Pilgrim's Pride: Leading the Meat and Poultry Industry

The meat and poultry industry is the largest segment of U.S. agriculture. As per the National Chicken Council, in a little over 50 years, the U.S. broiler industry has evolved from fragmented, locally oriented businesses into a highly efficient, vertically integrated, progressive success story increasingly supplying customers nationwide and around the globe. The modern chicken industry produces nutritious, wholesome, high-quality products that became more affordable year after year. Much of the success of the industry can be attributed to a more efficient structure, organization, improved production and processing technologies, and a continuing response to consumer demands.

Pilgrim's Pride Corporation (PPC, Financial) is one of the most prominent players playing well in this industry. Founded in 1946, with a market cap of $8.294 billion, is the largest chicken producer in the United States and Puerto Rico and the second-largest chicken producer in Mexico. The company’s 75.3% outstanding common stock is owned by the Brazilian food giant, JBS. Pilgrim’s is engaged in the production, processing, marketing and distribution of fresh, frozen and value-added chicken products to retailers, distributors and foodservice operators. Pilgrim’s operates 25 fresh processing plants and eight prepared foods cook plants in the U.S. It also operates three fresh processing plants in Mexico and one in Puerto Rico. The company exports chicken products to customers in approximately 105 countries, including Mexico. The company is servicing every aspect of the industry, which is shown below.

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A look at the recent performance

On Oct. 29, 2014, this Greeley, Colorado- based company reported its third quarter 2014 earnings with net revenues of $2,268 million, up by 5.8% year over year. It also reported adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) of $435.0 million, and Net Income of $256.0 million. Pilgrim’s total revenues were $2,026.3 million (89.3% is from the U.S. operations, and 10.7% are from Mexican businesses).

As of Sept. 28, 2014, Pilgrim’s cash and cash equivalents were approximately $868.6 million, up 64.7% from $527.4 million in the preceding quarter. On Sept. 28, 2014, cash flow from operating activities was $802.4 million, up 34.5% from $596.7 million generated on Sept. 29, 2013. Long-term debt was more or less the same.

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Pilgrim’s capital spending amounted to $131.3 million, up 72.2% year over year. Further, a chart has been provided below to show the company’s comparative financial results of 3Q 2014 and 3Q 2013.

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Positive outlook

The company hopes to reduce its costs by $220 million in 2014 and also expects to attain higher operational efficiencies in the coming quarters. Pilgrim’s also expects its chicken supplies to increase moderately in 2015. The company is in an advantageous position because its main strategies are to be a valued partner with its key customers, relentless pursuit of operational excellence, accountability and ownership culture, and growing value added exports strategically. To strengthen its foothold in this competitive market, Pilgrim’s is leveraging its existing assets and planning to increase its footprint in the attractive Mexico chicken industry. On July 28, 2014, the company announced that it had entered into a definitive agreement with Tyson Foods, Inc. (TSN, Financial) to purchase its entire poultry business in Mexico. Further, the company’s branded and prepared food business act as a positive driver for its profitable growth because it has brand assessment, brand membership rules, and established key marketing strategies.

On a concluding note

Pilgrim’s Pride may be a decent pick in this strong industry as it is the second-largest chicken company globally. The company also has a diversified portfolio, unique strategy/culture, mix management and growth opportunities. Further, Pilgrim’s has three years of significant growth, which has been shown below.

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Source: Company website

Pilgrim’s main vision is to strive to be the best managed and most respected company in the industry. Its solid financial position with reasonable debt levels, notable return on equity, revenue growth, solid stock price performance, and attractive valuation levels will help to attain more positive results in the coming years. I am therefore pretty bullish that this leading chicken producer will continue this trend and won’t let its valued investors down in the long run.