Source: MEATINGPLACE, 12/23/11

Lower feed costs and industry supply cuts will help Sanderson Farms achieve stronger profits in 2012 than previously thought, said two Wall Street analysts who revised their earnings forecasts for the company sharply upward.

BB&T Capital Markets analyst Heather Jones now expects much stronger earnings next year, boosting her 2012 estimate to $4.35 per share from $3.05 previously. She looks for operating costs to trend down due to improved utilization at Sanderson’s Kinston, N.C., poultry complex and sees the company benefiting from lower feed costs.

Average industry margins are profitable for the first time in 14 months, and industry supply cuts should lead to much improved pricing, Jones said.

Sanderson on Tuesday reported a net loss of 97 cents per share in its fiscal fourth quarter, hurt by soft demand for breast meat and higher feed grain costs. 

But Jones said she believes Sanderson is already turning a profit again, noting Sanderson executives indicated the company would be profitable by mid-January or February.

“Management would not commit as to whether current production levels are enough to assure a return to 2009 profitability, but it was emphatic that if the current cuts were not enough, the industry would respond and quickly, citing very strained balance sheets,” Jones wrote in a note to clients.

Deutsche Bank analyst Christina McGlone more than doubled her 2012 earnings estimate for Sanderson, to $5.25 per share from $2.00 previously, citing improved chicken pricing expected next year.

But she cautioned that the economic environment remains uncertain and egg set reductions have slowed. While she also predicted that Sanderson is operating at profitable levels now, she said most of the industry likely will not turn profitable until the first quarter of next year.

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