While Sanderson Farms, Inc. (SAFM - Free Report) has been in troubled waters for quite some time, the company is undertaking several strategies to counter the hurdles and help the stock recover. We note that owing to these obstacles, shares of the company have lost 16% in a year compared with the industry’s decline of 14.3%. Nonetheless, impressive growth efforts should help this Zacks Rank #3 (Hold) stock revive in the forthcoming period.
Let’s delve deeper.
What’s Weighing on Sanderson Farms?
Sanderson Farms has a dismal surprise history that was retained in the fourth quarter of fiscal 2018. During the quarter, both top and bottom lines declined year over year and fell short of the Zacks Consensus Estimate. This marked the company’s third and fifth consecutive sales and earnings miss, respectively. Results in the quarter were hit by high costs and increased hurdles related to two hurricanes that impacted operations in North Carolina and Georgia. Moreover, sales were hampered by lower average selling price and a decline in the sale of poultry products.
Further, the company witnessed soft demand for big bird boneless breast meat during the fourth quarter, which, in turn, led to lower prices. The year-over-year fall in prices was somewhat accountable to lower chicken promotions at food service and retail grocery stores along with competition from other protein suppliers. This along with increased cost of sales have weighed on the company’s margins.
Additionally, increasing trend in freight costs is a concern. The trend lingered in fourth-quarter fiscal 2018, wherein a rise in freight and ship costs along with increased grower pay and escalated costs associated with antimicrobial interventions in the plant led to higher costs of poultry products. Persistence of this trend may affect the company’s bottom line in the long run.
Will Efforts Trigger a Turnaround?
Nevertheless, management is not sitting idle, and looking into every nook and cranny for growth prospects. In this regard, the company has been making efforts to strengthen its vast product pipeline that include processed and prepared chicken products available in varied sizes and also sold in foreign markets namely Mexico, Middle East and Central Asia.
Also, the company has been benefitting from impressive export sales for a while now. Gross export sales increased 19.6%, 25.8% and 2.7% in fiscal 2018, 2017 and 2016, respectively. Solid export sales trend is likely to aid the company’s top line in near future.
All said, we expect the company’s growth drivers to provide cushion to the stock in the near future.
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