Poultry Processing Economic Review
By Juanita Schwartzkopf and Robert Miles
Focus Management Group has prepared an economic industry overview and restructuring strategy discussion to assist stakeholders in their review of portfolio poultry industry operators.
For a copy of our detailed analysis, download the eBook.
The U.S. poultry industry exhibits many unique characteristics, which combine to create challenges for stakeholders seeking to develop turnaround or restructuring strategies for poultry companies. This eBook seeks to provide the reader with an overview of the poultry industry, and to provide insight related to turnaround and restructuring considerations in this niche market.
Our study analyzes the changing relationships between broiler prices (chickens raised for meat) and feed costs, and assesses the resulting complex decisions facing poultry processors regarding flock management, further processing, optimal bird weight, etc. We also identify how the interaction of key performance indicators can serve as a pivotal tool in determining the viability of a poultry operation. In the case of non-viable operations, we discuss at length the factors that must be addressed when considering a poultry processor liquidation.
Finally, the eBook outlines in detail how potential fluctuations in the commodities markets in 2016 may result in additional margin compression for poultry processors, exacerbating an already challenging situation existing today in the U.S. poultry industry.
Turnaround & Restructuring Alternatives
- When analyzing the performance of a poultry processor, it is important to differentiate between the impact of day-to-day management decisions and the impact of larger macroeconomic factors. Critical to any performance recovery is an understanding of the root cause of financial performance problems.
- Turnaround success is centered on understanding the operating performance of the individual poultry producer. Throughput is a key element to reducing production costs. Availability of throughput metrics, including downtime, yield per line per hour, etc., is critical to evaluating turnaround and restructuring options. Also, critical is an understanding of vendor and customer contracts and their impact on cash flow.
- The Focus Poultry Performance Matrix provides a unique tool for understanding the combinations of performance which can result in a poultry producer achieving success. The output from this Matrix, when coupled with analysis of a poultry producers’ various metrics, contracts, etc., provide stakeholders with an ability to assess the likelihood of an industry participant attaining these combinations of performance that result in positive financial performance.
- Restructuring measures may be required if a financial and operating performance turnaround cannot be achieved under prevailing conditions. Such restructuring options include both in-court and out of court alternatives, ranging from direct lender negotiations to Chapter 7 liquidation.
- Turnaround and restructuring options in the poultry industry are complicated by the existence of potentially millions of live birds in production at any point in time. It is not possible to immediately close an operation that is struggling or failing. Careful planning is required in order to avoid significant loss of value.
- The industry-specific characteristics outlined in this eBook create diverse challenges for poultry processors and their stakeholders. Continued increases in feed cost, combined with lagging market prices for poultry products and reduced consumption, have created margin stress on all aspects of the industry.
- In the face of such margin stress, processors and their stakeholders must quickly and carefully examine all factors affecting operating throughput to obtain advance warning of possible liquidity issues.
- Failure to closely monitor poultry producers for signs of negatively trending performance metrics, and rapidly address issues identified at poorly performing operations, can result in unnecessary loss of collateral and/or recovery to stakeholders.
- The output from this Matrix, when coupled with analysis of a poultry producer’s various metrics, contracts, etc., provide stakeholders with an ability to assess an industry participant’s likelihood of attaining those combinations of performance that would result in positive financial performance.
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