Pilgrim Chickens Out

Chicken producers normally do pretty well during economic downturns, as consumers shift from more expensive beef and pork. Not this time.

Demand is soft, but more crucially, costs are though the roof in the form of soaring feedgrain and energy prices. Everybody in the U.S. poultry industry is hurting, but none more than Pilgrim's Pride.

That's because on top of higher input costs, it's stuck with massive debt thanks largely to its ill-timed acquisition in January 2007 of Gold Kist, a smaller competitor. For that purchase, it took out about $1.5 billion in loans. The company announced on Thursday that it was not in compliance with one of its debt agreements.

That announcement came along with another one: that Pilgrim's Pride expects to report a "significant loss" in the fourth quarter. Forbes notes that the company is struggling even more than Tyson, Smithfield Foods and other competitors thanks to some basic strategic miscues. Its product mix tends to favor higher-end cuts, and so it's harder to for the company to pass on higher costs to consumers. And there has been "a major negative impact of hedged grain operations," which means its traders have not played the commodities market very well and so if bearing the full brunt of cost increases.

Altogether, the news has sent Pilgrim's Pride shares down by nearly a two-thirds. A year ago, the stock was at $35. It's now trading at about $3.80. Sources in various news accounts are talking about a possible bankruptcy.