Executive Summary / Key Takeaways

• Pilgrim's Pride has demonstrated a significant operational and financial turnaround, driven by a strategic focus on portfolio diversification across geographies, products (fresh, prepared, branded), and customer channels, coupled with relentless operational efficiency improvements.
• Recent financial results, particularly in Q1 2025 and throughout 2024, show strong profitability and cash flow generation, benefiting from favorable market dynamics (supportive chicken demand, lower feed costs) and the company's ability to capture value through differentiated offerings and key customer partnerships.
• Strategic investments in technology and capacity expansion, including air chill processing, protein conversion, and growth in Prepared Foods and Mexico, are enhancing product mix, reducing costs and risks, and positioning PPC for sustained profitable growth beyond current market cycles.
• Despite industry challenges like live production issues (hatchability, mortality) and market volatility (commodity prices, FX, regional diseases), PPC's diversified model and operational discipline are proving resilient, supported by a strong balance sheet and flexibility for strategic capital deployment, including potential shareholder returns.
• The competitive landscape remains intense, but PPC is leveraging its cost advantages, brand strength (especially in value-added and international markets), and deepening customer relationships to differentiate itself and drive growth ahead of category averages in key segments.

A Global Plate: Pilgrim's Pride's Strategic Recipe

Pilgrim's Pride Corporation stands as a major force in the global food industry, built over decades since its founding in 1946. What began primarily as a chicken producer has evolved into a diversified protein powerhouse with extensive operations spanning the United States, the United Kingdom, Mexico, France, Puerto Rico, the Netherlands, and the Republic of Ireland. This geographical breadth is complemented by a broad product portfolio encompassing fresh chicken, pork, and lamb, alongside a growing array of prepared foods, value-added products, and even plant-based protein offerings, serving a diverse customer base across retail, foodservice, and frozen entrée channels.

The company's strategic journey has been marked by deliberate expansion, notably through acquisitions like Tyson de México in 2015 and the integration of European businesses over recent years. These moves were not merely about increasing scale but were foundational to building a more resilient business model. By diversifying across proteins, channels, and geographies, Pilgrim's aims to mitigate the inherent volatility of commodity markets and create a more stable earnings profile. This strategy is underpinned by a relentless focus on operational excellence, aiming to drive efficiency, enhance product quality, and strengthen partnerships with key customers.

In the competitive arena, Pilgrim's operates alongside formidable rivals such as Tyson Foods (TSN), Sanderson Farms, and its parent company, JBS S.A. (JBSAY). While Tyson boasts scale and diversification across beef, pork, and poultry, and Sanderson excels in U.S. domestic poultry efficiency, Pilgrim's carves out its position through a combination of cost leadership in certain segments, a strong international presence, and a growing emphasis on branded and value-added products. The competition is fierce, driven by factors like scale, processing efficiency, brand recognition, and supply chain management. Pilgrim's strategic response involves leveraging its integrated operations, investing in differentiated product attributes, and fostering deep relationships with major retailers and foodservice operators to secure consistent demand and pricing.

The Engine Room: Operational Excellence and Technological Edge

At the heart of Pilgrim's strategy lies a commitment to operational excellence, significantly enhanced by targeted investments in technology and process innovation. The company operates a vertically integrated model, controlling aspects from feed mills and hatcheries to processing plants and distribution centers. This integration is crucial for cost control and efficiency.

Pilgrim's is actively deploying advanced processing technologies to gain a competitive edge. A notable example is the conversion of a U.S. plant to air chill technology. This technology offers tangible benefits over traditional water chilling, including potentially improved meat quality, reduced water usage, and a smaller environmental footprint. While specific quantitative metrics for this conversion were not detailed, the strategic intent is clear: to offer differentiated product attributes that resonate with key customers and consumers, thereby commanding better pricing and strengthening market position.

Beyond chilling, the company is expanding its protein conversion capacity with facilities like the new Douglas, Georgia plant and the expansion at the Sumter location. These investments are designed to extract maximum value from by-products, transforming them into higher-value ingredients for markets like pet food. This not only adds a new revenue stream but also reduces operational risk by decreasing reliance on external rendering services. Management highlights that this effort diversifies the portfolio and drives production efficiency, contributing to a more resilient earnings stream.

Innovation extends to product development, particularly within the Prepared Foods segment. Pilgrim's is actively launching new and innovative products under brands like Just BARE and Pilgrim's, aiming to excite the category and meet evolving consumer demands for convenience and differentiated attributes. The success of these initiatives is reflected in the significant growth rates reported for these brands, often outpacing category averages. While specific R&D investment figures were not detailed, the strategic focus on innovation is a stated priority to enhance mix and drive profitable growth, with innovation accounting for over 6% of European net sales in recent periods.

These technological and operational advancements are not just about efficiency; they are foundational to Pilgrim's competitive moat. By improving yields, reducing costs, enhancing quality, and developing new products, the company strengthens its ability to compete effectively against larger, more diversified players like Tyson and more domestically focused, efficient operators like Sanderson. The "so what" for investors is that these investments are designed to translate into higher margins, more stable revenue streams, and a stronger market position, contributing directly to the long-term investment thesis.

Performance Under Pressure: A Look at Recent Financials

Pilgrim's recent financial performance underscores the effectiveness of its strategic approach, particularly in capitalizing on favorable market conditions while managing operational challenges. For the first quarter of 2025, the company reported net sales of $4.46 billion, a 2.3% increase compared to $4.36 billion in Q1 2024. This growth was primarily driven by the U.S. segment, where net sales increased by 6.4% due to higher net sales per pound and increased volume, reflecting favorable market pricing and a shift towards higher-value products. Europe saw a slight decrease in net sales (-2.9%), impacted by lower volume and unfavorable foreign currency translation, while Mexico's net sales also decreased (-5.1%), largely due to the significant depreciation of the Mexican peso against the U.S. dollar, despite increases in price per pound and sales volume.

Profitability saw a substantial improvement. Gross profit surged by 44.5% year-over-year in Q1 2025, reaching $554.9 million compared to $383.9 million in Q1 2024. This was driven by improved margins across segments, particularly in the U.S., where cost of sales increased minimally (0.6%) despite higher volumes, benefiting from lower feed ingredient costs (soybean meal down ~25%). Europe also saw a decrease in cost of sales (-5.1%), aided by lower costs per pound and favorable FX, partly due to restructuring benefits. Operating income followed suit, increasing by a robust 61.6% to $404.5 million in Q1 2025 from $250.3 million in Q1 2024. Adjusted EBITDA margins in Q1 2025 reached 12.0%, a significant jump from 8.5% in Q1 2024, with the U.S. segment posting a strong 14.3% margin.

Full-year 2024 results further highlight the turnaround, with net revenues of $17.9 billion and adjusted EBITDA of $2.2 billion (12.4% margin), a marked improvement from $17.4 billion revenue and $1.03 billion EBITDA (6% margin) in fiscal 2023. This performance reflects improved chicken demand, lower grain costs, positive commodity cutout values, and the benefits of operational excellence and key customer growth across segments.

Financially, Pilgrim's maintains a strong balance sheet. As of March 30, 2025, the company held over $2 billion in cash and cash equivalents and had significant availability under its credit facilities (over $1 billion combined). Total debt stood at approximately $3.23 billion. The company's leverage ratio remains low, approximately 0.5 times last 12 months adjusted EBITDA as of December 29, 2024, providing substantial financial flexibility.

This strength enabled the company to pay a special cash dividend of $1.5 billion in April 2025, funded by cash on hand, demonstrating a commitment to returning value to shareholders while maintaining ample liquidity for operations and strategic investments. Cash flow from operations in Q1 2025 ($126.9 million) was lower than Q1 2024 ($271.0 million), primarily due to changes in working capital, including increased receivables and inventories and payment of accrued incentive compensation. However, management expects cash flows from operations and credit availability to be sufficient for obligations, working capital, debt maturities, and capital spending for at least the next twelve months.

Outlook and Strategic Trajectory

Looking ahead, Pilgrim's management is cautiously optimistic, guiding towards continued execution of their strategic priorities. The company forecasts capital expenditures for 2025 to be approximately $750 million. This represents a significant increase from the roughly $475 million spent in 2024 and reflects the planned ramp-up of strategic growth projects. These investments are targeted at expanding capacity in high-growth areas like U.S. Prepared Foods and Mexico (Fresh and Prepared), converting existing facilities to produce differentiated products (e.g., Big Bird to Case Ready in the U.S.), and increasing protein conversion capacity. While some of these larger projects may not impact capacity until 2026 or later, the increased spending signals a commitment to long-term organic growth aligned with key customer needs and market opportunities.

Management anticipates the full-year effective tax rate to approximate 25% and net interest expense to be between $110 million and $120 million. The outlook for market conditions remains supportive, with USDA projecting modest U.S. chicken production growth (1.4-1.7% for 2025) against a backdrop of anticipated mild overall protein availability growth (1.6% in 2025) and continued strong domestic demand driven by chicken's affordability. Management expects the favorable price spreads between chicken and other proteins, particularly beef, to persist, supporting demand in both retail and foodservice channels.

In Europe, the focus remains on leveraging the benefits of integration and innovation to drive profitable growth, with a target of achieving sustainable adjusted EBITDA margins of 8.5%-9%. In Mexico, despite potential quarter-to-quarter volatility driven by the live market, the long-term outlook is positive, supported by a growing economy, increasing chicken consumption, and the company's investments in expanding its fresh and prepared footprint for diversification and enhanced biosecurity.

Beyond organic growth, Pilgrim's strong liquidity and low leverage provide flexibility for potential inorganic growth opportunities, particularly in Mexico and Europe, as well as further shareholder returns, as demonstrated by the recent special dividend. The capital allocation strategy prioritizes disciplined investment in high-return projects that enhance margins, reduce volatility, and align with strategic goals.

Risks on the Horizon

Despite the positive momentum and strategic clarity, Pilgrim's faces several notable risks. Commodity price volatility for feed inputs like corn and soybean meal remains a constant factor, subject to weather, global supply/demand, and geopolitical events. While hedging strategies are employed, significant price swings can impact profitability.

Live production challenges, particularly industry-wide issues with hatchability and mortality related to the new genetic breed, continue to constrain supply growth and add operational complexity. While Pilgrim's is implementing measures to improve management practices, a quick resolution is not expected. Diseases, including avian influenza, pose ongoing biosecurity and trade risks, potentially leading to export bans or disruptions, although regionalization efforts by most trading partners help mitigate widespread impact.

Foreign currency exchange rate fluctuations, particularly the volatility of the Mexican peso against the U.S. dollar, can impact reported financial results from international operations. Geopolitical tensions and potential trade disputes or tariffs also represent risks that could affect export markets and input costs.

Litigation remains a significant contingent liability. The company is involved in various legal proceedings, including antitrust litigation and tax assessments in Mexico. While accruals have been made for some settlements, the ultimate liability for ongoing matters is uncertain and could have a material impact on financial condition or results.

Finally, consumer spending patterns, while currently favoring affordable proteins like chicken, could shift due to broader economic conditions, inflation levels, or changes in dietary preferences, impacting demand across different product categories and channels.

Conclusion

Pilgrim's Pride has successfully navigated recent market cycles by executing a clear strategy centered on diversification, operational excellence, and key customer partnerships. The company's recent financial performance, marked by strong profitability and cash flow, underscores the benefits of this approach and its ability to capitalize on favorable market dynamics. Strategic investments in technology and capacity are laying the groundwork for future growth, enhancing efficiency, adding value, and building resilience against industry volatility.

While challenges persist, particularly in live production and market-specific risks, Pilgrim's strong balance sheet provides the financial flexibility to pursue its growth ambitions and manage potential headwinds. The company's competitive positioning is being reinforced through differentiated offerings, brand growth, and deepening customer relationships, allowing it to grow ahead of the market in key segments. For investors, the story of Pilgrim's Pride is one of a company transforming its operational capabilities and portfolio mix to deliver more stable and profitable growth, offering a compelling opportunity within the protein sector, supported by a disciplined capital allocation strategy that includes returning value to shareholders.