Echoing similar themes from chief chicken rival Tyson Foods Inc. a day earlier, Pittsburg, Texas-based Pilgrim's Pride said it grappled with a $189 million increase in feed ingredient costs in the fiscal 2007 year ended Sept. 29.

If market conditions do not change, the company will face an even steeper $345 million increase in feed costs for its 2008 fiscal year, company executives predicted on a conference call with analysts after releasing its fourth quarter earnings.(See Pilgrim's Pride swings to profit in 4Q but misses estimates on Meatingplace.com, November 13, 2007.)

Automating job functions

"Automation will be a key focus of our capital investment program in fiscal 2008," Chief Executive O.B. Goolsby Jr. told analysts. "We believe this investment, which includes labor-reducing technology, will enable use to move more products to our plants efficiently and help alleviate some of the recent issues related to a tight labor market and higher input costs."

Pilgrim's Pride is now installing automated equipment in selected plants to help mitigate increased competition for workers, Chief Operating Officer J. Clinton Rivers said during the call. The technology eliminates need for some 250 jobs, while also reducing overtime and the reliance on outside processors, he said. The company anticipates similar investments throughout the balance of fiscal 2008 that will "eliminate the needs for hundreds of positions, most of which are unfilled today," he said.

"We simply must find ways to operate more efficiently," said Rivers, noting that production levels at the company's plants were essentially flat in the fourth quarter, compared with year-earlier levels. Pilgrim's Pride predicted a similar comparison in the first quarter with an eventual ramp up later in the year.

Renegotiating contracts

Goolsby said the company is renegotiating its foodservice contracts in an attempt to pass along higher costs to customers. In some instances, it is including a so-called "escalator clause" that will allow pricing to be adjusted as commodity costs fluctuate.

"Current market conditions are much higher than they were a year ago," Goolsby said. "That should lead to price increases in the majority of Pilgrim's annual contracts, which will be negotiated before the end of December."