041032 Pilgrim's Pride Downgrade Hurts Rivals

New York, NY - Shares of U.S. poultry producers fell after an analyst downgraded Pilgrim's Pride Corp. -- the nation's second-largest processor -- on concerns about the impact of a surplus of chicken meat as prices continue declining.

David C. Nelson, an analyst with Credit Suisse First Boston, lowered his rating of Pilgrim's Pride to "Neutral" from "Outperform," saying the company's fiscal 2005 results could easily be affected by the recent volatility of commodity chicken and animal feed prices.

The analyst took issue with the "worsening" supply situation highlighted by the September storage report from the U.S. Department of Agriculture, which said the total domestic chicken supply of 766.6 million pounds was 27% greater than prior-year levels.

"The company's feed input costs should help earnings by about $2 per share at current market levels," Nelson wrote in a research note. "However if chicken prices decline more than 5%, this would be more than offset. Every 1-cent change in chicken prices is equal to 50 cents per share to Pilgrim's Pride earnings."

Nelson's downgrade comes even though Pilgrim's Pride last week forecast far better-than-expected fourth-quarter earnings, lifted by a $23.8 million, or 22-cent-per- share, recovery from an insurance policy. Even without the gain, the company still sees a quarterly profit above Wall Street targets, but did not give a reason for its increase.

In recent New York Stock Exchange activity, shares of Pilgrim's Pride dropped 5.3%, or $1.50, to $26.76 on above-average volume.

The industry began building an over-supply of poultry in June, when consumer demand sagged as average prices neared 85 cents per pound at their peak in early July. For comparison, average broiler prices were about 65 cents per pound in the year-ago period.

Since then, however, both average prices and the cost of feed -- which some livestock producers have blamed for thinning margins -- have fallen sharply, but poultry farms are worried that prices could continue sliding.

Despite posting a soaring third-quarter profit in late August, rival Sanderson Farms Inc. reduced its full-year view on indications of an increase in chicken inventory and softer prices toward the year's end. In afternoon Nasdaq trading, Sanderson retreated 3.8%, or $1.25, to $31.50 and Tyson Foods Inc. lost 3.4%, or 49 cents, to $14.12, with more than 2.5 million shares changing hands. Gold Kist Inc., which made its trading debut earlier this month, dropped 2.2%, or 25 cents, to $11.24 on the Nasdaq.

For the fourth quarter, Pilgrim's Pride sees earnings of $1.02 to $1.07 per share, or 80 cents to 85 cents per share excluding the one-time insurance benefit. That compares with a prior view of 70 cents to 80 cents per share.

Analysts surveyed by Thomson First Call predict a profit -- excluding the insurance gain -- of 83 cents per share on $1.4 billion in sales, sharply higher than 8 cents on sales of $709 million a year earlier.

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