Pilgrim’s Pride Corporation (NASDAQ:PPC) reports second quarter 2017 financial results.

Second Quarter Highlights

  • Net Sales of $2.25 billion.
  • Net Income of $233.6 million, GAAP EPS of $0.94.
  • Operating Income margins of 14.8% in U.S. and 22.1% in Mexico operations, respectively.
  • Adjusted EBITDA of $420.6 million (or an 18.7% margin).
  • Cash Flow from Operations of $254.7 million.
  • With our announced capital projects already completed, our quarterly performance reflected our well-balanced portfolio strategy, designed to capture the upside from strong markets while reducing overall volatility.
  • Integration of newly acquired assets in Mexico has been completed with margins at the same level as legacy business. GNP integration is on track and synergy capture is currently above expectations. 
 
Unaudited, In Millions, Except Per Share and Percentages
  Thirteen Weeks Ended
  June 25, 2017   June 26, 2016   Change
Net Sales $2,251.6   $2,028.3   +11.0%
GAAP EPS $0.94   $0.60   +56.7%
Operating Income $359.4   $236.6   +51.9%
Adjusted EBITDA (1) $420.6   $282.7   +48.8%
Adjusted EBITDA Margin (1) 18.7%   13.9%   +4.8pts
           
(1) Reconciliations for non-GAAP measures are provided in subsequent sections within this release.
 

“Our Q2 results materially improved from last quarter as well as from a year ago driven by much stronger results at our U.S. operations while Mexico continued to perform very well. Demonstrating the diversity of our portfolio of bird sizes; while small bird and tray-pack remained robust during the period, our team captured the strength in the large bird deboning environment, which significantly rebounded after a slower than expected start earlier in the year, driven by stronger exports and very good domestic demand as the grilling season kicked off. This portfolio approach is working well and is what fundamentally differentiates us from the competition, giving us the potential to reduce volatility and generate higher margins over time. This summer has brought strong demand for grilling season and we see continuation of chicken as a choice protein in domestic and international markets,” stated Bill Lovette, Chief Executive Officer of Pilgrim's.

“We continue to search for solutions in delivering more differentiated customized products that are innovative to satisfy our key customers’ needs. We currently have market leading positions in USDA-certified organic and NAE, two segments that resonate very well with new consumer trends for more natural products while adding more value to our portfolio. We also have the potential to expand into new segments with our broad channel approach using the Gold’n Plump brand as well as the new premium Just BARE chicken in the “better for you” category.”

Conference Call Information

A conference call to discuss Pilgrim’s quarterly results will be held tomorrow, August 3, at 7:00 a.m. MT (9 a.m. ET).  Participants are encouraged to pre-register for the conference call using the link below.  Callers who pre-register will be given a unique PIN to gain immediate access to the call and bypass the live operator.  Participants may pre-register at any time, including up to and after the call start time.

To pre-register, go to: http://services.choruscall.com/links/ppc170803.html 

You may also reach the pre-registration link by logging in through the investor section of our website at www.pilgrims.com and clicking on the link under “Upcoming Events.”

For those who would like to join the call but have not pre-registered, access is available by dialing +1 (844) 883-3889 within the US, or +1 (412) 317-9245 internationally, and requesting the “Pilgrim’s Pride Conference.” Please note that to submit a question to management during the call, you must be logged in via telephone.

Replays of the conference call will be available on Pilgrim’s website approximately two hours after the call concludes and can be accessed through the “Investor” section of www.pilgrims.com. The webcast will be available for replay through November 3, 2017.

About Pilgrim’s Pride

Pilgrim’s employs approximately 42,000 people and operates chicken processing plants and prepared-foods facilities in 14 states, Puerto Rico and Mexico.  The Company’s primary distribution is through retailers and foodservice distributors.  For more information, please visit www.pilgrims.com. 

Forward-Looking Statements

Statements contained in this press release that state the intentions, plans, hopes, beliefs, anticipations, expectations or predictions of the future of Pilgrim’s Pride Corporation and its management are considered forward-looking statements. It is important to note that actual results could differ materially from those projected in such forward-looking statements. Factors that could cause actual results to differ materially from those projected in such forward-looking statements include: matters affecting the poultry industry generally; the ability to execute the Company’s business plan to achieve desired cost savings and profitability; future pricing for feed ingredients and the Company’s products; outbreaks of avian influenza or other diseases, either in Pilgrim’s Pride’s flocks or elsewhere, affecting its ability to conduct its operations and/or demand for its poultry products; contamination of Pilgrim’s Pride’s products, which has previously and can in the future lead to product liability claims and product recalls; exposure to risks related to product liability, product recalls, property damage and injuries to persons, for which insurance coverage is expensive, limited and potentially inadequate; management of cash resources; restrictions imposed by, and as a result of, Pilgrim’s Pride’s leverage; changes in laws or regulations affecting Pilgrim’s Pride’s operations or the application thereof; new immigration legislation or increased enforcement efforts in connection with existing immigration legislation that cause the costs of doing business to increase, cause Pilgrim’s Pride to change the way in which it does business, or otherwise disrupt its operations; competitive factors and pricing pressures or the loss of one or more of Pilgrim’s Pride’s largest customers; currency exchange rate fluctuations, trade barriers, exchange controls, expropriation and other risks associated with foreign operations; disruptions in international markets and distribution channel, including anti-dumping proceedings and countervailing duty proceedings; and the impact of uncertainties of litigation as well as other risks described under “Risk Factors” in the Company’s Annual Report on Form 10-K and subsequent filings with the Securities and Exchange Commission. Pilgrim’s Pride Corporation undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
 
    June 25, 2017   December 25, 2016
    (Unaudited)    
    (In thousands)
Cash and cash equivalents   $ 303,937     $ 120,328  
Restricted cash   20,348     4,979  
Trade accounts and other receivables, less allowance for doubtful accounts   406,586     317,170  
Accounts receivable from related parties   4,050     3,913  
Inventories   967,577     813,262  
Income taxes receivable   13,659      
Prepaid expenses and other current assets   66,572     57,457  
Assets held for sale   5,542     5,259  
Total current assets   1,788,271     1,322,368  
Other long-lived assets   17,484     15,710  
Identified intangible assets, net   153,855     38,593  
Goodwill   175,444     125,607  
Property, plant and equipment, net   1,721,948     1,505,940  
Total assets   $ 3,857,002     $ 3,008,218  
         
Accounts payable   $ 519,820     $ 555,097  
Accounts payable to related parties   3,622     1,421  
Accrued expenses and other current liabilities   324,727     290,699  
Income taxes payable   93,910     20,990  
Current maturities of long-term debt   40,098     94  
Total current liabilities   982,177     868,301  
Long-term debt, less current maturities   1,404,264     1,011,858  
Deferred tax liabilities   171,042     142,651  
Other long-term liabilities   89,422     88,661  
Total liabilities   2,646,905     2,111,471  
Common stock   2,602     2,597  
Treasury stock   (231,758 )   (217,117 )
Additional paid-in capital   1,688,684     1,686,742  
Accumulated deficit   (193,073 )   (520,635 )
Accumulated other comprehensive loss   (66,735 )   (64,243 )
Total Pilgrim’s Pride Corporation stockholders’ equity   1,199,720     887,344  
Noncontrolling interest   10,377     9,403  
Total stockholders’ equity   1,210,097     896,747  
Total liabilities and stockholders’ equity   $ 3,857,002     $ 3,008,218  
                 
PILGRIM’S PRIDE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                 
    Thirteen Weeks Ended   Twenty-Six Weeks Ended
    June 25, 2017   June 26, 2016   June 25, 2017   June 26, 2016
                                 
    (In thousands, except per share data)
Net sales   $ 2,251,604     $ 2,028,315     $ 4,272,096     $ 3,991,252  
Cost of sales   1,826,217     1,742,184     3,631,504     3,467,559  
Gross profit   425,387     286,131     640,592     523,693  
Selling, general and administrative expense   61,636     49,520     124,489     98,308  
Administrative restructuring charges   4,349         4,349      
Operating income   359,402     236,611     511,754     425,385  
Interest expense, net of capitalized interest   15,935     11,548     28,321     23,581  
Interest income   (1,044 )   (683 )   (1,346 )   (1,376 )
Foreign currency transaction gain   (1,810 )   (4,744 )   (1,191 )   (4,979 )
Miscellaneous, net   (970 )   (950 )   (3,685 )   (3,896 )
Income before income taxes   347,291     231,440     489,655     412,055  
Income tax expense   113,218     78,398     161,119     141,002  
Net income   234,073     153,042     328,536     271,053  
Less: Net income (loss) attributable to noncontrolling interests   432     156     974     (204 )
Net income attributable to Pilgrim’s Pride Corporation   $ 233,641     $ 152,886     $ 327,562     $ 271,257  
                 
Weighted average shares of common stock outstanding:                
Basic   248,753     254,554     248,722     254,681  
Effect of dilutive common stock equivalents   220     390     228     364  
Diluted   248,973     254,944     248,950     255,045  
                 
Net income attributable to Pilgrim's Pride Corporation per share of  common stock outstanding:                
Basic   $ 0.94     $ 0.60     $ 1.32     $ 1.07  
Diluted   $ 0.94     $ 0.60     $ 1.32     $ 1.06  
                                 
PILGRIM’S PRIDE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
    Twenty-Six Weeks Ended
    June 25, 2017   June 26, 2016
                 
    (In thousands)
Cash flows from operating activities:        
Net income   $ 328,536     $ 271,053  
Adjustments to reconcile net income to cash provided by operating activities:        
Depreciation and amortization   107,671     88,683  
Foreign currency transaction loss related to borrowing arrangements   5,634      
Impairment expense   3,534      
Gain on property disposals   (768 )   (6,755 )
Gain on equity method investments   (30 )    
Share-based compensation   1,947     1,869  
Deferred income tax expense (benefit)   26,904     (700 )
Changes in operating assets and liabilities:        
Trade accounts and other receivables   (73,684 )   6,610  
Inventories   (97,857 )   (31,208 )
Prepaid expenses and other current assets   (5,702 )   (19,817 )
Accounts payable, accrued expenses and other current liabilities   (34,565 )   (23,028 )
Income taxes   60,695     6,967  
Long-term pension and other postretirement obligations   (3,916 )   (3,952 )
Other operating assets and liabilities   (2,265 )   (738 )
Cash provided by operating activities   316,134     288,984  
Cash flows from investing activities:        
Acquisitions of property, plant and equipment   (174,150 )   (93,978 )
Business acquisition   (359,698 )    
Proceeds from property disposals   1,466     8,097  
Cash used in investing activities   (532,382 )   (85,881 )
Cash flows from financing activities:        
Proceeds from note payable to bank       36,838  
Payments on note payable to bank       (65,564 )
Proceeds from revolving line of credit and long-term borrowings   1,013,662     351,089  
Payments on revolving line of credit, long-term borrowings and capital lease obligations   (586,056 )   (219,812 )
Proceeds from equity contribution under Tax Sharing Agreement between JBS USA Food Company Holdings and Pilgrim's Pride Corporation   5,038     3,691  
Payment of capitalized loan costs   (2,777 )   (693 )
Purchase of common stock under share repurchase program   (14,641 )   (7,328 )
Cash dividends       (699,915 )
Cash provided by (used in) financing activities   415,226     (601,694 )
Increase (decrease) in cash, cash equivalents and restricted cash   198,978     (398,591 )
Cash, cash equivalents and restricted cash, beginning of period   125,307     439,638  
Cash, cash equivalents and restricted cash, end of period   $ 324,285     $ 41,047  
                 

PILGRIM’S PRIDE CORPORATION

Selected Financial Information

(Unaudited)

“EBITDA” is defined as the sum of net income (loss) plus interest, taxes, depreciation and amortization.  “Adjusted EBITDA” is calculated by adding to EBITDA certain items of expense and deducting from EBITDA certain items of income that we believe are not indicative of our ongoing operating performance consisting of: (i) income (loss) attributable to non-controlling interests, (ii) restructuring charges, (iii) reorganization items, (iv) losses on early extinguishment of debt and (v) foreign currency transaction losses (gains). EBITDA is presented because it is used by management and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with accounting principles generally accepted in the US (“GAAP”), to compare the performance of companies.  We believe investors would be interested in our Adjusted EBITDA because this is how our management analyzes EBITDA.  The Company also believes that Adjusted EBITDA, in combination with the Company’s financial results calculated in accordance with GAAP, provides investors with additional perspective regarding the impact of certain significant items on EBITDA and facilitates a more direct comparison of its performance with its competitors.  EBITDA and Adjusted EBITDA are not measurements of financial performance under GAAP.  They should not be considered as an alternative to cash flow from operating activities or as a measure of liquidity or an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with GAAP.

PILGRIM'S PRIDE CORPORATION
Reconciliation of Adjusted EBITDA
                 
(Unaudited)   Thirteen Weeks Ended   Twenty-Six Weeks Ended
    June 25, 2017   June 26, 2016   June 25, 2017   June 26, 2016
                                 
    (In thousands)
Net income   $ 234,073     $ 153,042     $ 328,536     $ 271,053  
Add:                
Interest expense, net   14,891     10,865     26,975     22,205  
Income tax expense   113,218     78,398     161,119     141,002  
Depreciation and amortization   57,281     46,293     107,671     88,683  
Minus:                
Amortization of capitalized financing costs   997     962     1,947     1,889  
EBITDA   418,466     287,636     622,354     521,054  
Add:                
Foreign currency transaction gains   (1,810 )   (4,744 )   (1,191 )   (4,979 )
Restructuring charges   4,349         4,349      
Minus:                
Net income (loss) attributable to noncontrolling interest   432     156     974     (204 )
Adjusted EBITDA   $ 420,573     $ 282,736     $ 624,538     $ 516,279  
                                 

The summary unaudited consolidated income statement data for the twelve months ended June 25, 2017 (the LTM Period) have been calculated by subtracting the applicable unaudited consolidated income statement data for the six months ended June 26, 2016 from the sum of (1) the applicable audited consolidated income statement data for the year ended December 25, 2016 and (2) the applicable audited consolidated income statement data for the six months ended June 25, 2017.

PILGRIM'S PRIDE CORPORATION
Reconciliation of LTM Adjusted EBITDA
                     
(Unaudited)   Thirteen Weeks Ended   Thirteen Weeks Ended   Thirteen Weeks Ended   Thirteen Weeks Ended   LTM Ended
    September 25,  2016   December 25,  2016   March 26,  2017   June 25,  2017   June 25,  2017
                                         
    (In thousands)
Net income   $ 98,527     $ 70,149     $ 94,463     $ 234,073     $ 497,212  
Add:                    
Interest expense, net   11,834     10,158     12,084     14,891     48,967  
Income tax expense   51,060     40,844     47,901     113,218     253,023  
Depreciation and amortization   45,772     46,059     50,390     57,281     199,502  
Minus:                    
Amortization of capitalized financing costs   970     972     951     997     3,890  
EBITDA   206,223     166,238     203,887     418,466     994,814  
Add:                    
Foreign currency transaction losses (gains)   4,142     4,734     619     (1,810 )   7,685  
Restructuring charges   279     790         4,349     5,418  
Minus:                    
Net income (loss) attributable to noncontrolling interest   (130 )   (469 )   542     432     375  
Adjusted EBITDA   $ 210,774     $ 172,231     $ 203,964     $ 420,573     $ 1,007,542  
                                         

EBITDA margins have been calculated by taking the relevant unaudited EBITDA figures, then dividing by Net Revenue for the applicable period.

PILGRIM'S PRIDE CORPORATION
Reconciliation of EBITDA Margin
                                 
(Unaudited)   Thirteen Weeks Ended   Twenty-Six Weeks Ended   Thirteen Weeks Ended   Twenty-Six Weeks Ended
    June 25, 2017   June 26, 2016   June 25, 2017   June 26, 2016   June 25, 2017   June 26, 2016   June 25, 2017   June 26, 2016
                                                                 
    (In thousands)
Net income from continuing operations   $ 234,073     $ 153,042     $ 328,536     $ 271,053     10.40 %   7.55 %   7.69 %   6.79 %
Add:                                
Interest expense, net   14,891     10,865     26,975     22,205     0.66 %   0.54 %   0.63 %   0.56 %
Income tax expense   113,218     78,398     161,119     141,002     5.03 %   3.87 %   3.77 %   3.53 %
Depreciation and amortization   57,281     46,293     107,671     88,683     2.54 %   2.28 %   2.52 %   2.22 %
Minus:                                
Amortization of capitalized financing costs   997     962     1,947     1,889     0.04 %   0.05 %   0.05 %   0.05 %
EBITDA   418,466     287,636     622,354     521,054     18.59 %   14.19 %   14.56 %   13.05 %
Add:                                
Foreign currency transaction gains   (1,810 )   (4,744 )   (1,191 )   (4,979 )   (0.08 )%   (0.23 )%   (0.03 )%   (0.12 )%
Restructuring charges   4,349         4,349         0.19 %   %   0.10 %   %
Minus:                                
Net income (loss) attributable to noncontrolling interest   432     156     974     (204 )   0.02 %   0.01 %   0.02 %   (0.01 )%
Adjusted EBITDA   $ 420,573     $ 282,736     $ 624,538     $ 516,279     18.68 %   13.95 %   14.61 %   12.94 %
                                 
Net Revenue:   $ 2,251,604     $ 2,028,315     $ 4,272,096     $ 3,991,252     $ 2,251,604     $ 2,028,315     $ 4,272,096     $ 3,991,252  
                                                                 

A reconciliation of net income (loss) attributable to Pilgrim's Pride Corporation per common diluted share to adjusted net income (loss) attributable to Pilgrim's Pride Corporation per common diluted share is as follows:

PILGRIM'S PRIDE CORPORATION
Reconciliation of Adjusted Earnings
(Unaudited)
                 
    Thirteen Weeks Ended   Twenty-Six Weeks Ended
    June 25,  2017   June 26,  2016   June 25,  2017   June 26,  2016
                                 
    (In thousands, except per share data)
Net income attributable to Pilgrim's Pride Corporation   $ 233,641     $ 152,886     $ 327,562     $ 271,257  
Loss on early extinguishment of debt                
Foreign currency transaction gains   (1,810 )   (4,744 )   (1,191 )   (4,979 )
Income before loss on early extinguishment of debt and foreign currency transaction gains   231,831     148,142     326,371     266,278  
Weighted average diluted shares of common stock outstanding   248,973     254,944     248,950     255,045  
Income before loss on early extinguishment of debt and foreign currency transaction gains  per common diluted share   $ 0.93     $ 0.58     $ 1.31     $ 1.04  
                                 

A reconciliation of GAAP earnings per share (EPS) to adjusted earnings per share (EPS) is as follows:

PILGRIM'S PRIDE CORPORATION
Reconciliation of GAAP EPS to Adjusted EPS
(Unaudited)
                 
    Thirteen Weeks Ended   Twenty-Six Weeks Ended
    June 25, 2017   June 26, 2016   June 25, 2017   June 26, 2016
                                 
    (In thousands, except per share data)
GAAP EPS   $ 0.94     $ 0.60     $ 1.32     $ 1.06  
Loss on early extinguishment of debt                
Foreign currency transaction gains   (0.01 )   (0.02 )   (0.01 )   (0.02 )
Adjusted EPS   $ 0.93     $ 0.58     $ 1.31     $ 1.04  
                 
Weighted average diluted shares of common stock outstanding   248,973     254,944     248,950     255,045  
                         

Net debt is defined as total long term debt less current maturities, plus current maturities of long term debt and notes payable, minus cash, cash equivalents and investments in available-for-sale securities.  Net debt is presented because it is used by management, and we believe it is frequently used by securities analysts, investors and other parties, in addition to and not in lieu of debt as presented under GAAP, to compare the indebtedness of companies.  A reconciliation of net debt is as follows:

PILGRIM'S PRIDE CORPORATION
Reconciliation of Net Debt
(Unaudited)
                     
    June 25,  2017   June 26,  2016   December 25,  2016   December 27,  2015   December 28,  2014
                                         
    (In thousands)
Long term debt, less current maturities   $ 1,404,264     $ 1,117,979     $ 1,011,858     $ 985,509     $ 3,980  
Add:  Current maturities of long term debt and notes payable   40,098     90     94     28,812     262  
Minus:  Cash and cash equivalents   303,937     41,047     120,328     439,638     576,143  
Net debt (cash position)   $ 1,140,425     $ 1,077,022     $ 891,624     $ 574,683     $ (571,901 )
                                         
PILGRIM'S PRIDE CORPORATION
Supplementary Selected Segment and Geographic Data
                 
    Thirteen Weeks Ended   Twenty-Six Weeks Ended
    June 25, 2017   June 26, 2016   June 25, 2017   June 26, 2016
    (Unaudited)            
    (In thousands)
Sources of net sales by country of origin:                
US:   $ 1,882,142     $ 1,677,445     $ 3,618,547     $ 3,347,726  
Mexico:   369,462     350,870     653,549     643,526  
Total net sales:   $ 2,251,604     $ 2,028,315     $ 4,272,096     $ 3,991,252  
                 
Sources of cost of sales by country of origin:                
US:   $ 1,547,247     $ 1,471,269     $ 3,095,346     $ 2,925,224  
Mexico:   278,993     270,939     536,205     542,383  
Elimination:   (23 )   (24 )   (47 )   (48 )
Total cost of sales:   $ 1,826,217     $ 1,742,184     $ 3,631,504     $ 3,467,559  
                 
Sources of gross profit by country of origin:                
US:   $ 334,894     $ 206,176     $ 523,200     $ 422,502  
Mexico:   90,470     79,931     117,345     101,143  
Elimination:   23     24     47     48  
Total gross profit:   $ 425,387     $ 286,131     $ 640,592     $ 523,693  
                 
Sources of operating income by country of origin:                
US:   $ 277,602     $ 164,494     $ 411,158     $ 339,084  
Mexico:   81,777     72,093     100,549     86,253  
Elimination:   23     24     47     48  
Total operating income:   $ 359,402     $ 236,611     $ 511,754     $ 425,385  
                                 
Contact:
Dunham Winoto
Director, Investor Relations
IRPPC@pilgrims.com
(970) 506-8192
www.pilgrims.com
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