Pilgrim's Pride Corporation has reported a net loss of $128.1 million, or $0.60 per share, on net sales of $1.9 billion for the second quarter ended June 26, 2011. For the comparable quarter a year ago, the company reported net earnings of $32.9 million, or $0.15 per share, on total sales of $1.7 billion.
"Our second-quarter financial results reflect the significant challenges facing our industry this year from the combination of record-high feed costs, weaker-than-expected consumer demand and an oversupply of chicken," said Bill Lovette, president and chief executive officer. "Pilgrim's total feed-ingredient purchases through the first six months of 2011 were more than $400 million higher than a year ago. At this time of year we are usually benefitting from stronger market pricing and increased demand from both foodservice and retail, but to date neither that demand nor pricing has materialised."
Market prices for some key chicken products were down sharply compared to a year ago. Boneless skinless breast meat in the second quarter averaged $1.34 per pound versus $1.61 a year ago, while the market price for wings was $0.77, compared to $1.23/lb. last year. The average market price for leg quarters was $0.46/pound, up $0.10 from a year ago, while Georgia Dock prices stayed essentially flat at $0.865/lb.
At the same time, feed-ingredient costs climbed dramatically. Market prices for corn averaged $6.99 per bushel, up 92.5% from a year ago, while soybean meal averaged $361.15 per ton, a 29.4% increase. Feed ingredient purchases, which represent the largest component of Pilgrim's cost of goods sold, were nearly $255 million higher during the quarter than the year-ago period. The company recognized $5.7 million in net mark-to-market losses related to changes in the fair value of its derivatives during the second quarter, as corn prices dropped sharply in late June as the quarter closed.
Lovette said that Pilgrim's is making structural changes in its book of business in order to share the cost burden from higher grain prices. The company is in discussion with customers to move toward a more viable business model that ties pricing for chicken products closer to the market, such as through a combination of market- and cost-based pricing.
Export demand remained very strong during the quarter, with sales, volume and pricing hitting all-time highs for the period. Year-to-date export sales are up 65% and volumes have climbed 50% -- far outpacing growth in overall US chicken exports.
"Our partnership with JBS USA is helping us enter new markets and increase our penetration in many existing markets," Lovette explained, noting that Pilgrim's share of the US export market for chicken has climbed from 17% to 24%.
On June 24, Pilgrim's announced an amendment to the financial covenants in its credit facility. The amendment suspends the existing fixed-charge coverage covenant and the senior secured debt covenant until the fourth quarter of fiscal 2012 and sets certain financial covenant levels at terms more favorable to the company. In support of that agreement, JBS USA provided a $50 million loan to Pilgrim's.
"This is an unprecedented time for our industry," Lovette said. "But industry production cuts are accelerating, with egg sets so far in July declining 6% when compared to a year ago. At the same time, we remain focused on the fundamentals of our business - improving yields and sales mix, reducing costs and operating more efficiently."
Source: Pilgrim's Pride