PILGRIMS PRIDE CORP MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

By Gregory C. Smalley Last updated Oct 27, 2022

Summary

Insight

We reported net income attributable to Pilgrim's of $900.9 million, or $3.73 per
diluted common share, and income before tax totaling $1.2 billion, for the nine
months ended September 25, 2022. These operating results included net sales of
$13.3 billion, gross profit of $1.7 billion and $790.6 million of cash provided
by operating activities. We generated a consolidated operating margin of 9.4%
with operating margins of 13.8%, 0.0% and 7.7% in our U.S., U.K. and Europe, and
Mexico reportable segments, respectively. For the nine months ended
September 25, 2022, we generated EBITDA and Adjusted EBITDA of $1.6 billion and
$1.6 billion, respectively. A reconciliation of net income to EBITDA and
Adjusted EBITDA is included below.

Global economic conditions

During the third quarter of 2022, we continued to experience solid recoveries in
volume throughout the business from prior year levels as COVID-19 restrictions
eased, but were confronted with significant 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. We continued to experience labor shortages in the
U.K. as European Union (or "E.U.") workers returned to their home countries
following Brexit, thus affecting our ability to process, pack and transport
products. 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 significant challenges as
Mexico remains a volatile market given inflationary pressures, implications of
more significant 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.

Impacts of the Russia-Ukraine War

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 may 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 third
quarter of 2022, Ukraine resumed water-borne exports and their export volumes
continue to climb. Their supply constraints did not have a material impact on
our costs during the third 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. Our U.K.
and Europe business may be impacted by the increase in energy prices and the
availability of energy during the winter months. The impact of these measures,
now and in the future, could adversely affect our business, supply chain or
customers.

Impact of COVID-19

The impact of COVID-19 and the measures to prevent its spread continue to affect our business in several ways.

•Our workforce. Employee health and safety is our priority. As an essential
business in a critical infrastructure industry, we continue to produce chicken
and pork products. Measures we implemented during the height of the pandemic
that remain in place today include, but are not limited to: increasing physical
distancing of our employees,


                                       35

--------------------------------------------------------------------------------

where possible; staggering start and shift breaks; increasing personal hygiene
practices and providing our employees additional personal protective equipment
and sanitation stations; and increasing sanitation of our facilities. We have
also continued to support and encourage our employees and their family members
to be vaccinated against COVID-19.

•Our operations. All of our production facilities continue to operate. To date, we have not experienced any significant impact from a plant closure.

•Demand for our products. As global vaccination levels increased and government restrictions eased, we have noted the trend towards pre-pandemic demand levels in grocery stores and restaurants and are currently experiencing no significant changes in demand due to the COVID-19 pandemic.

•CARES Act. On March 27, 2020, the U.S. government enacted the CARES Act, which
includes modifications to the limitation on business interest expense and net
operating loss provisions, and provides a payment delay of employer payroll
taxes during 2020 after the date of enactment. We delayed the payment of $52
million in employer payroll taxes otherwise due in 2020. The first 50% was paid
on December 31, 2021 and the remaining 50% is due and payable by December 31,
2022.

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 declined 30% from historical
highs in early July to levels slightly above the 5-year average by the end of
September due to increasing chicken supply which outpaced the volume demand. As
a result, chicken volumes in cold storage and availability increased, driving
prices to decline more than seasonal norms. During the third quarter of 2022,
industry production levels trended above previous year levels, +2.8%
year-over-year, in ready to cook pounds. The increase in production was due to
both the improvement in layer productivity and hatchability rates since late in
the second quarter of 2022. Both factors led to more birds processed relative to
the same time previous year. Average chicken liveweights for the quarter
remained in line with a year ago. Third quarter demand remained steady across
the channels as indicated by increased sales. In the foodservice channel,
commercial foodservice restaurants volume demand remained flat while the
non-commercial subchannel grew significantly relative to same quarter prior
year. In retail, Pilgrim's fresh sales volumes outpaced the relatively flat
market volumes; while the frozen subchannel saw mixed results as declining
frozen commodity volumes more than offset value-added growth. The deli
subchannel also experienced steady volume sales, even at elevated prices. The
export market declined 9% in volume shipments for July and August.

During the third quarter of 2022, the UK The chicken market continued to experience rising food ingredient, utility and labor costs. Through our current customer models and additional negotiations, we have offset the majority of these cost increases. We continue to focus on cost management, including labor and yield efficiency, farm performance and increasing operational efficiency through investments in capital projects.

Commodity prices for chicken in Mexico increased during the third quarter of
2022 and remained well above prices from same quarter prior year. The increase
is primarily from increased demand that outpaced supply. 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.

While commodity market prices for chicken products declined, 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, 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 during the three months ended September 25,
2022 continued an upward trend, though the rate of growth slowed from 31% in the
second quarter to 21% in the third quarter driven by the slowing of EU prices.
The increase in Germany was at a more moderate growth rate of 6% in the third
quarter compared to more than 50% in late first quarter. Despite some pig price
recovery, the cost of production continued to exceed market prices, with pig
farmers reducing their loss to around £16 per pig in the third quarter, which is
a significant improvement over first and second quarter which had losses well
above £50 per pig. Input costs for feed and energy in the U.K. continue to rise
in the third quarter consistent with global market conditions, with the recovery
of inflation through retailers an ongoing area of focus.


                                       36

--------------------------------------------------------------------------------

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 17. Reportable Segments" of our Condensed Consolidated Financial
Statements included in this quarterly report.

Operating results

Three months completed September 25, 2022 Compared to the three months ended
September 26, 2021

Net sales. Net sales generated in the three months ended September 25, 2022
increased $641.4 million, or 16.8%, from net sales generated in the three months
ended September 26, 2021. The following table provides net sales information:

Change from Three Months Ended
Three Months Ended September 26, 2021
Sources of net sales September 25, 2022 Amount Percent
(In thousands, except percent data)
U.S. $ 2,836,920 $ 370,070 15.0 %
U.K. and Europe 1,203,095 272,655 29.3 %
Mexico 428,954 (1,322) (0.3) %
Total net sales $ 4,468,969 $ 641,403 16.8 %

U.S. Reportable Segment. U.S. net sales generated in the three months ended
September 25, 2022 increased $370.1 million, or 15.0%, from U.S. net sales
generated in the three months ended September 26, 2021 primarily due to an
increase in net sales per pound which increased $386.4 million, or
15.7 percentage points, to the increase in net sales. The increase in net sales
per pound was partially offset by a decrease in sales volume of $16.3 million,
or 0.7 percentage points. The increase in net sales per pound was driven
primarily by increases in price necessary to recover increased feed ingredients,
labor, utilities and other operating costs during the three months ended
September 25, 2022.

U.K. and Europe Reportable Segment. U.K. and Europe net sales generated in the
three months ended September 25, 2022 increased $272.7 million, or 29.3%, from
U.K. and Europe net sales generated in the three months ended September 26, 2021
primarily due to the acquisition of Pilgrim's Food Masters ("PFM") which
contributed $247.6 million to the increase in net sales. The existing U.K. and
Europe businesses contributed $25.1 million to the increase in net sales. This
increase to net sales of the existing operations was driven by an increase of
$238.0 million from increased net sales per pound, or 25.4 percentage points,
partially offset by the unfavorable impact of foreign currency translation of
$158.4 million, or 16.9 percentage points, and a decrease in sales volume of
$54.5 million, or 5.8 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
September 25, 2022 decreased $1.3 million, or 0.3%, from Mexico net sales
generated in the three months ended September 26, 2021 primarily due to a
decrease in sales volume of $47.5 million, or 11.0 percentage points, and the
unfavorable impact of foreign currency remeasurement of $4.9 million, or
1.2 percentage points, partially offset by an increase in net sales per pound of
$51.1 million, or 11.9 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 increased by $125.4 million, or
33.7%, from $371.8 million generated in the three months ended September 26,
2021 to $497.3 million generated in the three months ended September 25, 2022.
The following tables provide information regarding gross profit and cost of
sales information:

Three Months Change from Three Months Ended Percent of Net Sales
Ended September September 26, 2021 Three Months Ended
Components of gross profit 25, 2022 Amount Percent September 25, 2022

September 26, 2021

                                                                                     (In thousands, except percent data)
Net sales                                    $    4,468,969          $     641,403                   16.8  %                  100.0  %                  100.0  %
Cost of sales                                     3,971,699                515,976                   14.9  %                   88.9  %                   90.3  %
Gross profit                                 $      497,270          $     125,427                   33.7  %                   11.1  %                    9.7  %




                                       37

--------------------------------------------------------------------------------

Change from Three Months Ended
Three Months Ended September 26, 2021
Sources of gross profit September 25, 2022 Amount Percent
(In thousands, except percent data)
U.S. $ 445,308 $ 167,280 60.2 %
U.K. and Europe 52,469 20,145 62.3 %
Mexico (521) (61,998) (100.8) %
Elimination 14 - - %
Total gross profit $ 497,270 $ 125,427 33.7 %

Change from Three Months Ended
Three Months September 26, 2021
Ended September
Sources of cost of sales 25, 2022 Amount Percent
(In thousands, except percent data)
U.S. $ 2,391,612 $ 202,790 9.3 %
U.K. and Europe 1,150,626 252,510 28.1 %
Mexico 429,475 60,676 16.5 %
Elimination (14) - - %
Total cost of sales $ 3,971,699 $ 515,976 14.9 %

U.S. Reportable Segment. Cost of sales incurred by our U.S. operations during
the three months ended September 25, 2022 increased $202.8 million, or 9.3%,
from cost of sales incurred by our U.S. segment during the three months ended
September 26, 2021. The increase in cost of sales was primarily driven by an
increase in cost per pound sold of $217.3 million, or 9.9 percentage points,
partially offset by the impact of decreased sales volume of $14.5 million, or
0.6 percentage points. The increase in cost per pound sold included increases in
live operations costs, prepared foods purchases, payroll costs, contract labor
costs, supplies costs and utility costs. The increase in live operations costs
includes an increase of $91.4 million in feed costs and a $25.3 million increase
in chick costs. 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 September 25, 2022 increased
$252.5 million, or 28.1%, from cost of sales incurred by our U.K. and Europe
segment during the three months ended September 26, 2021 primarily because of
costs incurred by the acquired PFM operations and from increases in cost of
sales incurred by our existing U.K. and Europe operations. Cost of sales related
to the existing U.K. and Europe operations increased due to higher cost per
pound sold, partially offset by the favorable impact of foreign currency
translation and decreased sales volume. The increase in cost per pound sold was
driven by inflation in feed ingredients, utilities, CO2 costs and labor costs.

Mexico Reportable Segment. Cost of sales incurred by our Mexico operations
during the three months ended March 28, 2021 increased $60.7 million, or 16.5%,
from cost of sales incurred by our Mexico segment during the three months ended
September 26, 2021. This increase was driven by increased cost per pound sold of
$106.3 million, or 28.8 percentage points. The increase in cost per pound sold
was driven by higher input costs, such as feed ingredients and cost of chicks
which was negatively impacted by the cost to import eggs to offset the impacts
of bird disease at our locations, and an unfavorable shift in product mix due to
market demands. These increases were partially offset by a decrease in sales
volume of $40.7 million, or 11.0 percentage points, and the favorable impact of
foreign currency remeasurement of $4.9 million, or 1.3 percentage points.

Operating income and SG&A expense. Operating income increased by $218.4 million,
or 180.8%, from income of $120.8 million generated in the three months ended
September 26, 2021 to income of $339.2 million generated in the three months
ended September 25, 2022. The following tables provide information regarding
operating income and selling, general and administrative ("SG&A") expense:

--------------------------------------------------------------------------------

Three Months Change from Three Months Ended Percent of Net Sales
Ended September September 26, 2021 Three Months Ended
Components of operating income 25, 2022 Amount Percent September 25, 2022 September 26, 2021
(In thousands, except percent data)
Gross profit $ 497,270 $ 125,427 33.7 % 11.1 % 9.7 %
SG&A expense 158,068 (92,998) (37.0) % 3.5 % 6.6 %

Operating income $ 339,202 $ 218,425 180.8 % 7.6 % 3.2 %

Change from Three Months Ended September
Three Months Ended 26, 2021
Sources of operating income September 25, 2022 Amount Percent
(In thousands, except percent data)
U.S. $ 338,548 $ 267,882 379.1 %
U.K. and Europe 14,198 13,753 3,090.6 %
Mexico (13,558) (63,210) (127.3) %
Eliminations 14 - - %
Total operating income $ 339,202 $ 218,425 180.8 %

Change from Three Months Ended September
Three Months Ended 26, 2021
Sources of SG&A expense September 25, 2022 Amount Percent
(In thousands, except percent data)
U.S. $ 106,760 $ (100,602) (48.5) %
U.K. and Europe 38,271 6,392 20.1 %
Mexico 13,037 1,212 10.2 %
Total SG&A expense $ 158,068 $ (92,998) (37.0) %

U.S. Reportable Segment. SG&A expense incurred by our U.S. reportable segment
during the three months ended September 25, 2022 decreased $100.6 million, or
48.5%, from SG&A expense incurred by our U.S. reportable segment during the
three months ended September 26, 2021. The decrease in SG&A expense resulted
primarily from recognition of legal settlements and acquisition transaction
costs in the prior year. A net increase in other U.S. SG&A expense partially
offsets the decrease from legal settlement expense and acquisition transaction
costs. This net increase is driven by incentive compensation costs.

U.K. and Europe Reportable Segment. SG&A expense incurred by our U.K. and Europe
reportable segment during the three months ended September 25, 2022 increased
$6.4 million, or 20.1%, from SG&A expense incurred by our U.K. and Europe
segment during the three months ended September 26, 2021 primarily 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 September 25, 2022 increased approximately
$1.2 million, or 10.2%, from SG&A expense incurred by our Mexico segment during
the three months ended September 26, 2021. 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 $34.2 million recognized
in the three months ended September 25, 2022 from $28.6 million recognized in
the three months ended September 26, 2021. The increase in net interest expense
resulted primarily from interest expense on outstanding borrowings. Average
borrowings increased by $0.7 billion from $2.6 billion during the three months
ended September 26, 2021 to $3.4 billion during the three months ended
September 25, 2022 due to the issuance of the 2032 Senior Notes in September
2021 to purchase PFM. As a percent of net sales, interest expense in the three
months ended September 25, 2022 and September 26, 2021 was 0.8% and 0.8%,
respectively.

Income taxes. Income tax expense increased to $65.7 million, a 20.2% effective
tax rate, for the three months ended September 25, 2022 compared to an income
tax expense of $30.4 million, a 33.3% effective tax rate, for the three months
ended September 26, 2021. The increase in income tax expense resulted primarily
from the increase in profit before taxes.

--------------------------------------------------------------------------------

Nine month period ended September 25, 2022 Compared to the nine months ended September 26, 2021

Net sales. Net sales generated during the nine months ended September 25, 2022
increase $2.6 billionor 24.2%, of the net sales generated during the nine months ended September 26, 2021. The following table provides information on net sales:

Change from Nine Months Ended September
Nine Months Ended 26, 2021
September 25,
Sources of net sales 2022 Amount Percent
(In thousands, except percent data)
U.S. $ 8,318,007 $ 1,603,128 23.9 %
U.K. and Europe 3,640,129 919,110 33.8 %
Mexico 1,382,876 80,085 6.1 %
Total net sales $ 13,341,012 $ 2,602,323 24.2 %

U.S. Reportable Segment. U.S. net sales generated in the nine months ended
September 25, 2022 increased $1.6 billion, or 23.9%, from U.S. net sales
generated in the nine months ended September 26, 2021 primarily due to an
increase in net sales per pound which contributed $1.6 billion, or
23.8 percentage points, to the increase in net sales. The increase in net sales
per pound was driven primarily by price increases necessary to recover increased
feed ingredients, labor costs, supplies costs, utility costs and other operating
costs. Also contributing to the increase in net sales was an increase in sales
volume of $4.0 million, or 0.1 percentage points.

U.K. and Europe Reportable Segment. U.K. and Europe net sales generated in the
nine months ended September 25, 2022 increased $919.1 million, or 33.8%, from
U.K. and Europe net sales generated in the nine months ended September 26, 2021
primarily due to the acquisition of PFM which contributed $774.1 million to the
increase in net sales. The existing U.K. and Europe businesses contributed
$145.0 million to the increase in net sales. This increase was driven by an
increase of $506.7 million from increased net sales per pound, or 18.6
percentage points, partially offset by the unfavorable impact of foreign
currency translation of $285.0 million, or 10.5 percentage points, and a
decrease in sales volume of $76.7 million, or 2.8 percentage points. The
increase in net sales per pound was driven by price increases necessary to
recover increased feed ingredients, labor costs, CO2 costs, utility costs and
other operating costs.

Mexico Reportable Segment. Mexico net sales generated in the nine months ended
September 25, 2022 increased $80.1 million, or 6.1%, from Mexico net sales
generated in the nine months ended September 26, 2021 primarily due to an
increase in net sales per pound of $170.9 million, or 13.1 percentage points,
partially offset by a decrease in sales volume of $80.7 million, or 6.2
percentage points, and a decrease from the unfavorable impact of foreign
currency remeasurement of $10.1 million, or 0.8 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 increased by $702.7 million, or
69.3%, from $1.0 billion generated in the nine months ended September 26, 2021
to $1.7 billion generated in the nine months ended September 25, 2022. The
following tables provide information regarding gross profit and cost of sales
information:

Nine Months Ended Change from Nine Months Ended September Percent of Net Sales
September 25, 26, 2021 Nine Months Ended
Components of gross profit 2022 Amount Percent September 25, 2022

September 26, 2021

                                                                                     (In thousands, except percent data)
Net sales                                    $   13,341,012          $    2,602,323                   24.2  %                  100.0  %                  100.0  %
Cost of sales                                    11,624,991               1,899,629                   19.5  %                   87.1  %                   90.6  %
Gross profit                                 $    1,716,021          $      702,694                   69.3  %                   12.9  %                    9.4  %


                                                                                             Change from Nine Months Ended
                                                                 Nine Months Ended                 September 26, 2021
                                                                   September 25,
Sources of gross profit                                                2022                   Amount                Percent
                                                                              (In thousands, except percent data)
U.S.                                                             $    1,411,948          $     760,713                 116.8  %
U.K. and Europe                                                         160,503                 40,326                  33.6  %
Mexico                                                                  143,528                (98,345)                (40.7) %
Elimination                                                                  42                      -                     -  %
Total gross profit                                               $    1,716,021          $     702,694                  69.3  %




                                       40

--------------------------------------------------------------------------------

Change from Nine Months Ended September
Nine Months Ended 26, 2021
September 25,
Sources of cost of sales 2022 Amount Percent
(In thousands, except percent data)
U.S. $ 6,906,059 $ 842,415 13.9 %
U.K. and Europe 3,479,626 878,784 33.8 %
Mexico 1,239,348 178,430 16.8 %
Elimination (42) - - %
Total cost of sales $ 11,624,991 $ 1,899,629 19.5 %

U.S. Reportable Segment. Cost of sales incurred by our U.S. operations during
the nine months ended September 25, 2022 increased $842.4 million, or 13.9%,
from cost of sales incurred by our U.S. segment during the nine months ended
September 26, 2021. Cost of sales increased primarily because of an increase in
cost per pound sold which contributed $838.8 million, or 13.8 percentage points,
and an increase in sales volume of $3.6 million, or 0.1 percentage points. The
increase in cost per pound sold included increases in live operations costs,
payroll costs, prepared foods purchases, contract labor costs, supplies costs,
utility costs and higher realized losses in commodity derivatives. The increase
in live operations costs includes an increase of $292.8 million in feed costs
and a $69.5 million increase in chick costs. 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 nine months ended September 25, 2022 increased
$878.8 million, or 33.8%, from cost of sales incurred by our U.K. and Europe
segment during the nine months ended September 26, 2021 primarily because of
costs incurred by the acquired PFM operations and from increases in cost of
sales incurred by our existing U.K. and Europe operations. Cost of sales related
to the existing U.K. and Europe operations increased due to an increase in cost
per pound sold, partially offset by the favorable impact of foreign currency
translation and a decrease in sales volume. The increase in cost per pound sold
was driven by inflation in feed ingredients, CO2 costs, utility costs, as well
as increases in labor costs due to shortages resulting from Brexit and an
increase in the national minimum wage.

Mexico Reportable Segment. Cost of sales incurred by our Mexico operations
during the nine months ended September 25, 2022 increased $178.4 million, or
16.8%, from cost of sales incurred by our Mexico segment during the nine months
ended September 26, 2021. This increase was driven by increased cost per pound
sold of $253.2 million, or 23.9 percentage points, partially offset by a
decrease in sales volume of $65.7 million, or 6.2 percentage points, and the
favorable impact of foreign currency remeasurement of $9.0 million, or 0.9
percentage points. The increase in cost per pound sold was driven by higher
input costs, such as feed ingredients, chick costs and packaging costs, and an
unfavorable shift in product mix due to market demands.

Operating income and SG&A expense. Operating income increased by $1.1 billion
from $156.1 million generated in the nine months ended September 26, 2021 to
$1.3 billion generated in the nine months ended September 25, 2022. The
following tables provide information regarding operating income and selling,
general and administrative ("SG&A") expense:

Nine Months Ended Change from Nine Months Ended September Percent of Net Sales
September 25, 26, 2021 Nine Months Ended
Components of operating income 2022 Amount Percent September 25, 2022 September 26,

2021

                                                                             (In thousands, except percent data)
Gross profit                          $    1,716,021          $      702,694                   69.3  %                  12.9  %                   9.4  %
SG&A expense                                 461,902                (395,315)                 (46.1) %                   3.5  %                   8.0  %

Operating income                      $    1,254,119          $    1,098,009                  703.4  %                   9.4  %                   1.5  %




                                       41

--------------------------------------------------------------------------------

                                                                                                  Change from Nine Months Ended September
                                                                      Nine Months Ended                          26, 2021
Sources of operating income                                          September 25, 2022                Amount                 Percent
                                                                                    (In thousands, except percent data)
U.S.                                                              $       1,146,821               $    1,232,201                    NM(1)
U.K. and Europe                                                                 406                      (32,365)                (98.8) %
Mexico                                                                      106,850                     (101,827)                (48.8) %
Eliminations                                                                     42                            -                     -  %
Total operating income                                            $       1,254,119               $    1,098,009                 703.4  %

(1) This year-over-year percentage change is designated as immaterial (or “NM”) due to significant non-recurring items recognized in the prior year.

Change from Nine Months Ended September
Nine Months Ended 26, 2021
Sources of SG&A expense September 25, 2022 Amount Percent
(In thousands, except percent data)
U.S. $ 265,127 $ (471,488) (64.0) %
U.K. and Europe 160,097 72,691 83.2 %
Mexico 36,678 3,482 10.5 %
Total SG&A expense $ 461,902 $ (395,315) (46.1) %

U.S. Reportable Segment. SG&A expense incurred by our U.S. reportable segment
during the nine months ended September 25, 2022 decreased $471.5 million, or
64.0%, from SG&A expense incurred by our U.S. reportable segment during the nine
months ended September 26, 2021. The decrease in SG&A expense resulted primarily
from recognition of legal settlements and acquisition transaction costs in the
prior year. A net increase in other U.S. SG&A expense partially offsets the
decrease from legal settlement expense and acquisition transaction costs. This
net increase is driven by incentive compensation and legal defense costs.

U.K. and Europe Reportable Segment. SG&A expense incurred by our U.K. and Europe
reportable segment during the nine months ended September 25, 2022 increased
$72.7 million, or 83.2%, from SG&A expense incurred by our U.K. and Europe
segment during the nine months ended September 26, 2021 primarily from the
acquisition of the PFM business. Other factors affecting SG&A expense were
individually immaterial.

Mexico Reportable Segment. SG&A expense incurred by our Mexico reportable
segment during the nine months ended September 25, 2022 increased approximately
$3.5 million, or 10.5%, from SG&A expense incurred by our Mexico segment during
the nine months ended September 26, 2021. The primary drivers of the increase in
SG&A expense were compensation-related costs and marketing costs. Other factors
affecting our Mexico segment's SG&A expense were individually immaterial.

Net interest expense. Net interest expense slightly decreased to $106.3 million
recognized in the nine months ended September 25, 2022 from $106.4 million
recognized in the nine months ended September 26, 2021. The decrease in net
interest expense resulted primarily due to a $24.7 million loss on early
extinguishment of debt recognized in the prior year, partially offset by an
increase in interest expense on outstanding borrowings of $23.1 million. Average
borrowings increased by $1.0 billion from $2.4 billion during the nine months
ended September 26, 2021 to $3.4 billion during the nine months ended September
25, 2022 due to the issuance of the 2031 Senior Notes in September 2021 to fund
the acquisition of PFM. As a percent of net sales, interest expense in the nine
months ended September 25, 2022 and September 26, 2021 was 0.8% and 1.0%,
respectively.

Income taxes. Income tax expense increased to $253.7 million, a 21.9% effective
tax rate, for the nine months ended September 25, 2022 compared to an income tax
expense of $55.9 million, a 110.3% effective tax rate, for the nine months ended
September 26, 2021. The increase in income tax expense resulted primarily from
the increase in profit before taxes.

--------------------------------------------------------------------------------

Cash and capital resources

  The following table presents our available sources of liquidity as of
September 25, 2022:

                                                      Facility          Amount           Amount
Sources of Liquidity                                   Amount        Outstanding       Available
                                                                     (In millions)
Cash and cash equivalents                            $       -      $          -      $    654.2
Borrowing arrangements:
U.S. Credit Facility Revolving Note Payable(a)           800.0                 -           763.9
U.S. Credit Facility Term Loans(b)                       700.0             486.4               -
Mexico Credit Facility(c)                                 74.2                 -            74.2
U.K. and Europe Revolver Facility(d)                     162.9              10.9           152.0

(a) Availability under the WE The credit facility is also reduced by our outstanding standby letters of credit. Stand-by letters of credit in progress at
September 25, 2022 totaled $36.1 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 $74.2 million (Mex$1.5 billion).
(d)The U.S. dollar-equivalent of the facility amount under the U.K. and Europe
Revolver Facility is $162.9 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.

PILGRIMS PRIDE CORP MANAGEMENT REPORT OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-Q)

Related posts: