Pilgrim's Pride Faces Deadline

US - The Number 1 poultry producer still has a chance to avoid bankruptcy.
calendar icon 26 November 2008
clock icon 3 minute read

Pilgrim's Pride Inc. is facing a crucial deadline that analysts say will determine if the nation's largest chicken producer can stay out of bankruptcy court, according to a report in Dallas News.

A waiver from its major lenders expires today, and analysts expect the troubled company to seek an extension – its third.

Without it, Pilgrim's Pride could be in default of major loan provisions.

"These guys are focused on trying to get by the next few days," said Rich Nelson of research firm Allendale Inc. in McHenry, Illinois. "I can't underscore enough how much of an issue this is."

Shares of Pilgrim's Pride went into a tailspin in September as profit was affected by sagging poultry prices and rising feed costs. That's also when the company warned that it would report a "significant loss" in its fiscal fourth quarter, which ended in September.

As a result of the expected loss, Pilgrim's Pride alerted its lenders that it was likely to be out of compliance with a loan covenant.

The company, which has yet to report fourth-quarter financial results, got a waiver from lenders that pushed the deadline to late October. A second extension for the Pittsburg, Texas-based company runs through today.

The newspaper was unable to reach a spokesman for Pilgrim's Pride for comment.

While the prospect of bankruptcy looms large for the poultry producer, analysts said Pilgrim's lenders might not go along with a third waiver because the company's finances still look grim.

That is partly because an industry-wide cut-back in chicken production failed to boost prices.

It is good news for consumers but bad news for producers.

A slump in sales at casual dining restaurants have reduced demand for chicken breasts.

Meanwhile, Russia has announced plans to jump-start its domestic meat production industry, which means less export demand for lower-cost parts such as legs. Earlier this month, Russia – a major export market for US poultry – said it plans to cut 2009 import quotas on poultry by 300,000 tons.

Those factors are slicing Pilgrim's Pride's profit margins.

Meanwhile, the company faces at least two lawsuits alleging securities law violations for "false and misleading" statements it allegedly made about its finances. Both are seeking class-action status.

The company earlier said that it does not comment on pending or threatened litigation.

Dallas News reports that one suit, filed on 29 October in Federal Court for Texas' Eastern District, would press on even if the company goes bankrupt, according to attorney Hamilton Lindley of the Kendall Law Group in Dallas. On 21 November, Pilgrim's Pride filed a motion to dismiss. A similar suit was filed on 13 November in Eastern District court.

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