Category: SAFM

SAFM – The Wall Street Journal: Chicken producer Sanderson Farms nears $4.5 billion sale

Sanderson Farms Inc. is nearing a deal to sell itself for around $4.5 billion, according to people familiar with the matter, as the poultry giant rides a wave of demand for chicken products.

Sanderson
SAFM,
+0.59%

is in advanced talks with Cargill Inc. and agricultural-investment firm Continental Grain Co., which owns a smaller chicken processor, the people said. The deal could be finalized by Monday, they said.

It would value Sanderson at $203 a share, about 30% above the price before The Wall Street Journal reported in June that the company had attracted interest from suitors including Continental.

Mississippi-based Sanderson is the country’s third-biggest chicken producer. It runs 13 poultry plants from North Carolina to Texas, processing about 13.6 million chickens a week. The company supplies grocery chains including Walmart Inc.
WMT,
-0.18%

 and Albertsons Cos.
ACI,
+6.09%

as well as restaurant distributors like Sysco Corp.
SYY,
+0.54%

 and U.S. Foods Holding Corp. 
USFD,
+1.58%
.

Combining Sanderson with Georgia-based Wayne Farms LLC, a poultry company owned by Continental, would form a new competitor representing about 15% of U.S. chicken production, according to data from Watt Poultry USA. Tyson Foods Inc.
TSN,
+1.40%

 leads the industry with about one-fifth of the market, while Pilgrim’s Pride Corp. 
PPC,
+1.29%

 represents about 16% of the national total.

An expanded version of this report appears on WSJ.com.

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SAFM – Chicken producer Sanderson Farms nears $4.5 billion sale to Continental Grain, Cargill – WSJ

A truck laden with chicken leg quarters leaves Sanderson Farms poultry processing plant enroute to Mexico, in Palestine, Texas, U.S., January 17, 2018. Photo taken January 17, 2018. REUTERS/Jason Lange

Aug 8 (Reuters) – Chicken producer Sanderson Farms Inc (SAFM.O) is in advanced talks with Cargill Inc and agricultural investment firm Continental Grain Co to sell itself in a $4.5 billion deal, the Wall Street Journal reported on Sunday.

The potential deal could value Sanderson Farms at $203 a share, the newspaper reported. The deal could be finalized as soon as Monday, it added.

According to a Reuters report from June, Sanderson Farms had drawn interest from buyers including Continental Grain, which owns a smaller chicken processor, Wayne Farms.

“While we don’t comment on market rumors, Cargill is a growth company and we are always looking for new opportunities,” a Cargill spokesperson told Reuters.

Sanderson Farms and Continental Grain were not immediately available to respond to requests for comment outside office hours.

Talk about a potential deal comes at a time when demand for the company’s products is on the rise as restaurants reopen for business.

Prices of chicken products, especially those of wings and breasts, have risen as easing restrictions bring consumers back to restaurants and more fast-food chains create fried-chicken sandwiches.

Reporting by Aakriti Bhalla in Bengaluru; additional reporting by Radhika Anilkumar; editing by Richard Pullin

Our Standards: The Thomson Reuters Trust Principles.

SAFM – Sanderson Farms, Inc. Announces Quarterly Dividend

LAUREL, Miss.–()–Sanderson Farms, Inc. (NASDAQ: SAFM) today announced that its Board of Directors has declared a regular quarterly cash dividend of $0.44 (forty-four cents) per share payable August 17, 2021, to stockholders of record on August 3, 2021.

Sanderson Farms, Inc. is engaged in the production, processing, marketing and distribution of fresh, frozen and minimally prepared chicken. Its shares trade on the NASDAQ Global Select Market under the symbol SAFM.

SAFM – Sanderson Farms explores sale

Poultry giant Sanderson Farms Inc. is exploring a sale, according to people familiar with the matter, as demand for chicken products rises.

Stocks in this Article

SAFM SANDERSON FARMS, INC.

$166.58

+10.84 (+6.96%)

Sanderson Farms has tapped Centerview Partners for advice on the potential sale and has attracted interest from suitors including agricultural investment firm Continental Grain Co., which owns a smaller chicken processor, the people said. The process may not result in a sale.

Mississippi-based Sanderson, the third-biggest U.S. chicken producer by processing capacity, had a market value of around $3.5 billion Monday afternoon, and a buyer would be expected to pay a premium to that.

CHICKEN WING SHORTAGE GRIPS AMERICA

Demand for chicken breasts, wings and other products has increased as pandemic restrictions lift and restaurants reopen, boosting sales and prices. At the same time, consumers have continued spending more on groceries as many are still working from home. The cost of boneless, skinless chicken breast has more than doubled since the beginning of the year and wing prices have hit records.

That helped Sanderson report better-than-expected sales and profit last month.

A truck laden with chicken leg quarters leaves Sanderson Farms poultry processing plant enroute to Mexico, in Palestine, Texas, U.S., January 17, 2018. Photo taken January 17, 2018. REUTERS/Jason Lange

Meat companies’ costs are also rising. Grain prices—typically the biggest expense in raising poultry—have jumped over the past year, pushed higher by growing exports to China and poor weather for South American farmers. Labor shortages in the rural areas that are home to major meat plants have forced poultry producers to increase wages and expand benefits to recruit and retain workers. Some companies, including Sanderson, are making fresh investments in automation.

The U.S. chicken industry is dominated by a handful of big players including Tyson Foods Inc., which processes about one-fifth of the country’s poultry, according to research from Watt Poultry USA.

A deal with Continental would merge Sanderson with Georgia-based Wayne Farms LLC, a poultry producer owned by Continental, forming a company producing about 15% of the country’s chicken meat. No. 2 player Pilgrim’s Pride Corp. produces about 16% of the national total.

Sanderson in October 2020 said it rejected an unsolicited takeover approach from Durational Capital Management that the chicken producer said was too low.

Sanderson was founded in 1947 as a farm-supply store. Joe Sanderson, the grandson of founder D.R. Sanderson, has served as the company’s chief executive since 1989 and chairman since 1998.

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Wayne Farms traces its roots to a feed-milling company founded in 1895 that expanded into poultry and was acquired by Continental in 1981. The firm in 2015 filed plans to raise $234 million in an initial public offering for Wayne, with part of its growth strategy to consolidate smaller private and family-owned chicken companies, according to documents filed with U.S. securities regulators. Continental withdrew the IPO plan as the U.S. poultry industry contended with avian influenza outbreaks that killed millions of birds and boosted costs for poultry and egg companies.

The U.S. poultry industry is facing scrutiny from the U.S. Department of Justice’s ongoing criminal investigation into allegations that executives at major chicken companies conspired to fix prices. No one at Sanderson or Wayne has been charged.

SAFM – Sanderson Farms (SAFM) Up 3.5% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Sanderson Farms (SAFM Free Report) . Shares have added about 3.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Sanderson Farms due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Sanderson Farms Q1 Earnings Beat Estimates, Sales Up

Sanderson Farms posted first-quarter fiscal 2021 results, with the top and the bottom line surpassing the Zacks Consensus Estimate as well as increasing year on year.

However, management informed that the company struggled with pandemic-induced hurdles and higher feed grain prices during the quarter under review. Market prices for boneless breast meat from its facility that process larger birds for food service customers were weak in the first two months of the quarter.

Nevertheless, retail demand remained solid on the back of favorable pricing and product mix. Average prices for tray pack products sold to retail grocery stores increased year over year. Further, prices continue to reflect a healthy supply and demand balance across market.

Q1 in Detail

The company delivered earnings of 42 cents per share. Notably, the company had reported net loss of $1.76 per share in the year-ago quarter. Also, earnings beat the Zacks Consensus Estimate of a loss of 36 cents per share.

Net sales came in at $909.3 million, which surpassed the Zacks Consensus Estimate of $880.1 million. Moreover, the metric increased from $823.1 million posted in the year-ago quarter. Notably, overall market prices for poultry products increased year over year.

The average realized prices of retail tray pack products was up nearly 3.1%, boneless breast meat market prices were nearly 10.5% higher and tender market prices increased by almost 27.4%. Further, market prices of jumbo wing increased nearly 34.3%, while the same for bulk leg quarters declined about 26.4%.

The company’s average feed cost per pound of poultry products processed increased 1.3%. Prices paid for corn and soybean meal was higher by 8.9% and 27.5%, respectively. Soybean meal and corn are part of the company’s primary feed ingredients.

We note that cost of sales increased from $823.5 million to $839.3 million in the reported quarter. Further, SG&A expenses rose to $56.6 million from $49.5 million reported in the year-ago quarter. The company’s operating income came in at $13.4 million against operating loss of $49.9 million reported in the year-ago quarter.

Balance Sheet

Sanderson Farms ended the quarter with cash and cash equivalents of $50.1 million, long-term debt of $55 million and total shareholders’ equity of $1,419.5 million.

Outlook

Going into 2021 planting season, both corn and soybean balance tables show extremely tight supplies. That said, the company is optimistic about its poultry markets in 2021. Also, management expects to see improved demand from food service customers once consumers are more comfortable dining in restaurants and COVID-19 vaccines are widely rolled out. The company anticipates continued favorable demand from retail grocery store customers stemming from higher cook at-home trends. Also, demand from export markets improved since December.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 331.58% due to these changes.

VGM Scores

At this time, Sanderson Farms has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Sanderson Farms has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.

SAFM – Sanderson Farms (SAFM) Q1 Earnings Beat Estimates, Sales Up

Sanderson Farms, Inc. (SAFM Free Report) posted first-quarter fiscal 2021 results, with the top and the bottom line surpassing the Zacks Consensus Estimate as well as increasing year on year.

However, management informed that the company struggled with pandemic-induced hurdles and higher feed grain prices during the quarter under review. Market prices for boneless breast meat from its facility that process larger birds for food service customers were weak in the first two months of the quarter.

Nevertheless, retail demand remained solid on the back of favorable pricing and product mix. Average prices for tray pack products sold to retail grocery stores increased year over year. Further, prices continue to reflect a healthy supply and demand balance across market.

 

Q1 in Detail

The company delivered earnings of 42 cents per share. Notably, the company had reported net loss of $1.76 per share in the year-ago quarter. Also, earnings beat the Zacks Consensus Estimate of a loss of 36 cents per share.

Net sales came in at $909.3 million, which surpassed the Zacks Consensus Estimate of $880.1 million. Moreover, the metric increased from $823.1 million posted in the year-ago quarter. Notably, overall market prices for poultry products increased year over year.

The average realized prices of retail tray pack products was up nearly 3.1%, boneless breast meat market prices were nearly 10.5% higher and tender market prices increased by almost 27.4%. Further, market prices of jumbo wing increased nearly 34.3%, while the same for bulk leg quarters declined about 26.4%.

The company’s average feed cost per pound of poultry products processed increased 1.3%. Prices paid for corn and soybean meal was higher by 8.9% and 27.5%, respectively. Soybean meal and corn are part of the company’s primary feed ingredients.

We note that cost of sales increased from $823.5 million to $839.3 million in the reported quarter. Further, SG&A expenses rose to $56.6 million from $49.5 million reported in the year-ago quarter. The company’s operating income came in at $13.4 million against operating loss of $49.9 million reported in the year-ago quarter.

Balance Sheet

Sanderson Farms ended the quarter with cash and cash equivalents of $50.1 million, long-term debt of $55 million and total shareholders’ equity of $1,419.5 million.

 

Outlook

Going into 2021 planting season, both corn and soybean balance tables show extremely tight supplies. That said, the company is optimistic about its poultry markets in 2021. Also, management expects to see improved demand from food service customers once consumers are more comfortable dining in restaurants and COVID-19 vaccines are widely rolled out. The company anticipates continued favorable demand from retail grocery store customers stemming from higher cook at-home trends. Also, demand from export markets improved since December.

Shares of this Zacks Rank #1 (Strong Buy) company have increased 10.6% in the past three months compared with the industry’s rise of 4.3%.

Other Top Food Picks

The Hain Celestial (HAIN Free Report) , currently carrying a Zacks Rank #2 (Buy), has a trailing four-quarter earnings surprise of 26.7%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Darling Ingredients (DAR Free Report) , a Zacks Rank #2 stock, has a trailing four-quarter earnings surprise of 26.3%, on average.

Medifast, Inc. (MED Free Report) , currently carrying a Zacks Rank #2, has a trailing four-quarter earnings surprise of 20.2%, on average.

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SAFM – Sanderson Farms, Inc. Holds Annual Meeting of Stockholders

LAUREL, Miss.–(BUSINESS WIRE)–Sanderson Farms, Inc. (NASDAQ: SAFM) announced today that it held its annual meeting of stockholders this morning in a virtual format. In the formal business conducted at the meeting, stockholders re-elected four Class B directors for terms expiring at the 2024 annual meeting. Management also reported on the Company’s performance during fiscal 2020 and provided an outlook for fiscal 2021. Re-elected to three-year terms were John Bierbusse, Retired Vice President and Manager of Research Administration, A.G. Edwards; Mike Cockrell, Treasurer, Chief Financial Officer and Chief Legal Officer of Sanderson Farms, Inc.; Edith Kelly-Green, Partner, The KGR Group; and Suzanne T. Mestayer, Owner and Managing Principal, ThirtyNorth Investments, LLC.

Other directors, whose terms continue to future years, are: Fred L. Banks, Jr., David Barksdale, Lampkin Butts, Toni D. Cooley, Beverly W. Hogan, Phil K. Livingston, Sonia Perez, Gail Jones Pittman and Joe F. Sanderson, Jr.

In other action at the annual meeting, stockholders approved the following items of business: in a non-binding advisory vote, the compensation of the Company’s Named Executive Officers and the ratification of the selection of Ernst & Young LLP as the Company’s independent auditors for the fiscal year ending October 31, 2021. Stockholders rejected a stockholder proposal to request that the Board of Directors report on the Company’s human rights due diligence process.

Earlier in his remarks to stockholders concerning the Company’s operations, Sanderson said, Without question, fiscal 2020 was a year like no other for our company, our nation, and the entire world as we faced the extraordinary challenges caused by the COVID-19 pandemic, social and racial unrest, a global recession, and ongoing poultry market volatility. We have faced these challenges, however, with the same determination and resilience instilled in us by our founders in 1947. Over the past year, our board of directors and executive management team have risen to the challenge to protect both the interests of our many stakeholders and the long-term value of Sanderson Farms. We believe our core value of respect for the rights and dignity of every human being; our conservative financial management and our best-in-class operational efficiency have provided a firm foundation to support our business under extraordinary conditions.

“Despite the uncertain environment and fluctuating markets over the past year, our operations performed well. Demand for chicken products sold to retail grocery store customers surged higher at the beginning of the pandemic and remained strong through the end of the fiscal year, as more consumers have been preparing meals at home. However, demand from our food service customers has remained under pressure with the changing restrictions on restaurants and food service establishments and the steep decline in the number of consumers dining out during the pandemic. Our sales mix and production for the year reflect these changing demand trends, but we were pleased to report overall higher sales of $3.564 billion in fiscal 2020 compared with $3.440 billion last year.

“As a critical part of the nation’s food supply, we are mindful of our responsibility to do our best to maintain our production even under extraordinary conditions. At the same time, we understand our obligation to keep our people safe. Our number one priority throughout the pandemic has been protecting the health and safety of our employees, who have continued to produce and deliver poultry products to our customers and contribute to a stable food supply.

“Over the past year, we have witnessed significant social unrest and racial injustice across the nation. For Sanderson Farms, respect for the dignity and worth of every human being has been a core value of the Company since our founding. We recognize that our people are our most important asset, and we are committed to providing our employees with a safe place to work, fair pay and benefits, and equitable treatment both at work and in our communities. We are proud of our record and policies related to diversity, and we strive to be inclusive in every way.

“We are equally proud of our efforts over the past year to manage our operations in an efficient and responsible manner under extraordinary conditions. As we have continued to expand our production, an integral part of our growth strategy has been an emphasis on environmental responsibility. It is vitally important to Sanderson Farms that we not only apply sustainability practices in our own facilities, but also work in tandem with our local communities to protect the environment.”

Sanderson concluded, “We have many reasons to be optimistic about the year ahead for Sanderson Farms. We expect robust demand for chicken products from retail grocery stores will continue, and we are ready to meet this demand with the right mix of quality products. While the COVID-19 pandemic will remain part of our lives, we are hopeful that as more people are able to get a vaccine, consumer confidence will improve, and restaurants and food service operators can begin to resume regular schedules. Our operations are performing well, and we are well positioned to execute our growth strategy with the right mix of quality products and a respected brand, supported by efficient and sustainable operations, exceptional customer service and a strong financial position. Above all, we have an incredible team across our operations. We acknowledge the heroic work and perseverance of our dedicated managers, employees, and contract producers who continue to work hard to meet the demands of our valued customers. Together, we will face both the challenges and opportunities before us with a shared commitment to deliver greater value to our shareholders.”

Sanderson Farms, Inc. is engaged in the production, processing, marketing and distribution of fresh, frozen and minimally prepared chicken. Its shares trade on the NASDAQ Global Select Market under the symbol SAFM.

This press release includes forward-looking statements within the meaning of the “safe harbor” provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are based on a number of assumptions about future events and are subject to various risks, uncertainties and other factors that may cause actual results to differ materially from the views, beliefs, projections and estimates expressed in such statements. These risks, uncertainties and other factors include, but are not limited to those discussed under “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended October 31, 2020, and the following:

(1) Changes in the market price for the Company’s finished products and feed grains, both of which may fluctuate substantially and exhibit cyclical characteristics typically associated with commodity markets.

(2) Changes in economic and business conditions, monetary and fiscal policies or the amount of growth, stagnation or recession in the global or U.S. economies, any of which may affect the value of inventories, the collectability of accounts receivable or the financial integrity of customers, and the ability of the end user or consumer to afford protein.

(3) Changes in the political or economic climate, trade policies, laws and regulations or the domestic poultry industry of countries to which the Company or other companies in the poultry industry ship product, and other changes that might limit the Company’s or the industry’s access to foreign markets.

(4) Changes in laws, regulations, and other activities in government agencies and similar organizations applicable to the Company and the poultry industry and changes in laws, regulations and other activities in government agencies and similar organizations related to food safety.

(5) Various inventory risks due to changes in market conditions including, but not limited to, the risk that market values of live and processed poultry inventories might be lower than the cost of such inventories, requiring a downward adjustment to record the value of such inventories at the lower of cost or net realizable value as required by generally accepted accounting principles.

(6) Changes in and effects of competition, which is significant in all markets in which the Company competes, and the effectiveness of marketing and advertising programs. The Company competes with regional and national firms, some of which have greater financial and marketing resources than the Company.

(7) Changes in accounting policies and practices adopted voluntarily by the Company or required to be adopted by accounting principles generally accepted in the United States.

(8) Disease outbreaks affecting the production, performance and/or marketability of the Company’s poultry products, or the contamination of its products.

(9) Changes in the availability and cost of labor and growers.

(10) The loss of any of the Company’s major customers.

(11) Inclement weather that could hurt Company flocks or otherwise adversely affect its operations, or changes in global weather patterns that could affect the supply and price of feed grains.

(12) Failure to respond to changing consumer preferences and negative or competitive media campaigns.

(13) Failure to successfully and efficiently start up and run a new plant or integrate any business the Company might acquire.

(14) Unfavorable results from currently pending litigation and proceedings, or litigation and proceedings that could arise in the future.

(15) Changes resulting from the COVID-19 pandemic, which could exacerbate any of the risks described above, and could include: high absentee rates that have prevented and may continue to prevent the Company from running some of its facilities at full capacity, or could in the future cause facility closures; an inability of contract poultry producers to manage their flocks; supply chain disruptions for feed grains; further changes in customer orders due to shifting consumer patterns; disruptions in logistics and the distribution chain for the Company’s products; liquidity challenges; and a continued or worsening decline in global commercial activity, among other unfavorable conditions.

Readers are cautioned not to place undue reliance on forward-looking statements made by or on behalf of Sanderson Farms. Each such statement speaks only as of the day it was made. The Company undertakes no obligation to update or to revise any forward-looking statements. The factors described above cannot be controlled by the Company. When used in this press release or in the related conference call, the words “believes”, “estimates”, “plans”, “expects”, “should”, “outlook”, and “anticipates” and similar expressions as they relate to the Company or its management are intended to identify forward‑looking statements. Examples of forward-looking statements include statements of the Company’s belief about its future growth plans, future demand for its products, future prices for feed grains, future expenses, future production levels, future earnings, economic conditions or other industry conditions.

SAFM – Sanderson Farms (SAFM) Down 7.3% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Sanderson Farms (SAFM Free Report) . Shares have lost about 7.3% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Sanderson Farms due for a breakout? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Sanderson Farms Q4 Earnings Beat Estimates, Sales Up

Sanderson Farms, Inc posted fourth-quarter fiscal 2020 results, with the top and the bottom line surpassing the Zacks Consensus Estimate as well as increasing year on year. Results gained from favorable trends for chicken products. Moreover, feed costs also remained low during the quarter.

However, management informed that the company continued to struggle with weak food services, as demand from restaurants remained low due to the coronavirus pandemic-induced social distancing. Market prices were weak for boneless breast meat as well as other products from the company’s big bird food service plants

Nevertheless, the demand for products sold at retail grocery stores, especially for chicken products were strong. Management expects such trends to continue until away from home dining trends resume in large numbers. As a result, the company is focusing on boosting the production of tray packs, which are in high demand at retail grocery stores.

Q4 in Detail

The company reported earnings of $1.26 per share, which beat the Zacks Consensus Estimate of a loss of 8 cents. Moreover, the bottom line depicted a considerable improvement from a loss of $1.05 per share in the year-ago quarter.

Net sales came in at $940 million, which surpassed the Zacks Consensus Estimate of $909.4 million. Moreover, the metric increased 3.7% from $906.5 million posted in the year-ago quarter. The top line benefited from increase in realized prices for poultry.

During the fiscal fourth quarter, average boneless breast meat market prices increased 2.8% year over year. Average market price for Jumbo wing were up 9%, while average market price for bulk leg quarters fell nearly 42.8% year on year.

For the fourth quarter, the overall cash cost for grain delivered to feed mills was higher than the year-ago quarter. Prices paid for corn delivered declined 15.2% and soybean meal increased 4.7%. Soybean meal and corn are part of the company’s primary feed ingredients.

We note that cost of sales declined 4.1% to $848.3 million in the reported quarter. Further, SG&A expenses fell 3.3% to $49.5 million in the reported quarter. The company reported operating income of $42.3 million compared with operating loss of $32.4 million.

Balance Sheet

Sanderson Farms ended the quarter with cash and cash equivalents of $49 million, long-term debt (less current maturities) of $25 million and total shareholders’ equity of $1,419 million. As of Oct 31, 2020, the company had working capital of $354 million.

Management highlighted that for fiscal 2020, the company incurred expenses worth $202.4 million on capital improvements. Also, it paid out dividends worth $31.1 million during the year. In fiscal 2021, the company expects capital expenditures of nearly $163.8 million related to special projects, construction and maintenance work.  

Outlook

The USDA lowered its crop yield estimates for corn and soybean in 2020, while increasing its estimates for export demand. As a result, market prices for both corn and soybeans have increased since September. Accordingly, management expects feed grain costs to rise in 2021. Based on fiscal 2020 volumes, cash costs for corn and soybean meal in fiscal 2021 is likely to increase by $193.2 million year on year.

Apart from this, the company is cautious regarding soybean and corn crops in Brazil and the rest of South America owing to pockets of dry hot weather. Additionally, the company continues to keep a close watch on chicken production numbers. The USDA expects chicken production to increase nearly 1% in 2021.

Moving on, the company expects that demand from food service customers is likely to be under pressure, until traffic at restaurants picks up pace. Nevertheless, management is encouraged regarding the demand for products sold at retail grocery stores. The company expects favorable conditions for the away-from-home food category, as consumers continue adhering to at-home cooking.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions. The consensus estimate has shifted 7.41% due to these changes.

VGM Scores

Currently, Sanderson Farms has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren’t focused on one strategy, this score is the one you should be interested in.

Outlook

Sanderson Farms has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

SAFM – Sanderson Farms (SAFM) Q4 Earnings and Revenues Surpass Estimates

Sanderson Farms (SAFM Free Report) came out with quarterly earnings of $1.26 per share, beating the Zacks Consensus Estimate of a loss of $0.08 per share. This compares to loss of $0.95 per share a year ago. These figures are adjusted for non-recurring items.

This quarterly report represents an earnings surprise of 1,675%. A quarter ago, it was expected that this poultry producer would post earnings of $0.07 per share when it actually produced earnings of $1.48, delivering a surprise of 2,014.29%.

Over the last four quarters, the company has surpassed consensus EPS estimates two times.

Sanderson Farms, which belongs to the Zacks Food – Meat Products industry, posted revenues of $940.02 million for the quarter ended October 2020, surpassing the Zacks Consensus Estimate by 3.37%. This compares to year-ago revenues of $906.49 million. The company has topped consensus revenue estimates three times over the last four quarters.

The sustainability of the stock’s immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management’s commentary on the earnings call.

Sanderson Farms shares have lost about 19.9% since the beginning of the year versus the S&P 500’s gain of 14.6%.

What’s Next for Sanderson Farms?

While Sanderson Farms has underperformed the market so far this year, the question that comes to investors’ minds is: what’s next for the stock?

There are no easy answers to this key question, but one reliable measure that can help investors address this is the company’s earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately.

Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions.

Ahead of this earnings release, the estimate revisions trend for Sanderson Farms was unfavorable. While the magnitude and direction of estimate revisions could change following the company’s just-released earnings report, the current status translates into a Zacks Rank #5 (Strong Sell) for the stock. So, the shares are expected to underperform the market in the near future. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is -$1.08 on $923.50 million in revenues for the coming quarter and $0.86 on $3.88 billion in revenues for the current fiscal year.

Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Food – Meat Products is currently in the bottom 15% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

SAFM – Sanderson Farms: Ongoing Headwinds Outweigh Buyout Hopes

I remain cautious on Sanderson Farms (SAFM) and the broader protein industry, even after an upbeat investor day event by SAFM. Barring a takeout, which I suspect is unlikely in the near term pending a more significant premium, I see little reason for investors to rush into shares. With demand already weak, cold weather ahead, and corn prices moving higher, I see earnings pressure ahead. In addition, the latest resurgence in COVID-19 cases threatens to derail a foodservice-led demand recovery in the medium term, while its lack of hedging increases the risk of earnings volatility in the upcoming quarters. At 27-28x EBITDA, SAFM carries a hefty price tag.

Evaluating Chicken Market Conditions

At its recent virtual investor day, SAFM provided a largely mixed overview of the state of the chicken market. Of note, boneless breast meat pricing has seen declines post-Labor Day to 90c/lb (down from 115c/lb in August), although SAFM attributes this trend to seasonality rather than a retail demand slowdown.

Source: SAFM Virtual Investor Day Presentation Slides

Furthermore, industry consultant EMI outlined a gradual recovery scenario at the event, expecting boneless breast meat to average 90c/lb in 2020 and 100c/lb in 2021 (below the 110c/lb YTD). However, EMI noted that the market for tenders is starting to recover, with pricing expected to rise from $1.37/lb in 2020 to $1.53/lb in 2021. Wing values have also remained strong on the back of foodservice takeaway demand, with flat Y/Y pricing of $1.66/lb on average expected through 2021.

Improving Margins in the Retail Channel

Interestingly, Nielsen also noted at the event that retail chicken sales across the store were up considerably from July to early-October, with the vast majority of the growth from fresh meat. Notably, the trend is being led by breast meat, in stark contrast to trends last year, which saw the retail mix shifting toward wings and thighs (over breast meat).

Source: SAFM Virtual Investor Day Presentation Slides

Nonetheless, margins are trending positively in the retail channel due to fixed pricing structures. While in the early stages of the COVID-19 pandemic, fixed pricing was negative as it prevented prices from rising in-line with the spiking demand from stockpiling, the sticky pricing is now positive as demand moderates and commodity chicken prices decline from their peak. Encouragingly, management is cautiously optimistic about negotiating price increases over the upcoming year, which points toward margin improvement ahead in the retail channel.

Status Quo For Now Despite COVID-19 Disruptions, But Outlook Uncertain

Considering the challenging backdrop, with the poultry market volatile in light of COVID-19, the fact that SAFM’s operations remain status quo is impressive. While some may contend that poultry has not experienced similar supply chain disruptions to that faced by beef and pork producers in April, for instance, poultry producers have still been hit hard by ongoing COVID-19-driven labor issues, which has impacted secondary processing.

Much will depend on the outlook – a near-term inflection in US poultry seems unlikely, however, in light of the seasonal demand declines expected through year-end. For now, at least, management remains upbeat on the company’s production levels despite noting an increased amount of labor absenteeism already being seen at the plant level. Management seems optimistic that demand will seasonally improve after the winter months, although I would note that this assumption does not account for any additional demand weakness from a prolonged COVID-19 resurgence.

A Margin Accretive Shift toward Tray Packs

Also worth noting was SAFM’s decision to shift production at its Hazelhurst plant away from big bird deboning toward tray pack for foodservice customers. The key reason for the production shift is its belief that foodservice demand, especially full-service restaurants, will remain under prolonged pressure due to COVID-19. Therefore, SAFM is moving to capture incremental retail demand instead.

I see this as a step in the right direction, as tray pack margins are significantly higher at present due to the higher demand for food-at-home items following COVID-19. The implicit view seems to be that the shift toward food-at-home is here to stay (at least for the near term).

Source: SAFM Virtual Investor Day Presentation Slides

As no specific numbers were provided, however, I am unsure about the precise margin implications. What we do know currently is that the capital outlay amounts to $5-6 million and should be complete by Thanksgiving. The production shift will also drive the company’s overall mix to 56.5% big bird and 43.5% tray pack.

Don’t Pin Your Hopes on a Buyout

Despite recent reports of a potential takeover by Durational Capital, current offers seem to be far too low – Durational’s latest offer was $142/share, far below the 52-week high of c. $180. Unless a potential buyer matches what SAFM might be worth in a normalized/mid-cycle scenario, I find it hard to envision a deal taking place pending a more significant premium. This would likely mean any acquisition would need to be strategic in nature, with significant synergies to be unlocked.

Amid the weakening demand backdrop, seasonal headwinds ahead, and the exposure to commodities-led cost pressure, I see earnings pressure in the upcoming quarters. With COVID-19 also seeing a resurgence, the medium-term outlook is uncertain as well. SAFM shares already trade at c. 27-28x EV/EBITDA, and therefore, I see little upside at these levels.

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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.