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How Has Pilgrim’s Pride Made Room for Strategic Investments?

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Aug. 1 2016, Updated 11:09 a.m. ET

Special dividend declared

Consistent with its strategy to improve capital structure and generate shareholder value, Pilgrim’s Pride (PPC) paid $700 million, or $2.75 per share, in special dividends. It was paid on May 18, 2016, to stockholders of record on May 10, 2016.

In fiscal 2015, PPC paid out $1.5 billion in special dividends. The company has paid $2.2 billion in dividends over the last two years.

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Net debt in 2Q16

In 2Q16, Pilgrim’s Pride generated $111 million in free cash flow after taxes and capital investments. This led to a net debt of $1.1 billion and a leverage ratio of 1.15x its EBITDA (earnings before income, tax, depreciation, and amortization) over the last 12 months. The company’s low leverage ratio and a strong balance sheet demonstrate that it has room for strategic investments in the future.

Share repurchases

Toward the end of 1Q16, Pilgrim’s Pride repurchased close to 5 million shares at a value of $102 million. It also maintained a strong balance sheet and a low leverage. The company has repurchased $107 million in shares over the last two years.

Management mentioned that the integration of the acquired additional Mexican operations is on track, and the company has realized 70% of the expected $50 million in annualized synergies. It acquired this in the fourth quarter of 2015 as part of its strategy to expand its geographic diversification and competitiveness in emerging markets.

Below is the dividend yields of PPC’s peers as of July 28, 2016:

  • ConAgra Foods (CAG): 2.1%
  • JM Smucker (SJM): 1.9%

The Fidelity MSCI Consumer Staples Index ETF (FSTA) and the Vanguard Mid-Cap Value ETF (VOE) invest 0.75% and 1.1%, respectively, in SJM.

In the next part of the series, we’ll see why Pilgrim’s Pride stock fell after its 2Q16 results.

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