Pilgrim's(PPC) - 2024 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents Pilgrim's unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Condensed Consolidated Financial Statements Pilgrim's unaudited condensed consolidated financial statements, including balance sheets, income statements, and cash flow statements Condensed Consolidated Balance Sheets The Condensed Consolidated Balance Sheets show a notable increase in total assets and stockholders' equity from December 31, 2023, to June 30, 2024, primarily driven by a significant rise in cash and cash equivalents and retained earnings | Metric | June 30, 2024 (In thousands) | December 31, 2023 (In thousands) | | :--------------------------------------- | :--------------------------- | :----------------------------- | | Cash and cash equivalents | $1,317,087 | $697,748 | | Total current assets | $4,512,154 | $4,204,471 | | Total assets | $10,078,457 | $9,810,361 | | Total current liabilities | $2,484,345 | $2,495,867 | | Long-term debt, less current maturities | $3,183,095 | $3,340,841 | | Total liabilities | $6,332,976 | $6,465,784 | | Total stockholders' equity | $3,745,481 | $3,344,577 | - Cash and cash equivalents increased by $619.3 million, or 88.7%, from December 31, 2023, to June 30, 2024[4] - Total stockholders' equity increased by $400.9 million, or 11.99%, primarily due to a $500.7 million increase in retained earnings[4] Condensed Consolidated Statements of Income Pilgrim's Pride Corporation reported significant improvements in net sales, gross profit, and net income for both the three and six months ended June 30, 2024, compared to the prior year periods, driven by higher sales and reduced cost of sales | Metric | Three Months Ended June 30, 2024 (In thousands) | Three Months Ended June 25, 2023 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | Six Months Ended June 25, 2023 (In thousands) | | :--------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net sales | $4,559,314 | $4,308,091 | $8,921,248 | $8,473,719 | | Cost of sales | $3,867,688 | $4,029,666 | $7,845,713 | $8,022,247 | | Gross profit | $691,626 | $278,425 | $1,075,535 | $451,472 | | Operating income | $440,790 | $100,271 | $691,064 | $131,614 | | Net income attributable to Pilgrim's Pride Corporation | $326,303 | $60,456 | $500,724 | $65,643 | | Diluted EPS | $1.37 | $0.25 | $2.11 | $0.28 | - Net sales increased by 5.8% for the three months and 5.3% for the six months ended June 30, 2024, compared to the prior year periods[7] - Gross profit surged by 148.4% for the three months and 138.2% for the six months ended June 30, 2024, primarily due to a decrease in cost of sales[7] Condensed Consolidated Statements of Comprehensive Income The company's comprehensive income significantly increased for both the three and six months ended June 30, 2024, compared to the prior year, despite a substantial foreign currency translation loss in the current period, which was offset by higher net income | Metric | Three Months Ended June 30, 2024 (In thousands) | Three Months Ended June 25, 2023 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | Six Months Ended June 25, 2023 (In thousands) | | :--------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net income | $326,523 | $60,908 | $501,461 | $66,539 | | Total other comprehensive income (loss), net of tax | $(78,026) | $102,700 | $(107,907) | $149,106 | | Comprehensive income attributable to Pilgrim's Pride Corporation | $248,277 | $163,156 | $392,817 | $214,749 | - Foreign currency translation adjustment resulted in losses of $(81.6) million and $(114.1) million for the three and six months ended June 30, 2024, respectively, compared to gains in the prior year periods[10] Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased from $3,344.6 million at December 31, 2023, to $3,745.5 million at June 30, 2024, primarily due to net income and stock-based compensation, partially offset by other comprehensive losses | Metric | December 31, 2023 (In thousands) | June 30, 2024 (In thousands) | | :--------------------------------------- | :----------------------------- | :--------------------------- | | Total stockholders' equity | $3,344,577 | $3,745,481 | | Retained earnings | $2,071,073 | $2,571,797 | | Accumulated other comprehensive loss | $(176,483) | $(284,390) | | Net income (Six Months Ended June 30, 2024) | N/A | $500,724 | | Other comprehensive loss, net of tax (Six Months Ended June 30, 2024) | N/A | $(107,907) | | Stock-based compensation plans (Six Months Ended June 30, 2024) | N/A | $7,350 | - Retained earnings increased by $500.7 million due to net income for the six months ended June 30, 2024[12] - Accumulated other comprehensive loss increased by $107.9 million for the six months ended June 30, 2024[12] Condensed Consolidated Statements of Cash Flows Cash provided by operating activities significantly increased to $989.7 million for the six months ended June 30, 2024, from $89.3 million in the prior year, primarily driven by higher net income and favorable changes in working capital. Cash used in investing activities decreased, while cash used in financing activities increased due to debt repurchases | Cash Flow Activity | Six Months Ended June 30, 2024 (In thousands) | Six Months Ended June 25, 2023 (In thousands) | | :--------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Cash provided by operating activities | $989,656 | $89,341 | | Cash used in investing activities | $(208,696) | $(250,941) | | Cash provided by (used in) financing activities | $(149,686) | $500,429 | | Increase in cash, cash equivalents, restricted cash and restricted cash equivalents | $602,903 | $342,251 | | Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period | $1,334,126 | $777,010 | - Operating cash flow increased over tenfold year-over-year, largely due to higher net income and positive changes in trade accounts, inventories, and income taxes[20] - Financing activities shifted from providing $500.4 million in cash in 2023 to using $149.7 million in 2024, mainly due to payments on revolving lines of credit and long-term borrowings, including bond repurchases[20] Notes to Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's financial statements, covering significant accounting policies, revenue recognition, derivative instruments, and other financial components 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Pilgrim's Pride Corporation is a global chicken producer with operations across the U.S., U.K., Mexico, France, Puerto Rico, Netherlands, and Republic of Ireland. The company changed the functional currency of its Mexico operations from U.S. dollar to Mexican peso on April 1, 2024, due to sustained strengthening of the peso and a shift in proportional spend, which did not materially impact consolidated financials - Pilgrim's is one of the largest chicken producers globally, processing approximately 41.3 million birds and 42,750 pigs per 5-day work week as of June 30, 2024[22] - The functional currency of Mexico operations changed from U.S. dollar to Mexican peso on April 1, 2024, due to the peso's strengthening and a shift in local currency spend, with no material impact on consolidated financial statements[26][27] | Metric | June 30, 2024 (In thousands) | December 31, 2023 (In thousands) | | :--------------------------------------- | :--------------------------- | :----------------------------- | | Cash and cash equivalents | $1,317,087 | $697,748 | | Restricted cash and restricted cash equivalents | $17,039 | $33,475 | | Total cash, cash equivalents, restricted cash and restricted cash equivalents | $1,334,126 | $731,223 | 2. REVENUE RECOGNITION Revenue is primarily recognized at the point of transfer of control to the customer, typically upon destination or customer pick-up. The company disaggregates revenue by geographic segment and product type, showing overall net sales growth driven by the U.S. and Mexico segments - Revenue is recognized when control of products transfers to the customer, usually at destination or customer pick-up, with performance obligations typically fulfilled within days to weeks[32] | Segment | Three Months Ended June 30, 2024 (In thousands) | Three Months Ended June 25, 2023 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | Six Months Ended June 25, 2023 (In thousands) | | :--------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | U.S. Net Sales | $2,663,965 | $2,446,208 | $5,243,297 | $4,878,776 | | Europe Net Sales | $1,301,541 | $1,310,750 | $2,569,444 | $2,550,014 | | Mexico Net Sales | $593,808 | $551,133 | $1,108,507 | $1,044,929 | | Total Net Sales | $4,559,314 | $4,308,091 | $8,921,248 | $8,473,719 | | Sales Channel | Three Months Ended June 30, 2024 (In thousands) | Three Months Ended June 25, 2023 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | Six Months Ended June 25, 2023 (In thousands) | | :--------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Retail | $2,354,248 | $2,158,828 | $4,695,214 | $4,283,623 | | Foodservice | $1,546,082 | $1,465,391 | $2,947,777 | $2,819,968 | | Export | $229,268 | $256,601 | $456,517 | $502,497 | | Other | $429,716 | $427,271 | $821,740 | $867,631 | | Total Net Sales | $4,559,314 | $4,308,091 | $8,921,248 | $8,473,719 | 3. DERIVATIVE FINANCIAL INSTRUMENTS Pilgrim's uses derivative financial instruments, primarily exchange-traded futures and options, to mitigate price risk related to commodity inputs (corn, soybean meal, wheat) and foreign currency exposure. While some derivatives are designated as cash flow hedges for Europe operations, many are not, with changes in fair value recognized immediately in earnings - The Company uses exchange-traded futures and options to mitigate price risk for commodity inputs (corn, soybean meal, wheat) and foreign currency forward contracts for translational foreign exchange risk[46][47] - Undesignated contracts' fair value changes are recognized immediately in earnings, impacting Net sales, Cost of sales, or Foreign currency transaction losses (gains)[48][49] | Derivative Type | June 30, 2024 (In thousands) | December 31, 2023 (In thousands) | | :--------------------------------------- | :--------------------------- | :----------------------------- | | Commodity derivative assets | $5,176 | $1,202 | | Commodity derivative liabilities | $(16,594) | $(17,118) | | Foreign currency derivative assets | $223 | $175 | | Foreign currency derivative liabilities | $(826) | $(723) | | Sales contract derivative assets | $4,493 | $960 | | Cash collateral posted with brokers | $17,039 | $33,475 | 4. TRADE ACCOUNTS AND OTHER RECEIVABLES Net receivables decreased from $1,129.2 million at December 31, 2023, to $1,045.9 million at June 30, 2024, primarily due to a reduction in notes and other receivables and a decrease in the allowance for credit losses | Metric | June 30, 2024 (In thousands) | December 31, 2023 (In thousands) | | :--------------------------------------- | :--------------------------- | :----------------------------- | | Trade accounts receivable | $1,012,963 | $1,027,916 | | Notes receivable from third parties | $13,065 | $51,168 | | Other receivables | $27,409 | $59,435 | | Receivables, gross | $1,053,437 | $1,138,519 | | Allowance for credit losses | $(7,577) | $(9,341) | | Receivables, net | $1,045,860 | $1,129,178 | | Accounts receivable from related parties | $2,055 | $1,778 | - The allowance for credit losses decreased from $(9.3) million to $(7.6) million, with a provision released to operating results of $1.5 million for the six months ended June 30, 2024[60] 5. INVENTORIES Total inventories decreased by $179.2 million from December 31, 2023, to June 30, 2024, primarily driven by reductions in raw materials, work-in-process, and finished products | Inventory Type | June 30, 2024 (In thousands) | December 31, 2023 (In thousands) | | :--------------------------------------- | :--------------------------- | :----------------------------- | | Raw materials and work-in-process | $1,060,418 | $1,158,467 | | Finished products | $564,017 | $642,028 | | Operating supplies | $71,293 | $75,530 | | Maintenance materials and parts | $110,516 | $109,374 | | Total inventories | $1,806,244 | $1,985,399 | - Raw materials and work-in-process decreased by $98.0 million, and finished products decreased by $78.0 million[61] 6. INVESTMENTS IN SECURITIES The company's fixed income securities, classified as cash equivalents, significantly increased in fair value from $324.9 million at December 31, 2023, to $1,232.9 million at June 30, 2024. Interest income and gross realized gains from available-for-sale securities also saw substantial growth | Security Type | June 30, 2024 (Fair Value, In thousands) | December 31, 2023 (Fair Value, In thousands) | | :--------------------------------------- | :--------------------------------------- | :----------------------------------------- | | Fixed income securities | $1,232,893 | $324,947 | - Interest income and gross realized gains from available-for-sale securities increased from $4.4 million to $13.1 million for the three months, and from $6.3 million to $21.1 million for the six months ended June 30, 2024, compared to the prior year[64] 7. GOODWILL AND INTANGIBLE ASSETS Goodwill decreased by $27.9 million to $1,258.3 million, and net intangible assets decreased by $25.1 million to $828.9 million, primarily due to currency translation adjustments for the six months ended June 30, 2024. No impairment indicators were present for goodwill or intangible assets at this date | Metric | December 31, 2023 (In thousands) | Currency Translation (In thousands) | June 30, 2024 (In thousands) | | :--------------------------------------- | :----------------------------- | :-------------------------- | :--------------------------- | | Goodwill | $1,286,261 | $(27,976) | $1,258,285 | | Intangible assets, net | $853,983 | $(8,951) | $828,902 | - The decrease in goodwill and intangible assets was primarily driven by negative currency translation adjustments[64][65] - No indicators were present to require testing the recoverability of goodwill or intangible assets at June 30, 2024[66] 8. PROPERTY, PLANT AND EQUIPMENT Net Property, Plant and Equipment (PP&E) decreased slightly to $3,123.0 million at June 30, 2024, from $3,158.4 million at December 31, 2023. The company incurred $200.0 million on capital projects and transferred $278.7 million of completed projects from construction-in-progress to depreciable assets during the six months ended June 30, 2024. An additional impairment loss of $13.4 million on PP&E was recognized due to restructuring activities in Europe | PP&E Component | June 30, 2024 (In thousands) | December 31, 2023 (In thousands) | | :--------------------------------------- | :--------------------------- | :----------------------------- | | PP&E, gross | $6,975,741 | $6,955,124 | | Accumulated depreciation | $(3,852,713) | $(3,796,721) | | PP&E, net | $3,123,028 | $3,158,403 | | Construction-in-progress | $377,021 | $458,146 | - Depreciation expense was $195.2 million for the six months ended June 30, 2024, up from $186.4 million in the prior year[68] - An impairment loss of $13.4 million on PP&E was recognized during the six months ended June 30, 2024, related to restructuring activities in the Europe segment[71] 9. CURRENT LIABILITIES Total current liabilities, excluding income taxes and current maturities of long-term debt, decreased slightly from $2,463.5 million at December 31, 2023, to $2,427.3 million at June 30, 2024. This was mainly due to a decrease in accounts payable and accounts payable to related parties, partially offset by an increase in litigation settlements and compensation and benefits | Liability Type | June 30, 2024 (In thousands) | December 31, 2023 (In thousands) | | :--------------------------------------- | :--------------------------- | :----------------------------- | | Total accounts payable | $1,337,691 | $1,410,576 | | Accounts payable to related parties | $23,331 | $41,254 | | Revenue contract liabilities | $67,176 | $84,958 | | Total accrued expenses and other current liabilities | $999,075 | $926,727 | | Total Current Liabilities (excluding income taxes and current maturities of long-term debt) | $2,427,273 | $2,463,515 | - Litigation settlements increased significantly from $73.3 million to $145.4 million[73] - Compensation and benefits accruals increased from $249.5 million to $266.2 million[73] 10. SUPPLIER FINANCE PROGRAMS The outstanding balance of confirmed invoices under supplier finance programs increased to $204.0 million at June 30, 2024, from $192.7 million at December 31, 2023. These balances are included in Accounts payable - Outstanding balance of confirmed invoices under supplier finance programs increased by $11.3 million (5.86%) from December 31, 2023, to June 30, 2024[74] 11. INCOME TAXES The company recorded an income tax expense of $152.7 million for the six months ended June 30, 2024, a significant change from a $24.1 million income tax benefit in the prior year. This shift is primarily due to increased profit before income taxes and statutory adjustments - Income tax expense for the six months ended June 30, 2024, was $152.7 million (23.3% effective tax rate), compared to a benefit of $24.1 million (-56.7% effective tax rate) in the prior year[76] - The change is mainly attributed to increased profit before income taxes, statutory reporting adjustments on prior year deferred tax assets, and intercompany dividend distributions from Mexico to the U.S. segment[76] - The Company did not believe it had sufficient positive evidence to conclude that a portion of its foreign net deferred tax assets are more likely than not to be realized as of June 30, 2024[77] 12. DEBT Long-term debt, net of current maturities and capitalized financing costs, decreased to $3,183.1 million at June 30, 2024, from $3,340.8 million at December 31, 2023. This reduction was primarily driven by a bond repurchase program, which authorized the repurchase of up to $200.0 million of outstanding senior notes, resulting in gross realized gains on early extinguishment of debt | Debt Type | Maturity | June 30, 2024 (In thousands) | December 31, 2023 (In thousands) | | :--------------------------------------- | :------- | :--------------------------- | :----------------------------- | | Senior notes payable, net of discount, at 6.875% | 2034 | $490,868 | $490,408 | | Senior notes payable, net of discount, at 6.25% | 2033 | $974,052 | $993,595 | | Senior notes payable at 3.50% | 2032 | $900,000 | $900,000 | | Senior notes payable, net of discount, at 4.25% | 2031 | $850,593 | $992,711 | | Long-term debt, less current maturities, net of capitalized financing costs | N/A | $3,183,095 | $3,340,841 | - The Board approved a bond repurchase program of up to $200.0 million on May 1, 2024. During Q2 2024, $143.6 million of 2031 Senior Notes and $20.0 million of 2033 Senior Notes were repurchased, yielding $13.7 million in gross realized gains[81] - The Company maintains unsecured revolving credit facilities in the U.S. ($850.0 million), Europe (£150.0 million), and Mexico (Mex$1.1 billion), with no outstanding borrowings under these facilities as of June 30, 2024, and is in compliance with all covenants[82][84][86] 13. STOCKHOLDERS' EQUITY Accumulated Other Comprehensive Loss (AOCI) increased significantly from $(176.5) million at December 31, 2023, to $(284.4) million at June 30, 2024, primarily due to foreign currency translation losses. The company has authorized preferred stock but none are issued or outstanding, and dividend declarations are subject to restrictions from credit facilities and senior note indentures | AOCI Component | December 31, 2023 (In thousands) | June 30, 2024 (In thousands) | | :--------------------------------------- | :----------------------------- | :--------------------------- | | Balance, beginning of period | $(176,483) | $(176,483) | | Losses Related to Foreign Currency Translation | $(114,850) | $(228,986) | | Losses on Derivative Financial Instruments as Cash Flow Hedges | $(1,914) | $(1,968) | | Losses Related to Pension and Other Postretirement Benefits | $(59,714) | $(53,369) | | Losses on Available-for-Sale Securities | $(5) | $(67) | | Balance, end of period | $(176,483) | $(284,390) | - Foreign currency translation adjustments were the primary driver of the increase in AOCI, with losses of $(114.1) million for the six months ended June 30, 2024[87] - A $2.0 million pre-tax deferred net loss on foreign currency derivatives recorded in AOCI is expected to be reclassified to earnings within the next twelve months[57] 14. PENSION AND OTHER POSTRETIREMENT BENEFITS The company's defined benefit pension plans saw a decrease in projected benefit obligation and an increase in plan assets, resulting in a slightly improved funded status. Net periodic benefit costs were minimal, and the company also sponsors several defined contribution plans across its segments | Metric | June 30, 2024 (In thousands) | June 25, 2023 (In thousands) | | :--------------------------------------- | :--------------------------- | :--------------------------- | | Projected benefit obligation, end of period (Pension Benefits) | $224,934 | $225,796 | | Fair value of plan assets, end of period (Pension Benefits) | $224,398 | $212,471 | | Unfunded benefit obligation, end of period (Pension Benefits) | $(536) | $(12,057) | | Net costs (Pension Benefits, Three Months Ended June 30, 2024) | $263 | $569 | | Net costs (Pension Benefits, Six Months Ended June 30, 2024) | $282 | $938 | - The unfunded benefit obligation for pension benefits significantly improved from $(12.1) million at December 31, 2023, to $(0.5) million at June 30, 2024[94][96] - Expenses for defined contribution plans totaled $7.6 million for the three months and $17.5 million for the six months ended June 30, 2024[101] 15. FAIR VALUE MEASUREMENT The company measures fixed income securities and derivative assets/liabilities at fair value on a recurring basis, primarily using Level 1 (quoted prices in active markets) and Level 2 (observable inputs) valuations. The fair value of fixed income securities increased substantially, while derivative liabilities remained relatively stable | Asset/Liability | Fair Value (June 30, 2024, In thousands) | Fair Value (December 31, 2023, In thousands) | | :--------------------------------------- | :--------------------------------------- | :----------------------------------------- | | Fixed income securities | $1,232,893 | $324,947 | | Commodity derivative assets | $5,176 | $1,202 | | Foreign currency derivative assets | $223 | $175 | | Sales contract derivative assets | $4,493 | $960 | | Commodity derivative liabilities | $(16,594) | $(17,118) | | Foreign currency derivative liabilities | $(826) | $(723) | - Fixed income securities are primarily valued using Level 1 inputs, while sales contract derivative assets use Level 2 inputs[106][107] - The fair value of the company's Level 2 fixed-rate debt obligations is based on quoted market prices[109] 16. RESTRUCTURING-RELATED ACTIVITIES Pilgrim's Europe reportable segment is undergoing restructuring initiatives, including facility closures and reallocation of processing capacities, which began in 2022 and continued into 2024. Total exit and disposal costs incurred since inception reached $126.0 million, with $51.2 million recognized as expenses in the six months ended June 30, 2024, primarily for employee-related and asset impairment costs - Restructuring initiatives in the Europe segment involve integrating central operations and reallocating processing capacities, leading to facility closures[112] | Cost Type | Total Costs Incurred and Expected to be Incurred (In thousands) | Costs Incurred Since Earliest Implementation Date (In thousands) | | :--------------------------------------- | :---------------------------------------------------- | :------------------------------------------------------- | | Employee-related costs | $104,313 | $83,066 | | Asset impairment costs | $21,029 | $21,029 | | Contract termination costs | $1,059 | $1,059 | | Other exit and disposal costs | $20,981 | $20,892 | | Total exit and disposal costs | $147,382 | $126,046 | - Restructuring activities resulted in $51.2 million in expenses for the six months ended June 30, 2024, reported in the Condensed Consolidated Statements of Income[113] 17. RELATED PARTY TRANSACTIONS Pilgrim's engages in routine transactions with affiliated companies, including JBS USA Food Company. Sales to related parties decreased, while costs of goods purchased from related parties also saw a decline for both the three and six months ended June 30, 2024, compared to the prior year | Transaction Type | Three Months Ended June 30, 2024 (In thousands) | Three Months Ended June 25, 2023 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | Six Months Ended June 25, 2023 (In thousands) | | :--------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Sales to related parties | $9,531 | $10,549 | $16,662 | $19,885 | | Cost of goods purchased from related parties | $51,668 | $88,970 | $102,277 | $149,869 | | Expenditures paid by related parties | $24,916 | $46,119 | $42,687 | $60,142 | | Expenditures paid on behalf of related parties | $4,563 | $9,540 | $7,252 | $12,919 | | Account Type | June 30, 2024 (In thousands) | December 31, 2023 (In thousands) | | :--------------------------------------- | :--------------------------- | :----------------------------- | | Accounts receivable from related parties | $2,055 | $1,778 | | Accounts payable to related parties | $23,331 | $41,254 | - The Company has agreements with JBS USA to allocate costs for SAP licenses and maintenance services, and for supporting business operations by a consolidated corporate team[129] 18. REPORTABLE SEGMENTS Pilgrim's operates in three reportable segments: U.S., Europe, and Mexico, with segment profit measured as operating income. All segments reported significant increases in operating income for both the three and six months ended June 30, 2024, compared to the prior year, driven by improved net sales and cost management | Segment | Three Months Ended June 30, 2024 (In thousands) | Three Months Ended June 25, 2023 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | Six Months Ended June 25, 2023 (In thousands) | | :--------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | U.S. Net Sales | $2,663,965 | $2,446,208 | $5,243,297 | $4,878,776 | | Europe Net Sales | $1,301,541 | $1,310,750 | $2,569,444 | $2,550,014 | | Mexico Net Sales | $593,808 | $551,133 | $1,108,507 | $1,044,929 | | Total Net Sales | $4,559,314 | $4,308,091 | $8,921,248 | $8,473,719 | | Segment | Three Months Ended June 30, 2024 (In thousands) | Three Months Ended June 25, 2023 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | Six Months Ended June 25, 2023 (In thousands) | | :--------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | U.S. Operating Income | $307,988 | $37,265 | $487,405 | $9,159 | | Europe Operating Income | $23,993 | $2,513 | $55,109 | $27,774 | | Mexico Operating Income | $108,809 | $60,719 | $148,550 | $94,894 | | Total Operating Income | $440,790 | $100,271 | $691,064 | $131,614 | - The U.S. segment's operating income saw a dramatic increase of 726.5% for the three months and 5,221.6% for the six months ended June 30, 2024, compared to the prior year[176][191] 19. COMMITMENTS AND CONTINGENCIES The company is involved in various legal proceedings and claims, including antitrust litigation, tax claims in Mexico, and civil investigations by the DOJ. Significant settlements have been reached for broiler antitrust and grower litigation, with an accrual of $15.9 million for a 2010 Mexican tax claim and no provision for a $269.6 million Mexican tax assessment - Pilgrim's has settled all claims from three certified classes in the Broiler Antitrust Litigation for $195.5 million and recognized $537.4 million to cover settlements with Broiler Opt Outs[143] - A settlement of $100.0 million was reached on June 24, 2024, for the Broiler Chicken Grower Litigation, with the incremental increase recognized in Q2 2024[147] - The company has an accrual of $15.9 million for a 2010 Mexican tax claim and faces a $269.6 million tax assessment for which no provision has been recorded, as it is under appeal[141][142] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion and analysis of Pilgrim's financial condition and results, highlighting performance improvements and market factors Executive Summary The Executive Summary highlights Pilgrim's strong financial performance for the first half of 2024, with significant increases in net income and operating margin. It also addresses global economic conditions, including declining inflation, the ongoing impact of the Russia-Ukraine war on commodity markets, and regional market dynamics for chicken and pork | Metric | Six Months Ended June 30, 2024 (In millions) | | :--------------------------------------- | :------------------------------------------- | | Net income attributable to Pilgrim's | $500.7 | | Diluted common share | $2.11 | | Income before tax | $654.2 | | Net sales | $8.9 | | Gross profit | $1.1 | | Cash provided by operating activities | $989.7 | | Consolidated operating margin | 7.7% | | EBITDA | $911.7 | | Adjusted EBITDA | $1,027.8 | - Global inflation continued to decline in Q2 2024, reducing commodity, labor, and operating costs, though labor costs remain a challenge in Europe and Mexico faces high inflation[154] - U.S. chicken market prices increased above historical five-year averages, with robust volume demand in retail and foodservice, and cold storage inventories 12.6% below prior year levels[159][160] Results of Operations Pilgrim's reported substantial improvements in net sales, gross profit, and operating income for both the three and six months ended June 30, 2024, compared to the prior year. The U.S. segment was the primary driver of growth, benefiting from favorable market pricing and declining feed ingredient costs. Europe and Mexico also showed improved operating income, despite some regional challenges | Metric | Three Months Ended June 30, 2024 (In thousands) | Three Months Ended June 25, 2023 (In thousands) | Six Months Ended June 30, 2024 (In thousands) | Six Months Ended June 25, 2023 (In thousands) | | :--------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net sales | $4,559,314 | $4,308,091 | $8,921,248 | $8,473,719 | | Gross profit | $691,626 | $278,425 | $1,075,535 | $451,472 | | Operating income | $440,790 | $100,271 | $691,064 | $131,614 | | Net interest expense | $15,338 | $39,524 | $46,235 | $78,586 | | Income tax expense (benefit) | $100,650 | $(15,225) | $152,712 | $(24,065) | - U.S. net sales increased by 8.9% (three months) and 7.5% (six months) due to favorable market pricing (6.7% and 5.5% impact) and increased sales volume (2.2% and 2.0% impact)[166][181] - Cost of sales decreased in the U.S. by 5.2% (three months) and 3.7% (six months), primarily driven by declining corn (31% decrease) and soybean meal (23% decrease) market prices[171][186] Liquidity and Capital Resources Pilgrim's maintains strong liquidity, expecting sufficient cash flows from operations and credit facilities to meet obligations for the next twelve months. Cash provided by operating activities significantly increased to $989.7 million for the six months ended June 30, 2024, driven by higher net income and favorable working capital changes. The company also engaged in a bond repurchase program, reducing long-term debt - The company expects cash flows from operations and available credit facilities to provide sufficient liquidity for the next twelve months[198] | Source of Liquidity | Facility Amount (In millions) | Amount Outstanding (In millions) | Amount Available (In millions) | | :--------------------------------------- | :---------------------------- | :----------------------------- | :--------------------------- | | Cash and cash equivalents | — | — | $1,317.1 | | U.S. Credit Facility | $850.0 | — | $825.2 | | Mexico Credit Facility | $60.6 | — | $60.6 | | Europe Credit Facility | $189.7 | — | $189.7 | - Cash provided by operating activities increased to $989.7 million for the six months ended June 30, 2024, from $89.3 million in the prior year, primarily due to higher net income and favorable changes in receivables and inventories[199][202][203] Reconciliation of Net Income to EBITDA and Adjusted EBITDA Pilgrim's provides a reconciliation of net income to EBITDA and Adjusted EBITDA, non-GAAP measures used by management and investors to assess performance. For the six months ended June 30, 2024, EBITDA was $911.7 million and Adjusted EBITDA was $1,027.8 million, reflecting adjustments for litigation settlements, restructuring losses, and foreign currency transaction gains - EBITDA is defined as net income plus interest, taxes, depreciation, and amortization[218] - Adjusted EBITDA further adjusts EBITDA by adding litigation settlements and restructuring activities losses, and deducting foreign currency transaction gains and net income attributable to noncontrolling interests[218] | Metric | Six Months Ended June 30, 2024 (In thousands) | | :--------------------------------------- | :-------------------------------------------- | | Net income | $501,461 | | Interest expense, net | $46,235 | | Income tax expense | $152,712 | | Depreciation and amortization | $211,298 | | EBITDA | $911,706 | | Litigation settlements | $72,190 | | Restructuring activities losses | $51,234 | | Foreign currency transaction gains | $(6,562) | | Net income attributable to noncontrolling interest | $(737) | | Adjusted EBITDA | $1,027,831 | Item 3. Quantitative and Qualitative Disclosures about Market Risk Details Pilgrim's exposure to market risks, including commodity prices, foreign currency, and interest rates, and mitigation strategies Market Risk-Sensitive Instruments and Positions Pilgrim's market risk-sensitive instruments are primarily exposed to potential losses from adverse changes in commodity prices, foreign currency exchange rates, interest rates, and the credit quality of available-for-sale securities - The primary market risks include commodity prices, foreign currency exchange rates, interest rates, and credit quality of available-for-sale securities[223] Commodity Prices The company's earnings are significantly affected by fluctuations in the prices of key feed ingredients like corn, soybean meal, soybean oil, and wheat. Pilgrim's uses purchase agreements and derivative financial instruments to manage this price risk - A hypothetical 10% increase in feed ingredient prices would lead to an $85.9 million increase in cost of sales and a $15.0 million increase in inventories for the three months ended June 30, 2024[225] - The company uses exchange-traded futures and options to mitigate price risk for anticipated commodity input consumption for the next 12 months[226] Interest Rates For fixed-rate debt, market risk is assessed by estimating the potential decrease in fair value from a hypothetical 10% increase in interest rates. Such an increase would have decreased the fair value of the company's fixed-rate debt by $110.0 million as of June 30, 2024 - A hypothetical 10% increase in interest rates would decrease the fair value of fixed-rate debt by $110.0 million as of June 30, 2024[227] Foreign Currency Pilgrim's is exposed to foreign exchange risk from its Mexican and European subsidiaries. A 10% weakening of the Mexican peso against the U.S. dollar would decrease Mexican net assets by $106.0 million, while a 10% strengthening would increase them by $129.5 million. Similarly, a 10% weakening of the British pound against the U.S. dollar would decrease Europe net assets by $387.1 million - A 10% weakening of the Mexican peso against the U.S. dollar would decrease Mexican net assets by $106.0 million[228] - A 10% strengthening of the Mexican peso against the U.S. dollar would increase Mexican net assets by $129.5 million[229] - A 10% weakening of the British pound against the U.S. dollar would decrease Europe net assets by $387.1 million[230] Quality of Investments The company's retirement plans invest in various financial instruments, and as of the report date, none of its investments, including money market funds, commercial paper, and municipal securities, have been downgraded. The company does not hold significant amounts of structured investment vehicles or other high-risk securities - None of the company's investments, including money market funds, commercial paper, and municipal securities, have been downgraded[232] - The company does not hold significant amounts of structured investment vehicles, auction rate securities, collateralized debt obligations, credit derivatives, or hedge funds[232] Impact of Inflation The U.S., Mexico, and most of Europe continue to experience above-historical inflation, though to a lesser degree than in the prior year. The company is addressing these challenges through customer negotiations and operational efficiency initiatives - Inflation remains above historical levels in the U.S., Mexico, and most of Europe, though moderating from the prior year[233] - The company is mitigating inflationary impacts by negotiating with customers and implementing operational initiatives for labor efficiencies, agricultural performance, and improved yields[233] Forward Looking Statements This section outlines various risks and uncertainties that could cause actual results to differ materially from forward-looking statements. These include fluctuations in commodity prices, disease outbreaks, product contamination, regulatory changes, competitive factors, and geopolitical events like the Russia-Ukraine war - Forward-looking statements are subject to risks including commodity price fluctuations, disease outbreaks (e.g., avian influenza), product contamination, and regulatory changes[234][235] - Other risks include competitive factors, inflation, loss of major customers, inability to integrate acquisitions, currency exchange rate fluctuations, and disruptions from geopolitical conflicts like the Russia-Ukraine war[235] Item 4. Controls and Procedures Pilgrim's management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2024. No material changes to internal control over financial reporting occurred during the quarter, and the upcoming multi-year ERP system implementation is not expected to materially affect internal controls - The company's disclosure controls and procedures were effective as of June 30, 2024, ensuring timely and accurate reporting[239] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2024[240] - A multi-year ERP system implementation is planned for 2024 but is not expected to materially affect internal control over financial reporting[240] PART II. OTHER INFORMATION This section provides additional information including legal proceedings, risk factors, other disclosures, and exhibits Item 1. Legal Proceedings This section refers to the detailed discussion of legal proceedings and claims found in Note 19, 'Commitments and Contingencies,' within the Condensed Consolidated Financial Statements - Information on legal proceedings is incorporated by reference from Note 19, 'Commitments and Contingencies,' in Part I, Item 1[242] Item 1A. Risk Factors This section directs readers to the comprehensive discussion of potential risks and uncertainties in the company's 2023 Annual Report on Form 10-K and updates provided in Part I, Item 2 of this quarterly report - Potential risks and uncertainties are discussed in 'Part I—Item 1A—Risk Factors' and 'Part II—Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations' in the 2023 Annual Report, and updated in 'Part I—Item 2—Management's Discussion and Analysis of Financial Condition and Results of Operations' in this report[243] Item 5. Other Information No Rule 10b5-1 trading arrangements were adopted, modified, or terminated by the company's directors or executive officers during the fiscal quarter ended June 30, 2024 - No Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or executive officers during the quarter ended June 30, 2024[244] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, certifications from executive officers, and XBRL-related documents - Exhibits include Amended and Restated Certificate of Incorporation, Amended and Restated Corporate Bylaws, Certifications of Principal Executive and Financial Officers (Sections 302 and 906 of Sarbanes-Oxley Act), and Inline XBRL documents[244] SIGNATURES The report is duly signed on behalf of Pilgrim's Pride Corporation by Matthew Galvanoni, Chief Financial Officer and Chief Accounting Officer, on July 31, 2024 - The report was signed by Matthew Galvanoni, Chief Financial Officer and Chief Accounting Officer, on July 31, 2024[246]