Not Much Meat on Pilgrim's Pride's Bones

Moody's is thinking about downgrading Pilgrim's Pride (PPC).

Pilgrim's Pride is a billion dollar market cap company with a $1.5 billion long term debt, no income, and high costs.

I've focused in two recent articles (Pilgrim's Pride: The Weakest Link in the Food Chain and Sanderson Farm CEO Hinting at Future Pilgrim's Pride Bankruptcy?) about Pilgrim's woes. Now it's time to look at another problem for Pilgrim besides its colossal debt and feed costs: goodwill.

Pilgrim has $500 million dollars in goodwill which it picked up in 2006 when it overpaid for Gold Kist. For a company with a $1 billion market cap, that's a big figure. Other companies in the space have far less goodwill on their sheets: Sanderson Farms (SAFM) has none with its market cap of $742 million and Cal-Maine (CALM) has $13 million with a market cap of $832 million. Smithfield (SFD) has logged goodwill at $865 million with a market cap of $2.75 billion, a little closer to Pilgrim. However, Smithfield's goodwill represents a much smaller portion of its $8.9 billion asset total.

There isn't any real value to the goodwill Pilgrim has on its balance sheet. Goodwill represents the amount an acquiring company paid beyond the fair value of the assets it bought. Here, Pilgrim overpaid. Now that chicken is not being sold for a profit, the only thing Pilgrim has to show for its big acquisition is a whopping debt and sizeable goodwill asset. The credit agencies are on the look out for problem companies. Pilgrim's big bet has gone sour. The large goodwill has become more glaring as Pilgrim's market cap dwindles.

When you look at the balance sheet, you look for what the company has going for it. In Pilgrim's case, there isn't much meat on its bones. Carve it out and not much is left. Moody's is right to consider further downgrades.

Disclosure: Short PPC, Long CALM.

Comments

[Eagle1045:]

These are very superficial comments. Goodwill is a book entry. What matters is whether earnings power can be restored at the company.

2008 Sep 04 09:46 AM

[roadkill geno:]

You still long CALM. Good, covered dividend.

2008 Sep 04 10:56 AM

[2houndz:]

Goodwill is a book entry, but so is everything else. It's a good signal that they overpaid. If it's not an aset or a liability, what else you gonna call it?

2008 Sep 04 10:23 PM

[User 256109:]

How about using straight talk and good ole layman terminology. In respect to CALM, how long are you? It would be nice if you offer up details on CALM.

2008 Sep 05 02:01 AM

[rigel:]

I'd love to see some analysis on CALM, even if you are biased. Are people expecting a dividend cut?

2008 Sep 05 11:20 AM

[User 262919:]

If "Bo " Pilgrim had acted as a good Christian, God would have protected PPC for him, but he ( "Bo" ) allowed those working in his charge to treat the hard working employees unfair, working them on the Sabbath, not having good working conditions and equipment to work with, and also others were threathen, and harrassed.
One can not proclaim to be a Christian, , and threat the Children of God unfair, nor can they profit by working Christians on the Lords Day, there is no good reward for being cruel and greedy.
"Bo " and those he allowed to be in charge of the employees will get what they really deserve, and that is godly discipline

2008 Sep 28 02:49 PM

[User 262919:]

On Sep 05 11:20 AM rigel wrote:

> I'd love to see some analysis on CALM, even if you are biased. Are
> people expecting a dividend cut?

I don't think those who acted without common sence or respect should be rewarded, let them feel the whip, because taxpayers are going to feel it hard and long, let those who robbed the people of their retirement recieve their reward.
Besides, either Pilgrims Pride lied about all the money they wre making, or they are now, and want to get on the bandwagon, perhaps they think this will take them off the hook for paying those they mistreated..
Or it could be they are findly reporting honestly, and the books they previously reported on was a lie, that would mean they like most other Companies have been cooking their books, or something.
I have yet to recieve my payment from the stocks I had with them, I don't care id its only ten ( 10 ) cents, if its mine, I want it.. assuming I do still have a payout coming.

2008 Sep 28 03:00 PM

[gator44:]

as a long time goldkist employee, I can see why pilgrims pride has gone under.. The upper management for pilgrms does not have a clue on whats going on inside the plants. At the plant in Florida we were dumping 150,000 lbs of product, mostly breast meat and leg quarters in the rendering plant every week, for at least 2 years and they are still dumping meat to this day. The management for pilgrims doenst care about the employees, every week 90% of pay checks were wrong, and as a former manager , we were the ones the employees looked at for thier checks... I am so glad that I finally left and now presently working with a poultry company that cares.


On Sep 28 02:49 PM User 262919 wrote:

> If "Bo " Pilgrim had acted as a good Christian, God would have protected
> PPC for him, but he ( "Bo" ) allowed those working in his charge
> to treat the hard working employees unfair, working them on the Sabbath,
> not having good working conditions and equipment to work with, and
> also others were threathen, and harrassed.
> One can not proclaim to be a Christian, , and threat the Children
> of God unfair, nor can they profit by working Christians on the Lords
> Day, there is no good reward for being cruel and greedy.
> "Bo " and those he allowed to be in charge of the employees will
> get what they really deserve, and that is godly discipline

2008 Dec 02 06:54 AM