Pilgrim's Pride Corp. has announced plans to make a major push into organic chicken production with the aim of positioning itself as one of the largest producers of organic chicken in the U.S.
In an April 28 call with investors, the Greeley, Colo.-based food company said it seeks to secure a larger share of a growing market segment of consumers concerned about specific on-farm production practices.
The company also announced that work has begun on the conversion of one of its facilities to produce U.S. Department of Agriculture-certified organic chicken. It plans to have the facility on line sometime in 2017 and does not expect the conversion to have a negative impact on volumes or margins.
“Our key customers have told us their organic business continues to grow. So, in support of our key customers, we have decided that the time is right for us to get into this market,” Bill Lovette, chief executive officer of Pilgrim's, said during a call with investors announcing first-quarter results.
“We believe we can be the best producer of USDA-certified organic chicken,” Lovette added.
The company previously disclosed plans to grow its antibiotic-free (ABF) business to more than 25% of its overall production by the end of 2018. At present, Pilgrim's ABF production accounts for 10% of all ABF production in the U.S. By the time the company completes its planned transition, it is estimated that Pilgrim's will represent well more than 20% of total ABF production in the U.S.
“If you look at the two categories of chicken that are growing, it's organic and ABF. Traditional chicken has experienced fairly tempered growth over the last year, so this is about our participation in these categories that are growing more rapidly,” Lovette said.
Q1 results announced
Pilgrim's reported net sales of $1.96 billion for its first quarter in 2016, compared to $2.05 billion for the same period in 2015.
The company said its U.S. and Mexican businesses improved sequentially in the quarter following a challenging fourth quarter, putting it in a strong position for quarter two.
Lovette noted that while market conditions contributed to the improvement, Pilgrim's well-balanced portfolio played a key factor in delivering the improved quarterly performance and allowed it to leverage its strength in specific market segments while minimizing the adverse impact of the others.
“In Mexico, we continue to see improvements in market conditions year to date, and we are on target in integrating the new assets and realizing announced synergies. We will continue to seek new opportunities to position us to be a much stronger player in all geographies, meet future demand growth in the region and give us the best portfolio to serve the Mexican consumers,” Lovette said.
Within prepared foods, Pilgrim's vision of sustainable growth remains intact. “With the well-regarded Pierce brand playing a central role and the addition of a new fully cooked line at our Moorefield, W.Va., complex scheduled for completion late this year, we are on track to expand margins and increase our footprint to new accounts where we did not have prior presence,” he said.
Special dividend declared
Pilgrim's also has announced that, as part of its continuing strategy to improve its capital structure and generate shareholder value, a special cash dividend of $2.75 per share has been declared. The total amount of the special dividend payment will be approximately $700 million, based on the current number of shares outstanding. The special cash dividend is payable on May 18, 2016, to stockholders of record on May 10.
"The board's decision to pay a special dividend is a reflection of the success we have had over the past five years in executing our portfolio strategy while partnering with key customers, relentless pursuing operational excellence and growing value-added exports. We will continue to seek ways to produce superior operating performance, reduce volatility and maximize our cash flow generation potential within an optimized capital structure," Lovette said.