Pilgrims Pride Corp: Form 10-Q for the period ended Sep 29, 2024

Executive Summary

Overview

Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is one of the largest chicken producers in the world, with operations in the United States (“U.S.”), the United Kingdom (“U.K.”), Mexico, France, Puerto Rico, the Netherlands and the Republic of Ireland. We reported net income attributable to Pilgrim’s of $850.6 million, or $3.58 per diluted common share, and income before tax totaling $1.1 billion, for the nine months ended September 29, 2024. These operating results included net sales of $13.5 billion, gross profit of $1.8 billion and $1.6 billion of cash provided by operating activities. We generated a consolidated operating margin of 8.9%. For the nine months ended September 29, 2024, we generated EBITDA and Adjusted EBITDA of $1.5 billion and $1.7 billion, respectively. A reconciliation of net income to EBITDA and Adjusted EBITDA is included below.

Global Economic Conditions

During the third quarter of 2024, global inflation levels continued to decline, but remain above historical averages, in commodity, labor and other operating costs leading to reduced costs from these inputs across all our businesses. The global energy market continues to be impacted by the Russia-Ukraine war, driving up prices as supply out of the Black Sea region is disrupted and future production is at risk. The Russia-Ukraine war's impact on the global feed ingredient market is currently less pronounced as global supply in other growing areas has developed and grain exports from the Black Sea region have remained steady throughout the first nine months of 2024, with exception of moderate impact on winter wheat crop as noted below. The U.K. and E.U. region saw a continued decrease in inflation rate and flat demand, leading to cost recovery for our business and stabilizing prices for customers, though labor costs continue to be a challenge for our Europe operations. We have and will continue to invest in our people and implement supply chain solutions to mitigate global economic impacts in our Europe operations. In Mexico, inflation remains high and the peso continued to weaken against the U.S. dollar in the third quarter of 2024. Mexico remains a relatively volatile market given overall business seasonality.

Russia-Ukraine War Impacts

The impact of the ongoing Russia-Ukraine war and sanctions has not been limited to businesses that operate in Russia and Ukraine and has negatively impacted and will likely continue to negatively impact other global economic markets including where we operate. The impacts have included and may continue to include, but are not limited to, higher prices for commodities, such as food products, ingredients and energy products, increasing inflation in some countries, and disrupted trade and supply chains. The conflict has disrupted shipments of grains, vegetable oils, fertilizer and energy products.

The impact on the agriculture markets falls into two main categories: (1) the effect on Ukrainian crop production, as the region is key in global grain production; and (2) the duration of the disruption in trade flows. Safety and financing concerns in the region are restricting export execution, which is in turn forcing grain and oil demand to find alternative supply. The duration of the war and related volatility makes global markets extremely sensitive to growing-season weather in other global grain producing regions and has led to a large risk premium in futures prices. The continued volatility in the global markets as a result of the war could adversely impact our costs by driving up prices, raising inflation and increasing pressure on the supply of feed ingredients and energy products throughout the global markets.

In addition, the U.S. government and other governments in jurisdictions in which we operate have imposed sanctions and export controls against Russia, Belarus and interests therein and threatened additional sanctions and controls. The impact of these measures, now and in the future, could adversely affect our business, supply chain or customers.

Raw Materials and Pricing

Our U.S. and Mexico segments use corn and soybean meal as the main ingredients for feed production, while our Europe segment uses wheat, soybean meal and barley as the main ingredients for feed production. The following table reflects the highest and lowest prices reached on nearby futures for one bushel of corn, one ton of soybean meal, and one metric ton of wheat during the current and previous years:

(a) We obtain corn and soybean meal prices from the Chicago Board of Trade, and we obtain wheat prices from the London International Financial Futures and Options Exchange.

U.S. commodity market prices for chicken products trended above the historical five-year average as sustained price support delayed the normal seasonal price decreases until late in the quarter. Year-over-year price increases were supported by each major cut. Per the October 2024 U.S. Department of Agriculture (or “USDA”) report on poultry slaughter, estimated industry ready-to-cook production ended the quarter 2.7% above prior year levels primarily due to incremental increases in broilers processed and average liveweights.

During the third quarter of 2024, the U.S. chicken market experienced firm volume demand, supported by growth in both the retail and foodservice distribution channels throughout the quarter. Export volume in shipments were lower than the five-year historical average for the first two months of the quarter, but were sufficient to prevent buildup of dark meat inventories in cold storage while sustaining price levels that were higher than prior year. Chicken cold storage inventories ended the quarter 6.9% below prior year levels after declining seasonally during the quarter.

During the third quarter of 2024, the U.K. chicken market volume was higher than in the same quarter of the prior year and also increased compared to the first half of 2024. European supplies into U.K. are increasing slightly as other markets for the E.U. are declining. Our utilities and feed ingredient costs are lower relative to third quarter of 2023. We continue to focus on managing costs, including labor and yield efficiencies, agricultural performance and increasing operational efficiency through investments in capital projects.

Commodity prices for chicken in Mexico decreased during the third quarter and on average were below prior year prices, but trended upwards towards the end of the third quarter.

Prices for the remainder of the year will depend on (1) the evolution of foodservice, retail and export meat demand and (2) factors such as feed production input costs, further spread of avian influenza both domestically and abroad, uncertainty surrounding the general economy and overall protein supply.

U.K. market prices for pork products decreased slightly throughout the third quarter of 2024 from downward pressure as a result of the price differential between U.K. and E.U. pork prices as well as reduced retail demand due to weather impacts. The pig supply has increased throughout 2024 though largely due to increased weights. U.K. pig farming became profitable in the second quarter of 2023 and continues to remain profitable.

U.K. prices for prepared foods have remained at elevated levels from inflationary pressure, primarily from increased pork prices. We continue to focus on partnering with our Key Customers and increasing operational efficiency.

Reportable Segments

We operate in three reportable segments: U.S., Europe (formerly known as “U.K. and Europe”), and Mexico. We measure segment profit as operating income. Certain corporate expenses are allocated to the Mexico and Europe reportable segments based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S. For additional information, see “Note 18. Reportable Segments” of our Condensed Consolidated Financial Statements included in this quarterly report.

Results of Operations

Three Months Ended September 29, 2024 Compared to the Three Months Ended September 24, 2023

Net sales. Net sales generated in the three months ended September 29, 2024 increased $224.8 million, or 5.2%, from net sales generated in the three months ended September 24, 2023. The following table provides net sales information:

(In thousands, except percent data)

U.S. Reportable Segment. U.S. net sales generated in the three months ended September 29, 2024 increased $285.1 million, or 11.5%, from U.S. net sales generated in the three months ended September 24, 2023 primarily due to an increase in net sales per pound of $248.4 million, or 10.0 percentage points, and an increase in sales volume of $36.7 million, or 1.5 percentage points. The increase in net sales per pound was driven primarily by favorable market pricing conditions and shift in product mix. The third quarter average commodity chicken market prices were above both prior year and the historical five-year average.

Europe Reportable Segment. Europe net sales generated in the three months ended September 29, 2024 decreased $4.1 million, or 0.3%, from Europe net sales generated in the three months ended September 24, 2023 primarily due to a decrease in net sales per pound of $51.3 million, or 3.9 percentage points. The decrease in net sales per pound was primarily due to shift in product mix and due to the structure of certain customer contracts impacted by lower input costs. The decrease in net sales per pound was partially offset by the favorable impact of foreign currency translation and an increase in sales volume of $31.0 million, or 2.4 percentage points, and $16.2 million, or 1.2 percentage points, respectively.

Mexico Reportable Segment. Mexico net sales generated in the three months ended September 29, 2024 decreased $56.2 million, or 10.0%, from Mexico net sales generated in the three months ended September 24, 2023 due to the unfavorable impact of foreign currency translation of $55.4 million, or 9.9 percentage points, and a decrease in net sales per pound of $8.6 million, or 1.5 percentage points. These decreases were partially offset by an increase in sales volume of $7.8 million, or 1.4 percentage points. The decrease in net sales per pound was driven by an decrease in commodity chicken prices based on market requirements. The increase in sales volume was driven by shifts in product mix.

Gross profit and cost of sales. Gross profit increased by $338.1 million, or 97.7%, from $345.9 million generated in the three months ended September 24, 2023 to $684.0 million generated in the three months ended September 29, 2024. The following tables provide information regarding gross profit and cost of sales information:

(In thousands, except percent data)

38

(In thousands, except percent data)

(In thousands, except percent data)

U.S. Reportable Segment. Cost of sales incurred by our U.S. operations during the three months ended September 29, 2024 decreased $37.2 million, or 1.6%, from cost of sales incurred by our U.S. segment during the three months ended September 24, 2023. The decrease in cost of sales was primarily driven by a decrease in cost per pound sold of $71.5 million, or 3.1 percentage points, partially offset by an increase in sales volume of $34.2 million, or 1.5 percentage points. The decrease from prior year in cost per pound sold is primarily due to declining feed ingredients costs, specifically corn and soybean meal. Corn market prices decreased approximately 28% from prior year levels and soybean meal market prices decreased approximately 14% from prior year levels. Factors that are partially offsetting the decrease in cost of sales from feed ingredients are increased payroll and incentive compensation costs, grower costs, and other operating costs.

Europe Reportable Segment. Cost of sales incurred by our Europe operations during the three months ended September 29, 2024 decreased $40.0 million, or 3.3%, from cost of sales incurred by our Europe segment during the three months ended September 24, 2023. The decrease in cost of sales was primarily driven by a decrease in cost per pound from lower input costs.

Mexico Reportable Segment. Cost of sales incurred by our Mexico operations during the three months ended September 29, 2024 decreased $36.1 million, or 7.5%, from cost of sales incurred by our Mexico segment during the three months ended September 24, 2023. This decrease was driven by the favorable impact of foreign currency translation of $48.9 million, or 10.2 percentage points. Partially offsetting this decrease were increases in sales volume and cost per pound sold of $6.7 million, or 1.4 percentage points, and $6.1 million, or 1.3 percentage points, respectively.

Operating income and SG&A expense. Operating income increased by $302.0 million, or 146.3%, from income of $206.4 million generated in the three months ended September 24, 2023 to income of $508.4 million generated in the three months ended September 29, 2024. The following tables provide information regarding operating income and selling, general and administrative (“SG&A”) expense:

(In thousands, except percent data)

39

(In thousands, except percent data)

(In thousands, except percent data)

U.S. Reportable Segment. SG&A expense incurred by our U.S. reportable segment during the three months ended September 29, 2024 increased $3.8 million, or 5.6%, from SG&A expense incurred by our U.S. reportable segment during the three months ended September 24, 2023. The increase in SG&A expense resulted primarily from an increase in incentive compensation costs, partially offset by a net decrease in legal settlement expense.

Europe Reportable Segment. SG&A expense incurred by our Europe reportable segment during the three months ended September 29, 2024 increased $3.2 million, or 6.1%, from SG&A expense incurred by our Europe segment during the three months ended September 24, 2023. The increase in SG&A expense was primarily due to an increase in incentive compensation expense.

Mexico Reportable Segment. SG&A expense incurred by our Mexico reportable segment during the three months ended September 29, 2024 decreased approximately $0.8 million, or 4.9%, from SG&A expense incurred by our Mexico segment during the three months ended September 24, 2023 primarily due to the favorable impact of foreign currency translation. This decrease was partially offset by an increase in payroll and incentive compensation costs.

Restructuring activities. Restructuring activities costs of $30.8 million were recognized in the three months ended September 29, 2024. These charges were incurred by our Europe reportable segment primarily as a result of severance, asset impairment, and other charges related to the closure of facilities within our Pilgrim’s Food Masters and Pilgrim's U.K. businesses.

Net interest expense. Net interest expense decreased to $19.5 million recognized in the three months ended September 29, 2024 from $33.5 million recognized in the three months ended September 24, 2023. The decrease in net interest expense resulted primarily from a decrease in interest expense on outstanding borrowings due to decreased borrowings and an increase in interest income on higher cash balances.

Income taxes. Income tax expense increased to $131.6 million, a 27.3% effective tax rate, for the three months ended September 29, 2024 compared to an income tax expense of $44.6 million, a 26.8% effective tax rate, for the three months ended September 24, 2023.

Nine Months Ended September 29, 2024 Compared to the Nine Months Ended September 24, 2023

Net sales. Net sales generated in the nine months ended September 29, 2024 increased $672.3 million, or 5.2%, from net sales generated in the nine months ended September 24, 2023. The following table provides net sales information:

(In thousands, except percent data)

U.S. Reportable Segment. U.S. net sales generated in the nine months ended September 29, 2024 increased $649.6 million, or 8.8%, from U.S. net sales generated in the nine months ended September 24, 2023 primarily due to an increase in net sales per pound and an increase in sales volume of $514.0 million, or 7.0 percentage points, and $135.6 million, or 1.8 percentage points, respectively. The increase in net sales per pound was driven primarily by favorable market pricing conditions. The first nine months average commodity chicken market prices were above both prior year and the historical five-year average.

Europe Reportable Segment. Europe net sales generated in the nine months ended September 29, 2024 increased $15.4 million, or 0.4%, from Europe net sales generated in the nine months ended September 24, 2023 primarily due to a favorable impact of foreign currency translation and an increase in sales volume of $100.8 million, or 2.6 percentage points, and $64.4 million, or 1.7 percentage points, respectively. The increase in net sales was partially offset by a decrease in net price per pound sold of $149.8 million, or 3.9 percentage points. The decrease in net sales per pound was primarily due to the structure of certain customer contracts impacted by lower input costs.

Mexico Reportable Segment. Mexico net sales generated in the nine months ended September 29, 2024 increased $7.4 million, or 0.5%, from Mexico net sales generated in the nine months ended September 24, 2023 primarily due to an increase in sales volume and the favorable impact of foreign currency translation of $37.2 million, or 2.3 percentage points, and $11.5 million, or 0.8 percentage points, respectively, partially offset by a decrease in net sales per pound of $41.3 million, or 2.6 percentage points. The increase in sales volume was driven by sales mix with a year-over-year increase in imports and processed chicken volumes, partially offset by a decrease in live chicken volumes. The decrease in price per pound sold was driven by the shift in product mix.

Gross profit and cost of sales. Gross profit increased by $962.2 million from $797.4 million generated in the nine months ended September 24, 2023 to $1.8 billion generated in the nine months ended September 29, 2024. The following tables provide information regarding gross profit and cost of sales information:

(In thousands, except percent data)

41

(In thousands, except percent data)

(In thousands, except percent data)

U.S. Reportable Segment. Cost of sales incurred by our U.S. operations during the nine months ended September 29, 2024 decreased $209.9 million, or 3.0%, from cost of sales incurred by our U.S. segment during the nine months ended September 24, 2023. The decrease in cost of sales was primarily driven by a decrease in cost per pound sold of $339.6 million, or 4.8 percentage points, partially offset by an increase in sales volume of $129.6 million, or 1.8 percentage points. The decrease from prior year in cost per pound sold is primarily due to declining feed ingredients costs, specifically corn and soybean meal. Corn market prices decreased approximately 28% from prior year levels and soybean meal market prices decreased approximately 23% from prior year levels. Factors that are partially offsetting the decrease in cost of sales from feed ingredients are increased payroll and incentive compensation costs and an increase in insurance costs related to prior year recognition of income for business interruption insurance recoveries.

Europe Reportable Segment. Cost of sales incurred by our Europe operations during the nine months ended September 29, 2024 decreased $55.4 million, or 1.5%, from cost of sales incurred by our Europe segment during the nine months ended September 24, 2023. The decrease in cost of sales was primarily driven by a decrease in cost per pound sold. The decrease in cost per pound sold was driven by lower feed ingredients, labor, utilities and other operating costs and was partially offset by an increase related to the prior year one-time recognition of business interruption insurance income.

Mexico Reportable Segment. Cost of sales incurred by our Mexico operations during the nine months ended September 29, 2024 decreased $24.4 million, or 1.7%, from cost of sales incurred by our Mexico segment during the nine months ended September 24, 2023. This decrease was driven by a decrease in cost per pound sold of $66.5 million, or 4.8 percentage points. The decrease in cost per pound sold was driven by decreased commodity feed ingredient input costs. The decrease in cost per pound sold was partially offset by increases in sales volume and the unfavorable impact of foreign currency translation of $32.4 million, or 2.3 percentage points, and $9.8 million, or 0.7 percentage points, respectively. The increase in volume was driven by changes in mix with a year-over-year increase in imports, partially offset by a decrease in processed and live chicken volumes.

Operating income and SG&A expense. Operating income increased by $861.4 million, or 254.9%, from income of $338.0 million generated in the nine months ended September 24, 2023 to income of $1,199.4 million generated in the nine months ended September 29, 2024. The following tables provide information regarding operating income and selling, general and administrative (“SG&A”) expense:

(In thousands, except percent data)

(In thousands, except percent data)

(In thousands, except percent data)

U.S. Reportable Segment. SG&A expense incurred by our U.S. reportable segment during the nine months ended September 29, 2024 increased $62.8 million, or 29.5%, from SG&A expense incurred by our U.S. reportable segment during the nine months ended September 24, 2023. The increase in SG&A expense resulted primarily from an increase in legal settlement expense and incentive compensation costs, partially offset by an insurance recovery recognized in the current year.

Europe Reportable Segment. SG&A expense incurred by our Europe reportable segment during the nine months ended September 29, 2024 decreased $2.8 million, or 1.8%, from SG&A expense incurred by our Europe segment during the nine months ended September 24, 2023. The decrease in SG&A expense was primarily due to a decrease in salaries expense related to the Pilgrim’s Europe central restructuring initiative.

Mexico Reportable Segment. SG&A expense incurred by our Mexico reportable segment during the nine months ended September 29, 2024 decreased $2.7 million, or 5.3%, from SG&A expense incurred by our Mexico segment during the nine months ended September 24, 2023. The primary driver of the decrease in SG&A expense was a decrease in marketing spend and labor costs, partially offset by an increase driven by the unfavorable impact of foreign currency translation.

Restructuring activities. Restructuring activities costs of $82.1 million were recognized in the nine months ended September 29, 2024. These charges were incurred by our Europe reportable segment primarily as a result of asset impairment, severance, and other charges in our Pilgrim’s Food Masters and Pilgrim’s U.K. businesses related to site closures.

Net interest expense. Net interest expense decreased to $65.7 million recognized in the nine months ended September 29, 2024 from $112.1 million recognized in the nine months ended September 24, 2023. The decrease in net interest expense resulted primarily from a decrease in interest expense on outstanding borrowings due to decreased borrowings and an increase in interest income on higher cash balances. Contributing to the decrease in net interest expense is gross realized gains of

$13.8 million recognized on the repurchases of $144.3 million of outstanding principal of the Senior Notes due 2031 and $20.0 million of outstanding principal of the Senior Notes due 2033.

Income taxes. Income tax expense increased to $284.3 million, a 25.0% effective tax rate, for the nine months ended September 29, 2024 compared to an income tax expense of $20.5 million, a 9.8% effective tax rate, for the nine months ended September 24, 2023. The change from an income tax benefit to an income tax expense in 2024 resulted primarily from the increase in profit before income taxes.

Liquidity and Capital Resources

The following table presents our available sources of liquidity as of September 29, 2024:

(In millions)

(a) Availability under the U.S. Credit Facility is also reduced by our outstanding standby letters of credit. Standby letters of credit outstanding at September 29, 2024 totaled $24.7 million.

(b) The U.S. dollar-equivalent of the facility amount under the Mexico Credit Facility is $56.4 million (Mex$1.1 billion).

(c) The U.S. dollar-equivalent of the facility amount under the Europe Credit Facility is $200.6 million (£150 million).

On May 1, 2024, the Pilgrim’s Board of Directors approved a bond repurchase program which authorizes the Company to repurchase up to $200.0 million worth of our outstanding senior notes. Under the program, we have repurchased $144.3 million of outstanding principal of the Senior Notes Due 2031 and $20.0 million of the outstanding principal of the Senior Notes due 2033 for an aggregate of $150.5 million.

We expect cash flows from operations, combined with availability under our credit facilities, to provide sufficient liquidity to fund current obligations, projected working capital requirements, maturities of long-term debt and capital spending for at least the next twelve months.

Historical Flow of Funds

(In millions)

Net Noncash Expenses

Items necessary to reconcile from net income to cash flow provided by operating activities included net noncash expenses of $398.4 million for the nine months ended September 29, 2024. Net noncash expense items included depreciation and amortization of $321.8 million, asset impairment of $26.6 million, deferred income tax expense of $45.2 million, gain on early extinguishment of debt recognized as component of interest expense of $11.2 million, stock-based compensation costs of $9.2 million, loan cost amortization of $3.8 million, accretion of discounts related to Senior Notes of $1.9 million, and losses on property disposals of $1.1 million. Other net noncash items were immaterial.

Items necessary to reconcile from net income to cash flow provided by operating activities included net noncash expenses of $269.4 million for the nine months ended September 24, 2023. Net noncash expense items included depreciation and amortization of $307.4 million, loan cost amortization of $6.1 million, stock-based compensation of $5.2 million, asset impairment of $4.0 million, accretion of discounts related to Senior Notes of $1.6 million, and loss on equity method investment of $0.3 million. These expense items were partially offset by a deferred income tax benefit of $46.8 million and gains on property disposals of $8.4 million.

Changes in Operating Assets and Liabilities

The change in trade accounts and other receivables represented a $62.6 million source of cash related to operating activities for the nine months ended September 29, 2024. This change primarily resulted from a decrease in trade accounts receivable due to timing of payments received. The change in trade accounts and other receivables represented a $65.2 million use of cash related to operating activities for the nine months ended September 24, 2023. This change primarily resulted from an increase in trade accounts receivable from increased sales prices in the U.K. and Mexico and increased volumes.

The change in inventories represented a $173.0 million source of cash related to operating activities for the nine months ended September 29, 2024. This change resulted primarily from decreased raw materials, work-in-process inventories due to lower feed ingredient costs, and lower finished goods inventories. The change in inventories represented a $13.0 million use of cash related to operating activities for the nine months ended September 24, 2023. This change resulted primarily from increased finished goods inventories.

The change in prepaid expenses and other current assets represented a $65.6 million use of cash related to operating activities for the nine months ended September 29, 2024. This change resulted primarily from an increase in prepaid indirect taxes in our Mexico and Europe reportable segments. The change in prepaid expenses and other current assets represented a $8.0 million use of cash related to operating activities for the nine months ended September 24, 2023. This change resulted primarily from a net increase in prepaid insurance and prepaid maintenance of information technology.

The change in accounts payable, accrued expenses and other current liabilities represented a $79.7 million source of cash related to operating activities for the nine months ended September 29, 2024. This change resulted primarily from timing of payments to our suppliers, a reduction in grain input costs, and timing of legal settlement payments. The change in accounts payable, revenue contract liabilities, accrued expenses and other current liabilities represented a $12.2 million source of cash related to operating activities for the nine months ended September 24, 2023. This change resulted primarily from timing of payments to our suppliers, a reduction in grain input costs, an increase in our revenue contract liabilities and year-to-date fair value fluctuations of our derivative instruments.

The change in income taxes, which includes income taxes receivable, income taxes payable, deferred tax assets, deferred tax liabilities, reserves for uncertain tax positions, and the tax components within accumulated other comprehensive loss, represented a $151.9 million and $40.5 million source of cash for the nine months ended September 29, 2024 and September 24, 2023, respectively.

(In millions)

Capital expenditures were incurred for growth projects, such as the South Georgia protein conversion plant, and to improve operational efficiencies, system enhancement projects, and reduce costs for the nine months ended September 29, 2024.

Capital expenditures for the nine months ended September 24, 2023 were primarily incurred to improve operational efficiencies and reduce costs. Capital expenditures in 2023 also included investments in the Athens, GA plant expansion, the South Georgia protein conversion plant and other automation projects. Proceeds from property disposals were primarily for the sale of a farm in Mexico. Proceeds from property insurance recoveries reflects cash received on insurance claims related to the property losses incurred from the Mayfield, Kentucky tornado that occurred in December 2021.

(In millions)

Payments on revolving line of credit, long-term borrowings and finance lease obligations are primarily related to open market repurchases of outstanding senior notes. The proceeds from contribution of capital under the Tax Sharing Agreement with JBS USA Holdings were an allocation made during tax year 2023 for payment of historical tax adjustments. Payments on early extinguishment of debt are transaction fees related to the bond repurchases.

Proceeds from revolving line of credit and long-term borrowings include the $1.0 billion issuance of the U.S. Senior Notes Due 2033 in April 2023, less a $6.8 million discount, borrowings on the U.S. revolving credit facility of $235.0 million, and borrowings on the U.K. and Europe revolving credit facility of $49.9 million. Payments on revolving line of credit, long-term borrowings and finance lease obligations include a pay down of $480.1 million on the U.S. term loan, repayments of all $285.1 million borrowings under both the U.S. and U.K. revolving credit facilities, and $0.6 million in payments of finance lease obligations. Payments of capitalized loan costs include costs incurred in relation to the issuance of the U.S. Senior Notes due 2033. The distribution from Tax Sharing Agreement with JBS USA Holdings is payment of net tax incurred during the tax year 2022 under the tax sharing agreement.

Long-Term Debt and Other Borrowing Arrangements

Our long-term debt and other borrowing arrangements consist of senior notes, revolving credit facilities and other term loan agreements. For a description, refer to “Note 12. Debt.”

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

“EBITDA” is defined as the sum of net income (loss) plus interest, taxes, depreciation and amortization. “Adjusted EBITDA” is calculated by adding to EBITDA certain items of expense and deducting from EBITDA certain items of income that we believe are not indicative of our ongoing operating performance consisting of: (1) foreign currency transaction losses (gains), (2) costs related to litigation settlements, (3) restructuring activities losses, (4) loss on settlement of pension obligations due to plan termination, (5) write-downs of inventory as a result of hurricane, (6) property insurance recoveries for property damage losses, and (7) net income attributable to noncontrolling interests. EBITDA is presented because it is used by us and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with U.S. GAAP, to compare the performance of companies. We believe investors would be interested in our Adjusted EBITDA because this is how our management analyzes EBITDA applicable to continuing operations. We also believe that Adjusted EBITDA, in combination with our financial results calculated in accordance with U.S. GAAP, provides investors with additional perspective regarding the impact of certain significant items on EBITDA and facilitates a more direct comparison of our performance with our competitors. EBITDA and Adjusted EBITDA are not measurements of financial performance under U.S. GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP. Some of the limitations of these measures are:

• They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
• They do not reflect changes in, or cash requirements for, our working capital needs;
• They do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;
• Although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
• They are not adjusted for all noncash income or expense items that are reflected in our statements of cash flows;
• EBITDA does not reflect the impact of earnings or charges attributable to noncontrolling interests;
• They do not reflect the impact of earnings or charges resulting from matters we consider to not be indicative of our ongoing operations; and
• They do not reflect limitations on or costs related to transferring earnings from our subsidiaries to us.

In addition, other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with U.S. GAAP. You should compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA and Adjusted EBITDA only on a supplemental basis.

(In thousands)

47

Market Risk-Sensitive Instruments and Positions

The risk inherent in our market risk-sensitive instruments and positions is primarily the potential loss arising from adverse changes in commodity prices, foreign currency exchange rates, interest rates and the credit quality of available-for-sale securities as discussed below. The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity, nor do they consider additional actions our management may take to mitigate our exposure to such changes. Actual results may differ from those described below.

Commodity Prices

We purchase certain commodities, primarily corn, soybean meal, soybean oil, and wheat, for use as ingredients in the feed we either sell commercially or consume in our live operations. As a result, our earnings are affected by changes in the price and availability of such feed ingredients. We have from time to time attempted to minimize our exposure to the changing price and availability of such feed ingredients using various techniques, including, but not limited to, (1) executing purchase agreements with suppliers for future physical delivery of feed ingredients at established prices and (2) purchasing or selling derivative financial instruments such as futures and options.

For this sensitivity analysis, market risk is estimated as a hypothetical 10% increase in the weighted-average cost of our primary feed ingredients as of the periods presented. The impact of this fluctuation, if realized, could be mitigated by related commodity hedging activity. However, fluctuations greater than 10% could occur.

(In thousands)

(a) Based on our feed consumption, a 10% increase in the price of our feed ingredient purchases would have increased cost of sales for the three months ended September 29, 2024.

(b) A 10% increase in ending feed ingredient prices would have increased inventories as of September 29, 2024.

(In thousands)

(a) We purchase commodity derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to our anticipated consumption of commodity inputs for the next 12 months. A 10% increase in corn, soybean meal, soybean oil and wheat prices would have resulted in an increase in the fair value of our net commodity derivative asset position, including margin cash, as of September 29, 2024.

Interest Rates

Fixed-rate debt. Market risk for fixed-rate debt is estimated as the potential decrease in fair value resulting from a hypothetical increase in interest rates of 10%. Using a discounted cash flow analysis, a hypothetical 10% increase in interest rates would have decreased the fair value of our fixed-rate debt by $103.9 million as of September 29, 2024.

Foreign Currency

Mexico Foreign Investments

We are exposed to foreign exchange-related variability of investments and earnings from our Mexican subsidiaries. Foreign currency market risk is the possibility that our financial results or financial position could be better or worse than planned because of changes in foreign currency exchange rates. For this sensitivity analysis, market risk is estimated as a hypothetical 10% change in exchange rates used to convert Mexican peso to U.S. dollars, and the effect of this change on our Mexican foreign investments.

Net Assets. As of September 29, 2024, our Mexican subsidiaries that are denominated in Mexican peso had net assets of $1.1 billion. A 10% weakening in Mexican peso against the U.S. dollar exchange rate would cause a decrease in the net assets of our Mexican subsidiaries by $104.3 million. A 10% strengthening in the Mexican peso against the U.S dollar exchange rate would cause an increase in the net assets of our Mexican subsidiaries of $127.4 million.

We are also exposed to the effect of potential currency exchange rate fluctuations to the extent that amounts are repatriated from Mexico to the U.S. The Mexican peso exchange rate can directly and indirectly impact our financial condition and results of operations.

Europe Foreign Investments

We are exposed to foreign exchange-related variability of investments and earnings from our Europe subsidiaries. Foreign currency market risk is the possibility that our financial results or financial position could be better or worse than planned because of changes in foreign currency exchange rates. For this sensitivity analysis, market risk is estimated as a hypothetical 10% change in exchange rates used to convert British pound and euro to U.S. dollars, and the effect of this change on our Europe foreign investments.

Net Assets. As of September 29, 2024, our Europe subsidiaries that are denominated in British pounds had net assets of $4.5 billion. A 10% weakening in British pound against the U.S. dollar exchange rate would cause a decrease in the net assets of our Europe subsidiaries by $413.1 million. A 10% strengthening in the British pound against the U.S dollar exchange rate would cause an increase in the net assets of our Europe subsidiaries of $504.9 million.

Cash flow hedging transactions. We periodically enter into foreign currency forward contracts, which are designated and qualify as cash flow hedges, to hedge foreign currency risk on a portion of sales generated and purchases made by our Europe reportable segment. A 10% weakening or strengthening of the U.S. dollar against the British pound and U.S. dollar against the euro would result in immaterial changes in the fair values of these derivative instruments. No assurance can be given as to how future movements in currency rates could affect our future financial condition or results of operations.

Quality of Investments

Certain retirement plans that we sponsor invest in a variety of financial instruments. We have analyzed our portfolios of investments and, to the best of our knowledge, none of our investments, including money market funds units, commercial paper and municipal securities, have been downgraded, and neither we nor any fund in which we participate hold significant amounts of structured investment vehicles, auction rate securities, collateralized debt obligations, credit derivatives, hedge funds investments, fund of funds investments or perpetual preferred securities. Certain postretirement funds in which we participate hold significant amounts of mortgage-backed securities. However, none of the mortgages collateralizing these securities are considered subprime.

Impact of Inflation

The U.S., Mexico and most of Europe continue to experience inflation at above-historical levels, though to a lesser degree than in the prior year. None of the locations in which we operate are experiencing hyperinflation. We have responded to these inflationary challenges by continuing negotiations with customers to recoup the extraordinary costs we have experienced. We also continue to focus on operational initiatives that aim to deliver labor efficiencies, better agricultural performance and improved yields.

Forward Looking Statements

Certain written and oral statements made by our Company and subsidiaries of our Company may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. This includes statements made herein, in our other filings with the SEC, in press releases, and in certain other oral and written presentations. Statements of our intentions, beliefs, expectations or predictions for the future, denoted by the words “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “imply,” “intend,” “should,” “foresee” and similar expressions, are forward-looking statements that reflect our current views about future events and are subject to risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include the following:

• Matters affecting the chicken and pork industries generally, including fluctuations in the commodity prices of feed ingredients, pigs and chicken;
• Our ability to obtain and maintain commercially reasonable terms with vendors and service providers;
• Our ability to maintain contracts that are critical to our operations;
• Our ability to retain management and other key individuals;
• Outbreaks of avian influenza or other diseases, either in our own flock or elsewhere, affecting our ability to conduct our operations and/or demand for our poultry products;
• Contamination of our products, which has previously and can in the future lead to product liability claims and product recalls;
• Exposure to risks related to product liability, product recalls, property damage and injuries to persons, for which insurance coverage is expensive, limited and potentially inadequate;
• Changes in laws or regulations affecting our operations or the application thereof;
• Our ability to ensure that our directors, officers, employees, agents, third-party intermediaries and the companies to which we outsource certain of our business operations will comply with anti-corruption laws or other laws governing the conduct of business with government entities;
• New immigration legislation or increased enforcement efforts in connection with existing immigration legislation that cause our costs of business to increase, cause us to change the way in which we do business or otherwise disrupt our operations;
• Competitive factors, inflation and pricing pressures, or the loss of one or more of our largest customers;
• Inability to consummate, or effectively integrate, any acquisition or to realize the associated anticipated cost savings and operating synergies;
• Currency exchange rate fluctuations, trade barriers, exchange controls, expropriation and other risks associated with foreign segments, including risks associated with Brexit;
• Restrictions imposed by, and as a result of, Pilgrim’s leverage;
• Disruptions in international markets and distribution channels for various reasons, including, but not limited to, the ongoing Russia-Ukraine or Israel-Hamas wars;
• The impact of cyber-attacks, natural disasters, power losses, unauthorized access, telecommunication failures, and other problems on our information systems;
• Our ability to maintain favorable labor relations with our employees and our compliance with labor laws;
• Extreme weather or natural disasters;
• The impact of uncertainties in litigation; and
• Other risks described herein and under “Risk Factors” in our 2023 Annual Report.

Actual results could differ materially from those projected in these forward-looking statements as a result of these factors, among others, many of which are beyond our control.

The Company’s forward-looking statements speak only as of the date of this report or as of the date they are made. In making these statements, we are not undertaking, and specifically decline to undertake, any obligation to address or update each or any factor in future filings or communications regarding our business or results, and we are not undertaking to address how any of these factors may have caused changes to information contained in previous filings or communications. Although we have attempted to list comprehensively these important cautionary risk factors, we must caution investors and others that other factors may in the future prove to be important and affect our business or results of operations.

Disclosure Controls and Procedures

Under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), “disclosure controls and procedures” means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of September 29, 2024, the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of September 29, 2024, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information we are required to disclose in our reports filed with the SEC is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, identified no change in the Company’s internal control over financial reporting that occurred during the three months ended September 29, 2024 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

During 2024, the Company has completed the first phase of a multi-year implementation of an enterprise resource planning (“ERP”) system. The implementation did not materially affect our internal control over financial reporting during the three months ended September 29, 2024 and is not expected to materially affect our internal control over financial reporting throughout the remainder of the implementation period.

For a discussion of our potential risks and uncertainties, please see “ Part I—Item 1A—Risk Factors” and “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2023 Annual Report and “Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, in each case as updated by the Company’s periodic filings with the SEC.