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Pilgrims Pride Corp (NASDAQ:PPC)
Q4 2019 Earnings Call
Feb 21, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Fourth Quarter and Year End 2019 Pilgrim's Pride Earnings Conference Call and Webcast. [Operator Instructions] Please note that the slides referenced during today's call are available for download from the Investor Relations section of the Company's website at www.pilgrims.com. After today's presentation, there will be an opportunity to ask questions. I would now like to turn the conference over to Dunham Winoto, Director of Investor Relations for Pilgrim's Pride. Please go ahead.

Dunham Winoto -- Director of Investor Relations

Good morning, and thank you for joining us today as we review our operating and financial results for the fourth quarter and year ended December 2019. Yesterday afternoon, we issued a press release providing an overview of our financial performance for the quarter and for the year, including a reconciliation of any non-GAAP measures we may discuss. A copy of the release is available in the Investor Relations section of our website, along with the slides we will reference during this call. These items have also been filed with 8-Ks and are available online at www.sec.gov. Presenting to you today are Jayson Penn, President and Chief Executive Officer; and Fabio Sandri, Chief Financial Officer.

Before we begin our prepared remarks, I'd like to remind everyone of our Safe Harbor statement. Today's call may contain certain forward-looking statements that represent our outlook and current expectations as of the day of this release. Other additional factors not anticipated by management may cause actual results to differ materially from those projected in these forward-looking statements. Further information concerning those factors has been provided in today's press release, our 10-K and our regular filings with the SEC.

I'd now like to turn the call over to Jayson Penn.

Jayson Penn -- President & Chief Executive Officer

Thank you, Dunham. Good morning everyone. And thank you all for joining us today. For the full year 2019, we reported net revenues of $11.4 billion and adjusted EBITDA of $974 million or 9% margin and a GAAP EPS $1.83. For the fourth quarter of 2019, we reported net revenues of $3.06 billion and adjusted EBITDA of $162 million or 5% margin and a GAAP EPS of $0.37.

We've continued to outpace the competition by growing EBITDA by a strong 46% and 22% for the quarter and for the full year respectively compared to 2018, driven by an improved operating performance across all our business units, including the US, Mexico, and Europe. Our results have remained well balanced and are the result of our vision to become the best in most respected company, creating the opportunity of a better future for our team members. To support our vision, we are continuing our strategy of developing a unique portfolio of diverse complementary business models, continuing to relentlessly pursue operational excellence and becoming a more value partner with key customers and creating an environment for safe people, safe products and healthy attitudes.

During 2019, our team members have remained focused on executing and delivering on our strategy regardless of market conditions. While the market started strong during the first half of the year, second half was weaker than expectations. Despite the volatility, we have continued to deliver strong growth and achieve a significant increase in relative performance against industry peers across all our global operations. The diversity of our portfolio and our global footprint has contributed to enhancing the consistency of our consolidated results. In the US, we experienced a much better environment in our fresh business compared to a year ago. Operationally, our results at our commodity large bird deboning also improved versus the year prior despite the relatively tough -- tougher environment seen in the second half of 2019.

Our Prepared Foods business continues to evolve, reflecting in the investments made over the past few years. We have adopted our legacy European operations to better mitigate future input cost challenges. Integration of the newly acquired operations is on track and the business is already contributing positively to our results. In Mexico, the market was in line with seasonality and results for the full year 2019 also improved versus the year before. For 2020, we will maintain our strategy, while continuing to improve the portfolio to better respond to individual market dynamics and widen our relative performance over the competition. We believe this approach will give us a higher and more consistent results for the mid to long run and minimize the full peaks and troughs of the volatile commodity sectors.

Our US fresh chicken business are continuing to improve operationally in Q4 compared to the very tough demand conditions we saw during last year's fourth quarter, the market for commodity large bird deboning in 2019 were still challenging, but slightly better year-on-year. The commodity large bird cutout improved throughout the entire quarter and was closer to the five-year average, driven by strengths in wings and leg quarters, while boneless breast contributed only with marginal improvements. Within the less commoditized small bird and case-ready segments, the customer demand was in line with normal seasonality. A retail tray pack, rotisserie and QSR sandwich business have continued to outperform peers by generating robust results, driven by strong demand for our chickens from our key customers. Our market leadership in these categories and more differentiated product portfolio has continued to support the growth of our competitive advantage versus the industry. The commitment to our key customer strategy remains relevant to our growth.

Revenues from key customers have more than doubled over the last eight years, reducing our relative dependency on pure commodity sales. We continue to leverage our key customer strategy to earn more business and accelerate growth beyond just the underlying market conditions. As example of how the strategy is supportive to our growth, we have begun the conversion on one of our commodity big bird deboning facilities to small bird deboning. We are doing this to fulfill their expansion plans as the demand has continued to outstrip our production capacity. We also believe this conversion will deliver benefits and value, similar to our Sanford plant by reducing the proportion of volatile commodity sales. In this quarter, we are expanding the list of our partnerships by adding a new key customer as more companies recognize our leadership and trust our ability to reliably supply them with differentiated innovative products.

Beyond driving growth, our key customer approach also promotes trust, enhances long-term relationships and strengthens our margin structure. We have been increasing our mix of specialty birds, including no antibiotics ever and organic attributes to support the evolution in our customers' expectations and market growth. We are expanding our breast meat portioning capabilities, while increasing dark meat debone capacity by 40% to de-emphasize our exposure to the volatility of pure commodity markets. Just BARE case-ready net sales grew 67% year-over-year during Q4 and 15% compared to Q3.

Our growth continues to be fueled by our strong online presence. We are continuing to invest in automation and robotics to support demand for our products, while maintaining the impact of tight labor conditions on margins. Within our US Prepared Foods, we grew foodservice revenue by 2%, while the overall was relatively flat year-on-year during Q4. In Q4, we also grew our retail customer revenue by 12%, driven by key customer growth. This channel shift was driven by the strength of our well-regarded foodservice brands, Pierce and Gold Kist. Last quarter, retail and foodservice channels began gaining distribution with our new Just BARE items that are all -natural, clean label and contains no antibiotics ever, which will drive future growth for us.

For the full year 2019, our total Prepared Foods net sales grew 10%. The retail channel led the growth with 22% year-on-year gains. Our innovation is fueling this growth as indicated by the increase in our new products launched in the past couple of years, which represented 14% of our total net sales. Following China's lifting of the ban on US chicken, we are focused on leveraging the advantage of our global resources to develop an effective export sales strategy and channel approach specifically for that market. We believe recent announcement of a reduction in retaliatory tariff from 35% to 30% is also good news to make US chicken even more compelling.

Although US poultry exports closed the year with a marginal increase of only 1%, we are beginning to see the impact of ASF on poultry demand and the impact of China lifting a five-year ban on US poultry. Correspondingly, Q4 export prices rose by 13% year-on-year versus the year ago. We are closely monitoring the impact of coronavirus in the demand environment. While there could be some short-term logistical challenges, in the long term, we expect China's protein to supply shortfall to remain. We continue to believe positive impacts of ASF will be more visible going forward. We remain focused, diversifying our export destination, country mix and vigilant on developing contingency sales strategies to encourage any trade disruptions due to disease through unforeseen disputes with existing trade partners.

Market environment in Mexico during Q4 was tough as weak macro conditions contributed to more uncertainties in consumer spending. Although volume growth was solid, chicken prices, especially in the commodities sector, were below seasonal expectations. Despite a difficult market environment in Q4, operationally, our Mexican operations have continued to perform well, and we're still able to generate an improvement in results for the full year 2019 compared to the year before. As noted, prices in the commodity sector are weak during the quarter, but our increased share of non-commodity products, strong execution, and growth in Prepared Foods have helped to partially offset the weakness and allow us to outperform the competition. We continue the growth with our Veracruz project, which is already adding a meaningful contribution to our operating performance.

We continue to lead in developing the market in Prepared Foods in Mexico by launching significantly more products to meet demand. We are making great advances in our Prepared Foods business with innovation as the core competence of our strategy. We generate excellent results under premium Del Dia and Pilgrim's brands, both of which have continued to receive very favorable acceptance by consumers at retail, club stores and QSRs. We have a strong team in Mexico committed to continue delivery of strong results.

Following the positive trend established during the last few quarters, in our Q4, our legacy European operations again reported EBIT that was continuing improvement compared to the previous year despite both flattish volumes and revenue year-over-year, the implementation of improved methodologies to better reflect and mitigate future input cost challenges, as well as incremental operational improvements achieved through increased labor efficiency, investments in automation. And focus on higher yields has also driven better performance. We are further developing our key customer strategy, along with enhanced revenue optimization initiatives to give us better management of our mix and increased margin contribution.

We believe our European legacy operations continues to have potential opportunities to extract more value from the business by implementing the strategy in order to deliver relative performance that is above the competition in Europe. We remain supportive of our customers' development and expect to see further growth in following quarters, driven by increased consumer interest in poultry products and meat-free snacking. We have been an important partner for our customers in retail, QSR and foodservice reflecting consumer trends and generating a pipeline of innovation and product development in the poultry and non-meat segments of our business in Europe.

After joining our team for only the first full quarter, our newly acquired European operations performed well and are already generating positive EBITDA. The performance was driven by robust holiday demand, strength in pork exports, as well as initial implementations of operational improvements. All of our European fresh pork facilities are approved for China. So we're well positioned to benefit from even more export opportunities there. Further, with the addition of our operations' best-in-class highly integrated production platform, we have significantly strengthened our brand portfolio and further increased our value-added innovation capabilities to European customers. We are building our innovation pipeline with key customers and entered the plant-based protein sector as well as launch premium sausages in the quarter. Integration of the new European operations is tracking well to expectations. Over the next few years, we continue to expect to generate an EBITDA improvement to achieve a level that is competitive with leading companies with similar portfolio.

Pilgrim's has a proven history of successful and efficient integrations of companies we have acquired, and we will apply similar methodologies in integrating the new operations. We are optimistic about building upon their existing operational improvements by continuing to optimize manufacturing footprint, extract best-in-class operational excellence, optimize the portfolio of channels, segments and products as well as strengthening -- grow business with key customers to drive innovations in high-margin areas. We are leveraging resources available through both our legacy and newly acquired operations in Europe in conjunction with our global team in order to further strengthen our competitive advantage by increasing our ability to offer key customers much wider selection, highly differentiated innovative products to fulfill the growth in consumer demand.

We look forward to sharing innovation and best practices internally to enhance our operational and financial efficiency and position Pilgrim's as a whole for increased profitability and more consistent margins. Corn prices have fallen since the end of the quarter, weighed down by good growing conditions in South America, a lack of follow-through from Phase 1 trade deal and uncertainty in Chinese demand. The USDA's final corn crop projection came in at 13.7 billion bushels, which was higher than the market have previously estimated. USDA is projecting a corn carry-out of 1.9 billion bushels, which combined with large corn supplies outside of the US, we feel is more than adequate to cover demand. Soybean meal prices have also been under pressure as the market is feeling more confident in the large soybean crops in Brazil and Argentina.

With large South American supplies in the USDA's projection for US carry-out of 425 million bushels, we feel that there are more than enough supplies to meet global demand. We've seen an increase in wheat prices in the UK recently as a result of poor planting conditions late last year in Western Europe. Although prices are higher than we expected, we see adequate wheat supplies globally, and we are positioned to consume other feed grain sources besides wheat in our UK operations. And we look at -- as we look ahead to the spring, US farmers have the ability to plant the significantly larger crop in last year when adverse weather impacted planting. The prospects for larger crops in the US, combined with large crops outside the US, should keep both corn and soybean meal prices from being a headwind to feed cost this year. For this year, USDA is expecting a growth of 4% production, slightly above 3% increase in 2019.

Prereg productivity trended below 2018 for much of the second half of 2019. The growth in egg sets and placements has been primarily due to larger layer flocks as hatch rates in 2019 remained in line in 2018. Latest pullet data, which can be volatile, shows the continued growth in placements relative to year ago levels with much of the placement growth supporting new capacities that begin in 2019. Despite the new capacities, we believe capacity growth will not be disruptive to the industry's supply/demand balance in the mid to near term.

The outlook for chicken demand in the less commoditized segments this year continues to show an overall balance in supply and demand. With the US economy continuing to be strong, low unemployment and higher disposable income are driving households to consume more proteins throughout the day. According to the NPD Group, foodservice demand for chicken through broadline distribution continues to show strength in both dollar and volume growth. In addition to demand growth in broadline distribution, national chain QSR demand continues to grow as shown through increased chicken servings in 2020. We expect this trend to continue with increased US QSR features contributing to increased chicken demand, giving the relative value of chicken versus other proteins. Despite growth, both chicken and other competing proteins in 2019, the retail segment has shown positive dollar growth coming from all three categories of fresh, frozen and deli. We expect additional support with more feature activities by retailers as the year progresses.

While we are already balanced in terms of our bird size exposure, we will continue to seek opportunities to incrementally diversify our product mix and reduce the commodity portion of our portfolio by increasing the number of differentiated products to key customers, while optimizing our existing operations by pursuing operational improvement targets. Our key customer approach is strategic and creates a basis to further accelerate growth in important categories by providing more customized high-quality innovative products to give us a clear long-term sustainable competitive advantage.

With that, I'd like to ask our CFO, Fabio Sandri, to discuss our financial results.

Fabio Sandri -- Chief Financial Officer

Thank you, Jason, and good morning everyone. For the full year 2019, net revenues were $11.4 billion versus $10.9 billion from a year ago with an adjusted EBITDA of $974 million or a 9% margin compared to $798 million or a 7% margin for the year prior. Net GAAP income was $466 million versus $248 million the year prior. Adjusted EPS was a $1.62 compared to an $1.28 in the year before. Operating margins were 6.4% in US, 8.9% in Mexico and 3.3% in Europe respectively. For the fourth quarter of 2019, net revenues were $3.06 billion compared to $2.66 billion from a year ago. Adjusted EBITDA increased to $162 million or a 5% margin, representing a 46% improvement versus $111 million a year ago or a 4% margin. GAAP net income was $92 million or $0.37 per share. Operating margins were 3.2% in the US, 2.5% in Mexico and 2.1% in Europe, respectively, already including our acquisition during a significant part of the quarter.

Excluding the impact of one-time asset acquisition net gain to reflect the independent valuation of the newly acquired operations in Europe and exchange rate adjustments, adjusted net income was $35 million compared to $21 million in the same period in 2018, resulting in adjusted earnings of $0.14 per share compared to $0.09 per share in the year before or a 56% increase. Our operating profit in the US during Q4 was $62 million, a significant improvement versus a loss of $10 million a year ago. Our small bird and case-ready business continued to perform well and generate consistent top tier performance. Although the market for large bird deboning was only slightly better compared to Q4 of last year, we have continued to improve the operational efficiencies of the business, while introducing more product differentiation in order to offset some of the volatility. Our consistent focus on key customer strategy is also yielding positive results, helping us to achieve a material increase in relative performance against industry peers. Our US Prepared Foods have continued to expand following the investments in the last few years. In Q4, we increased our retail consumer revenue by 12%, driven by key customer growth. This growth has been fueled by our investment in R&D, sales and marketing to execute new product innovation. We have other initiatives in place to accelerate growth in this market, and you are expecting it to contribute to a greater portion of our total sales in the next few years, while adding to the stability in consolidated margins.

Operating profit in Mexico was $9 million as a weak broader macro environment constrained consumer spending and demand. Despite some volume growth, chicken prices, especially in the traditional markets, were below seasonal expectations. Within Prepared Foods in Mexico will remain as the leader in developing the market, and we launched many new products this year. Our strategy is supportive of the global to -- of the goal to increase our higher margin, differentiated products while having product coverage from entry-level to premium across multiple channels in both fresh and prepared in Mexico. Our strong team in Mexico is our true differentiation with their operational excellence and market leadership. And we expect the strength in relative performance against industry peers to continue in the future. Quarter-over-quarter can be quite volatile Mexico given specific market conditions, but Mexico has been very consistent on a year-over-year basis. And we expect this positive trend to continue as the demand for protein grows.

In Europe, only considering our legacy operations, operating profits increased significantly from last year due to better operational efficiencies and input cost mitigation. We are further developing our key customer strategy, including more integration with our newly acquired operations and enhanced revenue optimization initiatives to give us better management of our mix and increased margin contribution. We will also continue to leverage our marketing and sales infrastructure to optimize SG&A costs. We believe we can maintain and lead in relative results to the industry. After only being a part of our team for one quarter, the newly acquired European assets deliver improved performance and are already contributing positively to our EBITDA results. Due to the strength in exports and good domestic demand as well as the initial implementation of operational improvements and synergies. Since all of our Premium Fresh Pork facilities are now approved for China, we are well positioned to further benefit from the strength in export opportunities.

The integration is tracking well to expectations. And over the next few years, we are expecting to generate an EBITDA improvements to achieve a level that is competitive with leading companies with similar portfolio. We are proud of our history of successful and efficient integrating companies. And we will apply similar methodology of integrating the new operations to achieve comparable results. This year, we achieved $60 million in operational improvements on synergies in United States, Mexico and Europe, a little shy of our targets, but a major achievement given the significant investment we did in our team member wages, but greatly improve our retention and turnover numbers. For 2020, our teams have identified and developed plans to capture additional $125 million.

Our SG&A in the fourth quarter was 3.8% of sales, higher relative to a year ago as we increased support for expanding the Just BARE brand nationally and investments for our new Prepared Foods products both in US and Mexico as well as the inclusion of the newly assets in Europe and acquisition costs. We will continue to prioritize our capital spending plans this year to optimize our product mix that is aimed at improving our ability to supply innovative, less commoditized products and strengthen partnerships with key customers. With our growth in Europe, we expect to spend about $350 million in capex this year, higher than our depreciation. And we reiterate our commitment to investing on strong return on capital employed projects that will improve our operational efficiencies and tailored customer needs to further solidify competitive advantages for Pilgrim's.

Our balance sheet has continued to be strong giving our continued emphasis on cash flow from operating activities, focus on management of working capital and disciplined investments in high-return projects. During the quarter, our net debt was $2 billion with a leverage ratio of 2.1 times last 12 months EBITDA. Our leverage remains at a good level, and we expect to continue to produce strong cash flow this year, increasing our financial capability to pursue strategic options. We expect 2020 interest expenses of around $100 million to $130 million. We have a strong balance sheet and the relative low leverage. We will remain focused on exercising great care in ensuring that we create shareholder value by optimizing our capital structure, while preserving the flexibility to pursue our growth strategy and we'll continue to consider and evaluate all relevant capital allocation strategies that will match the pursuit of our growth strategy and continue to review each prospect accordingly to our value-creating standards.

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

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Ben Theurer of Barclays. Please go ahead.

Benjamin Theurer -- Barclays -- Analyst

Hey, good morning, Jayson and Fabio. Thanks for taking my question.

Jayson Penn -- President & Chief Executive Officer

Good morning.

Benjamin Theurer -- Barclays -- Analyst

So the first question is about the chicken pricing dynamics in the US and you actually nicely laid out in your presentation that boneless, the breast meat prices are pretty much at low levels over the -- compared to the past history. What are you expecting and what do you prepare for going into the coming quarters and into the summer season. Is there anything you've seen in early potential future activity where you could expect that there's going to be better demand and prices going into a better territory or would you expect that this particular category continues to be very much under price pressure. And I have another question. That would be my first one.

Jayson Penn -- President & Chief Executive Officer

Yeah. Ben, this is Jayson. So I would say, let's start with the fundamentals. USDA is expecting US chicken production to increase by 4% year-over-year. In 2019, that number was 3%. So we're going to see another 1% on the market. From an export standpoint, we will also see an increase of around 4.5% according to the USDA. So we're going to see some increases in exports as well. I think offsetting this, the USDA has also projected a flat availability in both pork and beef, which is positive for chicken in their 2020 year. So I'd say the fundamentals show increased exports and then, flat numbers in availability for their competing proteins.

We're also going to see, Ben -- as we saw, the 3% increase in production, we also saw a 7% increase in large bird deboning in Q4 and that was one of the reasons why we saw some Q4 depressed breast meat numbers and then, we're also seeing that as an overhang into the Q1 format. So what we're going to see is 4% year-over-year, but we're going to see the front half of 2020 a little bit more pressured relative to breast meat and production. So we might see 5% to 6% on the front end of 2020, and we'll see 2% to 3% on the back end, giving us that 4% average number. So based on the way pork placements are coming across, we're going to see a higher number on the front end versus the back end.

And we're also seeing as of late some increased features from chicken. But again, we'll start to see less competing proteins available in the US in the back half of the year. We'll see some ASF impact start hitting toward the back half of the year and we'll start to see those retail feature start to come through starting Q2 through the rest of the year. So we believe the fundamentals are in line, and we recognize there is pressure on breast meat today, but we believe that pressure will be relieved throughout the years as the year goes on.

Benjamin Theurer -- Barclays -- Analyst

Okay. Perfect. And then on Europe, you've talked about that you have a significant improvement on the legacy business, but also Tulip started to contribute in a positive way. Could you elaborate a little more in detail? Is it because of your applying the best practices in each of it? I remember Tulip was mainly because of a lot of the Prepared Foods and the more sophisticated products, that's something you're basically taken over into the legacy Moy Park business and what have you been doing with the Tulip operation to actually after such a short period of time to be already slightly positive, because if I remember right, it was negative at the beginning?

Jayson Penn -- President & Chief Executive Officer

That's right, Ben. So there's a lot of things happening in the Tulip operations. So we've done this before. We've acquired the GMP team. Successfully, we took on the assets in Mexico Moy Park as well. So we have some positive experiences in acquisitions, and it always starts with people having the best team in place, having that structure of ownership and accountability in the right place and then, we're looking at operational improvements as the second pillar, so we have our engineering teams and industrial engineering teams through these facilities looking at operational excellence, we have synergies. We have streams of people looking for packaging, looking for other types of operational improvements and then there is a portfolio. So we're improving the portfolio here at Tulip and the China factor is obviously in play here. So we have the fifth quarter, and we have charters also being exported. And we said this on our opening remarks that all of our appetizers [Phonetic] are approved for China as well here. So we have the China impact. We have the team. We have the portfolio, and we're also working our key -- on our key customer strategy.

Fabio Sandri -- Chief Financial Officer

And just to answer this, we have the opportunities to increase the efficiencies across the value chain. We can optimize purchasing and production, and we are improving yields and the global management of feed sourcing. We will also leverage our infrastructure in UK to optimize the support costs and use our innovation leadership at Moy Park to deliver growth at Tulip. I think more important than the synergies with our key customer strategy, we believe that we can add value, both to our operations and to our customers by providing a much broader portfolio of products. And just like Jayson said, like any operations and geographies, we expect to achieve a level of results that is competitive with leading companies with similar portfolio. We talk about the ASF opportunities, and prices have increased for exports for Tulip, but also there is an increase in pork prices in Europe. And many of the cheap imports that were coming into the UK have been reduced driven -- giving a great opportunity for domestic meat.

Benjamin Theurer -- Barclays -- Analyst

Okay. Perfect. Thanks very much. I'll leave it here.

Operator

Our next question comes from Heather Jones of Heather Jones Research LLC. Please go ahead.

Heather Jones -- Heather Jones Research LLC -- Analyst

Good morning.

Jayson Penn -- President & Chief Executive Officer

Good morning, Heather.

Heather Jones -- Heather Jones Research LLC -- Analyst

So I wanted to follow up on your comment about the plant conversions, I was wondering if you could give us color on that as far as like timing, are you -- will it take any pounds out? What will that do to your mix because you all have talked about being roughly a third, a third, a third. I mean, what does that mix look like after this? If you could just flush that out some for us.

Jayson Penn -- President & Chief Executive Officer

Sure, Heather. The conversion will take place between Q2 and Q3. It will take obviously when you take a bird out of the large deboning sector and put it into a small bird deboning sector, we will lose some pounds on the front end and then at some point in time, we'll have some line speed increases and take those pounds back up, so I would say somewhere in the 2000, 2021 range, we will be back into our tonnage, but again Q2, Q3 temporary shortage on pounds and then we'll take those pounds bounce back up.

Fabio Sandri -- Chief Financial Officer

I think the most important part, Heather, is that we are growing with our key customers. So in this segment, it's much more profitable operation for us and we will help again differentiate our portfolio and it's one plant in 2006. So it's not a meaningful volume for us.

Heather Jones -- Heather Jones Research LLC -- Analyst

But I mean, I think if I remember correctly, you will have like eight big bird plants. This takes out one. I mean, am I right in thinking that third, third, third is going to shift. I mean, does it go to like 40/35/25. I mean how should we be thinking about that mix?

Fabio Sandri -- Chief Financial Officer

I think you can post the shift into your numbers certainly, but I think the -- I think I'll continue on to Fabio's comments. The fact is, even though, Heather, we are, let's say, a third of our production volume is in big bird deboning, I will argue that within that segment with the mix within the mix, our teams have been adding value to the white meat of that bird. So we're continuing to take our business away from a commodity sector on the front half of the bird and the back half. So with this one shift, you will see some. If you model us, you'll see some movement, big to small, again but you will also continue to see us adding value to the front half of our birds even in that big bird segment. Again, that's the mix within the mix. Our portfolio will change, and we're going to continue to optimize our portfolio to deliver the best mix to our shareholders.

Heather Jones -- Heather Jones Research LLC -- Analyst

Okay. Thank you. And my follow-up question is Jayson, you mentioned you still expect the benefit of ASF to show up. You noted that be sizable, but you said something about second half, so I was wondering what prompted that comment. I mean what are you -- are you seeing constraints on the export capacity side? I mean, what made you say second half? That's my follow-up.

Jayson Penn -- President & Chief Executive Officer

Thanks, Heather. I would say this. I'm not sure if we can estimate the timing here. As you know, the -- we estimated this ASF to really start in the Q4 of '19. It's rolled into the Q1. I think due to the coronavirus, you're going to see some more rolling again. We haven't seen any impact on chicken imports due to the coronavirus. We have seen some impact of the reduced flows into China. That's created some excess supplies on the market. And I'd say, especially in the US pork market, the price impact has been amplified because of the trade expected and increase in China purchases in February out of the US and these purchases really haven't materialized. We do know that the Chinese government is seeking to expand the medium imports to stabilize the domestic supply, but we know that beef remains at 20% higher this time last year. Pork is 127% higher. Chicken is up 16%, off a very low base.

And again while we've not seen any impacts directly, there are supply chain concerns of monitoring pretty carefully and not only in regards to our US shipments, but our UK pork shipments as well into China. We're seeing these logistics, including some block shipments of animal feed. So we're seeing some issues on travel restrictions within China. We don't know the extent of the chicken market, but there are some calling going on in China. We know that there is some restrictions also on some live supply blockage as well. So we're starting to see some of this impact that's impacting the live supply chain in China and what we do believe is that when the fire is under control and the lockdown practices removed, trade flows are going to resume and when they do whether that's Q2 or Q3, we believe the demand is going to recover more quickly than the supply.

So we believe that when demand starts to de- bottom, we'll start to see that supply chain recover, but it'll take a little bit more time for that supply chain to recover. And this is where we're going to see the rolling effect of ASF. I think we're going to start to see it. We're already shipping to China today. We have heavy demand for our China products. I think you might have read even as late as yesterday, Heather, that there is going to be some restrictions removed on some tariffs. So you could see some tariff restrictions being removed on that 30%, that was 35%. So if that happens, we'll start to see this movement out of the US relatively quicker rather than later and it will give us an edge to compete against Brazil, who is also shipping meat into China. So I think to you the timing, Heather, there's a lot of different factors that are coming into play here.

Heather Jones -- Heather Jones Research LLC -- Analyst

Okay. Thank you so much.

Operator

Our next question comes from Ken Zaslow of Bank of Montreal. Please go ahead.

Ken Zaslow -- Bank of Montreal -- Analyst

Hey, good morning guys.

Jayson Penn -- President & Chief Executive Officer

Good morning.

Fabio Sandri -- Chief Financial Officer

Good morning, Ken.

Ken Zaslow -- Bank of Montreal -- Analyst

In terms of Mexico, can you talk about the situation there? Has it started to improve? Are you -- is this margin structure going to continue to this quarter? How do you think about it a little bit over the next, one to three quarters?

Jayson Penn -- President & Chief Executive Officer

Sure, Ken. Look, as we know, there is a technical recession in Mexico in 2019. And we expect the economy to stagnate this year. So we believe that there is upside potential with Mexico. The passage of the USMCA is going to provide a boost for the economy. We've had four years of uncertainty in Mexico. That's certainly going to help. I would argue that over the last many years, Mexico has produced double-digit EBITDA margins. We've seen troughs. We've seen peaks, but at the end of the day, we have a very smooth and well operating team in Mexico that delivers the results. And yes, we had a difficult Q4 that spilled over into Q1. We're already seeing the market recover, and we'll have a seasonal Q2, Q3 and Q4. Again, I don't see anything structural involved here. We did see a deep trough in Q4, and it's filling over to Q1, but I can't -- at the end of the day, we don't believe there is anything structural that's changing in Mexico.

Fabio Sandri -- Chief Financial Officer

And Ken, as you know, Mexico is the proxy for developing economies, right? Like the US where the protein consumption grows as we see growth in disposable income. We are also diversifying our products over there, growing the premium value-added products. And we are also growing our fresh production with our expansion in Veracruz.

Ken Zaslow -- Bank of Montreal -- Analyst

Okay. And then, can you talk about your personal -- or Pilgrim's Pride personal shipments to China? Have you guys done anything? Have you seeing anything? What do you guys -- how is it reflective in what you're hearing on your operations that you guys gearing up for more exports? Are you guys doing anything to change? Just any color on that would be helpful. And I'll leave it there.

Jayson Penn -- President & Chief Executive Officer

Yeah. Sure, Ken. We are packing pause. We are packing drumsticks. We are packing whole legs. We are packing leg quarters. We are packing wing tips. We are packing wing tips. We are packing gizzards, and we are shipping all of the above items. We have a heavy demand for orders despite what we're hearing in the marketplace with coronavirus and logistics, but we are taking orders. We have currently $25 million of orders on the books, and we are receiving wire transfers from those orders. And we are shipping. So despite what we're hearing with the logistics issues, we are packing and we are shipping for PRC.

Fabio Sandri -- Chief Financial Officer

And Ken, as you know, we have an extensive network that we can export. If there is any disruption in China, we, of course, can divert those projects to other places. Africa has been a little bit slow in 2019. But Latin America has actually increased their demand.

Operator

Thank you. Our next question comes from Peter Galbo of Bank of America. Please go ahead.

Peter Galbo -- Bank of America -- Analyst

Hey guys, good morning. Thanks for taking the question.

Jayson Penn -- President & Chief Executive Officer

Good morning.

Peter Galbo -- Bank of America -- Analyst

Jayson, I was hoping you could expand on your comments a little bit from the last question just on possible tariff reduction from 30% down to a lower level. I know there have been some articles floating around earlier in the week on potential tariff exemptions on beef and pork, but nothing at least official yet out on chicken. So just any comments there would be very helpful.

Jayson Penn -- President & Chief Executive Officer

Absolutely. We got confirmation yesterday that chicken will be included into the commodity mix.

Peter Galbo -- Bank of America -- Analyst

And do we know what that level is going to or --?

Jayson Penn -- President & Chief Executive Officer

That's to be determined. Peter, I'm not sure that there are any levels. It could be from zero to 30%, but I don't have any details on what those levels might be. I think as the week progresses, we'll find out more next week.

Peter Galbo -- Bank of America -- Analyst

Got it. Okay. And then just on the plant conversion as well, I mean, it makes complete sense from where we sit, just curious what you're seeing from the competitive environment, some of -- maybe your private competitors who are also going through potential plant conversions and whether or not, you think this helps to just clean up some of the profitability issues in the big bird deboning for the industry as a whole.

Jayson Penn -- President & Chief Executive Officer

Yes. Peter, I can't speak for anyone else. But I will tell you one of our strategic pillars is to have an optimized portfolio. And so, our team is looking upfront, and we are seeing that -- you're reading the tea leaves here. And from a commodity standpoint, our key customer strategy enables a tighter footprint. We're able to use more of our finite resources toward key customers, while building relationships and building pipelines of innovation for our key customers. So relative to the rest of the industry, I really can't speak to that. We've stated in this small bird business, so in 2011 when we came to this Company, our new management team, we were a leader in small bird.

Shortly after the big bird market started to really take off and the commodity markets were very high and there were a lot of start-up operations between, call 2015 and 2019 and most of the new operations that are and have come into the marketplace for big bird operations. And again I'll double down on this. Even inside of our big bird operations, we are de-commoditizing the products that we offer from a white meat perspective and a back half perspective. So we're doing this in many ways, but one big shift in 2020 will be that large bird to small bird deboning operation and then, the mix within the mix, we're going to be de-commoditizing white meat again and that works best for us in our portfolio and our key customer strategy as well.

Peter Galbo -- Bank of America -- Analyst

I think we can Peter, because we have these diverse customers and we also have a lot of operations. We can maximize and optimize the footprint. I think if you have a single plant that is a big bird operation. And if you want to reduce the size of the bars, you'll be very inefficient in terms of feed mill, in terms of hatcheries. So I think it's much more complicated for a small player to do this, to do any conversion than for a company like us with this multitude of segments.

Operator

Our next question comes from Ben Bienvenu of Stephens. Please go ahead.

Ben Bienvenu -- Stephens -- Analyst

Hey, good morning. Thanks for taking the questions.

Jayson Penn -- President & Chief Executive Officer

Good morning, Ben.

Ben Bienvenu -- Stephens -- Analyst

On SG&A, Fabio, you made some comments around some of the investments that you guys are making. We saw SG&A -- it can be volatile quarter-to-quarter, but this year, we've seen it kind of steadily moved higher throughout the year, should we be thinking about the full-year '19 SG&A absolute number and growing off of that or taking the fourth quarter and sequentially growing off of that, just how much of an aberration versus a trend change in the fourth quarter for SG&A?

Jayson Penn -- President & Chief Executive Officer

I think Q4 was a little bit different than the others. So we can expect to the same level year-over-year. We don't expect Q4 to happen again. I think it was more the integration of the newly acquired European assets into the specific quarter.

Ben Bienvenu -- Stephens -- Analyst

Okay, fair enough. So, the integration of two obviously contributing significantly, but the big increases in the US and Mexico are unlikely to repeat?

Jayson Penn -- President & Chief Executive Officer

Yes, because that is where -- systems with the improvements that they're doing in terms of marketing and supporting the national brand to Just BARE brand.

Ben Bienvenu -- Stephens -- Analyst

Okay, great. Okay, great. I want to ask -- you talked about the demand picture in Mexico, what does supply look like and Jayson, your comments around elevated production in the first half of the US and lower in the back half of 2020 makes perfect sense given the capacity increases we've seen, I'm curious is there any impact on the Mexico market from abundant supplies in the US. Does any of that product spillover into the Mexico market when there is a cheap alternative in the US as well or are those markets mutually exclusive? Yeah, Ben. I think Mexico is the largest partner for United States, right. They take around the 22% of the exports of United States, so is the largest partner. I think what happened last year where exports to Mexico increase around 5% year-over-year was the substitution of the Brazilian meat. As the Brazilian exports instead of going to Mexico start going to other destinations, especially China, we saw the Mexico then and because also of the prices of breast meat being so competitive. They started importing more breast meat from United States. We don't expect that to happen once again next year as we are seeing more and more exports from Brazil going to other destinations, and they did not renew the quotas from Brazil to Mexico, we don't know if that's going to be renewed this year or not. So even if there is a little bit more exports from United States to Mexico, I expect that to impact the Mexican operations. Okay. Perfect. Very helpful. Thanks so much.

Operator

Our next question comes from Michael Piken of Cleveland Research. Please go ahead.

Michael Piken -- Cleveland Research -- Analyst

Yeah, I just wanted to dig in a little bit more on in terms of your key customer program. And just I wanted to talk about the NAE market, specifically. Are you seeing any signs of that market becoming more saturated or more competitive as other companies are moving there or are you still expecting to hold the traditional premiums you've gotten for that type of product?

Jayson Penn -- President & Chief Executive Officer

Yeah, Michael. Thanks for the question. So -- and you're right to combine the NAE discussion with the key customer strategy piece. We NAE products for our key customers. And if you think about it from on the retail shelf, we produce NAE products for our customers to be a total solution provider. So we might be providing 5-feet of shelf space with NAE and the rest of the 25-feet of shelf space will have conventional product mix to it. So when we think about NAE, we obviously have some value and largest built into that piece, but when you think about our total picture with our key customer strategy, we're able to deliver NAE plus our conventional products to provide a total solution for our customers. So, we're really not seeing any dilution or any margin issues relative to NAE still as robust as it was when we started our programs years ago, and we're continuing to grow NAE offerings and profile.

Fabio Sandri -- Chief Financial Officer

And also in terms of feature Michael on the retail, we are seeing more and more features on the NAE and organic. Although we saw features in the retail lower year-over-year in Q4, we're seeing a rebound now in Q1, but even in Q4, we saw an increase in the NAE on organic category.

Michael Piken -- Cleveland Research -- Analyst

Okay, great. And then my second question is just in terms of the sandwich words that have been growing on at QSR, I would imagine that it's been with -- for the small bird, I mean is there any opportunity for the commodity big bird breast meat pricing to benefit from some of these sandwich wars or the two markets completely kind of split from each other, or is there potential that the small bird gets tied enough that people need to start sizing up big burden, maybe it will help that breast market a little bit. Thanks.

Jayson Penn -- President & Chief Executive Officer

Michael, I would say the meat blocks are entirely different, but -- what you will see and we have seen is some sliding from small bird offerings into the sandwich market into the medium birds. We're starting to see some medium birds because of the tightness in supply. There is actually a 3 times value of small bird meat to big bird meat in terms of pricing. So you're seeing a significant price differential between small bird and big bird, but you're starting to see some medium bird meat slide into the sandwich category. And then on that -- with that basis, we're also seeing a little bit of jumbo meat sliding into the medium bird space, but not on a large volume, it depends on what's going to be offered in 2020. If the sandwich category continues to grow, you'll see more medium meat slide into the sandwich category, thus pulling some more big bird meat. There are some technologies in the market from an operation standpoint that can obviously take a big bird meat and cut it down into medium and small bird meat.

For sandwiches, the mouth feels much different and that's why we're starting to see this bifurcation in pricing between the small bird and the big bird meat. Consumers is noticing that mouth feel and they are paying for that organoleptic attribute that the small bird meat delivers to the sandwich.

Fabio Sandri -- Chief Financial Officer

I think, Michael, also with the sandwich wars, I think you can create a halo effect for other offerings of chicken. We're seeing more chicken breakfast offerings and also more promotional nuggets. I think there is some pool because of the sandwich wars for other chicken parts, and that could help the breast meat.

Operator

Our next question comes from Adam Samuelson of Goldman Sachs. Please go ahead.

Adam Samuelson -- Goldman Sachs -- Analyst

Yes, thank you. Good morning, everyone. A lot of ground has been covered. I was hoping to just talk about your US Prepared Foods business quickly. You made a reference in the press release that the business continues to evolve. I know that business has been a bit more challenge over the last few years from a margin perspective. I just wanted to get an update on kind of profitability and kind of scope for margin enhancement in that business as you've reset and recalibrated the mix.

Jayson Penn -- President & Chief Executive Officer

I think, Adam, just like we talk about, it's about the portfolio, right. We partner with our key customers, and we offer from fresh -- from simple offerings or normal products to ABF and organic and also on the Prepared Food side. I think there are two dynamics happening on the Prepared Food side. The breast meat has been on opportunity for the Prepared Foods. We can grow with cheap breast meat. And on the wing side, it's being more headwind. As we've seen on the cutout, chicken wings continue to have a really strong price and also tenders. So I think it depends on the category. I think on the nuggets offering and on the products based on breast meat, you have a great opportunity in terms of cost and on wings and tenders. We need to differentiate with innovation and a lot of our peers brand that it has a great penetration in the foodservice.

Adam Samuelson -- Goldman Sachs -- Analyst

Okay. That's helpful. And then just second question and it touches back on the plant conversion, but maybe focusing on the remainder of your big bird business, whether it's -- can you talk about from a -- both plant level cost as also plant level margin, how you see those relative to the rest of the big bird industry?

At this point, I know, going back a few years that those plants were not optimized for big bird production and the cost position wasn't where you would have hoped it to be kind of where are we now and how much more opportunity is there to come in. If there is more opportunity, is there incremental capital investment that's got to be made there?

Jayson Penn -- President & Chief Executive Officer

Yeah. Adam, I will say this, and you're absolutely right between 2011 and 2015, we converted seven facilities into the big bird deboning category. And I will argue today, and we've been very transparent with this that we were -- we had a negative result relative to the industry. I will tell you today, we are at average company. Over the last 12 months, we've improved that business relative to the competition by around $50 million. It's been one of the biggest movers for us in 2019. We've been very quiet about moving that those numbers from a negative deviation to the industry. So on average, we've fixed our business from an operational standpoint inside these facilities, started with people and labor. And as we fix that piece of our business, we were able to take on a more sophisticated mix both from a white meat standpoint and a dark meat standpoint. So the mix relative to the value-add that we were bringing to our big bird operations, we wouldn't have been able to execute that sales program in the past years, but as our operations are running well, we were able to transfer that mix into our operational profit.

So our sites now are moving past average, just like the rest of our businesses, which we are operating within their like categories in the Top 3 of their business. Our sites now are to continue to move out of average and into the Top 25. And of course, Adam, as we can move this plant from one segment to the other, we can upgrade the bottom part of our sales, right. So we will take the most basic sales and the least profitable sales that we have in all of our operations and we will upgrade. And again just like Jayson said, we are one of the leaders in the small bird category for sure in the top quartile of operations.

Adam Samuelson -- Goldman Sachs -- Analyst

All right. I appreciate the color. Thank you.

Jayson Penn -- President & Chief Executive Officer

Thanks, Adam.

Fabio Sandri -- Chief Financial Officer

Thanks, Adam.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Jayson Penn for closing remarks.

Jayson Penn -- President & Chief Executive Officer

Thank you. We are looking forward to successful 2020. Although we are pleased with our 2019 results, we are actively seeking more opportunities to achieve an even greater relative performance against industry peers in 2020 by improving upon our well-proven strategy. Our diverse portfolio of differentiated products tailored to support our key customer strategy in conjunction with our broad geographic footprint will continue to generate consistent performance and minimize margin volatility in challenging market conditions relative to competitors. We will continue to seek new growth potential, both organically and through acquisitions, while offering even more differentiated product portfolio within our businesses to support key customers' needs by cultivating a culture of constant innovation.

We believe the prospect for strong growth in chicken consumption globally will remain as consumers worldwide continue to view chicken as a compelling healthy option. Our team members are our competitive advantage. We will continue to invest in our people who drive our results by providing them greater opportunities to contribute to our shared success. We would like to thank everyone in the Pilgrim's family, including our family farm partners, suppliers and our customers who make our business possible. As always, we appreciate your interest in our Company. Thank you for joining us today.

Operator

[Operator Closing Remarks]

Duration: 64 minutes

Call participants:

Dunham Winoto -- Director of Investor Relations

Jayson Penn -- President & Chief Executive Officer

Fabio Sandri -- Chief Financial Officer

Benjamin Theurer -- Barclays -- Analyst

Heather Jones -- Heather Jones Research LLC -- Analyst

Ken Zaslow -- Bank of Montreal -- Analyst

Peter Galbo -- Bank of America -- Analyst

Ben Bienvenu -- Stephens -- Analyst

Michael Piken -- Cleveland Research -- Analyst

Adam Samuelson -- Goldman Sachs -- Analyst

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