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Sanderson Farms (SAFM) Down 7.8% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

It has been about a month since the last earnings report for Sanderson Farms (SAFM). Shares have lost about 7.8% in that time frame, underperforming the S&P 500.

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

Sanderson Farms Posts Narrower-than-Expected Q4 Loss

Sanderson Farms posted fourth-quarter fiscal 2019 results, with an adjusted net loss of 95 cents per share. The figure is narrower than a loss of $1.63 per share reported in the year-ago quarter. The Zacks Consensus Estimate for the bottom line was pegged at a loss of $1.33.

Net sales came in at $906.5 million, almost in line with the Zacks Consensus Estimate. Moreover, the top line advanced 13.6% year over year.  

The company witnessed sluggishness in market prices for boneless breast meat produced at plants that process a larger bird for food service customers. However, average market prices for jumbo wings and bulk leg quarters were higher as compared to the prior-year quarter.

Cost of sales escalated 12.4% to $884.9 million. Average feed costs per pound for poultry products and broiler flock processed fell 0.9% from the year ago figure. Costs of soybean meal went down 8.4% year-over-year, while that of corn meal was up 12.8% during the same period. Soybean meal and corn are part of the company’s primary feed ingredients. Further, SG&A expenses declined 12.7% to $51.2 million in the reported quarter.

Sanderson Farms ended the quarter with cash and cash equivalents of $95.4 million, long-term debt of $55 million and total shareholders’ equity of $1,417.7 million.

Outlook

Management highlighted that protein prices are expected to be higher going in 2020 on the back of worldwide protein deficit caused by African swine fever’s impact on Asian pork supplies. Additionally, increased promotions for chicken sandwiches at quick-serve restaurants and higher anticipated beef and pork prices are likely to aid growth in poultry market in 2020. In-fact, the company saw some improvement in poultry market prices beginning Nov, 2019.

Per the current USDA projections, the U.S. broiler production in the calendar year 2020 is expected to rise nearly 3.2% from 2019. However, the company continues to anticipate prices paid for grain in the fiscal 2020 to go up.

The company is progressing well with its operations in the Tyler facility, which is now processing at 75% capacity. Management projects Tyler to reach full capacity during second-quarter fiscal 2020.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.


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