Pilgrims Pride Corp PPC

No-moat Pilgrim’s Pride announced the $952 million acquisition of wide-moat Kerry Group’s consumer foods meats and meals business, consisting of value-added meats and prepared meals sold primarily in U.K and Ireland grocery stores. As Kerry’s moat stems from its taste and nutrition segment, not its consumer foods division, we don’t expect the transaction to alter Pilgrim’s competitive standing. Even so, we view the deal favorably, as it takes Pilgrim’s mix of non-commoditized fare to over 25% of sales from 17% previously, products that exhibit more stable and higher profit margins (10% three-year EBITDA margins for the acquired business versus 7.5% for Pilgrim’s). While the target has not experienced sales growth in aggregate in recent years, its lineup of plant-based meats and its direct-to-consumer home delivered meals segment have realized compelling growth, and provide a platform for Pilgrim’s to expand to other geographies, if it opts to do so.