Weak Food-service Demand Held Back Sanderson's Chicken Sales

US - A spell of severe winter weather and weak demand in the food service sector have hit the latest quarterly results from chicken processor, Sanderson Farms although the CEO described the results as "a solid start".
calendar icon 26 February 2014
clock icon 5 minute read

Sanderson Farms, Inc. has reported results for the first quarter of fiscal year 2014 ended 31 January 2014.

Net sales for the first quarter of fiscal 2014 were $584.9 million compared with $595.8 million for the same period a year ago. For the quarter, the Company reported net income of $28.9 million, or $1.25 per share, compared with a net loss of $6.9 million, or $0.31 per share, for the first quarter of fiscal 2013.

The Company also announced that its Board of Directors has extended to 24 February 2017 its stock re-purchase programme approved on 16 February 2012, to re-purchase up to one million shares from time to time at prevailing prices in open market transactions or in negotiated purchases, subject to market conditions, share price and other considerations.

Joe F. Sanderson, Jr., chairman and chief executive officer of Sanderson Farms, Inc., commented: "Our results for the first quarter of fiscal 2014 marked a solid start to the fiscal year. While poultry market prices were mixed compared to the same period a year ago, our grain costs were lower. Retail grocery store demand for chicken has remained steady. However, we continue to see weak food-service demand, which remains under pressure as a result of macroeconomic conditions and was also affected by weather during our first fiscal quarter.

"Weather also affected our first quarter results as we were forced to close several of our plants during the last week of January due to ice and snow. While we expect lower grain prices for the fiscal year and we experienced lower feed costs during the first quarter, grain prices have moved higher during February as a result of USDA's lower-than-expected corn carry-out estimate reported earlier this month."

According to Mr Sanderson, market prices for poultry products were mixed during the first quarter of fiscal 2014 compared with the same period of fiscal 2013.

A simple average of the Georgia dock price for whole chickens was approximately 6.5 per cent higher in the Company's first fiscal quarter compared with the same period in 2013, and currently stands near a record $1.0450 per pound. Boneless breast meat prices during the quarter were approximately 4.3 percent lower than the prior-year period. The average market price for bulk leg quarters decreased approximately 15.6 per cent for the quarter compared with the same period last year. Jumbo wing prices were lower by 40.7 per cent compared with last year's first fiscal quarter, down from the record high $1.92 per pound the week before the Super Bowl last year.

The Company's average feed cost per pound of poultry products processed decreased 25.1 per cent compared with the first quarter of fiscal 2013, and prices paid for corn and soybean meal, the Company's primary feed ingredients, decreased 38.8 per cent and 12.8 per cent, respectively, compared with the first quarter of fiscal 2013.

Mr Sanderson added: "We expect market conditions in the retail grocery store market to remain strong as chicken will compete once again during 2014 with high-priced beef and pork. While we benefited during the summer of 2013 from menu shifts toward chicken items, and away from relatively high-priced beef at food-service establishments, whether or not we get a similar benefit during 2014 is yet to be seen.

"The record corn crop harvested in the United States last fall has taken pressure off the United States and world corn stocks to use ratio for 2014 but a lower than expected carryout of corn at the end of the 2014 crop year estimated by the USDA in February has caused market prices for both corn and soybean meal to move higher. Despite this increase in the grain market, had we priced all of our grain needs at current prices yesterday, our grain costs would be lower by $153 million during fiscal 2014 compared to fiscal 2013.

"While broiler egg sets have been higher than the previous year's levels most every week since last August, the industry remains constrained by limited breeder stock supplies. As a result, we don't expect a significant increase in domestic chicken production until the second half of calendar 2014 at the earliest. Healthy, fully employed and confident American consumers could easily absorb the additional chicken production indicated by higher broiler egg sets if we see further improvement in macroeconomic conditions.

"Construction continues on our new Palestine, Texas, complex, and we are looking forward to the opportunities the new facility will create. While weather has delayed construction to some extent, we remain on schedule to begin operations at the new facility during the first calendar quarter of 2015."

Commenting on the stock re-purchase programme, Mr Sanderson said: "As in the past, we plan to use our stock re-purchase programme in part to offset shares issued through our equity compensation plans. We believe this programme represents a good use of corporate funds while minimising potential dilution related to our equity compensation programmes."

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