Pilgrim’s Pride Profit Plunges as Protein Supply Swells
Adjusted EBITDA fell 47.6% to $360.0 million as margins narrowed across the poultry producer.
The poultry producer Pilgrim’s Pride Corporation (PPC) reported an 87.1% drop in second-quarter operating income as higher protein supplies weighed on prices and profitability.
The decline deepened a downturn that began in the first quarter, when operating income fell 59.8%. Second-quarter operating margin dropped to 1.4% from 3.6% sequentially, even as adjusted EBITDA margin recovered 1.0 percentage point to 7.8%.
Net sales fell 2.8% from a year earlier to $4.626 billion, reversing the first quarter’s 1.6% growth, though sales increased 2.1% sequentially. GAAP earnings fell to $0.06 a share from $1.50 a share a year earlier, while adjusted earnings improved sequentially to $0.64 a share from $0.51.
Gross profit declined 52.5% to $339.8 million as cost of sales rose 6.0% despite lower revenue, compressing gross margin to about 7.3% from about 15.0%. In the U.S., increased chicken supply outpaced firm demand and jumbo commodity cutout values fell more than 25%. Productivity gains, completed plant upgrades and improved live operations helped the U.S. adjusted EBITDA margin recover sequentially to 8.7% from 7.0%.
Mexico’s adjusted EBITDA fell 75.5% to $22.6 million as increased chicken production, egg availability and pork imports expanded protein supply. Europe’s adjusted EBITDA margin edged down sequentially to 7.6%, with poultry and meals volume growth offset by pressured U.K. pork margins, Middle East-related costs and weaker foodservice traffic.
Pilgrim’s Pride’s Just Bare brand grew retail sales more than 30%, moderating from nearly 40% growth in the first quarter. The brand gained nearly 300 basis points of frozen fully cooked category share and became the category’s second-largest brand.
A $135.7 million litigation-settlement expense and a new $25.6 million impairment charge, primarily tied to the announced closure of the Chattanooga, Tenn., harvest plant, reduced GAAP net income to $13.2 million, compared with adjusted net income of $153.9 million. Net leverage rose sequentially to 1.43 times adjusted EBITDA but remained below management’s target range of two to three times.