Pilgrim's Pride Gets Clucked

Chickens don't fly particularly well, and poultry producer Pilgrim's Pride (NYSE: PPC  ) is in for a hard landing today. Not only did this company announce that it was going to miss first-quarter estimates, but it's going to miss them in a big way. Instead of the $0.82 average analyst estimate (with a range of $0.79 to $0.84), the company expects earnings to come in around $0.36 to $0.41. On top of the earnings warning, the company announced a restructuring that will shutter some of its turkey operations.

That's a heckuva miss any way you slice it. The company blamed the performance on weakness in Mexico and a sharp drop in the price of leg quarters due to worries about avian influenza.

Here's the thing, though -- the numbers would suggest that there has to be a little more to it than just that. After all, Mexican sales are less than 10% of total revenue, and the same is true for export sales. Like as not, the weakness in leg quarter pricing has spread across the chicken market, and I wouldn't be surprised if the price of wings, breasts, and whole birds has fallen, as well.

In any event, investors should keep their eyes peeled for corroborating evidence. If business in Mexico is weak overall (as opposed to a problem specifically with Pilgrim's Pride), Industrias Bachoco (NYSE: IBA  ) should see problems, as well. Likewise, if the export market in general is hurting, then Brazilian companies like Perdigao (NYSE: PDA  ) and Sadia (NYSE: SDA  ) might also see softness.

If weak export markets are hurting overall pricing, then this isn't going to be especially good news for any poultry producer -- even one like Sanderson Farms (Nasdaq: SAFM  ) , with relatively modest export exposure. In other words, GoldKist (Nasdaq: GKIS  ) and Tyson (NYSE: TSN  ) might be having some poultry problems of their own this quarter. Still, if the market overreacts, it may create an opportunity for long-term investors who don't mind waiting out a possible trough in the cycle.

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Foolcontributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).

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10/21/2016 1:57 PM
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