Pilgrim's Pride: The Weakest Link in the Food Chain

Pilgrim's Pride (PPC) committed a cardinal sin a little over a year ago. This chicken producer with a then market cap of $2.6 billion bought its third largest rival, Gold Kist, for $1.1 billion. It increased its debt from a half a billion to over $1.3 billion in order to acquire Gold Kist.

The merger didn't work out. PPC got caught in feed and energy cost increases which it was unable to pass on to customers. The company now has a whole lot of chicken that it cannot sell at a profit (minus $190 million the last 6 months) with a whole lot of debt (now $1.5 billion). Last quarter the company surprised by losing less than analyst consensus and the market reacted by bidding up the stock from $12 to $17 in 2 weeks.