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Why Did Sanderson Farms Rise 4% with Not-So-Good 1Q16 Results?

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Stock price performance

Sanderson Farms (SAFM) reported its fiscal 1Q16 results on Thursday, February 25, 2016, before the Market opened. After the opening bell, management held its earnings call. The stock rose 4% in spite of not-so-good results for the first quarter. Earnings took a hard fall in the quarter along with a decline in revenue and margins. SAFM closed at $88.68 compared to its previous day’s trading price of $85.17.

SAFM has risen 18% since its last earnings release. It rose 3% after the company reported its fiscal 4Q15 results in December. SAFM has risen 9% so far in 2016, as of February 25, and has increased 13% in the last two months.

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Its price movements on month-to-date and year-to-date bases are 9.1% and 14.3%, respectively. SAFM is trading at 3.4% on a five-day trailing basis. The stock almost touched $100 in 2014, aided by strong chicken prices and lower feed grain costs. Shares fell toward the mid-$60 range in fiscal 2015. The stock was following a declining trend up to the fiscal 3Q15 earnings release due to chicken pricing fears. However, it rose ~4% after that quarter’s earnings release.

The stock rose by 7% on December 3, 2015, on positive comments from analyst firm CLSA Americas. CLSA stated that the poor performance in the chicken commodities market could finally hit the bottom and see a turnaround soon. SAFM stock fell ~7% in calendar 2015.

Peers’ stock performances

Sanderson Farms, based in Laurel, Mississippi, is an integrated poultry processing company that produces, processes, markets, and distributes fresh, frozen, and prepared chicken products in the United States. The company’s peers in the industry are Pilgrim’s Pride (PPC), Hormel Foods (HRL), and Tyson Foods (TSN). PPC fell 6% after its fiscal 4Q15 results on February 10, 2016. HRL rose 7% after its fiscal 1Q16 results on February 16. TSN rose 10% after its better-than-expected results for fiscal 1Q16 on February 5. They closed at $23.70, $43.80, and $66.40, respectively, in yesterday’s trade.

The AdvisorShares TrimTabs Float Shrink ETF (TTFS) invests 1.2% of its portfolio in Sanderson Farms and 1.2% in PPC. It closed at $53.01 on February 25, 2016. The Guggenheim S&P 500 Pure Value ETF (RPV) and the iShares Morningstar Mid-Cap Value ETF (JKI) invest 1.1% and 1.1% of their portfolios, respectively, in TSN.

In the next part of this series, we’ll take a look at the moving averages for Sanderson Farms and its peers.

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