PILGRIMS PRIDE CORP 10-K

Item 1. Business Company Overview Pilgrim’s Pride Corporation (referred to herein as “Pilgrim’s,” “PPC,” “the Company,” “we,” “us,” “our,” or similar terms) is primarily engaged in the production, processing, marketing and distribution of fresh, frozen and value-added chicken and pork products to retailers, distributors and foodservice operators. JBS S.A., through its indirect wholly-owned subsidiaries (together, “JBS”), beneficially owns 80.26% of our outstanding common stock. We market our balanced portfolio of fresh, prepared and value-added meat products to a diverse set of over 6,100 customers across the U.S., the U.K. and Europe, Mexico and in approximately 115 other countries. Our sales efforts are largely targeted towards the foodservice industry, principally chain restaurants and food processors, such as Chick-fil-A® and retail customers, including grocery store chains and wholesale clubs, such as Kroger®, Costco®, Publix® and H-E-B® in the U.S., chain restaurants such as McDonald’s® and grocery store chains such as Tesco and Waitrose in the U.K. and Europe, and grocery store chains such as Wal-Mart® in Mexico. As a vertically integrated company, we are able to control every phase of the production process, which helps us manage food safety and quality, control margins and improve customer service. Our plants are strategically located to ensure that customers timely receive fresh products. With our global network of approximately 5,100 growers, 39 feed mills, 48 hatcheries, 39 processing plants, 27 prepared foods cook plants, 25 distribution centers, ten rendering facilities and four pet food plants, we believe we are well-positioned to supply the growing demand for our products. On October 15, 2019, the Company acquired 100% of the equity of Tulip Limited and its subsidiaries (together, “Tulip”) from Danish Crown AmbA for £311.3 million, or $393.3 million for cash. Tulip, which has subsequently changed its name to Pilgrim’s Pride Ltd. (“PPL”), is a leading, integrated prepared pork supplier headquartered in Warwick, U.K. This acquisition solidifies Pilgrim's as a leading European food company, creating one of the largest integrated prepared foods businesses in the U.K. The PPL operations are included in our U.K. and Europe reportable segment. In 2017, we acquired (1) Granite Holdings Sàrl and its subsidiaries (together, “Moy Park”), which is one of the top-ten food companies in the U.K., Northern Ireland’s largest private sector business and one of Europe’s leading poultry producers and (2) JFC LLC and its subsidiaries (together, “GNP”), a vertically integrated poultry business that was based in Saint Cloud, Minnesota. Moy Park is included in our U.K. and Europe reportable segment and GNP is included in our U.S. reportable segment. In 2015, we acquired (3) Provemex Holdings, LLC and its subsidiaries (together, “Tyson Mexico”), a vertically integrated poultry business based in Gómez Palacio, Durango, Mexico. Tyson Mexico is included in our Mexico reportable segment. We operate on the basis of a 52/53-week fiscal year that ends on the Sunday falling on or before December 31. Any reference we make to a particular year, for example, 2020, applies to our fiscal year and not the calendar year. Fiscal 2020 was a 52-week fiscal year. Reportable Segments We operate in three reportable segments: U.S., U.K. and Europe, and Mexico. We either produce or purchase for resale chicken and pork products through our operations in the U.S., the U.K. and continental Europe, and Mexico. We conduct separate operations in the U.S., the U.K., continental Europe, Puerto Rico and Mexico; however, for geographic reporting 1 Table of Contents purposes, we include Puerto Rico with our U.S. operations. See “Note 19. Reportable Segments” of our Consolidated Financial Statements included in this annual report for additional information. Products and Markets Fresh Chicken and Pork Overview. Our fresh products consist of refrigerated (nonfrozen) whole or cut-up chicken, either pre-marinated or non-marinated, frozen whole chickens, breast fillets, mini breast fillets and prepackaged case-ready chicken, primary pork cuts, added value pork and pork ribs. Our case-ready chicken includes various combinations of freshly refrigerated, whole chickens, chicken parts in trays, bags or other consumer packs labeled and priced ready for the retail grocer’s fresh meat counter. Additionally, we are an important player in the live market in Mexico. In 2020, our fresh chicken sales accounted for 85.7%, 46.9%, and 94.8% of our total U.S., U.K. and Europe, and Mexico chicken sales, respectively. In 2020, our fresh pork sales accounted for 56.8% of our total U.K. and Europe pork sales. Prepared Chicken and Pork Overview. Our prepared chicken products include portion-controlled breast fillets, tenderloins and strips, delicatessen products, salads, formed nuggets and patties and bone-in chicken parts. These products are sold either refrigerated or frozen and may be fully cooked, partially cooked or raw. In addition, these products are breaded or non-breaded and either pre-marinated or non-marinated. Our prepared pork includes processed sausages, bacon, slow cooked, smoked meat, gammon joints, ready-to-cook variety of meat products, pre-packed meats, sandwich and deli counter meats, pulled pork balls, meatballs and coated foods. In 2020, our prepared chicken products sales accounted for 10.0%, 40.8%, and 5.2% of our total U.S., U.K. and Europe, and Mexico chicken sales, respectively. In 2020, our prepared pork products sales accounted for 37.8% of our total U.K. and Europe pork sales. Exported Chicken and Pork Overview. Exported chicken and pork products primarily consist of whole chickens and chicken parts sold either refrigerated for distributors in the U.S. or frozen for distribution to export markets and primary pork cuts, hog heads and trotters frozen for distribution to export markets. In 2020, our export chicken products sales accounted for 4.3% and 12.3% of our total U.S. and U.K. and Europe chicken sales, respectively. In 2020, our export pork products sales accounted for 5.5% of our total U.K. and Europe pork sales. Market Overview. Our foodservice market principally consists of chain restaurants, food processors, broad-line distributors and certain other institutions. Our retail market consists primarily of grocery store chains, wholesale clubs and other retail distributors. Our export market consists primarily of customers who purchase for distribution in the U.S., U.K. and continental Europe, or for export to Mexico, the Middle East, Asia, and other international markets. Net Sales for Primary Product Lines and Markets The following table sets forth, for the periods beginning with 2018, net sales attributable to each of our primary product lines and markets served with those products. We based the table on our internal sales reports and their classification of product types. 2 Table of Contents Year Ended December 27, 2020 December 29, 2019 December 30, 2018 (In thousands) U.S. chicken: Fresh $ 6,137,265 $ 6,214,954 $ 5,959,458 Prepared 714,563 842,365 773,983 Export 306,478 282,791 258,732 Total U.S. chicken 7,158,306 7,340,110 6,992,173 U.K. and Europe chicken: Fresh 863,670 918,852 925,124 Prepared 751,196 817,292 865,864 Export 227,224 262,041 303,921 Total U.K. and Europe chicken 1,842,090 1,998,185 2,094,909 Mexico chicken: Fresh 1,210,952 1,245,976 1,252,403 Prepared 66,572 95,733 76,860 Total Mexico chicken 1,277,524 1,341,709 1,329,263 Total chicken 10,277,920 10,680,004 10,416,345 U.K. and Europe pork: Fresh 730,703 135,985 — Prepared 486,290 134,426 — Export 70,190 16,174 — Total U.K. and Europe pork 1,287,183 286,585 — Other products: U.S. 337,711 296,606 433,488 U.K. and Europe 145,019 99,023 53,757 Mexico 44,068 47,001 34,194 Total other products 526,798 442,630 521,439 Total net sales $ 12,091,901 $ 11,409,219 $ 10,937,784 Raw Materials Grains . The Company utilizes various raw materials in its operations, including corn, soybean meal and wheat, along with various other ingredients from which the Company produces its own formulated feeds. In 2020, corn, soybean meal and wheat accounted for approximately 41.0%, 35.9% and 5.8% of our feed costs, respectively. The production of feed ingredients is positively or negatively affected primarily by the global level of supply inventories, demand for feed ingredients, the agricultural policies of the U.S. and foreign governments and weather patterns throughout the world. We attempt to mitigate the impact of price volatility on our profitability by decreasing the amount of our products that are sold under longer term fixed-price contracts, broadening our product portfolio and expanding the variety of contracts within our book of business. To also manage this risk, we purchase derivative financial instruments. The Company has long standing relationships with its sources of grain and other feed ingredients and expects to have an adequate supply for its present needs. Live chicks . The Company’s chicken operations purchase one-day old chicks from a few major breeders. These chicks, when mature, serve as the grandparent and parent stock of the broilers that these operations process for consumption. Should breeder stock from its present suppliers not be available for any reason, the Company believes that it could obtain adequate breeder stock from other suppliers in the regions in which it operates. Live pigs . The Company’s pork operations maintain a pig production base that makes up approximately 65% of the total number of pigs processed by the Company each year. Additionally, the Company’s pork operations procure live pigs for slaughter within a few days of purchase from numerous independent farmers throughout the U.K. Live pigs sourced from independent farmers make up approximately 35% of the total number of pigs processed by the Company each year. Although we generally expect adequate supply of live pigs in the U.K., there may be periods of imbalance in supply and demand. 3 Table of Contents Trademarks We own registered trademarks which are used in connection with our activity in our business. The trademarks are important to the overall marketing and branding of our products. All major trademarks in our business are registered. In part, our success can be attributed to the existence and continued protection of these trademarks. As long as the Company continues to use its trademarks, they are renewed indefinitely. Some of the more significant owned or licensed trademarks used by the Company or its affiliates are Pilgrim’s®, Just BARE®, Gold’n Pump®, Gold Kist®, County Pride Chicken®, Pierce Chicken®, Pilgrim’s® Mexico, County Post®, Savoro, To-Ricos, Del Dia®, Moy Park, and O’Kane. Seasonality The demand for our chicken products generally is greatest during the spring and summer months and lowest during the winter months. The demand for our pork products generally is higher during the summer and peaks during the winter primarily due to the holiday season. Key Customers Our two largest customers accounted for approximately 13.1% and 12.9% of our net sales in 2020 and 2019, respectively. No single customer accounted for ten percent or more of our net sales in either 2020 or 2019. Competition The chicken and pork industry in the U.S., the U.K., continental Europe and Mexico is highly competitive. The competitive factors in our business include price, product quality, product development, brand identification, breadth of product line and customer service. We believe that being a vertically integrated chicken company and having a fully integrated supply chain in the pork business provides us with long-term cost and quality advantages over non-vertically integrated and other processors. We utilize numerous advertising and marketing techniques to develop and strengthen trade and consumer awareness and increase brand loyalty for consumer products. We believe our efforts to achieve and maintain brand awareness and loyalty help to achieve greater price premiums than would otherwise be the case in certain markets and support and expand our product distribution. We actively seek to identify and address consumer preferences by using sophisticated qualitative and quantitative consumer research techniques in key geographic markets to discover and validate new product ideas, packaging designs and methods. Although poultry and pork are relatively inexpensive in comparison with other meats, we compete indirectly with the producers of other meats and fish, since changes in the relative prices of these foods may alter consumer buying patterns. Regulation and Environmental Matters The poultry and pork industries are subject to government regulation, particularly in the health, workplace safety and environmental areas, including provisions relating to the discharge of materials into the environment, treatment and disposal of agricultural and food processing wastes, the use and maintenance of refrigeration systems, ammonia-based chillers, noise, odor and dust management, the operation of mechanized processing equipment and other operations, storm water, air emissions, treatment, storage and disposal of wastes, handling of hazardous substances and remediation of contaminated soil, surface water and groundwater, by the Centers for Disease Control, the United States Department of Agriculture (“USDA”), the Food and Drug Administration (“FDA”), the Environmental Protection Agency (“EPA”), the Occupational Safety and Health Administration and state and local regulatory authorities in the U.S. and by similar governmental agencies in the U.K., continental Europe and Mexico. Our chicken processing facilities in the U.S. are subject to on-site examination, inspection and regulation by the USDA. The FDA inspects the production of our feed mills in the U.S. Our food processing facilities and feed mills in the U.K., continental Europe and Mexico are subject to on-site examination, inspection and regulation by government agencies that perform functions similar to those performed by the USDA and FDA. The EPA, environmental authorities in the U.K., continental Europe and Mexico, and/or other U.S. or Mexican state and local authorities may, from time to time, adopt revisions to environmental rules and regulations, and/or changes in the terms and conditions of our environmental permits, with which we must comply. Compliance with existing or new environmental requirements, including more stringent limitations imposed or expected in recently-renewed or soon-to be renewed environmental permits, may require capital expenditures and operating expenses which may be significant. In the U.K., all Moy Park poultry farms which exceed a threshold size of 40,000 birds placed are required to carry out activities in compliance with their environmental permits and they must use Best Available Techniques in order to achieve a high level of environmental protection. PPL’s sites are independently audited and certified by the British Retail Consortium standard. Many of PPL’s sites are certified by additional and traceability schemes including Royal Society for the Prevention of Cruelty to Animals Assured, Soil Association, Organic Farmers and Growers and Assured Food Standards. 4 Table of Contents Human Capital Resources As of December 27, 2020, we employed approximately 30,900 persons in the U.S., approximately 10,500 persons in Mexico and approximately 15,000 persons in the U.K. and Europe. Our success is largely dependent on the skills, experience and efforts of our employees. We rely on an adequate number of skilled employees to serve in critical production roles, such as processing workers and operations supervisors. In managing our business, we focus on a number of human capital measures or objectives, which are rooted in our core values and include the following items: Health and Safety. A core tenet of our Company is the promotion of a healthy and safe working environment. Key examples of our focus and commitment include: • We conduct safety audits of all facilities on an annual basis. These audits include auditing the physical state of the plant, policies, safety culture and our occupational health clinics. • We engage with our team members through the use of safety committees and other safety initiatives to improve the overall safety of the workplace and advance a safety first culture. • We seek to control ergonomic risks and prevent injuries by conducting focused annual ergonomic and physical hazard assessment at all facilities. • Our efforts have resulted in year-over-year reductions in severe injuries, total recordable incident rate, lost time incident rate and days away restricted or transferred of 12%, 22%, 7% and 19%, respectively. • As discussed in “Part II, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Impact of COVID-19,” we have implemented and continue to implement numerous health and safety policies and procedures focused on reducing the spread of novel coronavirus (“COVID-19”) and protecting our facility workers from risks of illness while maintaining our business continuity. Diversity and Inclusion. We believe that promoting diversity and inclusion among our workforce helps to create a trusting and productive workplace. We encourage the management teams at each facility to hire from the local regions in which they are located. In addition: • Our Equal Employment Opportunity Policy (“EEO Policy”) affirms our commitment to employ and support employees of all races, religions, colors, national origins, sexes, sexual orientations, gender identities and ages. Through the EEO Policy, we have been involved in diversity hiring initiatives and partnered with universities with an aim of recruiting from a diverse talent pool. • We track our progress in our efforts to promote diversity and inclusion. For example, in 2019, women comprised 43%, 37% and 35% of our total workforce in the U.S., the U.K. and Europe, and Mexico, respectively, and 68% of our total workforce in the U.S. were minorities. • Our management team members are expected to attend People First leadership training, which includes a model dedicated to training and awareness on diversity and inclusion. • We provide workshops on diversity and inclusion for our employees and we engage in targeted recruitment at 20 of the nation’s largest historically black colleges and universities. Retention and Career Development. We are committed to retaining talented employees at both production and management levels by offering competitive compensation and benefits, as well as leadership training and development opportunities. • We strive to provide competitive pay to our team members and reward top performers. Our benefits offerings include a minimum paid time off and paid sick leave for salaried employees, life and disability insurance and Company-matching retirement plans. • We have extensive leadership training programs, such as our Summit Program, designed to improve the skill set of our senior leadership, and our Supervisor Development Program, created to help identify and develop production workers into frontline supervisors. We have found that recognizing our employees’ efforts through training for continued advancement strengthens their performance and helps with our goals to achieve business results. Our employees completed over 390,000 training hours during 2019 and over 330,000 training hours during 2020 for our career development programs. Community Support . We are focused on supporting the communities in which we operate and serve. 5 Table of Contents • Hometown Strong Initiative. During 2020, we launched our Hometown Strong initiative to help the communities in which we operate respond to the unexpected challenges on society, such as the COVID-19 pandemic. We believe the Hometown Strong initiative will provide consequential investment projects and help them prepare for unanticipated challenges and build for the future. For 2020, we committed to Hometown Strong donations of $20.0 million and during the year ended December 27, 2020 we recorded $15.0 million in incremental donations expense relating to this initiative. • Tomorrow Fund. During 2019, we launched the Tomorrow Fund, a scholarship program designed to support the collegiate scholastic pursuits of our employees and their direct dependents. The Tomorrow Fund awards certain employees scholarships to an eligible university of their choice. Employee Relations. We respect our team members’ rights of association, including by joining labor unions and collective bargaining. Approximately 35.2% of our workforce are covered by a collective bargaining agreement. For additional information, see “Item 1A. Risk Factors - Our performance depends on favorable labor relations with our employees and our compliance with labor laws. Any deterioration of those relations or increase in labor costs due to our compliance with labor laws could adversely affect our business.” Available Information The Company’s website is www.pilgrims.com. The Company makes available, free of charge, through its website, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, directors and officers Forms 3, 4 and 5, and amendments to those reports, as soon as reasonably practicable after electronically filing such materials with, or furnishing them to, the SEC. The Company may use its website as a distribution channel of material company information. Financial and other important information regarding the Company is routinely posted on and accessible through the Company’s website at http://ir.pilgrims.com . Information contained on the Company’s website is not included as part of, or incorporated by reference into, this annual report. Information about our Executive Officers Name Age Background and Experience Dates Fabio Sandri 49 President and Chief Executive Officer September 2020 to Present Chief Financial Officer June 2011 to Present Fabio Sandri was named the Chief Executive Officer in September 2020 and has served as our Chief Financial Officer since June 2011. From April 2010 to June 2011, Mr. Sandri served as the Chief Financial Officer of Estacio Participações, the private post-secondary educational institution in Brazil. From November 2008 until April 2010, he was the Chief Financial Officer of Imbra SA, a provider of dental services based in Sao Paolo, Brazil. Commencing in 2005 through October 2008, he was employed by Braskem S.A., a New York Stock Exchange-listed petrochemical company headquartered in Camaçari, Brazil, first from 2005 to 2007 as its strategy director, then from 2007 until his departure as its corporate controller. He earned his Masters in Business Administration in 2001 from the Wharton School at the University of Pennsylvania and a degree in electrical engineering in 1993 from Escola Politécnica da Universidade de São Paulo.