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Pilgrim's Pride (PPC) Up 7.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
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It has been about a month since the last earnings report for Pilgrim's Pride (PPC). Shares have added about 7.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Pilgrim's Pride due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Pilgrim's Pride Q4 Earnings Lag, Weak Regions Hurt

Pilgrim's Pride Corporation 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.

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 the company’s performance in the forthcoming periods.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -28.85% due to these changes.

VGM Scores

Currently, Pilgrim's Pride has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. It's no surprise Pilgrim's Pride has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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