Pilgrim’s Pride Corp. is seeing a welcome rebound in chicken demand as more restaurants reopen, but a shortage of workers is hurting profit potential and spurring the No. 2 U.S. poultry producer to turn more to robots.

The Colorado-based company, a unit of Brazilian meat giant JBS SA, said it expects to invest more than US$100 million over the next year in automation. Such efforts already led to the reduction of 2,200 positions last year, and there could be further cuts of as many as 5,600, Chief Executive Officer Fabio Sandri told analysts on Thursday.

The squeeze hits as vaccination rates accelerate and restaurants across the U.S. see a surge in revenue with more people dining outside the home. The labor predicament underscores shortages noted by the Federal Reserve, which said in its Beige Book report earlier this month that hiring remained a widespread challenge, particularly for low-wage and hourly workers, putting downward pressure on job growth.

Labor is the biggest dilemma right now for Pilgrim’s Pride and is also affecting the broader industry, said Sandri. The company is investing an additional US$40 million this year to retain workers and attract new ones, he said.

“The labor market today seems tighter than the one that we had when we were in full-employment mode,” Sandri said on an earnings conference call. He pointed to extra federal aid to unemployed Americans as one of the reasons behind the shortfall. “Today we are staffed less than we were even before the pandemic.”

Shares of the Colorado-based company fell as much as 5.6 per cent, the most since mid February, to US$23.30.

All options

Pilgrim’s Pride is considering “all options” and “aggressively addressing the situation,” Sandri said.

Fed Chair Powell was dismissive of anecdotes of labor shortages on Wednesday, explaining it mostly as an allocation problem, while also noting that millions of workers thrown out of employment during the pandemic are still on the sidelines.

Rising orders from restaurants is good news for Pilgrim’s and other poultry producers that last year switched to focusing on smaller birds to satisfy grocery-store demand. Now, prices are rising rapidly for the process of deboning the big chickens, boosting first-quarter profit above expectations.

Earnings insights

• Adjusted earnings per share of 42 cents topped consensus average estimate for 35 cents and the year-earlier performance of 12 cents.
• Net sales rose 6.5 per cent to US$3.27 billion, beating the forecast for US$3.24 billion.
• European operations continue to see “operational improvements, offsetting high feed costs, not yet reflected in prices, lower year-over-year food service volume due to lockdowns, and COVID-19 mitigation costs.”
• Mexico “maintained the strength from the second half” of last year, aided by improved overall economic conditions.

--With assistance from Payne Lubbers.