February 26, 2010

Sanderson profit up, but concerns hang over exports

Sanderson Farms Inc posted a higher-than-expected quarterly profit as the US poultry industry recovers, but investor concerns over Russia and China's embargo weighed on its shares.

Lower feed costs, higher chicken prices and industry wide production cuts have helped Sanderson and rival poultry producers, including market leader Tyson Foods Inc.

But Sanderson shares fell more than 2% on Tuesday (Feb 23) amid worries that a slowdown in exports could affect future results.

Russia, the top export market for US chicken, recently banned the meat because of a chlorine wash used here. China, another important market, has applied anti-dumping duties on US chicken.

Laurel, Mississippi-based Sanderson posted net income of US$15.8 million, or 75 cents a share, for the first quarter ended on January 31, compared with a year-earlier net loss of US$6.7 million, or 33 cents a share.

Analysts on average expected a profit of 64 cents a share, according to Thomson Reuters. Revenue rose 8% to US$420.1 million. Analysts had expected US$430.76 million.

"Grain prices have come down over recent weeks in reaction to the USDA's January crop estimates, and we believe our feed costs for fiscal 2010 will remain below last year's levels," Sanderson Chief Executive Officer Joe Sanderson said in a statement.

Sanderson, like other chicken companies, struggled in the past two years as it was hit by high feed costs and later by a global recession that slowed domestic and international sales. It responded by cutting production and costs.

Now Sanderson and other chicken companies are restoring some of that production as they assume a better economy in 2010 will lift sales. Sanderson is building a new plant in North Carolina that will be online in 2011.

The USDA forecast that 2010 US chicken production will be up 1.2% from 2009. However, more of that production may stay in the US due to the Russia and China situation. USDA estimates chicken exports will be down 14% this year.

JPMorgan analyst Ken Goldman called Sanderson's earnings "a strong beat" and said in a note that he awaited additional comments from the company about talks with Russia to restore chicken trade.