Sanderson Farms (SAFM – Free Report) , a Zacks Ranked #1 (Strong Buy) is a fully-integrated poultry processing company engaged in the production, processing, marketing and distribution of fresh and frozen chicken products. The company sells ice pack, chill pack and frozen chicken, in whole, cut-up and boneless form, primarily under the Sanderson Farms7 brand name to retailers, distributors, and fast food operators principally in the southeastern, southwestern and western United States.

Recent Earnings Success

The company recently reported Q3 17 earnings where they easily beat both the Zacks consensus earnings and revenue estimates for the second consecutive quarter.On a year over year basis the company saw net sales up +28%, and net income rose by +111.7%.The main drivers behind the great quarterly results were increased market prices and a decline in feed cost; jumbo boneless breast meat prices were up almost +24.5%, bulk leg quarters rose by +15.8%, and jumbo wing prices increased by +40% while the company’s average feed cost per pound fell by $0.32 cents per pound (-1.3%) compared to the year ago data.  

Management also stated that they are starting construction this month on a new Tyler Texas facilities, and that their new facility in St Pauls North Carolina is now operating at three quarters capacity and remains on track to reach full capacity in January of 2018.

Management’s Take

According to Joe F. Sanderson, Jr., chairman and chief executive officer, “Sanderson Farms’ financial results for the third quarter of fiscal 2017 reflect a continued favorable balance of supply and demand for fresh chicken sold to retail grocery store customers. That balance was reflected in relatively strong market prices for that product during the current third fiscal quarter. Market prices for boneless breast meat, bulk leg quarters and jumbo wings produced at our plants that process a larger bird were all higher this year when compared to last year’s third fiscal quarter. Food service traffic and demand in the United States remain below pre-recession levels, but demand from and the popularity of local chain concepts and restaurants that focus on wings are offsetting reduced traffic at casual dining restaurants. This demand contributed to a good supply and demand balance during the quarter.”

Price and Earnings Consensus Graph

As you can see in the graph below, the stock price and future earnings estimates are trending in the correct direction.

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