Cagle’s, Inc.

2000 Hills Ave., NW
Atlanta, Georgia 30318
U.S.A.
(404) 355-2820
Fax: (404) 351-4552

Public Company
Founded: 1945
Employees: 3.500
Sales: $353.1 million (fiscal year ended March 1997)
Stock Exchanges: American
SICs: 0250 Agriculture Production—Poultry; 5133 Wholesale Trade—Poultry and Poultry Products

Cagle’s, Inc. is a regional poultry operation located in the southeastern United States. With its wholly owned subsidiary, Cagle’s Farms, Inc., the company breeds, hatches, and raises chickens, slaughters them, processes and reprocesses the meat, markets, and distributes fresh and frozen chicken products. The company slaughters over two million birds a week at its three processing plants and ranks eighth nationally in pounds produced. About half of the chickens are deboned, as Cagle’s markets 85 percent of the birds as value-added products. These deboned, cut, marinated, and breaded products are sold primarily in the United States to supermarkets, national fast-food chains, food processors, restaurants, schools, and other institutions. The Cagle family owns over 50 percent of the company stock.

Background on the Chicken Industry

In 1923, Mrs. Wilmer Steele ordered 500 chicks for her farm on the Delmarva Peninsula, east of Chesapeake Bay. She sold the 387 birds that survived to reach two pounds for 620 a pound (approximately $5 a pound in 1996 dollars). According to John Steele Gordon’s history of the U.S. poultry industry in American Heritage, Mrs. Steele was the first person on the peninsula to raise chickens solely for market. Before her entrepreneurial enterprise, farmers’ wives sold whatever chickens were not needed at home. Few people, and certainly none of the agricultural experts, thought things would change. After all, what industry could compete with a system in which the labor (the farmers’ wives and children) and the feed (table scraps and grain spilled by other animals) were free? The problem the experts had was that they were looking at the big, prosperous livestock and grain farms in the Midwest, which led the nation in egg production.

The truck farms on the Delmarva (Del aware, Ma ryland, and V irginia) Peninsula were in a different situation. They needed to develop a steadier supply of products for their markets in Baltimore, Philadelphia, New York, and Washington, D.C. Mrs. Steele’s efforts were quickly copied. Two years later, Delaware produced 50,000 chickens for market, and in 1926, that number had reached 1 million.

Changes occurred quickly as the new industry grew. Hundreds of companies began developing special feeds for chickens since production in those numbers could not depend on table scraps. Adding cod-liver oil to the feeds meant that the chickens did not have to depend on sunlight to synthesize vitamin D, and this allowed farmers to put the chickens indoors where diet and temperature could be controlled for maximum weight gain. In 1933, a chicken had to eat 6½ pounds of feed to produce one pound of broiler meat. Ten years later, it took only 4 pounds of feed to get that same amount of meat. During this period, another major change occurred as egg production was separated from chicken farming to become an industry all its own.

During World War II, the War Food Administration took all the Delmarva chickens, 90 million a year, to feed the Armed Forces. As a result, non-military customers had to look elsewhere for their chickens, and the southeastern states, with their many small farmers, became the center of chicken production. The success of the industry in the South, according to John Steel Gordon, was largely due to a man named Jesse Dixon Jewell, the father of the modern contract growing farm.

Jewell ran a small feed store in Gainesville, Georgia. To earn more money during the Great Depression, he bought chickens and eggs from local farms and took them to Atlanta to sell. Most of the farmers could not afford to buy his feed and could not even buy more chicks to raise to sell, even though there was a demand for them. Jewell made a deal with a feed company to buy the feed on consignment and then got a loan from a bank to buy day-old chicks. As Gordon described it, “He placed these chicks with the farmers, taking back a note secured by the chickens, and supplied the feed needed to raise them to market weight. When the chickens were ready for sale, Jewell would buy them, and he and the farmers would settle accounts.”

The business expanded quickly, with Jewell placing chickens with more farmers and then starting his own hatchery and processing plant. In 1954, J. D. Jewell put its own feed mill in operation, becoming a completely integrated poultry company. It operated as an independent company for the next 25 years, when, in 1979, it was bought by Cagle’s Inc.

Cagle’s Early Years, 1945-69

George L. Cagle was a Georgia farmer. In 1945, he set up a poultry shop in downtown Atlanta, selling chickens to retail customers and to hotels, hospitals, and restaurants. Eight years later, in 1953, he incorporated the business. That year George’s son, Douglas, became a company director after having worked in the shop as a teenager. Ten years later the company began expanding into a vertically integrated organization. It acquired through mergers Strain Poultry Farms, Inc.(which was renamed Cagle’s Farm’s Inc.), Georgia Poultry Feed Mills, Inc., and several affiliated companies. In 1969, Talmadge Farms, Inc. was merged into the company. Other poultry companies in the region were also growing. Between 1947 and 1960, broiler production in the region increased by 365 percent. The competition within the industry was great. During the 1950s large regional operators such as Don Tyson in Arkansas and Frank Perdue in Maryland began reaching for a national market. The price of chicken fell dramatically.

That production growth led the Kennedy Administration, at the urging of Agriculture Secretary Orville Freeman, to set up the National Broiler Stabilization Advisory Committee to examine the feasibility of controlling prices and stabilizing production. Although the committee gave the Secretary the authority to regulate the supply of hatching eggs and therefore the supply of chickens when they hatched, the effort to regulate the industry died shortly thereafter.

The mid-1960s saw the beginning of another long-term change in the poultry business—automation. As producers spent more to automate their plants, productivity in processing plants began to increase. Between 1963 and 1985, according to the Monthly Labor Review, hourly output by employees increased an average 2.9 percent each year. In addition, the demand for poultry, especially chicken, started growing dramatically due both to lower prices and greater consumer concern about cholesterol and healthy eating.

Growth During the 1970s and 1980s

The company began the 1970s with Douglas Cagle being named CEO and continued to broaden its operations. In 1971 Cagle’s bought a poultry distribution operation in Florida where it conducted business as Cagle’s of Florida, Inc. The Florida operations grew with the purchase of June Dairy Co. and the broiler division of Modern Foods Inc. in 1972. In 1978, Cagle’s bought J.D. Jewell, Inc., for $1.4 million, and in 1979, it acquired Plumbrook Farms for approximately $1.35 million. The consumption of poultry continued to increase, with double-digit growth occurring during the late 1970s and early 1980s.

Perhaps in response to that demand, Cagle’s concentrated its efforts and capital on the production business. During the 1980s, the company eliminated its retail operations and sold its poultry processing equipment division and its interest in Select Laboratories Inc. of Gainesville, Georgia.

The foundation of Cagle’s entire operation were the breeder flocks owned by the company and maintained on 60 contract farms in north Georgia. The company also had contract grower farms for replacement breeders. A breeder chick was sent to one of those 41 farms when it was a day old and reared for about 18 weeks. It was then moved to one of the breeder farms where, at 25 weeks old, it began producing eggs. Each breeder produced eggs for about 40 weeks.

The eggs were set in incubators at one of Cagle’s two hatcheries in Georgia, where in three weeks, baby broiler chicks were hatched. On their first day, the chicks were removed from the incubator, separated by sex, vaccinated, placed in the specially designed Chick Bus and transported to one of approximately 285 contract grow-out farms in Georgia, Tennessee, and Alabama.

While the chicks were at the farm, Cagle’s paid for the feed and all veterinary costs, and owned the birds themselves. The farmers provided the housing, equipment, utilities, and labor. They made their money based on the weight of the live bird with a guaranteed minimum rate. That minimum was increased with various incentives that took into account the farmer’s performance compared to other farmers whose birds were marketed during the same week. The chicken’s feed came from Cagle’s three feed mills. The mills were all located in Georgia and had the capacity to produce over 800,000 tons of feed a year. The corn for the mills came primarily from the Midwest.

The chicks stayed at the grow-out farm for six to eight weeks, depending on how large a chicken was desired. Since male and female birds have different growth rates and nutritional needs, the chicks were grown separately by sex to provide the exact size requirement required by various customers. Once the broilers reached the desired weight, they were sent to one of the company’s three processing plants, located in Macon and Pine Mountain, Georgia, and Collinsville, Alabama.

The Early 1990s and Further Expansion

Poultry sales, particularly for chicken, continued strong as the decade began. The U.S. Department of Agriculture reported Americans were eating 90.1 pounds of poultry per person in 1990 and predicted that amount to rise to 95 pounds in 1991. By 1992, Americans were eating over 50 percent more poultry than they had in 1980.

The company began expanding again during the decade, becoming one of the fastest-growing poultry producers. In 1990, Cagle’s bought 50 percent of a grain elevator corporation and in March 1993, announced a 50-50 joint venture with Executive Holdings L.P., one of Cagle’s major customers, to own and operate the Cagle’s processing plant at Camilla, Georgia. The joint venture, named Cagle Foods JV, was created by Cagle’s contributing its former south Georgia and north Florida operations. Within two years of its establishment, the joint venture built a new hatchery and a new processing plant. With these additions, Cagle Foods JV had the capacity to produce approximately 1.4 million birds a week, a major portion of which was sold to the company’s largest customer, Equity Foods.

In 1993, Cagle’s reentered the retail market with individually quick-frozen chicken pieces, joining the industry’s movement toward value-added, convenience products. In addition to frozen chicken, new retail products soon included deboned breast and thigh meat and cut-up marinated and breaded chicken for barbecues. The industry recognized, and was responding to, consumers’ diminishing interest in, and time for, cooking whole broilers.

Those same consumers were also eating out much more, and Cagle’s produced cuts that ended up in sandwiches and other chicken meals at fast-food restaurants. The company’s largest customer, Equity Foods, turned much of the meat it bought from Cagle’s into chicken nuggets for McDonald’s.

Bad weather caused grain prices to rise during 1993, but the Strong demand for chicken products helped keep prices at profitable levels. Cagle’s sales in fiscal 1994 grew 12 percent to $312.7 million from $280.1 million, with income up 66 percent to $8.65 million after an accounting change. As feed costs declined in 1994, the company ended fiscal 1995 with sales of $349.8 million. That year the company reported it ranked 11th nationally in terms of pounds produced.

During 1994, Cagle’s announced plans to construct a new broiler complex planned in Franklin, Kentucky. The company anticipated spending $30 million on the facility which was to include a feed mill, hatchery, and processing plant). Of that amount, $17 million was to come from working capital.

1995 to the Present

Fiscal 1996 was a difficult period for Cagle’s. In June 1995, the Pine Mountain processing plant was destroyed by fire. The cause of the fire was believed to be an electrical short in an icecream vending machine, and 600 workers were laid off. The company decided to delay construction of the new facilities in Franklin and to concentrate on rebuilding the Pine Mountain plant. That was accomplished in record time, and the rebuilt facility, double the size of the old one and state-of-the-art, was back in production in November 1995. In December, Cagle’s acquired a one-third interest in a company that financed poultry houses for growers in South Georgia. The growers receiving the financing were under contract to Cagle Foods JV, the company’s joint venture.

In March 1996, the year-long rally in corn futures finally appeared to scare away users. The three largest poultry producers announced they were cutting back hatches between 7 to 8.5 percent, citing the high cost of feed corn. For Cagle’s, the production loss caused by the fire combined with record grain prices and export uncertainties resulted in a drop in earnings for the year. Sales declined by $41 million compared to fiscal 1995, to $308.8 million. Even so, the company was ranked ninth nationally in terms of pounds produced.

By the fall of 1996, feed prices were almost 43 percent higher than the year before. But some relief appeared to be in sight when, in November, commodity experts predicted a bumper corn crop of an estimated 9.2 billion bushels. The dropping price was expected to lead to greater demand from beef, pork, and poultry producers.

In an interview with Supermarket News, representatives from the four biggest poultry companies (Tyson Foods, ConAgra Poultry, Perdue Farms, and Gold Kist) expected chicken consumption to continue to increase, although more slowly than the 5 percent rate experienced in mid-decade. The key appeared to be the industry’s consumer-oriented emphasis of offering convenient, easy-to-prepare products. These now included refrigerated pre-cooked chicken parts (breast quarters, half-birds) that took under five minutes to put on the table. A related trend was to include chicken in prepared items such as ready-to-heat pasta salads. In 1996, the U.S. Department of Agriculture announced new labeling regulations that prohibited labeling as “fresh” poultry that was previously frozen.

With the expanded Pine Mountain facility back in full production, the company had the capacity to process 31,800 birds an hour. Sales for fiscal 1997 increased to $353.1 million, and the company moved up to the number eight ranking nationally in pounds produced. However, Cagle’s continued to face health and safety violations in its Macon plant. In 1996 it paid a fine of $88,000 and in 1997, the Occupational Safety and Health Administration ordered the company to pay $1.3 million, citing over 20 violations of federal safety rules at the plant. Cagle’s settled that citation for $608,000.

In fiscal 1997 and beyond, the company was carrying a higher than average level of debt as a result of rebuilding and expanding the Pine Mountain plant. However, with the added capacity and the continued high demand for convenience chicken products, Cagle’s expected to continue in the tradition of Mrs. Steele and Mr. Jewell.