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Sanderson Farms (SAFM) Up 13.2% Since Last Earnings Report: Can It Continue?

Zacks Equity Research
Valero Energy (VLO) reported earnings 30 days ago. What's next for the stock? We take a look at earnings estimates for some clues.

A month has gone by since the last earnings report for Sanderson Farms (SAFM). Shares have added about 13.2% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sanderson Farms due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Sanderson Farms’ Q1 Earnings & Sales Fall Y/Y

Sanderson Farms posted first-quarter fiscal 2019 results, wherein both top and bottom lines declined year over year. Results were hurt by tough market conditions that led to reduced prices for boneless breast meat to a large extent. In fact, boneless breast meat prices dropped to historic lows in November and December, with January prices being relatively weak. Overall lower poultry prices also negatively impacted results.

Q1 in Detail

The company reported a loss of 82 cents per share in the quarter, which was narrower than the Zacks Consensus Estimate of a loss of $1.82. However, the bottom line compares unfavorably with the year-ago period’s earnings of $2.24.

Net sales came in at $743.4 million, which was above the Zacks Consensus Estimate of $694 million. However, the top line declined 3.7% year over year.  Sales were hampered by lower average selling prices and a decline in the sale of poultry products.

Costs/Margins

Cost of sales of poultry products fell 1.3%, owing to lower pounds sold, partly negated by rise in average cost of goods sold.

SG&A expenses for first-quarter fiscal 2019 went up 11.3% to $58.5 million. This rise can be attributable to costs related to Tyler, a startup operation in Texas, and rise in legal fees, negated by decrease in marketing and stock compensation costs.

Going ahead, the company expects SG&A expenses to be $50 million in the second and third quarters of fiscal 2019, and $52 million in the final fiscal quarter.

Balance Sheet/Cash Flow

Sanderson Farms ended the quarter with cash and cash equivalents of $74.7 million, long-term debt of $60 million and total shareholders’ equity of $1,363.2 million.

Additionally, the company incurred capital expenditure of $83.4 million during the reported quarter and anticipates $230.6 million of capital expenditure for fiscal 2019.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 90.62% due to these changes.

VGM Scores

Currently, Sanderson Farms has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. It comes with little surprise Sanderson Farms has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.



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