Pilgrim’s Pride turns 60

As Pilgrim’s Pride Corporation celebrates its sixtieth anniversary, the Pittsburg, Texas-based company presses on to new goals while remaining close to its roots and true to its values.

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Lonnie “Bo” Pilgrim | Photo courtesy of Pilgrim's
Lonnie “Bo” Pilgrim | Photo courtesy of Pilgrim's

On a typical morning in Pittsburg, Texas, Lonnie “Bo” Pilgrim wakes up about five o’clock, has coffee and takes a quick look at the news. Then he fixes his own breakfast of two eggs, some turkey sausage, bread and orange juice. After that a day can unfold in any one of a thousand ways, Mr. Pilgrim writes in his book, One Pilgrim’s Progress. “I never know fully what any day will hold,” the 78-year-old co-founder and chairman of the company shares, “but I’m always eager to find out what God has on my schedule and agenda.”

For a man who personally has helped guide the company that bears his name through six decades of progress – including the inevitable mixture of setbacks, triumphs and hard work – to build the second-largest poultry company in the USA and Mexico, there is no time to retire and new business objectives beckon. Foremost among them now may be the company’s bid to acquire Gold Kist, Inc., the nation’s third largest chicken producer. The unsolicited bid, revealed in August, is valued at approximately $1 billion plus the assumption of about $144 million in Gold Kist debt. Together, Pilgrim’s Pride and Gold Kist would be the world’s leading chicken producer and the No. 3 protein company in the USA. Pilgrim’s Pride announced September 28 that it would take its bid to acquire Gold Kist directly to the Atlanta-based company’s stockholders, after negotiations with the Gold Kist board of directors were unfruitful.

Whatever the outcome of the latest bid to grow the company by acquisition, Bo Pilgrim and his executive team continue to dream big. Their often-stated and long-standing objectives are to increase sales, profit margins and earnings, while outpacing the growth of the rest of the industry. Specific strategic objectives include being the preferred supplier to customers; growing at twice the industry rate; being in the top 25 percent in efficiencies in all processes and services; consistently earning a net profit of 4 percent or more to create value for shareholders; and being a great place to work. Along the way, Bo Pilgrim figures this furthers his personal mission of preserving a rural lifestyle in the USA, as well as Puerto Rico and Mexico, where the company has operations. His vision is to create jobs in small towns and on farms so that people can make a good living in the country. At the same time, the company benefits, he believes, as rural people take pride in their work, their company, and themselves. “Rural America is where I’ve chosen to live my life. It’s a place I value highly and want to see flourish,” he writes in his book.

One means of growing sales and earnings has been a decades-long focus on higher-value, higher-margin prepared foods products that allows the company to charge a premium for its products. This results in a reduction in the impact of feed ingredients on the company’s profitability and improving and stabilizing profit margins. In its most recent 10K filing, the company stated that feed ingredient costs typically decrease from between 31 percent and 49 percent of total production cost for fresh chicken to between 16 percent and 25 percent for prepared chicken products. Prepared foods sales represented 44.6 percent of the company’s total U.S. chicken revenues in fiscal year 2005, something Pilgrim’s Pride executives believe provides the company with significant competitive advantage.

This competitive edge results from investment and planning that took shape in 1986 with the construction of a prepared foods plant in Mt. Pleasant, Texas. Today, it is one of the largest prepared foods plants in the USA, with the capability of producing 2,000 different products and the capacity to turn out more than 7 million pounds of finished goods per week. The company’s further processing facilities have the combined capacity to process more than 1 billion pounds of product per year.

That vision and planning are working well. Pilgrim’s Pride’s prepared foods division has grown at double-digit rates in recent years, and company officials say they plan to continue making substantial capital investments, including acquisitions, to expand the prepared foods production capacities and capabilities.

Twenty years ago, though, when Pilgrim’s Pride opened its prepared foods plant in Mount Pleasant, some people in the industry “were a bit skeptical,” Bo Pilgrim writes in his book. “They didn’t think we had customers committed to buying our products before we started building the plant, and that’s something of a corporate no-no. That’s not my style, however. I had a very strong conviction that people in the United States were going to want more and more variety in their chicken products, and that they would be consuming an increasing amount of chicken as the years went by.”

Mr. Pilgrim admits that he was wrong about the exact nature of some of the items that would be demanded when the plant first started production, but says he was right in insisting that the plant be designed for flexibility so that could allow the company to act quickly on its changes in product lines to meet customer needs. Instead of relying on smaller plants that specialize in a single product, Pilgrim’s Pride relies on flexibility to adapt to new products in a larger facility. The company also makes frequent upgrades in equipment to enable it to produce almost any type of poultry product on the market today. Three major expansions of the prepared foods plant have occurred since 1986.

When it comes to outpacing industry growth and capitalizing on scale, Pilgrim’s Pride has delivered on its business strategy. The company currently processes approximately 30 million birds per week for a total of nearly 6 billion pounds of poultry per year, with about 40,000 employees company-wide. It owns and operates 26 chicken processing plants (23 in the USA and three in Mexico), 10 prepared foods plants and one turkey processing plant. Twenty-seven feed mills and 34 hatcheries support these plants. The company also produces 44 million dozen table eggs per year.

Pilgrim’s Pride’s 2004 acquisition of the ConAgra chicken division, which was the largest in poultry industry history, not only helped the company capitalize on scale and efficiencies but also made the company a nationwide, single-source supplier of chicken.

“We were delighted to find that ConAgra was an even better fit than anticipated, and our synergies were approximately twice what we thought when we put the deal together,” Bo Pilgrim said in the company’s most recent annual report. CEO O.B. Goolsby, Jr. added, “Our product lines, production capacity, customer base and expertise complemented each other perfectly, and we were able to achieve synergies in year one that we planned on reaching in year three.” At the time of the report, he estimated synergies approaching $120 million on an annual run-rate basis.

More and more, the challenge for today’s industry firms is to acquire or be acquired. Pilgrim’s Pride, in fact, was very close to being acquired in 1988 by Tyson Foods. Facing an “unusual convergence of financial situations” that year, and losing around $1 million a week, Bo Pilgrim offered to sell the company to his Arkansas rival. A letter of intent was negotiated, but Tyson decided not to close the deal. Mr. Pilgrim recounts in his book that he went to his board of directors and stated that they would trust God for a miracle. Within months, profitability returned for Pilgrim’s Pride, and the company was making $1 million a week instead of losing that much money.

Pilgrim’s Pride went on to make its own major acquisitions. The company acquired Green Acre Foods in 1997, WLR Foods in 2001, and the history-making deal for the ConAgra chicken operations in 2003. Pilgrim’s executives say the company will continue to be aggressive in acquisitions. “We believe that the industry will continue to consolidate, and we intend to be an active participant in the future, as we have in the past,” Mr. Goolsby said.

Today, Pilgrim’s Pride is ranked number 382 on this year’s FORTUNE 500 list of largest U.S. corporations and was named one of FORTUNE’s 100 fastest-growing companies for 2005. And the magazine has named Pilgrim’s Pride one of the “Most Admired Companies in America” four years running. Net sales for fiscal 2005 were a record $5.7 billion.

That’s a far cry from the company (Farmer’s Feed and Seed Co.), which was started in Pittsburg, Texas, in 1946, on just a few hundred dollars. As brothers Aubrey and Bo Pilgrim guided their feed and seed store into the chicken business in the 1940s, there was nothing remotely close to a long-range plan, a strategic plan or a business plan, according to Bo Pilgrim. They were driven by survival instinct – something that Mr. Pilgrim says still drives him today.

By the 1950s, the company was selling live chickens, and in the 1960s ice-packed chickens were sold in wooden crates. Aubrey Pilgrim died of a heart attack in 1966. Though deeply shaken, Bo Pilgrim committed to continue operating the company.

The company completed a string of acquisitions in the early 1970s, and with the acquisition of Mountaire Poultry Company of Arkansas in 1981, the company (then called Pilgrim’s Industries) entered the retail prepackaged chicken business. In 1985, Pilgrim’s Pride Corporation was adopted as the company name. In the 1990s, the company began to sell fully cooked, portion-controlled products.

Mr. Pilgrim shares in his book that building something great or excellent is never easy and never a foregone conclusion. “Every day for decades has been filled with some small problems – some of them slightly less small than others, some of them trickier to solve than others, some of them more persistent than others.” His advice to others is to take on problems one at a time. He writes, “The growth of most companies – for that matter, the growth of any one sector of a company – can be viewed as a sequence of problems that were solved one at a time, over time.”

He offers three lessons based on his life experience in the chicken business. First, don’t get bogged down by your business plan. Businesses tend to expand in the direction of opportunity, he says. Second, seek to coordinate your various enterprises as you expand, weighing opportunities on how they fit into the greater whole. Third, Mr. Pilgrim advises, trust God to do the overall orchestrating of your plan.

As the people at Pilgrim’s Pride Corporation press on to new goals for the Pittsburg, Texas-based company, they remain close to their roots and true to their values. In the company’s most recent annual report, Bo Pilgrim said, “I can’t emphasize enough how extremely proud I am of our people who work day in and day out to make all this happen. I admire the qualities and character they display to the external world about what Pilgrim’s Pride really is – a collection of ordinary, everyday, average, hard-working, faithful people, coming together to do exceptional things.”

Mr. Pilgrim knows who to credit for his success and that of his company. Downtown in the central square is a Prayer Tower donated to the community by Bo and Patty Pilgrim. Visitors have come from around the world, and the tower chimes hymns each evening. Across the street is Pilgrim Bank, of which Mr. Pilgrim has been the majority owner since 1969. On the same side of the street as the Prayer Tower is First Baptist Church of Pittsburg, where Mr. Pilgrim worships. He writes, “I like the geographic proximity of these facilities. In a wonderful way, the spiritual and material aspects of my life seemed linked.”

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