A few positives
- Michaels revenue was very good
- POST cereal gross profit % was very good
Michaels GP % seemed low. POST added back $9m of commodity hedge losses to come up with their adjusted “net income” of 13 cents. Why would these be added back if it is part of a business strategy. Unless the loss does not match with product used in Q4?
As to the goodwill charge, it goes to show how important it is to buy these companies right. Management wants to ignore these charges, but real dollars were spent to purchase these companies.
Makes you wonder if some of POST remaining goodwill on the balance sheet should be labeled “Deferred Goodwill Impairment”
I know its the week before T-day ... but $2.16 is an amazing price ... went back to the recent UB market day video report and they mentioned positioning for CA Prop 2 as part of the reason.... do any industry guys have a feel for what producers are doing to make sure CA has Prop 2 type eggs?
Brazil’s JBS SA, announced late Thursday that it purchased Australia’s Primo Group in a 1.45 billion Australian dollar (US$1.25 billion) deal that will help it sell processed pig meat in China.
I think this is kind of the math ... but not entirely sure ...
The real was up about 11.9% since August 6 against the dollar
On august 6 the ADR was 87.2% of the Brazil exchange price
$11.55 august 6 brazil price / 1.119 increase in real v. dollar * 87.2% what the ADR to brazil price was august 6 = about $9 per share ADR and it was at $8.90 on August 12
Since August 12 the real is up even more ... argh.
I confess I am learning as I go here ... I purchased JBS primarily because I did not think the value of PPC was properly reflected in the stock price ... but with the rise in the real the ADR is not participating fully in the rise in JBS brazil exchange stock price. I guess we should be thankful the ADR is not down as the Brazilian market has been down ... check out the EWZ etf
I think its great for Brazilian holders as 84% of sales are in U.S. dollars according to CEO in Q3 conference call
JBS said in Fridays cc they are looking companies with "value added" products but are not in active talks with anyone. Wonder if this company is setting up to go private?
BW … wonderfully entertaining as always … SAFM Palestine TX plant goes online in Feb or March … not sure who is building the other plant … let there be chicken … If you are holding here, this is why:
1) Beef prices are very high and supplies are predicted to be tight through 2015
2) Breeder constraints will allow only about 1-3% increase in bird numbers for 2015, depending on which expert you listen to. However weights continue to rise which also adds to supply
3) PPC’s interest in international expansion and further processed foods.
4) The long term trend of increased per-capita consumption of chicken.
Winter is a slow season for chicken and we have seen a drop in UB boneless skinless breast of about 25% in October. Last year prices dropped in the fall and stayed there for about four months. Remember how excited producers were in late 2012 when prices were actually heading higher during this slow season? Remember how much excitement there was on this board at that time? From BW … Gav … Daher …. And even Cag … Where are they now? (Other than BW) ... we miss the posts from Dr. Corn!!
If you have bought at lower prices and plan to hold for the long-term trend … and are willing to ride the cycles … then you might be in the right stock … if you have not purchased but want to … I might wait for a better price … at least, I would wait till about January to see how the updated outlook is.
Like Joe Sanderson said in the SAFM investor day conference (loosely quoted) “2015 doesn’t look too bad … 2016 I can’t see”
Best of luck to all especially the longs.
per D.B. Protégée and other helpers
y/y hatch up 4.5% for june, 7.4% for july; and 3.1% for August. Year end layers projected at 309m compare to about 300 last year. So supply up, but prices are still strong, but interestingly they have not started the holiday move higher toward the $1.50 UB range … I suspect it will still happen.
iowa state market egg stats
A very good friend to the industry. Spent many years as an educator ... and scheduling eggs in incubators to predict hatch then trailing hatch to predict layers then layers to predict egg supply then egg supply to predict egg price. His work lives on at Iowa State ... check out the poultry section of their dept of animal science ag web site ... just great work ... it should be used by anyone who invests in CALM!!!
Plus dividends are taxable to shareholders ... one tax when corporation earns it ... SECOND tax on same earnings when it is passed to shareholder ... this needs to change!!
can you imagine what the market might do with value companies that consistently trade at 10 times EPS if the tax rate is lowered!!
On the other side of things ... it is my opinion that all capital gains should be taxed at ordinary rate .. and all capital losses should be fully deductible ... this because capital gains have not been previously taxed and capital losses are losses of value that have been previously taxed .. JMO
sorry sno ... I accidently clicked thumbs down and yahoo doesn't let you change ... anyways great stock performance ... earnings out today ... I think after the bell so market has not had a chance to react ... looks fairly good with gain on sale included ... will have to read 10-Q this weekend ... thanks for sharing your insights ... NL
EPS - 82 cents v. 79 cents for analysts
Rev - $2.18B v. $2.24B for analysts …. I might be light on volume
CGS - $1.8B … Feed costs should be down a bit for Q3 compared to PY and Prior Q, mostly on lower corn. Ending stocks for Soybeans was a record low and so basis was very high for the whole Q. Also, corn and beans bottomed out at about Sept. 30, so any feed on hand will likely be written down to market under the lower of cost or market valuation method. That all changes this Q as the basis will widen. There will still be some old corn/beans working through the pullets into November, but after that there will be a substantial drop off in costs.
SG&A - $51B including performance bonus accruals
Operating margin – 15.4% …. yikes!! That seems very high
For Q4 I think they will again beat the estimated 69 cents. Whole bird prices will likely continue to drop off and b/s breast meat has taken a nose dive. PPC however correlates closer to the whole bird price.
What could go wrong? – bad guidance or an unexpectedly large drop off in chicken prices … i am not sure how PPC’s pricing formulas work with lower feed costs, so that could possibly trim margins a bit … all else points to a good 2015 with lower costs and likely lower chicken prices. High beef costs will continue to float all boats … if middle class income rises … all the better for chicken prices.
Part III – CA 2008 Prop 2, if they keep eggs out where do they go?
As of January 1, 2015 all eggs produced in California and all eggs imported into CA need to meet the space guidelines of Prop 2.
CA retailers and foodservices are “scrambling” for January orders of compliant eggs. There may not be enough to meet demand, so egg prices in CA will likely rise, maybe by a lot causing egg consumption to go down in CA.
CA has successfully blocked non-compliant out of state eggs from being shipped in. Where do these eggs go on January 1? How many CA egg producers will be compliant on January 1? Will some CA production just disappear with the last flock of non-compliant caged hens?
In my opinion there may be a shortage of CA compliant eggs though out the U.S. and an oversupply of non-compliant eggs that may only be sold outside of CA.
What will not be in short supply, in my opinion, is law suits. It is not clear to me the following have been decided:
- Do enriched colony cage systems meet the CA housing standard? Animal rights activists seem to indicate no, and that the law means “cage free” and only cage free.
- Is outside egg product from non-compliant eggs allowed in? If no, Egg McMuffin prices are going up, if yes then McD has a competitive advantage over those restaurants that sell fresh eggs
- Are bakery and other food items prepared with non-compliant eggs allowed into CA?
Will other states retaliate against CA and ban the sale of CA fruits, nuts or other products?
All egg industry eyes are on CA, how will it play out and who will get hurt? In my opinion the oversupply of non-compliant eggs will out weight the loss of CA production and the deficit of compliant eggs created by the CA compliant egg vacuum. I hope I’m wrong.
Sno ... if SEB gets bought out you will be my hero for making the call ... you have looked for every clue and sale angle ... interesting and entertaining .. I too remain long but havn't bought more shares since just before the tender ... even if they don't get bought out, still an excellent company to own.
!) those at retirement age should consider selling their land at $10,000 an acre (if they can still get it), instead of investing in new equipment hoping for a few more good years.
2) not going to make much money this year if you have to pay $400/acre rents. taxes up, seed is still high, fertilizer costs have come down a bit, but break even overall is still very high.
3) no taxable income ... no need for 179 deduction
Part II - Obnoxious nest run pricing structure leads to expansion
The current market system gives too much pricing power to the third party producer and not enough to CALM, who must manage the relationship with its large customers that want to squeeze margins IMO. To restore a balance of power, CALM is expanding production with “bolt on” production at various existing locations to reduce dependency on third party egg purchases. Unfortunately those who supplied CALM will have to find a new home for their eggs, which may result in downward pressure on egg prices.
In CALM’s 10-K’s they note that a majority of shell eggs sold in the U.S. are based on Urner Barry (UB) Market quotes. For the year fiscal year ended 2014, CALM noted average Urner Barry Southeast Large quote was $1.43. CALM’s average selling price for non-specialty eggs for FYE 2014 was $1.22, twenty one cents below market. To buy eggs from third parties, UB notes in their daily quotation the price of graded loose eggs is 23 to 25 cents below the market quote and gradeable nest run are 37 to 39 cents below the market quote. CALM’s cost to grade and process nest run is about 15 cents so the cost of third party eggs is about 23 cents below market. So if CAM is buying those eggs for 23 cents below market and selling for 21 cents below market it leaves very little room to cover admin and other costs to get those eggs to its customer.
IMO the UB marketing system has not adjusted for the tremendous pressure large retailers and food services are placing on CALM.
I would agree with that ... I think the sell off was over done ... unfortunately SAFM may now be held in nervous hands and more volatility may be expected as we go into a slow season for chicken ... notice PPC sold off more .. as their valuation based on price to sales, book, earnings were over valued compared to SAFM
Was looking for a rosy outlook from Joe and friends but got just the opposite.... listened to the first two sessions and plan to listen to the others this evening ... it was after the second session that Joe said producers just might be sticking chicken in the freezer later this year ... producing chicken like they don't believe there will be a Xmas this year (chicken consumption is always lower over the holidays as people eat more turkey, ham and prime rib)