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Pilgrim’s Pride Stocks Drop; Chicken Oversupply


September 26, 2008
By The Canadian Press

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September 25, 2008- Chicken producer Pilgrim's Pride Corp. said yesterday it expects to report a "significant loss'' in the quarter just ending and will not be in compliance with a debt covenant.

The announcement comes after its shares dropped 38 per cent Wednesday in heavy trading.

The company said the big quarterly loss stems from high costs for animal feed, made with corn and soybeans whose prices have jumped to record levels in the past year.

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Although most companies try to recoup costs through higher prices, Pilgrim's Pride has not been able to do so due to weak demand for breast meat and an oversupply of meat on the market.

Management did not offer details about the size of the loss. Analysts polled by Thomson Reuters expect a loss of 89 cents per share for the fourth quarter of the companies financial year ending Sept. 27 .

The company said it will not meet its fixed-charge coverage ratio debt covenant under its principal credit facilities. This ratio indicates whether a company can satisfy fixed financing expenses like interest and leases.

Pilgrim's Pride said it “believes it has reached an understanding'' with lenders to waive that debt covenant through Oct. 28 and to continue offering the company liquidity under its
credit facilities during that time period.

The company said it still needs to hammer out a written agreement with its lenders for the waiver. If it is unable to secure an agreement, Pilgrim's Pride said it may not be able to draw funds under the facilities and the lenders may be able to declare the company defaulted on the loans.