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Sanderson Farms Revenue Beat Estimates: Why a 9.2% Fall in Sales?

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Sales fell 9.2%

Sanderson Farms (SAFM) delivered a decline in year-over-year net sales yet again in fiscal 1Q16. Net sales were $605.2 million, a fall of 9.2% compared to net sales of $667.4 million in fiscal 1Q15.

Revenues, however, were ahead of analysts’ estimates by 5%, breaking the trend of missing analysts’ estimates since fiscal 2Q15. Sales for the quarter were hurt by weak product prices, lower export volumes, and a higher effective tax rate. The factors that negatively impacted export demand were the strong US dollar, lower oil prices, and avian influenza–related bans.

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Prices of affected products

In its fiscal 1Q16 press release, Sanderson Farms management mentioned that overall market prices for poultry products were significantly lower this quarter compared to the same quarter a year ago. The company’s average feed cost per pound of poultry products processed declined by 2.9 cents per pound, or 10%. All of the following are comparisons to fiscal 1Q15.

  • The average Georgia dock price for whole chicken was ~0.8% lower.
  • Boneless breast meat prices were ~21.6% lower.
  • Jumbo wing prices fell by 2.7%.
  • The average market price for bulk leg quarters decreased ~48.4%.
  • The prices for the company’s primary poultry feed ingredients such as corn declined 1.8%, and soybean meal fell by 20.9%.

Management mentioned in the press release that the broiler egg sets were slightly higher than fiscal 1Q15 levels toward the end of fiscal 1Q16. The food service markets also weakened in calendar 2015 due to market volatility, lower consumer demand, and weather fluctuations. The Prepared Foods plant is performing well and operating at nearly full capacity. Sales for this plant rose $3.9 million.

Competitors

The company’s peers include Hormel Foods (HRL), Tyson Foods (TSN), and Pilgrim’s Pride (PPC). They reported revenues of $2.2 billion, $9.1 billion, and $1.9 billion, respectively, for their most recently reported quarters. Pilgrim’s Pride accounts for 3.4% and 1.2% of the portfolio holdings of the First Trust Consumer Staples Alpha DEX ETF (FXG) and the AdvisorShares TrimTabs Float Shrink ETF (TTFS), respectively.

In the next part of the series, we’ll see how the stock reacted to the earnings.

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