Sanderson Farms' (SAFM) Loss Wider Than Estimates In Q4

Sanderson Farms, Inc. (NASDAQ:SAFM) posted wider-than-expected loss when it reported fourth-quarter fiscal 2019 results. Nevertheless, the top line grew year over year and surpassed the Zacks Consensus Estimate.

During the fourth quarter, the company witnessed sluggishness in market prices for boneless breast meat produced at plants that process a larger bird for food service customers. Meanwhile, market prices for tray pack products sold at retail stores were marginally higher on better product mix as well as healthy demand and supply balance. Moreover, average market prices for bulk leg quarter and jumbo wings were higher compared with the prior-year quarter’s figure.

Q4 in Detail

The company reported net loss of $1.76 per share, which was wider than the Zacks Consensus Estimate of a loss of 74 cents. Also, the figure is wider than a loss of 82 cents reported in the year-ago quarter.

Net sales came in at $823.1 million, which surpassed the Zacks Consensus Estimate of $804.8 million. Also, the top line advanced 10.7% year over year.

Sanderson Farms, Inc. Price, Consensus and EPS Surprise

Sanderson Farms, Inc. price-consensus-eps-surprise-chart | Sanderson Farms, Inc. Quote

Costs/Margins

Cost of sales escalated 16.3% to $823.5 million on increased pounds sold and higher average cost of goods sold. Average feed costs per pound for poultry products increased 6.3%. Costs of corn meal went up 10.1%, while costs of soybean meal declined 2.3% in the quarter. Soybean meal and corn are part of the company’s primary feed ingredients. Further, SG&A expenses declined 15.5% to $49.5 million in the reported quarter.

Balance Sheet/Cash Flow

Sanderson Farms ended the quarter with cash and cash equivalents of $63.4 million, long-term debt of $165 million and total shareholders’ equity of $1,369.4 million.

Outlook

The company is optimistic about demand and prices for its poultry products courtesy of worldwide protein deficit stemming from African swine fever’s impact on Asian pork supplies. Also, since China lifted the ban on the import of U.S. chicken at the end of 2019, Sanderson Farms has received orders for roughly 18 million pounds of chicken products. However, management is witnessing some disruptions in China stemming from the outbreak of coronavirus.

Apart from these factors, increased promotions for chicken at quick-serve restaurants are likely to drive growth in poultry market in 2020. Per the current USDA projections, chicken production in the industry during calendar year 2020 is expected to rise more than 4.3% from 2019 levels.

Further, the company anticipates a healthy demand as well as supply balance for corn and soybean meal in 2020. Moreover, Sanderson Farms is progressing well with its operations in the Tyler facility. Management projects Tyler to reach full capacity during second-quarter fiscal 2020.

Price Performance

Notably, shares of this Zacks Rank #3 (Hold) company have dropped 25.7% in the past three months compared with the industry’s decline of 15.4%.

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