|Bill Lovette, president and chief executive officer of Pilgrim’s Pride, said the company is still looking for acquisition opportunities.|
GREELEY, COLO. — In early June, Pilgrim’s Pride Corp. withdrew its offer to acquire Hillshire Brands for $55 per share. Tyson Foods offered $63 per share and Pilgrim’s management decided to not raise its bid. While the poultry processor did not succeed in acquiring Hillshire, Bill Lovette, president and chief executive officer of Pilgrim’s Pride, said the company is still looking for acquisition opportunities.
“Pilgrim’s demonstrated through the Hillshire process that we are a ready, willing and disciplined buyer,” he said. “We continue to believe we have the ability to add tremendous value to Hillshire. However, the final proposed acquisition price was inconsistent with our disciplined approach.”
So, how does the poultry processor approach acquisitions now that the Hillshire deal is behind the company?
“Our acquisition strategy involves gaining a chicken processing and branding presence in geographic regions where we are not currently present,” Mr. Lovette said. “We also want to pursue further-processed meat acquisition opportunities where established and growing brand equity and distribution capabilities are present.”
A tight cattle market combined with the effects of the porcine epidemic diarrhea virus on the pork industry gives Mr. Lovette a positive outlook for the chicken category.
“The value of chicken, compared to beef and pork, is much greater,” he said. “The cost of beef has increased greatly and is very high.
“Also, beef and pork exports are strong, creating a shortage in domestic beef and pork supplies. The chicken supply has been very well restrained. The breeding supply is not as robust.”
Chicks, egg sets and pounds produced are slightly down compared to last year, and Mr. Lovette predicts supply at the end of 2014 will be 1% to 1.5% higher than 2013.
“Our exports back in January and February were very robust and solid,” he said.
He thinks exports will grow 2% to 3% over last year, because there is a strong environment for chicken, despite the fact feed is 50% or more of the cost involved. That’s because the feed cost is down from 2013.
“Corn is under $5 a bu, and it was $7.50 a bu,” he said. “Soybeans are less, too.”
Mr. Lovette pointed to eating-out occasions as a clear sign of the poultry industry’s health.
“Mother’s Day is one of those major holidays where people eat out, and we see a lot of growth in chicken consumption,” he said. “This year, it was phenomenal, and this year food service growth is really up, including quick-service restaurants and deli.”
There has been a shift by food service operators to poultry from beef and pork over the past 20 years, Mr. Lovette said.
“Health issues are playing a major part in that,” he said. “In developing countries, like Mexico and others, the consumers there are moving from subsistence consumption of food to a more middle-class consumption. Their income is growing, so they’re looking for an improved diet. They’re moving from a grain-based diet to more of a protein-based diet. The best value for them is chicken.”
The increasing health of the economy, both in the United States and around the world, is also playing a role in the increasing fiscal health of Pilgrim’s Pride.
During the first two quarters of fiscal 2014, ended June 29, the company’s net income was $288,477,000, equal to $1.11 per share on the common stock, up from the first half of fiscal 2013 when earnings were $245,287,000, or 95c per share.
Sales for the period declined slightly to $4,204,881,000 compared with $4,221,048,000.
Despite the positive market trends, Pilgrim’s Pride, like many other companies in the food and beverage category, is focused on improving efficiencies and reducing costs.
Between 2010 and 2013, the company achieved $640 million in improvements, Mr. Lovette said.
“This year, our goal is to improve $220 million over 2013,” he said. “The first quarter we improved by $59 million, so we’re already ahead of our goal.”He predicts the company will achieve $1 billion in savings over five years.