Pilgrim’s Pride has cited “rapidly increasing” feed costs as a factor in its widening losses for the first quarter of its financial year.
On Thursday (29 April), the US poultry processor, in which Brazil’s JBS owns a majority stake, booked a net loss of US$120.8m for the three months to 27 March.
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The figure compared to a net loss of $45.5m a year ago and came despite higher sales. Pilgrim’s net sales rose from $1.6bn a year ago to $1.9bn in the first quarter of the current financial year.
President and CEO Bill Lovette noted that the first quarter is historically the weakest due to lower demand. Nonetheless, he acknowledged: “We encountered unusually tough circumstances due to high finished inventories, combined with rapidly increasing feed and other costs associated with our inventory levels, severe winter storms and depressed prices for chicken products.”
Pilgrim’s saw prices for chicken breast meat fall 10% and the price for wings decrease by 38%.
Lovette said Pilgrim’s had liquidated inventories during the quarter to cut working capital but said the move hit margins despite improving the balance sheet.
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By GlobalDataThe Pilgrim’s chief also pointed higher operating costs due to less capacity being used, while storms in January closed a number of Pilgrim’s plants and hit demand.
Pilgrim’s said it expects feed costs to be $500m higher this year, although it said it had covered all the corn supplies it expects to use in 2011 and half the soybean meal.
“Clearly 2011 is going to be a challenging year. Despite now having covered nearly all of our anticipated grain needs through the end of 2011, we are facing at least $500 million in higher feed costs this year,” Lovette said.
“Our customers recognise that the unrelenting upward march of corn and soybean meal is placing extreme pressure on chicken producers and that there must be some sharing of the cost burden in order to ensure a viable business model. To achieve that, we will continue to look at further price increases and will execute structural changes in our book of business with regard to fixed versus market-based pricing. At the same time, it is absolutely critical that we strengthen our balance sheet, capture our estimated $400m in plant-related cost improvements and seize the significant sales mix opportunities available across our asset base.”
Pilgrim’s has moved to improve its product mix with a revamp of its sales and operations groups by customer segment. The new organisation comprises business units covering commercial business, fast food and retail, as well as prepared foods-small bird deboning and prepared foods-further processed.
