"While this quarter is historically the weakest due to lower demand at this time of year, we encountered unusually tough circumstances" said Bill Lovette, president and CEO of Pilgrim’s Pride, a subsidiary of JBS USA. "As part of our plan to reduce working capital, we made the decision to liquidate inventories in the first quarter. While this decision helped our balance sheet by reducing inventories and turning assets into cash, it had a significant negative effect on margins and overall net revenue per lb. sold in the quarter.”
At the same time, lower capacity utilization – including on Pilgrim’s prepared-foods line – led to higher operating costs, and winter storms throughout much of the Southeast in mid-January closed a large number of company plants for several days at a time and hurt consumer demand, he added Market prices for breast meat averaged $1.26 per lb., down 10 percent from a year ago, while market prices for wings fell 38 percent to $1.00 per lb.
Fresh foodservice sales and volume remained flat, while sales and volume in frozen foodservice and retail improved – although net sales per lb. were down slightly.
During the first quarter, export demand remained very strong, with volume increasing 90 percent to an all-time record for the period and sales increasing by a similar amount. The company attributed export gains to the lower value of the dollar as well as chicken's value proposition versus higher-priced beef and pork in international markets.
Representing the largest component of Pilgrim's cost of goods sold, feed ingredient purchases were approximately $188 million higher during the quarter than the year-ago period.
As part of the plan to improve the value of its product mix, Pilgrim's recently realigned its sales and operations groups by customer segment. Under the new structure, Pilgrim's has established the following business units: Commercial Business, Fast Food, Retail, Prepared Foods-Small Bird Deboning and Prepared Foods-Further Processed.
Each of Pilgrim's US operations, as well as Puerto Rico, has been assigned to one of these business units. Each group is led by a general manager who is accountable for a selected group of plants for a customer segment. The general manager directs sales and operations of this segment and is accountable for the product mix, capital needs and financial performance of each business.
"We are taking our existing line-of-business approach a step further by creating truly integrated business units," Lovette said. "This realignment will fundamentally improve our business by driving responsibility and accountability deeper into the organization. Each of these teams will truly 'own' the product mix and the responsibility for achieving the best value possible. We will benchmark each unit's performance against the industry segment in which it participates, and they will be expected to operate in the top 25 percent of that segment."