Consumer spending in the U.S. dropped 0.2% in January. However, after adjusting it for inflation, it actually rose 0.3% during the period. Consumers continue to spend as gasoline prices are on the decline. Nonetheless, people are not splurging on unnecessary things, when it comes to the regular food such as meat. Pork prices have been on the rise. Therefore, consumers are willing to have chicken products, which is lighter on their pockets.
Shares of Pilgrim’s Pride Corporation (PPC, Financial), a chicken producer of the U.S., have surged 63% in the last one year solely because of higher demand for chicken which enabled the company to perform well. It also reported its fourth quarter numbers recently which were mixed, enabling its shares to remain flat. Let’s check.
An overview of the quarter
Revenue for the quarter surged 3.1% to $2.11 billion, over the previous year. Thus, the top line failed to meet the analysts’ estimate of $2.21 billion. Demand in the U.S. was up, resulting in an increase of 2.9% in sales. The company makes 89.5% of its revenue from U.S. Hence, growth in this segment is important. Revenue from Mexico jumped 5.7% to $222.1 million, as compared to the previous year. Mexico now makes 10.5% of total revenue of the company.
Although sales were not up to the mark, the chicken producer managed its costs pretty well. Its cost of sales declined 5.9% and the gross margin grew 780 basis points to 18%. Also, the gross margin for the year has surged to 16.2% from 10.1% in the prior year. All thanks to the company’s cost cutting efforts and a decline in the feed costs.
Moving ahead, the bottom line of the company was well ahead of the estimates. Earnings jumped 51% to $0.83 per share and were much higher than the estimate of $0.72 per share. For the full year also, earnings surged 38.3% to $2.96 per share.
Key points to look forward to
Demand for chicken is on the rise as people prefer to have chicken over pork and beef. Thus, higher sales of ready to cook chicken are expected in the coming months.
Demand for meat wings have also increased, mainly because of the holiday season. Higher priced meat helped the company expand its margins further. Also, favorable pricing of the products should help the revenue grow. Pilgrim’s Pride also aims to attain higher operational efficiencies, which will further reduce costs and boost the bottom line of the company.
Moreover, higher production of corn and soybean has resulted in lower feed costs, leading to higher profits. These factors, together, should help the chicken producer register improved results in the future. Additionally, when compared to other chicken producers such as Tyson Foods (TSN, Financial), Pilgrim’s has been a better performer. Tyson Foods’ share price has surged 7.5% only in the last one year, whereas Pilgrim’s Pride has grown 63.2% during the same period.
My takeaway
Although Pilgrim’s Pride reported a soft top line, its bottom line has been impressive enough. Moreover, it has outpaced other industry peers, in terms of return to its shareholders. In fact, the company also declared a special dividend of $5.77 per share this time, which elated the investors. Overall, this company definitely deserves a place in your portfolio.
