Pilgrim's to Cease Production at Three Plants

US - Pilgrim's Pride Corporation has announced plans to idle three of its 32 chicken processing plants in the US by mid-May as part of its reorganisation.
calendar icon 2 March 2009
clock icon 4 minute read

Pilgrim's Pride Corporation says the idling of these three under-performing plants is intended to improve the company's product mix by reducing commodity production and to significantly reduce its costs in the midst of an industry-wide over-supply of chicken and weak consumer demand resulting from a national recession.

The plants that the company plans to idle within 60 to 75 days are located in Douglas, Georgia; El Dorado, Arkansas; and Farmerville, Louisiana. These plants employ a total of approximately 3,000 people – or roughly 7 per cent of the company's total US workforce. Pilgrim's Pride will provide transition programs to employees whose positions are eliminated to assist them in securing new employment, filing for unemployment and obtaining other applicable benefits. Approximately 430 independent contract growers who supply birds to these three plants also will be affected.

There will not be any disruption in the supply of product to retail, food-service and industrial customers as a result of the idling of these plants, since these changes will only eliminate production of excess commodity chicken. The company plans to keep the plants idle until it believes that additional production capacity is needed.

Pilgrim's Pride expects to generate annualized net savings of approximately $110 million from idling these three plants and to incur one-time, pre-tax restructuring charges of approximately $35 million, before any potential asset impairment charges, primarily in the second quarter of fiscal 2009. This includes approximately $8 million of estimated non-cash restructuring costs.

"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," said Don Jackson, president and chief executive officer. "Simply put, we are producing too much commodity chicken in what is a very weak market. The actions announced today will reduce our production of low-value, commodity meat that is a financial drain on the company without affecting any of our core business lines or customers."

The idling of these three plants, when completed, will result in a reduction of 9 to 10 per cent in total pounds of chicken produced by the company.

In addition, the company announced it will be consolidating its protein salad production from Franconia, Pennsylvania to its further-processing facility in Moorefield, West Virginia.

"We recognize the pain and uncertainty that the idling of these plants will have on our employees and growers at these locations, as well as on the surrounding communities. It is a devastating situation, and we sincerely wish that such actions were not necessary," Mr Jackson said. "But the reality is that our country is arguably facing the most significant financial crisis since the Great Depression, with consumer spending on food dropping at its steepest rate in more than 60 years. We are taking decisive steps now to protect the greatest number of jobs and growers in order to restructure our business and ultimately emerge from Chapter 11 as a stronger, more efficient competitor."

As previously announced, the Company filed voluntary Chapter 11 petitions on 1 December 2008. The Chapter 11 cases are being jointly administered under case number 08-45664. The Company's operations in Mexico and certain operations in the United States were not included in the filing and continue to operate as usual outside of the Chapter 11 process.

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