Pilgrim’s Pride Corporation (PPC) — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; a 53-week year, compared with a 52-week fiscal 2022. PPC produces and sells chicken, pork, and prepared foods across the U.S., U.K. and Europe, and Mexico. JBS beneficially owned 82.54% of PPC’s common stock.
Financial performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $17.36 billion | $17.47 billion |
| Gross profit / margin | $1.12 billion / 6.4% | $1.81 billion / 10.4% |
| Operating income / margin | $522.3 million / 3.0% | $1.18 billion / 6.7% |
| Net income attributable to PPC | $321.6 million | $745.9 million |
| Diluted EPS | $1.36 | $3.10 |
| Cash provided by operations | $677.9 million | $669.9 million |
| Capital expenditures (cash basis) | $543.8 million | $487.1 million |
| Interest expense, net of capitalized interest | $202.3 million | $152.7 million |
Net sales were down 0.6%, but cost of sales increased 3.8%, driving the substantial decline in gross profit and operating income. U.S. sales fell 6.7%, primarily because of lower fresh chicken pricing, and U.S. operating income fell 78.2% to $238.9 million. U.K. and Europe sales rose 6.7% and operating income was $128.2 million, versus an operating loss of $0.9 million in 2022. Mexico sales rose 15.5% and operating income increased 86.3% to $155.5 million.
Management reported EBITDA of $951.7 million and Adjusted EBITDA of $1.03 billion, down from $1.57 billion and $1.65 billion, respectively, in 2022. These are non-GAAP measures and should be considered alongside GAAP results.
Cash, debt, and liquidity
- Year-end cash and cash equivalents were $697.7 million; restricted cash was another $33.5 million.
- Long-term debt was approximately $3.38 billion at face value, excluding lease obligations. The filing reports approximately $3.4 billion of unsecured indebtedness.
- Unused borrowing availability was $824.9 million under the U.S. revolver, $191.1 million under the U.K. and Europe facility, and $65.4 million under the Mexico facility. No borrowings were outstanding under these facilities at year-end.
- Operating cash flow was $677.9 million; investing activities used $503.4 million and financing activities provided $116.7 million. Working-capital movements included a $68.7 million cash use from accounts payable and accrued expenses.
- PPC issued $1.0 billion of 6.25% notes due 2033 and $500 million of 6.875% notes due 2034 during 2023. Proceeds and cash on hand funded debt repayment, including redemption of the 5.875% notes due 2027; the refinancing generated a $20.7 million early-extinguishment loss.
- Management expects operating cash flow and available facilities to cover obligations, working capital, debt maturities, and capital spending for at least the next 12 months. The company expects 2024 capital expenditures of $475–$525 million, funded from operating cash flow.
Outlook, commentary, and material risks
- Management described continuing inflation in commodity, labor, and other costs, while noting that global feed and energy pressures from the Russia-Ukraine war had eased as other regions increased production. It expects inflation in 2024 to be moderate compared with 2023. No full-year earnings or revenue guidance is provided.
- Management cited ongoing customer negotiations for cost recovery and operational initiatives targeting labor efficiency, agricultural performance, yields, and cost reduction. U.S. chicken supply and demand improved in the second half of 2023 after industry production reductions, supporting a recovery in market pricing.
- Key exposures include volatile feed and meat prices, animal disease, food safety and recalls, labor availability and costs, customer concentration, foreign exchange, export restrictions, climate and extreme weather, and environmental and other regulation. The two largest customers represented 13.2% of sales combined; neither individually exceeded 10%.
- Litigation remains material. PPC says it agreed to settle the broiler antitrust class claims for $195.5 million, with court approval obtained, and has recognized $537.4 million of expense to date for settlements with various opt-out plaintiffs. It continues to defend remaining opt-out and grower-related matters. The DOJ has opened civil investigations into human-resources antitrust issues and grower contracts and payment practices, and informed PPC it is likely to file a civil complaint in at least one investigation.
- A Mexican tax assessment of approximately $290.9 million related to PPC’s Tyson de México acquisition remains under appeal; no loss was recorded. Separately, PPC paid $25.9 million for a 2009 tax dispute and recorded a $17.2 million reserve for the related 2010 matter.
- 2023 included $54.4 million of business-interruption insurance income recognized in cost of sales. Restructuring charges were $44.3 million, primarily related to U.K. and Europe operations.
- No goodwill impairment was recorded. However, Moy Park goodwill was $784.8 million and the reporting unit had less than 20% fair-value headroom; management said a 25–50 basis-point increase in the discount rate or a 75–100 basis-point reduction in long-term margins could have resulted in impairment.
- The 2031 sustainability-linked notes may carry a higher interest rate if the specified 2025 greenhouse-gas-intensity reduction target is not met. PPC also targets net-zero greenhouse-gas emissions by 2040.
Key facts for investors to verify
- Whether chicken pricing, supply-demand conditions, and segment margins continue to recover, particularly in the U.S.
- Potential additional antitrust, grower, employment, or DOJ-related costs beyond recorded settlements and reserves.
- The outcome of the Mexican tax assessment appeal and whether any additional tax exposure is recognized.
- Moy Park’s performance against the assumptions supporting its goodwill valuation and the sensitivity of its valuation to discount rates and margins.
- Execution and funding of the 2024 capital plan, liquidity needs, and the cost and terms of debt following the refinancing.
- Progress toward the sustainability-linked notes’ emissions target and any resulting interest-rate consequences.