Ready, willing and disciplined
Sept. 9, 2014
If acquisitions and mergers are one of the high priorities today for major players in the poultry and meat-processing industry, then Pilgrim’s Pride Corporation is a good example of that business goal in action. And that’s despite Tyson Foods winning out over Pilgrim’s in the bidding war to acquire The Hillshire Brands Company earlier this summer.
|Bill Lovette, president and CEO of Pilgrim’s Pride, says he is very focused on the company's management process, team members and contract poultry growers.
Bill Lovette, president and CEO of Pilgrim’s Pride Corp., isn’t as upset about Pilgrim’s losing out to Tyson over the struggle for Hillshire Foods as you might think. He believes many additional opportunities to acquire companies that will enable Pilgrim’s to grow and become even stronger lay down the road. In fact, he’s philosophical about what happened with Hillshire – quite willing to talk about it – and that continuing to up the ante with Tyson would not have been part of Pilgrim’s measured approach to corporate acquisition.
“Pilgrim’s demonstrated through the Hillshire process that we are a ready, willing and disciplined buyer,” he says. “We continue to believe we have the ability to add tremendous value to Hillshire, however the final proposed acquisition price was inconsistent with our disciplined approach.”
Lovette says Pilgrim’s will continue to pursue more attractive options “that add company value for our shareholders and strengthen our strategic position in the market.”
Lovette says for the remainder of 2014, he feels capital expenditures will remain relatively robust with a focus on organic growth, margin creation and growth by acquisition and “Greenfield” projects.
So, how does the corporation approach acquisitions now that the Hillshire deal is behind them? “Our acquisition strategy involves gaining a chicken processing and branding presence in geographic regions where we are not currently present,” Pilgrim’s CEO says. “We also want to pursue further-processed meat acquisition opportunities where established and growing brand equity and distribution capabilities are present,” he adds.
Lovette has headed up Pilgrim’s Pride Corp., a division of JBS USA, for more than three-and-a-half years, since the beginning of 2011. Unlike some American corporate heads, he does not come to the poultry-processing industry with training in business and nothing else. He comes from the poultry industry itself.
“My grandfather created a business that became a chicken company,” he says proudly. “I grew up in the poultry industry in East Central Texas. As a teenager, I worked in a poultry plant in an internship.” He graduated from Texas A&M Univ. with a degree in poultry science and agricultural economics. He also graduated from the Advanced Management Program at the Harvard Business School.
Before coming to Pilgrim’s on Jan. 3, 2011, Lovette was president and chief operating officer at Case Foods. Prior to that, for 25 years he was in senior management at Tyson Foods. He was president of Tyson’s International Business Unit, president of Foodservice Business, and senior group vice president of Poultry and Prepared Foods there. It would be hard to find anyone more grounded in both the science and business of the poultry industry than Bill Lovette.
Lovette believes this year is a really strong one for the corporation, as well as the chicken industry, as a whole. That prediction for Pilgrim’s is strongly based on the company’s first-quarter financial report. For Q1 of this year, Pilgrim’s recorded net revenue of $2.02 billion, which is down 1 percent compared to 2013’s Q1. But the EBITDA for Pilgrim’s – an indicator of the company’s financial performance compared to the industry as a whole – was $205.2 million, up 74 percent from the same period last year.
|High prices for beef and pork are driving increases in chicken consumption.
“There are a number of reasons for our outlook for the rest of this year,” Lovette says, “including demand for poultry, especially chicken. The value of chicken, compared to beef and pork, is much greater. The cost of beef has increased greatly and is very high.”
He notes the virus that has struck the pork industry has taken some of the supply away there. “Also, beef and pork exports are strong, creating a shortage in domestic beef and pork supplies,” he says. “The chicken supply has been very well restrained. The breeding supply is not as robust.” Chicks, egg sets and pounds produced are slightly down compared to last year. But he predicts supply at the end of 2014 will be 1 percent to 1.5 percent higher than 2013.
“Our exports back in January and February were very robust and solid,” he notes. He thinks exports will grow two to three percent over last year, because there is a very strong environment for chicken, despite the fact that feed is 50 percent or more of the cost involved. That’s because the feed cost is down from 2013. “Corn is under $5 a bushel, and it was $7.50 a bushel. Soybeans are less, too.”
He points to eating-out occasions as a clear sign of the poultry industry’s health. “Mother’s Day is one of those major holidays where people eat out, and we see a lot of growth in chicken consumption. This year, it was phenomenal. And this year foodservice growth is really up, including quick-service restaurants and deli.”
There has been a shift by foodservice operators to poultry and chicken from beef and pork over the past 20 years, Lovette says. “Health issues are playing a major part in that,” he adds. And he points out something very interesting that’s been happening over the past 10 years. “In developing countries, like Mexico and others, the consumers there are moving from subsistence consumption of food to a more middle-class consumption,” he says. “Their income is growing, so they’re looking for an improved diet. They’re moving from a grain-based diet to more of a protein-based diet. The best value for them is chicken.”
The increasing health of the economy, both in the US and around the world, is also playing a major role in the increasing fiscal health of Pilgrim’s. It goes back more than three years to the new management team at the beginning of 2011 (and the acquisition of Pilgrim’s by JBS.) A major priority strategy for Pilgrim’s under Lovette and his management team is driving ownership and accountability down into the company as far as they can.
Lovette really doesn’t like to talk about himself – he prefers to discuss the credit he feels his management team deserves.
“Fabio Sandri, our chief financial officer, was appointed in May 2011,” he says. Previously, Sandri had been CFO of large corporations in Brazil.
|The management team at Pilgrim's is the secret to its success. Pictured (from left) are: Fabio Sandri, Chad Baker, Jayson Penn, Bill Lovette and Kendra Waldbusser.
“Jayson Penn came in March 2011 as senior vice president of the Commercial Business Group and is now executive vice president of Sales and Operations,” he adds. “He’s in charge of fresh, 80 percent of which is domestic.”
Penn had started in his family’s poultry further-processing business and had been in management at Sanderson Farms, Marshall Durbin and Case Foods.
“Our operational goal involved understanding our key performers, including yields, processing costs and mixed management. We held every plant accountable. 2010, the year before we arrived, was our base year. We wanted a $300 million improvement in 2011 and we did that. In 2012, our goal was $210 million and we did that. In 2013, our goal was $132 million and we achieved that. We created $640 million in improvements. This year, our goal is to improve $220 million over 2013. The first quarter we improved by $59 million, so we’re already ahead of our goal. In five years, over $1 billion in savings,” Lovette says.
Pursuit of excellence
The three major drivers for his team management are: (1) Becoming a more valued partner to key customers; (2) Relentless pursuit of operational excellence; and (3) Growing value through value-added exports.
Lovette’s approach toward business helps drive the business at Pilgrim’s. “The deeper you can drive operations into the company, rather than keeping it up at the top, the better the company will be. In fact, I want our employees to think like owners, not employees. So, we’ve created a quarterly bonus system for our front-line supervisors. And our first bonus checks for the year went out in May for our non-union hourly workforce. This program is providing a lot of incentive for our people,” he says.
But no business can exist without its challenges. “We compete globally and global consumers want the best products available,” he says. So, production of products for these consumers has become more of a challenge. And for that reason, a heavy concern on his mind is government regulation.
And for that reason, Lovette supports USDA’s Modernization of Poultry Slaughter Inspection rule. The rule would transfer some inspection duties from FSIS inspectors back to the company, he says. These responsibilities have mostly to do with quality, not food safety for consumers. The modernization plan would allow inspectors to spend more of their time focused on important food-safety responsibilities, basing this inspection on the most up-to-date scientific methods.
“The truth is, our economics, our livelihood is at risk every day in this industry. We would be hurt tremendously if we didn’t have a great, ongoing concern about food safety. Plus, it’s right to be greatly concerned about food safety by itself, nothing to do with our economics or business at all,” Lovette notes, adding that 21 plants in the US have piloted the new program successfully for many years.
Lovette’s top priorities are Pilgrim’s management process to implement the company’s vision and to make it the best-managed company in the industry. “I’m very focused on our management process, our team members, and our contract growers. We use the word ‘together’ here a lot. Doing what we do together to achieve success here,” he concludes.
Bernard Shire is a contributing editor based in Lancaster, Pa.