Pilgrim's Pride (PPC, Financial) is engaged in the production, distribution and marketing of fresh, frozen wholesome, high-quality chicken products at a great value. The company works with over 4,000 family farms throughout the U.S. and Mexico. It is the second-largest chicken producer in the world. Pilgrim’s has the capacity to process more than 34 million birds per week, for a total of more than 7 billion pounds of live chicken annually.
Headquartered in Greeley, Colorado, it has operations in 12 U.S. states as well as in Mexico and Puerto Rico. The company’s primary distribution is through retailers, foodservice distributors and restaurants, as well as through the export of chicken products to customers all over the world.
It boasts of a balanced portfolio of fresh, prepared and value-added chicken products to a diverse set of over 5,000 customers across the U.S., Mexico and in approximately 90 other countries, with no single customer accounting for more than 10% of total sales.
The company recently reported its second quarter perfomance and the results were driven by operations in Mexico. The company is catering to the strong commodity markets and is targeting higher margins over the mid to long-term. It benefitted from improved synergies and this time, the operating performance was also good. Lower feed prices also contributed to the results.
Second Quarter Results
Net Sales during the quarter were $2.03 billion, which was $2.05 billion in the prior year quarter.
Net Income during the quarter was $152.9 million, which was $241 million in the prior year quarter. The GAAP EPS was 60 cents.
Operating income margins during the quarter were 9.8% in U.S. and 20.5% in Mexico.
Adjusted EBITDA during the quarter was $282.7 million, or a 13.9% margin.
Cash Flow from operations was $111.1 million.
Operating income during the quarter was $236.6 million, which was $378.4 million in the prior year quarter.
Cash and cash equivalents as of June 26 was $41,047 million.
This year, it paid a special cash dividend of $2.75 per share.
Focus
- Returning profitability to the shareholders
- Focus on innovation
- Relentless pursuit of operational excellence
- Strategically growing its valued added exports
- Better customer relationships
- Improving sales mix and price
Organic Chicken Production
The company is pushing itself into organic chicken production and is planning to launch new ABF vegetarian-fed artisanal chicken sausages. These products will have no artificial ingredients or nitrites, Â will be minimally processed and will come fully cooked. Organic chicken sales are growing at a rate of 31% annually and the company has a lot of potential in this arena.
Opportunities in Mexico
The company has a strong presence in Mexico, which has helped the company to access a bigger market with a growing demand. The market for chicken products in Mexico is still developing and this company has a lot of growth potential and is already leveraging its operational strengths within the region. It accounted for 25% of the industry’s chicken sales in Mexico in 2015.
Industry Overview
According to the U.S. Department of Agriculture (USDA), chicken is the second most consumed protein globally, after pork. The U.S. poultry industry is the world's largest producer and second largest exporter of poultry meat and a major egg producer. Consumer demand for local meat has risen in recent years.
According to the USDA, the export of U.S. chicken products increased at an average annual growth rate of 3.9% from 2004 through 2014. The U.S. is the second-largest exporter of broiler meat behind Brazil. The U.S. is projected to export 6.9 billion pounds in calendar year 2016, which would account for 30.1% of the total world exports and 17.5% of the total U.S. production, according to the USDA. The top five exporters are projected to control over 86.4% of the market in 2016.
(Source: http://www.ers.usda.gov/topics/animal-products/poultry-eggs/readings.aspx)
Conclusion
The market for chicken is changing dramatically and PPC can benefit from the rising chicken demand. It is emerging as a stronger and more competitive company. It offers a wide array of products to the customers through strong national and international distribution channels.
With cost reductions and operational efficiencies by its side, I think the company is a long-term stock with full potential to generate returns.
Disclosure: I do not hold any position in the company.
Start a free 7-day trial of Premium Membership to GuruFocus.
