Pilgrim's Pride (PPC) Gains on Product Diversification, Expansion
Pilgrim's Pride Corporation’s PPC diversified product sizes, branded offerings and prepared items, along with key customer partnerships, helped mitigate challenges, such as increased grain costs and higher expenses for production inputs like utilities, labor, ingredients and packaging.
The company is focusing on undertaking operational excellence, network optimization, and back-office support activities to bolster its growth. This approach ensures efficient operations and strengthens its position in the competitive European market.
Pilgrim's Pride experienced improved supply and demand conditions in its large pork operations in the U.K. and Europe in the second quarter of fiscal 2023. This was attributed to efforts to rationalize the herd over the past year, leading to better market conditions. In the second quarter of 2023, the company’s net sales from Europe operations rose to $1,310.8 million from $1,245.1 million in the prior-year quarter.
Foodservice Sector’s Revival
PPC is capitalizing on the revival of the Foodservice sector. Despite a temporary decline in Foodservice channel revenues due to price reductions, the second quarter of 2023 saw a surge in sales volume, especially in the case of breast meat. This surge points to a promising equilibrium between supply and demand. Moreover, non-commercial distribution channels saw a resurgence, with increased sales volume and higher prices observed in the value-added product category.
Cost Hurdles
Pilgrim's Pride efficiently addresses cost-related challenges to stay firm in the market. During the second quarter of 2023, PPC witnessed a rise in its cost of sales, which increased from $3,954.9 million in the previous year's quarter to $4,029.7 million. These difficulties are primarily linked to the escalation in raw material costs, increased labor expenses, supply-chain disruptions, and the influence of inflationary pressures.
Other consumer staple stocks are also striving to maintain stability amid cost-related challenges.
Kimberly-Clark Corporation KMB, which is engaged in the manufacturing and marketing of a wide range of consumer products, has been battling high input costs for the past few quarters.
KMB’s gross margin in the second quarter of 2023 was partly affected by increased input costs of $30 million. Kimberly-Clark expects input costs to create a $100-million headwind in 2023.
Albertsons Companies, Inc.’s ACI selling and administrative expenses rose 2.5% year over year to $6,012.9 million in the first quarter of fiscal 2023. Increased SG&A expenses of this renowned food and drug retailer may be attributable to higher employee expenses, a rise in utility costs, incremental merger-related expenses and investments related to the acceleration of digital and omnichannel capabilities.
However, a favorable consumer backdrop, along with Albertsons Companies’ focus on providing efficient in-store services, enhancing digital and omni-channel capabilities, and increasing productivity, has been contributing to its upbeat performance.
Flowers Foods FLO is also battling cost inflation hurdles. Although materials, supplies, labor and other production costs (excluding depreciation and amortization) contracted by 90 basis points in second-quarter fiscal 2023, the company continued to be impacted by input cost inflation, reduced production volumes, higher product returns and elevated maintenance costs.
FLO also witnessed a rise in marketing expenses in the second quarter of 2023. The baked goods provider’s adjusted selling, distribution and administrative expenses expanded 70 basis points year over year to 38.2% of sales.
Wrapping Up
Pilgrim’s Pride’s customer-centric approach has been encouraging it to come up with unique offerings that provide competitive advantages. The company’s focus on key customers is a pathway for refining its portfolio and creating competitive advantages. PPC has been exploring different ways to counter inflationary headwinds.
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