Company Update: Feed costs hamper Pilgrim’s Pride earnings

For the comparable quarter a year ago, the company reported net earnings of $57.9 million, or $0.27 per share, on total sales of $1.7 billion.

Bill Lovette, Chief Executive Officer of Pilgrim’s Pride, commented on the results, stating, "The quarter results included non-recurring charges of $52.7 million, without which our net loss per share would have been $0.52. We are at a $295 million run rate against our goal of $400 million on operational improvements, which helped provide a positive operating cash flow of $10.7 million for the quarter. We continue to drive ownership, responsibility and accountability at every level. We are making decisions now that will drive profitability going forward."

Market prices for some key chicken products were down sharply compared to a year ago. Boneless skinless breast meat in the third quarter averaged $1.27 per pound versus $1.71 a year ago, while the market price for wings was $0.89, compared to $1.19 per pound last year. The average market price for leg quarters was $0.46 per pound, up $0.09 per pound from a year ago, while Georgia Dock prices stayed essentially flat at $0.88 per pound.

Feed costs remain high
Simultaneously, feed-ingredient costs remained high over the quarter. Market prices for corn averaged $6.92 per bushel, up 65% from a year ago, while soybean meal averaged $352 per ton, a 15.4% increase. Feed ingredient purchases, which represent the largest component of Pilgrim’s cost of goods sold, were approximately $102 million higher during the quarter than the year-ago period.

The corn market continues to demonstrate volatility, ranging from $6.17 to $7.65 per bushel during the third quarter. The company recognized $34 million in net mark-to-market gains related to changes in the fair value of its derivatives during the third quarter of 2011.

Lovette also discussed the supply indicators in the market, stating that although prices have yet to stabilise at profitable levels, egg sets, pullet placements and chicks placed all showed declines year over year. As cold storage levels also reflect a reduction for the year, the signals are in favour of stronger chicken pricing heading into 2012. He also reiterated the success that the company has had in moving away from 12 month fixed pricing scenarios.

For the first three quarters of fiscal 2011, Pilgrim’s reported a net loss of $411.4 million, or $1.92 per share, on sales of $5.7 billion. This compares to net earnings of $45.3 million, or $0.21 per share for the comparable period in 2010.

Source: Pilgrim’s Pride