Chicken processing company Sanderson Farms (SAFM 151.14, -16.50 -9.8%) slides to multi-week lows in reaction to this morning’s worse than expected Q4 earnings report.
Getting right in to the report, SAFM missed market expectations by reporting Q4 EPS of $3.20 with revenue growth of about 16% to $919.9 million.
Management highlighted that market conditions weakened during Q4 as market prices declined seasonally after Labor Day. The seasonal decrease in demand was exacerbated by hurricane disruptions and higher than expected chicken production caused by higher than expected live weights.
Further, SAFM commented that overall market prices for poultry products were generally higher in the whole of fiscal 2017 compared with prices a year ago, but were mixed for Q4.
Boneless breast meat prices averaged 6.3% lower in Q4 than the prior-year period. For the full fiscal year, however, boneless breast meat prices were 5.8% higher compared with fiscal 2016. Management commented on the conference call that after Christmas, boneless breast prices are going to move up.
Jumbo wing prices averaged $2.09 per pound during Q4, up 28.4% from the average of $1.62 per pound during the prior-year period. Jumbo wing prices averaged $1.92 per pound during the fiscal year, up 21.4% from the average of $1.58 per pound for fiscal 2016. Further, management called out the NFL on the conference call, stating that the, “NFL has hurt the wing,” and that the company isn’t as constructive on wings.
The average market price for bulk leg quarters increased about 22.7% for Q4 compared with last year, and increased 21.2% for fiscal 2017 compared to fiscal 2016.
Improved dark meat prices during the fiscal year reflect the increase in industry export volumes during calendar 2017.
Additionally, cash prices for corn during Q4 increased by 6.0%, while soybean meal cash prices were down 2.0%.
Management also gave some commentary on the coming fiscal year on the conference call; namely, comments around production have been in focus. Management stated that they wholeheartedly agree with USDA's estimates that the industry will produce around 2% more pounds of chicken in calendar 2018 compared to 2017. Further, SAFM’s feed costs during fiscal 2017 were lower for the fourth straight year and the company expects flat to lower cost during fiscal 2018. Thus, given that carry out of both corn and soybeans is healthy and given ample worldwide supplies of both commodities, SAFM should be able to buy grain at prices similar to if not lower than last year.
Commentary then went to NAFTA; in a question and answer portion, management fielded a question about the possibility that NAFTA would be removed. Management commented that prior to NAFTA, there was a 25% duty on poultry going into Mexico. They stated that if NAFTA were to be removed, that could occur again.
Despite today’s move, SAFM still holds YTD gains of better than 60%, slightly underperforming peer PPC’s +81% advance this year.