88 cents EPS ... IMO
Analysts have SAFM at about 77 cents. Considering the rise in volume as outlined by SAFM and rise in GA dock chicken prices to about $1.014 avg. in Q2 v. 98 cents in Q1, revenues should be up significantly. Also, SAFM’s revenue per lb. did not increase in Q1 when GA dock went to a 98 cents avg. from 95.5 cents in Q4 of 2012. SAFM said they were slow to adjust contract pricing in the face of the rising chicken prices. SAFM has indicated since, that most pricing has been adjusted. In the recent BMO presentation SAFM stated they do not use cost plus pricing for their contracts indicating their pricing should reflect rising market prices.
Feed costs per lb. should be a bit lower. I’m guessing about 41 cents per lb. this Q v. about 43 cents per lb. in the last Q.
The outlook for Q3 should be quite good as SAFM has indicated they expect a good summer. GA dock has risen to a historically high $1.0475 and feed costs are high but fairly stable. SAFM should not have a problem meeting the $1.62 EPS for Q3 the analysts are expecting, and could approach a $2 EPS IMO.
In PPC’s last conference call one of the analysts stated that their metrics have the “big bird guys” making 8 to 9 cents per lb. I would tend to agree and SAFM’s Q3 should reflect that, as a lot of their sales are from big bird deboning.
The outlook for 2014 should also be good. USDA anticipates more grain available and December corn and beans are lower than last year’s high prices. In addition SAFM has been paying a very high basis (difference between spot cash and near futures price) this last year. Basis has begun to go down for beans and that should continue into the harvest. Analysts predict SAFM will earn $5.62 EPS in 2014. If chicken demand continues to be as strong as it is now, and producers do not increase production too much more, and the grain harvest is good (doubt it will be great), SAFM’s 2014 EPS could approach $7 IMO.
Joe Sanderson is not intelligent … in a worldly sense.. he is not articulate .. when asked if SAFM preferred $4 corn $5 … or $7 corn in today’s conference call … he says:
“We … we don’t .. we don’t do hypothocate”
By the way Joe … the correct answer was $5.50 … we were looking for Five dollars fifty cents
But this guy is wicked chicken smart.
SAFM new theme in the last two presentations has been:
We sell chickens we don’t do grain marketing
This is a direct slam on Tyson foods and Pilgrim’s Pride who have incorporated cost plus pricing into some of their contracts. He went out of his way to state a large supplier to a quick service restaurant has contracted with another chicken processor to supply breast meat through August. Implying others are selling chicken in volume at lower “cost plus” prices leaving chicken breast meat short and SAFM sitting with lots of meat to sell at higher market prices.
While most other producers are in “deer in the headlights mode, SAFM is building processing plants. They just completed a new NC plant and have identified a location in Texas for their next. This in the face of a huge 2011 loss year. They are increasing production by 6% starting June 1. Given the fact breeders to produce pullets are low … SAFM will be taking away market share versus industry production.
Sometimes smart guys overthink decisions involving risk …. SAFM does not ….
CHICKEN PRICES GOOD … SELL MORE CHICKEN