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How Sanderson Farms’ Stock Reacted to Its 3Q14 Results

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Stock price performance

Sanderson Farms’ (SAFM) stock nearly touched $100 in 2014 amid strong chicken prices and lower feed costs. However, shares have fallen toward the mid-60s this fiscal year.

Sanderson Farms’ stock has followed a declining trend since last week due to chicken pricing fears, but it showed a rise in price of ~4% after the 3Q15 earnings release, closing at $70.24 on August 27, 2015.

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Company overview

Sanderson Farms (SAFM) is the third-largest poultry producer in the United States. The company is a poultry processing company engaged in the production, processing, marketing, and distribution of fresh and frozen chicken, as well as the processing, marketing, and distribution of prepared chicken items.

Responding to increased consumer demand for affordable, lean protein products, Sanderson Farms’ newest poultry facility is a $140 million complex consisting of a feed mill, hatchery, poultry processing plant, and waste water facility located in and near Palestine, Texas. At full capacity, the Palestine poultry giant is expected to process 1.25 million chickens per week, increasing the company’s overall production by ~16%.

Management’s statement

Joe F. Sanderson, Jr., chairman and CEO of Sanderson Farms, noted, “Sanderson Farms’ financial results for the third quarter of fiscal 2015 reflect continued good demand for fresh chicken at retail grocery stores, which demand was reflected in a Georgia Dock whole bird price that remained near record levels during the quarter.”

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The company’s margins

Gross margins reported at 17.2% of sales, which is down by 3.8% versus the same quarter in 2014. The lower chicken prices affected the margins because the grain-based feed costs are also decreasing.

Other factors affecting Sanderson Farms’ margins is the increased incentive-based compensation being allocated to the cost of goods sold. Its operating margins reported as 10.68% of sales, which were also down by 4.5% versus 3Q14.

Performance of competitors’ stocks

Sanderson Farms’ (SAFM) main competitors in the industry are Pilgrim’s Pride (PPC), Hormel Foods (HRL), and Tyson Foods (TSN). PPC trades on NASDAQ, closing at $20.77 on August 27, 2015. TSN and HRL trade on the NYSE and closed at $42.34 and $61.38, respectively, on August 27.

The Consumer Staples Select Sector SPDR ETF (XLP) invests 0.86% in TSN, and the SPDR S&P 500 ETF Trust (SPY) invests 0.06% of its portfolio in TSN.

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