Pilgrim's Pride seeks bankruptcy hedge

0 Comments | Deseret News (Salt Lake City), Dec 2, 2008 | by Emily Fredrix Associated Press

MILWAUKEE -- Pilgrim's Pride Corp. filed for Chapter 11 bankruptcy protection on Monday, hurt like other meat producers by volatile feed prices and slumping demand but also hobbled by an unmanageable debt load.

The company, based in Pittsburgh, Texas, and the nation's largest chicken producer, sought protection in a filing with the U.S. Bankruptcy Court for the Northern District of Texas, saying that as of Sept. 27, it had $3.75 billion in assets and $2.72 billion in debts.

Pilgrim's Pride, which controls about 23 percent of the U.S. chicken market, will continue operating during the reorganization and will not liquidate its assets, spokesman Ray Atkinson said.

"We really believe this will help us come out a lot stronger, and we expect it to be business as usual," Atkinson said.

Pilgrims Pride has a distribution center in Salt Lake City that employs 34 workers. Spokeswoman Meaghan Repko said operations in Salt Lake and throughout the company would continue as usual.

The chicken producer has been saddled by the debt from its $1.3 billion acquisition of rival Gold Kist Inc. in 2007 -- what analysts cite as the primary cause of its large debt load.

Pilgrim's Pride's financial problems have been evident for months, since it said in late September it would post a "significant loss" in the fourth quarter, citing woes from hedging on feed inputs like corn. It has had to extend its temporary credit line three times since September -- most recently last week. Its third extension was set to expire Monday afternoon.

Last month, in accordance with rules set by its lenders, the company hired a chief restructuring officer and has maintained since its credit issues surfaced that it wanted to avoid filing for bankruptcy.

After the market closed Friday, the company said in a filing with the Securities and Exchange Commission that it would delay filing its 2008 annual financial report, which had been due Nov. 26. It expects to post a loss of $802 million, or $10.83 per share, on sales of $2.17 billion for the fourth quarter, which ended Sept. 27. Those results include a non-cash charge of $501.4 million, or $6.77 a share due to the impairment of goodwill related to its acquisition of Gold Kist, and an income-tax valuation allowance of $35 million, or 47 cents a share, against net operating losses.

Many of the nation's meat producers are seeing their profits shrink in the wake of high commodity prices for items like corn and oil. Those prices are moderating after reaching record highs this summer, but are still high for producers. Further hurting the industry is a drop in demand, since cash-strapped consumers are cutting back on their restaurant spending, and an oversupply of meat on the market. Both those factors keep prices down and make it more difficult for meat companies to recoup their costs.

Beyond that, Pilgrim's Pride suffered from bad timing, given the mix of the volatile feed prices, the weak pricing situation and its acquisition of Gold Kist, said John Anderson, an agricultural economist at Mississippi State University. At a time when the company took on a large debt for Gold Kist, it also saw a huge run up in feed and fuel prices.

"They were trying to transition through this very large acquisition at a time when the fundamentals in the market really, really got tough," Anderson said.

Contributing: Laura Hancock, Deseret News.