Pilgrim's Pride (PPC) is on Growth Trajectory Amid Cost Woes
Pilgrim’s Pride Corporation's PPC ongoing focus on operational excellence, manufacturing network optimization and back-office support activities continue to bolster growth. This strategic approach not only ensures the efficient functioning of the company's operations but also reinforces its position in the competitive Europe market.
The diversification across sizes, branded offerings and prepared items, along with key customer partnerships, helped the company to mitigate increased grain costs and elevated expenses for production inputs such as utilities, labor, ingredients and packaging cost challenges.
The company saw improved supply and demand fundamentals in large pork operations in the U.K. and Europe in the second quarter of fiscal 2023. This was due to the rationalization efforts of the herd over the past 12 months, which led to better market conditions.
Pilgrim's Pride has been awarded significant additional distribution for existing and new products. The company is also slated to launch more than 250 items over the next six months, which is a positive sign of its innovation and growth commitment.
PPC is benefiting from the recovery in the Foodservice business. Although Foodservice channel revenues dipped due to lower pricing, volume sales increased in the second quarter of 2023, particularly in breast meat, indicating a favorable supply-demand balance. Non-commercial distribution channels also showed signs of recovery, with increased volumes and higher prices in the value-added category.
The company is committed to profitable growth, with continued investments in automation, the expansion of the Athens, GA-based facility, and the construction of a state-of-the-art protein conversion plant in South Georgia.
Cost Hurdles
It is imperative for Pilgrim's Pride to tackle cost-related obstacles effectively in order to uphold its competitive edge and profitability within the market.
In the second quarter of 2023, PPC’s cost of sales increased to $4,029.7 million from $3,954.9 million in the year-ago quarter. These challenges stem from escalating raw material expenses, heightened labor costs, disruptions in the supply chain, and the impacts of inflationary pressures.
Many other consumer staple players are grappling with cost-related headwinds, such as Albertsons Companies, Inc. ACI, Flowers Foods FLO and Kimberly-Clark Corporation KMB.
Albertsons Companies is one of the largest food and drug retailers in the United States. The company’s 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 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 emphasizes providing high-quality baked items, developing strong brands, making innovations to improve capabilities and undertaking prudent acquisitions. The company is 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, it 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 company’s adjusted selling, distribution, and administrative expenses expanded 70 basis points year-over-year to 38.2% of sales.
Kimberly-Clark is principally engaged in the manufacturing and marketing of a wide range of consumer products around the world. The company has been battling high input costs for the past few quarters. Although KMB’s gross margin expanded in the second quarter of 2023, it was affected by increased input costs of $30 million. Management expects input costs to create a $100-million headwind in 2023.
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