The Epic Of The Fall - Pilgrim's Pride Prepares To Pass Along Skyrocketing Feed Costs To American Consumers

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Pilgrim's Pride Prepares To Pass Along Skyrocketing Feed Costs To American Consumers

Pilgrim's Pride Prepares To Pass Along Skyrocketing Feed Costs To American Consumers	May. 5th, 2008 @ 02:23 pm

Pilgrim's Pride Loss Widens on Soaring Feed Costs (Update2)

By Choy Leng Yeong

May 5 (Bloomberg) -- Pilgrim's Pride Corp., the biggest U.S. poultry processor, said its second-quarter net loss widened to $111.4 million as record corn and soybean prices boosted the cost of feeding chickens.

The loss of $1.67 a share in the three months ended March 29 compares with a loss of $40.1 million, or 60 cents, a year earlier, Pittsburg, Texas-based Pilgrim's Pride said today in a statement. Sales rose 5.7 percent to $2.1 billion.

Chief Executive Officer J. Clinton Rivers is reducing weekly chicken-processing capacity 5 percent to stem losses amid record costs for feed ingredients such as corn and soybean meal. High grain costs will continue to ``exert pressure'' on the company's operating results in the second half of the budget year, Rivers said in the statement.

``Essentially the entire world is now paying the price of misguided public policy on biofuels and rising international demand for grain,'' Credit Suisse analysts led by Robert Moskow said in an April 21 note. ``Earnings will hit a bottom in the March quarter and accelerate from there as pricing picks up.''

Moskow has an ``outperform'' rating on the stock and had forecast a loss of 90 cents a share, excluding one-time items.

Excluding one-time asset impairment and restructuring charges related to the closing of a processing plant and six distribution centers, the loss was $1.50 a share, the company said. The average estimate of eight analysts surveyed by Bloomberg was for a loss of 75 cents a share.

Share Prices

Pilgrim's Pride fell 5 cents to $24.05 at 11:17 a.m. today in New York Stock Exchange composite trading. The shares tumbled 35 percent in the 12 months ended May 2.

The company said its total feed-ingredient costs for fiscal 2008 would increase from last year by more than $800 million, wider than its January forecast of more than $700 million.

``The operating environment for chicken producers today is among the most difficult I have seen during my 27 years in the business,'' Rivers said. ``The federal government has helped spark a growing worldwide food crisis by mandating corn-based ethanol production at the expense of affordable food.''

Pilgrim's Pride, whose customers include Wal-Mart Stores Inc. and Yum! Brands Inc.'s KFC restaurant chains, said its costs for corn and soybean meal rose $200 million in the quarter from a year earlier.

Ethanol Effects

Corn prices in the quarter averaged 28 percent higher from a year earlier as U.S. mandates for ethanol led to record demand for the crop-based fuel.

Soybean prices averaged 82 percent higher and reached a record $15.8625 a bushel on March 3 in Chicago after U.S. farmers reduced plantings last year to the lowest in more than a decade.

``American consumers are only just beginning to feel the impact of sharply higher food prices,'' Rivers said. ``There will be much more to come as food producers fully pass along these higher input costs.''

Springdale, Arkansas-based Tyson Foods Inc. said last week its 2008 grain costs will increase $600 million, more than its earlier forecast of $500 million. Corn reached a record $6.2425 a bushel on May 2 on the Chicago Board of Trade.

Rivers, 49, closed the processing plant in North Carolina plant and six distribution sites, cutting 1,100 jobs and 2 percent of production volume, within his first week as CEO in March.

`Return to Profitability'

``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,'' Rivers said.

Pilgrim's Pride uses about 324 million bushels of corn and 3.2 million tons of soybean meal a year, Rivers said in March. Feed accounts for about 35 percent of the cost of goods sold, he said.

During the quarter, Rivers also sold the company's New Oxford, Pennsylvania, turkey-processing plant to Hain Celestial Group Inc., exiting the turkey business.

Pilgrim's Pride surpassed Tyson as the world's biggest poultry processor when it bought Atlanta-based Gold Kist Inc., then the third-biggest U.S. chicken-meat producer, for about $1.12 billion in January 2007.

Rivers succeeded O.B. Goolsby Jr., who died in December after suffering a stroke.

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