Pilgrim's Pride Corp (PPC)

[chmcnfunds]

June 21, 2011, 5:07 p.m. EDT
Pilgrim's Pride sees chicken supplies falling

CHICAGO -(MarketWatch)- Pilgrim's Pride Corp.'s PPC +5.18% chief executive acknowledged Tuesday that worries the company would violate its debt covenants with lenders has weighed on company's stock recently, but said the poultry producer doesn't expect any liquidity problems this year.

Chief Executive Bill Lovette said the company's banks are "comfortable" with its strategy and added that JBS SA , the Brazilian meat company that holds two thirds of Pilgrim's Pride, can, if needed, lend up to $100 million that could serve as a "backstop" for the company.

The stock has fallen by more than a third this year and tumbled earlier this month to a 52-week low. Asked about the decline in a presentation to investors, Lovette said he has gotten many questions about the health of the poultry industry in general and about whether Pilgrim's Pride would violate its debt covenants.

"Some have assumed we would, but we don't believe that's the case," he said.

Moody's Investors Service recently revised the company's outlook from to stable from positive, saying that if chicken prices don't improve, the company would likely have to amend its debt covenants in the latter half of the year.

Pilgrim's, which was forced into bankruptcy in 2008 by soaring feed costs, has faced similar pressures this year, along with the rest of the poultry industry.

The industry as a whole hasn't been profitable any week this year, Lovette said.

The company's feed costs rose $188 million in the first quarter from a year ago. Lovette said the company has already purchased all the corn it will need this year.

Analysts say the industry's fortunes won't improve significantly until production starts to fall. While supplies in storage remain high, Lovette noted, the number of eggs set in incubators--a sign of future supplies--has fallen the past several weeks, and by the fourth quarter the numbers could be declining by 4%-6%.

Stubbornly high supplies have kept chicken prices from rallying despite record-high beef and pork prices, which some in the industry were hoping would compel consumers to buy cheaper chicken.

Lovette said he was surprised chicken prices hadn't risen, adding that it indicated a "fundamental lack of demand in all proteins."

Pilgrim's stock rallied during Mr. Lovette's presentation. It was recently up 6.1% at %4.71 a share.
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http://www.marketwatch.com/story/pilgrims-pride-sees-chicken-supplies-falling-2011-06-21-17760

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