Pilgrim’s Pride Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 27, 2022, compared with the three months ended March 28, 2021. Amounts are in U.S. dollars unless noted.
Business context
Pilgrim’s Pride is a global chicken producer with U.S., U.K. and Europe, and Mexico reportable segments, as well as pork and prepared-food operations. JBS beneficially owned 80.5% of the company. Results include Pilgrim’s Food Masters (PFM), acquired in September 2021; PFM contributed $260.7 million of quarterly sales and $1.9 million of net income.
Financial performance
| Metric | Q1 2022 | Prior-year quarter | Change |
|---|---|---|---|
| Net sales | $4.240 billion | $3.273 billion | Up 29.5% |
| Gross profit / margin | $542.0 million / 12.8% | $261.2 million / 8.0% | Profit up 107.5% |
| Operating income / margin | $402.0 million / 9.5% | $158.5 million / 4.8% | Income up 153.7% |
| Net income attributable to Pilgrim’s | $280.4 million | $100.2 million | Up 179.9% |
| Diluted earnings per share | $1.15 | $0.41 | Up $0.74 |
| Cash provided by (used in) operations | $227.0 million | $(143.6) million | Improved by $370.5 million |
Net income was $280.6 million, including $0.1 million attributable to noncontrolling interests. The effective tax rate was 21.1%, versus 26.0%. Management reported EBITDA of $492.9 million and adjusted EBITDA of $501.8 million; both are non-GAAP measures.
Segment operating income: U.S. $355.1 million, versus $68.1 million; U.K. and Europe $(21.6) million, versus $10.5 million; Mexico $68.6 million, versus $79.8 million. The U.K. and Europe result reflects, in part, PFM integration and elevated operating costs.
Cash, debt and liquidity
Cash and cash equivalents were $725.5 million at quarter-end, up from $427.7 million at fiscal year-end; restricted cash was $30.3 million. Operating cash flow was $227.0 million, while capital expenditures were $81.6 million. Investing activities used $85.6 million, including a $4.8 million PFM working-capital adjustment. Financing activities provided $166.3 million, including $228.5 million of borrowings and $27.0 million of share repurchases.
Total debt, including current maturities and net of financing costs, was approximately $3.414 billion, compared with approximately $3.217 billion at December 26, 2021. The company reported $763.9 million available under its U.S. revolver, $74.9 million under its Mexico facility, and $131.8 million under U.K. and Europe facilities; U.S. revolver availability reflects outstanding letters of credit. 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 reported compliance with U.S. credit-facility covenants.
Changes, outlook and significant matters
- Sales growth reflected higher chicken prices and demand in the U.S. and Mexico, price increases to recover costs in Europe, and PFM sales. U.S. net sales rose 29.1%; U.K. and Europe rose 39.5%; Mexico rose 11.5%.
- Profitability improved sharply in the U.S. as chicken prices remained strong and demand exceeded supply. Across operations, feed, energy, labor and other costs increased. European operations faced labor shortages associated with Brexit; hog prices remained weak amid oversupply.
- Management described significant inflation in commodities, labor and operating costs, with Russia’s war against Ukraine disrupting grain, vegetable-oil and energy supply and adding price volatility. The company is negotiating customer price recovery and pursuing labor efficiency, agricultural performance and yield improvements.
- No numerical earnings or sales guidance was provided. Management cautioned that first-quarter results are not necessarily indicative of full-year results. Future chicken pricing depends on demand, supply, regulation, the war, avian influenza and broader economic conditions.
- The board authorized a $200 million share-repurchase plan; approximately 1.16 million shares were repurchased for $27.0 million during the quarter at an average $23.33 per share. JBS withdrew its proposal to acquire the shares it did not own after its revised $28.50-per-share offer was not supported by the independent special committee.
- Legal and regulatory exposure: Broiler antitrust class settlements include $75.5 million for end-user consumers and $45.0 million for commercial and institutional purchasers; final approval of the latter was granted April 18, 2022. The company continues to face opt-out claims and other proceedings and had recognized $489.8 million of expense for negotiated and potential opt-out settlements. Two trials under the DOJ criminal case ended in mistrials; a further trial was tentatively scheduled for June 2022. The DOJ also opened a civil investigation into human-resources antitrust matters. Outcomes and additional costs remain uncertain.
- A Mexican tax authority dispute concerning prior-year controlled-company tax treatment involves $48.8 million under appeal, for which no loss was recorded. A separate tax observation letter concerning the 2015 Provemex acquisition was under evaluation; the company said it did not expect the asserted claims to result in cash outlays.
- The $1.0 billion 2031 sustainability-linked notes carry a 4.25% coupon that may increase to 4.50% from October 2026 if the specified emissions-reduction target and verification requirements are not met.
Important facts for investors to verify
- Whether elevated feed, energy and labor costs can be recovered through pricing, and whether strong chicken pricing and demand persist.
- U.K. and Europe segment recovery, including PFM integration, labor availability and the effect of weak pork markets.
- Cash conversion and working-capital needs, particularly the quarter’s inventory and receivables increases, alongside higher debt and interest expense.
- Developments in broiler and human-resources antitrust matters, remaining settlement exposure, and the outcome of the Mexican tax proceedings.
- Progress toward the sustainability target tied to the 2031 notes’ potential coupon step-up, and the terms and pace of further share repurchases.