August 25, 2004

 

 

Sanderson Farms' Stock Falls 23 Percent

 

Poultry producer Sanderson Farms Inc. said on Tuesday it is being hurt by lower wholesale prices and higher grain costs in the current quarter. This has sparked a 23 percent drop in its stock and pulling down shares of its rivals.

 

Sanderson also said quarterly profit doubled on strong consumer demand.

 

The company said wholesale prices, particularly for boneless breast meat, fell from peak levels recorded several weeks ago. Prices usually soften even more after the U.S. Labor Day holiday.

 

Poultry companies typically see demand for chicken rise in the summer months as consumers stock up for barbecues.

 

Laurel, Mississippi-based Sanderson said net income jumped to $33.9 million, or $1.69 per share, in its fiscal third quarter ended July 31. This is an increase from $15.4 million, or 78 cents per share a year earlier. One analyst expected a profit of $1.93 per share, according to Reuters Estimates.

 

Sanderson's warning sparked a sell-off in shares of rivals Tyson and Pilgrim's Pride as well.

 

Its stock plunged $10.59 to $35.43 on Nasdaq after falling as low as $34.25 early in the session. Shares of rivals Pilgrim's Pride Corp. fell 11.6 percent to $24.70, and Tyson Foods Inc.'s shares slid 4.4 percent at $18.62, both on the New York Stock Exchange.

 

"I really think it is kind of an overreaction to some numbers they put into the report," said Todd Duvick, research analyst with Banc of America. "I don't think that is really reflective of the overall industry."

 

"We have had very healthy margins for the industry for the past six months," said Duvick. "I think from a peak that we have had recently, there is only one way to go. But I don't expect it to go south as fast as you would infer from what's happening to Sanderson Farms' stock price and maybe some of the other poultry processors."

 

Sanderson said market prices for corn and soybean meal, its primary feed ingredients, increased 15.8 percent and 46.0 percent respectively, from a year ago. The company still expects second-half grain costs to be about $25 million higher than first-half levels.

 

"The bottom line is that things aren't quite as great as they were a couple of months ago, but the sky's not falling," Paul Aho, a poultry economist with Poultry Perspective, said of the industry.

 

Sanderson expects to earn $4.85 to $5.35 a share for the full year due to market conditions and higher grain costs. One analyst who tracks the company expected $6.05 per share this year, according to Reuters Estimates.

 

Net sales rose to $293.9 million from $232.2 million.

 

"The summer season is still the stronger season," said Bill Roenigk, vice president for the National Chicken Council. "There is still a measurable increase in the summer because of vacations and barbecues."

 

Sanderson said consumer demand for chicken remains strong. But a drop in wholesale prices, particularly for boneless breast meat, is hurting the demand.

 

Boneless breast meat prices were about 44 percent higher in the quarter. However the market price for boneless breast meat dropped to $1.75 per pound on Tuesday after it peaked at $2.56 per pound during the quarter, the company said.

 

Pittsburg, Texas-based Pilgrim's Pride said it had no news to explain the stock decline, while Springdale, Arkansas-based Tyson, the largest U.S. meat company, was not immediately available for comment.