Pilgrim's Pride Corporation (PPC) Earnings

Management highlights

Demand Dynamics - Chicken demand remained firm across all regions, driven by chicken's affordability for budget-constrained consumers facing persistent inflation and elevated energy prices. - In the U.S., chicken gained market share: retail chicken volumes grew 2.8% YoY, food service chicken volumes grew 3.4% YoY, with QSR and non-commercial channels leading growth. Boneless dark meat is the fastest-growing retail chicken category, and the price spread between boneless breast and ground beef remains at record levels, supporting breast demand. - In Europe, affordable poultry and ready meals resonated with value-conscious consumers, driving overall sales growth, though food service QSR volumes declined. - In Mexico, strong demand absorbed all expanded domestic protein supply, with double-digit volume growth for branded Pilgrim's offerings across retail and food service. Operational Progress & Capital Projects - Completed the planned conversion of the Russellville, Alabama plant to case-ready operations, and finished plant upgrades across the U.S. portfolio that improved operational efficiency and margins compared to Q1 2026. - Installed new dark meat deboning and portioning equipment at multiple Big Bird plants to support prepared foods growth and mitigate commodity market volatility. - The LGA, Georgia small bird deboning expansion (to support fast-growing categories like chicken sandwiches and tenders) and the Walker County, Georgia new prepared foods plant (on track to open H2 2027) remain on schedule. - In Mexico, completed the prepared line expansion at Port Veneer, with live operation investments in the Southern Peninsula on track and ramping up as planned. Branded & Prepared Foods Growth - U.S. prepared foods overall volumes grew nearly 14% YoY. Just BARE retail sales grew over 30% YoY (six times the category average), capturing ~15% market share to become the second-largest brand in the frozen fully cooked chicken category. - Just BARE received significant industry recognition for taste and quality, and generated over 950 million earned media impressions via targeted marketing and media partnerships. - In Europe, branded rollover volumes grew double digits, while Richmond brand volume growth lags expectations due to intense competition from premium private label offerings. Sustainability & Recognition - The company's approach to team member development and retention earned regional recognition: Newsweek America's Greatest Workplace (U.S.), Employer of the Year by The Grocery (Europe), and exceptional companies award (Mexico). - The company continues to embed sustainability across all operations, with repeated investments in team member training to reinforce organizational values. Supply & Input Market Update - U.S. Q2 2026 ready-to-cook chicken production grew 4.5% YoY, driven by higher headcount, better livability, improved hatchability, and modestly higher live weights. USDA expects full-year 2026 production growth of 3.3%, slowing to 2.5% in H2 2026. - Corn and soybean prices were volatile during Q2 due to Middle East conflict uncertainty, but ended the quarter lower thanks to favorable U.S. planting weather, record South American production, and increased U.S. acreage. Black Sea conflict risks could push wheat prices higher later in 2026. - Trade updates: U.S. poultry exports to China resumed for 17 states following recent diplomatic talks, with additional states expected to be approved later in 2026; U.S. exports to GCC Middle East countries remain resilient via alternative transportation routes.

Guidance

- U.S. chicken production growth is expected to moderate to 2.5% in H2 2026, down from 4.5% in Q2 2026, bringing full-year 2026 growth to 3.3%. Management expects the strong demand trends for chicken will absorb the projected supply growth, supporting stable pricing and margins as supply and demand rebalance. - Full-year 2026 capital expenditure guidance is maintained at ~$900 million, revised down from the prior range of $900-$950 million, as most large projects have already completed spending in the first half of the year. - Full-year 2026 effective tax rate is expected to approximate 25%, in line with prior guidance. - Excluding early debt extinguishment impacts, full-year 2026 net interest expense is projected to be between $115 million and $120 million. - Management expects Mexico margins to improve sequentially in H2 2026 compared to the first half, with long-term expected double-digit margins for the segment, despite ongoing quarter-over-quarter volatility. - European pork margins are expected to recover gradually as industry herd reductions reduce excess imported pork supply into the UK, though no quick recovery is projected in the short term.

Segment performance

Pilgrim's Pride reported total Q2 2026 net revenues of $4.63 billion, down from $4.76 billion year-over-year (YoY), with total adjusted EBITDA of $360.0 million (7.8% margin), down from $686.9 million (14.4% margin) YoY. 1. U.S. Segment: Net revenues of $2.65 billion, down from $2.82 billion YoY. Adjusted EBITDA was $231.5 million, with an 8.7% adjusted EBITDA margin, down from 17.1% YoY. The year-over-year margin decline was driven by a 27% decrease in jumbo cutout values, but margins improved sequentially from Q1 2026 after plant upgrades and improved live operations. U.S. prepared foods volumes grew nearly 14% YoY. This segment contributes 57.2% of total company net revenue. 2. Europe Segment: Adjusted EBITDA was $105.8 million, down from $111.8 million YoY, with a 7.6% adjusted EBITDA margin, down from 8.2% YoY. Strength in poultry and ready meals offset pressure on pork margins from increased imported pork into the UK, higher costs from the Middle East conflict, and lower food service traffic. This segment contributes approximately 29.2% of total company net revenue. 3. Mexico Segment: Adjusted EBITDA was $22.6 million, down sharply from $92.3 million YoY, with a 3.9% adjusted EBITDA margin, down from 16.3% YoY. Results were impacted by unusually favorable growing conditions that increased domestic protein supply, lower prices for competing proteins (including eggs and imported pork), despite strong demand that absorbed all additional supply. Retail-branded fresh volumes grew over 30% YoY, with Just BARE volumes more than doubling. This segment contributes approximately 13.6% of total company net revenue.

Risks & headwinds

- Commodity chicken price volatility: Increased U.S. supply growth in Q2 2026 outpaced demand, leading to counter-seasonal declines in commodity cut-out values that compressed segment margins. Uncertainty around growing conditions (including heat stress in Q3 2026) could lead to unexpected supply fluctuations. - Input cost volatility: Persistent conflict in the Middle East and Black Sea region, and changing Chinese trade policies for corn and soybeans, could lead to higher feed grain prices that compress margins. - Competitive pressures in Europe: Increased imports of cheap imported pork into the UK have pressured wholesale pork margins, and growing private label competition is impacting growth of the Richmond branded business. - Macroeconomic headwinds: Persistent consumer budget constraints from inflation have reduced overall food service traffic, creating pressure on food service channel volumes and margins. - Legal and one-time costs: The company incurred $136 million in legal settlement costs and $26 million in asset impairment charges in Q2 2026 related to ongoing broiler litigation and the planned Chattanooga harvesting facility shutdown, reducing GAAP profitability for the quarter. - Industry supply growth surprises: Unexpected improvements in livability and hatchability led to greater-than-expected Q2 2026 supply growth, and unforeseen changes in growing conditions could create future supply-demand imbalances.

Analyst Q&A

• Q: What are management's expectations for U.S. supply, cut-out values, and profitability in H2 2026, following the larger-than-expected Q2 supply increase? /

  A: Q2 2026 supply grew 4.5% YoY, 2.5% higher than expected, driven mostly by much better livability than 2025, when the industry faced high disease and avian influenza-related mortality. Management and the USDA expect H2 growth to moderate to 2.5% YoY, as the breeding flock size is stable and Q3 heat stress is expected to reduce livability gains. Strong underlying demand from budget-conscious consumers, seasonal tailwinds for wings (from fall sports), and growing promotional activity for boneless breast will support pricing and margins if supply grows in line with projections.

• Q: What is the impact of the pork business on European margins, and when might margins recover? /

  A: The pork segment is the primary source of European margin pressure right now. Reduced Chinese demand for European pork exports has led to a large increase in low-cost pork imports into the UK, which has pushed down wholesale pork prices and impacted margins, especially for the company's higher-cost high-welfare pork operations. Management expects gradual margin improvement as the European industry reduces herd sizes to lower excess supply, but does not expect a quick recovery in the short term. Strong growth in chicken and ready meals is currently offsetting most of this pressure, leaving overall European profitability near last year's levels.

• Q: How does lower commodity raw material pricing benefit the prepared foods business, and how long is the lag to see these benefits? /

  A: Pilgrim's Pride's strategy is to grow prepared foods to reduce overall portfolio volatility from the commodity big bird segment, not eliminate commodity exposure entirely. All internal raw material transfers are priced at current market rates, so there is no lag in benefits: lower input costs flow straight to prepared foods profitability immediately, and prepared foods has maintained strong margins during the recent period of competitive raw material prices. Internalizing raw material supply also improves quality control for key brands like Just BARE, and reduces reliance on external suppliers.

• Q: Will the U.S. industry implement normal seasonal production cuts in H2 2026, as it typically does? /

  A: The industry always adjusts production to match expected demand, and normal seasonal production cuts, which typically start in late August/September, are expected this year. The unexpected Q2 supply increase came from higher-than-expected livability, not over-planned egg sets, which were already aligned with expected full-year demand growth. For Pilgrim's Pride, the ongoing growth of prepared foods absorbs a large share of big bird production, further aligning output with demand.