Pilgrim's Pride Corporation (PPC) Q1 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to the First Quarter 2012 Pilgrim's Pride Earnings Conference Call and Webcast. [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 downloading from the Investor Relations section of the company's website at www.pilgrims.com. As for today's presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Rosemary Geelan, Investor Relations for Pilgrim's Pride.

Good morning, and thank you for joining us today to review our operating and financial results for the quarter ended March 25, 2012. This morning, 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 in the Investor Relations section of our website along with the slides we will reference during this call. These slides are also filed as an 8-K and are available online at sec.gov. Joining me today are Bill Lovette, President and Chief Executive Officer; and Fabio Sandri, Chief Financial Officer. Today's call will focus on the progress we've achieved towards our operational goals, especially the macro factors impacting our industry and the key drivers of our financial performance for the quarter. We will also share some of thoughts on our financial position and the recent changes on our capital structure. After we conclude our prepared remarks, we will be happy to take your questions. Before we begin, I would like to remind everyone that today's call will contain certain forward-looking statements. Our actual results might differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those forward-looking statements is outlined in today's press release, as well as in many of our regular filings with the SEC. I will now turn the call over to Bill Lovette to begin our prepared remarks.

Thank you, Rosemary and good morning. We appreciate everyone's attendance on the call today and are pleased to be able to report our results. Over the course of the past year, we've spoken of the changes we are implementing and the value we saw in those efforts. Our first quarter of 2012 delivered the results that demonstrate the positive velocity and momentum these changes are creating. Our EBITDA for the quarter was $101.5 million, an improvement of $155.9 million over quarter 1 of 2011 and the best results for the first calendar quarter we've had since 2005. During the quarter, we recognized net sales of $1.9 billion. This was just shy of our 2011 sales for the same quarter, which included $90 million of inventory reduction efforts. The sales dollars in 2012 were generated on lower volume and even with higher input costs, our gross margin for the quarter was a positive $110.1 million or 5.8% of our net revenue. Net income was $39.6 million compared to a loss of $119.9 million in 2011. Our diluted earnings per share were $0.18 for the quarter. Last year, we had a net loss of $0.54 per diluted share for the equivalent period. While we are certainly encouraged by these results, the real story is in not comparing to 2011, which was not a good year by any stretch of imagination, but in looking at where we are against our potential. We have shown we have the ability to execute against our strategy and how we build on that progress we'd made today. For each of the past few quarters, we've been talking about our strategy with the umbrella driving accountability and ownership deep within the organization. Changing in the culture is always the hardest thing to accomplish, but we have gained traction in this area and see strong collaboration within the company. In doing so, we continue to see new benefits supporting our underlying goals, including better business decisions at every level. In our aim to be a valued partner with our key customers, we're seeing more of a match within Pilgrim's to providing our customers with the products they want and the support they need. Our business units are working together to provide the best solution to each customer's request. We continue to develop our competency and category management by selling smarter and communicating internally to ensure that we have the right mix of products to help our customers merchandise chicken more effectively. The benefit of this approach is that it ultimately allows us achieve a better mix at better pricing. We continue to get questions on our pricing strategy. What I can say is that we continue to -- there continues to be some volatility in the market. We will at times -- we will have times, when chicken prices don't behave as they historically have. We will shift our mix when appropriate to channels which provide more sharing of commodity risk, which translates to better returns. We are persistent in our goal of operational excellence. While we strive to provide our customers with the products they want and need, our business model requires, we be rewarded for the value we add. We are focused on ensuring the most efficient use of our assets while meeting our customers' needs. We continue to apply ideas to reduce costs and improve the value we deliver. During 2011, we converted our operations to manual deboning, resulting in significant yield improvements. In doing so, we now see more opportunities for savings. During the quarter, we achieved $61.3 million of cost savings and yield improvements, putting us ahead of our goal of $200 million on an annualized basis. We are realizing efficiencies in throughputs, yields and eliminating unnecessary costs. Our supervisors are being measured and rewarded based on their performance against 5 key performance indicators. These are: Safety and health, quality, yield, cost and turnover. Given the contributions our supervisors made in these areas, we paid out almost $0.5 million during the quarter in bonuses. As our teams hit their targeted KPIs, they now share in the success of the company. Our next goal is to strategically grow value-added exports. If you recall, December of 2010, heading into quarter 1 of 2011, showed burdensome cold storage level resulting in an imbalance of chicken supply. One of the ways Pilgrim's contributed to reducing cold storage levels was through export sales. So we've had a higher than normal volume in 2011. In 2012, we focused on creating value in our exports. Our first quarter exports benefited from year-over-year price increases. While global markets may dictate export volume, we view our export business as a value-added proposition. We see anecdotal evidence of our competitors following suit as industry exports show revived strength. Recent exports are at record levels even with decreased production. Cold storage levels are down to 577 million pounds, which means a product is coming out of inventory and driving domestic appearance -- disappearance. Export volumes for the first 2 months of the year are at 17% with dollar increases of 21% over 2011. The combination of higher export volumes, lower production and lower inventory and cold storage levels is keeping the amount of chicken available for domestic consumption more consistent with domestic demand. USDA is currently forecasting that per capita supplies of broiler meat will decline 3.7%. We also believe that the potential for prepared foods globally is of key importance. There's a lot of opportunity for more technical sales with branding, sizing, packaging and other improvements. We are growing exports by reinforcing existing relationships and asking our international customers what they want and then providing it. The U.S. is competitive in the international marketplace, and as our exports are a pillar of our strategy, our ability to grow this business will drive our profitability beyond domestic margins. Keeping in mind, we are always impacted by macro factors impacting the industry, market forecasts indicate that chicken prices will increase as supplies continue to align with demand, both domestically and globally. Boneless, skinless chicken breast prices averaged $1.35 per pound, up 6% from 2011. We expect breast meat prices to rally as we head into the summer grilling season. Leg quarters averaged $0.50 per pound, up 32% from 2011 and continued trading at historically high prices aided by high demand, especially in emerging markets. Wings averaged $1.82 per pound, up 5% -- up 85% from last year. Wholesale wing prices have managed to retain value due to seasonal demand and the limited supply available. We anticipate that the price break -- and the price will break as demand gives ways to a more seasonal taste. The whole bird markets are also strong with Georgia Dock averaging $0.91 per pound, up $0.105 per pound over 2011. These price increases show pretty clearly that breast meat will not be the margin driver moving forward, but the whole bird equivalent is the goal. We believe that there, to be continued discipline in 2012 on the part of the industry participants, as we all recover from the challenges last year. Although most producers have been trying to profit since January, optimism is being tempered by the fact that balance sheets as a whole need to be rebuilt. There continues to be some inconsistency in the recovery of -- at the QSR level, but retail looks to be strengthening over -- but over -- uncertainty over the rate of price recovery is still something we have to be cognizant of. Egg set and incubators are averaging 5% below in 2011 and currently are in 199 million eggs. I would suggest you take that word with -- that with a word of caution though. Egg sets began to decline in May of 2011, and any comparison year-over-year will not show the same declines. We are comfortable that if egg sets remain around 200 million through June, supply and demand will be in adequate balance. The bigger flock size remains encouraging with the average hatching layers at historically low levels of 51 million birds in the quarter. This was down 8% for the same quarter in 2011 and is the smallest breed of flocks since 1995. Intended pullet placements indicate that projected slaughter numbers will remain constrained through the end of the year. Cold storage levels were down 16% over March of 2011, to their lowest absolute level since 2004 with inventories at again, 577 million pounds primarily due to sharply lower winter production volumes. There is more than adequate demand for this level of supply as it represents well under one week's amount of production. Futures prices for corn and soybean meal increased in late summer of 2011 with prices moderating as we went into the fall. We had an additional $36 million of feed input cost compared to 2011. Even though the first couple of months of the quarter, we were feeding expensive corn, we had improved feed conversion rates. Since January, corn has gone up slightly while soybean meal has gone up significantly, primarily due to crop losses in South America. More recently grain prices have taken a couple of dips. And the key is to bridge between the old crop and the new crop. As of April 22, 28% of the corn crop had been planted early compared to 15% on average, which is positive as the new crop will be available early, assuming that weather cooperates. At this time, I'd like to ask Fabio, our Chief Financial Officer, to provide some color on our financial position and results in the quarter. Fabio?

Thank you, Bill. Good morning, everyone. Our first quarter results reflect a sales of $1.9 billion, very close to our sales for the same quarter a year ago. These sales were actually even after taking into account the prior quarter's disposal of our U.S. distribution business and our live pork operations, which will have added approximately $30 million to the top line of the quarter and $85 million to the top line of the year. Our view of domestic chicken demand is that it's no longer just breast-meat driven. Demand for all parts is supported as well, with leg quarters inventories down significantly. Both domestic and export demand continue to support prices and drive profitability. Boneless, skinless breast is having less of an overall impact and is decreasing in value relative to the other parts of the bird. Since 2004, boneless, skinless breast as a percentage of the total bird revenue had decreased 17%. Leg quarters and wings have an increasing importance. We have EBITDA of $101.5 million, which was a result of the whole bird equivalent meat prices, aligning with our input costs, in addition to our operational improvement over the quarter. We also did not have any of the impacts of the inventory reduction that were included in the prior year. Many of the improvements we are seeing are the direct results of us having built our best budget ever. We created it from ground up and not only highlighted where we need to improve. We know better how to measure our success. I'd like to point out how pleased we are with the strong results from our Mexican operations as well. We have a very effective business model in Mexico and our results were even better than we expected for the first quarter. We expect a strong year for Mexico even though we believe there will continue to be volatility in those results. Our SG&A cost of $45.3 million is within the range we feel is optimal to managing our business and can be expected to remain stable. We have a restructuring charge of $2.9 million included in SG&A during the quarter, primarily related to the Dallas facility and impairments on assets held for sale. Even including the restructuring charges, our SG&A expenses were much lower than in 2011. Our depreciation and amortization was $35.8 million, reduced approximately $15 million over the same quarter in 2011 due to the fully depreciated Gold Kist assets, and it is at that rate that we expect continue for the year. CapEx for the quarter was $16.7 million and reflect those projects that we feel add to our quality, our safety, and our efficiency and productivity. We continue to evaluate projects that will provide a timely return on a case-by-case basis. Regarding our debt structure, we have net debt of $1.42 billion at the beginning of the year and $1.21 billion as of the quarter end. On top of our rights offering, which was achieved with the help of -- this number was achieved with the help of positive operating cash flows of $29.4 million. Our capital structure reflects the finalization of our recent rights offering. We raised $200 million in new equity through the issues of 44.4 million new shares during the quarter. We are very pleased with the results of this offering, which was structured to protect and benefit our shareholders while providing Pilgrim's with additional equity funding. We apply the proceeds of this offering to the existing debt, opening availability in our revolver line of credit. We had a very positive response to our offering, with greater than 94% participation rate, which we view as a strong signal of support from the market and then from our shareholders. Operator, this concludes our prepared remarks. Please open the call for questions.

[Operator Instructions] Our first question comes from Sarkis Sherbetchyan of B. Riley & Co.

So given I'm limited to 2 questions, it seems like, on the last quarter's earnings call, you mentioned that one of the plants was dedicated for the export markets. I believe 5 plants are currently idled. Now stepping back and looking at this from a strategic standpoint, would you dedicate some or all of those idled plants for your export markets in the future?

It's always a possibility, Sarkis. We don't have any plans currently for those idle plants and in that regard, but as we continue to grow our export business, that is always a possibility.

Okay, and also as we're aware to-date, no meaningful progress has been made to date with respect to resolving the anti-dumping complaints by Mexico against U.S. chicken. Now to my understanding, Pilgrim's is the second-largest producer and seller of chicken in Mexico. So can you share your thoughts on how this situation impacts Pilgrim's, maybe what scenarios has your team forecast?

Well, first of all, our Mexican business, we have a very effective business model. We are located in central Mexico and most of the imports from the U.S. into Mexico go into the northern part of Mexico. We don't believe that there's going to be a material effect on our business in Mexico. It could, depending on the decision and actions in the future, it could affect our U.S. business as it would help U.S. businesses. But we believe that in the end, there will be a solution that everyone will be happy with. The Mexican consumers are enjoying the value that U.S. chicken brings to the northern part of the country, and so that's what I have to say about that.

Understood. And if I can squeeze one more, and can you share some insight and -- on how management evaluates the company's capital structure, maybe if you can share with us how rapidly you'd anticipate on paying down debt given the new positive operating results? Do you have some target milestones or net debt figure in mind?

Well, we said in the past, our capital structure needs to be improved with reducing our debt, and obviously, the rights offering that we completed afforded us the ability to do just that. And with our capital expenditures target being under $100 million this year, that clearly indicates our focus on continuing to pay down our debt. I'm not going to disclose our targets, but our focus is on improving our capital structure as we move into the next 18 to 24 months. Fabio, if you have some additional comments, you may give them at this time.

Yes in looking on the optimal capital structure, you need to look at the cost of incremental debt that we may have and the tax shield we can get from that debt. So it is a factor of those 2 factors. And like Bill mentioned, I believe we will reach that optimal structuring in around 2 years.

Our next question comes from Bryan Hunt of Wells Fargo Securities.

This is Kevin, standing in for Brian. A couple of questions, how have bird weights been trending year-to-date, given the relatively warm weather we've experienced?

Well bird weights were unseasonably heavier in late January and into February. And that's one reason, I believe, that we saw a reduction in breast meat prices late January and to February. As processors killed ahead to manage that weight though, there's been more of a balance. And weights right now are pretty much equal to where they were last year, and I don't expect that, that will change going forward.

Okay, so should we forecast maybe an incremental improvement than in breast meat prices as the volume comes back more in line with seasonal trends?

We do expect, as summer gets here on a seasonal basis, breast meat prices will improve as they normally do. But I would remind you that, like I said in the prepared remarks, the profitability of our industry is less dependent now on breast meat prices going up. We see that instead of a huge seasonal spike in the summer. The industry doesn't have to rely on that as much as it did in the past for profitability, as other parts of the bird are carrying more of the revenue share.

Great. Okay, and regarding your outlook for corn and soy, and the early corn crop that helped, and you experienced $37 million of feed and feed cost inflation, this quarter, should we anticipate or for modeling purposes, forecast maybe a benefit in the back half of the year as you lap some of the inflation from the prior year?

Well certainly, we expect as the new crop comes on and given the early planting, given relatively good weather forecast, we believe corn will become cheaper, as we begin the new harvest. So directionally, I think you're right. I would like to take this opportunity to remind everyone what we've been saying for the past year. The industry can be profitable at varying grain levels given the right focus on the discipline that we're seeing now. So soybean meal, it's higher than I think anyone would have anticipated, primarily driven by the crop losses in South America. But we believe there will be adequate acres planted in soybeans this new crop year, as price will incent farmers to increase acreage on soybeans as well.

Our next question comes from Heather Jones of BB&T Capital Markets.

I have a couple of questions. I understand that the breast meat component is not as important as it once was but it's still a significant component of the bird. I'm just wondering if you could give us some commentary why you mentioned weights, but even more recently, why you believe breast prices have been so sluggish, and do you anticipate the normal seasonal price appreciation going into grilling season?

Well we do anticipate seasonal increases as I've said. I would remind you, if you look back as recently as 2004, the breast meat revenue share was about 53%. And it has now fallen in the first quarter to about 36% and that's been displaced by improvement in leg quarter values and wings primarily. So again, it's more about the whole bird equivalent. I agree with you that with breast meat representing 20% of the live bird, it's still a significant revenue share contributor. I think the relative weakness that you mentioned is most likely due to a weakness and stale growth, or the lack of growth at foodservice, which has been a large consumer of breast meat in the past.

Okay, and just -- so do you expect the normal -- I mean, setting aside 2011, which was weird, do you expect the normal seasonal appreciation this year in boneless, skinless?

We do. We expect a normal curve. I don't know a particular number that's necessarily normal but again, weather can have an effect on that too. As I would remind you, in 2010, when we got hot weather in the Southeast, it took about 0.5 pound per head off the large birds and that drove breast meat pricing up to $1.80, or so even then.

And then on production. If you look at USDA's monthly numbers, they're saying that year-to-date production's only down less than 3%, which is way out of line with what you would see with weekly, and also intuitively from egg sets and chick placements. I'm just wondering if you could give us some color on what you think is causing that disconnect and what do you think the real production numbers are out there, based upon what you're seeing?

Yes there's a relatively easy explanation for that, Heather, and it's how NASS collects that data, in terms of days and weeks, and there's actually, I believe, 2 or 3 extra days in January and February versus the same period a year ago. So if you look at it on a daily or weekly basis, that gets you to about 6% to 7% less ready-to-cook production. And that's the real number. That's the number that's important.

And you believe that if we keep egg sets at about 200 million that the industry even, with where soybean meal is, the industry should be able to generate pretty good profitability given the current demand environment?

Well again, I'll refered to -- I thought supply and demand would be in relative good balance, as we continue to set around 200 million eggs per week. And one reason that I pointed that out is that we began -- the industry began cutting production last summer, and so as we get closer to summer, the percentage difference year-over-year is going to converge, and so I just wanted to remind you that we need to start looking at the absolute number, as opposed to the percentage year-over-year.

Our next question comes from Akshay Jagdale of KeyBanc Capital Markets.

So I wanted you to help me with -- just rate your U.S. chicken segment performance relative to the industry. Your Q just came out, so I may have some of these numbers wrong, but I believe your revenue per pound was up 6%, industry was up, I think, 20%. I believe your margin, your gross margins are around 5%, which was a sequential improvement but less than the industry. So I mean, I know you've made a tremendous amount of -- you've had a tremendous amount of success changing the culture and I can certainly see the execution is a lot better, but what am I missing when I'm making that comparison and I still see a little bit of a lag in your U.S. chicken performance relative to the industry? What would I be missing there?

Well I think you have to take into account our mix and our business model versus perhaps some others, and I'm not sure. If you look at just a composite, maybe you can get to the 20%. I'm not sure that a company with a mix like ours would have realized that even in the first quarter. We're pleased with our progress. We're pleased with our progress, as it relates to our competitive set. I can tell you the slope of the curve continues to move up. Our rate of improvement continues to accelerate and we're on track from a competitive point of view with where we want to be. And again, on track is not total goal achievement, but on track is all about the velocity of the rate of improvement, and we're encouraged by what we've done and we'll continue to keep the hammer down in that regard. I said on the press release that there's no room for complacency here. We did have a solid quarter. But we're encouraged. We're not satisfied.

And that's helpful. And just along those lines, so you've talked about breast meat and obviously, the performance in the spot market on breast meat side hasn't been that great in terms of year-over-year change. But sequentially, so your EBIT margins are 2.8%, I believe as reported for March quarter. Sequentially, if they're going to see margin improvement, where is that going to come from. If you leave grain cost inside, you have to have revenue improve sequentially, right? And typically, that sequential improvement comes from better boneless, skinless breast pricing, which is why all of us analysts have focused on that particular metric. But can you help me understand like how is Pilgrim's performance going to improve sequentially, like what would be the drivers for the next 2 quarters to see your revenue continue to move up?

From a revenue standpoint, I would remind you that while price is important per part, the manner in which we engineer and sell our mix actually has a bigger impact than just price on a per-pound basis, per part. So how we cut the bird, the form in which we sell the bird, getting the right product and the right box is again, in many cases, more impactful than just price. We continue to focus on improving our mix and we continue to work with our sales staff, as it relates to price courage and making sure that we add value that our customers value in terms of meeting their needs and allowing us to get a better price.

Does that basically mean that you're planning -- your plan is such, such that sequentially, you hope that your revenue per pound will continue to move up?

We believe our revenue per pound on all the pounds collectively will go up, yes.

And what's -- can you share with us at least vaguely what your plan on production is for the remainder of the year?

Sure. Our plan on production is to make sure that we keep our supply in balance with profitable demand and that's no different than what we've been saying for the past year.

Does that mean it's going to be down 6%, 7% for the remainder of the year?

Well from an industry perspective, I think if you look at a couple of things, you can sort of get there, the breeder flock size is, as I indicated earlier, is the lowest since 1995. The breeder age that we have is such that there is not a significant more amount of eggs per 100 hens that we're going to realize, so from a hatching egg standpoint, I think the die is cast. The industry continues to show restraint in terms of weights and especially this summer, you wouldn't expect that weights are going to increase significantly on a per egg basis. So I think the die is cast for 2012, and we're comfortable that the industry is going to remain constrained.

[Operator Instructions] Our next question comes from Farha Aslam of Stephens.

When you think about your production and capacity, as well as your kind of normalized EBIT margins, where would you put that at Pilgrim's today?

Farha, as I said on the last call and I continue to reiterate, we're pleased with our progress. We're not going to be complacent. We still have improvements to make in both our business model, our mix, our cost structure, and we're confident that we had the right team in place with the right focus to improve our margins as we have opportunities. I would remind you, we've proven now that both the industry and Pilgrim's can be profitable at high and volatile input cost given that we all remain disciplined.

Okay, so your production capacity as it stands today, given you closed some facilities and have some open, what would you say your production capacity in terms of volume is today?

Well, it's comfortable and again, we don't have any plans to change it other than to make sure that we keep our supply and balance it with our demand on a profitable level. I think we've demonstrated now that, that plan has resulted in better performance.

And then historically, you said that you like corn at $5 and you think that soybean meal is a good price at $300 a ton. Were you able to buy and put any hedges in place to protect yourself from the recent run-off in soybean meal costs?

Well we don't discuss the details of our hedging strategy. But we're comfortable with where we are. We think we've got the right strategy in place, as it relates to risk management. And that's really all I can say about that.

Okay and then to all -- to put my final question, you have cost savings you said you've achieved last year a total run rate at $300 million. This year, you were targeting $200 million and you are ahead of plan in the first quarter. So where would you anticipate this year's cost savings run rate to be? And how much do you think we can take to the bottom line?

Well obviously, taking to the bottom line encompasses more than just cost savings as I said last year. Last year, our realization on our cost savings goal of $400 million at an annualized rate was actually $300 million. This year, it's our goal to achieve $200 million in actual cost savings through yield and plant cost reduction. I'll remind you that we said that we saved $61.3 million so that got us on a run rate of about $245 million ahead of our $200 million goal.

And so -- if we have to -- when you think about it, how much do you think falls into the bottom line or does it all fall into the bottom line.

Well again, I would remind you that there are other factors that affect the bottom line like pricing mix as an example, and it certainly helped this quarter. It helped even last year if you do the math. That's really all I can say about it.

Our next question comes from Reza Vahabzadeh of Barclays.

Just -- I know you filed a 10-Q, but I haven't gone through all of it. So for the U.S. business and the Mexico business, excluding your divested assets and so forth, can you give us the percent of change in volume and percent of change in price mix for the quarter?

Well we don't disclose that. Reza, I'm sorry.

We don't disclose price and volume, but our total sales were down 0.9% but because of the divestiture of some assets, that will add $30 million to the top sales. The sales will be flat, but I can tell you that is lower volume than compared to last year and higher-priced, but we don't disclose.

And the contributing factor again, there was the inventory liquidation of $90 million last year in the first quarter that we did not do this year. And to Fabio's point, we sold the distribution business and the pork business that we did have in our results in 2011 Q1.

Right, can you talk about your outlook for exports for the rest of this year, as well as trends in the foodservice and Retail channels. In part, because export volumes are generally up but seem to be at times, balancing around, and then as you mentioned foodservice channel it's also been maybe improving slightly, but still bouncing around.

Right. We're very bullish on exports this year and I think the first quarter was a great example of that with the volumes up 17% and dollars up 21%. We continue to see demand well-supported for leg quarters and other parts. We're beginning to see demand for breast meat at the export level and other cuts. And our prepared foods business, we plan to grow on an export basis. So USDA forecast 7.1 billion pounds this year, which I think will be supported to domestic pricing. And I think leg quarters, even on a seasonal basis, have some room to improve. So again, I'm continuing to be bullish about the opportunities at the export level. From a foodservice standpoint, it's been somewhat choppy. Some of the foodservice operators are having good solid year-over-year gains and we see that in our business, too. But as a whole, the growth is still somewhat anemic, and I believe that over time -- that's why, over time, breast meat share of revenue has declined.

Bill, just to add on the exports. I just want to say that despite increasing our volume, it's not only volume that we are targeting, we are targeting better products or what would add value to the right customers like Japan, Middle East, and other parts of the world. It's not only increasing volume, it's also increasing the value of what we are exporting.

That's right.

And what about the Retail side, are retailers able to pass through their higher pricing to consumers? Are they still maintaining reasonable margins? Any thoughts on that would be appreciated.

Well we're seeing more chicken featured in 2012 than 2011 so that's good news and I think that trend will continue. And in some cases, I think Retail prices have gone up, but they haven't gone up near as much as the wholesale prices had gone up, so there has been somewhat of a margin squeeze. But with beef and pork, on a relative basis, continuing to be expensive, I think that's good for chicken throughout this year.

Our next question comes from Ken Zaslow of Bank of Montréal.

Your mix between [indiscernible] and being a 1/3 of [indiscernible] of and the U.S. too [indiscernible]

Ken, I'm sorry, but your question was cut off by some interference and I didn't hear the question.

[Operator Instructions] Our next question comes from Carla Casella of JPMorgan.

I'm looking through your 10-Q, and I think that you used to all break out foodservice sales versus Retail and prepared food versus fresh, are you no longer going to do that? Or is that something that you may disclose on your website?

We stopped that at year end, Carla.

Okay, great. And then were there any hedging gains in the first quarter results?

No it actually was a small hedging loss.

Okay and then the other thing I think I'd seen before, you talked about what was the average price of corn for you in the quarter? Or is that something you also aren't going to break out?

We actually did disclose that in the Q. I don't have it in front of me but I will -- Rosemary is looking for it as we speak.

Okay and then one business question, just -- have you seen any pick-up this week in demand after we saw the mad cow scare in California?

We really haven't. I think that whole event demonstrates that we have good and sound testing procedures in the U.S. across all proteins and we've not seen an effect on demand either way.

Okay great. And then you talked a bit about the corn prices versus soybean meal, how quickly can you change your mix of feed between corn and soybean meal, and what's your ability to change that, what percentage of change can you make?

Well we have limited opportunity to change that although we can make slight changes on a lease cost formulation basis. When wheat is in adequate discount corn, we can feed wheat and we have and do. We can also feed more synthetic amino acids and soybean meal gets to certain price levels, and we look at that. But on a percentage basis, it's not a great amount.

Our next question comes from Mary Gilbert of Imperial Capital.

I wonder if you could talk about as we move through the summer, what kind of year-over-year declines, or would it be a decline or would we see flat egg sets and chicks placed? How should we look at that? As you pointed out, we're really seeing a level of somewhere around 6% to 7%, right? And then, as we get to the summer, we're going to be cycling against the declines. How should we look at that?

Well again, we've pointed everyone to looking at the absolute number and we believe that if we continue to see egg set number around 200 million on a weekly basis, then we believe that will be adequate for supply and demand to remain in balance, especially given where cold storage levels are at 577 million. That's significantly less than one week's production.

Okay great. And then also, I might have missed this earlier but where do exports -- what percent of revenues are we at today?

I believe it was about 10%.

Okay and where do we think that can get to?

Well, it's going to continue to grow. Now volume and price obviously have a vote in that, and it's our goal to strategically grow our value-added exports. So over time, we expect that to continue to grow.

Do you have like a target in mind or a level that over time, you can get to?

We haven't disclosed a specific target. We're going to let margin really drive that as we see opportunity to continue to drive margin, we'll grow that business.

This will be today's last question. Our next question comes from Ken Zaslow of Bank of Montréal.

Just in terms of -- in profitability, can you talk about the sustainability of that, it was very high margin, at over 10%?

Well again, a lot of things dictate margin in our business as you well know. The relationship between chicken market prices and the prices of inputs are the obviously 2 biggest drivers, and I think the key ingredient there is discipline on the part of all the industry to keep supply in balance with demand and profitable demand. And obviously, that was the issue in 2011 and it cost perhaps the worst year in the industry's history in terms of profitability or lack thereof. I think the industry has taking action obviously midyear last year and continues to be disciplined and restrained in terms of keeping those supplies in balance with demand. So that's the key, Ken.

So should we expect to see this 10% more? I thought there was some seasonality -- is there seasonality to it? Is there sequential improvement? How do we think about this margin in terms of the remainder of the year and say, more importantly 2013 and beyond?

Well a couple of notes about that. As we've said, this calendar quarter has traditionally been the weakest calendar quarter on a historical basis, but one of the changes that I would point you to, is that we're not as dependent on higher breast meat prices to drive profitability. So we...

No, I'm talking about Mexico. I'm talking about Mexico. I'm sorry. Mexico is -- all my questions is just revolving around Mexico because it was the key driver of the quarter. So I'm just curious on the sustainability of this quarter. How do we think about it sequentially throughout the year? And how do we think about it -- is it more imbalanced if something changed there, because we don't get as much information on the next new markets? I just -- a color on that, I'm sorry.

Okay, I misunderstood your question. Relative to Mexico first, let me point out, we have a very effective business model in Mexico. But at the same time, there's more volatility actually in pricing in Mexico as there is the U.S. One other difference about Mexico is that the market tends to make changes much more rapidly in terms of getting supply and demand back in balance than occurs here in the U.S. We believe, we're going to have a good solid year in Mexico. Our first quarter was a bit better than we expected based on higher than expected pricing. As the quarter came to a close, that pricing went down a bit but the industry responded by adjusting production levels and supplies, and it's beginning to come back again. So given the volatility of pricing there, it's sort of hard to think about the 12 to 18 months of profitability levels, but we're comfortable that we have the business model in Mexico to take advantage of the market dynamics there and we expect a good solid year.

Ladies and gentlemen, this concludes the question-and-answer session. I'd like to turn the conference back over to Bill Lovette for any final remarks.

Well thank you all for taking the time to join us today for our first quarter earnings call. We have come out of a challenging year delivering first quarter results that support our vision of becoming the best managed and most respected company in the industry. While we're pleased with our progress, we're not satisfied and still believe we can continue to deliver more value. I would like to personally extend my thanks to all of our employees, our growers and our shareholders for their continued support of Pilgrim's.

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