Pilgrim's Pride
swings to 3Q loss
By EMILY FREDRIX AP Business Writer
Chico Enterprise Record - California
Article Launched: 07/30/2008 06:45:02 AM PDT
MILWAUKEE—Pilgrim's Pride Corp., the nation's largest
chicken producer, said Tuesday that it lost $52.8 million in its third quarter
because of record-high grain costs that have made animal feed far more
expensive and prices charged to consumers aren't rising fast enough because of
an oversupply.
But its shares surged because the loss was smaller than
expected.
The Pittsburg, Texas-based company's loss amounted to 75
cents per share compared with a profit of $62.6 million, or 94 cents per share
a year earlier. Excluding discontinued operations, the company says it lost 69
cents per share.
Revenue rose 5 percent to $2.21 billion from $2.10 billion
in the quarter.
Thomson Financial said analysts expected a loss of $1.19 per
share on revenue of $2.14 billion.
Shares climbed rose 34 cents, or 2.3 percent, to $12.51
Tuesday, after trading as high as $14.72 earlier in the session. A day earlier,
Pilgrim's Pride shares lost 9.5 percent after rival meat producer Tyson Foods
Inc. saw its quarterly profit plunge 90 percent. Tyson, like Pilgrim's Pride,
also attributed its loss to the record-high prices for grain.
Grains like soybeans and corn, which have skyrocketed in price over the past year, are a key ingredient in animal feed. And the company says prices charged to consumers aren't rising fast enough because there's too much chicken on the market to sustain higher prices. The company has been making production cutbacks, but says prices are still too low.
"Simply put, there's still too much breast meat
available to drive market pricing significantly higher," Clint Rivers,
president and chief executive officer, said in a conference call.
Pilgrim's Pride said its total feed-ingredient costs in the
quarter rose 41 percent, or $266 million, compared to the year-ago period. It
estimates its total feed-ingredient costs for the year will be $900 million
more than last year.
As input costs rise, the retail price for boneless chicken
has fallen because of an oversupply. Market breast prices now average about
$1.33 per pound, Rivers said. Market prices should be at least $2.15 for the
industry to break even, he said, and the company would like to see chicken sell
for a dime more a pound to turn a profit.
To force chicken prices higher, Pilgrim's Pride will have
cut 5 percent of its production by the end of this year. Total pounds were down
1.33 percent in the third quarter, and they're expected to be down 8.7 percent
in the fourth quarter.
Pilgrim's Pride's competitors are making similar cuts.
Consumers should brace to see higher chicken prices as
companies make these changes, Rivers said, though he didn't say how high prices
could go.
"American consumers should brace themselves for sticker
shock in the meat case over the next 12 months," he said.
Rivers said given all the cost pressures, the company
expects an operating loss in the fourth quarter. The company has already said
it may take until the summer of 2009 to be profitable again.
Pilgrim's Pride has also been trying to shed its costs to
further boost its bottom line.
Earlier this month, the company said it would cut 600 jobs
at a plant in
Rivers said the company has already eliminated about 1,100
positions so far this year, not including the upcoming cuts in
The company has been cutting costs, but higher pricing is
critical to offset the rising input cost pressure, Deutsche Bank analyst Eric
Katzman wrote in a research note. He said the company's pricing has been
insufficient so far this year, but current trends—including the revenue-driven
sales increase—show it's making progress.
chicoer.com