Source:  MEATINGPLACE.COM, 2/21/11


Analysts are projecting a grim fiscal first half for Sanderson Farms as chicken industry margins deteriorate.
BMO Capital Markets analyst Kenneth Zaslow expects Sanderson to post a net loss of 72 cents a share in its fiscal first quarter and to lose $1.08 a share in the second quarter before returning to profitability in the second half of 2011.

“We expect the magnitude of Sanderson’s losses in the next two quarters not only to significantly exceed consensus losses, but also to likely be the largest losses in recent history,” Zaslow wrote in a note to clients.

Sanderson is scheduled to report its fiscal first-quarter results on Thursday, Feb. 24.

Sanderson is unlikely to offer investors any solace in the form of near-term production cuts, he said, but the odds of a cut increase as losses widen.

“The chicken industry is facing among the worst margins on record,” Zaslow said. “The magnitude of losses and the absence of relief from feed costs have begun to create an untenable environment, which should lead to production cuts and margin improvement.”

Surprise production cut?
BB&T Capital Markets analyst Heather Jones reduced her estimate for Sanderson’s first quarter to a loss of 59 cents a share, from a previously expected loss of 4 cents a share.

Noting that Sanderson cut production in 2008 once it began logging more than $10 million in losses per month, Jones said, “We do not believe losses have broached that level, but believe they are running north of $5 million.”

Pilgrim’s Pride and Tyson Foods both are expecting to be profitable in 2011, increasing the pressure on Sanderson to lower its production.

“We would not rule out a surprise production cut announcement from Sanderson Farms” when the company announces its first-quarter results, Jones wrote in a recent report to clients.

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