Pilgrim's(PPC) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements for Q1 2024 show significant year-over-year improvement in net sales, net income, and cash flow from operations Condensed Consolidated Balance Sheets Total assets slightly decreased to $9.77 billion, while total liabilities decreased, leading to an increase in stockholders' equity Balance Sheet Highlights (In thousands) | Balance Sheet Highlights | March 31, 2024 (In thousands) | December 31, 2023 (In thousands) | | :--- | :--- | :--- | | Total Current Assets | $4,171,877 | $4,204,471 | | Total Assets | $9,768,340 | $9,810,361 | | Total Current Liabilities | $2,279,745 | $2,495,867 | | Total Liabilities | $6,273,962 | $6,465,784 | | Total Stockholders' Equity | $3,494,378 | $3,344,577 | Condensed Consolidated Statements of Income Q1 2024 saw a significant profitability turnaround with net sales up 4.7% to $4.36 billion and net income surging to $174.4 million Income Statement Highlights (In thousands) | Income Statement Highlights | Three Months Ended Mar 31, 2024 (In thousands) | Three Months Ended Mar 26, 2023 (In thousands) | | :--- | :--- | :--- | | Net sales | $4,361,934 | $4,165,628 | | Gross profit | $383,909 | $173,047 | | Operating income | $250,274 | $31,343 | | Net income attributable to PPC | $174,421 | $5,187 | | Diluted EPS | $0.73 | $0.02 | Condensed Consolidated Statements of Cash Flows Operating cash flow significantly improved to $271.0 million, driven by higher net income and favorable working capital changes Cash Flow Summary (In thousands) | Cash Flow Summary | Three Months Ended Mar 31, 2024 (In thousands) | Three Months Ended Mar 26, 2023 (In thousands) | | :--- | :--- | :--- | | Cash provided by (used in) operating activities | $271,027 | $(161,704) | | Cash used in investing activities | $(106,212) | $(117,471) | | Cash provided by financing activities | $1,256 | $26,881 | | Cash, cash equivalents, restricted cash... end of period | $894,883 | $184,566 | Notes to Condensed Consolidated Financial Statements Detailed notes cover revenue recognition, risk management, debt, European restructuring, and significant legal contingencies including antitrust litigation Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management reported strong Q1 2024 results with $174.4 million net income and 5.7% operating margin, driven by favorable pricing and lower feed costs Key Performance Indicators | Key Performance Indicators | Q1 2024 | | :--- | :--- | | Net Income attributable to Pilgrim's | $174.4 million | | Diluted EPS | $0.73 | | Net Sales | $4.4 billion | | Operating Margin | 5.7% | | Adjusted EBITDA | $371.9 million | - Global economic conditions saw declining inflation in Q1 2024, but levels remain above historical averages, impacting commodity, labor, and operating costs[142] - The Russia-Ukraine war continues to affect global energy markets, though its impact on grain markets has lessened[143] Results of Operations Net sales increased 4.7% to $4.36 billion, driven by the U.S. segment, while gross profit surged 121.9% to $383.9 million due to lower feed costs Net Sales by Segment (in thousands) | Net Sales by Segment (in thousands) | Q1 2024 | Change from Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | U.S. | $2,579,332 | $146,764 | 6.0% | | Europe | $1,267,903 | $28,639 | 2.3% | | Mexico | $514,699 | $20,903 | 4.2% | | Total | $4,361,934 | $196,306 | 4.7% | Gross Profit by Segment (in thousands) | Gross Profit by Segment (in thousands) | Q1 2024 | Change from Q1 2023 | % Change | | :--- | :--- | :--- | :--- | | U.S. | $237,292 | $198,963 | 519.1% | | Europe | $92,165 | $7,972 | 9.5% | | Mexico | $54,452 | $3,940 | 7.8% | | Total | $383,909 | $210,862 | 121.9% | - The decrease in U.S. cost of sales was primarily driven by lower live operations costs of $122.8 million, resulting from decreased feed ingredient costs for corn and soy[162] Liquidity and Capital Resources The company maintains a strong liquidity position with $870.8 million cash and over $1 billion available credit, supported by $271.0 million operating cash flow Sources of Liquidity (as of Mar 31, 2024) | Sources of Liquidity (as of Mar 31, 2024) | Amount Available (in millions) | | :--- | :--- | | Cash and cash equivalents | $870.8 | | U.S. Credit Facility | $825.2 | | Mexico Credit Facility | $67.0 | | Europe Credit Facility | $189.3 | - The change in inventories provided $114.5 million in cash from operations, primarily due to lower feed ingredient costs which reduced the value of raw materials and finished goods inventories[180] - Capital expenditures for the quarter totaled $108.4 million, used for growth projects like the South Georgia protein conversion plant and other operational efficiency initiatives[184] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company faces market risks from commodity prices, interest rates, and foreign currency, using derivatives to mitigate commodity price exposure - A hypothetical 10% increase in primary feed ingredient prices would have increased cost of sales by $89.1 million for the three months ended March 31, 2024[205] - A hypothetical 10% increase in interest rates would have decreased the fair value of the company's fixed-rate debt by $112.5 million as of March 31, 2024[208] - The company is exposed to foreign exchange risk from its Mexico and Europe operations[212] - A 10% weakening of the British pound against the U.S. dollar would decrease the net assets of its Europe subsidiaries by $386.1 million[213] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls, as a new ERP system implementation begins - Management concluded that as of March 31, 2024, the company's disclosure controls and procedures were effective[223] - No material changes to internal control over financial reporting were identified during the first quarter of 2024[224] - The company will begin a multi-year implementation of a new ERP system in 2024, not expected to materially affect internal controls over financial reporting[225] PART II. OTHER INFORMATION Item 1. Legal Proceedings Legal proceedings, including broiler antitrust litigation with significant accrued settlement costs, are incorporated by reference from Note 19 - Information regarding legal proceedings is incorporated by reference from Note 19 of the financial statements[227] - Key legal matters include the Broiler Antitrust Litigation, where PPC has entered into settlement agreements with certified classes for $195.5 million and has accrued $537.4 million for settlements with opt-out plaintiffs[132] Item 1A. Risk Factors No material changes to risk factors were reported, referring investors to the 2023 Annual Report on Form 10-K for comprehensive details - The report refers to the 'Risk Factors' section of the company's 2023 Annual Report on Form 10-K for a discussion of potential risks and uncertainties[228] Item 5. Other Information No directors or executive officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No directors or executive officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter[229] Item 6. Exhibits Exhibits include officer certifications under Sarbanes-Oxley Act and Inline XBRL documents filed with the Form 10-Q - The exhibits filed with the report include officer certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act and Interactive Data Files (Inline XBRL)[231] SIGNATURES - The report was duly signed on May 1, 2024, by Matthew Galvanoni, the Chief Financial Officer and Chief Accounting Officer[233][234]