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Sanderson Farms Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: February 28, 2012 09:33AM

Sanderson Farms Inc. (SAFM) filed Quarterly Report for the period ended 2012-01-23. Sanderson Farms has a market cap of $1.14 billion; its shares were traded at around $49.47 with and P/S ratio of 0.6. The dividend yield of Sanderson Farms stocks is 1.4%.



Highlight of Business Operations:

Net sales during the three months ended January 31, 2012 were $517.8 million as compared to $427.7 million for the three months ended January 31, 2011, an increase of $90.1 million or 21.1%. Net sales of poultry products for the three months ended January 31, 2012 and January 31, 2011 were $496.0 million and $402.4 million, respectively, an increase of $93.5 million or 23.2%. The increase in net sales of poultry products resulted from a 16.1% increase in the average sales price of poultry products sold and a 6.1% increase in the pounds of poultry products sold. During the first quarter of fiscal 2012 the Company sold 669.2 million pounds of poultry products, up from 630.7 million pounds during the first quarter of fiscal 2011. The additional pounds of poultry products sold resulted from a 7.2% increase in the number of chickens sold, primarily attributable to the new Kinston complex, which began initial operation during the first quarter of fiscal 2011 and was closer to full capacity during the first quarter of fiscal 2012. The complex sold 66.3 million pounds, or 9.9% of the total poultry pounds sold by the Company in the first quarter of fiscal 2012, up from 8.3 million pounds of poultry, or 1.3 % of the total poultry pounds sold during the first quarter of fiscal 2011. Overall market prices for poultry products increased during the first quarter of fiscal 2012 as compared to the first quarter of fiscal 2011 primarily as a result of a decrease in the supply of poultry products. Urner Barry market prices increased for boneless breast meat, bulk leg quarters, tenders and jumbo wings during the first quarter of fiscal 2012 as compared to the first quarter of fiscal 2011 by 7.9%, 41.4%, 23.6% and 44.0%, respectively. The average market price for Georgia Dock whole birds also showed improvement and increased by approximately 5.3%. Net sales of prepared chicken products for the three months ended January 31, 2012 and 2011 were $21.8 million and $25.3 million, respectively, or a decrease of 13.6%, resulting from a 5.1% decrease in the average sales price of prepared chicken products sold and a 9.0% decrease in the pounds of prepared chicken products sold from 12.9 million pounds sold during the first quarter of fiscal 2011 to 11.8 million pounds sold during the first quarter of fiscal 2012.

Cost of sales for the first quarter of fiscal 2012 was $509.0 million as compared to $436.6 million during the first quarter of fiscal 2011, an increase of $72.4 million or 16.6%. Cost of sales of poultry products sold during the first quarter of fiscal 2012 as compared to the first quarter of fiscal 2011 were $488.5 million and $414.2 million, respectively, an increase of $74.3 million or approximately 18.0%. As illustrated in the table below, the increase in the cost of sales of poultry products sold resulted from a 6.1% increase in the pounds of poultry products sold and a 16.7% increase in feed costs per pound.

Other costs of sales of poultry products include labor, contract grower pay, packaging, freight and certain fixed costs, among other costs. Costs of sales of the Company’s prepared chicken products were $20.5 million as compared to $22.4 million during fiscal 2011, a decrease of $2.0 million or 8.8%.

The Company recorded the value of live broiler inventories on hand at January 31, 2012 at cost. When market conditions are favorable, the Company values the broiler inventories on hand at cost, and accumulates costs as the birds are grown to a marketable age subsequent to the balance sheet date. In periods where the Company estimates that the cost to grow live birds in inventory to a marketable age and then process and distribute those birds to be higher than the anticipated sales price during those months the Company will make an adjustment to lower the value of live birds to market. During the first quarter of fiscal 2011, the Company recorded a charge of $22.3 million to lower the value of live broiler inventories on hand at January 31, 2011 from cost to market value, which resulted primarily from the significant increase in costs for corn and soybean meal and relatively low market prices for poultry products. No charge was required in the first fiscal quarter of 2012.

Live poultry inventories of broilers are stated at the lower of cost or market and breeders at cost less accumulated amortization. The cost associated with broiler inventories, consisting principally of chicks, feed, medicine and payments to the growers who raise the chicks for us, are accumulated during the growing period. The cost associated with breeder inventories, consisting principally of breeder chicks, feed, medicine and grower payments are accumulated during the growing period. Capitalized breeder costs are then amortized over nine months using the straight-line method. Mortality of broilers and breeders is charged to cost of sales as incurred. If market prices for chicken, feed or medicine or if grower payments increase (or decrease) during the period, the Company could have an increase (or decrease) in the market value of its inventory as well as an increase (or decrease) in costs of sales. Should the Company decide that the nine month amortization period used to amortize the breeder costs is no longer appropriate as a result of operational changes, a shorter (or longer) amortization period could increase (or decrease) the costs of sales recorded in future periods. High mortality from disease or extreme temperatures would result in abnormal charges to cost of sales to write-down live poultry inventories.

Read the The complete Report



Stocks Discussed: SAFM,
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