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Category: Stock Market and Sanderson Farms Inc.
Date: 30 August 2019 Stock Price: $147.72 We take a look at the 3rd quarter earnings report of their 2019 fiscal year of Sanders Farms Inc, one of the largest poultry producers in the United States
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About Sanderson Farms Inc
Sanderson Farms has grown from a small general feed and seed business in 1947 to one of the nation's leading food corporations in fiscal 2018, with sales of more than $3.23 billion. We are currently the third largest poultry producer in the U.S., processing over 4.4 billion pounds of meat in fiscal 2018.
Our state-of-the-art facilities provide us the capacity to process more than 13.3 million chickens per week. We currently operate 13 poultry plants and one further processing facility, with our newest complex located in Smith and Wood Counties, Texas, which opened in January 2019 and includes a new feed mill, hatchery, poultry processing plant and waste water treatment facility.
Together these facilities comprise a state-of-the-art poultry complex with the capacity to process 1.3 million birds per week for retail chill pack customers. At full capacity, the complex will employ approximately 1,700 people, will require 80 contract growers, and will be equipped to process and sell approximately 375 million pounds of dressed poultry meat annually, thereby providing more quality products for new customers, opportunities for our employees and, above all, value for our shareholders. Combined with our company-owned feed mills and hatcheries, we are well positioned to keep up with the growing demand for our products.
Our 15,000+ employees and over 1,000 independent growers are committed to offering our customers the very best products on the market today. Perhaps that's why the products produced by Sanderson Farms can be found in major markets throughout the country as well as overseas. Sanderson Farms was incorporated in Mississippi in 1955 as a fully integrated poultry processing company that produces, processes, markets and distributes fresh and frozen chicken products. Our stock became publicly traded in May 1987 and is listed on NASDAQ under the symbol SAFM.
Today, the Company continues to build upon its rich traditions, believing that our success is largely due to the values instilled by the tenacious efforts of our founders and our extended family of employees. This includes the tradition of providing quality products to our customers and being responsive to their diverse needs, a hallmark of our business for over 70 years.
Our state-of-the-art facilities provide us the capacity to process more than 13.3 million chickens per week. We currently operate 13 poultry plants and one further processing facility, with our newest complex located in Smith and Wood Counties, Texas, which opened in January 2019 and includes a new feed mill, hatchery, poultry processing plant and waste water treatment facility.
Together these facilities comprise a state-of-the-art poultry complex with the capacity to process 1.3 million birds per week for retail chill pack customers. At full capacity, the complex will employ approximately 1,700 people, will require 80 contract growers, and will be equipped to process and sell approximately 375 million pounds of dressed poultry meat annually, thereby providing more quality products for new customers, opportunities for our employees and, above all, value for our shareholders. Combined with our company-owned feed mills and hatcheries, we are well positioned to keep up with the growing demand for our products.
Our 15,000+ employees and over 1,000 independent growers are committed to offering our customers the very best products on the market today. Perhaps that's why the products produced by Sanderson Farms can be found in major markets throughout the country as well as overseas. Sanderson Farms was incorporated in Mississippi in 1955 as a fully integrated poultry processing company that produces, processes, markets and distributes fresh and frozen chicken products. Our stock became publicly traded in May 1987 and is listed on NASDAQ under the symbol SAFM.
Today, the Company continues to build upon its rich traditions, believing that our success is largely due to the values instilled by the tenacious efforts of our founders and our extended family of employees. This includes the tradition of providing quality products to our customers and being responsive to their diverse needs, a hallmark of our business for over 70 years.
Financial overview of Sanderson Farms' latest earnings report
Numbers we are interested in: (for the quarter):
- Net sales $ 945.152 million ( up from $ 852.34 million for the same quarter of the previous)
- Costs and expenses: $876.370 million (up $837.346 million for the same quarter of the previous year)
- Net income: $ 53.362 million (up from $ 11.475 million for the same quarter of the previous year)
- Diluted earnings per share: $ 2.41 (up from $ 0.50 for the same quarter of the previous year)
- Dividends per share: $ 0.32 (unchanged from $ 0.32 for the same quarter of the previous year)
- Cash and cash equivalents $ 74.262 million
- Cash and cash equivalents per share: $3.12
- Cash and cash equivalents makes up 2.17% of the group's market capital
- Accounts receivable, net $132.226 million
- Accounts receivable makes up 7.4% of total assets
- Inventories 306,246
- Inventories makes up 17.2% of total assets
- Total stockholders' equity 1.450 billion
- Stockholders equity per share: $62.77
- Market Cap: $3.39 billion
Sanderson Farms' management commentary on the results and earnings guidance
LAUREL, Miss.--(BUSINESS WIRE)--Aug. 29, 2019-- Sanderson Farms, Inc. (NASDAQ: SAFM) today reported results for the third fiscal quarter and nine months ended July 31, 2019. Net sales for the third quarter of fiscal 2019 were $945.2 million compared with $852.4 million for the same period a year ago. For the quarter, the Company reported net income of $53.4 million, or $2.41 per share, compared with net income of $11.5 million, or $0.50 per share, for the third quarter of fiscal 2018. Net sales for the first nine months of fiscal 2019 were $2,533.8 million compared with $2,437.9 million for the first nine months of fiscal 2018.
Net income for the first nine months of fiscal 2019 totaled $76.2 million, or $3.44 per share, compared with net income of $104.6 million, or $4.58 per share, for the first nine months of fiscal 2018. Net income for the first nine months of fiscal 2018 reflects a one-time non-cash benefit of $37.5 million, or $1.64 per share, as a result of an adjustment to the Company’s deferred income tax liability to reflect a lower tax rate resulting from the federal tax reform legislation passed during the first fiscal quarter of 2018.
Net income for the third quarter of fiscal 2019 reflects an accrual for probable liability for a contribution to the Company’s Employee Stock Ownership Plan of $2.7 million before income tax, or $0.10 per share net of income tax, compared to $2.4 million before income tax, or $0.08 per share net of income tax, for the same period a year ago. “Similar to last year’s third fiscal quarter, Sanderson Farms’ financial results for the third quarter of fiscal 2019 reflect significant counter-seasonal weakness in market prices for boneless breast meat produced at our plants that process a larger bird for food service customers,” said Joe F. Sanderson, Jr., chairman and chief executive officer of Sanderson Farms, Inc.
“Fortunately, market prices for other products produced at those plants were higher than last year, and reflected good demand during the quarter. Average market prices for dark meat, jumbo wings and chicken tenders were all higher than the same period a year ago. Average realized prices for poultry products produced for retail grocery store customers were slightly higher than last year’s third fiscal quarter and continue to reflect a more balanced supply and demand environment.”
According to Sanderson, compared with the third fiscal quarter of fiscal 2018, jumbo boneless breast meat market prices were lower by approximately 3.2 percent, the average market price for bulk leg quarters increased approximately 17.1 percent, and market prices for jumbo wings were higher by 37.6 percent. The Company’s average feed cost per pound of poultry products processed decreased 1.1 cents per pound, or 4.1 percent, compared with the third quarter of fiscal 2018. Prices paid for corn and soybean meal, the Company’s primary feed ingredients, decreased 1.4 percent and 18.0 percent, respectively, compared with the third quarter of fiscal 2018.
In its report published August 12, 2019, the USDA increased its supply estimate for corn for the 2019/20 crop year. While the USDA lowered its estimate for harvested acres as a result of the late planting season, it increased its yield estimate. The published USDA report estimates for corn acres and yields were higher than the market expected. While the USDA lowered its estimate of soybean harvested acres, it held its yield estimate steady and lowered its demand estimate. Market prices for both corn and soybean meal fell following the release of the report. If realized, the USDA’s current yield and harvest estimates for the United States’ 2019 corn and soybean crops would leave both grains adequately supplied going into fiscal 2020.
“The USDA expects chicken production growth of 1.7 percent during calendar 2019 compared to 2018, which alone shouldn’t be a burdensome supply number. However, market prices for boneless breast meat produced at our plants that process a larger chicken for food service customers remain under pressure. As always, we will manage our business consistently regardless of market cycles,” added Sanderson. “We continue to make progress at our new Tyler, Texas, facilities,” said Sanderson. “The start-up has gone well, and the plant is now processing at 50 percent capacity. We expect to reach full capacity during the second fiscal quarter of 2020.”
Net income for the first nine months of fiscal 2019 totaled $76.2 million, or $3.44 per share, compared with net income of $104.6 million, or $4.58 per share, for the first nine months of fiscal 2018. Net income for the first nine months of fiscal 2018 reflects a one-time non-cash benefit of $37.5 million, or $1.64 per share, as a result of an adjustment to the Company’s deferred income tax liability to reflect a lower tax rate resulting from the federal tax reform legislation passed during the first fiscal quarter of 2018.
Net income for the third quarter of fiscal 2019 reflects an accrual for probable liability for a contribution to the Company’s Employee Stock Ownership Plan of $2.7 million before income tax, or $0.10 per share net of income tax, compared to $2.4 million before income tax, or $0.08 per share net of income tax, for the same period a year ago. “Similar to last year’s third fiscal quarter, Sanderson Farms’ financial results for the third quarter of fiscal 2019 reflect significant counter-seasonal weakness in market prices for boneless breast meat produced at our plants that process a larger bird for food service customers,” said Joe F. Sanderson, Jr., chairman and chief executive officer of Sanderson Farms, Inc.
“Fortunately, market prices for other products produced at those plants were higher than last year, and reflected good demand during the quarter. Average market prices for dark meat, jumbo wings and chicken tenders were all higher than the same period a year ago. Average realized prices for poultry products produced for retail grocery store customers were slightly higher than last year’s third fiscal quarter and continue to reflect a more balanced supply and demand environment.”
According to Sanderson, compared with the third fiscal quarter of fiscal 2018, jumbo boneless breast meat market prices were lower by approximately 3.2 percent, the average market price for bulk leg quarters increased approximately 17.1 percent, and market prices for jumbo wings were higher by 37.6 percent. The Company’s average feed cost per pound of poultry products processed decreased 1.1 cents per pound, or 4.1 percent, compared with the third quarter of fiscal 2018. Prices paid for corn and soybean meal, the Company’s primary feed ingredients, decreased 1.4 percent and 18.0 percent, respectively, compared with the third quarter of fiscal 2018.
In its report published August 12, 2019, the USDA increased its supply estimate for corn for the 2019/20 crop year. While the USDA lowered its estimate for harvested acres as a result of the late planting season, it increased its yield estimate. The published USDA report estimates for corn acres and yields were higher than the market expected. While the USDA lowered its estimate of soybean harvested acres, it held its yield estimate steady and lowered its demand estimate. Market prices for both corn and soybean meal fell following the release of the report. If realized, the USDA’s current yield and harvest estimates for the United States’ 2019 corn and soybean crops would leave both grains adequately supplied going into fiscal 2020.
“The USDA expects chicken production growth of 1.7 percent during calendar 2019 compared to 2018, which alone shouldn’t be a burdensome supply number. However, market prices for boneless breast meat produced at our plants that process a larger chicken for food service customers remain under pressure. As always, we will manage our business consistently regardless of market cycles,” added Sanderson. “We continue to make progress at our new Tyler, Texas, facilities,” said Sanderson. “The start-up has gone well, and the plant is now processing at 50 percent capacity. We expect to reach full capacity during the second fiscal quarter of 2020.”
Sanderson Farms Inc (NASDAQ: SAFM) stock price history
The image below, obtained from Google, shows the stock price history of Ulta Beauty Inc over the last 5 years. 5 years ago Sanderson Farms Inc traded at just over $80 a share, Today its trading at $147.72 a share. That's a gain of 84.7% over the last years. At its current price it is close to its 52 week high of $154.82. Question is will their results push them towards their 52 week high or not?
Sanderson Farms Inc. (NASDAQ: SAFM) latest stock valuation
Based on the group's latest earnings report, the decreases in some of their main input costs as well as the fact that prices for their products are expected to come under pressure after having risen sharply in the last year we have a target price for Sanderson Farms stock of $115.10. We therefore believe the group's stock is overvalued and would not recommend fundamental long term investors to buy into the stock at its current price. Rather look to enter it at about 10% below our target (full value) price of $115.10. So we would recommend buying around $105 a share.