Chicken and pork products producer Pilgrim’s Pride NYSE: PPC stock has been rising towards pre-COVID levels after spiking on its Q2 2021 earnings results. Food inflation and falling inventories along with passing rising costs to consumers are helping bolster margins. Rising consumer demand is actually creating a chicken shortage. This has been creating a perfect storm that has and will continue to be a boon for shareholders. The vertically integrated producer of poultry products is facing the same kind of shortage that chip companies are experiencing. The pandemic caused the Company to cut back on production, which is resulting in supply shortage as demand rises from the return to normal and reopening trend. Forward P/E still remains under 13X. Prudent investors looking for exposure in one of the world’s largest poultry producers can watch for opportunistic pullbacks in shares of Pilgrim’s Pride.
Q3 Fiscal 2021 Earnings Release
On July 29, 2021, Pilgrim’s Pride reported its fiscal Q2 2021 earnings for the quarter ended in June 2021. The Company reported earnings-per-share (EPS) profits of $0.63, beating away consensus analyst estimates for $0.55, by $0.08. Revenues grew 28.8% year-over-year (YoY) to $3.64 billion versus $3.3 billion analyst estimates. Pilgrim’s Pride CEO Fabio Sandri commented, “As the world emerges from the COVID-19 pandemic, more of the population gets vaccinated and activities gradually return to normal, we are optimistic that dining out, gathering with friends and family for meals, and eating lunch at work or at school will once again become routine. Our U.S. business turned in a solid operational performance despite higher and more volatile input costs and product mix issues resulting from continued, albeit improving, labor challenges. Our big bird business performed very well on commodity pricing that has remained consistently near or above historical ranges. Our foodservice business was stronger than anticipated as restrictions continued to ease, boosting demand back above 2019 levels. With consumers’ continued emphasis on the retail channel, we further expanded our retail branded presence. We grew our branded consumer packaged foods business in the second quarter by 215% by investing in our Just Bare® and Pilgrim’s® brands at retail and in e-commerce. Meanwhile, our Mexico business had another strong quarter, driven by a balanced supply/demand equation and continuous improvements in operational performance, while effectively managing higher grain pricing and supplying our customers with Fresh and Prepared Foods under the Pilgrim’s®, Del Dia®, and Alamesa® brands. In Q2, although challenged by increasing grain costs, Moy Park improved EBIT by 7% vs. the first quarter of 2021. Moy Park continues to deliver operational efficiencies, better agricultural performance, and improved yields to help offset grain cost and labor challenges. Pilgrim’s UK has been affected by low hog prices and rising grain costs. Despite similar labor challenges, the Pilgrim’s UK operations have also improved its margins from the same period last year.”
Conference Call Takeaways
CEO Sandri set the tone, “At the close of Q2, industry chicken inventory was relatively flat to its position at the end of Q1. However, USDA indicated inventory was down 15% from previous years even after marginal moved over a marked increase in June. Combined dark meat inventories are down 10% year-over-year. Quarterly inventory levels have been unable to build despite year-over-year supply growth as healthy retail and foodservice demand have maintained consistent draw on supply. Turning to export markets. Pulp prices were 54% higher in Q2 compared to a year ago. Both pricing and demand exceeded expectations and nontraditional export items were upgraded from frozen inventory. While the data is still incomplete for Q2 total broiler export sales for May grew by approximately 4%. From a regional perspective, the industry enjoyed gains in most geographies with the exception of the Middle East and Asia where significant declines occurred to COVID issues in some of the larger poultry importing countries. It is also not to work with that China was down 16.5% on imports of U.S. broiler meat due to a softer pork market. Pork congestion issues and larger-than-expected imports of poultry in Q4 2020. That being said, the pork market in China is displaying very strong demand and historically high prices. Export numbers are indicative of a more balanced trade scenario for the remainder of the year. Although some countries have experienced a resurgence of COVID issues, others are managing the pandemic well. We expect to ease with ongoing issues to improve in the second half of the year. It's still prudent to recognize that the dark meat shipments to China are very low relative to last year, which bodes well for the future dark meat demand. We are already seeing an uptick in China demand for the U.S. as we enter Q3.” He concluded, “In addition, we committed to achieving a net-zero greenhouse gas emissions by 2040, the most ambitious commitment of its kind in its sector. We are committed to being the best and most respected company in our industry, and we want to serve as a leader that can help drive the entire supply chain forward. We remain focused on producing high-quality foods for people around the world in a sustainable manner that is both ambitious and collaborative while creating the opportunity for a better future for our team members.”
PPC Stock Trajectories
Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for PPC stock. The weekly rifle chart has a slow grinding pup breakout with a rising 5-period moving average (MA) support at $28.78 as it peaked off the $29.68 Fibonacci (fib) level. The weekly market structure high (MSH) sell triggers under $28.78 versus the daily market structure low (MSL) buy signal above $29.23. The daily rifle chart is attempting to reverse its downtrend as the Bollinger Bands (BBs) go into compression. The daily 5-period MA is sloping up at $28.97 to cross over the 15-period at the $29.10 fib. The daily stochastic is attempting to cross up at the 50-band. Prudent investors can watch for opportunistic pullbacks at the $28.23 fib, $27.86 fib, $27.12 fib, $26.28 fib, $25.18, and the $24.28 fib. Upside trajectories range from the $33.67 fib up towards the $38.95 fib level.
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