UPDATE: Pilgrim's Pride Loss Widens On High Inventory, Feed Costs
[In4Luck, this article gives some insight to me why the market is currently selling this stock imo, but I like to look to the companies financials and filings, in addition to what is happening in the industry for long-term investing. Stockinvestor]
Pilgrim's Pride Corp.'s (PPC) first-quarter loss widened, as higher inventory levels and feed costs offset sales growth.
The world's second-largest poultry producer liquidated inventories in the face of weak prices, but expects to produce more pounds of chicken this year than last year. Investors have been closely-watching how producers manage supplies as chicken prices remain weak even as feed costs surge.
"The marketplace continues to be challenging," Pilgrim Chief Executive Bill Lovette said during a conference with analysts.
Shares of the company, of which Brazil's JBS SA (JBSAY) owns a 67% stake, fell 6.3% to $6.09 in recent trading.
Chicken supplies could tighten in the short-term following destruction from a series of devastating tornadoes in the southeast this week. Two Pilgrim processing plants in Alabama remain without power and likely won't have it restored until the end of the weekend. The company estimates more than 100 chicken houses owned by farmers contracted by Pilgrim's were damaged or destroyed. The company doesn't have an assessment yet on how many chickens were killed by the storms.
During the quarter, Pilgrim's decided to liquidate inventories, which hurt its margins and overall revenue per pound sold, while lower capacity utilization raised its operating costs. Winter storms in mid-January closed many plants for several days and hurt consumer demand. Market prices for chicken breasts on average were down 10% from a year ago, while wings fell 38%.
Lovette said he expects industrywide chicken supplies to start falling in the second half of the year as financial pressures continue. As for demand, poultry sales could pick up in the face of surging beef and pork prices, he added.
Lovette faced questions from investment analysts during Friday's conference call over cost-cutting goals and the company's plan to produce more chicken this year than last.
"I think there is some frustration they aren't cutting in the face of likely losses for the rest of the year," BB&T Capital Markets analyst Heather Jones said.
Analysts also questioned plans by the Greeley, Colo.-based company to realize $400 million in savings this year. Pilgrim's now expects to cut that amount from its annual operating costs, yet the savings may not be seen in full in the 2011 calendar year.
For the quarter, Pilgrim's reported a loss of $120.8 million, or 56 cents a share, compared with a loss of $45.5 million, or 21 cents a share, a year earlier. Sales jumped 15% to $1.89 billion.
Analysts polled by Thomson Reuters had most recently forecast a loss of 22 cents on revenue of $1.7 billion.
Gross margin fell to negative 2.8% from positive 3.2%.
-By Mark Peters, Dow Jones Newswires; 312-750-4141; mark.peters@dowjones.com
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