January 24, 2008

 

J.P. Morgan analyst cuts earnings estimates on 3 companies

 

 

On Wednesday (January 23, 2008), meat producer shares dropped after a J.P. Morgan analyst cut his earnings estimates on three companies due to expectations of higher grain costs.

 

Meat producers are facing higher costs for grain, particularly corn, which they need to produce animal feed. Corn is also used to make ethanol, and demand for the fuel has driven up corn prices to a record high in 2007.

 

The producers will earn less profits if they have to pay higher prices for grains.

 

Analyst Pablo Zuanic noted that chicken prices have dropped, making the situation worse for chicken producers since they may not be able to counterbalance the higher grain prices with revenue gains.

 

Pilgrim's Pride Corp. and Sanderson Farms Inc. got the deepest cuts in Zuanic's earnings estimates.

 

Zuanic lowered his earnings-per-share estimate for Pilgrim's Pride for 2008's first quarter by 39 cents, and cut the full year's profit estimate by a staggering 94 percent to 18 cents from US$3.02 per share.

 

Eight analysts surveyed by Thomson Financial forecast a profit of US$2.05 per share on average for the whole year.

 

Pilgrim's Pride shares fell by 15 cents to US$23.56 in midday trading.

 

Zuanic lowered Sanderson Farms' first quarter earnings estimate by 53 cents per share, and reduced his 2008 estimate by US$2.10 per share.

 

Zuanic said things look brighter for Sanderson Farms shares since the company proved it could generate US$4 in earnings per share each year even before its new chicken plant came on line.

 

Sanderson Farms shares fell by 11 cents to US$29.96.

 

Zuanic also lowered Tyson Foods Inc.'s earnings-per-share estimate for 2008's first quarter by 4 cents and 37 cents per share for the entire year.

 

Shares of Tyson, the world's largest meat company, fell by 34 cents to US$13.11.