April 29, 2011 / 1:32 PM / 8 years ago

Pilgrim's Pride likely to up prices as costs bite

CHICAGO (Reuters) - Chicken producer Pilgrim’s Pride Corp PPC.N said it is likely to raise chicken prices as it works to pass on this year’s higher feed costs.

The Greeley-Colorado based company on Friday reported a larger-than-expected quarterly loss to send it shares down more than 6 percent, as the higher feed costs, winter storms, and an inventory reduction effort hurt margins.

Damage from this week’s storms and tornadoes in the Southeast will temporarily reduce U.S. chicken production, the company said in an investor conference call. About 100 of its chicken houses, out of about 16,400, were damaged or destroyed and power was knocked out to two processing plants.

Pilgrim’s Pride, like other meat companies, has been trying to raise prices to cover higher costs for feed and fuel. In addition, the No. 2 U.S. chicken producer has been on a cost-cutting effort targeted to trim $400 million.

It also projected feed prices to be up $500 million for the year.

“We will continue to look at further price increases,” Chief Executive Bill Lovette said in a statement.

The company’s cost-cutting includes everything from replacing paper towels with electric hand driers to hand-processing chicken to get more meat per bird, he told Wall Street analysts on the call.

The company, which is majority owned by Brazilian meat producer JBS SA (JBSS3.SA), reported its loss had widened to $120.8 million, or 56 cents per share, in the first quarter ended March 27 from $45.5 million, or 21 cents a share, a year earlier.

Analysts on average had expected a loss of 22 cents per share, according to Thomson Reuters I/B/E/S.

Revenue rose to $1.9 billion from $1.6 billion.

“It is not surprising that they were losing money. The feed costs continued high during that quarter and chicken prices were disappointing,” said Paul Aho, economist with consultancy Poultry Perspective, who blamed the prices on excess supply.

Exports were up 90 percent helped by a lower dollar and buyers switching from higher-priced beef and pork. Sales to Japan increased following the earthquake there, said Lovette.

Domestic fresh chicken sales to foodservice were flat, but better for frozen meat going to foodservice and retail.

Pilgrim’s Pride is the No. 2 chicken producer behind Tyson Foods Inc (TSN.N), which reports quarterly results May 9..

“On the poultry side it should be a bad quarter for Tyson,” Aho said in reaction to Pilgrim’s Pride’s results.

Heather Jones, analyst with BB&T Capital Markets, maintained a “hold” recommendation on Pilgrim’s Pride and said she expects Tyson’s chicken unit to fare better than Pilgrim’s as Tyson should not be pressured by excess inventory. Tyson also produces beef and pork.

“I think Tyson will have some affect from the weather, but not as big,” said Jones. “They are going to weak, but they are not going to be in the same ball park as Pilgrim’s.”

Pilgrim’s said a number of its plants briefly closed in January because of winter storms. The storms also slowed sales as consumers stayed at home.

Feed costs were up $188 million for the quarter from a year earlier, the company said. Strong demand by ethanol processors and grain exporters have pushed up the price of feed corn.

The company said it had purchased its corn needs for the balance of the year and 50 percent of soybean meal.

Shares of Pilgrim’s Pride were down 6.3 percent at $6.09 in midday trading.

At Thursday’s close, they had fallen 7.8 percent for the year.

Reporting by Bob Burgdorfer; Editing by Lisa Von Ahn, Dave Zimmerman

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