UPDATE 2-Pilgrim's Pride to idle 3 U.S. chicken plants

Fri Feb 27, 2009 6:38pm GMT

Related Topics

Quotes

   

* Pilgrim's Pride to idle 3 chicken plants

* That will cut production 9-10 percent

* Hopes to exit bankruptcy in '09 (Adds CEO, analysts comments, byline, previous NEW YORK)

By Bob Burgdorfer

CHICAGO, Feb 27 (Reuters) - Pilgrim's Pride Corp PGPDQ.PKsaid Friday it will idle three of its 32 U.S. chicken processing plants, cutting production 9 to 10 percent, as it tries to reorganize its business so that it can exit bankruptcy by late this year.

The news drew praise from food industry analysts and apparently cheered investors, who bid up shares of competitors Tyson Foods Inc (TSN.N) and Sanderson Farms Inc (SAFM.O).

Pilgrim's Pride and other chicken producers have been hurt by weak consumer demand as the economic recession has fewer people eating at restaurants and has them seeking lower-priced alternatives to meat.

As a result, these companies have reduced production to restore profits.

Sanderson Farms reported a smaller-than-expected quarterly loss on Thursday, and its shares bounded higher as comments from management appeared to give investors hope that the worst is over for the struggling chicken industry.

HOPES TO EXIT BANKRUPTCY IN 2009

"The idling of these three plants is a painful reflection of the unprecedented challenges facing our company and our industry from an excess supply of chicken and weakening consumer demand resulting from a crippled economy," Don Jackson, Pilgrim's Pride president and chief executive officer, said in a statement.

Pilgrim's Pride, one of the largest chicken producers in the United States, filed for Chapter 11 bankruptcy protection on Dec. 1 after struggling for nearly a year with high feed costs and low meat prices.

"We are still very optimistic about being able to emerge from bankruptcy yet this calendar year," Jackson told Reuters in an interview on Friday.

"We would hope to be in a position to submit that plan of reorganization sometime before the end of the year," he said.

In addition to high feed costs and low chicken prices, Pilgrim's Pride had piles of debt, largely the result of its December 2006 purchase of smaller rival Gold Kist Inc.

IDLING PLANTS TO SAVE $110 MILLION

The company said idling the plants should generate annualized net savings of about $110 million, and it will incur one-time, pretax restructuring charges of about $35 million, mainly in its second quarter.

The three plants -- in Douglas, Georgia; El Dorado, Arkansas; and Farmerville, Louisiana -- produce chicken that is sold on the open market; the product is not destined for specific supermarkets or restaurants, Jackson said in an interview.

Jackson became chief executive in January, replacing Clint Rivers, who resigned in December.

The three plants employ roughly 3,000 people, or about 7 percent of the company's U.S. workforce. Also affected will be about 430 independent growers, who supply chickens to the plants.

The three plants will be idled within 60 to 75 days, and it plans to keep the locations idle until it believes additional production capacity is needed.

"Pilgrim's announcement is a positive for the chicken space," said Farha Aslam, analyst at Stephens Inc. "We remain overweight on both Sanderson Farms and Tyson Foods and would be buyers on this news."

Tyson Foods' shares were up 58 cents or 7.2 percent at $8.59 in afternoon New York Stock Exchange trading and Sanderson Farms' shares were up $3.09 or 9.8 percent at $34.58 in Nasdaq trading.

While production cuts are needed to turn the chicken industry around, conditions will remain difficult, said Paul Aho, economist at the consulting firm Poultry Perspective.

"It is turning around, but it is tough. There is a recessionary head wind" he said. (Additional reporting by Nicole Maestri, editing by Gerald E. McCormick)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.