Prepared remarks
Good morning, and welcome to the Second Quarter of 2026 Pilgrim's Pride Earnings Conference Call and Webcast. At the company's request, this call is being recorded. Please note that the slides referenced during today's call are available for download from the Investors section of the company's website at www.pilgrims.com. I would now like to turn the conference call over to Andrew Rojeski, Head of Strategy, Investor Relations and Sustainability for Pilgrim's Pride.
Good morning, and thank you for joining us today as we review our operating and financial results for the second quarter ended on June 28, 2026. Yesterday afternoon, we issued a press release providing an overview of our financial performance for the quarter, including a reconciliation of any non-GAAP measures we may discuss. A copy of the release is available on our website at ir.pilgrims.com, along with slides for reference. These items also have been filed as Form 8-Ks and are available online at sec.gov. Fabio Sandri, President and Chief Executive Officer; and Matt Galvanoni, Chief Financial Officer, will present on today's call. Before we begin our prepared remarks, I would like to remind everyone of our safe harbor disclaimer. Today's call may contain certain forward-looking statements that represent our outlook and current expectations as of the 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 these factors have been provided in yesterday's press release, our Form 10-K and our regular filings with the SEC. I would now like to turn the call over to Fabio Sandri.
Thank you, Andy. Good morning, everyone, and thank you for joining us today. For the second quarter of 2026, we reported net revenues of $4.6 billion with an adjusted EBITDA of $360 million. Our adjusted EBITDA margin was 7.8% compared to 14.4% last year. During the quarter, chicken demand remained firm across all regions, leading the growth in meat protein consumption. Equally important, we continue to drive growth projects to strengthen our portfolio, drive sales growth and enhance margins. In the U.S., demand for chicken continued to grow in both retail and foodservice. Operations improved compared to the previous quarter given the completion of our plant upgrades and progress in the efficiency of our live operations. Volumes to key customers in Fresh remained steady, whereas prepared grew double digits as Just Bare continued to lead growth and velocity in the frozen fully cooked category. In Europe, poultry and ready meals drove overall sales growth as their affordability and convenience resonated with value-conscious consumers. Margins were compressed given competition from imported pork into the U.K. and increased costs driven by the Middle East conflict. Mexico also increased volumes compared to last year, driven by exceptional growing environment for birds. We continue to grow our branded offerings in both fresh and prepared, and the previously announced growth and diversification projects all remain on schedule. We continue to focus on all aspects in the environment, social and governance matters within sustainability. Our approach to team member development and retention were recently recognized across regions for workplace satisfaction, including America's Greatest Workplace by Newsweek in the U.S., Employer of the Year by The Grocer in Europe and Exceptional Companies Award by the Institute for the Promotion of Quality in Mexico. Turning to supply in the U.S., USDA reported ready-to-cook production increased 4.5% over the same period last year from higher headcount and modestly higher live weights. Egg sets rose 2% from improved layer flock productivity, where chick placements grew 2.4% from moderate improvements in hatchability. A significant part of the growth came from much better livability than previous years. Given the size of the layer flock, recent pullet placements and production environment, the USDA anticipates chicken production growth to slow down in the second half of the year to around 2.5%, closing the year at 3.3%. As for other proteins, USDA expected limited growth in pork, along with a minor increase in beef availability as higher imports partially offset domestic production headwinds. When these factors are combined with increased chicken supply, USDA estimates overall net protein availability will increase by 2.2% compared to last year. Within the U.S., the affordability of chicken provided a great option to household budgets pressured by persistent inflation and elevated energy prices. As a result, chicken continued to be resilient as volumes increased across both retail and foodservice channels. In retail, the fresh meat department posted dollar sales growth across all major proteins. From a volume standpoint, chicken delivered the highest growth among all proteins compared to the same period last year. Boneless skinless breast volumes increased year-over-year as pricing remained steady and the spread versus ground beef remained at record levels. Boneless skinless dark meat continued to deliver strong growth as volumes rose compared to the first quarter of 2026. In deli, consumer demand for convenience and ready-to-eat options drove growth in rotisserie WOGs and cutup portions. Sales and volumes for appetizers, including popcorn chicken and wings, also rose compared to the same period last year. Demand for convenience and value also permeated the frozen prepared category as chicken grew compared to last year. Within foodservice, chicken volumes remained positive despite mixed industry performance and traffic trends as operators continue to expand chicken as a value-oriented protein offering. Overall, foodservice volumes increased despite continuous concern about foot traffic with chicken gaining menu penetration. QSR and noncommercial channels presented the largest growth with chicken-focused chains leading growth in QSR. Despite continued healthy growth in chicken across all channels, demand was more than offset by the increase in supply. As a result, counter-seasonal movements emerged in the commodity chicken market, lowering cutout values compared to the previous quarter. In exports, overall poultry exports remained steady compared to last year as trade flows continue to navigate through a variety of circumstances. Our volume growth was strong, and we outpaced the channel through an increased presence in several key markets. Within the Middle East, trade to GCC countries continues to flow through alternative ports, giving a comprehensive inland transportation network, enabling a resilient supply chain. For Asia, recent meetings between government officials from the United States and China created a favorable outcome for U.S. poultry exports. As such, China released 17 states from its avian influenza ban, allowing shipments of raw products to resume. Additional opportunities exist as other states that are currently free of high path avian influenza have yet to be fully recognized. Further meetings scheduled later in the year may result in the release of these states and resumption by China to follow the Phase 1 agreement. Turning to feed. Corn was volatile throughout the quarter. Early in the period, concerns about disrupted fertilizer supply and higher energy costs associated with the Middle East conflict elevated prices. Corn markets eventually fell given favorable U.S. planting weather, a higher level of U.S. planting acreage relative to forecasted expectations and better-than-expected production in South America. Looking ahead, higher risk premiums for corn may emerge pending outcomes in the Middle East and reactions by China to potential trade policy changes by the U.S. Nonetheless, yields for the U.S. crop, along with weather in the Midwest, will be the key drivers for corn pricing in the short term. The soy complex shows similar volatility given the Middle East conflict, along with additional uncertainty from the pace and volume of Chinese purchases of U.S. soybeans. Another year of record soybean production in South America, along with increased soybean acreage in the U.S. versus last year, reinforced healthy stock levels. Given the potential of incremental buys of U.S. soybeans by China, a risk premium will continue to exist within the soy market. Soybean oil continues to be the stronger leg of the soy complex, keeping the soybean meal price relatively lower. In wheat, global stocks remain at comfortable levels despite a decline in production from the all-time high last year. Availability may be further enhanced later this year as the U.K. anticipates a production increase of 25% versus prior year. However, recent concerns regarding shipments in the Black Sea given the conflict between Ukraine and Russia may trigger an increase in price. In the U.S., investment in converting our plant in Russellville to a case-ready operation to further strengthen key customer partnerships was completed as planned. We also continue to improve our sales mix given the recent installation of dark meat deboning and portioning equipment in several big bird plants. Given this work, our portfolio was more prepared to manage the counter-seasonal declines in commodity cutout values, enhancing profitability from the first quarter. In Fresh, volumes grew compared to the same period last year. Margins expanded from the previous quarter given the completion of the plant upgrades and continued improvements in live operations. Case-ready volumes rose compared to last year from incremental distribution and stable velocity throughout retail. We also secured several promotional events with several leading retailers to further drive demand during the next quarters. Small birds also grew as volumes to key customers exceeded channel averages. Our big bird plants provided additional product to support the growth of prepared foods, mitigating the impact of commodity market declines. To support the growth of our key customers, we recently announced the investments in Ellijay, Georgia to expand production and do more deboning of small birds. Based on this work, we will further align our portfolio to meet the fast-growing boneless chicken categories such as chicken sandwich and tenders. Momentum to further diversify our portfolio through prepared foods continues to accelerate. Overall volumes increased nearly 14% compared to the same period last year. Retail sales of Just Bare increased over 30%, six times the category average. We also received additional recognition for the taste and quality of Just Bare as a recent survey of chefs by Allrecipes named nugget one of the best in the category. Given its extensive growth and consumer acceptance, it has achieved nearly 15% market share, making it the second largest brand in frozen fully cooked. We continue to drive growth of our branded presence in retail through innovation. To that end, we have created expansions to grow Just Bare's presence across different occasions and consumer segments. Similarly, we are securing partnerships to deliver and launch new flavor offerings through retail and club for the Pilgrim's branded items in retail. We are building further awareness of our superior taste and culinary focus of the broader Just Bare fresh prepared portfolio through media partnerships. Recently, our innovation was featured on the award-winning television series The Bear, and further supported by selected dining experiences, meal kits and press coverage. Based on this work, we've generated over 950 million earned media impressions. In foodservice, we continue to increase our presence of branded offerings as market share has increased in both commercial and noncommercial channels. Moving forward, we will continue to cultivate our presence through innovation, digital engagement and new product development. Our investment in Walker County, Georgia to further support our growth remains on track with commissions slated for the second half of 2027. In Europe, our diversified portfolio continues to adapt to meet evolving marketplace needs. The affordability of our poultry and meals resonated with inflation-strapped consumers as each were among the fastest growing categories in retail. Our volumes to key customers rose faster than both grocery channel averages and prior year, reinforcing our partnerships. In the branded segment, volume in the Rollover grew double digits and garnered significant retailer acceptance and consumer interest. Fridge Raiders remained relatively steady as additional distribution was secured throughout grocery, enabling further growth for the remainder of the year. While Richmond's margins remain attractive, the pace of volume growth lags our expectations as extensive promotion activity, along with significant retailer support of premium private label offerings, has intensified competitive pressures. Given Richmond's market presence and further profitability growth potential, we will continue to emphasize sales execution, investment in brand building and drive innovation. In foodservice, QSRs continue to experience declines in store visits, resulting in lower volumes and sales. We will continue to work closely with leading foodservice providers to expand our portfolio of value-focused offerings, generating additional traffic. Despite increasing costs from the Middle East conflict and competition from imported pork into the U.K., overall profitability was comparable with last year. Within pork, continued reductions in the existing herd along with further diversification in prepared should alleviate margin pressures. In addition, our pricing arrangements for customer-specific offerings allow for recovery from raw material escalation. Turning to Mexico. The country experienced a counter-seasonal very positive growing environment for birds. As a result, production expanded from elevated livability and higher live weight. Increased production of domestic eggs and additional pork imports further grew overall protein availability in the country. Nonetheless, demand for chicken was very strong, absorbing the additional supply. We continue to grow our differentiated branded offerings. In Fresh, volumes of retail branded products grew over 30% compared to last year. Just Bare once led the growth as volumes increased over 2.5x. Prepared Foods offerings continue to gain marketplace traction as volumes rose across retail and foodservice. Pilgrim's branded offerings led growth as volumes grew double digit across both channels. Operational excellence efforts made significant progress given improvements in productivity and live operations, further enabling our business to navigate these challenging market conditions. We continue our investments to drive sales growth and reduce the volatility of our portfolio. To that end, we completed our expansion of the prepared plant line at Porvenir and started production as scheduled. Our investments in live in the Southern Peninsula are also on track and ramp-up continues. We continue to emphasize all aspects of sustainability throughout our operations. As part of this effort, we've made repeated investments in team member training to reinforce our values throughout our organization, build technical skills and develop management capabilities. Given our continued focus, we've been recognized as a leader in workplace satisfaction across multiple publications, including Newsweek in the U.S., The Grocer in Europe and the Institute for Promotional Quality in Mexico. With that in mind, I'd like to ask our CFO, Matt Galvanoni, to discuss our financial results.
Thank you, Fabio. Good morning, everyone. For the second quarter of 2026, net revenues were $4.63 billion versus $4.76 billion a year ago, with adjusted EBITDA of $360.0 million and a margin of 7.8% compared to $686.9 million and a 14.4% margin in Q2 last year. Adjusted EBITDA margins in Q2 were 8.7% in the U.S. compared to 17.1% a year ago. For our Europe business, adjusted EBITDA margins came in at 7.6% for Q2 compared to 8.2% last year. In Mexico, adjusted EBITDA margins in Q2 were 3.9% versus 16.3% a year ago. U.S. net revenues were $2.65 billion versus $2.82 billion a year ago. Adjusted EBITDA in the U.S. for Q2 came in at $231.5 million compared to $482.7 million last year. U.S. margins declined year-over-year primarily due to the 27% decrease in jumbo cutout value. However, sequentially, U.S. margins improved while both lapping the impacts of significant plant downtime in the first quarter and through improved performance in our live operations. U.S. Prepared Foods continues to demonstrate robust growth with year-over-year volumes increasing nearly 14%. In our U.S. GAAP results, we incurred legal settlement expenses of $136 million in the quarter, primarily due to reaching settlements with certain parties associated with the ongoing broilers litigation. Also, we took a $26 million charge in the quarter, primarily related to an asset impairment associated with our previously announced forthcoming shutdown of the harvesting facility in Chattanooga. In Europe, adjusted EBITDA in Q2 was $105.8 million versus $111.8 million last year. The business benefited from strength in poultry and meals offerings during the quarter, along with the continued benefits of its structural reorganization. The strength in poultry and meals helped compensate for pressured pork margins due to higher European imports in the U.K., increased costs driven by the Middle East conflict and decreases in foodservice traffic. Mexico generated $22.6 million in adjusted EBITDA in Q2 compared to $92.3 million last year. As Fabio mentioned earlier, Mexico's results were impacted by year-over-year changes in bird growing conditions, increasing supply in the live markets and lower-priced competing proteins. SG&A costs in the quarter were higher year-over-year, primarily due to an increase in legal settlement and defense costs. However, these costs were partially offset by lower incentive compensation accruals and marketing expense during the quarter. Our effective tax rate for the quarter was 39.3%. However, our year-to-date effective tax rate is 25.3%. We continue to anticipate that the full year effective tax rate will approximate 25%. We have a strong balance sheet, and we continue to emphasize cash flows from operating activities, management of working capital and disciplined investment in high-return projects. During Q2, we completed a $250 million tender offer of our 2033 bonds. At the end of the quarter, our net debt totaled less than $2.5 billion with a leverage ratio of 1.43x our last 12 months adjusted EBITDA. We had nearly $1.6 billion in total cash and available credit at the end of the quarter. GAAP net interest expense for the quarter totaled $46.1 million. However, excluding the loss on the early extinguishment of debt, our net interest expense was $28.5 million. Excluding the impact of early extinguishment of debt, we anticipate our full year net interest expense to be approximately $115 million to $120 million. We spent $230 million in CapEx in the second quarter. The spending this quarter included the finalization of the Russellville conversion, continued progress in our new prepared foods plant in Georgia and the investment in Ellijay, Georgia to enhance our mix in support of key customers in the foodservice space. At this time, we maintain our full year CapEx estimate of approximately $900 million. These near-term growth projects align to our overall strategies of portfolio diversification, focus on key customers, operational excellence and our commitment to team member health and safety. Operator, this concludes our prepared remarks. Please open the call for questions.
Questions and answers
Operator, our first question will come from Ben Theurer with Barclays.
Just real quick, maybe digging into your expectations for the second half and if you could help us maybe understand a little bit what you're seeing in terms of supply as it relates to the U.S. market and how it should impact third and fourth quarter. You flagged in the presentation a little bit of an uptick, if you want to call it an uptick, at least a little bit on some of the pricing, particularly on wings from these very low levels, slightly more improving, but tenders still being very much down on a historic basis. So as we think about the cutout value and how that flows into the business that is more commodity price exposed for you guys, what are your expectations in terms of just how it's going to flow through into profits for the third and the fourth quarter? That would be my first question. And I have a very quick follow-up.
Yes. As we mentioned, we saw a significant increase in supply during Q2, 4.5%. I think the initial expectation was a little lower than that. What we saw was we started with the egg sets and the industry set 2% more eggs in the quarter. We expected a little bit better management, and we saw that a little bit improve in the hatchability. So the chick placements were 2.4%. I think what was different this quarter is that we saw an improvement in the growing conditions of the birds, and the livability was significantly better than last year. As you remember, last year, we had a lot of issues in the industry with respiratory diseases and low path avian influenza. So we saw some more mortality. This livability actually translated into more than 1% increase in total supply. So the headcount was a little higher than everybody anticipated, and that is what created a 4.5% growth in supply in Q2. Coming to Q3 and Q4, starting with the breeding flock, I think we saw the same number as last year. So we don't expect a significant improvement in number of eggs. So I think it's all about the increase in egg sets and how that will translate into ready-to-cook pounds. We don't expect that effect of increased livability for Q3 and Q4 as those issues were more concentrated in Q2. We're also seeing a little bit of warm weather, which typically impacts the growth of the birds, especially now in July and August. So we're expecting, and USDA is expecting, growth in the second half to moderate. For the third and fourth quarter of 2026, the USDA is expecting a 2.5% increase in supply, which is more in line with the strong demand that we are seeing for chicken. I think when you go to pricing, you need to go into individual segments and into individual pieces. I think first we'll start with the overall trends that are happening in the consumer. We are seeing several trends and changes in the environment that are supporting the demand for chicken in both retail and foodservice. Starting with the foodservice, we are seeing the fight for traffic. Foodservice is struggling with traffic, and because of that, they are focusing on promotional activities. We're seeing that they're using chicken for those promotional activities to generate traffic. That's why we saw an increase of 3.4% in the volume of chicken in the foodservice category. In retail, consumers are strapped for money. They are looking to control their budgets, and they're going to retail to buy protein. We saw growth in retail of 2.8% in the chicken category, especially on the prepared side, where we've seen our brands really resonating with the consumer on the prepared side with Just Bare. Consumers are looking for affordability and convenience. So we saw significant growth in prepared, but we also saw growth in fresh with the industry volume in chicken growing by 1.8%. Going more specifically into the cuts, we saw wings bouncing back after getting off menus in foodservice, and we are seeing some increase in availability in wings in retail. So we expect wings demand to continue to increase, especially starting with football season and basketball season. On the boneless breast, we've been talking about this for more than a year. The delta between ground beef and boneless breast continues to widen, and I think it's the highest it's ever been. I think that is helping the demand for boneless breast. More important than that, we are seeing significant promotional activity in retail coming into the fall and coming into the next months. That is happening because retail is also looking for foot traffic. They're increasing their promotional activity, and boneless breast has been a significant and important part of that. On the boneless dark meat, we're also seeing great trends with changing demographics and changing culinary preferences, and boneless dark meat has been the fastest growing category in retail. So we're seeing very positive trends overall for protein and for chicken in particular, both in foodservice and retail. And that can help pricing and demand as long as supply is in line with what we expect.
Okay. Perfect. And then one quick one for Matt probably. As it relates to the CapEx cadence, I mean, I think you just said $900 million for the year. Initially, it was $900 million to $950 million. So should we assume closer to the lower end of that just given the run rate of the projects? Or is there anything that you've kind of postponed? Or what's driving that guidance more to the lower end of the previous guidance for the CapEx versus what was $900 million to $950 million?
Yes. No, sure. I think year-to-date, we're at $465 million, and kind of looking at the $900 million, we have a lot of the projects that have gone through already with the Russellville conversion and some of the other plants we have. Of course, we've got continuing spend on Walker County with the new prepared foods plant and then with Ellijay, but we've got some of the bigger projects behind us and spent in the first half of the year. So at $465 million, my guide at $900 million kind of gets you nearly equal first half and second half but maybe just slightly below in the second half compared to the first half of the year.
And our next question will come from Peter Galbo with Bank of America.
Maybe to follow up to Ben's initial question and ask it slightly differently. Fabio, I know you gave a very comprehensive answer. But just is there an expectation that as we get closer to the fall that we might see the industry kind of go through its normal seasonal cuts on production? I know that was obviously last year something that didn't happen that typically we would expect to happen seasonally. So just given where the commodity markets sit, are we in a more normal environment this year where production cuts are kind of expected for the industry?
Yes, it's normal for the industry to do the seasonal cuts. Our industry always produces to the expected demand, and during the fall given Thanksgiving and other events, we don't see a strong demand for chicken. So it is normal to have those seasonal cuts. Last year, I think they waited a little because of the high prices that we were seeing in the commodity segment in the second quarter last year. But seasonal cuts always happen, and they start around the end of August and into September. Our industry always produces to the demand. Like I mentioned, I think it was an unexpected but welcome increase in livability that we had in Q2 because the exits were only increasing by 2%, which was in line with the expected demand growth that we have for chicken for the whole year. I think the livability was what increased production a little bit over what the industry was expecting. I cannot speak for the industry as a whole, but for Pilgrim's, we will always adjust our production to demand for our key customers. You mentioned an important point, which is the portfolio. As we always mentioned, we have a differentiated portfolio. We have the small birds, we have case-ready, the big birds and the prepared foods, and we're seeing strong growth in prepared foods. With all the investments we did in the big bird plants, a big portion of our production is used for the growth of our prepared foods, especially on the portion side. So that's also important. But overall, long story short, our industry will adjust production to the expected demand.
Great. Okay. Maybe if I could ask on Mexico, obviously a very dynamic first half with a lot of moving pieces there, and maybe things will start to normalize out in the second half. But if you could give us some perspective on, we've gone through a challenged first half, both from a top line and a profitability perspective, just kind of how that shapes up for the back half of the year.
No, sure. Thank you, Peter. Yes, Mexico, we always mention that Mexico can be very volatile quarter-over-quarter, but it's resilient in double digits year-over-year. I think we're seeing a little persistent lower margins versus our expectations in Mexico, but the reasons are a bit different from Q1 than Q2. Typically, in Q2, similar to the U.S., the growing conditions are not favorable in Mexico. This year, very different from other years, we saw outstanding growing conditions. So the industry normally increases sets expecting worsening growing conditions. Because this year mortality was much lower than expected and livability was much higher than expected, we saw a significant increase in the supply of chicken in Mexico, almost double-digit increase in volume. At the same time, we are seeing in Mexico the same behavior as the U.S. on shell eggs. We saw a significant increase in supply of shell eggs and the consequent reduction in price. In Mexico, because it is a growing economy and chicken is the entry protein, eggs compete more with chicken than in other countries. So we saw a significant increase in chicken, a significant increase in eggs with lower prices, and we also saw significant imports of pork into the country from the United States. With all that, we saw a very large increase in the supply of protein in the country. Nonetheless, demand continues to be excellent because it was able to absorb all this growth in protein, which signifies to us that our strategy of growing in Mexico is the right one. We are, as I mentioned, building two complexes in the Peninsula and in the South to grow our geographical diversification. We continue to invest in our brands and in our prepared foods. The change in consumer behavior in Mexico towards more convenience can also be supported by our brands. So I think Mexico, once again, is very volatile quarter-over-quarter, but we expect very good margins year-over-year given this demand for chicken and for overall protein that continues to grow.
And our next question will come from Ben Mayhew with BMO Capital Markets.
So my first question is around U.S. chicken demand. You spoke about and referenced ongoing strong demand for U.S. chicken. But we've seen foodservice industry traffic trends soften in recent months, and grocery industry trends remain somewhat soft. So I was just wondering if you could frame the demand side of the equation maybe relative to 6 to 9 months ago and just how it's evolving out there.
Sure. I think we need to look at overall trends and changes in the environment. The consumer continues to manage budgets with greater efficiency and they are strapped in their spending. It's interesting that when consumers are asked about the first thing they would cut from the budget, 75% say they would cut dining out. So that's the foot traffic impact. When the budget is constrained, 75% of consumers say they reduce dining out. That helps retail demand. Foodservice is increasing promotions to get foot traffic back, and that's where chicken has been winning by increasing menu penetration. We're seeing menu penetration for chicken increase every quarter and it is being used to attract consumers. When you drill down into all the segments in foodservice, QSRs are growing the fastest. Menu penetration and chicken volume in QSRs increased by 4.1%. Noncommercial is also seeing a resumption of in-person operations in companies, hospitals and hospitality, with chicken growth of 5.9%. The only segment with stagnation and a little growth is foodservice restaurants, which is more impacted by consumers cutting their budgets. That shift helps chicken on foodservice despite weakness in foot traffic. For retail, we saw growth, especially on the prepared side. When consumers were asked what they'd cut from the budget, 29% said they would cut grocery spending, but only 3% said they would cut meat and poultry consumption. Sixty-eight percent of consumers say meat is a nonnegotiable or important item at retail. That's consistent with the resilient demand for protein and the 2.8% growth in retail chicken volume.
Okay. And my follow-up question has to do with the European U.K. business. The top line continues to trend constructively with volumes up almost 1% there. The margins, however, have kind of stagnated. I'm wondering, I know that the pork business has been under pressure, and you're not getting out of it what you maybe hoped for a couple of years ago when you acquired it. Is there any way to quantify how big of an impact pork is? And is there a timeline you would expect that to recover? Where do you see this margin profile going from here?
We finished the reorganization and now have one integrated company in Europe, highly diversified. We balance fresh chicken, fresh pork, prepared foods, branded business, meals and foodservice. These segments balance each other to meet the consumer conditions in Europe, which are similar to the U.S. We're seeing growth in chicken demand in Europe. Our challenge to grow further is supply, and we are working to expand housing to grow chicken supply for increased demand. Chicken is growing in Europe and the meals business is growing fast with convenience and pricing resonating with consumers. Segments not growing as expected include the foodservice segment, which is stagnant year-over-year; we are working with key customers there on promotions to increase foot traffic. The branded business is facing competition from private label as consumers trade down when saving money; we are increasing promotional activity and innovation, especially for Richmond, to achieve growth. The area struggling most for us in Europe is pork. Due to increased pork supply related to China, there has been a reduction in European exports to China. When those exports reduced, especially from countries like Spain and Denmark, we saw an increase in competitive, lower-cost pork entering the U.K. We have a differentiated, higher-welfare operation in the U.K., which is a higher-value proposition, but the increase in cheap pork imports impacted the wholesale business more than retail where we are differentiated. We are seeing some herd reductions in other countries and expect prices to react. I don't expect significant increases in exports to China in the short term. I expect reductions in herd in Europe will lead to less imports of pork cuts into the U.K., especially into the wholesale market. Overall, it's a diversified portfolio; we are investing in innovation, brand growth and chicken supply to increase volumes in Europe.
And our next question will come from Pooran Sharma with Stephens.
Fabio, you alluded to this in the prepared comments and you've said this in the past, but wanted to talk about the benefit of lower raw material costs for your Prepared Foods business, which sounds like it has strong momentum. You said Just Bare up 30% in retail. Given the downturn in pricing, can you remind us how long of a lag it takes for you to see benefits from your Prepared Foods business?
Sure. Looking at the overall portfolio, we want to grow our branded business in the United States to compensate for volatility in the big bird commodity market. We don't want to reduce our commodity operation; rather we want to reduce overall portfolio volatility with growth of prepared foods. We invested in our big bird plants for more portioning so we can have internal supply. We used to source more than half of our raw meat externally, and we are reducing that to much less than half of our needs for prepared foods. That provides quality and assurance of supply for the no-antibiotics-ever material important for Just Bare. There is no lag because all our internal transfers are always based on market pricing. We run our Prepared Foods operation like a stand-alone business and the portfolio benefits from that exposure. We price our prepared products based on competition and on the value they generate. Just Bare adds a lot of velocity to retailers when on shelf, both on prepared and fresh. So it's more about improving operations in the big bird category and achieving efficiencies to improve profitability in that category. Prepared Foods profitability has been strong since raw materials are very competitive as you mentioned.
Great. Appreciate the color there. On the follow-up, I think recently on the July WASDE we saw quarterly production estimates raised. But on the table egg layer front, we've been hearing of heat stress impacting birds, so eggs are not optimal sized. I know it's different genetics when you go to broilers, but being in similar geographies, will we see maybe the opposite of last year where you saw better growing conditions in Q3? Will we see worse growing conditions in Q3 this year given heat stress thus far? And do you think that is reflected in USDA estimates at all?
That's a great point. In Q2, out of a 2% increase in egg sets, we saw a 4.5% increase in ready-to-cook pounds, and livability was the biggest unexpected factor in Q2. Given the heat wave, that increase in livability should not be a bigger factor in Q3. That's why the increase in egg sets and chicks placed should be more in line with the ready-to-cook increase. Normally we see that, and last year there were mild weather conditions that helped production in Q3 2025, especially in September. If the weather continues with hot stretches in the South and other production regions, I think the egg set increase will be more in line with the RTC increase. That is generally incorporated into WASDE. WASDE is expecting similar conditions as last year. If livability is not as good as last year, we could see a reduction in production compared to the increase in egg sets.
Our next question will come from Leah Jordan with Goldman Sachs.
I wanted to go back to the response in the question before last. You talked about some of these actions reducing the volatility of your business longer term. So after you've completed these plant upgrades, we've got a few more value-added projects still to come. Can you walk through how you're thinking about mix and operational efficiency as margin tailwinds into the back half and into next year to support that reducing volatility outlook?
Operational efficiency is at the core of our beliefs and values. We need to be the best at everything we do regardless of the segment. We try to reduce volatility through portfolio diversification. I don't think we can create a portfolio totally immune to volatility because we want to capture upside in the commodity segment when it happens. What we want is protection from the downsides so that the company is not stressed in results. We want a great base of profitability through geographical and business diversification in the U.S., with small birds that are more stable, case-ready which is also stable, and prepared foods which offset volatility from the big bird segment. Long term, we want to continue to grow Prepared Foods in line with our key customers. We're always looking at the portfolio for longer-term opportunities. The Ellijay conversion is a great example: we've seen reduced demand for bone-in categories and increased demand for chicken sandwich segments, so we're changing Ellijay to increase deboning to support key customers for growth.
And Leah, I'll just chime in. In relation to next year, as we complete Walker County for prepared foods, that will benefit us by reducing exposure to co-packers and potentially improving margins as we have higher offtake of our own internal meat and all the work we've done on portioning in the big bird plants.
And our next question will come from Heather Jones with Heather Jones Research.
Just first question that is a quick clarification. Fabio, you mentioned something about strong margins year-over-year, and it was in relation to a Mexico question. Are you referring to the long term that you expect margins to be strong, or are you saying you expect margins to be up strongly year-over-year for Q3?
Compared to Q3 last year, I think we saw some weakness in the second semester in Mexico. So I think we can have some growth in margins in Mexico in the second semester. But it's more about the growth in demand of a growing economy like Mexico, where imports are a significant part of protein consumption and our operation continues to grow. Long term, we expect double-digit margins, but quarter-over-quarter can be very volatile.
Right. Okay. And then a bigger picture question: supply surprised to the upside in the first half and thus far in Q3 in the U.S., but it also seems there's been some incremental softening in demand, even more so over the last couple of weeks, which I guess is related to the cyclospora that's affecting foodservice traffic. When we look at pricing and margins, can you pinpoint what you think is attributable to supply and what is attributable to demand, and how you're thinking about that going forward?
That's a great question. On foodservice, we've had events like this before and historically we bounce back. I expect any specific impact to be small and short-lived. We have a resilient food supply and overall good health conditions in restaurants. I expect only a small reduction in specific weeks. Consumers continue to go to foodservice; foodservice remains an important option. Foot traffic is a persistent issue, but chicken is being used to generate traffic with promotional activity. During Q2 we actually saw less promotional activity in foodservice but still saw 3.4% growth in the segment, especially in QSR. What can change demand is promotional activity in retail. We did not see great promotional activity in boneless breast during the first half of the year. We're now seeing indications of price decreases and significant price decreases in boneless breast in retail during Q3. That can lead to stronger demand, especially for that cut, because boneless dark meat has already been growing a lot. So promotional activity and retail pricing reductions for boneless breast should improve demand into Q3 and Q4.
And this will conclude our question-and-answer session. I'd like to turn the conference back over to Fabio Sandri for any closing remarks.
Thank you, everyone, for attending today's call. During the quarter, chicken demand remained firm across all regions as affordability continued to resonate among consumers. We made significant progress in our investments to drive growth and mitigate downside risks as volumes and margins improved from the previous quarter in the volatile commodity markets. Our investments in prepared foods at Walker County and small birds in Ellijay will further strengthen our portfolio. We will continue to work with our commitment to have the best team and our relentless pursuit of operational excellence. When these efforts are combined with our commitment to quality, service and sustainability, we can further build our legacy and achieve our vision to be the best and most respected company in our industry, creating the opportunity of a better future for our team members. Thank you, everyone.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.