Pilgrim's Pride Files Chapter 11: Not a Bailout in Sight

We've been following the saga of Pilgrim's Pride (PPC) for completely different reasons (at the time food inflation and the cost of grains on meat producers) [Mar 12: Pilgrims Pride Cutting Chicken Output], but earlier this week the company filed for Chapter 11 Protection (i.e. bankruptcy). This is not a surprise considering how things were going. [Oct 28: Pilgrim's Pride is now a $1 Stock] [Sep 25: Cash is King: Pilgrim's Pride Down 40%] The perfect storm has finally caught up with the company (higher grain prices, pooring Americans, high debt load) and the country's largest chicken producer is not connected enough with those that matter to get a bailout. Snap a finger if you are a financial company, but if you actually produce tangible things - nada. The boondoggle that is corn ethanol assisted in snagging another victim.

• Pilgrim's Pride Corp. filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code on Monday after heavy debt and low chicken prices put one of the world's largest chicken companies (largest in the US) in a squeeze. In its filing with the U.S. Bankruptcy Court for the Northern District of Texas, Pilgrim's Pride listed $3.75 billion of assets and $2.72 billion of liabilities.
• The Pittsburg, Texas, company said it plans to operate normally at its 35 chicken-processing plants and 11 prepared-foods facilities as it reorganizes.
• It has lined up $450 million of debtor-in-possession financing led by Bank of Montreal to pay wages and other obligations. Its largest unsecured creditors include agribusiness giant Cargill Inc., which it owes $1.5 million, and San Francisco bank Wells Fargo & Co., which it owes $25.7 million.
• In theory, the filing could help the struggling chicken industry rebound after being pinched by high prices for the corn and soybeans used in chicken feed and low retail prices for chicken meat. Companies have been unable to raise chicken prices enough to offset these costs because a slowing economy has had consumers buying less.
• Pilgrim's tried to protect itself from even higher feed grain prices by buying grain in advance of use, a practice called hedging. Unfortunately, that hedging occurred right before grain prices tumbled, which left Pilgrim's with a lot of expensive feed.
• Analysts hope that bankruptcy protection will make it easier for Pilgrim's Pride to rid itself of excess production capacity, a move that could help lift chicken prices by reducing supply. But Meaghan Repko, a spokeswoman for Pilgrim's Pride, said the company has no plans to cut its capacity.
• The troubles at Pilgrim's Pride started two years ago, when the company paid $1.1 billion to buy rival Gold Kist Inc. and gained control of 26% of the nation's bird-slaughtering capacity, pulling ahead of Tyson Foods. The deal saddled Pilgrim's Pride with a debt load that became more difficult to manage as credit dried up, feed prices rose and a glut formed in the poultry market.
• Pilgrim's Pride reached out to dozens of hedge funds and private-equity funds in recent weeks for rescue financing, but found little interest in providing new money for the company, said two people familiar with the matter. Some hedge funds told Pilgrim's Pride they needed to maintain liquidity to repay their own investors by the end of the year. (we can't help you - we're having a hard enough time to save ourselves!)

So let's review - if you take risk, take on debt, and get caught by the perfect storm in poultry production, you can fail. If you do it in the banking system there is a 95% chance all of Washington's power will come to your rescue, funnel money into you left and right, and your executives get big payouts to boot. Sounds equitable.

Comments

[Krissie:]

That's a damn shame too! My son would dearly love if i served more chicken! He sure is tired of "bone soup!"

2008 Dec 03 07:09 PM

[mus302:]

The company has listed several reasons for the situation that they are in including high feed costs, low chicken prices, weak chicken demand, and losses due to significant negative impact of hedged grain positions. And as you mention the debt load from buying Gold Kist. How low would corn prices have to be to overcome those kinds of problems?

I know it is popular these days to blame everything on ethanol but if you ask me the way that ethanol could be at fault is if that was what they were drinking when they made the decisions to incur so much debt and to buy corn when it was at it's peak.

2008 Dec 04 12:59 AM

[User 312630:]

Pilgrim's Pride and other big meat companies were "bailed out" for decades on cheap corn. :)

And now the company's arrogance and greed has caught up to it. It's executives like to point fingers at corn and feed costs but they should look in the mirror at how they ran a pretty good company into the ground by not efficiently merging two big companies - Pilgrim's and Gold Kist. They could hide their mismanagement when things were easy but not when the going got tough.

2008 Dec 04 08:57 AM

[famos:]

Dear Commentator,

To the three previous commentators: You wieners and criers give me a pain. I'd bet none of you have ever owned a business, not alone built one. I know you don't know the history of this company, for if you did, you'd sing a different tune.

Bo Pilgrim, chicken magnate, started from nothing. Because his father died abruptly from a heart attack, leaving their store in debt and the family with just $80, Bo was forced at age 11 to work at several different jobs. At the age of 17, he and his brother Aubrey purchased a farm supply store in Pittsburg, Texas, with money borrowed from a bank and a local dentist. Twice over the years, commodity chicken down-cycles almost bankrupted Pilgrim's Pride. I wish you'd read about Pilgrim's Pride in the Wikipedia web page. They are an American success story. They went from nothing, to the largest in their field. The only thing left to say, is I hope they make it.

2008 Dec 04 05:58 PM

[brattsdude:]

i work there and we are getting the shaft big time it is not cause of corn and high prices it is due to greed he needs to face the music and either bail us out of his own pockets or let someone else take it and let us go back to work full force instead of cutting jobs and our pay he is a greedy man .

2008 Dec 05 04:34 PM

[forklift dude:]

I am a contractor for pilgrims in florida and I just got skrewed out of $ 50,000
and no chance of getting paid for my services for the next two months .
I wish they never purchacesd gold kist we were fine before they bought us
We never had the problems like we have had with pilgrims taking over .

2008 Dec 13 07:47 PM

[homeless fa...:]

American success story, hardly! More like an American tragedy! There are workers that have lost their jobs and farmers that not only have lost their job, but also their land, farms, and HOME. Most farmer had their land, farms, and homes paid for until Pilgrim Pride enticed them to build poultry houses with false promises. Bo Pilgrim's greed along with bad management to become #1 has cost us everything. He isn't going to be able to buy his way into heaven by passing out $20 with religious tracts.

2008 Dec 14 10:30 AM

[business st...:]

Not too big to fail, indeed. Further excellent coverage at: blogs.bnet.com/secdocu... ("an embarassing case of hubris and greed") and Paul Aho's incisive analysis at:
www.wattpoultry.com/09... ("The fall of Pilgrims Pride").

May 10 03:54 PM