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Pilgrim's Pride Falling from Dizzying Heights

by 5m Editor
6 May 2008, at 3:55pm

TEXAS, US - America's largest chicken producer yesterday posted a second-quarter loss greater than that of one year ago, accounting the downfall to higher feed costs and restructuring charges.

Pilgrim's Pride Corporation yesterday reported a net loss of $111.4 million, or $1.67 per share, on net sales of $2.1 billion for the second fiscal quarter ended March 29, 2008.

These results include asset impairment and restructuring charges of approximately $17.7 million, $11.1 million net of tax, or $0.17 per share, related to the previously announced closing of one processing plant and six distribution centers. For the second quarter of fiscal 2007, the company reported a net loss of $40.1 million, or $0.60 per share, on total sales of $1.99 billion.

"Our financial results in the second quarter of fiscal 2008 reflect the crisis facing our company and industry from record-high feed costs caused by the federal government's deeply flawed ethanol policy," said Clint Rivers, president and chief executive officer of Pilgrim's Pride.

Pilgrim's Pride said its costs for corn and soybean meal in the quarter climbed $200 million, when compared to the same period a year ago, as the average price for a bushel of corn increased 29% and soybean meal gained more than 63%. Based on the actual costs incurred for the first half of the fiscal year and current commodity futures markets for the remainder, the company's total feed-ingredient costs for fiscal 2008 would be up more than $800 million from last fiscal year.


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"The operating environment for chicken producers today is among the most difficult I have seen during my 27 years in the business"
Clint Rivers, president and chief executive officer of Pilgrim's Pride.

"While we continue working to pass along price increases to our customers, the simple fact is that to date, we have not been able to raise prices fast enough to match the extreme price volatility in the grain markets," Mr. Rivers explained.

"The operating environment for chicken producers today is among the most difficult I have seen during my 27 years in the business," he said. "The federal government has helped spark a growing worldwide food crisis by mandating corn-based ethanol production at the expense of affordable food. American consumers are only just beginning to feel the impact of sharply higher food prices. There will be much more to come as food producers fully pass along these higher input costs. Meanwhile, the government is using tax dollars to provide generous subsidies to big oil companies for blending ethanol and stiff duties on imported ethanol help protect domestic ethanol producers at the expense of end consumers. As a direct result of these soaring grain costs, a growing number of food companies are shutting down plants and eliminating thousands of jobs in rural America."

Mr. Rivers added: "At Pilgrim's Pride, we have made a series of tough decisions over the past two months to address the challenges facing our business. Those decisions include closing a processing plant and six distribution centers, and a planned reduction in production by 5% in the second half of fiscal 2008. While consumer demand for chicken remains strong, we believe that production cuts are necessary to bring supply into better balance with demand at appropriate selling prices to cover input costs. Indeed, industry data for the last full week in April show that egg sets declined 2.4% year over year, the fifth consecutive weekly decline. In addition, market pricing for breast meat has begun a much-needed rise, though we believe that little, if any, of this increase is attributable to the recent production cutbacks. While we are encouraged by these positive trends, we believe that high grain costs will continue to exert pressure on our operating results during the second half of fiscal 2008. Accordingly, we continue to evaluate our production facilities for potential mix changes, closure, sale and/or consolidation in an effort to position the company for a return to profitability."

For the first six months of fiscal 2008, Pilgrim's Pride reported a net loss of $143.8 million, or $2.16 per share, on net sales of $4.1 billion compared to a pro forma net loss of $82.9 million, or $1.25 per share, on pro forma net sales of $3.8 billion in the same period last year. The pro forma amounts assume the acquisition of Gold Kist Inc., which closed on December 27, 2006, was completed on September 30, 2006, and included in the operating results for the six months. The results for the first six months of fiscal 2008 include a non-recurring income tax charge of approximately $13.0 million, or $0.20 per share, related to an adjustment in deferred taxes as a result of a newly enacted tax law in Mexico, and asset impairment and restructuring charges of approximately $17.7 million, $11.1 million net of tax, or $0.17 per share, related to the closing of one processing plant and six distribution centers.

5m Editor