# Pilgrims Pride Corp: Form 10-Q for the period ended Mar 26, 2023

- Company: [Pilgrims Pride Corp](/companies/ppc.md) (CIK 802481)
- Form: 10-Q
- Filed: 2023-04-27
- Accepted by EDGAR: Apr 26, 2023, 18:57 ET
- Period: 2023-03-26
- Accession: 0000802481-23-000040
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/802481/000080248123000040/ppc-20230326.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/802481/000080248123000040/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-03-26.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-12-26 to 2023-03-26 | $4.17bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-12-26 to 2023-03-26 | $3.99bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-12-26 to 2023-03-26 | $173.0m | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2022-12-26 to 2023-03-26 | $133.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2022-12-26 to 2023-03-26 | $31.3m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2022-12-26 to 2023-03-26 | $42.7m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-12-26 to 2023-03-26 | −$8.8m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-12-26 to 2023-03-26 | $5.2m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-12-26 to 2023-03-26 | $0.02 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-12-26 to 2023-03-26 | $0.02 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-12-26 to 2023-03-26 | 237,164,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2022-12-26 to 2023-03-26 | −$161.7m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2022-12-26 to 2023-03-26 | $131.7m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2023-03-26 | $150.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-03-26 | $3.82bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-03-26 | $9.23bn | us-gaap:Assets |
| Current liabilities | at 2023-03-26 | $2.49bn | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2023-03-26 | $6.32bn | us-gaap:Liabilities |
| Current portion of debt | at 2023-03-26 | $26.3m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-03-26 | $2.89bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 34,621 characters.

### Executive Summary

### Overview

We reported net income attributable to Pilgrim’s of $5.2 million, or $0.02 per diluted common share, and loss before tax totaling $3.2 million, for the three months ended March 26, 2023. These operating results included net sales of $4.2 billion, gross profit of $173.0 million and $161.7 million of cash used in operating activities. We generated a consolidated operating margin of 0.8%. For the three months ended March 26, 2023, we generated EBITDA and Adjusted EBITDA of $134.1 million and $151.9 million, respectively. A reconciliation of net income to EBITDA and Adjusted EBITDA is included below.

### Global Economic Conditions

During the first quarter of 2023, we continued to experience challenges from inflation in commodity, labor and other operating costs across all our businesses. The global feed ingredient and energy markets continue to be impacted by the Russia-Ukraine war, driving up prices as supply out of the Black Sea region is disrupted and future production is at risk. Despite inflationary headwinds and softening consumer demand throughout the U.K. and E.U., we have and will continue to invest in our people, implement supply chain solutions, and conduct customer negotiations for cost recovery. Our Mexico segment is managing through challenges as Mexico remains a volatile market given inflationary pressures, implications of more bird disease, an evolving global protein industry, and overall business seasonality.

We have responded to these challenges by continuing negotiations with customers to recoup the extraordinary costs we have experienced. We also continue to focus on operational initiatives that aim to deliver labor efficiencies, better agricultural performance and improved yields.

### Russia-Ukraine War Impacts

The Russia-Ukraine war began in February 2022. The impact of the ongoing war and sanctions will not be limited to businesses that operate in Russia and Ukraine and has negatively impacted and will likely continue to negatively impact other global economic markets including where we operate. The impacts have included and may continue to include, but are not limited to, higher prices for commodities, such as food products, ingredients and energy products, increasing inflation in some countries, and disrupted trade and supply chains. The conflict has disrupted shipments of grains, vegetable oils, fertilizer and energy products.

The impact on the agriculture markets falls into two main categories: (1) the effect on Ukrainian crop production, as the region is key in global grain production; and (2) the duration of the disruption in trade flows. Safety and financing concerns in the region are restricting export execution, which is in turn forcing grain and oil demand to find alternative supply. The duration of the war and related volatility makes global markets extremely sensitive to growing-season weather in other global grain producing regions and has led to a large risk premium in futures prices. The continued volatility in the global markets as a result of the war has adversely impacted our costs by driving up prices, raising inflation and increasing pressure on the supply of feed ingredients and energy products throughout the global markets. In the first quarter of 2023, Ukraine grain export volumes continued to recover, but still remain below pre-war volumes. Their supply constraints did not have a material impact on our costs during the first quarter.

In addition, the U.S. government and other governments in jurisdictions in which we operate have imposed sanctions and export controls against Russia, Belarus and interests therein and threatened additional sanctions and controls. The impact of these measures, now and in the future, could adversely affect our business, supply chain or customers.

### Raw Materials and Pricing

Our U.S. and Mexico segments use corn and soybean meal as the main ingredients for feed production, while our U.K. and Europe segment uses wheat, soybean meal and barley as the main ingredients for feed production.

U.S. commodity market prices for chicken products during the first quarter of 2023 evolved seasonally, while remaining below prior year levels and slightly below the 5-year average throughout the period. Per the April 2023, U.S. Department of Agriculture (or “USDA”) report on world agriculture supply and demand estimates (or “WASDE”), estimated industry ready-to-cook production exceeded levels from the prior year by 3.4%. The increase is due to growing headcounts and increased liveweights, a trend consistent over the last year.

During the first quarter of 2023, the U.S. chicken market showed mild volume demand growth. Retail volumes remained stable despite relatively higher consumer point-of-sale prices when compared to the prior year. Foodservice distribution volume demand increased while the export channel volume shipments increased through the first three months of the quarter. Cold storage inventories, which ended 2022 at 7% above the 5-year average, declined by 8.3% from prior year-end levels as of the end of March 2023 and are now near the 5-year average. Meanwhile, competing protein production levels have remained flat relative to the prior year as declines in beef production have been offset by growth in pork production through the first three months of 2023.

With U.S. chicken market prices entering the year at levels near the bottom of the most recent 5-year range, production growth and elevated cold storage stocks in the early part of the first quarter of 2023 provided sufficient supply to meet the needs of the mild volume demand growth. This resulted in normal seasonal movements of market prices for chicken products in the first quarter of 2023.

During the first quarter of 2023, the U.K. chicken market continued to see increased costs of ingredients and packaging. Through our current customer models and additional negotiations we have offset the majority of these cost increases. Our labor and feed ingredient costs for the first quarter 2023 were consistent with the fourth quarter of 2022. We continue to focus on managing costs, including labor and yield efficiencies, agricultural performance and increasing operational efficiency through investments in capital projects.

Commodity prices for chicken in Mexico fluctuated during the first quarter of 2023 resulting in a slight increase in the price as of the end of the quarter, but below prior year levels. The cost to produce also increased from same quarter prior year due to significant increases in corn and soy, the two main ingredients used for feed in Mexico.

Prices for the remainder of the year will depend on (1) the evolution of foodservice, retail and export meat demand and (2) factors such as government regulation, the ongoing Russia-Ukraine war, feed production input costs, further spread of avian influenza both domestically and abroad, uncertainty surrounding the general economy and overall protein supply.

U.K. market prices for pork products have continued to recover during the first quarter of 2023, with growth during the quarter continuing the upward trend from 2022, reflecting pig shortages from a 20% reduction of the English sow herd during 2022. This was supported by recovery in the E.U. market, which has seen pig prices grow faster than the U.K. market during the first quarter, with the U.K. market price now being in line with Germany. Due to increased market pricing and stabilization of feed prices in the first quarter, U.K. pig farming is now close to a break even point.

### Reportable Segments

We operate in three reportable segments: U.S., U.K. and Europe, and Mexico. We measure segment profit as operating income. Certain corporate expenses are allocated to the Mexico and U.K. and Europe reportable segments based upon various apportionment methods for specific expenditures incurred related thereto with the remaining amounts allocated to the U.S. For additional information, see “Note 18. Reportable Segments” of our Condensed Consolidated Financial Statements included in this quarterly report.

### Results of Operations

### Three Months Ended March 26, 2023 Compared to the Three Months Ended March 27, 2022

*Net sales.* Net sales generated in the three months ended March 26, 2023 decreased $74.8 million, or 1.8%, from net sales generated in the three months ended March 27, 2022. The following table provides net sales information:

*(In thousands, except percent data)*

| Sources of net sales Amount | Three Months Ended March 26, 2023 Percent | Change from Three Months Ended March 27, 2022 |  |
| --- | ---: | ---: | ---: |
| U.S. | $2,432,568 | $(148,640) | (5.8)% |
| U.K. and Europe | 1,239,264 | 47,282 | 4.0% |
| Mexico | 493,796 | 26,591 | 5.7% |
| Total net sales | $4,165,628 | $(74,767) | (1.8)% |

*U.S. Reportable Segment.* U.S. net sales generated in the three months ended March 26, 2023 decreased $148.6 million, or 5.8%, from U.S. net sales generated in the three months ended March 27, 2022 primarily due to a decrease in net sales per pound of $169.7 million, or 6.6 percentage points. The decrease in net sales per pound was partially offset by an increase in sales volume of $21.1 million, or 0.8 percentage points. The decrease in net sales per pound was driven primarily by decreases in market price during the three months ended March 26, 2023.

*U.K. and Europe Reportable Segment.* U.K. and Europe net sales generated in the three months ended March 26, 2023 increased $47.3 million, or 4.0%, from U.K. and Europe net sales generated in the three months ended March 27, 2022 primarily due to an increase in net sales per pound of $232.2 million, or 19.5 percentage points, partially offset by the impact of foreign currency translation of $132.0 million, or 11.1 percentage points, and a decrease in sales volume of $52.9 million, or 4.4 percentage points. The increase in net sales per pound was driven by price increases necessary to recover increased feed ingredients, labor, utilities and other operating costs.

*Mexico Reportable Segment.* Mexico net sales generated in the three months ended March 26, 2023 increased $26.6 million, or 5.7%, from Mexico net sales generated in the three months ended March 27, 2022 primarily due to an increase from the impact of foreign currency remeasurement of $42.9 million, or 9.2 percentage points, and an increase in net sales per pound of $12.7 million, or 2.7 percentage points. These increases were partially offset by a decrease in sales volume of $29.0 million, or 6.2 percentage points. The increase in net sales per pound was driven primarily by higher chicken prices that resulted from solid market fundamentals.

*Gross profit and cost of sales.* Gross profit decreased by $368.9 million, or 68.1%, from $542.0 million generated in the three months ended March 27, 2022 to $173.0 million generated in the three months ended March 26, 2023. The following tables provide information regarding gross profit and cost of sales information:

*(In thousands, except percent data)*

| Components of gross profit Amount | Three Months Ended March 26, 2023 Three Months Ended Percent | Change from Three Months Ended March 27, 2022 March 26, 2023 | March 27, 2022 | Percent of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net sales | $4,165,628 | $(74,767) | (1.8)% | 100.0% | 100.0% |
| Cost of sales | 3,992,581 | 294,166 | 8.0% | 95.8% | 87.2% |
| Gross profit | $173,047 | $(368,933) | (68.1)% | 4.2% | 12.8% |

*(In thousands, except percent data)*

| Sources of gross profit Amount | Three Months Ended March 26, 2023 Percent | Change from Three Months Ended March 27, 2022 |  |
| --- | ---: | ---: | ---: |
| U.S. | $38,329 | $(383,675) | (90.9)% |
| U.K. and Europe | 84,193 | 45,114 | 115.4% |
| Mexico | 50,512 | (30,371) | (37.5)% |
| Elimination | 13 | (1) | (7.1)% |
| Total gross profit | $173,047 | $(368,933) | (68.1)% |

*(In thousands, except percent data)*

| Sources of cost of sales Amount | Three Months Ended March 26, 2023 Percent | Change from Three Months Ended March 27, 2022 |  |
| --- | ---: | ---: | ---: |
| U.S. | $2,394,239 | $235,035 | 10.9% |
| U.K. and Europe | 1,155,071 | 2,168 | 0.2% |
| Mexico | 443,284 | 56,962 | 14.7% |
| Elimination | (13) | 1 | 7.1% |
| Total cost of sales | $3,992,581 | $294,166 | 8.0% |

34

*U.S. Reportable Segment.* Cost of sales incurred by our U.S. operations during the three months ended March 26, 2023 increased $235.0 million, or 10.9%, from cost of sales incurred by our U.S. segment during the three months ended March 27, 2022. The increase in cost of sales was primarily driven by an increase in cost per pound sold of $213.6 million, or 9.9 percentage points, and an increase in sales volume of $17.6 million, or 0.8 percentage points. The increase in cost per pound sold included increases in live operations costs, payroll costs, and a shift from net derivative gain in the prior year to net derivative loss in the current year on commodity derivatives. These increases were partially offset by a decrease in cost of sales related to income of $25.3 million recognized for proceeds from business interruption insurance recoveries related to the Mayfield tornado losses. The increase in live operations costs includes an increase of $107.6 million in feed costs and a $27.6 million increase in chick costs from rate increases. The increase in feed costs was driven primarily from higher corn and soy prices, our main ingredients in feed.

*U.K. and Europe Reportable Segment.* Cost of sales incurred by our U.K. and Europe operations during the three months ended March 26, 2023 increased $2.2 million, or 0.2%, from cost of sales incurred by our U.K. and Europe segment during the three months ended March 27, 2022. The increase in cost of sales was primarily driven by an increase in cost per pound sold of $175.5 million, or 15.1 percentage points, partially offset by the impact of foreign currency translation and decreased sales volume of $123.0 million, or 10.7 percentage points, and $50.3 million, or 4.4 percentage points, respectively. The increase in cost per pound sold was driven by inflation in feed ingredients, labor, utilities and other operating costs.

*Mexico Reportable Segment.* Cost of sales incurred by our Mexico operations during the three months ended March 26, 2023 increased $57.0 million, or 14.7%, from cost of sales incurred by our Mexico segment during the three months ended March 27, 2022. This increase was driven by increased cost per pound sold of $42.4 million, or 11.0 percentage points, and the impact of foreign currency remeasurement of $38.6 million, or 9.9 percentage points. The increase in cost per pound sold was driven by higher input costs, such as feed ingredients and hatchery egg costs. These increases were partially offset by a decrease in sales volume of $24.0 million, or 6.2 percentage points.

*Operating income and SG&A expense.* Operating income decreased by $370.7 million, or 92.2%, from income of $402.0 million generated in the three months ended March 27, 2022 to income of $31.3 million generated in the three months ended March 26, 2023. The following tables provide information regarding operating income and selling, general and administrative (“SG&A”) expense:

*(In thousands, except percent data)*

| Components of operating income Three Months Ended Amount | Three Months Ended March 26, 2023 Percent | Change from Three Months Ended March 27, 2022 March 26, 2023 | March 27, 2022 | Percent of Net Sales |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Gross profit | $173,047 | $(368,933) | (68.1)% | 4.2% | 12.8% |
| SG&A expense | 133,678 | (6,289) | (4.5)% | 3.2% | 3.3% |
| Restructuring activities | 8,026 | 8,026 | NA | 0.2% | NA |
| Operating income | $31,343 | $(370,670) | (92.2)% | 0.8% | 9.5% |

35

*(In thousands, except percent data)*

| Sources of operating income (loss) Amount | Three Months Ended March 26, 2023 Percent | Change from Three Months Ended March 27, 2022 |
| --- | ---: | ---: |
| U.S. | $(28,106) | $(383,181) (107.9)% |
| U.K. and Europe | 25,261 | 46,901 (216.7)% |
| Mexico | 34,175 | (34,389) (50.2)% |
| Eliminations | 13 | (1) (7.1)% |
| Total operating income | $31,343 | $(370,670) (92.2)% |
| **Sources of SG&A expense** | **Three Months Ended March 26, 2023** | **Change from Three Months Ended March 27, 2022** |
| **Amount** | **Percent** |  |
|  | **(In thousands, except percent data)** |  |
| U.S. | $66,435 | $(494) (0.7)% |
| U.K. and Europe | 50,906 | (9,813) (16.2)% |
| Mexico | 16,337 | 4,018 32.6% |
| Total SG&A expense | $133,678 | $(6,289) (4.5)% |

*U.S. Reportable Segment.* SG&A expense incurred by our U.S. reportable segment during the three months ended March 26, 2023 decreased $0.5 million, or 0.7%, from SG&A expense incurred by our U.S. reportable segment during the three months ended March 27, 2022. The decrease in SG&A expense resulted primarily from the decrease in recognition of legal defense costs, partially offset by recognition of legal settlement expense in current year. Other factors affecting U.S. SG&A expense were individually immaterial.

*U.K. and Europe Reportable Segment.* SG&A expense incurred by our U.K. and Europe reportable segment during the three months ended March 26, 2023 decreased $9.8 million, or 16.2%, from SG&A expense incurred by our U.K. and Europe segment during the three months ended March 27, 2022. The decrease in SG&A expense was driven by the impact of foreign currency translation and the expiration of the transition services agreement between the Company and Kerry Group plc from the acquisition of the PFM business. Other factors affecting U.K. and Europe SG&A expense were individually immaterial.

*Mexico Reportable Segment.* SG&A expense incurred by our Mexico reportable segment during the three months ended March 26, 2023 increased approximately $4.0 million, or 32.6%, from SG&A expense incurred by our Mexico segment during the three months ended March 27, 2022. The primary driver of the increase in SG&A expense was marketing costs. Other factors affecting Mexico SG&A expense were individually immaterial.

*Net interest expense.* Net interest expense increased to $39.1 million recognized in the three months ended March 26, 2023 from $35.0 million recognized in the three months ended March 27, 2022. The increase in net interest expense resulted primarily from interest expense on outstanding borrowings due to increased borrowing rates. Average borrowings decreased by $0.2 billion from $3.4 billion during the three months ended March 27, 2022 to $3.2 billion during the three months ended March 26, 2023 and the weighted average rate of interest increased by 0.7 percentage points. As a percent of net sales, interest expense in the three months ended March 26, 2023 and March 27, 2022 was 0.9% and 0.8%, respectively.

*Income taxes.* Income tax decreased to a benefit of $8.8 million, a 275.5% effective tax rate, for the three months ended March 26, 2023 compared to an income tax expense of $75.2 million, a 21.1% effective tax rate, for the three months ended March 27, 2022. The decrease in income tax expense resulted primarily from the decrease in profit before taxes.

### Liquidity and Capital Resources

The following table presents our available sources of liquidity as of March 26, 2023:

*(In millions)*

| Sources of Liquidity | Facility Amount | Amount Outstanding | Amount Available |
| --- | ---: | ---: | ---: |
| Cash and cash equivalents | $— | $— | $150.7 |
| Borrowing arrangements: |  |  |  |
| U.S. Credit Facility Revolving Note Payable(a) | 800.0 | 35.0 | 730.0 |
| U.S. Credit Facility Term Loans(b) | 700.0 | 473.8 | — |
| Mexico Credit Facility(c) | 81.3 | — | 81.3 |
| U.K. and Europe Revolver Facility(d) | 183.5 | — | 183.5 |

(a) Availability under the U.S. Credit Facility is also reduced by our outstanding standby letters of credit. Standby letters of credit outstanding at March 26, 2023 totaled $35.0 million.

(b) For more information on the U.S. Credit Facility Term Loans, refer to “Note 12. Debt.”

(c) The U.S. dollar-equivalent of the facility amount under the Mexico Credit Facility is $81.3 million (Mex$1.5 billion).

(d) The U.S. dollar-equivalent of the facility amount under the U.K. and Europe Revolver Facility is $183.5 million (£150.0 million).

We expect cash flows from operations, combined with availability under our credit facilities, to provide sufficient liquidity to fund current obligations, projected working capital requirements, maturities of long-term debt and capital spending for at least the next twelve months.

### Historical Flow of Funds

*(In millions)*

| Cash Flows from Operating Activities | Three Months Ended March 26, 2023 | March 27, 2022 |
| --- | ---: | ---: |
| Net income | $5.6 | $280.6 |
| Net noncash expenses | 65.4 | 85.8 |
| Changes in operating assets and liabilities: |  |  |
| Trade accounts and other receivables | (132.8) | (66.7) |
| Inventories | (30.3) | (146.0) |
| Prepaid expenses and other current assets | (20.3) | (5.9) |
| Accounts payable, accrued expenses and other current liabilities | (43.6) | (2.5) |
| Income taxes | 3.2 | 84.8 |
| Long-term pension and other postretirement obligations | 1.0 | (1.1) |
| Other operating assets and liabilities | (9.9) | (2.0) |
| Cash provided by (used in) operating activities | $(161.7) | $227.0 |

### Net Noncash Expenses

Items necessary to reconcile from net income to cash flow provided by or used in operating activities included net noncash expenses of $65.4 million for the three months ended March 26, 2023. Net noncash expense items included depreciation and amortization of $98.3 million, loan cost amortization of $1.3 million, stock-based compensation of $1.2 million and accretion of discounts related to Senior Notes of $0.4 million. These expense items were partially offset by a deferred income tax benefit of $26.3 million and gains on property disposals of $9.3 million.

Items necessary to reconcile from net income to cash flow provided by operating activities included net noncash expenses of $85.8 million for the three months ended March 27, 2022. Net noncash expense items included depreciation and amortization of $102.1 million, stock-based compensation of $2.0 million, losses on property disposals of $1.9 million, loan cost amortization of $1.3 million and accretion of discounts related to Senior Notes of $0.4 million. These expense items were partially offset by deferred income tax benefit of $21.9 million.

### Changes in Operating Assets and Liabilities

The change in trade accounts and other receivables represented a $132.8 million use of cash related to operating activities for the three months ended March 26, 2023. This change primarily resulted from an increase in trade accounts receivable and receivables from insurance recoveries recognized in March 2023. The change in trade accounts and other receivables, including accounts receivable from related parties, represented a $66.7 million use of cash related to operating activities for the three months ended March 27, 2022. This change primarily resulted from an increase in trade accounts receivable due to increased sales.

The change in inventories represented a $30.3 million use of cash related to operating activities for the three months ended March 26, 2023. This change resulted primarily from increased raw material costs, such as feed ingredients, and increased finished goods inventories. The change in inventories represented a $146.0 million use of cash related to operating activities for the three months ended March 27, 2022. This change resulted primarily from increased raw material costs, such as feed ingredients.

The change in prepaid expenses and other current assets represented a $20.3 million use of cash related to operating activities for the three months ended March 26, 2023. This change resulted primarily from a net increase in VAT refund receivables. The change in prepaid expenses and other current assets represented a $5.9 million use of cash related to operating activities for the three months ended March 27, 2022. This change resulted primarily from a net increase in commodity derivative assets.

The change in accounts payable, revenue contract liabilities, accrued expenses and other current liabilities represented a $43.6 million use of cash related to operating activities for the three months ended March 26, 2023. This change resulted primarily from the payment of bonuses accrued in 2022. The change in accounts payable, revenue contract liabilities, accrued expenses and other current liabilities, including accounts payable to related parties, represented a $2.5 million use of cash related to operating activities for the three months ended March 27, 2022. This change resulted primarily from the timing of payments.

The change in income taxes, which includes income taxes receivable, income taxes payable, deferred tax assets, deferred tax liabilities, reserves for uncertain tax positions, and the tax components within accumulated other comprehensive loss, represented a $3.2 million and $84.8 million source of cash related to improved operating results for the three months ended March 26, 2023 and March 27, 2022, respectively.

*(In millions)*

| Cash Flows from Investing Activities | Three Months Ended March 26, 2023 | March 27, 2022 |
| --- | ---: | ---: |
| Acquisitions of property, plant and equipment | $(131.7) | $(81.6) |
| Proceeds from property disposals | 12.6 | 0.8 |
| Proceeds from property insurance recoveries | 1.6 | — |
| Purchase of acquired businesses, net of cash acquired | — | (4.8) |
| Cash used in investing activities | $(117.5) | $(85.6) |

Capital expenditures were primarily incurred to improve operational efficiencies and reduce costs for the three months ended March 26, 2023 and March 27, 2022. Capital expenditures in 2023 also included investments in the Athens, GA plant expansion, the South Georgia protein conversion plant and other automation projects. Proceeds from property disposals were primarily for the sale of a farm in Mexico. Proceeds from property insurance recoveries reflects cash received on insurance claims related to the losses incurred from the Mayfield, Kentucky tornado that occurred in December 2021.

*(In millions)*

| Cash Flows from Financing Activities | Three Months Ended March 26, 2023 | March 27, 2022 |
| --- | ---: | ---: |
| Proceeds from revolving line of credit and long-term borrowings | $35.0 | $228.5 |
| Payments on revolving line of credit, long-term borrowings and finance lease obligations | (6.5) | (32.1) |
| Distribution from Tax Sharing Agreement with JBS USA Holdings | (1.6) | (2.0) |
| Purchase of common stock under share repurchase program | — | (27.0) |
| Payments of capitalized loan costs | — | (1.1) |
| Cash provided by financing activities | $26.9 | $166.3 |

Proceeds from revolving line of credit and long-term borrowings include the borrowing on the revolver under the U.S. Credit Facility of $35.0 million. Payments on revolving line of credit, long-term borrowings and finance lease obligations include a principal payment of $6.3 million on the U.S. term loan and payments of $0.2 million on finance leases. The Distribution from Tax Sharing Agreement with JBS USA Holdings is payment of net tax incurred during the tax year 2022 under the tax sharing agreement.

### Debt

Our long-term debt and other borrowing arrangements consist of senior notes, revolving credit facilities and other term loan agreements. For a description, refer to “Note 12. Debt.”

### Collateral

Substantially all of our domestic inventories and domestic fixed assets are pledged as collateral to secure the obligations under the U.S. Credit Facility.

### Obligor Group Summarized Financial Information

All of the senior unsecured registered notes (collectively, the “Pilgrim’s Senior Notes”) issued by Pilgrim’s Pride Corporation are fully and unconditionally guaranteed by Pilgrim’s Pride Corporation of West Virginia Inc., JFC LLC, Gold’n Plump Farms LLC and Gold’n Plump Poultry LLC (the “Subsidiary Guarantors”). See “Note 12. Debt” of our Condensed Consolidated Financial Statements included in this quarterly report for additional descriptions of these guarantees.

The following tables present summarized financial information for Pilgrim’s Pride Corporation parent company only (as issuer of the Pilgrim’s Senior Notes) and the Subsidiary Guarantors (together, the “Obligor Group”), on a combined basis after the elimination of all intercompany balances and transactions between Pilgrim’ Pride Corporation parent company only and the Subsidiary Guarantors and investments in any non-obligated subsidiary.

*(In millions)*

| Summarized Balance Sheets | March 26, 2023 | December 25, 2022 |
| --- | ---: | ---: |
| Current assets | $1,915 | $1,983 |
| Current assets due from non-obligated subsidiaries(a) | 175 | 170 |
| Current assets due from related parties(b) | 2 | 2 |
| Noncurrent assets | 1,986 | 1,945 |
| Current liabilities | 1,333 | 1,402 |
| Current liabilities due to non-obligated subsidiaries(a) | 340 | 253 |
| Current liabilities due to related parties(b) | 10 | 8 |
| Noncurrent liabilities | 3,463 | 3,459 |

(a) Represents receivables and short-term lending due from and payables and short-term lending due to non-obligated subsidiaries.

(b) Represents receivables due from and payables due to JBS affiliates.

*(In millions)*

| Summarized Income Statements | Three Months Ended March 26, 2023 |
| --- | ---: |
| Net sales | $2,509 |
| Gross profit(a) | 41 |
| Operating income | (13) |
| Net income | (49) |
| Net income attributable to Obligor Group | (49) |

(a) For the three months ended March 26, 2023, the Obligor Group recognized $37.9 million of net sales to the non-obligated subsidiaries and no purchases from the non-obligated subsidiaries.

### Recent Accounting Pronouncements

See “Note 1. Business and Summary of Significant Accounting Policies” of our Condensed Consolidated Financial Statements included in this quarterly report for additional information relating to these recent accounting pronouncements.

### Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, refer to “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our annual report on Form 10-K for the fiscal year ended December 25, 2022, filed with the Securities and Exchange Commission (the “SEC”) on February 9, 2023 (the “2022 Annual Report”).

### Reconciliation of Net Income to EBITDA and Adjusted EBITDA

“EBITDA” is defined as the sum of net income (loss) plus interest, taxes, depreciation and amortization. “Adjusted EBITDA” is calculated by adding to EBITDA certain items of expense and deducting from EBITDA certain items of income that we believe are not indicative of our ongoing operating performance consisting of: (1) foreign currency transaction losses, (2) costs related to litigation settlements, (3) restructuring activities losses, (4) transaction costs related to acquisitions, (5) property insurance recoveries for Mayfield, Kentucky tornado property damage losses, and (6) net income attributable to noncontrolling interests. EBITDA is presented because it is used by us and we believe it is frequently used by securities analysts, investors and other interested parties, in addition to and not in lieu of results prepared in conformity with U.S. GAAP, to compare the performance of companies. We believe investors would be interested in our Adjusted EBITDA because this is how our management analyzes EBITDA applicable to continuing operations. We also believe that Adjusted EBITDA, in combination with our financial results calculated in accordance with U.S. GAAP, provides investors with additional perspective regarding the impact of certain significant items on EBITDA and facilitates a more direct comparison of our performance with our competitors. EBITDA and Adjusted EBITDA are not measurements of financial performance under U.S. GAAP. EBITDA and Adjusted EBITDA have limitations as analytical tools and should not be considered in isolation or as substitutes for an analysis of our results as reported under U.S. GAAP. Some of the limitations of these measures are:

- They do not reflect our cash expenditures, future requirements for capital expenditures or contractual commitments;
- They do not reflect changes in, or cash requirements for, our working capital needs;
- They do not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;
- Although depreciation and amortization are noncash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements;
- They are not adjusted for all noncash income or expense items that are reflected in our statements of cash flows;
- EBITDA does not reflect the impact of earnings or charges attributable to noncontrolling interests;
- They do not reflect the impact of earnings or charges resulting from matters we consider to not be indicative of our ongoing operations; and
- They do not reflect limitations on or costs related to transferring earnings from our subsidiaries to us.

In addition, other companies in our industry may calculate these measures differently than we do, limiting their usefulness as a comparative measure. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as an alternative to net income as indicators of our operating performance or any other measures of performance derived in accordance with U.S. GAAP. You should compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA and Adjusted EBITDA only on a supplemental basis.

*(In thousands)*

|  | Three Months Ended March 26, 2023 |
| --- | ---: |
| Net income | $5,631 |
| Add: |  |
| Interest expense, net | 39,062 |
| Income tax benefit | (8,840) |
| Depreciation and amortization | 98,257 |
| EBITDA | 134,110 |
| Add: |  |
| Foreign currency transaction losses | 18,143 |
| Litigation settlements | 11,200 |
| Restructuring activities losses | 8,026 |
| Minus: |  |
| Property insurance recoveries for Mayfield tornado losses | 19,086 |
| Net income attributable to noncontrolling interest | 444 |
| Adjusted EBITDA | $151,949 |

41

## Market risk

As filed, 12,403 characters.

### Market Risk-Sensitive Instruments and Positions

The risk inherent in our market risk-sensitive instruments and positions is primarily the potential loss arising from adverse changes in commodity prices, foreign currency exchange rates, interest rates and the credit quality of available-for-sale securities as discussed below. The sensitivity analyses presented do not consider the effects that such adverse changes may have on overall economic activity, nor do they consider additional actions our management may take to mitigate our exposure to such changes. Actual results may differ from those described below.

### Commodity Prices

We purchase certain commodities, primarily corn, soybean meal, soybean oil, and wheat, for use as ingredients in the feed we either sell commercially or consume in our live operations. As a result, our earnings are affected by changes in the price and availability of such feed ingredients. We have from time to time attempted to minimize our exposure to the changing price and availability of such feed ingredients using various techniques, including, but not limited to, (1) executing purchase agreements with suppliers for future physical delivery of feed ingredients at established prices and (2) purchasing or selling derivative financial instruments such as futures and options.

For this sensitivity analysis, market risk is estimated as a hypothetical 10% increase in the weighted-average cost of our primary feed ingredients as of the periods presented. The impact of this fluctuation, if realized, could be mitigated by related commodity hedging activity. However, fluctuations greater than 10% could occur.

*(In thousands)*

|  | Three Months Ended March 26, 2023 Amount | Impact of 10% Increase in Feed Ingredient Prices |
| --- | ---: | ---: |
| Feed ingredient purchases(a) | $1,131,382 | $113,138 |
| Feed ingredient inventory(b) | 260,058 | 26,006 |

(a) Based on our feed consumption, a 10% increase in the price of our feed ingredient purchases would have increased cost of sales for the three months ended March 26, 2023.

(b) A 10% increase in ending feed ingredient prices would have increased inventories as of March 26, 2023.

*(In thousands)*

|  | March 26, 2023 Amount | Impact of 10% Increase in Commodity Prices |
| --- | ---: | ---: |
| Net commodity derivative assets(a) | $47,812 | $4,781 |

(a) We purchase commodity derivative financial instruments, specifically exchange-traded futures and options, in an attempt to mitigate price risk related to our anticipated consumption of commodity inputs for the next 12 months. A 10% increase in corn, soybean meal, soybean oil and wheat prices would have resulted in an increase in the fair value of our net commodity derivative asset position, including margin cash, as of March 26, 2023.

### Interest Rates

*Fixed-rate debt.* Market risk for fixed-rate debt is estimated as the potential decrease in fair value resulting from a hypothetical increase in interest rates of 10%. Using a discounted cash flow analysis, a hypothetical 10% increase in interest rates would have decreased the fair value of our fixed-rate debt by $71.3 million as of March 26, 2023.

*Variable-rate debt.* Our variable-rate debt instruments represent approximately 15.9% of our total debt as of March 26, 2023. Holding other variables constant, including levels of indebtedness, an increase in interest rates of 100 basis points would have increased our interest expense by $4.9 million for the three months ended March 26, 2023.

### Foreign Currency

#### Mexico Subsidiaries

Our earnings are also affected by foreign exchange rate fluctuations related to the Mexican peso net monetary position of our Mexico subsidiaries. We manage this exposure primarily by attempting to minimize our Mexican peso net monetary position. We are also exposed to the effect of potential currency exchange rate fluctuations to the extent that amounts are repatriated from Mexico to the U.S. We currently anticipate that the future cash flows of our Mexico subsidiaries will be reinvested in our Mexico operations.

The Mexican peso exchange rate can directly and indirectly impact our financial condition and results of operations. For this sensitivity analysis, market risk is estimated as a hypothetical 10% change in the current exchange rate used to convert Mexican pesos to U.S. dollars as of March 26, 2023. However, fluctuations greater than 10% could occur. No assurance can be given as to how future movements in the Mexican peso could affect our future financial condition or results of operations.

*(In thousands, except for exchange rate data)*

|  | Three Months Ended March 26, 2023 Impact of 10% Deterioration in Exchange Rate | Impact of 10% Appreciation in Exchange Rate |
| --- | ---: | ---: |
| Foreign currency remeasurement gain (loss) | $(10,277) | $12,561 |
| Exchange rate of Mexican peso to the U.S. dollar: |  |  |
| As reported | 18.44 | 18.44 |
| Hypothetical 10% change | 20.29 | 16.60 |

#### U.K. and Europe Foreign Investments

We are exposed to foreign exchange-related variability of investments and earnings from our U.K. and Europe subsidiaries. Foreign currency market risk is the possibility that our financial results or financial position could be better or worse than planned because of changes in foreign currency exchange rates. For this sensitivity analysis, market risk is estimated as a hypothetical 10% change in exchange rates used to convert U.S. dollars to British pound and to euro, and the effect of this change on our U.K. and Europe foreign investments.

*Net Assets.* As of March 26, 2023, our U.K. and Europe subsidiaries that are denominated in British pounds had net assets of $4.1 billion. A 10% weakening in British pound against the U.S. dollar exchange rate would cause a decrease in the net assets of our U.K. and Europe subsidiaries by $368.8 million. A 10% strengthening in the British pound against the U.S dollar exchange rate would cause an increase in the net assets of our U.K. and Europe subsidiaries of $450.7 million.

*Cash flow hedging transactions.* We periodically enter into foreign currency forward contracts, which are designated and qualify as cash flow hedges, to hedge foreign currency risk on a portion of sales generated and purchases made by our U.K. and Europe subsidiary. A 10% weakening or strengthening of the U.S. dollar against the British pound and U.S. dollar against the euro would result in immaterial changes in the fair values of these derivative instruments. No assurance can be given as to how future movements in currency rates could affect our future financial condition or results of operations.

### Quality of Investments

Certain retirement plans that we sponsor invest in a variety of financial instruments. We have analyzed our portfolios of investments and, to the best of our knowledge, none of our investments, including money market funds units, commercial paper and municipal securities, have been downgraded, and neither we nor any fund in which we participate hold significant amounts of structured investment vehicles, auction rate securities, collateralized debt obligations, credit derivatives, hedge funds investments, fund of funds investments or perpetual preferred securities. Certain postretirement funds in which we participate hold significant amounts of mortgage-backed securities. However, none of the mortgages collateralizing these securities are considered subprime.

### Impact of Inflation

The U.S., Mexico and most of Europe are currently experiencing pronounced inflation. None of the locations in which we operate are experiencing hyperinflation. We have responded to these inflationary challenges by continuing negotiations with customers to recoup the extraordinary costs we have experienced. We also continue to focus on operational initiatives that aim to deliver labor efficiencies, better agricultural performance and improved yields.

### Forward Looking Statements

Certain written and oral statements made by our Company and subsidiaries of our Company may constitute “forward-looking statements” as defined under the Private Securities Litigation Reform Act of 1995. This includes statements made herein, in our other filings with the SEC, in press releases, and in certain other oral and written presentations. Statements of our intentions, beliefs, expectations or predictions for the future, denoted by the words “anticipate,” “believe,” “estimate,” “expect,” “project,” “plan,” “imply,” “intend,” “should,” “foresee” and similar expressions, are forward-looking statements that reflect our current views about future events and are subject to risks, uncertainties and assumptions. Such risks, uncertainties and assumptions include the following:

- The impact of the COVID-19 pandemic, efforts to contain the pandemic and resulting economic downturn on our operations and financial condition;
- Matters affecting the chicken and pork industries generally, including fluctuations in the commodity prices of feed ingredients, pigs and chicken;
- Our ability to obtain and maintain commercially reasonable terms with vendors and service providers;
- Our ability to maintain contracts that are critical to our operations;
- Our ability to retain management and other key individuals;
- Outbreaks of avian influenza or other diseases, either in our own flock or elsewhere, affecting our ability to conduct our operations and/or demand for our poultry products;
- Contamination of our products, which has previously and can in the future lead to product liability claims and product recalls;
- Exposure to risks related to product liability, product recalls, property damage and injuries to persons, for which insurance coverage is expensive, limited and potentially inadequate;
- Changes in laws or regulations affecting our operations or the application thereof;
- Our ability to ensure that our directors, officers, employees, agents, third-party intermediaries and the companies to which we outsource certain of our business operations will comply with anti-corruption laws or other laws governing the conduct of business with government entities;
- New immigration legislation or increased enforcement efforts in connection with existing immigration legislation that cause our costs of business to increase, cause us to change the way in which we do business or otherwise disrupt our operations;
- Competitive factors, inflation and pricing pressures, or the loss of one or more of our largest customers;
- Inability to consummate, or effectively integrate, any acquisition or to realize the associated anticipated cost savings and operating synergies;
- Currency exchange rate fluctuations, trade barriers, exchange controls, expropriation and other risks associated with foreign segments, including risks associated with Brexit;
- Restrictions imposed by, and as a result of, Pilgrim’s leverage;
- Disruptions in international markets and distribution channels for various reasons, including, but not limited to, the ongoing Russia-Ukraine war;
- The impact of cyber-attacks, natural disasters, power losses, unauthorized access, telecommunication failures, and other problems on our information systems;
- Our ability to maintain favorable labor relations with our employees and our compliance with labor laws;
- Extreme weather or natural disasters;
- The impact of uncertainties in litigation; and
- Other risks described herein and under “Risk Factors” in our 2022 Annual Report.

Actual results could differ materially from those projected in these forward-looking statements as a result of these factors, among others, many of which are beyond our control.

The Company’s forward-looking statements speak only as of the date of this report or as of the date they are made. In making these statements, we are not undertaking, and specifically decline to undertake, any obligation to address or update each or any factor in future filings or communications regarding our business or results, and we are not undertaking to address how any of these factors may have caused changes to information contained in previous filings or communications. Although we have attempted to list comprehensively these important cautionary risk factors, we must caution investors and others that other factors may in the future prove to be important and affect our business or results of operations.

## Controls and procedures

As filed, 2,286 characters.

### Disclosure Controls and Procedures

Under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 (the “Exchange Act”), “disclosure controls and procedures” means controls and other procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of March 26, 2023, the Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation and subject to the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that, as of March 26, 2023, the Company’s disclosure controls and procedures were effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that information we are required to disclose in our reports filed with the SEC is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

The Company’s management, including the Chief Executive Officer and Chief Financial Officer, identified no change in the Company’s internal control over financial reporting that occurred during the three months ended March 26, 2023 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 1,908 characters.

For a discussion of our potential risks and uncertainties, please see “ Part I—Item 1A—Risk Factors” and “Part II—Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2022 Annual Report and “Part I—Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein, in each case as updated by the Company’s periodic filings with the SEC and the risk factors below.

**Labor shortages and increased turnover or increases in employee and employee-related costs could have adverse effects on our profitability.**

We and our third-party vendors have experienced increased labor shortages at some of our production facilities and other locations. Although we have historically experienced some level of ordinary course turnover of employees, the impact of the COVID-19 pandemic and resulting actions have exacerbated labor shortages and increased turnover. Several factors have had and may continue to have adverse effects on the labor force available to us and our third-party vendors, including government regulations, which include laws and regulations related to workers’ health and safety, wage and hour practices and work authorization. Labor shortages and increased turnover rates within the Company and our third-party vendors have led to and could in the future lead to increased costs, such as increased overtime to meet demand and increased wage rates to attract and retain employees and could negatively affect our ability to efficiently operate our production facilities or otherwise operate at full capacity and could result in downtime of our production facilities. An overall or prolonged labor shortage, lack of skilled labor, increased turnover or labor inflation for any of the foregoing reasons could have a material adverse impact on our operations, results of operations, reputation, liquidity or cash flows.

Filed Apr 27, 2023.
Source: SEC EDGAR, the filing index for accession 0000802481-23-000040. Last ingested by Listed: Oct 29, 2026, 06:16 ET. No prices; not investment advice.