Pilgrim's Pride Corporation (PPC) Q1 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to the First Quarter 2013 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 download from the Investor Relations section of the company's website at www.pilgrims.com. After today's presentation, there'll be an opportunity to ask questions. I would now like to turn the conference over to Rosemary Geelan, Investor Relations 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 quarter ended March 31, 2013. Yesterday afternoon, we issued a press release providing an overview of our financial performance for the quarter, including the 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 items have also been filed as 8-Ks and are available online at www.sec.gov. Presenting to you today are Bill Lovette, President and Chief Executive Officer; and 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 date of this release. Other additional factors, not anticipated by management and may cause the actual results to differ materially from those projected in these forward-looking statements. Additional information concerning these factors has been provided in today's press release and many of our regular filings with the SEC. I'll now turn the call over to Bill Lovette.

Thank you, and good morning. We're very pleased this morning to share our first quarter results for 2013 fiscal year. We generated sales of over $2 billion with EBITDA of $116.9 million or a 5.7% EBITDA margin. Our net income was $54.6 million, an improvement of 39% over 2012. To put that in perspective, the first quarter of 2012 was one of our best first quarters ever. And yet, even with a $141 million of higher fee ingredient costs, we once again improved our results. The execution of our strategy to become a value-creating partner to key customers is paying dividends in optimizing our mix, pricing impact and plant efficiencies. We have identified our key customers and brought to them innovation, category management, and breadth of product assortment. For Pilgrim's, this has delivered a more profitable sales mix, less price risk and volume growth in desirable channels. But this part of our overall strategy, we're seeing even more new business in the pipeline, which will be beneficial for our key customers and the company. Our relentless pursuit of operational excellence continues to move us forward financially. We are standardizing many of the manufacturing processes to ensure sustainable improvement in our yields, line efficiencies and plant operating cost. We are becoming more innovative in our processes and challenging our teams to create higher standards across the organization. For example, it only takes an improvement of 1/2 of 1% in boneless breast yield to realize the value in excess of $20 million on an annualized basis. The result of our efforts has been an improved -- improvement in workmanship and a developed training standard based on industry and company best practices. Key among our operational excellence imperatives is a continued focus on workers' safety. We are extremely proud of having among the best DART rates, a key indicator of plant safety in the industry. Our supervisor's first key performance indicator is directed to workers' safety and reinforced through safety leadership and an accountability program. We also employ the use of professional ergonomics experts to continuously improve productivity while reducing the abstinence of repetitive motion disorders. Another KPI related to our focus on operational excellence is workforce turnover. We've made improvements every year the past 3 years. And we are determined to be among the best when it comes to being the choice place for a career in our industry. The impact of these changes is contributing towards our target of $125 million of improvements this year. This isn't to say that our progress has been without its challenges. In January and February, specifically in Georgia and Alabama, our plant efficiencies were adversely impacted by live performance. In March, we saw significant improvements and don't expect this to be an issue going forward. We believe our efforts toward value-added exports have altered the dynamics of the export market. Because of our partnership with JBS, we have access to markets before the rest of the industry can get there. In the value-added arena, we have been increasing volumes of breaded products with emphasis in the Mexican market, where we saw growth in both volumes and the number of clients. We've made strides in finalizing agreements that will allow us to strengthen our retail presence in important markets in Latin America. And we've established promising partnerships and expect to be able to grow volumes quickly with a diversified line of products. We are working on innovative products tailoring our products to specific clients in various countries. We're developing customized products that will allow us broader access, end markets, such as the Middle East and Africa. We believe we have great potential in developing markets. And while much of our growth will come from these regions, we continue to strengthen our retail positions in other export markets. There's been a lot of media focus surrounding the H7N9 virus in China. At this point, we know of no evidence of human-to-human transmission. There's still a lot of unknowns, but the risk to U.S. chicken industry is low at this point. We are not currently seeing any contagion effect to global demand and remain confident that consumers are more informed than they were in past episodes. Our own sales to China consists of wing tips and pullets [ph]. So while we've seen a small decline in Chinese demand, we're talking about total sales of less than 3/10 of 1% of our revenue. The price risk is limited due to the product types, and there's been no impact to our operations. Demand for U.S. chicken continues to be strong elsewhere in the world. Our Mexican operations continue to deliver impressive results this quarter. We've been asked over the past year if Mexico's margins are sustainable. And I think we've shown they certainly are. We've developed a strong feed sourcing strategy, including an increase in locally produced grains. Mexican chicken prices have shown some strength over 2012 due to the reduction in chicken production. Overall, demand growth has outpaced supply. The imports, traditionally, have been supplemented to the northern part of the country. And throughout the challenges that we've encountered, our U.S. operations have stepped up to support the needs of our Mexican business, whether through hatching eggs or processed meat, the relationship between our U.S. and Mexican operations has served to mitigate the impact of the avian flu outbreak. While H7N3 virus has been under control as of the past few weeks, it has not yet been eradicated. While we are only -- had one farm affected back in February, we're working with the authorities to control the virus. And we recognize and appreciate their efforts and prompt response. We continue to maintain bio security measures as the top priority, including having fully vaccinated all of our grandparent and breeder stock in that region against the H7N3 virus. In the U.S., we are comfortable that through 2013, the chicken supply die is already cast. The breeder flock cannot be increased quickly enough to significantly alter production for the remainder of the year. The drought condition across the majority of the Midwest has improved significantly over a year ago, which should benefit yields this summer. The market is already priced in a risk of delayed planning due to a wet spring. With normal yields, we believe new crop stocks will return to more historical levels and feed costs should moderate, even if corn becomes significantly cheaper due to a much larger harvests than in the past 2 years. The price of chicken is going to be driven by the balance of supply and demand for chicken, and not necessarily the price of corn. In Pilgrim's, we continue to make the decision to whether to buy or grow the depending on how those dynamics play out. At this point, the industry has adapted by becoming profitable even with high grain cost. During May and June, egg sets should be comparable the last year's $200 million to $205 million level. And we're confident in U.S. profitability at these levels. Pullet replacements in March were $6.3 million, down over 6% from 2012, indicating U.S. producers are extending the age of the flock, rather than expanding through new pullets. The total breeding supply in March was reported at 52.4 million, up 1.8% from last year. Total storage levels, still below one week's production, a good sign that inventory levels are stable. We've been saying this for a while, and I'd like to reiterate that volatility is more of an issue than high grain prices. Our first quarter included the cost of impact of corn and soy that reached peaks of $8.46 per bushel and $5.18 per ton, respectively, in the fourth quarter. We expect that our feed cost will decline with the harvest of the new crop. And we will continue to source from the most cost-efficient source. We will continue to evaluate imports from South America for both corn and soybean meal. We will continue to import corn as long as it is economically feasible. As for chicken market pricing, wings have had some seasonal adjustment. But our focus on the whole bird enables us to continue to profitably produce and sell without focusing our energies on one part. Pricing for most of the bird, remains very strong with Georgia Dock at $1.03 in the quarter. Boneless, Skinless Breast have received a bump in pricing ahead of the normal grilling season as well, and all indications point towards a strong summer. Domestic demand for chicken in both retail and foodservice is showing signs of continued strength. We are optimistic that this could be one of the best pricing environments in recent years. At this time, I'd like to ask our CFO, Fabio Sandri, to share some thoughts on our financial results.

Thank you, Bill, and good morning, everyone. We are very pleased to report that both our U.S. and Mexican operations delivered solid results, achieving consolidated net sales of over $2 billion and EBITDA of $116.9 million, resulting in margins of 5.7%, compared to sales of $1.9 billion in EBITDA of $101.5 million for the first quarter of 2012. Our net income improved by 39% over the same quarter of the prior year to $54.6 million or $0.21 per share. Like Bill mentioned, for the second year in a row, we presented the best first quarter results in recent history, remembering that the first quarter is typically not a strong quarter. This year, demonstrating the strength of our strategy, we overcame increasing feed ingredient cost of $141 million, also due to a proven balance sheet strategy, reduced our interest expenses year-over-year by $3.4 million. We continue to optimize our SG&A. This quarter, we reduced our expense by 7% when compared to the same quarter last year. While we don't expect any significant reduction in this expense going further, we expect to continue to dilute our SG&A through better sales and a better mix. Mexico continues to operate at a higher level, despite the challenges posed by the slightly lower volume of production due to the health environment. We continue to support the operation in Mexico, with hatching eggs from our operation to help offset the breeder loss. In addition to the solid operation, the strengthening in the peso, when compared to the dollar, during the quarter, resulted in an additional $7.2 million exchange rate gain. The first quarter, we improved every month, and we had one of the best net income results for the month of April in our company's history. We expect that trend to continue. For the past year, our capital projects has been evenly split between maintenance and efficiency projects. As we free up more cash flow, we have plans to increase our spending on projects that generate a high rate of return. We believe these investments will continue to support our strategy and enable us to meet our overall goals while we still under our goal of $110 million in total CapEx. Continuing with our strategy to reduce leverage and supported by our strengthening liquidity of $667 million, we just made $141 million payment towards our high interest term B loans. With this transaction, we will lower our interest cost by about $6 million in 2013 while we continue to evaluate for the best time to renegotiate our debt. As our term loan matures in December 2014, we feel comfortable with the time we have to find the best long-term capital structure for our company. Our effective tax rate was 4.8% in this recent quarter, mainly due to taxes in our Mexican operation. In the U.S., we maintained approximately $600 million in federal tax and NOLs that will be a significant contributor to our strategy of optimizing our capital structure and reducing our leverage and interest cost. Operator, this concludes our prepared remarks. Please open the call for questions.

[Operator Instructions]. And our first question will come from Farha Aslam of Stephens.

My first question is on Mexico. Bill, could you just share it with us kind of the degree that AI is impacting your production in Mexico. And probably the length of time it will take for you to recover and the industry to recover Mexican production?

Well, as far as Pilgrim's Mexico, our volume has not been significantly impacted as we were able to supplement with hatching eggs from the U.S., the loss of the one farm that we had back in February. So while a slightly higher mortality rate has taken some volume out of our production, it's not been significant, and we've been able to weather the storm, if you will. With regard to the greater industry, we believe that a significant number of breeders were lost due to the virus by other companies, and it's going to take a minimum of 6 to 9 months to recover that breeder supply, and likely, even longer as we go forward.

Great. And then perhaps for a follow-up. The wing cold storage number has been incredibly high compared to historical levels. Could you just share with us what's happening in terms of the dynamics of the wing market? Why you think there's such a huge inventory, and that why pricing is currently so weak on wings?

Sure, good question. I think that if you go back and look at the last 2 years, wing prices have been extremely high as compared to history. And as we know, high prices tend to cure high prices. While we still see really good demand for wings, we do believe that some foodservice operators have moved to boneless breast products and substitutes for wings, bone-in wings because they were high. But -- and we had the seasonal effect of post-Super Bowl and post-Final 4 Tournament that we see every year. While the wing price has dipped below what we expected on an absolute basis, we believe that good demand will return late summer, and we'll have another good wing season next year. I would remind you that due to continued pressure on chicken supply numbers, in terms of head, that will help to control the number of wings on the market as well going into 2014.

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

Bill and Fabio, this is Kevin standing in for Brian. One quick housekeeping question for Fabio, and then I'll ask my other questions. Fabio, how much did you guys draw down under the revolver to fund the excess cash flow payment in Q2? What was your cash position after the payment?

On the revolver, we -- after the end of the quarter, we have $577 million of the total availability of $667 million. We used the $141 million from the revolver to pay down the term loan B1 and B2. So we have still availability of more than $450 million.

Got it. Following on Farha's question about wings. Breast meat prices have moved significantly higher lately, and you guys have issued a very upbeat outlook for demand as we enter the summer selling season. I would say what are some of the big risks that you see to pricing or inventories that could moderate your outlook?

Well, continued unemployment and tepid consumer spending is always a concern. But I think the one thing that's really helping us is the retail prices, and wholesale prices of competing meats. I think the market is discovering now for sure that chicken represents a great value to consumers. And we've seen both foodservice operators and retailers feature chicken much more this year than they have in the past couple of years.

Got it, and lastly for us, McDonald's is running a chicken wrap promotion. And I know they're going to run a wing promotion later in the year. Do you think that, that promotion could cause a competitive response for poultry product from other foodservice operators?

Well, like I said, we've already seen great responses in QSR and casual dining to featuring new chicken items and promoting existing chicken items on the menu. And again, I think that's in deference to high retail and wholesale prices of beef. And I don't think that's going to wane during the summer. As a matter of fact, I believe, as we move into grilling season, the demand will actually strengthen. We've not seen breast meat prices this strong this early in the year since probably 2004, and I think that -- again, we have a chance to have another 2004-type year in terms of pricing.

Our next question is from Heather Jones of BB&T Capital Markets. Heather L. Jones - BB&T Capital Markets, Research Division: A quick question on your buy versus produce model. Given the surge we've seen in breast meat pricing, wondering how much of a benefit we should anticipate you're going to receive from that? Like are you buying on the -- are you short breast meat right now?

No, we're in relatively good balance on all of the parts. I would say that we've shipped some parts and whole birds and hatching eggs to Mexico. And that's made our inventories tight, and that's made our supply chain relatively tight, but we're keeping that in proper balance. And at this point, not on the market, but as we see opportunities to grow our business and those opportunities exist to either buy or grow, those chickens will do what's best economically for Pilgrim's. Heather L. Jones - BB&T Capital Markets, Research Division: And going further and as far as your business model, sequentially, from your Q4 your U.S. operations obviously, improved pretty significantly, but it wasn't as much as improvement as I would have seen with respect to the feed, given like a spot profitability trends that track. And I guess, I'm wondering I know that you shifted some of your business away from fixed-price contracts to being closer to the market, but wondering, given the mix of your business in the U.S., is it one of these things that when the market's stable, et cetera, you're going to perform more in line with spot profitability trends? But when the market really takes off, does your -- should we anticipate your improvement sort of lagging? Not that there's not an improvement, but if there's a delta of say, $0.05 given more fixed-price contracts, will your delta be more say, $0.03? I wonder if you could help me think about that.

Well, I would remind you, Heather, our portfolio of business is very diversified, and that helps us in virtually any kind of market condition. When we do see prices rise rapidly, while we have components of our business that do take advantage of that, our whole portfolio perhaps does lag a pure large bird debone player, if you will. But on the backside, that also gives us great protection from down markets as well. So I would tell you -- remind you that we had some live performance issues in January that improved through February and into March. And again, I'll tell you, I think those issues are behind us. Our March was really strong; and April, as Fabio mentioned, was even stronger. So we're picking up momentum each and every month as we go forward into 2013.

Heather, I'll just add to what Bill just mentioned is that as in any portfolio, our objective is to reduce volatility, no returns. So that's why when we have seen a very strong market, we'll not go as high and to Bill's point when the market softens a little bit, we'll continue to perform. Heather L. Jones - BB&T Capital Markets, Research Division: Right. And we've seen lately, let's call it, the last couple of weeks, our profitability metrics would show that a pure-play big bird guys making anywhere from $0.09 to $0.10 a pound roughly. And that's up about $0.05 from 4 or 5 weeks ago. Can you give us a sense of -- could you put these live bird issues behind you? Can you give us a sense of what kind of sequential improvement you've seen over the past month on a per pound basis in your U.S. operations?

Well, it's been significant. And as I've just stated, it's picking up momentum each week and each month as we go into 2013. We've seen, to your point, very strong results in our large bird deboning business. And we continue to grow that sector of our business and have been very successful in doing so.

Our next question is from Christine McCracken of Cleveland Research.

I just wanted to make -- or ask a quick question on feed cost. You mentioned, obviously, that feed cost is still a headwind in the quarter. But that you're comfortable essentially through new crop and looking forward, obviously, to lower cost next year. Just curious in terms of your current availability, given some of the issues in getting the crop out of South America, are you comfortable? Do you have it in-house, essentially in inventory already, or are you still waiting on shipments if in fact you’re sourcing out of South America, between now and new crop.

Well, it's a combination of both, Christine. We've been receiving corn from Brazil for 3 or 4 months now. We do have some inventory in our feed mills today. We have some inventory on the water headed this way today. And as I've stated in the prepared remarks, we'll continue to source South American corn as long as it's economically feasible for us to do so.

And then remind me when do you think you'll lap the higher feed cost, given the current outlook?

Excuse me, could you repeat the question?

Yes. When do you think you'll have essentially lower feed costs year-on-year? I mean looking at when you started -- take the hit on feed cost, we should be getting close to kind of a year ago prices soon, no?

I think the closer we get to summer. And if you remember feed prices really went up, I would say, late summer last year. So as we approach summer to late summer of this year, we'll see that gap narrow.

And then just in terms of this pretty tough start to the spring and summer here, it's snowed in large parts of the Midwest. And I'm curious -- I hear a lot from retailers that they're not moving the beef because it's been a late start to the grilling season. As I think about chicken, do you think there's been any net benefit because of the lack of growing season? Or do you think, in fact, that it's maybe even depressed sales some -- as you just haven't seen that movement maybe into the grilling channel?

I've talked to several customers -- several retailers lately and they confirmed our belief that consumers are choosing chicken over beef this spring. So with regard to grilling season, I think the grilling season's been fine. I think there had been more chicken put on grills, perhaps, early as opposed to other proteins. And we continue to see great strength in chicken demand at retail. And I think you probably noticed too, a lot of the TV promotions for chicken features on both new products and existing products on QSR and casual dining menus.

All right. And then one final question. You mentioned some new business that's in the pipeline. Any color around that? I assume it's another shift in value towards -- for the process, but any color there?

Well, we continue to shift our business to channels that we believe we -- that are better for us economically, that give us more ability to stay closer to the market and realize price sooner. And we picked up a nice piece of business last fall. And we talked about that. And we got a similarly sized piece of business that we're confident, in perhaps, attaining this summer. So I think our strategy is identifying key customers and figuring out how to provide more value to those customers is definitely paying off. And we'll continue to do it.

Our next question is from Carla Casella, JPMorgan. Carla Casella - JP Morgan Chase & Co, Research Division: Hi. I saw the charts that you gave on corn. I'm just wondering if your outlook -- I mean I feel like there's more risks to the corn prices going up now with the snows we've seen across the Midwest. Have your heard anything there and have a view where on hedging for the year?

Well, I would tell you that we definitely seen market price in later planting already. But I would remind you that we have the technology in this country to rapidly plant our crop in a very, very short period of time. And I still believe there's more than adequate time to get the acres planted that we expected to get planted. The good news is the subsoil moisture that we lost last year has been replenished. And once we do get the crop into the ground, we're optimistic that we're going to have a really good corn crop this year. Carla Casella - JP Morgan Chase & Co, Research Division: Okay. So can you say how your hedging compares this year versus last?

Well, we don't disclose our strategy and the specifics thereof, of course, but in an inverse market, I think any user would be smart to stay close to the market. Carla Casella - JP Morgan Chase & Co, Research Division: Right, okay. Great.

Our next question is from Kenneth Zaslow of Bank of Montreal.

Just 2 questions. One is, what do you guys actually have done? Can you talk a little bit more about the Mexican operation? I know you actually alluded to the idea that you have improved at how you structure it. We hear a lot about the U.S., but it sounds like what you guys are doing in Mexico is actually pretty interesting as well. Can you talk about that, and kind of separately from the AI side?

We have a very commodity-oriented business model in Mexico. And the fact of the matter is, it's really nothing fancy. It's all about the basic blocking and tackling. And we've improved the fundamentals of our business down there over the past 3 to 4 years and continued to improve those fundamentals, both on the sell side and on the production side. We brought in some new talent in the last couple of years to our team. Charles von der Heyde moved from the U.S. as Head of Risk Management, beginning of this year. And Charles has done a wonderful job of continuing that improvement, and I'm very optimistic and bullish on the continued success of our Mexican business. And to the extent that we want to continue to grow that business because we believe the demand for chicken continues to grow in Mexico. And we want to grow our footprint in Mexico to benefit from that growth.

Another factor that may play a role in Mexico is that they're reducing their dependency on imported corn, so they're developing local corn and soybean for their needs. So in the past, they rely heavily on imports from U.S. that we see the prices are not competitive, too.

That's a good point, Fabio. I don't believe we've imported corn into Mexico since early last fall, late last summer. So we're essentially operating on all local ingredients, or at least, corn in Mexico.

Would you be able to give us a range of -- just like for the U.S. Any sort of ranges that we should be looking for, for the next couple of years, and kind of what the operating margin structure should be? Because it does seem like, to your point, it is more sustainable than corn than, quite honestly, we thought. And it's been staying there. And I think this quarter was actually at a record. So what do you kind of look for in the next -- and again, I'm not looking for next quarter. Just in general, how do you frame it for us?

Well, the results, obviously, are tied to market pricing, and market pricing in Mexico is very much tied to supply and demand for chicken. And it responds much more quickly, price sensitivity, that is, to supply in Mexico. And with supply having been constrained, actually, the last couple of years, one, due to the AI situation in the egg business last year; and two, the AI issue in the broiler business this year. The supply's been constrained, and prices have gone up rather dramatically. Again, that's not a short-term problem. It's going to take a while to replenish the supply of breeders, first, in Mexico, and then broilers. And then we don't see any reason, at this point, that fundamental demand growth will do anything but continue in Mexico. The economy continues to improve, the peso continues to strengthen. And Mexico is a great place to be right now, and I don't think that's going to change in the foreseeable future.

Our next question is from Hale Holden of Barclays.

Fabio, I had a question on why wouldn't you refinance the term loan sooner? Can you pay 9% on that term loan B? It's very high versus the market. And the second question I had was if you could just sort of reconfirm the longer term $600 million to $800 million debt target that you provided last quarter. That will be helpful.

Sure, thank you. Yes, we -- on the $600 million to $800 million, that's the goal that we have for now. And we want to reduce our leverage and reduce the interest payments. On the, why I don't refinance sooner, I think the [indiscernible] from the market that are at all-time lows, and we're looking for the best opportunity for us. I'll just remind you that we have a make-whole penalty in that term loan. So even if I refinance now, I'll pay the whole curve. So the make-whole today is around $25 million. So what we're seeking for is the best timing for to make that payment and looking to news in the market. So we do the [indiscernible] calculation almost every month to see what's the best timing for that.

Our next question is from Akshay Jagdale of KeyBanc.

So first of all, looking at your results, I'm very impressed by the revenue performance, really outstanding. But I wanted to ask you about how you think of revenue in the context of volumes? And my belief is that somehow, the industry's shown a lot of discipline on the volume side. And it looks like your volumes are down 1% in the U.S. Do you think there's a relationship there? Obviously, the reason I'm asking that is because you're the largest chicken processor in the U.S. and with margins, or the outlook for margins looking pretty good, the key question is how quickly will the industry ramp up? So can you help me understand how you think about revenue in relationship to your volumes?

Well, obviously, revenue is going to be a function of price in part, and in this case, a big part. And obviously, price is going to strengthen as supply continues to be disciplined and constrained. I think that the first indication to look at is replacement pullet placements. And again, if you go back even as far back as December of last year and move forward, you can see that we're not placing pullets to grow the industry in terms of [indiscernible]. And then if you look at our breeder supply block and look at it relative to history, that's obviously been constrained. And it takes 6 to 9 months before the first incremental breeder put on the ground can become productive. So it being May, that's why I've said the die is cast already for 2013 and even into early 2014 as March pullet placements were down 6%. So I think the industry is doing an admirable job in being disciplined on the supply side. And I think we've got a combination where we've combined that discipline with strong demand for product. And that's why you've seen the pricing environment that we're now enjoying. I don't think that's going to relent much this year. We'll certainly get seasonal dips and seasonal increases as we always do. But we're starting from a very, very strong base. As I said earlier, we haven't seen the type of strength in pricing and demand, probably in the last 9 to 10 years.

That's helpful, and just going to demand, perfect segue. You talked about Boneless, Skinless and where it is. I believe in '04, you had a major innovation on the foodservice side that drove the price above $2. And you're starting to see some innovation from McDonald's again, but I mean we've heard over the last 3 years that there's more feature activities. So when you say feature activities driving the price, it doesn't make a lot of sense to me because we've been saying that now for 3 years. So can you just maybe delve into that a little bit deeper? I mean, we -- do you agree that for the last few years, the view was, always was your view and everyone else in the chicken industry that chicken would see more features, and they were. But yet, the price wasn't going up. So I don't quite think that, that's the reason, but what could I be missing there?

Well, with respect to retail feature activity, I'm not giving you my opinion. I'm merely restating what the data shows. USDA publishes every week retail feature activity at supermarkets, and the numbers are what they are. And they're higher than last year. And we see in our own business, our retail demand is very strong, very brisk and continues to grow. So that's the source of my commentary there. In addition to that, I think you've seen many more TV promotions from foodservice on chicken this year as compared to the last 2 or 3. That's more qualitative, but I mean we see that in our business as well. So those 2 things really are the source of my comments.

Sure, okay. And then a last question on supply. So do you have the view on -- I mean, basically, what you're saying is we see the full replacement numbers and flock numbers, et cetera. Is it your view that next year, it's going to be hard for the industry to, even if they wanted to increase supply meaningfully? Is that the way to think about it? And what do you think the maximum amount of supply could be up next year, if current trends continue?

Well, it's hard to have a complete view of 2014 at this point, but I think we can have a view of probably, the first 3 to 6 months, because here it is May, we've seen what pullet placements are already in March. And it's actually declining as opposed to staying the same or growing. The data is what I go back to in terms of my comments about supply. If you look at average weight per head, it's also staying relatively flat, slightly up, but relatively flat to last year. So I believe the industry has learned over the past 3 to 5 years that chickens -- chicken economics is going to be driven by the supply and demand of chicken and not necessarily what corn of soybean meal cost. I think I'm confident to say we figured that out, and we're doing a good job about balancing supply and demand. The other factor that I would remind you of, export demand is extremely strong for U.S. chicken the past 2 years, and I don't think that's going to wane either. As a matter of fact, I think we can make a great argument that export demand for U.S. chicken is going to continue to strengthen. And we've exported about 20% of our production last year. And I don't think that's going to change this year either. So chicken availability in the U.S. continues to decline.

Just a follow-up on that. I mean do you -- I don't want to put words into your mouth, but are you basically saying that chicken supply in the U.S, through the first 6 months of 2014, like couldn't be up more than 4% or 5%? I mean I'm just trying to get a sense because it's -- the year is setting up to be very good, 2013 and '14. If corn prices come down, cost per pound could be down significantly for the industry. And if supply is constrained, which is what I think you're pointing to, it looks like margins are going to continue to expand and stay there for a period of time. So can you help us just -- it sounds year-over-year change in supply for the first half of '14? I mean what's possible with today's breeder flock?

Well, I only know what we've seen happen in the past. Now certainly, this summer, if the industry chooses to grow the breeder supply significantly, that's definitely going to impact 2014. What I'm saying is, so far, we've seen no indication that the industry plans to grow the breeder supply. And as a matter of fact, it's actually shrunk. So that's the source of my comments. Do I know what's going to happen in June or July or August of this year with respect to breeder placements? I don't know that. I would tell you that based on the last 3 to 5 years though again, I'll reiterate that I think the industry has learned that the economics of our business is tied very closely to the supply of chickens. And we've done a good job so far of maintaining discipline, such that even paying nearly $8.50 for corn, we've been able to be profitable as an industry.

[Operator Instructions]. And our next question is a follow-up from Bryan Hunt and Kevin McClure, location of Wells Fargo Securities.

Thanks for taking the follow-up. 2 brief questions. Bill, you mentioned that the Georgia facilities in January, February experienced some plane in efficiency? I just wanted to confirm that, that was weather related and there weren't any other factors that may have contributed to the inefficiencies.

Well, it was part weather related and part disease challenged, normal disease that the industry sees in the chicken business as long as it's been here. I would equate it to the common cold in humans. Chickens raised in these environments, sometimes are subject to get sick, and we treat them. And like I say, it happens from time to time in certain regions. We -- I don't believe we're the only chicken company affected by this. And we've gotten beyond it and don't think it's going to be an issue going forward.

Got it, okay. And then as I'm reviewing my notes, just want to confirm one thing with Fabio. Fabio, you mentioned that you believe the industry could achieve profitability levels similar to those achieved in 2004, 2005? Is that true?

I think we are, through everything that Bill said on supply and demand, we're poised to a very good year in 2013. If it's the same as 2004 or 2009, that has to be seen yet, but I think so.

Our next question is a follow-up from Heather Jones of BB&T Capital Markets. Heather L. Jones - BB&T Capital Markets, Research Division: Just on the foreign exchange gain. I think I'm correct, but wanted to double check. That's all related to balance sheet translation of your Mexican assets?

Yes, it is. As we translate the assets we have in pesos in Mexico, the difference between what you have in assets and liabilities creates translation gain to us, and that's... Heather L. Jones - BB&T Capital Markets, Research Division: Right.

That looked like $6 million exchange. Heather L. Jones - BB&T Capital Markets, Research Division: And so as we continue to see the peso appreciate recently, assuming that continues, we should expect another gain in Q2?

Yes. Well, I don't know where the peso's growing, but if it does, you're absolutely right.

This concludes our question-and-answer session. I'd like to turn the conference back over to Bill Lovette for any closing remarks.

Thank you. I want to take this opportunity to thank our shareholders, team members, customers and other stakeholders for your support going into 2013. It's our expectation to serve well your interest for successful and prosperous year and beyond. Thank you.

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