Pilgrim's Pride records loss in first quarter

by Keith Nunes
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GREELEY, COLO. — Rising raw material costs, excess inventory and severe winter storms contributed to a loss of $120,760,000 for Pilgrim’s Pride Corp. during the first quarter of fiscal 2011, ended March 27. The loss is significantly higher than the $45,547,000 the company lost during the first quarter of fiscal 2010.

Revenue during the first quarter was $1,892,476,000, up 15% from $1,642,918,000 during the same period this past year.

“While this quarter is historically the weakest due to lower demand at this time of year, we encountered unusually tough circumstances due to high finished inventories, combined with rapidly increasing feed and other costs associated with our inventory levels, severe winter storms and depressed prices for chicken products," said Bill Lovette, president and chief executive officer. “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 pound sold in the quarter. At the same time, lower capacity utilization — including on our prepared-foods line — led to higher operating costs, and winter storms throughout much of the Southeast in mid-January closed a large number of our plants for several days at a time and hurt consumer demand.”

Feed ingredient purchases, which represent the largest component of the company’s cost of goods sold, were approximately $188 million higher during the quarter than a year ago. The company said it recognized $32 million in net mark-to-market gains related to changes in the fair value of its derivatives during the first quarter. The company added that it has covered 100% of its anticipated corn needs and approximately 50% of its soybean meal usage through the end of 2011.

Looking ahead, Mr. Lovette said he sees a mixed outlook for the chicken industry in 2011. Chicken is expected to be increasingly popular among value-conscious consumers, with retailers and food service operators featuring chicken more frequently on menus or in weekly ads. In addition, the company recently has succeeded in negotiating additional price increases with some of its retail and food service customers in response to continued increases in feed costs.

“Clearly 2011 is going to be a challenging year,” Mr. Lovette said. “Despite now having covered nearly all of our anticipated grain needs through the end of 2011, we are facing at least $500 million in higher feed costs this year. 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. To achieve that, we will continue to look at further price increases and will execute structural changes in our book of business with regard to fixed versus market-based pricing.

“At the same time, 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.”
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