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 more than 3.03 billion pounds of meat in fiscal 2016.
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 an 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 the Southeastern, Northeastern and Western U.S.
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 fourth quarter of 2015, marking another year of growth and progress for the company. The results reflect its growth strategy and its focus on operations. The company is reaching new markets.
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. This company is a buy. Investors should consider adding this company to their portfolios.
Strong fourth quarter
Net sales for the fourth quarter of fiscal 2015 were $679.6 million ($760.9 million during the prior year quarter).
For the quarter, the company reported net income of $27.4 million, or $1.22 per share ($93.1 million, or $4.04 per share, during the prior year quarter).
Net sales for fiscal 2015 were $2.80 billion ($2.78 billion during the prior year period).
Net income for the year totaled $216 million, or $9.52 per share, compared with net income of $249 million, or $10.80 per share, for last year.
As of Oct. 31, 2015, the balance sheet reflected $1.25 billion in assets, stockholders' equity of $1.03 billion and net working capital of $401.5 million.
The company had no long-term debt at year end.
Dividends
On Sept. 16, 2015, the company announced its board of directors had declared a regular quarterly cash dividend of 22 cents per share. The board also authorized a special cash dividend payment of 50 cents per share.
Strong attributes of the fourth quarter
- Continued good demand for fresh chicken at retail grocery stores.
- Food service traffic and demand in the U.S. continue to improve.
Minor hiccups
- Conditions during the fourth quarter of fiscal 2015 deteriorated in the big bird deboning market.
- Overall market prices for poultry products were lower in the fourth quarter of fiscal 2015 compared with prices a year ago.
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.
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 macroeconomic conditions are the keys. New chicken items on QSR and casual dining menus helped demand last two summers.
On a concluding note
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 more than 65 years.
The company’s strategic focus has 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.
Disclosure: I do not hold any position in the company.
