Sanderson Farms (SAFM, Financial) has grown from a small general feed and seed business in 1947 to one of the nation's leading food corporations in fiscal 2014, with sales of more than $2.77 billion. It is currently the third-largest poultry producer in the U.S., with plans to process over 3.03 billion pounds of meat in fiscal 2015.
The company currently operates 11 poultry plants with a recent complex opened in Palestine, Texas, in February. At full capacity, the Palestine facility will provide additional 1.25 million head of chicken per week for the big bird deboning market. It is engaged in production, processing, marketing and distribution of fresh, frozen, further processed and partially cooked chicken. The company sells its products to retailers, distributors and casual dining operators located principally in southeastern, northeastern and western U.S.
Strong third-quarter results
Net sales during the third quarter of 2015 were $739.9 million (which was $768.4 million for the prior year period).
During the third quarter, the company reported net income of $50.9 million, or $2.27 per share, (which was $76.1 million, or $3.30 per share, during the prior year quarter).
The average Georgia dock price for whole chickens was approximately 4.5% higher.
Boneless breast meat prices were lower by approximately 25.4%.
Average market price for bulk leg quarters decreased approximately by 47.8%.
Jumbo wing prices were higher by 29.5%.
The company's average feed cost per pound of poultry products processed decreased 8.9 cents per pound, or 24.7%, (as compared to the prior year quarter).
Prices paid for corn and soybean meal, the company's primary feed ingredients, decreased 13.2% and 34.5%, respectively, (in comparison to the prior year quarter).
The company accrued $19.5 million during the quarter for the employee stock ownership plan program, which compares to $15.5 million accrued in last year's third quarter. In addition, $11.0 million was accrued for a contribution to the Company's employee stock ownership program, which is the same amount accrued in last year's third quarter. Together, these accruals amounted to $20.2 million net of income tax, or $0.90 per share.
Dividend per share during the quarter was $0.22.
Strong attributes of the third quarter
- Continued good demand for fresh chicken at retail grocery stores.
- Food service traffic and demand in the United States continue to improve.
Current focus
- Compete with the top leaders.
- Relentless focus on finding new growth opportunities.
- Improving operating performance.
- Sales execution.
- Making important investments.
Key strengths of the company
- Low cost producer
- Favorable product mix
- Track record of generating strong internal growth
- A history of delivering above industry average returns
- Strong balance sheet
- Managed and maintained corporate structure
- Dedicated management training program
- Exceptional customer service and a strong financial position.
Certain hiccups
- Bulk leg quarter prices remained under pressure as a result of weak export demand affected by export bans related to the discovery of avian influenza in the United States.
- A relatively strong United States dollar and lower oil revenue in countries with oil- based economies.
- Prices for boneless breast meat remained under pressure during the quarter.
Current market scenario
- Cold storage inventories higher; dark meat near record highs on weak exports.
- Retail grocery demand remains strong
- High cost of beef has helped chicken demand
- Casual dining traffic improving (probably because of lower gasoline prices); jobs, consumer confidence and macro-economic conditions are the key; new chicken items on QSR and casual dining menus helped demand last two summers.
On a concluding note
Today, the company continues to build upon its rich traditions, believing that success is largely due to the values instilled by the tenacious efforts of the employees of the company. This includes the tradition of providing quality products to the customers and being responsive to their diverse needs, a hallmark of the business for over 65 years.
Combined with company-owned feed mills and hatcheries, the company is well positioned to keep up with the growing demand for its products. Sanderson Farms delivered a record performance in the third quarter of 2015, marking another year of growth and progress for the company. The results reflect its growth strategy, its focus on operations. The company is reaching new markets.
The company’s strategic focus has, therefore, been to continue to grow the company and ultimately deliver greater value to the shareholders. Even in constantly changing markets, the company is rolling out new concepts for the betterment of the company.
The growing demand for fresh chicken as a healthier and more affordable protein has provided opportunities for expanded visual display of chicken in grocery stores and as an additional featured menu item. Together, these efforts have had favorable results and contributed to higher sales for the quarter.
The top line growth reflects favorable consumer demand for chicken products at the retail level, and higher volumes compared with the previous year. The company is currently focused to move forward with an eye on the future, with considerable investments to extend its record of growth in the years ahead. I would recommend this company as a buy. Investors should consider adding this company to their portfolio.
(Source: Company’s Website)
