Pilgrim’s Pride Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 27, 2021, compared with the periods ended June 28, 2020. The company is a vertically integrated poultry and pork producer operating in the U.S., U.K. and Europe, and Mexico.
Financial results
| Metric | Q2 2021 | Q2 2020 | First half 2021 | First half 2020 |
|---|---|---|---|---|
| Net sales | $3.638 billion | $2.824 billion | $6.911 billion | $5.899 billion |
| Gross profit / margin | $380.2 million / 10.5% | $119.9 million / 4.2% | $641.5 million / 9.3% | $297.0 million / 5.0% |
| Operating income (loss) / margin | $(123.1) million / (3.4)% | $27.3 million / 1.0% | $35.3 million / 0.5% | $111.7 million / 1.9% |
| Net income (loss) attributable to PPC | $(166.7) million | $(6.0) million | $(66.5) million | $61.2 million |
| Diluted EPS | $(0.68) | $(0.02) | $(0.27) | $0.25 |
Q2 sales rose 28.8% year over year, while gross margin improved substantially. However, reported operating and net losses were driven principally by a sharp increase in SG&A, including litigation-related charges. Q2 SG&A was $503.4 million; the company attributed $395.9 million of the year-over-year increase to amounts recognized in anticipation of probable litigation settlements. First-half Adjusted EBITDA was $625.5 million, including $398.3 million of DOJ-agreement and litigation-settlement adjustments; this non-GAAP measure should be considered alongside GAAP results.
- Segments: Q2 operating results were U.S. loss of $224.2 million, U.K. and Europe income of $21.8 million, and Mexico income of $79.2 million. For the first half, the U.S. reported a $156.0 million loss, U.K. and Europe income of $32.3 million, and Mexico income of $159.0 million.
- Cash flow and investment: First-half operating cash flow was $115.0 million, down from $140.7 million. Capital expenditures were $183.7 million, versus $148.2 million. Cash flow less capital expenditures was approximately negative $68.8 million.
- Liquidity: June 27 cash and cash equivalents were $391.8 million, with a further $98.2 million restricted as collateral. Available borrowing capacity was $671.0 million under the U.S. facility, $75.7 million in Mexico, and $138.8 million in U.K. and Europe facilities. Management said cash flows and available facilities should cover obligations, working capital, debt maturities and capital spending for at least 12 months.
- Debt: Long-term debt, including current maturities, was $2.315 billion, compared with $2.299 billion at year-end 2020. In April, the company issued $1.0 billion of 4.25% sustainability-linked notes due 2031 and used proceeds plus cash to redeem its $1.0 billion of 5.75% notes due 2025. The refinancing generated a $24.3 million early-extinguishment loss. The new notes’ rate rises to 4.50% from October 2026 if the stated emissions-intensity target is not met and independently confirmed.
Changes, outlook and material matters
- Higher chicken commodity prices and improved foodservice demand supported sales, particularly in the U.S. and Mexico. Higher corn and soybean costs pressured production costs; the company also reported labor shortages and absenteeism affecting production.
- On June 17, 2021, PPC agreed to acquire Kerry Consumer Foods’ Meats and Meals businesses in the U.K. and Ireland for £680 million, approximately $952 million enterprise value. Closing was expected in Q4 2021, subject to approvals and other conditions. The company planned to use cash, existing facilities and debt issuance to fund the acquisition.
- A May 30 cyberattack affected some global IT servers. Encrypted backups supported a return to full operations within two days, with less than one day of production lost. PPC reported an approximately $10 million loss, including its allocated share of a ransom paid by its parent; it said it had no evidence of compromised customer, supplier, employee or financial data.
- Broiler-chicken antitrust matters remain material. PPC recorded $120.5 million for proposed indirect-purchaser settlements, subject to agreements and court approval, and $251.4 million for estimated potential settlements with opt-out plaintiffs. It also agreed to a $29 million settlement of a plant-worker lawsuit, subject to final court approval. The balance sheet included $391 million of accrued legal settlements. Other litigation and investigations remain pending; outcomes are uncertain.
- COVID-19, feed and other commodity prices, currency movements, labor availability, animal disease, litigation, cybersecurity and acquisition execution are among the risks identified. Management stated chicken prices for the remainder of 2021 would depend on foodservice recovery, retail demand, the pandemic, economic conditions and protein supply; the filing provides no quantified earnings or revenue guidance.
Key facts for investors to verify
- How much of the reported loss and accrued legal liability relates to settlements, and whether proposed settlements receive final court approval or opt-out claims require additional payments.
- Whether feed costs, labor availability and chicken pricing allow margins to recover, especially in the U.S. segment.
- Final acquisition price, financing mix, closing conditions and integration performance for the Kerry businesses.
- Progress toward the sustainability-linked notes’ 2025 emissions target and the potential interest-rate step-up.
- Whether cyberattack-related costs or operational effects recur, and whether any evidence of data compromise emerges.