Some analysts and stockholders might not like it, but Tyson Foods CEO Richard Bond is willing to sacrifice some profits now if it means squeezing the life out if Pilgrim’s Pride, the world’s largest poultry processor, which might go bankrupt this month.
He didn’t say that, of course, but here’s what he did say during a conference call with analysts on Monday: “As of right now, we still believe that the demand-supply balance for us is still reasonably good.”
Not so good for the market, which is rife with clucking chickens begging (perhaps literally) to be killed and eaten, but good for Tyson, sure, if it means that Pilgrim’s Pride and its 25 percent share of the U.S. market will both go away that much quicker. Tyson, No. 2 in the industry, has about 20 percent of the market.
So Tyson isn’t about to cut back on chicken production, as it otherwise almost certainly would under its present circumstances. On Monday it reported losses of $118 million on its chicken business. Unlike Pilgrim’s, though, Tyson does huge business in beef and pork, so it was able to post profits of $48 million for its fiscal fourth quarter.
In the call with analysts, shortly after Bond said good things about “the demand-supply balance,” came this exchange between Bond and Timothy Ramey of DA Davidson:
Ramey:
Good morning. Dick in the last five or ten minutes, since you were talking to Ken Goldman, the stocks declined about 12 percent. I’m going to give you chance to rethink the answer you gave, Ken. You said that demand was good for chicken, and I think the market just is not real pleased with that answer. Demand will be really good for dollars if you agree to sell them for 90 cents, too. I mean you have got to take the point of view that demand is horrible. You are losing huge money. What are we missing here?
Bond:
Well, I would tell you that as a company we are not building inventory, we are selling product week in and week out. Yes, prices are not where we would want them to be, but I would still contend that on the food service side, not counting casual and on the retail side, we are continuing to see strong demand for chicken. I mean, it is the best converter of feed.
People are still eating protein, Tim, and it is a matter of time before this balance, if you will, of supply and price gets back in line. That might take another quarter. It might take another two quarters.
But I believe that we are doing and we have done our part in the past. If you say the industry is now down on a hedge slaughtered basis in that 6 percent to 7 percent, we took more than that out in the last three or four years.
So we’ve continued to do our part, and I think our plants and the efficiency of what we are doing day in and day out to improve our operations, I believe that the demand is there, and we are staying with the program that we are on. Now, I also said that we would continue to evaluate this on a very, very timely week-to week-basis, and we will do that.
Ramey:
Well Dick, a year ago you talked about price encourage, then when I was out with Donnie Smith four five months ago, you guys talked about well we’re not going to be the one to cut.
I don’t know what kind of stock price is going to take get to change of heart, but let’s just face it. This is not good profitability. Demand is not good. Demand, you are giving away dollars for 90 cents, and I think we are going to have to take a hard look at that. That’s my comment. Thanks.
Bond didn’t say “you’re welcome,” or anything else. But he could be right, and Ramey could be wrong. The chicken market will probably come around, and big recent declines in feed prices will be making their way into the system in the next quarter or two, relieving the industry’s massive cost problems.
But Pilgrim’s Pride may not have a quarter or two. It is hurriedly selling off assets to stay liquid and keep its lenders on board. It missed a $27 million bond payment last week, and faces its next day of possible reckoning later this month. Unlike Tyson, it may not be around to benefit from a market turnaround.
