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May 3, 2006

US: Bird flu hits Pilgrim’s Pride in Q2

Hit by the effects of the bird flu crisis in Europe and Asia, Texas-based chicken processor Pilgrim's Pride has posted a net loss for the second quarter of US$32.0m, or $0.48 per share, compared with net earnings of $56.4m, or $0.85 per share, in the second quarter of 2005. In response, the company has announced a business plan aimed at improving its position in the current market environment.

Hit by the effects of the bird flu crisis in Europe and Asia, Texas-based chicken processor Pilgrim’s Pride has posted a net loss for the second quarter of US$32.0m, or $0.48 per share, compared with net earnings of $56.4m, or $0.85 per share, in the second quarter of 2005. In response, the company has announced a business plan aimed at improving its position in the current market environment.

“Our second-quarter results reflect a challenging operating environment for US poultry companies,” said O.B. Goolsby, Pilgrim’s Pride president and chief executive officer. “The spread of H5N1 avian influenza in parts of Europe and Asia has significantly reduced export demand, leading to higher inventory levels and contributing to lower overall market pricing. At the same time, industry production levels have continued to increase, creating an oversupply situation and further weakening prices.”

Market pricing for both breast meat and leg quarters declined by approximately 30% from last year in the company’s US operations, Goolsby said. In addition, US chicken sales volumes fell by around 4% as a result of lower demand primarily due to avian influenza concerns. Pilgrim’s Pride’s total sales in the second quarter fell to $1.27bn, from $1.38bn in the second quarter of 2005.

In response to the current challenges, the company, which has operations in the US, Mexico and Puerto Rico, has drawn up a multi-point plan designed to improve its competitive position. The plan includes a 3% reduction in the weekly slaughter rate, a $25-$40m reduction in capital investment for fiscal 2006 to between $140m and $175m, and increased focus on cost reductions and improved efficiencies.

“We believe that by taking these actions at a time of the year when chicken consumption normally increases, we will better balance our production with demand for the remainder of the year and strengthen our competitive position,” Goolsby said.

“Reducing overall supply to better match demand is an important component in helping return the industry to profitability. While the short-term operating environment remains challenging, we are confident that continued long-term growth in demand for high-quality, convenient and low-fat meat proteins will position our company for a return to profitable growth when conditions in the chicken markets begin to improve.”

For the six-month period, Pilgrim’s Pride recorded a net loss of $6.3m, or $0.09 per share, against net earnings of $104.9m in the first half of 2005, on sales down from $2.74bn to $2.61bn.

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