Strategic capital investment plan
Pilgrim’s Pride (PPC) is a subsidiary of JBS USA Holdings. It initiated an investment strategy during 4Q15 as part of its focused effort to reinvest its cash flow back into its business. In February, the company announced a $190 million strategic capital investment plan to advance growth opportunities with key customers and expand production of its Pierce Chicken brand. We’ll discuss the progress of this project in the next part of the series.
The objective of the cash flow reinvestment plan isn’t just to support sustained margin growth. It’s also meant to improve productivity consistent with the company’s continued pursuit of operational excellence. It’s designed to meet customers’ needs through targeted capital spending in fresh chicken, prepared foods, and feed production. The strategic investments mentioned in the above chart will benefit as follows:
- $18 million investment to streamline deboning and packaging processesŠ
- $25 million investment to enhance existing fully cooked chicken lines along with an additional line to meet growth demands for the Pierce Chicken brand
- $35 million investment to acquire property and construct a new feed mill to lower feed costs, enhance feed conversion, and improve live poultry performance
- $20 million investment to re-engineer the facility to improve its value-added product mix based on its customers’ needs.
Brand expansion plans will start soon
Last week, the company received state approval for its $20 million investment plan to expand its poultry complex in Mayfield, Kentucky. The project is scheduled to start on October 12, 2016. The new facility includes the removal or relocation of existing processing equipment. It also involves the installation of new equipment that will transform the facility from a fresh foodservice and debone operation to a debone portioning operation by July 2017. Pilgrim’s Pride is part of the food industry—the meat industry in particular. Its peers in the industry include Tyson Foods (TSN) and Hormel Foods (HRL). So far, they returned 14% and -12% in 2016. Pilgrim’s Pride forms 3.6% of the First Trust Consumer Staples AlphaDEX Fund (FXG) and 2.2% of the PowerShares DWA Consumer Staples Momentum Portfolio (PSL).
In this series, we’ll discuss how the expanded facility will add to Pilgrim’s Pride’s production. We’ll also discuss the company’s revised earnings per share estimates and Wall Street analysts’ recommendations along with its stock performance.