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Sanderson cutting production even as it swings to 3Q profit
Story Date: 8/29/2012
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Source: Tom Johnston, MEATINGPLACE, 8/28/12
Sanderson Farms Inc. swung to a profit in its third fiscal quarter on increased chicken prices, but rising feed grain prices amid continued historic drought conditions have forced the company to make additional production cuts as it braces for a challenging next chapter.
The Laurel, Miss.-based company said today that, beginning Aug. 6, it reduced egg sets by an additional 2 percent across all divisions and will run plants at 6 percent below capacity to try to offset a projected 8-cents-per-pound increase in costs that will be fully realized in October. In January the company reduced egg-set production by four percent.
Asked on an earnings call what type of a cut the industry overall will have to make to offset the impact, Sanderson CEO Joe Sanderson Jr. said, “I don’t have a clue about what it will take, but the industry is going to feel the impact of the grain prices in September and October … The hit will occur as the demand for chicken softens post Labor Day. Look for some cuts in October and maybe some more in November and December.”
Dashed hopes
Sanderson’s results tell the story of an industry that had enjoyed a decent run of profitability, particularly since January, on earlier production cuts and favorable pricing, only to be undercut starting in June when a 50-year drought ruined what was once projected to be a record corn harvest.
The average Georgia dock price for whole chickens rose 8.6 percent year-on-year in the third quarter. Boneless breast prices averaged 14.7 percent higher than the year-earlier price, and jumbo wing prices were an average $1.59 per pound higher for the quarter, or some 104.2 percent higher than in the third quarter last year.
And while cash prices for corn and soybean have been relatively favorable (down by a respective 1.2 percent and 2.5 percent) in the last nine months for Sanderson, the company expects to pay some $61.1 million more for feed grains in fiscal 2012 than it paid in fiscal 2011.
"We have priced little of our grain needs going forward, and will remain on the market for our needs for now," said Sanderson.
He noted the company won’t know the full extent of the impact of feed grain prices until it knows the final crop performance, but there are two certainties: “Our costs are going to increase and chicken market prices will need to move higher to offset high grain prices currently reflected in the futures market.”
The numbers
For the quarter ended July 31, Sanderson had net earnings of $28.7 million, or $1.25 per diluted share, compared with a net loss of $55.7 million, or $2.51 per share in the year-earlier period.
Sales in the quarter were $624.9 million, up 22 percent compared with $511.2 million a year ago, on higher poultry volume and sales prices.
Analysts on average expected earnings of $1.20 per share on about $620 million in revenues.
Shares of Sanderson were $44.29, up $3.70, in midday trading on the NASDAQ.
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