Pilgrim's Pride posts lower year-over-year Q3 results

Despite greater availability of proteins, demand for chicken remains strong.

Pilgrim's Pride Corp. recently reported lower year-over-year financial results for the third quarter of 2016. Operating income was $164 million, down nearly 30% from the same quarter last year. Net sales for the quarter were $2.03 billion, down from $2.11 billion for the same period last year. The company reported net income for the quarter at $98.7 million, compared to $137.1 million in the third quarter of 2015. Adjusted earnings before interest, taxes, depreciation and amortization for the quarter were $210.8 million.

Pilgrim's chief executive officer Bill Lovette noted that, during the third quarter, "our Fresh business continued to perform well, driven by our differentiated portfolio strategy of having presence in all three bird sizes and strong relationships with key customers. Retail demand for our birds remained robust despite concerns about greater availability of other competing proteins. Within exports, volumes are also improving from a year ago, which improves value for the back half of the bird and is supportive of the overall cutout."

Despite a greater availability of other proteins, Lovette said demand for chicken, particularly at retail, has remained very strong. “Orders from our retail customers have been robust despite fewer features, which is a positive indication that consumers’ appetite for chicken, despite concerns about competing proteins, has remain undiminished,” he noted.

Lovette said the conversion of the company’s existing facility to U.S. Department of Agriculture-certified organic chicken production is proceeding well, with plans to have the first chicken to market in the first quarter of 2017. Additionally, the company is starting work on converting one of its case-ready plants to produce antibiotic-free (ABF), vegetarian diet-fed chicken.

“Together with our prior announcements on organic and ABF Fresh chicken as well as further-processed products, we believe the latest conversion reinforces our strategy to better resonate with new consumer trends for more natural products while adding further value to our portfolio and supporting the growth of key customers," Lovette said. "Furthermore, these investments signify our commitment to look for new sources of potential earnings driver while lessening the impact of volatile commodity markets in the long run."

Lovette said the market environment in Mexico during the third quarter followed its normal seasonality, but he added that the team members were relentless and continued to improve on the operating performance of the legacy business as well as implement synergies with the newly acquired assets.

“Despite the impact of an unfavorable grain cost and exchange rate, our profitability in Mexico has remained steady compared to last year, which is a positive sign of the potential leverage we have within our operations," he said. "The outlook for Mexico remains very strong, and we will continue to grow our offerings in the region, together with leveraging our strong Fresh brand to leverage the growth of our Prepared Foods business."

In 2017, Lovette expects the industry to grow by another 1-2% mostly in the number of head as there is less incentive for producers to materially increase bird size or weights compared to recent years, as bird weights currently are already optimized.

“While strong U.S. economic conditions are negative for demand, we are beginning to see some signs of labor tightness affecting staffing availability across the industry, including our own operations, which is another factor that could dampen production growth for the whole industry in 2017,” he said.

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