Chicken Profits Sizzle on a Simple Solution

Nobody ever thinks of category killer ideas when it comes to chicken. So, when you can’t reinvent the chicken wheel in the form of recipes and food preparation, the only other option is to change the way the chicken is raised and produced on the farm. And believe it or not, chicken coop lighting plays a big role in farmers’ bottom lines.

Lighting has proved to be such an important component that many of the largest chicken processors including Tyson Foods (NYSE:TSN) and Pilgrim’s Pride (NYSE:PPC) have requested their suppliers switch to the LED lighting.  Some studies have shown chickens to gain an extra pound when raised under LED lighting.  And, add in the cost savings of using the LED bulbs—some 50 to 90% —you can see why Tyson and Pilgrims are turning to this simple solution.

Margins in the chicken category for Tyson and Pilgrim’s are now at all-time highs.  As a matter of fact, Tyson Foods’ 5.3% margin on chicken processing is higher than its beef and pork divisions.  And, with chicken consumption doubling since 1975 while beef has decreased by 40% and pork remaining virtually flat, companies like Tyson and Pilgrim’s will do whatever is necessary to improve poultry and profits.

Both companies have contracts with thousands of poultry farmers, with Tyson boasting the most at 4,300. Lowering farmers’ costs while improving yield has turned into a mission for both companies.

For instance, when Pilgrim’s Pride released its better-than-expected earnings report last week, the official statement stressed operational improvements as the primary driver for delivering an 8-cent EPS beat.

The result has been especially rewarding for shareholders.  For the rolling twelve-month period, Tyson Foods returned 69% and Pilgrim’s Pride cooked-up a 93% gain, while the S&P has advanced 24%.  And, as both companies like to point-out, chicken demand only increases during the spring and summer seasons as people return to the warm-weather ritual of grilling.

In addition, pork supplies are expected to plummet over the summer months due to the outbreak of porcine epidemic diahorrea virus (PEDv).  Beef isn’t expected to fare much better either as producers continue to balance the high prices of feeder cattle against retention needs.

All of this gives us the perfect ingredients for mouth-watering profits in the quarters to come!  Enjoy.

Todd M. Schoenberger is author of the forthcoming “Cyclone of Insanity: A Hedge Fund Manager’s Struggle with Poverty, Elitism and Politics.”  Follow on Twitter @TMSchoenberger