Why Pilgrim’s Pride Corporation’s profit margins are so volatile
A key company overview of Pilgrim's Pride Corporation (Part 6 of 14)
Profitability of the business
In the last part of the series we discussed the number of facilities the Pilgrim’s Pride (PPC) owns through its vertically integrated poultry business. Let’s now look at how profitable Pilgrim’s business is.
Thin margins
As of 2013 year end, the company’s cost of sales decreased about 1.6% to $7.5 billion, compared to $7.6 billion in 2012. Over this period, the company’s operating margins increased to 8% from 3% year-on-year (or YoY), and the net profit margins increased to 6.5% from 2.2% YoY.
Tyson Foods (TSN) had a net income margin of 2.3%, which increased from 1.8% YoY. Sanderson Farms (SAFM) also had an increase in net margins from 2.2% to 4.8%. You may consider the Consumer Staples Select Sector SPDR Fund ETF (XLP), which holds TSN as well as stocks such as Walmart (WMT) and Proctor & Gamble (PG), which offer higher net margins.
What is impacting the margins?
As the above chart shows, the company’s cost of sales in 2013 was about 90%, and as we discussed earlier, about 77% of this cost is related to corn and soybean feed. An increase in feed costs has a direct impact on profit margins. In 2011, the cost of sales increased $1.1 billion from 2010, and the feed cost contributed to about 11% of this cost increase.
So, a lot revolves around animal feed for the poultry farming business. In 2013, Tyson Foods also incurred about 71% of the cost of sales towards feed costs. We’ll look at what the feed consists of in the next part of this series.
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