June 22, 2011

 

Pilgrim's Pride to avoid liquidity issues in 2011

 

 

Pilgrim's Pride Corp.'s (PPC) chief executive admitted on Tuesday (Jun 21) that concerns on the organisation violating its debt covenants with lenders has affected company's stock lately, but the poultry producer does not anticipate any liquidity issues this year.

 

Chief Executive Bill Lovette said the company's banks are comfortable with its strategy and added that JBS SA (JBSS3.BR), the Brazilian meat company that holds two thirds of Pilgrim's Pride, can, if needed, lend up to US$100 million that could serve as a backstop for the company.

 

The stock has fallen by more than a third this year and tumbled earlier this month to a 52-week low. Asked about the decline in a presentation to investors, Lovette said he has gotten many questions about the health of the poultry industry in general and about whether Pilgrim's Pride would violate its debt covenants.

 

"Some have assumed we would, but we do not believe that is the case," he said.

 

Moody's Investors Service recently revised the company's outlook from to stable from positive, saying that if chicken prices do not improve, the company would likely have to amend its debt covenants in the latter half of the year.

 

Pilgrim's, which was forced into bankruptcy in 2008 by soaring feed costs, has faced similar pressures this year, along with the rest of the poultry industry.

 

The industry as a whole has not been profitable any week this year, Lovette said.

 

The company's feed costs rose US$188 million in the first quarter from a year ago. Lovette said the company has already purchased all the corn it will need this year.

 

Analysts said the industry's fortunes will not improve significantly until production starts to fall. While supplies in storage remain high, Lovette noted, the number of eggs set in incubators, a sign of future supplies, has fallen the past several weeks, and by the fourth quarter the numbers could be declining by 4-6%.

 

Stubbornly high supplies have kept chicken prices from rallying despite record-high beef and pork prices, which some in the industry were hoping would compel consumers to buy cheaper chicken.

 

Lovette said he was surprised chicken prices hadn't risen, adding that it indicated a fundamental lack of demand in all proteins.

 

Pilgrim's stock rallied during Lovette's presentation. It was recently up 6.1% at US$4.71 a share.

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