Pilgrim's Pride: Will 2012 Be the Year
of the Chicken?
Justin Rohrlich July 6,
a major restructuring, one money manager believes the
country's second-largest poultry producer is ready to
As investors got spooked by the equity markets, many
sought safety in commodities.
run-ups in everything from corn to gold has money manager
Shawn Hackett, founder and CEO of Hackett Financial
Advisors, a Boynton Beach, Florida firm with a specific
focus on commodities, focused on “one of the few undervalued
‘anythings’ in the commodity arena right now – chicken.”
pretty bearish on commodities since the beginning of
the year, which was the right place to be, as most have
lost 15%-30% of their value,” Hackett tells Minyanville.
“We saw a crash in the grains just last week; corn limit
down two days in a row.”
of the commodities that Hackett says “clearly never
participated at all” in the most recent boom was poultry.
speaking, those that don’t perform one year tend to
be the leaders the following year,” Hackett says. “In
2010, corn, wheat, cotton were the top performers. In
2011, they’ve been the worst. So, from a very simplistic
technical point of view, that bodes well for 2012 poultry
prices. Beyond that, the industry has suffered from
record high feed prices, record losses, sell recommendations
from just about every analyst -- typical of a bottom.
Right now, we’re seeing feed prices coming down quite
dramatically and the conditions seem right for a very
buoyant chicken market moving forward.”
the major names in chicken, Hackett prefers Pilgrim’s
Pride (PPC) to outfits like Tyson Foods
(TSN), and Sanderson Farms (SAFM).
Pride is my top pick -- it’s by far the cheapest of
the three, they’ve got long-standing relationships with
Walmart (WMT), Costco
(COST), Wendy’s (WEN), etc., and they’re
a much cleaner, much stronger operation since they emerged
from bankruptcy,” he explains.
that when Brazilian meat processing giant JBS took a
post-bankruptcy controlling interest in Pilgrim’s Pride,
they brought “much greater financing flexibility with
them” as well as operational know-how that should be
of tremendous help.
filed for bankruptcy in 2008, struggling under the weight
of high feed costs, low chicken prices and a heavy debt
load before JBS stepped in and Pilgrim’s Pride underwent
a top-to-bottom revamp.
were not just reshuffling the balance sheet. We actually
restructured the company," William Snyder, a managing
partner at turnaround firm CRG Partners, who acted as
chief restructuring officer at Pilgrim's Pride, told
Pride is much better now in terms of feed hedging, which
is directly attributable to JBS,” Hackett says. “Plus,
with the operating leverage the company has now, they’ll
be able to start dramatically paying down their debt
Pilgrim’s Pride stock “should make a big move before
the summer’s out.”
PPC has been over the years, the stock’s been as high
as $40 and as low as $4,” Hackett says. “That $4 level
may have been the bottom; we saw a brief pullback at
$5, so we may have already put in the hard low.”
one of the hurdles standing in Pilgrim’s Pride’s way
was a shift from hand-deboning to an automated system,
which paradoxically, was far less efficient than performing
the task manually.
back to hand-deboning, Pilgrim’s Pride “plans to realize
$400 million in savings in 2011, double the amount it
projected in the prior quarter,” according to president
and CEO Bill Lovette.
As Gary McMurray,
principal research engineer and chief of the Food Processing
Technology Division at the Food Processing Technology
Division of Atlanta's Georgia Tech Research Institute,
explains, “each one-percent loss in yield represents
$2 to $3 million for a plant.”
be hope for automated deboning yet -- McMurray is developing
“intelligent deboning” equipment “focused on making
the initial incision, cutting from the clavicle to the
shoulder joint, through the shoulder joint and down
along the scapula,” which is “important to maximizing
whether or not your next breast is cut by man or machine,
Hackett maintains that “the old cancer is out of Pilgrim’s
see the fruits of the JBS influence soon, with or without
favorable prices,” Hackett says. “Pilgrim’s Pride could
be a massive mover over the next five years -- JBS is
making the company right again.”
see the fruits of the JBS influence in 2012 for sure,
with or without favorable prices,” he says. “They’re
making the company right again.”