Pilgrim's Pride (PPC) Q4 Earnings Lag, Weak Regions Hurt

Pilgrim's Pride Corporation (NASDAQ:PPC) reported dismal fourth-quarter 2018 results, with the top and the bottom line declining year over year as well as missing the Zacks Consensus Estimate. In fact, this marked the company’s fourth straight quarter of earnings miss. Results were affected by a tough commodity chicken market in the United States and high feed costs in Europe. Let’s take a closer look.

Q4 in Details

Quarterly adjusted earnings came in at 9 cents per share, which lagged the Zacks Consensus Estimate of 18 cents. Also, the bottom line plunged substantially from 54 cents in the year-ago quarter. This downside was caused by lower revenues and gross profit as well as dismal operating margin.

In the reported quarter, Pilgrim's Pride generated net sales of $2,656.8 million, down 3.1% year over year. Also, the top line missed the Zacks Consensus Estimate of $2,719 million. Results were hurt by lower sales in all regions.

Pilgrim's Pride Corporation Price, Consensus and EPS Surprise

Revenues from U.S. operations came in at nearly $1,821 million, down 3.5% year over year. The downside was caused by challenges in commodity chicken. Also, slower recovery from adverse weather conditions at some locations were a drag. These were partially offset by improved performance in Prepared Foods.

Further, Mexican operations generated revenues of $321.3 million in the reported quarter, down 3.7% year over year. Also, the top line from European operations declined 1.5% year over year to $514.5 million. The region was affected by higher feed inputs stemming from drought conditions.

Cost of sales in the reported quarter increased 2.6% year over year to $2,545 million. Lower sales and increased cost of sales caused gross profit to slump 57.3% to $111.8 million. Also, gross margin went down 5.3 percentage points to 4.2%.

Further, adjusted EBITDA came in at $111 million, down 53.9% year over year. Adjusted EBITDA margin of 4.2% in the reported quarter fell 4.6 percentage points.

Other Financial Details

Pilgrim's Pride exited the quarter with cash and cash equivalents of approximately $338.4 million, long-term debt (net of current portion) of $2,295.2 million and total shareholders’ equity of $2,019.6 million. Further, the company generated $491.7 million as cash from operating activities during 2018.

Outlook

The company expects conditions in commodity chicken to improve gradually. In fact, since the beginning of 2019, commodity market conditions including exports are showing signs of improvement. Additionally, for the European region, the company is on track with initiatives to improve performance. Management stated that high input cost conditions in this region are expected to be mitigated in the forthcoming quarters, courtesy of efficient pricing. Further, the company is progressing with growth efforts in the Prepared Foods category. We expect that such efforts will boost this Zacks Rank #3 (Hold) company’s performance in the forthcoming periods.

Price Performance

Pilgrim's Pride’s shares gained 6.3% in the past three months compared with the industry’s rise of 2.2%.

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