Pilgrim's Pride 2Q earnings plunge

by Bryan Salvage
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GREELEY, Colo. – As the result of record-high feed costs, weak consumer demand and an oversupply of chicken, Pilgrim's Pride Corporation suffered a net loss of $128.1 million, or $0.60 per share, on net sales of $1.9 billion for the second quarter ended June 26. For the comparable quarter a year ago, the company reported net earnings of $32.9 million, or $0.15 per share, on total sales of $1.7 billion.

For the first six months of fiscal 2011, Pilgrim's reported a net loss of $248.9 million, or $1.16 per share, on sales of $3.8 billion. This compares to a net loss of $12.6 million, or $0.06 per share for the comparable period in 2010.

Pilgrim's total feed-ingredient purchases through the first six months of 2011 were more than $400 million higher than a year ago, said Bill Lovette, president and CEO. “At this time of year, we are usually benefitting from stronger market pricing and increased demand from both foodservice and retail, but to date neither that demand nor pricing has materialized," he added.

Compared to a year ago, market prices for some key chicken products were down sharply. Boneless skinless breast meat in the second quarter averaged $1.34 per lb. versus $1.61 a year ago, while the market price for wings was $0.77, compared to $1.23/lb. last year. The average market price for leg quarters was $0.46/pound, up $0.10 from a year ago, while Georgia Dock prices stayed essentially flat at $0.865/lb.

Meanwhile, feed-ingredient costs dramatically increased. Market prices for corn averaged $6.99 per bushel, up 92.5 percent from a year ago, while soybean meal averaged $361.15 per ton, a 29.4 percent increase. Feed ingredient purchases, which represent the largest component of Pilgrim's cost of goods sold, were nearly $255 million higher during the quarter than the year-ago period. The company recognized $5.7 million in net mark-to-market losses related to changes in the fair value of its derivatives during the second quarter, as corn prices dropped sharply in late June as the quarter closed.

Pilgrim's is making structural changes in its book of business in order to share the cost burden from higher grain prices, Lovette said. The company is talking with customers about moving toward a more viable business model that ties pricing for chicken products closer to the market, such as through a combination of market- and cost-based pricing.

Pilgrim's sales and volume in foodservice and retail rose slightly during the second quarter. Export demand remained very strong, with sales, volume and pricing hitting all-time highs for the period. Year-to-date export sales are up 65 percent and volumes have climbed 50 percent -- far outpacing growth in overall US chicken exports, the company said.

"Our partnership with JBS USA is helping us enter new markets and increase our penetration in many existing markets," Lovette said, noting that Pilgrim's share of the US export market for chicken has increased from 17 percent to 24 percent.

The company is making improvement toward its target of $400 million annualized improvement in plant costs and yield improvements by end of 2011, he added. Through the first six months of the year, Pilgrim's had achieved an estimated $270 million in annualized improvement. Pilgrim's said it is also moving closer to its goal of performing in the top 25 percent of chicken companies as measured by Agristats, an industry benchmarking service.
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