Pilgrim’s Pride said Friday it will idle three of its 32 U.S. chicken-processing plants by mid-May, a move that will help it and other chicken producers who are striving to reverse losses.
"Pilgrim’s announcement is a positive for the chicken space and we are encouraged by the news," Stephens Inc. analyst Farha Aslam wrote Friday. She reiterated her "overweight" stock recommendations on meat producers Tyson Foods and Sanderson Farms.
Tyson shares rose 5%, while Sanderson Farms jumped almost 10%, extending its rally into a second straight session. Sanderson rose Thursday on better-than-expected results for the quarter.
Pilgrim’s said the plants, located in Douglas, Ga., El Dorado, Ark., and Farmerville, La., employ about 3,000 people, or about 7% of the company’s U.S. workforce. About 430 independent contract growers who supply birds to the plants will also be affected.
The move will reduce Pilgrim’s output by 9% to 10% in total pounds of chicken processed and lower industry-wide production by 2%. Pittsburg, Texas-based Pilgrim’s Production would fall 3% this year compared to 2008, or 2.38 billion pounds processed.
Chicken producers have been taking other steps in a bid to restore profits after oversupply and weak prices crippled their balance sheets. The number of eggs set to produce chicks have declined as have the number of chicks sent to farms.
"We believe the industry is on the right trajectory with the dramatic scale down in production to improve the demand-supply balance, clearly visible from the recent cut in egg set and chick placements," wrote Deutsche Bank analyst Christina McGlone.
She kept her "hold" rating on Sanderson and lifted her stock-price target by $1 to $35.
In their most recent business quarters, Sanderson lost $6.2 million.
