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Sanderson Farms Inc. Reports Operating Results (10-Q)

February 24, 2011 | About:
10qk

10qk

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Sanderson Farms Inc. (SAFM) filed Quarterly Report for the period ended 2011-01-31.

Sanderson Farms Inc. has a market cap of $982.2 million; its shares were traded at around $43.31 with a P/E ratio of 7.2 and P/S ratio of 0.5. The dividend yield of Sanderson Farms Inc. stocks is 1.6%.Hedge Fund Gurus that owns SAFM: Joel Greenblatt of Gotham Capital, Jim Simons of Renaissance Technologies LLC, Manning & Napier Advisors, Inc, Bruce Kovner of Caxton Associates, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC. Mutual Fund and Other Gurus that owns SAFM: Chuck Royce of Royce& Associates, Third Avenue Management, Arnold Schneider of Schneider Capital Management, Jeremy Grantham of GMO LLC.

Highlight of Business Operations:

On February 23, 2011, the Company entered into a new revolving credit facility to, among other things, increase the available credit to $500.0 million from $300.0 million, and to increase the annual capital expenditure limitation to $60.0 million during fiscal years 2011 and $55.0 million for fiscal years 2012, 2013, 2014 and 2015. The new credit facility also permits the Company to spend up to $115.0 million in capital expenditures on the construction of a second poultry complex in North Carolina, which expenditures are in addition to the annual limits. Under the new revolving credit facility the Company may not exceed a maximum debt to total capitalization ratio of 55% from the date of the agreement through October 30, 2014, and 50% thereafter. The Company has a onetime right, at any time during the Companys fiscal year ending October 31, 2011 or October 31, 2012, to increase the maximum debt to total capitalization ratio then in effect by 5% for the four fiscal quarters beginning on the first day of the fiscal quarter during which the Company gives written notice of its intent to exercise this right. The credit remains unsecured and, unless extended, will expire on February 23, 2016.

Net sales during the three months ended January 31, 2011 were $427.7 million as compared to $420.1 million for the three months ended January 31, 2010, an increase of $7.6 million or 1.8%. Net sales of poultry products for the three months ended January 31, 2011 and January 31, 2010 were $402.4 million and $391.5 million, respectively, an increase of $10.9 million or 2.8%. The increase in net sales of poultry products resulted from an increase in the pounds of poultry products sold of 7.9%, partially offset by a decrease in the average sales price of poultry products of 4.8%. During the first quarter of fiscal 2011 the Company sold 630.7 million pounds of poultry products, up from 584.3 million pounds during the first quarter of fiscal 2010. The additional pounds of poultry products sold resulted from an increase in the number of chickens produced of 6.9% and an increase in the average live weight of chickens produced of 3.1%. The new Kinston complex began initial operation during January 2011 and sold 8.3 million pounds of poultry, or 1.3% of the total poultry pounds sold during the first quarter of fiscal 2011. The Company expects the new Kinston complex to process 21.1, 38.9 and 51.1 million pounds of dressed poultry in each of the subsequent quarters of fiscal 2011. Overall market prices for poultry products decreased during the first quarter of fiscal 2011 as compared to the first quarter of fiscal 2010 as a result of an increase in the supply of poultry products and sluggish demand from food service customers. Urner Barry market prices for boneless breast meat, tenders and jumbo wings decreased significantly during the first quarter of fiscal 2011 as compared to the first quarter of fiscal 2010 by 3.1%, 10.1% and 36.6%, respectively. However, the impact of these decreases was partially offset by improvements in the average Urner Barry prices for bulk leg quarters and the average market price for Georgia Dock whole birds of 2.8% and 3.5%, respectively, as compared to the same period a year ago. Net sales of prepared chicken products for the three months ended January 31, 2011 and 2010 were $25.3 million and $28.6 million, respectively, or a decrease of 11.7%, resulting from a decrease in the average sales price of prepared chicken products sold of 4.2% and a decrease in the pounds of prepared chicken products sold of 7.8% from 14.0 million during the first quarter of fiscal 2010 to 12.9 million pounds sold during the first quarter of fiscal 2011.

Cost of sales for the first quarter of fiscal 2011 was $436.6 million as compared to $378.0 million during the first quarter of fiscal 2010, an increase of $58.6 million or 15.5%. Cost of sales of poultry products sold during the first quarter of fiscal 2011 as compared to the first quarter of fiscal 2010 were $414.2 million and $352.6 million, respectively, an increase of $61.6 million or 17.5%. As illustrated in the table below, the increase in the cost of sales of poultry products sold resulted from an increase in the pounds of poultry products sold of 7.9%, and an increase in feed costs per pound of 21.0%.

The Companys effective tax rates for the first quarter of fiscal 2011 and fiscal 2010 were 35.5% and 35.7%, respectively and differ from the statutory federal rate due to state income taxes, certain nondeductible expenses for federal income tax purposes and certain state and federal tax credits.

On February 23, 2011, the Company entered into a new revolving credit facility to, among other things, increase the available credit to $500.0 million from $300.0 million, and to increase the annual capital expenditure limitation to $60.0 million during fiscal years 2011 and $55 million for fiscal years 2012, 2013, 2014 and 2015. The new credit facility also permits the Company to spend up to $115.0 million in capital expenditures on the construction of a second poultry complex in North Carolina, which expenditures are in addition to the annual limits. Under the new revolving credit facility the Company may not exceed a maximum debt to total capitalization ratio of 55% from the date of the agreement through October 30, 2014, and 50% thereafter. The Company has a onetime right, at any time during the Companys fiscal year ending October 31, 2011 or October 31, 2012, to increase the maximum debt to total capitalization ratio then in effect by 5% for the four fiscal quarters beginning on the first day of the fiscal quarter during which the Company gives written notice of its intent to exercise this right. The credit remains unsecured and, unless extended, will expire on February 23, 2016. As of January 31, 2011, the Company had no outstanding borrowings under the then existing revolving credit facility, but had $9.9 million outstanding letters of credit under the facility. As of February 24, 2011, the Company had borrowed $57.7 million under the new revolving credit facility.

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