45 days into the approval process from the Mexican antitrust agency. We expect that we will know something late this calendar year or early in 2015. And we look forward to getting it closed, and getting on with improving that business.

(Operator Instructions). Next question from Akshay Jagdale from KeyBanc Capital markets.

This is [Lube] filling in for Akshay. First very quick question on in terms of your outlook on ready to cook chicken production in 2015 of around 3%, just curious how you were thinking about that in terms of number of heads versus increase in weight?

I think it will be pretty well balanced. We will continue to see live weights in the large bird for deboning sector increase over time. And there will be some increase in head as well. But I think it will be balanced across weight and head. But I think it will be unbalanced in terms of timing, so we see it more back end loaded than front end loaded for the year.

Just on the weight, we see that the only segment in the market where the weight can increase is in big bird deboning. In the small bird deboning, or with the fresh what we see is that the weight can't increase, so overall sometimes people talk about 1% increase in weight, and that is only in the big bird deboning segment, which is 30% to 40% of the market only.

Okay. Thank you. That's very helpful. And then my follow-up is it seems like Consensus expectations seem to suggest that supply growth is going to be pretty limited again in 2015. But just in chatting with various industry insiders, we are starting to hear I guess a little bit more chatter in terms of potential for industry participants at least wanting to expand at a much higher clip than is currently possible. I was just wondering if you can comment on what you are seeing, at least in terms of the industry desire to expand even if it is not currently possible given the supply constraints? Thank you.

I don't know really how to address chatter. What I do know is I think our industry has come to realize that the profitability in the chicken business is driven by supply and demand of chicken. In the past we talked a lot about cost of corn and soy, we have talked about the changing from small birds to big birds, but at the end of day, I think we have full realization that supply and demand for chicken is going to be the determining factor on pricing, and ultimately on profitability. I don't see that changing any time soon.

Next question from Pedro Leduc from JPMorgan.

Thank you for taking my questions. You mentioned earlier that you have taken measures to mitigate the volatility of market prices to Pilgrim's prices on the ups and downs, and so we expect lesser declines going ahead versus market. Can you elaborate a little bit what these actions were, and if it is more related to the process and capacity or end client or distribution? Thank you.

When we put in place our strategy over three years ago, we refocused our efforts in terms of both production and sales and marketing to customer segments. So we put a lot of focus on the fact that we are one of the largest operators in case ready chicken. We view that business as a business. Each plant in that business like all other areas of our business has its own P&L, and so we focus on that segment for those plants. In the small bird category, we take a similar approach looking at the QSR industry for fried chicken and the supermarket deli, and each of those plants has its own P&L, and its own sales and marketing plan. And then also we converted several plants to a large bird deboning segment. We acquired talent and brought them into the Company that knows that business and knows it well, and knows how to create a profitable mix there. It is really about the operational and customer segmentation that we did over the last 3.5 years that creates that portfolio effect. It is obviously working well, and we will continue to improve on that model.

Great. Thank you.

This concludes our question and answer session. I would now like to turn the conference back over to Bill Lovette for closing remarks.

Thank you. Over the course of this year we continue to see in our team members the determination to improve our business model, the discipline to execute our strategy, and the drive to be the best managed and most respected Company in our industry. We want to take this opportunity to thank all of them for their dedication, and thank you for joining us today.

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