In a small town in Texas, a story began to be written more than seven decades ago that has transformed humble beginnings into global success. From that first chicken farm grew a company that today plays a key role in the poultry industry. How did the original family business become a major player on the world stage?

Company introduction

Pilgrim's Pride Corporation $PPC is one of the largest chicken production companies in the world. The company has its roots in the United States of America, specifically in the town of Pittsburg, Texas, where it was founded in 1946. Its founder, Bo Pilgrim, along with his brother Aubrey, started out raising and processing chickens on a small scale, but through their innovative approach and hard work, the company quickly grew. In 1968, Pilgrim's Pride became a publicly traded company and began to expand both geographically and in the scope of its production.

The company gradually developed into one of the leading players in the poultry meat marketwith a footprint not limited to the United States. Pilgrim's Pride now also has production facilities in Mexico and Europe, specifically in countries such as the UK and Ireland. The company is known for the quality of its products and for its rigorous control of the entire process from breeding to processing to distribution of the meat.

The company's history is marked by several major acquisitions that have played a key role in its growth. One of the most significant acquisitions was the purchase of competitor Gold Kist in 2006, which strengthened Pilgrim's Pride's position in the US market. Another important moment was the acquisition of Moy Park in 2015, which significantly strengthened Pilgrim's Pride's position in the European market.

In 2009, Pilgrim's Pride ran into financial difficulties and was forced to declare bankruptcy. However, this situation opened the door to its restructuring and eventually led to its acquisition by JBS USA, the US subsidiary of Brazilian giant JBS S.A., one of the largest meat producers in the world. Under JBS's leadership, Pilgrim's Pride has not only recovered, but has also become an even stronger player in the global market.

Pilgrim's Pride now focuses not only on the production of fresh chicken, but also on the production of a range of processed products such as frozen chicken nuggets, strips and various other food products. The company is trying to respond to the changing preferences of consumers who are increasingly demanding more sustainable and ethical meat production. For this reason, Pilgrim's Pride is also dedicated to improving conditions on its farms and reducing the environmental footprint of its production.

Interestingly, the company works with many outside farmers who supply chickens to its plants. This collaborative model allows Pilgrim's Pride to control the quality of its raw materials without having to own all the farms, allowing it greater flexibility and efficiency in managing its production.

Key indicators

Pilgrim's Pride Corporation (PPC) is a company that is currently attracting the attention of many investors, particularly those focused on value investing. Value investors look for companies whose stock is undervalued relative to its current price, and use various financial indicators and fundamental analysis to do so.

One of the main ratios that investors look at is the price-to-earnings (P/E) ratio. For Pilgrim's Pride, this ratio is at 14, which is below the industry average of 15.60. This means that PPC stock may be considered cheaper compared to its competitors. Over the past year, this ratio has ranged between 8.96 and 18.59, indicating variability, but the current value suggests that the stock is currently attractive to value investors.

Another important indicator is the PEG ratio, which takes into account not only the price-to-earnings ratio but also the company's expected earnings growth rate. For Pilgrim's Pride, the PEG ratio stands at 0.22, which is again below the industry average of 0.56. This suggests that PPC may be undervalued not only relative to current earnings but also with respect to expected future growth.

Investors also often use a price-to-sales (P/S) ratio that is resistant to manipulation because sales are a stable indicator of company performance. Pilgrim's Pride has a P/S ratio of 0.60, again below the industry average of 0.92. This low number may indicate that the market is underestimating the company's ability to generate revenue.

Another interesting metric is the price-to-operating cash flow (P/CF) ratio, which takes into account the company's cash flow. PPC has a P/CF ratio of 8.81, which is significantly lower than the industry average of 13.86. This means that PPC stock may be undervalued even in terms of its ability to generate cash.

How was the last quarter?

Pilgrim's Pride Corporation reported its financial results for the second quarter of 2024, showing significant growth in key financial metrics. The company achieved net sales of $4.6 billion, a 5.8% year-over-year increase. The company's operating profit was $440.8 million, an increase of 339.5% compared to the same period last year.

U.S. Generally Accepted Accounting Principles (GAAP) net income was $326.5 million, equivalent to earnings per share (EPS) of $1.37. Adjusted net income was $398.0 million, representing adjusted earnings per share of $1.67. Adjusted EBITDA was $655.9 million, corresponding to a margin of 14.4%. Interestingly, the EBITDA margin was 16.7% in the US, 7.4% in Europe and 19.4% in Mexico.

The company reported strong growth in the US, where it was able to improve its results thanks to better market conditions and the consistent execution of its strategies. The Case Ready and Small Bird segments posted above-average growth due to expanded partnerships with key customers and innovative product offerings. The Just Bare® brand was also a major success, posting double-digit sales growth and outperforming its category.

In Europe, adjusted EBITDA was up 40% from last year, driven by an improved product mix with key customers and a continued focus on operational excellence. The company was named "Processor of the Year" in the UK at the National Egg & Poultry Awards, in recognition of its performance in safety, quality and service.

Mexico also showed improvement due to balanced market fundamentals, growth with key customers and continued brand momentum in fresh and processed foods. Pilgrim's Pride continued to invest in operational excellence, which included improved biosecurity and capacity expansion.

The Company also strengthened its liquidity position with a net debt to adjusted EBITDA ratio of 1.1x, providing a solid foundation to execute its growth strategy. As part of this strategy, a new protein conversion plant in South Georgia has been commissioned to deliver further growth through collaboration with key customers.

Long-term results

In 2023 Pilgrim's Pride reported total revenues of $17.36 billion. Gross profit was $1.12 billion, while cost of revenue came in at $16.24 billion. Operating profit was US$566.6 million, a significant decrease from the previous year. Earnings per share (EPS) were $1.36 on both a basic and fully diluted basis. EBITDA (earnings before interest, taxes, depreciation and amortization) was $987.4 million, and EBIT (operating profit) was $567.5 million.

In 2022 the company's revenues were USD 17.47 billion. Gross profit was US$1.81 billion, and cost of revenue was US$15.66 billion. Operating profit was USD 1.21 billion, a significant improvement over the previous year. Earnings per share (EPS) were $3.11, both basic and fully diluted. EBITDA was $1.58 billion, while EBIT was $1.18 billion.

In 2021 Pilgrim's Pride reported revenues of US$14.78 billion. Gross profit was US$1.37 billion and cost of revenue was US$13.41 billion. Operating profit was US$217 million. Earnings per share (EPS) were $0.13, both basic and fully diluted. EBITDA was US$619 million, while EBIT was US$238 million.

In 2020 The company's revenue was US$12.09 billion. Gross profit was USD 838 million and cost of revenues was USD 11.25 billion. Operating profit was USD 245 million. Earnings per share (EPS) was $0.39, both basic and fully diluted. EBITDA was $625 million, and EBIT was $288 million.

These figures show that Pilgrim's Pride Corporation has seen fluctuations in revenue and profitability in recent years, with the company posting its best performance in revenue, gross profit, and EBITDA in 2022. In contrast, the year 2023 brought a decrease in some key metrics such as operating profit, while the company continues to work on optimizing its operations and strategic investments.

What to expect going forward?

Pilgrim's, which operates in North America and Europe, is drowning in cash, with net debt falling to just 1.1 times earnings before items such as interest and taxes.

Chicken producers have been among the biggest winners from the slump in prices of soybeans and corn, which are used to feed poultry. They are also benefiting from rising demand as consumers look for cheaper alternatives to beef and shrinking supplies of cuts such as breasts, thighs and wings.

Looking ahead, Pilgrim's Pride therefore plans to invest in key areas and explore opportunities for growth, including facility expansion and entry into new markets. BMO Capital Markets highlighted the company's positive outlook for the second half of 2024 and into 2025 and expects sustainable margins that are likely to strengthen the company's financial position.

The price of meat has shot up over the past five years. Between June 2019 and June 2024, the cost of chicken per pound jumped 26% from $1.59 to $2.01. Ground beef prices rose 36% from $3.95 per pound to $5.36.

These are all positive catalysts for a company that has low debt, solid results and is now looking for opportunities for further growth and acquisitions due to the rising price of meat.

Analyst expectations

Based on 6 Wall Street analysts who have offered 12-month price targets for Pilgrim's Pride over the last 3 months. The average target price is $42.60 with a high forecast of $50.00 and a low forecast of $38.00.

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