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Pilgrim's Pride (PPC) Up 5.1% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Pilgrim's Pride (PPC - Free Report) . Shares have added about 5.1% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Pilgrim's Pride Q2 Earnings: Rising Costs Dent Margins

Pilgrim's Pride reported mixed second-quarter 2018 results, wherein earnings declined year over year and lagged the Zacks Consensus Estimate. On the contrary, revenues improved from the year-ago quarter’s level and delivered a positive surprise.

Q2 Results in Detail

Quarterly adjusted earnings came in at 53 cents per share, a penny lower than the Zacks Consensus Estimate. Also, the bottom line declined 42% from the year-ago quarter’s tally, mainly due to dismal margins.  

In the reported quarter, Pilgrim's Pride generated net revenues of $2,837 million, up 3% year over year. Also, the top line surpassed the Zacks Consensus Estimate of $2,804 million. Sales mainly gained from upsides witnessed in the United States, Mexico and European segments.

Revenues from U.S. operations came in at $1,899.4 million, up almost 1% year over year. The upside came on the back of the company’s investments, acquisitions, operational improvements as well as continued stellar performance of case-ready and small bird businesses. These upsides were countered by volatility in the feed and commodity chicken segment.

Further, Mexican operations generated revenues of $364.2 million in the reported quarter, up 1.3% year over year. The upside was driven by increased volumes and strong demand for chicken. The segment also gained from growth in the Prepared Foods category, stemming from robust demand for Pilgrim’s Pride’s and Del Dia branded chicken products.
 
The top-line results from the European operations also improved 12.5% year over year to $563.1 million. The region benefitted from successful integration of acquired operations as well as focus on key customers.

Cost of sales in the reported quarter rose 12.5% year over year to $2,562.5 million. As a result, gross profit declined 42%. Also, gross margin went down 760 basis points (bps) year over year to 9.7%.

Selling, general and administrative expenses fell 4.5% year over year to $88 million. Further, Adjusted EBITDA came in at $282.5 million, down 37% year on year. Adjusted EBITDA margin of 10% for the reported quarter depicted a fall of almost 60 bps year over year.

Other Financial Details

Pilgrim's Pride exited the second quarter with cash and cash equivalents of approximately $640.8 million, up from $581.5 million as of Dec 31, 2017. Long-term debt (net of current portion) was $2,584.5 million, down from $2,635.6 million recorded in 2017-end. Further, as on Jul 1, 2018, the company provided $304 million of cash from operating activities.

Outlook

Pilgrim's Pride is optimistic about Mexican operations, driven by yielding investments and strong demand for chicken. Also, the company’s focus on diversification and differentiated product based on needs of key customers has been driving growth.

While such initiatives bode well, the company’s expanding cost of sales has been a significant hurdle. Rising costs, if unchecked, can continue to dampen the company’s profits in the upcoming quarters. Also, U.S commodity market volatility has been a limiting factor.

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, Pilgrim's Pride has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. 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 A. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks style scores indicate that the company's stock is suitable for value and growth investors.

Outlook

Pilgrim's Pride has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.




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