Incorporated: 1963 as Pilgrim Feed Mills, Inc.
NAIC: 311615 Poultry Processing
SIC: 2015 Poultry Slaughtering & Processing
Pilgrim's Pride Corporation is the largest chicken processor in the United States and the second largest in Mexico. The company processes nearly 44 million birds per week and operates 37 chicken processing plants, 12 prepared-food facilities, and one turkey processing plant. It sells its poultry products and its trademarked EggsPlus products to customers in the foodservice, retail, and frozen entrée industries throughout the United States and Mexico and in over 70 countries around the globe. The company secured its industry-leading position through the 2006 acquisition of Gold Kist, Inc. As of 2007, Pilgrim's Pride was approximately 62 percent owned by its founder and chairman Lonnie (Bo) Pilgrim and his family.
Company Origins
According to an article by Toni Mack in Forbes, when Lonnie (Bo) Pilgrim was a boy "and wanted a Coke, his father, who ran the general store in the northeast Texas hamlet of Pine, would first make him sell six Cokes for a nickel apiece to the men working the nearby cotton gin." Such was the early business training of the chicken magnate who, by his own admission, "started from nothing." Because his father died abruptly from a heart attack, leaving the store in debt and the family with just $80, Bo was forced from age 11 to work at several different jobs. At the age of 17, he and his brother Aubrey purchased a farm supply store in Pittsburg, Texas, with money borrowed from a bank and a local dentist. The first capital investment was a used cotton gin, which the brothers converted into a feed grinder. From 1945 until 1966, the year of Aubrey's death, the company that would eventually incorporate as Pilgrim Feed Mills, Inc., expanded into egg-hatching and broiler-processing. In 1968, Bo, along with Aubrey's heirs, reincorporated the business as Pilgrim Industries, Inc.
Well into the 1980s, sales increases for the company averaged 20 percent annually. This growth was largely due to Bo's gutsy leadership and willingness to endure debt-to-equity ratios in excess of four-to-one in order to stay ahead of the competition. Jessica Greenbaum, in an article in Forbes, quotes one of Pilgrim's bankers as stating that Bo had "expanded as fast as he possibly could. The balance sheet couldn't sustain anymore." Pilgrim's strategy apparently paid off, for between 1960 and 1984, the number of broiler producers in the country shrank by more than 80 percent to just 55. Almost a decade later, that number stood at 45.
Advertising and Product Innovation
Beginning in January 1983, Pilgrim began promoting his company and the Pilgrim's Pride label through an award-winning television commercial, in which he appeared wearing a Pilgrim's hat as he affably related the superiority of his product line. The ads helped raise the profile of the Texas-based company, which posted sales that year of $268 million and profits of $2.1 million. By the following year, Pilgrim's Pride had become the ninth largest chicken producer in the United States and the first to introduce fresh, whole, boneless chickens to the market. Yet, despite such advances, as well as a conscientious paring down of its debt, the business was perhaps as precarious during the mid-1980s as it had ever been. The reason for this, wrote Mack, was that "the company was almost entirely dependent on highly cyclical commodity chicken sales. Twice over the years, commodity chicken down-cycles had almost bankrupted Pilgrim's Pride." Pilgrim's solution to this problem came in January 1986, when the company began operating a state-of-the-art "further processed" facility at Mt. Pleasant, Texas. In November of the same year, the company went public with a listing on the New York Stock Exchange; however, Bo maintained ownership and control by retaining 80 percent of the company's shares.
Bo's gamble on prepared chicken for the retail market proved just as risky as the commodity business, due to strong competition from Tyson and ConAgra as well as heightened advertising and promotional costs totaling as much as $6 to $8 million a year. 1988 marked a low point for the company when it posted an income loss of nearly $8 million on $506 million in sales. A switch to the accrual method of accounting, however, allowed the business to report a final profit of $1.7 million.
Expansion
Two well-timed decisions enabled Pilgrim's Pride to rebound dramatically in 1989. The first was Bo's surrender of the retail market (a minuscule percentage of corporate sales in the late 1990s) and full-scale assault on the foodservice industry. Although Tyson remained the leader, Pilgrim's Pride was able to promote itself as a strong alternate, through contracts with such frontrunners as Kentucky Fried Chicken, Kraft General Foods, and Wendy's restaurants. The second well-timed decision was Pilgrim's entry into the Mexican consumer market with the late 1987 acquisition of four fully integrated poultry operations serving the populous hub of Mexico City. The purchase price for the Mexican venture totaled $15.1 million. Largely because of these two moves, 1989 net sales shot up 30 percent, and net income rose above $20 million, for a profit-to-sales ratio of just over 3 percent. (Pilgrim's long-term goal was to boost this latter figure to around 4 percent.) The only blemish for the company that year was Pilgrim's involvement in a campaign contribution scandal with eight Texas lawmakers. The company CEO was forced to defend himself before a grand jury, but he was not indicted and was able to return to the business of keeping the company in the black.
From 1987 to 1991, the company tripled the size of its Mexican operations, built a strong presence in frozen retail, established a dependable export business, and witnessed enormous increases in output for its further processed and prepared divisions. In addition, it entered into a number of joint marketing and advertising arrangements that kept down costs while increasing market share. All of this helped contribute to record sales of $786 million. Nevertheless, profits were down 21 percent and hovering at just 1.5 percent of revenues. Pilgrim's was a well-integrated agribusiness, 20th in domestic egg production, 5th in broiler sales, and blessed with a solid brand name and rising per capita consumption of its leading product. It had anticipated and responded to consumer demand with a wide array of new food products, including fresh tray packs, party packs, chicken patties, nuggets, strips, and ready-to-eat gourmet entrees and appetizers. Furthermore, the company owned dozens of modern breeder and growout farms; several feed mills and processing plants; and 19 distribution facilities in the Southwest and in Mexico. The explanation for Pilgrim's slide was most likely twofold: the company had failed to distance itself enough from the cyclical price woes of plain processed chicken, and it had saddled itself with increasing debt.
Problems Arise
In 1991, the company spent $34.4 million on improving the efficiency of its Mexican facilities and another $26.1 million on improving its domestic plants. The company entered 1992 hoping for the best and aiming at reaching sales of $1 billion by 1994. However, while the year proved full of noteworthy events, few of them were good news for the company. In January a fire at the Mt. Pleasant plant left 21 injured following a full evacuation of some 1,200 employees. The cause of the fire was determined to be a loose hydraulic line near a burner. Fortunately, all injuries were minor. Then, in May 1994, a debt restructuring was announced that would allow the company greater latitude in repaying its short-term obligations. The deal was completed in late June and served to extend Pilgrim's loan maturities until May 1, 1993. However, in order to arrange the waivers, the company was forced to sell five million common shares to Archer-Daniels-Midland (ADM) at six dollars per share. As a result, Bo Pilgrim's personal stake was effectively reduced from almost 80 percent to approximately 65 percent. A clause limiting ADM from acquiring more than a 20 percent interest, and Pilgrim's indemnification of ADM against losses for an undisclosed period, were also part of the deal.
Despite such warning signals, several analysts were surprised by a management reorganization announced in August, which involved the replacement of William Voss, president since 1988. Voss's successor, 11-year veteran Monty Henderson, was appointed to turn a declining earnings trend around. For the first nine months of fiscal 1992, ending June 27, the company sustained a net loss of $17.1 million. In the company's final quarter, another huge drop was added to the bottom line, resulting in one of its worst years ever. According to a Wall Street Journal article published just after this last piece of news, Pilgrim's yearlong "financial funk" was in danger of worsening. Short-term debts still needed to be reduced and further loan negotiations seemed inevitable. In November the company announced that it would not pay its common stock dividend for the first quarter of fiscal 1993. In addition, it was reported that "Pilgrim's Pride is seeking waivers of financial covenants in loan agreements with major secured lenders to whom it owes $65 million." Discussions for extending the May 1993 deadline until October 1993 were in progress.
In a March 16, 1993, press release, Pilgrim's Pride announced that it had filed a registration statement with the U.S. Securities and Exchange Commission regarding its proposed public offering of $100 million of Senior Subordinated Notes due 2003. According to the press release, the offering was "part of a refinancing plan designed to consolidate indebtedness, extend the average maturity of Pilgrim's Pride outstanding indebtedness and improve Pilgrim's Pride's operating and financial flexibility."
By 1992, Pilgrim's Pride was the country's second largest supplier of prepared chicken products, but was still not profitable. Increases in overall sales slowed in the early 1990s, while profits steadily declined. By the end of fiscal 1992, the company was struggling under the weight of a $29.7 million loss, attributable to excess poultry production and sinking prices.
With overall sales slowing, Pilgrim's Pride's Mexican operations were becoming increasingly important to the company's bottom line. Mexican operations grew to 20 percent of total Pilgrim's Pride revenues by 1994. Success in the region led Pilgrim's Pride to pursue further expansion there. In 1995 the company spent $32 million for five chicken operations known collectively as Union de Queretaro. Despite Mexico's economic problems in 1995 and 1996, Pilgrim's Pride maintained its stability there, and as Mexico's economy recovered, Pilgrim's Pride was in a good position to grow with it. By 1997, the company had entered every major market in the country and had achieved a 19 percent share of the poultry market.
Public Image Challenges
However, problems at home continued to plague the company. Public attention began focusing on the company's environmental and worker's rights record in the mid-1990s. In 1994, the company was sued by a doctor who had treated approximately 100 Pilgrim's Pride workers claiming to have been injured on the job; the doctor accused Pilgrim's Pride of interfering in his doctor-patient relationships and of retaliating against him for trying to improve working conditions at the plant. Although the company denied any wrongdoing, the suit brought to light several past cases in which Pilgrim's Pride had violated workers' compensation laws. In fact, the Texas Workers' Compensation Commission (TWCC) had already fined the company five times, for a total of $10,000, for violations. According to the Progressive in 1994, the TWCC investigation brought on by Dr. Arroyo's charges revealed "many violations by Pilgrim's Pride and its insurance companies."
At the same time, the Texas Natural Resource Conservation Commission (TNRCC) was investigating the company for air- and water-quality violations and industrial waste violations. Between 1984 and 1994, the TNRCC had received more than 110 complaints against Pilgrim's Pride for such environmental violations. By 1994, Pilgrim's Pride had received more than $1.3 million in penalties from the TNRCC. "The record of Pilgrim's Pride does concern me," Kenneth Ramirez of the TNRCC told Texas Monthly in 1994, adding that, "when a company has a history of noncompliance, at some point in time you have to take a special look at that company and the enforcement policy. We intend to take a special look at Pilgrim's Pride."
In 1996 a company proposal to build a new processing plant in Sulphur Springs, Texas, was denied by the city council; the water district's board also voted down the company's second choice in location. While opponents generally cited the company's environmental violations, some critics suggested that the decision may have also been influenced by racism, or concern about the likely influx of Spanish-speaking Mexican immigrants as workers at the plant.
During this time, the combination of a 12-year high in grain prices and the threat by Russia to ban poultry imports from the United States prompted Pilgrim's Pride to cut production by 8.5 percent for the year. Although net sales rose that year, to $1.1 billion, the company reported a loss of over $7 million for the second year in a row.
Pilgrim's Pride received a boost in fiscal 1997, however, as sales rose to $1.3 billion and net income shot up to $41 million. The record earnings beat the previous high in 1994 by 32 percent. The company also expanded that year, acquiring all the assets of Green Acre Foods, including a hatchery, a feed mill, and a processing plant. The company's plans for the late 1990s included further expansion of its prepared foods division, which in 1997 accounted for over 30 percent of the company's sales. Pilgrim's Pride pinned its hopes for a total recovery on the areas where it remained strongest: prepared foods for the foodservice industry and consumer sales to the Southwest and Mexico.
Growth in the New Millennium
Pilgrim's Pride spent the early years of the new millennium focused on expansion. During 2001, the company purchased WLR Foods, Inc., and secured the number two position in the U.S. chicken industry. Problems arose the following year, however, when the company was forced to issue the largest meat recall to date in the U.S. Department of Agriculture's history. Nearly 27.4 million pounds of turkey and chicken deli meats thought to have been produced in a WLR factory in Pennsylvania were taken off store shelves after a listeriosis outbreak killed eight people, caused three miscarriages, and caused illness in over 40 individuals. While the company denied responsibility, several lawsuits were filed against it and most were eventually settled confidentially.
Despite the major setback, Pilgrim's Pride continued to forge ahead with its growth plans. In 2003, the company added the chicken division of ConAgra Foods, Inc., to its arsenal. The $547 million deal nearly doubled the company's sales and market share, moving it one step closer to usurping competitor Tyson Foods, Inc., from the top spot in the U.S. market. At the same time, the company announced plans to move away from processing fresh turkey and to focus instead on processing prepared turkey products. It sold its turkey processing facility in Hinton, Virginia, in 2004 as part of this strategy.
The company made its boldest move of this time period under the continued leadership of chairman Bo Pilgrim and new CEO O. B. Goolsby, Jr. In August 2006, Pilgrim's Pride made an unsolicited bid for Gold Kist, Inc., the third largest poultry producer in the United States. After several months of heated negotiations, shareholders accepted Pilgrim's Pride's $1.1 billion offer. The deal, which included the assumption of $144 million in debt, catapulted the company into the leading position in the U.S. chicken market and also positioned it as the world's leading chicken company based on production.
By this time, the chicken industry was facing weak export demand, which led to an oversupply in the domestic market. During 2006, the company reported a net loss of $34.2 million. In response to market conditions, the company looked to its prepared-foods business to shore up profits. By offering new products such as its EatWellStayHealthy frozen food line--the first fully-cooked poultry to earn the American Heart Association seal--Pilgrim's Pride hoped to gain additional market share. Despite the supply and demand challenges, company management was confident it faced a bright future. Indeed, with 60 years of history behind it, Pilgrim's Pride would no doubt remain a leader in the chicken industry for years to come.
Principal Subsidiaries
Incubadora Hidalgo S. de R.L. de C. V. (Mexico); Inmobiliaria Avicola Pilgrim's Pride, S. de R.L. (Mexico); Pilgrim's Pride S. de R.L. de C.V. (Mexico); Gallina Pesada S.A. de C.V. (Mexico); Pilgrim's Pride Funding Corporation; PPC of Delaware Business Trust; Pilgrim's Pride Mktg, Ltd.; Pilgrim's Pride Affordable Housing Corporation; Grupo Pilgrim's Pride Funding Holdings S. de R.L. de C.V. (Mexico); Grupo Pilgrim's Pride Funding S. de R.L. de C.V. (Mexico); Valley Rail Service, Inc.; Pilgrim's Pride of Nevada, Inc.; Servicios Administrativos Pilgrim's Pride S. de R.L. de C. V. (Mexico); PFS Distribution Company; Mayflower Insurance To-Ricos, Inc.; Pilgrim's Pride Corporation of West Virginia, Inc.; PPC Transportation Company; Pilgrim's Pride Luxembourg Funding S.A.R. L.; Pilgrim's Turkey Company, LLC; Poppsa 3, LLC; Poppsa 4, LLC; Protein Acquisition Corporation; To-Ricos Distribution, Ltd.; To-Ricos, Ltd.; Pilgrim's Pride, LLC; PPC of Delaware, Inc.; Avicola Pilgrim's Pride de Mexico, S. de R.L. de C.V. (Mexico).
Principal Competitors
Industrias Bachoco, S.A.B. de C.V.; Perdue Farms; Tyson Foods Inc.; Allen Family Foods, Inc.
Further Reading
Ayling, Joe, "Gold Kist Takeover Hatches Leading Poultry Player," Just-Food, December 7, 2006.
Cartwright, Gary, "Bo Pilgrim: The Baron of Texas Agriculture," Texas Monthly, September 1994, pp. 110-21.
Countryman, Carol, "Shame of Pilgrim's Pride," Progressive, August 1994, p. 11.
Crispens, Jonna, "Pilgrim's Pride Has New President," Supermarket News, August 24, 1992.
Gazdziak, Sam, "Fully Cooked Commitment," National Provisioner, May 1, 2007.
Gibson, Richard, "Pilgrim's Pride Does Chickens Well," Wall Street Journal, May 12, 2004.
Greenbaum, Jessica, "... Sell a'Em or Smell a'Em," Forbes, July 16, 1984.
Lee, Steven H., "Ruffled Feathers: Chicken Processors Cut Production to Survive Price Squeeze," Dallas Morning News, March 9, 1996, p. F1.
Mack, Toni, "Pilgrim's Progress," Forbes, June 25, 1990.
Park, Scott, "Towns Oppose Pilgrim's Pride Chicken Plants," Dallas Morning News, April 21, 1996, p. A45.
"Pilgrim's Pride Corp.," Wall Street Journal, January 13, 1993.
"Pilgrim's Pride Corp.: Archer-Daniels-Midland Co. Agrees to Buy an 18% Stake," Wall Street Journal, May 13, 1992.
"Pilgrim's Pride Omits Dividend on Common for Fiscal 1st Period," Wall Street Journal, November 27, 1992.
"Pilgrim's Pride Ousts President, Chooses Henderson for Post," Wall Street Journal, August 10, 1992.
"Pilgrim's Pride Says Refinancing Delays Threaten Loan Pacts," Wall Street Journal, October 2, 1992.
Trice, Calvin R., "Growers in Co-Op to Buy Pilgrim's Pride Plant," Richmond Times-Dispatch, September 16, 2004.
"21 Hurt in Texas Plant Fire," New York Times, January 9, 1992.
Walker, Tom, "Chicken Rivals Make Deal," Atlanta Journal-Constitution, December 5, 2006.
Yung, Katherine, "Pilgrim's Pride Meat Recall Creates Crisis for Pittsburg, Texas, Poultry Giant," Dallas Morning News, January 19, 2003.
— Jay P. Pederson; Updated by Susan Windisch Brown, Christina Stansell Weaver
