Diversification strategy paying off for Pilgrim's

by Keith Nunes
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Capital expenditures will focus on the company's prepared foods business.
Pilgrim's Pride recorded strong earnings for the second quarter.

GREELEY, Colo. – A focus on product line diversification appears to be paying for poultry processor Pilgrim’s Pride. The company recorded strong earnings for the second quarter of fiscal 2015, ended June 28, but management remains wary regarding the impact another outbreak of highly pathogenic avian influenza may have on the company and the market.

“The vision and diversification strategy that we have implemented over the past few years are creating an opportunity for us to keep our strong performance in different market conditions and with lower volatility than any specific segment,” said Bill Lovette, CEO. “In addition, our growth in Mexican operations through acquisition and greenfields will complement our existing facilities in the region, and make us a stronger player by improving our geographical coverage and serve the future growing needs of that market. 

Bill Lovette, CEO of Pilgrim's Pride Corp.

“As an example of the diversity of our portfolio, we have a leading position in the small bird category (where products are primarily sold to fast-food customers) and have continued to see this as a strategic segment, even as many of our peers have scaled back their exposure over the past few years,” Lovette said in a conference call with financial analysts on July 29. “Our strong presence in this category has proven to be a winning strategy for Pilgrim’s, as small birds has once again outperformed this past quarter and given us an ability to offset weaker market conditions.”

Beyond the market for fresh products, Pilgrim’s Pride is investing in its prepared foods operations. To support the focus on prepared foods, Lovette said in the next few years the company will spend a significant portion of its capital expenditures on prepared foods, which will grow capacity in the category and improve efficiencies.

Volatility in export markets due to lower oil prices and weak currencies in some countries is also an issue for the company. In an effort to ease Pilgrim’s Pride’s exposure in international markets, Lovette said the company is making investments that will give it greater flexibility.

“With the installation of leg meat deboning operation in our largest big bird deboning plant during this quarter, we’re on track to have the capacity to debone over half of our jumbo leg quarters by the end of the year for both domestic and export customers,” he said. “In addition, we will process others into whole legs for domestic and export consumption. We see this strategy as an opportunity to take advantage of the shift in US demographics, increase our options for export, and generate higher margins than pure commodity price.”

This fall and winter, migratory birds will begin their annual southward journey and poultry processors as well as government officials will be on alert for the reemergence of avian influenza, which significantly damaged the US egg market this summer.

“On high-path avian influenza, we remain vigilant to the possibility of new cases of infection,” Lovette said. “While we do not know exactly which areas of the country are the most at risk, we must assume that all migratory flyways could be vulnerable. Therefore, we are continuing to employ a high biosecurity alert status at all US production complexes and have increased training for all team members involved.

“As even before this year’s initial outbreak we test every broiler flock prior to slaughter and constantly test for the presence of the virus in our breeders. We also have a localized response plan read to employees at all production complexes in the event of an active infection in our own birds or those owned by others nearby.”

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