Pilgrim's(PPC) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Presents the company's comprehensive financial statements and detailed notes for the reporting period ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Pilgrim's Pride Corporation's unaudited condensed consolidated financial statements and detailed notes for periods ended September 25, 2022, and December 26, 2021 Condensed Consolidated Balance Sheets Presents the company's financial position, including assets, liabilities, and equity, as of specific reporting dates Condensed Consolidated Balance Sheet Highlights (In thousands) | Metric | Sep 25, 2022 | Dec 26, 2021 | | :--------------------------------- | :----------- | :----------- | | Cash and cash equivalents | $654,213 | $427,661 | | Total current assets | $4,032,920 | $3,305,954 | | Total assets | $9,079,012 | $8,913,205 | | Total current liabilities | $2,607,815 | $2,390,823 | | Total liabilities | $6,338,763 | $6,324,271 | | Total stockholders' equity | $2,740,249 | $2,588,934 | - Total assets increased to $9.08 billion as of September 25, 2022, from $8.91 billion at December 26, 2021, while total liabilities slightly increased to $6.34 billion from $6.32 billion[11] - Total stockholders' equity increased to $2.74 billion as of September 25, 2022, from $2.59 billion at December 26, 2021[11] Condensed Consolidated Statements of Income Details the company's revenues, expenses, and net income (loss) over specific reporting periods Condensed Consolidated Statements of Income Highlights (In thousands, except per share data) | Metric | 3 Months Ended Sep 25, 2022 | 3 Months Ended Sep 26, 2021 | 9 Months Ended Sep 25, 2022 | 9 Months Ended Sep 26, 2021 | | :------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net sales | $4,468,969 | $3,827,566 | $13,341,012 | $10,738,689 | | Gross profit | $497,270 | $371,843 | $1,716,021 | $1,013,327 | | Operating income | $339,202 | $120,777 | $1,254,119 | $156,110 | | Net income (loss) attributable to Pilgrim's Pride Corporation | $258,352 | $60,725 | $900,906 | $(5,754) | | Diluted EPS | $1.08 | $0.25 | $3.73 | $(0.02) | - Net sales for the nine months ended September 25, 2022, increased by 24.2% to $13.34 billion, compared to $10.74 billion in the prior year period[13] - Net income attributable to Pilgrim's Pride Corporation significantly improved to $900.9 million ($3.73 diluted EPS) for the nine months ended September 25, 2022, from a net loss of $5.75 million ($0.02 diluted EPS) in the same period last year[13] Condensed Consolidated Statements of Comprehensive Income Reports net income and other comprehensive income (loss) components, reflecting total changes in equity from non-owner sources Condensed Consolidated Statements of Comprehensive Income Highlights (In thousands) | Metric | 3 Months Ended Sep 25, 2022 | 3 Months Ended Sep 26, 2021 | 9 Months Ended Sep 25, 2022 | 9 Months Ended Sep 26, 2021 | | :------------------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $258,999 | $60,835 | $901,580 | $(5,200) | | Total other comprehensive income (loss), net of tax | $(313,019) | $(42,156) | $(556,997) | $37,818 | | Comprehensive income (loss) attributable to Pilgrim's Pride Corporation | $(54,667) | $18,569 | $343,909 | $32,064 | - Total other comprehensive loss, net of tax, was $(557.0) million for the nine months ended September 25, 2022, primarily due to foreign currency translation adjustments[15] - Comprehensive income attributable to Pilgrim's Pride Corporation for the nine months ended September 25, 2022, was $343.9 million, a significant increase from $32.1 million in the prior year period[15] Condensed Consolidated Statements of Stockholders' Equity Outlines changes in the company's equity accounts, including net income, other comprehensive income, and share transactions Changes in Stockholders' Equity (Nine Months Ended Sep 25, 2022, In thousands) | Metric | Balance at Dec 26, 2021 | Net Income | Other Comprehensive Loss | Stock-based Compensation | Common Stock Purchased | Balance at Sep 25, 2022 | | :--------------------------------- | :---------------------- | :--------- | :----------------------- | :----------------------- | :--------------------- | :---------------------- | | Total Stockholders' Equity | $2,588,934 | $900,906 | $(556,997) | $6,285 | $(199,553) | $2,740,249 | - The company repurchased 7.47 million shares of common stock for approximately $199.6 million during the nine months ended September 25, 2022[18] - Retained earnings increased significantly from $1,003.57 million at December 26, 2021, to $1,904.48 million at September 25, 2022, driven by net income[18] Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods Condensed Consolidated Statements of Cash Flows Highlights (Nine Months Ended, In thousands) | Cash Flow Activity | Sep 25, 2022 | Sep 26, 2021 | | :--------------------------------- | :----------- | :----------- | | Operating activities | $790,613 | $327,495 | | Investing activities | $(330,334) | $(1,211,871) | | Financing activities | $(212,375) | $901,546 | | Effect of exchange rate changes | $(13,932) | $(381) | | Increase in cash, cash equivalents, restricted cash and restricted cash equivalents | $233,972 | $16,789 | - Cash provided by operating activities increased significantly to $790.6 million for the nine months ended September 25, 2022, from $327.5 million in the prior year period[22] - Cash used in investing activities decreased to $330.3 million, compared to $1.21 billion in the prior year, primarily due to a lower purchase of acquired businesses[22] - Cash used in financing activities was $212.4 million, a shift from $901.5 million provided in the prior year, mainly due to common stock repurchases and changes in debt activities[22] NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Provides detailed explanations and disclosures supporting the condensed consolidated financial statements 1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Describes the company's operations, product offerings, and key accounting principles applied in financial reporting - Pilgrim's Pride Corporation is one of the largest chicken producers globally, with operations in the U.S., U.K., Mexico, France, Puerto Rico, the Netherlands, and the Republic of Ireland, serving foodservice, retail, and frozen entrée customers[25] - The Company's product offerings include fresh (refrigerated whole or cut-up chicken, primary pork cuts) and prepared products (fully cooked chicken parts, processed sausages, bacon), as well as plant-based protein, ready-to-eat meals, and hot food-to-go solutions[25] - As of September 25, 2022, Pilgrim's had over 61,800 employees, capacity to process approximately 43.1 million birds and 49,500 pigs per 5-day work week, and JBS S.A. beneficially owned 82.7% of its outstanding common stock[25] - The Company adopted ASU 2021-10, Government Assistance, in 2022, which did not materially impact its financial statements, and plans to adopt ASU 2020-04, Reference Rate Reform, and ASU 2022-04, Supplier Finance Programs, effective December 26, 2022, with no material impact expected from the former[34][35][36] 2. BUSINESS ACQUISITION Details the financial impact and strategic rationale of recent business acquisitions - On September 24, 2021, Pilgrim's acquired 100% of Kerry Consumer Foods' meats and meals businesses (Pilgrim's Food Masters, PFM) for $954.1 million, solidifying its position as a leading European food company[38] - The PFM acquisition contributed $247.6 million in net sales and $4.9 million in net income for the three months ended September 25, 2022, and $774.1 million in net sales and $10.3 million in net income for the nine months ended September 25, 2022[40] - Goodwill of $353.4 million was recorded, driven by strategic and synergistic benefits including complementary products, enhanced footprint in the U.K. and Republic of Ireland, and strengthened position in plant-based protein, direct-to-consumer, and hot food-to-go markets[41][42] 3. REVENUE RECOGNITION Explains the company's policies and disaggregated data related to revenue generation from customer contracts - Revenue is primarily derived from customer orders, with control transferring upon destination or customer pick-up, typically within days to weeks of order acceptance[45][46] Disaggregated Net Sales by Segment and Product Type (In thousands) | Segment | Fresh (9M Sep 2022) | Prepared (9M Sep 2022) | Export (9M Sep 2022) | Other (9M Sep 2022) | Total (9M Sep 2022) | | :---------------- | :------------------ | :--------------------- | :------------------- | :------------------ | :------------------ | | U.S. | $6,709,441 | $839,164 | $421,517 | $347,885 | $8,318,007 | | U.K. and Europe | $674,758 | $2,320,873 | $538,878 | $105,620 | $3,640,129 | | Mexico | $1,200,329 | $116,264 | — | $66,283 | $1,382,876 | | Total | $8,584,528 | $3,276,301 | $960,395 | $519,788 | $13,341,012 | - Revenue contract liabilities increased to $35.7 million as of September 25, 2022, from $22.3 million at December 26, 2021, reflecting payments received in advance of satisfying performance obligations[51][53] 4. DERIVATIVE FINANCIAL INSTRUMENTS Discusses the company's use of derivatives to manage commodity price and foreign currency risks, including their fair values - The Company uses exchange-traded futures and options to mitigate price risk for commodity inputs (corn, soybean meal, wheat, etc.) and foreign currency forward contracts to manage translational foreign exchange risk in its international operations[55][56] Derivative Financial Instruments Fair Values (In thousands) | Metric | Sep 25, 2022 | Dec 26, 2021 | | :--------------------------------- | :----------- | :----------- | | Commodity derivative assets | $16,641 | $17,567 | | Commodity derivative liabilities | $(11,720) | $(14,119) | | Foreign currency derivative assets | $5,403 | $518 | | Foreign currency derivative liabilities | $(2,027) | $(4,958) | | Sales contract derivative liabilities | $(11,243) | $(12,691) | | Cash collateral posted with brokers | $29,880 | $22,459 | - For the nine months ended September 25, 2022, commodity derivatives generated $47.8 million in gains (recognized in Cost of sales), while foreign currency derivatives resulted in $18.6 million in losses (recognized in Foreign currency transaction losses)[64] 5. TRADE ACCOUNTS AND OTHER RECEIVABLES Provides a breakdown of the company's receivables and the allowance for credit losses Trade Accounts and Other Receivables (In thousands) | Metric | Sep 25, 2022 | Dec 26, 2021 | | :--------------------------------- | :----------- | :----------- | | Trade accounts receivable | $1,031,180 | $947,697 | | Receivables, gross | $1,124,560 | $1,023,110 | | Allowance for credit losses | $(9,404) | $(9,673) | | Receivables, net | $1,115,156 | $1,013,437 | | Accounts receivable from related parties | $9,855 | $1,345 | - Net receivables increased to $1.12 billion as of September 25, 2022, from $1.01 billion at December 26, 2021, primarily driven by an increase in trade accounts receivable[71] - The allowance for credit losses decreased slightly from $(9.67) million at the beginning of the period to $(9.40) million at September 25, 2022, with a provision charged to operating results of $(0.77) million[72] 6. INVENTORIES Details the composition and valuation of the company's inventory, including raw materials and finished products Inventories Composition (In thousands) | Metric | Sep 25, 2022 | Dec 26, 2021 | | :--------------------------------- | :----------- | :----------- | | Raw materials and work-in-process | $1,215,034 | $1,034,518 | | Finished products | $548,960 | $369,292 | | Operating supplies | $82,949 | $87,332 | | Maintenance materials and parts | $87,755 | $84,516 | | Total inventories | $1,934,698 | $1,575,658 | - Total inventories increased to $1.93 billion as of September 25, 2022, from $1.58 billion at December 26, 2021, primarily due to increases in raw materials and work-in-process and finished products[73] 7. INVESTMENTS IN SECURITIES Outlines the company's investments in available-for-sale securities and related realized gains or losses Available-for-Sale Securities (In thousands) | Metric | Cost (Sep 25, 2022) | Fair Value (Sep 25, 2022) | Cost (Dec 26, 2021) | Fair Value (Dec 26, 2021) | | :-------------------- | :------------------ | :------------------------ | :------------------ | :------------------------ | | Fixed income securities | $359,542 | $359,660 | $48,851 | $48,851 | - Gross realized gains from available-for-sale securities were $3.3 million for the nine months ended September 25, 2022, compared to $3.9 million in the prior year period[74] 8. GOODWILL AND INTANGIBLE ASSETS Presents the carrying amounts and changes in goodwill and other intangible assets by segment Goodwill by Segment (In thousands) | Segment | Dec 26, 2021 | Additions | Currency Translation | Sep 25, 2022 | | :---------------- | :----------- | :-------- | :------------------- | :----------- | | U.S. | $41,936 | — | — | $41,936 | | U.K. and Europe | $1,167,512 | $5,401 | $(218,367) | $954,546 | | Mexico | $127,804 | — | — | $127,804 | | Total | $1,337,252 | $5,401 | $(218,367) | $1,124,286 | - Total goodwill decreased to $1.12 billion as of September 25, 2022, from $1.34 billion at December 26, 2021, primarily due to a $(218.4) million negative currency translation impact in the U.K. and Europe segment[75] Intangible Assets, Net (In thousands) | Metric | Dec 26, 2021 | Amortization | Disposals | Currency Translation | Sep 25, 2022 | | :-------------------------- | :----------- | :----------- | :-------- | :------------------- | :----------- | | Trade names not subject to amortization | $609,713 | — | — | $(119,483) | $490,230 | | Customer relationships | $455,459 | — | — | $(53,724) | $401,735 | | Accumulated amortization | $(216,517) | $(25,629) | $320 | $17,079 | $(224,747) | | Intangible assets, net | $963,243 | $(25,629) | — | $(157,993) | $779,621 | - Net intangible assets decreased to $779.6 million as of September 25, 2022, from $963.2 million at December 26, 2021, largely due to currency translation impacts and amortization[75] 9. PROPERTY, PLANT AND EQUIPMENT Details the company's tangible long-lived assets, including their gross value, accumulated depreciation, and capital expenditures Property, Plant and Equipment, Net (In thousands) | Metric | Sep 25, 2022 | Dec 26, 2021 | | :--------------------------------- | :----------- | :----------- | | PP&E, gross | $6,141,422 | $6,209,852 | | Accumulated depreciation | $(3,329,373) | $(3,292,046) | | PP&E, net | $2,812,049 | $2,917,806 | - Net property, plant, and equipment decreased to $2.81 billion as of September 25, 2022, from $2.92 billion at December 26, 2021[77] - Depreciation expense for the nine months ended September 25, 2022, was $275.3 million, up from $256.9 million in the prior year period[77] - Capital expenditures totaled $342.6 million for the nine months ended September 25, 2022, primarily for efficiency improvements and cost reduction[78] 10. CURRENT LIABILITIES Provides a breakdown of the company's short-term financial obligations, excluding income taxes and long-term debt maturities Current Liabilities (Excluding Income Taxes and Current Maturities of Long-Term Debt, In thousands) | Metric | Sep 25, 2022 | Dec 26, 2021 | | :--------------------------------- | :----------- | :----------- | | Total accounts payable | $1,539,752 | $1,378,077 | | Accounts payable to related parties | $17,055 | $22,317 | | Revenue contract liabilities | $35,734 | $22,321 | | Total accrued expenses and other current liabilities | $857,189 | $859,885 | | Total | $2,449,730 | $2,282,600 | - Total current liabilities (excluding income taxes and current maturities of long-term debt) increased to $2.45 billion as of September 25, 2022, from $2.28 billion at December 26, 2021, mainly due to higher trade accounts payable[83] - Litigation settlements accrued decreased from $172.4 million to $93.4 million[83] 11. INCOME TAXES Discusses the company's income tax expense, effective tax rates, and the impact of recent tax legislation - Income tax expense for the nine months ended September 25, 2022, was $253.7 million (21.9% effective tax rate), a significant increase from $55.9 million (110.3% effective tax rate) in the prior year, primarily due to increased profit before income taxes[84] - The Company is analyzing the tax effects of the Inflation Reduction Act of 2022, which includes significant law changes applicable for tax years beginning after December 31, 2022[89] 12. DEBT Details the company's long-term debt obligations, credit facilities, and recent amendments to debt covenants Long-Term Debt (In thousands) | Debt Type | Maturity | Sep 25, 2022 | Dec 26, 2021 | | :--------------------------------- | :------- | :----------- | :----------- | | Senior notes payable at 3.50% | 2032 | $900,000 | $900,000 | | Senior notes payable at 4.25% | 2031 | $991,441 | $990,691 | | Senior notes payable at 5.875% | 2027 | $846,403 | $845,866 | | U.S. Credit Facility Term note payable at 4.43% | 2026 | $486,405 | $506,250 | | Long-term debt, less current maturities, net of capitalized financing costs | $3,183,951 | $3,191,161 | - On September 22, 2022, the Company amended its Senior Notes due 2031 and 2032 indentures to reflect its investment grade status, permanently eliminating certain restrictive covenants such as limitations on additional debt, restricted payments, and asset sales[95][98] - The U.S. Credit Facility provides an $800.0 million revolving credit commitment (with $763.9 million available as of Sep 25, 2022) and a $700.0 million term loan commitment ($486.4 million outstanding)[100][101] - The U.K. and Europe Revolver Facility provides a multicurrency revolving loan commitment of up to £150.0 million ($162.9 million U.S. dollar-equivalent), with $10.9 million outstanding as of September 25, 2022[105] 13. STOCKHOLDERS' EQUITY Explains changes in the company's equity, including accumulated other comprehensive loss and share repurchase programs Accumulated Other Comprehensive Loss Components (Nine Months Ended Sep 25, 2022, In thousands) | Component | Balance, beginning of period | Other comprehensive income (loss) before reclassifications | Amounts reclassified to net income | Currency translation | Balance, end of period | | :--------------------------------- | :--------------------------- | :--------------------------------------------------------- | :--------------------------------- | :------------------- | :--------------------- | | Gains (Losses) Related to Foreign Currency Translation | $27,241 | $(572,130) | — | — | $(544,889) | | Losses on Derivative Financial Instruments Classified as Cash Flow Hedges | $(2,365) | $(2,317) | $2,637 | $75 | $(1,970) | | Losses Related to Pension and Other Postretirement Benefits | $(72,873) | $14,061 | $698 | — | $(58,114) | | Gains (Losses) on Available-for-Sale Securities | — | $(21) | — | — | $(21) | | Total | $(47,997) | $(560,407) | $3,335 | $75 | $(604,994) | - Accumulated other comprehensive loss increased to $(605.0) million as of September 25, 2022, from $(48.0) million at December 26, 2021, primarily due to significant foreign currency translation losses[108] - The Board of Directors approved a $200.0 million share repurchase program on March 8, 2022, under which the Company repurchased approximately 7.5 million shares for $199.6 million as of September 25, 2022[111] 14. PENSION AND OTHER POSTRETIREMENT BENEFITS Outlines the company's defined benefit and contribution plans, including their funded status and related expenses - Total expenses for all retirement plans were $23.9 million for the nine months ended September 25, 2022, compared to $13.6 million in the prior year period[114] Defined Benefit Plans Funded Status (In thousands) | Metric | Pension Benefits (Sep 25, 2022) | Other Benefits (Sep 25, 2022) | Pension Benefits (Dec 26, 2021) | Other Benefits (Dec 26, 2021) | | :--------------------------------- | :------------------------------ | :---------------------------- | :------------------------------ | :---------------------------- | | Projected benefit obligation, end of period | $236,565 | $1,121 | $386,424 | $1,472 | | Fair value of plan assets, end of period | $218,144 | — | $331,879 | — | | Unfunded benefit obligation, end of period | $(18,421) | $(1,121) | $(46,653) | $(1,346) | - The unfunded benefit obligation for pension plans decreased to $(18.4) million as of September 25, 2022, from $(46.7) million at December 26, 2021, primarily due to actuarial gains[115] - Defined contribution plan expenses were $21.0 million for the nine months ended September 25, 2022[121] 15. FAIR VALUE MEASUREMENT Describes the company's methodology for fair value measurements of financial instruments across different input levels - The Company categorizes fair value measurements into Level 1 (quoted prices in active markets), Level 2 (observable inputs), and Level 3 (unobservable inputs)[122] Fair Value of Financial Instruments (In thousands) | Instrument | Level 1 (Sep 25, 2022) | Level 2 (Sep 25, 2022) | Total (Sep 25, 2022) | | :--------------------------------- | :--------------------- | :--------------------- | :------------------- | | Commodity derivative assets | $16,641 | — | $16,641 | | Foreign currency derivative assets | $5,403 | — | $5,403 | | Commodity derivative liabilities | $(11,721) | — | $(11,721) | | Foreign currency derivative liabilities | $(2,027) | — | $(2,027) | | Sales contract derivative liabilities | — | $(11,243) | $(11,243) | - The fair value of fixed-rate senior notes payable (Level 2 inputs) was lower than their carrying amount as of September 25, 2022, indicating a market discount[129] 16. RELATED PARTY TRANSACTIONS Details significant transactions and balances with related parties, including sales and purchases Related Party Transactions (Nine Months Ended, In thousands) | Transaction Type | Sep 25, 2022 | Sep 26, 2021 | | :--------------------------------- | :----------- | :----------- | | Total sales to related parties | $22,025 | $14,844 | | Total cost of goods purchased from related parties | $165,517 | $178,770 | | Total expenditures paid by related parties | $73,045 | $68,039 | | Total expenditures paid on behalf of related parties | $46,895 | $35,457 | - Sales to related parties increased to $22.0 million for the nine months ended September 25, 2022, from $14.8 million in the prior year, with JBS USA Food Company being the largest counterparty[133] - Cost of goods purchased from related parties decreased to $165.5 million for the nine months ended September 25, 2022, from $178.8 million in the prior year[133] 17. REPORTABLE SEGMENTS Provides financial performance data, including net sales and operating income, for each of the company's operating segments - The Company operates in three reportable segments: U.S., U.K. and Europe, and Mexico, with segment profit measured as operating income[135] Net Sales by Reportable Segment (Nine Months Ended, In thousands) | Segment | Sep 25, 2022 | Sep 26, 2021 | | :---------------- | :----------- | :----------- | | U.S. | $8,318,007 | $6,714,879 | | U.K. and Europe | $3,640,129 | $2,721,019 | | Mexico | $1,382,876 | $1,302,791 | | Total | $13,341,012 | $10,738,689 | Reportable Segment Profit (Operating Income, Nine Months Ended, In thousands) | Segment | Sep 25, 2022 | Sep 26, 2021 | | :---------------- | :----------- | :----------- | | U.S. | $1,146,821 | $(85,380) | | U.K. and Europe | $406 | $32,771 | | Mexico | $106,850 | $208,677 | | Total operating income | $1,254,119 | $156,110 | - The U.S. segment's operating income significantly improved to $1.15 billion for the nine months ended September 25, 2022, from a loss of $(85.4) million in the prior year[142] 18. COMMITMENTS AND CONTINGENCIES Details the company's legal and regulatory exposures, including antitrust litigation and tax assessments - The Company is appealing Mexican tax assessments totaling approximately $276.8 million for tax years 2009, 2010, and related to the acquisition of Tyson de México, with no loss recorded at this time[147][148] - In the Broiler Chicken Antitrust Litigation, PPC settled claims with Direct Purchaser Plaintiffs (DPPs) for $75.0 million, End-User Consumer Indirect Purchaser Plaintiff Class (EUCPs) for $75.5 million, and Commercial and Institutional Indirect Purchaser Plaintiff Class (CIIPPs) for $45.0 million[150][151][152] - PPC has recognized an expense of $508.6 million to cover settlements with various Opt Outs in the Broiler Chicken Antitrust Litigation and continues to litigate against remaining Opt Outs[153] - The DOJ opened civil investigations into human resources antitrust matters (Feb 2022) and grower contracts and payment practices (Oct 2022), with PPC cooperating[170] 19. BUSINESS INTERRUPTION INSURANCE Reports on insurance proceeds received related to business interruptions, such as natural disasters - Following a tornado in Mayfield, Kentucky in December 2021, the Company received $5.5 million in business interruption insurance proceeds and recognized $12.2 million in income from such insurance for the three and nine months ended September 25, 2022[171] 20. SUBSEQUENT EVENTS Discloses significant events occurring after the reporting period that may impact the company's financial position - On September 6, 2022, a U.K. subsidiary announced proposed closures of two facilities, potentially affecting 610 employees and incurring estimated exit or disposal costs of approximately £7.9 million[172] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Provides an executive summary of Pilgrim's Pride Corporation's financial performance, global economic impacts, and operational strategies for the nine months ended September 25, 2022 Executive Summary Summarizes Pilgrim's Pride Corporation's financial performance, including net income, sales, and operating margins, for the nine months ended September 25, 2022 - For the nine months ended September 25, 2022, Pilgrim's reported net income of $900.9 million ($3.73 diluted EPS), net sales of $13.3 billion, and cash provided by operating activities of $790.6 million[173] - Consolidated operating margin was 9.4%, with segment operating margins of 13.8% (U.S.), 0.0% (U.K. and Europe), and 7.7% (Mexico)[173] - The Company faced significant challenges from inflation in commodity, labor, and other operating costs across all businesses, exacerbated by the Russia-Ukraine war impacting global feed ingredient and energy markets[174][176][177] - In the U.K., labor shortages due to Brexit continued to affect processing, packing, and transport, while Mexico experienced volatility from inflationary pressures and bird disease[174][184] - The Company is responding by negotiating with customers for cost recovery and focusing on operational initiatives to improve labor efficiencies, agricultural performance, and yields[175] Results of Operations Analyzes the company's financial performance, including net sales, gross profit, and operating income, across its segments for the reporting periods Net Sales Growth by Segment (YoY Change) | Segment | 3 Months Ended Sep 25, 2022 | 9 Months Ended Sep 25, 2022 | | :---------------- | :-------------------------- | :-------------------------- | | U.S. | +15.0% | +23.9% | | U.K. and Europe | +29.3% | +33.8% | | Mexico | -0.3% | +6.1% | | Total | +16.8% | +24.2% | - U.S. net sales increased by $1.6 billion (23.9%) for the nine months ended September 25, 2022, driven by price increases to recover higher feed ingredients, labor, and utility costs[200] - U.K. and Europe net sales increased by $919.1 million (33.8%) for the nine months, with $774.1 million attributed to the PFM acquisition and the remainder from price increases offsetting foreign currency translation and volume decreases[201] - Gross profit increased by $702.7 million (69.3%) to $1.7 billion for the nine months ended September 25, 2022, with the U.S. segment contributing $1.4 billion, up 116.8% YoY[202] - Operating income surged by $1.1 billion (703.4%) to $1.3 billion for the nine months, primarily due to a significant improvement in the U.S. segment's operating income, which rose by $1.2 billion[205][206] - U.S. SG&A expense decreased by $471.5 million (64.0%) for the nine months, mainly due to the recognition of legal settlements and acquisition transaction costs in the prior year[207] - Net interest expense slightly decreased to $106.3 million for the nine months, benefiting from a $24.7 million loss on early extinguishment of debt in the prior year, despite increased average borrowings[210] Liquidity and Capital Resources Assesses the company's ability to meet its financial obligations and fund operations through cash flows and available credit facilities Available Sources of Liquidity (As of Sep 25, 2022, In millions) | Source | Facility Amount | Amount Outstanding | Amount Available | | :--------------------------------- | :-------------- | :----------------- | :--------------- | | Cash and cash equivalents | — | — | $654.2 | | U.S. Credit Facility Revolving Note Payable | $800.0 | — | $763.9 | | U.S. Credit Facility Term Loans | $700.0 | $486.4 | — | | Mexico Credit Facility | $74.2 | — | $74.2 | | U.K. and Europe Revolver Facility | $162.9 | $10.9 | $152.0 | - The Company expects cash flows from operations and available credit facilities to provide sufficient liquidity for current obligations, working capital, debt maturities, and capital spending for at least the next twelve months[215] - Cash provided by operating activities for the nine months ended September 25, 2022, was $790.6 million, driven by net income and noncash expenses, partially offset by increased trade accounts receivable and inventories[216][217][219][221] - Cash used in financing activities was $212.4 million, including $199.5 million for common stock repurchases and net payments on borrowings[226][227] Reconciliation of Net Income to EBITDA and Adjusted EBITDA Provides a reconciliation of net income to non-GAAP measures EBITDA and Adjusted EBITDA, highlighting adjustments for specific financial items - EBITDA and Adjusted EBITDA are non-GAAP measures used by management and investors to compare company performance, with Adjusted EBITDA excluding foreign currency transaction losses, acquisition costs, litigation settlements, and property insurance recoveries[231] EBITDA and Adjusted EBITDA Reconciliation (Nine Months Ended Sep 25, 2022, In thousands) | Metric | Amount | | :--------------------------------- | :------- | | Net income | $901,580 | | Add: Interest expense, net | $106,346 | | Add: Income tax expense | $253,679 | | Add: Depreciation and amortization | $300,962 | | EBITDA | $1,562,567 | | Add: Foreign currency transaction losses | $14,348 | | Add: Transaction costs related to business acquisitions | $972 | | Add: Litigation settlements | $28,282 | | Minus: Property insurance recoveries for Mayfield tornado losses | $19,997 | | Minus: Net income attributable to noncontrolling interest | $674 | | Adjusted EBITDA | $1,585,498 | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Outlines Pilgrim's Pride Corporation's exposure to market risks, including commodity prices, interest rates, and foreign currency exchange rates, with sensitivity analyses - A hypothetical 10% increase in the weighted-average cost of primary feed ingredients would increase cost of sales by $119.7 million for the three months ended September 25, 2022, and increase inventories by $24.7 million[238][239][240] - A hypothetical 10% increase in interest rates would decrease the fair value of fixed-rate debt by $75.6 million as of September 25, 2022[242] - An increase of 25 basis points in variable interest rates would increase interest expense by $2.5 million for the three months ended September 25, 2022, given that variable-rate debt constitutes approximately 15.7% of total debt[243] - A 10% weakening of the British pound against the U.S. dollar would decrease the net assets of U.K. and Europe subsidiaries by $218.8 million, while a 10% appreciation would increase them by $267.4 million[249] - The Company is responding to pronounced inflation in the U.S., Mexico, and Europe by negotiating with customers for cost recovery and implementing operational initiatives to improve efficiencies and yields[252] ITEM 4. CONTROLS AND PROCEDURES Confirms that Pilgrim's Pride Corporation's management evaluated the effectiveness of its disclosure controls and procedures, concluding they were effective with no material changes - As of September 25, 2022, the Company's Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective[259] - No changes in internal control over financial reporting occurred during the three months ended September 25, 2022, that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[260] PART II. OTHER INFORMATION Provides additional information including legal proceedings, risk factors, equity sales, and required exhibits ITEM 1. LEGAL PROCEEDINGS Refers to Note 18, 'Commitments and Contingencies,' for detailed information regarding the Company's legal proceedings - Information regarding legal proceedings is incorporated by reference from Note 18. Commitments and Contingencies in Part I, Item 1 of this quarterly report[262] ITEM 1A. RISK FACTORS Updates the Company's risk factors, highlighting new and ongoing concerns such as global economic impacts, commodity prices, and potential operational disruptions - The Russia-Ukraine war poses risks including higher commodity prices (food, ingredients, energy), increased inflation, and disrupted trade and supply chains, which could adversely affect the Company's business[264][265][266] - Extreme weather, natural disasters, and man-made problems like power disruptions (e.g., potential U.K. power cuts in winter 2023) could impair operations, production, or transportation, materially impacting financial results[268][269] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS Details Pilgrim's Pride Corporation's share repurchase program, approved for $200.0 million, and the shares repurchased as of September 25, 2022 - On March 8, 2022, the Board of Directors approved a $200.0 million share repurchase program with no termination date[270] Issuer Purchases of Equity Securities (Three Months Ended Sep 25, 2022) | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of the Shares That May Yet Be Purchased Under the Plans or Programs | | :--------------------------------- | :------------------------------- | :--------------------------- | :------------------------------------------------------------------------------- | :--------------------------------------------------------------------------------------- | | June 27, 2022 through July 24, 2022 | 260,464 | $29.9139 | 260,464 | $72,219,363 | | July 25, 2022 through August 28, 2022 | 494,654 | $29.7796 | 494,654 | $57,488,765 | | August 29, 2022 through September 25, 2022 | 2,081,950 | $27.3980 | 2,081,950 | $447,475 | | Total | 2,837,068 | $28.0442 | 2,837,068 | $447,475 | - As of September 25, 2022, the Company repurchased 7,468,645 shares for an aggregate cost of $199.6 million at an average price of $26.7187 per share[270] ITEM 6. EXHIBITS Lists the exhibits filed with the Form 10-Q, including corporate documents, supplemental indentures, and certifications - Exhibits include Amended and Restated Certificate of Incorporation and Bylaws, First Supplemental Indentures for Senior Notes, and Certifications of Principal Executive and Financial Officers (31.1, 31.2, 32.1, 32.2)[276] - The filing also includes Inline XBRL Instance Document and Taxonomy Extension files (Schema, Calculation, Definition, Label, Presentation)[276] SIGNATURES Contains the required signatures for the Form 10-Q, certifying its submission on behalf of Pilgrim's Pride Corporation - The report was signed on October 26, 2022, by Matthew Galvanoni, Chief Financial Officer and Chief Accounting Officer[279]