Blaming a downswing in fresh-chicken prices and an upswing in energy costs, Pilgrim's Pride Corp. said its fourth-quarter profit dropped 31.1 percent to $11.3 million, or 28 cents a share, compared to year-earlier results.

In fourth-quarter 1999, the company (NYSE: CHX, CHX.A) earned $16.4 million, or 40 cents a share.

But sales in both dollars and pounds continued to rise, leading to higher fourth-quarter sales, record annual sales and the company's second-highest annual profit, executives at the Pittsburg, Texas-based company said.

The gains were led by strong consumer demand for chicken convenience foods and the grocers' increasing demand for prepared foods to stock the deli and frozen-food departments, said Dan Emery, Pilgrim's Pride marketing vice president.

"The demand for chicken protein continues to grow," Emery said Tuesday.

Wal-Mart and Safeway led the grocery clientele's rising demand for prepared foods, but food-service demand also continued to grow for the restaurant trade, he said. Prepared-food items generally carry higher profit margins.

Despite the lower revenues for fresh chicken, the company's net quarterly sales rose 9.2 percent to $379.3 million from the $347.3 million in fourth-quarter 1999, said Richard A. Cogdill, chief financial officer.

National market penetration by the prepared-foods division continues to grow, partially offsetting the blow on earnings from lower fresh-chicken prices, he said.

The record $1.5-billion for net sales in fiscal 2000 was up from $1.4 billion in 1999.

While posting a 19.8 percent decline in net annual income, Pilgrim's again cited weak fresh-chicken prices and higher energy costs, but also attributed a $5.8-million write-off ($3.3 million net after taxes) in accounts receivable for the second quarter due to the Jan. 31 bankruptcy filing of client AmeriServe, the food-service distributor based in Addison, Texas.

Pilgrim's posted net annual income of $52.3 million, or $1.27 per share, down from the prior fiscal year's net income of $65.3 million, or $1.58 per share, but still the second highest annual return in company history.

Emery cited major impact from Wal-Mart Stores' fast expansion into the grocery trade and Pilgrim's ongoing product penetration of Wal-Mart's deli and frozen-foods sections.

On the deli side of the equation, Wal-Mart has been ordering more marinated whole chickens for in-store rotisserie cooking and a broad line of breaded, marinated and other ready-to-cook chicken items, such as breaded tenders, Emery said. Wal-Mart has been rapidly expanding all three of its major grocery venues, the Wal-Mart Supercenter, Wal-Mart Neighborhood Market and Sam's Club chains.

Stores in Safeway's varied divisions are big on the marinated whole chickens for deli rotisseries, he said.

On the frozen-foods side, Wal-Mart is the star client, demanding a variety of Pilgrim's items, but especially its Blazing Wings brand of hot-and-spicy chicken wings and its Ring Thing brand, a sort-of breaded "chicken donut" finger food, Emery said.

In restaurant circles, he said, the rising demand is running a wider gamut, from fresh, raw chicken to ready-to-cook and fully-cooked items.

"We are pleased with our results for the fourth fiscal quarter as well as for the entire fiscal year 2000," said David Van Hoose, chief executive, president and chief operating officer. "The ability of our company to register its second most profitable year in our company's history is extremely gratifying considering the difficult sales environment this past year. And the increases we have made in our production capacities will positively impact future operating results as sales prices recover."

Pilgrim's is also expanding by acquisition, including its Sept. 27 announcement of plans tobuy all outstanding stock of WLR Foods Inc., a Virginia-based company, in a cash merger for $14.25 a share.

"Going forward, we will continue to make investments in those lines of business that have helped us to differentiate ourselves from our competitors and are excited about the opportunities we see ahead resulting from the WLR Foods acquisition," Van Hoose said.

The merger is subject to customary closing conditions, including regulatory approval and approval by WLR Foods' shareholders. The shareholder vote is expected in January, with closing to proceed shortly thereafter, Pilgrim's said.

During fiscal 2000, the company bought $1.6 million of its Class A Common Stock on the open market under its share-repurchase program previously announced.

Pilgrim's Pride lists itself as the fifth largest U.S. chicken producer and second largest in Mexico. It has more than 15,500 employees operating processing plants, distribution centers, hatcheries and feed mills in Texas, Arkansas, Arizona, Oklahoma and Mexico.

By WORTH WREN JR.
StoreAlliance.com