Pilgrim's(PPC) - 2021 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q2 2021, the company reported net revenues of $3.6 billion, an increase from $2.82 billion a year ago, with adjusted EBITDA of $372 million, representing a margin of 10.2% compared to 4% in the previous year [7][25] - Adjusted net income was $154 million, which included a discrete income tax charge of $32 million due to the U.K.'s increased statutory income tax rate [25] - The company reported a GAAP net loss of $167 million compared to a loss of $6 million in 2020, primarily due to a $396 million accrual related to legal settlements [25] Business Line Data and Key Metrics Changes - In the U.S., adjusted EBITDA was $237.1 million, up from $93.7 million a year ago, driven by strong market pricing and slightly higher volumes [26] - The Mexican business saw adjusted EBITDA of $85.7 million, a significant recovery from a loss of $27.7 million a year ago, benefiting from a balanced supply-demand dynamic [27] - The U.K. operations had adjusted EBITDA of $15.7 million, up from $12.3 million a year ago, although gross profit was down year-over-year due to increased grain costs [28] Market Data and Key Metrics Changes - The U.S. chicken supply increased by 2.4% year-over-year, but growth appears constrained due to poor hatchability [12] - Commodity pricing across all cuts remained strong, trending near historical ranges, while corn prices increased due to expected low crop ending stocks [12][13] - The export market showed strong demand, with pulp prices up 54% year-over-year, although imports to China decreased by 16.5% due to a softer pork market [16][17] Company Strategy and Development Direction - The company is focused on operational excellence and has signed an agreement to acquire the Meats and Meals business of Kerry Consumer Foods, which will enhance its position in the U.K. and Ireland [21] - The company aims to achieve net zero greenhouse gas emissions by 2040, reflecting its commitment to sustainability and responsible food production [23] - The company continues to invest in automation to address labor shortages and improve operational efficiencies, with plans to invest around $100 million in the next year [45] Management's Comments on Operating Environment and Future Outlook - Management noted that labor availability remains a significant challenge, but they expect improvements in the U.S. labor market by the end of the year [8] - The company anticipates continued strength in retail demand and a recovery in foodservice, with expectations for schools to reopen, boosting the foodservice industry [9][38] - Management expressed optimism about the supply-demand balance in the chicken market, although they acknowledged potential headwinds from feed costs and labor shortages [61] Other Important Information - The company incurred approximately $12 million in COVID-related costs in Q2 2021, a decrease of about $37 million compared to the prior year [28] - The company has a robust liquidity position with over $1.25 billion in total cash and available credit, and a net debt of $1.8 billion [30] Q&A Session Summary Question: Could you elaborate on the $400 million for litigation settlements? - Management indicated that the amount includes a combination of actual settlements and accruals, but they cannot comment on active investigations [34] Question: How do you view the current quarter's profitability given labor shortages? - Management highlighted that their diversified portfolio protects against downside risks and allows them to capture upside in the market, with expectations for continued strong demand in both retail and foodservice [37][38] Question: What are your thoughts on feed costs and your positioning in the market? - Management expressed confidence in their risk management strategy and noted an expected increase in feed costs of approximately $300 million in the second half of the year [41] Question: How is hatchability affecting production? - Management acknowledged that hatchability issues are industry-wide and are constraining growth, but they expect to manage better around this issue [44] Question: What are the expectations for the U.K. market? - Management noted that the U.K. business has been impacted by increased grain costs but has remained profitable on an EBITDA basis for the last nine quarters [20]