Source:  MEATINGPLACE.COM, 5/28/09

Poultry producer Sanderson Farms on Thursday reported a strong second-quarter profit that was twice what Wall Street had expected, aided by production cuts and lower feed costs that offset still-weak demand.

Conditions have improved for the poultry industry overall, mostly due to the reduced supply of chicken, but boneless breast meat prices still lag behind last year, said Sanderson Farms Chairman and Chief Executive Joe Sanderson Jr.

"We believe demand for that product will continue to be soft for the rest of the year and into next year, until American consumers regain their jobs and their confidence," the CEO told analysts on a conference call.

While demand for chicken at grocery stores remains strong and the export market has improved over the first quarter, demand from some food service customers is still being hurt by the economic downturn that has seen consumers shun restaurants in favor of home-cooked meals, the company said.

Sanderson said he is cautiously optimistic heading into summer, which is typically a period of better demand for chicken.

Laurel, Mississippi-based Sanderson Farms said its net income rose to $26.2 million, or $1.27 per share, in the fiscal second quarter ended April 30. That was up from $6.2 million or 30 cents a share, in the same period a year earlier.

Analysts on average had expected 54 cents per share, according to Thomson Reuters.

Net sales fell 1.6 percent to $426.8 million, compared with a year ago.

Sanderson said it expects its feed costs to be lower in fiscal 2009 than the year before, although supply concerns due to weather-related delays in planting the Midwest corn crop this year are causing price volatility in the grain markets.

Broiler sets continue to be lower, the company said, indicating continued lower supply levels.

Sanderson Farms' operating margin came in at 10.1 percent, the best since July 2007, analyst Ken Goldman of J.P. Morgan said in a note to investors.

"We suspect that many models (including ours) have been overestimating the cost of chicken fat – yes, chickens sometimes feed on the fat of their brethren. If this is the case, and if chicken fat stays cheaper for a while, then earnings for all chicken processors over the next few quarters may be better than we have expected," Goldman wrote.

Shares of Sanderson Farms were up 2.4 percent to $43.05 in midday trading on Nasdaq, after an initial surge of more than 12 percent, while shares of rival Tyson Foods were up less than 1 percent at $13.77 on the New York Stock Exchange.

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