Pilgrim’s Pride Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 26, 2023 (December 26, 2022–March 26, 2023), compared with the three months ended March 27, 2022. Pilgrim’s Pride is a multinational poultry and prepared-food producer operating in the U.S., U.K. and Europe, and Mexico. JBS beneficially owned 82.6% of its common stock.
Financial results and liquidity
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $4.166 billion | $4.240 billion |
| Gross profit / margin | $173.0 million / 4.2% | $542.0 million / 12.8% |
| Operating income / margin | $31.3 million / 0.8% | $402.0 million / 9.5% |
| Net income attributable to Pilgrim’s Pride | $5.2 million | $280.4 million |
| Diluted earnings per share | $0.02 | $1.15 |
| Operating cash flow | $(161.7) million | $227.0 million |
| Capital expenditures | $131.7 million | $81.6 million |
| EBITDA / Adjusted EBITDA | $134.1 million / $151.9 million | Not stated in the provided reconciliation |
Net sales declined 1.8%, while cost of sales rose 8.0%. Net interest expense was $39.1 million, up from $35.0 million; average borrowings fell, but the weighted-average interest rate increased 0.7 percentage points. The reported income tax benefit was $8.8 million; the effective tax rate was 275.5%, reflecting a pretax loss and tax items.
At quarter-end, cash and cash equivalents were $150.7 million, with an additional $33.9 million of restricted cash. Long-term debt, including current maturities and before financing costs, was approximately $3.25 billion. The company reported $730.0 million available under its U.S. revolver, $183.5 million under its U.K. and Europe facility, and $81.3 million under its Mexico facility. Management said operating cash flow and facility availability should cover obligations, working capital, debt maturities and capital spending for at least the next 12 months. The company was in compliance with its credit-facility covenants.
Changes versus the prior comparable period
- Profitability contracted sharply: gross profit fell 68.1% and operating income fell 92.2%. The U.S. segment moved from $355.1 million operating income to a $28.1 million operating loss; U.K. and Europe improved from a $21.6 million loss to $25.3 million income; Mexico operating income declined to $34.2 million from $68.6 million.
- U.S. sales decreased 5.8%, primarily because of lower market prices, partly offset by higher volume. U.K. and Europe sales rose 4.0% as price increases more than offset lower volume and currency translation. Mexico sales rose 5.7%, reflecting price and currency effects despite lower volume.
- Operating cash flow swung to a use of $161.7 million from a source of $227.0 million. The filing attributes the current-period use mainly to higher receivables, inventories and prepaid assets, and payments of previously accrued bonuses.
- Capital expenditures rose by $50.1 million, including spending on plant expansions, protein conversion and automation projects. Cash and cash equivalents fell from $401.0 million at December 25, 2022.
Outlook, commentary and material risks
- Business conditions: Management described persistent inflation in feed ingredients, labor, energy and other costs, as well as softening consumer demand in the U.K. and EU. It is pursuing customer price recovery and operational efficiencies. U.S. chicken demand showed mild volume growth; U.S. market prices remained below prior-year levels. Management noted higher feed and hatchery egg costs in Mexico and continuing market volatility.
- Risks: The filing highlights commodity and energy price volatility, avian influenza and other animal disease, labor shortages and cost inflation, foreign-exchange movements, supply-chain disruption related to the Russia-Ukraine war, customer and pricing pressures, and litigation and regulatory investigations. Management said Ukraine grain export constraints did not materially affect costs in Q1, but the broader conflict continues to create market risks.
- Restructuring and insurance: Q1 restructuring charges were $8.0 million. Initiatives in U.K. and Europe were expected to total approximately $53.2 million, with substantial completion anticipated by mid-2023 (individual initiatives list completion dates through July). The company recognized $35.9 million of business-interruption insurance income in cost of sales, related to COVID-19 and the Mayfield tornado; $1.2 million of insurance proceeds were received during the quarter.
- Debt after quarter-end: On April 19, 2023, the company issued $1.0 billion of 6.25% senior notes due 2033 and used proceeds to repay U.S. term-loan and revolving-facility balances, with remaining proceeds intended for general corporate purposes, including debt repayment. These were post-quarter transactions, not reflected in March 26 balances.
- Legal and tax contingencies: The company continues to defend broiler-chicken antitrust opt-out and other cases and is cooperating with DOJ civil investigations into human-resources antitrust matters and grower contracts and payment practices; DOJ indicated it is likely to file at least one civil complaint. A $11.0 million Washington state settlement was agreed in March. In Mexico, the company paid $25.9 million for a 2009 tax dispute and reserved $15.8 million for a 2010 matter under appeal. Two assessments related to the Tyson de México acquisition are approximately $267.7 million each and remain under appeal; no loss was recorded for them.
- Guidance: The filing provides no quantified earnings or revenue guidance. Management’s stated liquidity expectation covers at least the next 12 months.
Important facts for investors to verify
- Whether margins and segment profitability recover from the steep year-over-year decline, particularly in the U.S. and Mexico.
- Whether customer pricing and productivity gains offset feed, labor, energy and other cost inflation, and how market demand and avian-influenza conditions evolve.
- How working-capital needs, capital spending and operating cash generation affect liquidity and debt following the April 2023 refinancing.
- The ultimate cost and timing of antitrust, DOJ, state and Mexican tax matters, including the unreserved Mexican assessments and potential additional litigation exposure.
- Whether restructuring costs remain near the estimated total and whether expected operational benefits materialize.