Source:  MEATINGPLACE.COM, 4/29/11


Pilgrim's Pride Corp. on Friday posted a larger-than-expected quarterly loss, hurt by depressed chicken prices and winter storms that shuttered plants, and said it expects to raise prices due to the “unrelenting upward march” of feed costs.

Severe winter storms in the Southeast in January forced prolonged closures at several plants and also affected consumer demand, the company said.

Pilgrim’s Pride said it faces $500 million in higher feed costs this year despite having covered most of its grain needs through year-end.

"Clearly 2011 is going to be a challenging year,” said Pilgrim’s Chief Executive Officer Bill Lovette. “Our customers recognize that the unrelenting upward march of corn and soybean meal is placing extreme pressure on chicken producers and that there must be some sharing of the cost burden in order to ensure a viable business model.”
 
Pilgrim's Pride, which is majority owned by Brazilian meat producer JBS S.A., reported a net loss of $120.8 million, or 56 cents a share, in the first quarter ended March 27, compared with a loss of $45.5 million, or 21 cents a share, a year earlier.

Analysts on average had expected a loss of 22 cents per share, according to Thomson Reuters.
Revenue rose to $1.9 billion in the quarter from $1.6 billion a year ago.

Lower capacity utilization, including in the company’s prepared foods line, led to higher operating costs, Pilgrim’s said. Feed costs were up $188 million in the quarter from a year ago. The company said it decided to liquidate chicken inventories in the first quarter to reduce working capital.

“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 pound sold in the quarter,” Lovette said.
Market prices for breast meat fell 10 percent from a year ago to an average $1.26 per pound, while wings fell 38 percent to $1.00 per pound.

Pilgrim's said it has covered 100 percent of its anticipated corn needs and about 50 percent of its soybean meal usage through the end of 2011.    

Sales and volume in fresh foodservice remained flat, while sales and volume in frozen foodservice and retail improved, although net sales per pound were down slightly, the company said.

The company has recently negotiated additional price increases with some of its retail and foodservice customers in response to continued increases in feed costs, it said.

Export demand was strong during the quarter, with volume up 90 percent to an all-time record for the period, boosted by the lower dollar and chicken’s affordability relative to higher-priced pork and beef, Pilgrim’s said.   

Restructuring for growth
Lovette said Pilgrim’s is focused on improving its sales mix to drive revenue growth and sustained profitability and has realigned its sales and operations groups by customer segment.

Business units under the new structure — Commercial Business, Fast Food, Retail, Prepared Foods-Small Bird Deboning and Prepared Foods-Further Processed — each are led by a general manager accountable for a group of plants for a customer segment. The general manager oversees sales and operations for the segment and is responsible for product mix, capital needs and financial performance.  
"It is absolutely critical that we strengthen our balance sheet, capture our estimated $400 million in plant-related cost improvements and seize the significant sales mix opportunities available across our asset base," Lovette said.
 

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