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Sanderson Farms, Inc. posted third-quarter fiscal 2021 results, wherein the top and bottom lines surged year over year and easily beat the Zacks Consensus Estimate. The company benefited from robust execution across live production, sales and processing.
The third-quarter results were driven by a considerable rise in demand, as well as prices for products sold to foodservice customers and sustained demand strength for products sold to retail grocery store customers. With more foodservice set-ups reopening across the country, market conditions for products sold to this channel have improved. A number of consumers have started dining away from home, with curbs being lifted and vaccinations gathering pace. That said, retail demand remained elevated with many consumers continuing to cook meals at home. Demand and pricing sold, mainly for export, was higher than the pandemic-led level witnessed in the second half of fiscal 2020.
These upsides were somewhat negated by soft volumes related to the company’s planned egg set reductions implemented in the early pandemic stages, as well as escalated feed grain costs.
Quarter in Detail
The company delivered earnings of $7.38 per share compared with the year-ago quarter’s figure of $1.48. Earnings also beat the Zacks Consensus Estimate of $6.73 per share.
Sanderson Farms, Inc. Price, Consensus and EPS Surprise
Net sales came in at $1,352.8 million, which surpassed the Zacks Consensus Estimate of $1,304 million. The metric advanced 41.4% from $956.5 million recorded in the year-ago period.
The average quoted market price for boneless breast meat increased 71.4%, year over year, with average market price for bulk leg quarters, jumbo wings and chicken breast tenders jumping 66.3%, 107% and 107.3%, respectively.
The company’s average feed cost per pound of poultry products processed climbed 45.8%. Prices paid for corn and soybean meal were higher by 87.7% and 50.1%, respectively. Soybean meal and corn are part of the company’s primary feed ingredients.
Management, at its third-quarter earnings call, stated that supply for corn and soybeans remains tight compared with the expected demand. The company anticipates market prices for corn and soybeans to be escalated for the near term, at least. This, along with expected basis costs, are likely to result in an 8.44 cents per pound hike in feed cost per pound of poultry processed, in fiscal 2021.
Cost of sales increased from $866 million to $1,049 million in the reported quarter due to a rise in feed costs as well as non-feed costs. Cost of sales of poultry products increased from $815.9 million to $970.7 million. This was accountable to a rise in cost of feed per pound for broilers, along with increase in other cost of sales, including labor, freight, packaging, chick costs, maintenance and repair among others. Cost of sales for prepared chicken products rose from $50.1 million to $79.1 million in the reported quarter.
SG&A expenses flared up $37.1 million to $87.7 million mainly due to rising legal costs, higher compensation expense and increased bonuses. Operating income came in at $215.2 million compared with $39.9 million reported in the year-ago quarter. The upside was backed by considerably higher average selling prices, somewhat negated by increased average cost of goods sold.
Image Source: Zacks Investment Research
Balance Sheet
Sanderson Farms ended the fiscal third quarter with cash and cash equivalents of $245.4 million, long-term lease liabilities of $18.2 million and total shareholders’ equity of $1,671.8 million. Cash flows from operating activities amounted to $370.7 million for the nine months ended Jul 31, 2021.
The company had $975.9 million remaining under its existing revolving credit facility, as of Aug 25, 2021. Management believes that Sanderson Farms has sufficient funds to cater to its needs.
Outlook
On its third-quarter earnings call, management said that with regard to chicken production, the USDA’s latest estimates project U.S. broiler production to advance by less than 1% in calendar-year 2021 compared with the year-ago period. Although egg sets have reverted to the pre-COVID-19 levels, reduced hatchability rates have led to lower number of chicks placed. Management anticipates total production to drop 3.1%, year over year, in the fourth quarter of fiscal 2021. Considering this, overall fiscal 2021 production is likely to slip 0.6% from fiscal 2020.
Shares of this Zacks Rank #3 (Hold) company have increased 19% in the past three months against the industry’s decline of 3.2%.
Image: Bigstock
Sanderson Farms (SAFM) Tops Q3 Earnings & Sales Estimates
Sanderson Farms, Inc. posted third-quarter fiscal 2021 results, wherein the top and bottom lines surged year over year and easily beat the Zacks Consensus Estimate. The company benefited from robust execution across live production, sales and processing.
The third-quarter results were driven by a considerable rise in demand, as well as prices for products sold to foodservice customers and sustained demand strength for products sold to retail grocery store customers. With more foodservice set-ups reopening across the country, market conditions for products sold to this channel have improved. A number of consumers have started dining away from home, with curbs being lifted and vaccinations gathering pace. That said, retail demand remained elevated with many consumers continuing to cook meals at home. Demand and pricing sold, mainly for export, was higher than the pandemic-led level witnessed in the second half of fiscal 2020.
These upsides were somewhat negated by soft volumes related to the company’s planned egg set reductions implemented in the early pandemic stages, as well as escalated feed grain costs.
Quarter in Detail
The company delivered earnings of $7.38 per share compared with the year-ago quarter’s figure of $1.48. Earnings also beat the Zacks Consensus Estimate of $6.73 per share.
Sanderson Farms, Inc. Price, Consensus and EPS Surprise
Sanderson Farms, Inc. price-consensus-eps-surprise-chart | Sanderson Farms, Inc. Quote
Net sales came in at $1,352.8 million, which surpassed the Zacks Consensus Estimate of $1,304 million. The metric advanced 41.4% from $956.5 million recorded in the year-ago period.
The average quoted market price for boneless breast meat increased 71.4%, year over year, with average market price for bulk leg quarters, jumbo wings and chicken breast tenders jumping 66.3%, 107% and 107.3%, respectively.
The company’s average feed cost per pound of poultry products processed climbed 45.8%. Prices paid for corn and soybean meal were higher by 87.7% and 50.1%, respectively. Soybean meal and corn are part of the company’s primary feed ingredients.
Management, at its third-quarter earnings call, stated that supply for corn and soybeans remains tight compared with the expected demand. The company anticipates market prices for corn and soybeans to be escalated for the near term, at least. This, along with expected basis costs, are likely to result in an 8.44 cents per pound hike in feed cost per pound of poultry processed, in fiscal 2021.
Cost of sales increased from $866 million to $1,049 million in the reported quarter due to a rise in feed costs as well as non-feed costs. Cost of sales of poultry products increased from $815.9 million to $970.7 million. This was accountable to a rise in cost of feed per pound for broilers, along with increase in other cost of sales, including labor, freight, packaging, chick costs, maintenance and repair among others. Cost of sales for prepared chicken products rose from $50.1 million to $79.1 million in the reported quarter.
SG&A expenses flared up $37.1 million to $87.7 million mainly due to rising legal costs, higher compensation expense and increased bonuses. Operating income came in at $215.2 million compared with $39.9 million reported in the year-ago quarter. The upside was backed by considerably higher average selling prices, somewhat negated by increased average cost of goods sold.
Image Source: Zacks Investment Research
Balance Sheet
Sanderson Farms ended the fiscal third quarter with cash and cash equivalents of $245.4 million, long-term lease liabilities of $18.2 million and total shareholders’ equity of $1,671.8 million. Cash flows from operating activities amounted to $370.7 million for the nine months ended Jul 31, 2021.
The company had $975.9 million remaining under its existing revolving credit facility, as of Aug 25, 2021. Management believes that Sanderson Farms has sufficient funds to cater to its needs.
Outlook
On its third-quarter earnings call, management said that with regard to chicken production, the USDA’s latest estimates project U.S. broiler production to advance by less than 1% in calendar-year 2021 compared with the year-ago period. Although egg sets have reverted to the pre-COVID-19 levels, reduced hatchability rates have led to lower number of chicks placed. Management anticipates total production to drop 3.1%, year over year, in the fourth quarter of fiscal 2021. Considering this, overall fiscal 2021 production is likely to slip 0.6% from fiscal 2020.
Shares of this Zacks Rank #3 (Hold) company have increased 19% in the past three months against the industry’s decline of 3.2%.
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Sysco Corporation (SYY - Free Report) , currently carrying a Zacks Rank #2, has a long-term earnings per share growth rate of 9%.