What impacted sales in 2Q16?
Sanderson Farms (SAFM) delivered a drop in YoY (year-over-year) net sales in the second quarter as well. Net sales fell 3% to $692 million—compared to net sales of $716 million in fiscal 2Q15. However, revenues were ahead of analysts’ estimates by 4%.
Sales for the quarter were hurt by lower product prices. The factors that continued to have a negative impact on export demand were the strong US dollar, lower oil prices, and avian influenza-related bans.
Prices of impacted products
In its fiscal 2Q16 press release, management mentioned that overall market prices for poultry products were average in the second quarter—compared to the same quarter a year ago. Sanderson Farms’ average feed cost per pound of poultry products processed fell by $0.04 per pound or 13%. All of the comparisons mentioned below are related to fiscal 2Q15:
- The average Georgia dock price for whole chicken was ~2.4% lower.
- Boneless breast meat prices were ~21.4% lower.
- Jumbo wing prices were higher by 12%.
- The average market price for bulk leg quarters fell ~16%.
- The prices for the company’s primary poultry feed ingredients like corn fell 1.9% and soybean meal fell by 21%.
Earnings fell hard
In fiscal 2Q16, Sanderson Farms reported a decrease in net income of $47.6 million or $2.11 per share—compared to net income of $71.2 million or $3.13 per share in fiscal 2Q15. It’s EPS (earnings per share) was ~39% ahead of analysts’ estimates. Earnings were hit hard and showed a 33% fall in its YoY growth. The fall in earnings growth continues the trend of declining earnings since fiscal 3Q15. The drop in the EPS was mainly due to the company’s declining exports, the decline in products’ prices, and higher domestic inventories. The export market continues to face headwinds like last year including avian influenza-related bans, a strong US dollar, and low oil prices
The company’s peers such as Hormel Foods (HRL), Tyson Foods (TSN), and Pilgrim’s Pride (PPC) reported revenue of $2.2 billion, $9.1 billion, and $1.9 billion, respectively, for their most recently reported quarter. Pilgrim’s Pride accounts for 2.6% of the portfolio holdings of the First Trust Consumer Staples Alpha DEX Fund (FXG). The Consumer Staples Select Sector SPDR Fund (XLP) invests in Hormel Foods.