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Sanderson Farms, Inc’s (SAFM - Snapshot Report) first-quarter fiscal 2014 (ended Jan 31, 2014) bottom-line results were impressive. Earnings per share were $1.25, a marked improvement over the loss of 10 cents reported in the year-ago quarter. The earnings growth can be attributed to lower cost of sales and interest expenses that offset the impact of weak revenues in the quarter. The earnings results also surpassed the Zacks Consensus Estimate of 94 cents.

Revenues

Net sales generated by Sanderson Farms in the reported quarter were $584.9 million, down 1.8% year over year. The top-line decline was due to a 2.7% fall in sales of poultry products, offset partially by a 20.2% increase in sales of prepared chicken products.

In the first quarter of fiscal 2014, Sanderson Farms recorded a 2% and a 3.2% fall in average selling price of poultry products and prepared chicken products sold, respectively. Volume sold decreased 0.5% for poultry products while it increased 24.2% for prepared chicken products in the quarter.

Costs/Margins

Sanderson Farms’ cost of goods sold in the quarter declined 11.8% year over year and represented 88.2% of net sales, down from 98.2% in the year-ago quarter. Gross margin in the quarter was 11.8%, up compared with 1.8% reported in the year-ago quarter.

Selling, general and administrative expenses, as a percentage of total revenue, were at 4.0%, up 50 basis points year over year.

Balance Sheet/Cash Flow

Exiting fiscal first-quarter 2014, Sanderson Farms had cash and cash equivalents of $58.8 million, down from $85.6 million at the end of the preceding quarter. Long-term debt, net of current maturities, was $29.2 million versus $29.4 million in the previous quarter.

Sanderson Farms generated $2.8 million cash flow from operating activities, down 66% year over year. Capital expenditure in the quarter was $28.8 million, more than double of $11.3 million spent in the year-ago quarter.

In conjunction with the quarter’s results, Sanderson Farms also announced that its board of directors has approved the extension of its 1.0 million share buyback program to Feb 24, 2017. The share repurchase program was authorized in Feb 2012.

Outlook

Sanderson Farms anticipates its capital expenditures to be roughly $170.1 million in fiscal 2014. Of the total, approximately $110 million is allotted for building a new poultry complex in Palestine, Texas and a new aircraft.

Sanderson Farms is a $1.7 billion integrated poultry processing company. It engages in the production, processing, marketing and distribution of fresh and frozen chicken products in the United States.

The company currently holds a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Tyson Foods, Inc. (TSN - Analyst Report), The Hillshire Brands Company and Amira Nature Foods Ltd. (ANFI - Snapshot Report). While Tyson Foods holds a Zacks Rank #1 (Strong Buy), both Amira Nature Foods and Hillshire Brands carry a Zacks Rank #2 (Buy).
 

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