August 1, 2011

 

Pilgrim's losses higher than expected 

 

 

Due to poor demand and pricing for chicken, together with rising feed costs, Pilgrim's Pride Corp. on Friday (Jul 29) announced a larger-than-expected Q2 loss.

 

Pilgrim's said costs for feed rose more than US$400 million in the first half of the year compared with the year before. At the same time, market prices slumped, with boneless, skinless breast meat declining to an average of US$1.34 per pound from US$1.61 and wings falling to US$0.77 from US$1.23.

 

"At this time of year, we usually expect and enjoy stronger market praises and increased demand from both food service and retail, but neither demand nor the pricing has materialised this summer," Pilgrim's Chief Executive Bill Lovette said.

 

Greeley, Colorado-based Pilgrim's, which also announced plans to close its Dallas processing plant by late September, reported a net loss of US$128.1 million, or US$0.60 a share, compared with a year-ago profit of US$32.9 million, or US$0.15 a share.

 

Analysts had expected the company to lose US$0.23 cents a share, according to Thomson Reuters.

 

Revenue rose 12.3% to US$1.92 billion from US$1.71 billion, exceeding analyst expectation of US$1.81 billion. Pilgrim's is majority owned by Brazilian meat company JBS SA.

 

Lovette said declining egg sets in the past two month show the industry is serious about cutting back production, but those cuts have not yet worked their way through the supply chain. Slaughter levels appear to be about even with last year while live weights are running slightly heavier than a year ago.

 

Pilgrim's own volume of pounds it will produce is still expected to be slightly ahead of its 2010 level, Lovette said, because volume started at such a low base at the beginning of last year and built up into the year end.

 

Pilgrim's is making good progress toward its goal of generating US$400 million in plant cost savings on an annualised basis and improving its balance sheet by turning assets into cash to pay down debt, Lovette said.

 

The company is also working to convert its business model from annual fixed-price contracts with customers to a combination of market- and cost-based pricing, he said. Negotiations with customers are just beginning, with current contracts concluding in the fourth quarter.

 

"Our customers understand the reason for these changes and have been very open to further discussions," Lovette said. He noted that many customers are already familiar with a market-based pricing model for beef, for example.