A month has gone by since the last earnings report for Sanderson Farms (SAFM - Free Report) . Shares have added about 1.5% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Sanderson Farms due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Sanderson Farms' Q3 Earnings & Sales Miss Estimates
Sanderson Farms posted drab third-quarter fiscal 2019 results, as both the top and bottom lines missed the Zacks Consensus Estimate. However, the metrics grew year over year. The company witnessed sluggishness in market prices for boneless breast meat produced at plants that process a larger bird for food service customers. Meanwhile, market prices for other products produced at these plants rose year over year on solid demand in the reported quarter. Moreover, average market prices for dark meat, jumbo wings and chicken tenders were higher as compared to the prior-year quarter.
Q3 in Detail
The company reported earnings of $2.41 per share, which missed the Zacks Consensus Estimate of $2.74. However, the bottom line more than doubled year over year.
Net sales came in at $945.2 million, which fell short of the Zacks Consensus Estimate of $965 million. Nevertheless, the top line advanced 10.9% year over year.
Cost of sales escalated 1.3% to $824.1 million. Average feed costs per pound for poultry products fell 4.1%. Costs of soybean meal and corn went down 18% and 1.4%, respectively. Soybean meal and corn are part of the company’s primary feed ingredients. Further, SG&A expenses declined 6.4% to $52.2 million in the reported quarter.
Balance Sheet/Cash Flow
Sanderson Farms ended the quarter with cash and cash equivalents of $74.3 million, long-term debt of $30 million and total shareholders’ equity of $1,450.5 million.
The company continues to anticipate prices paid for grain in the second half of fiscal 2019 to be down $32 million than that in fiscal 2018.
Per the current USDA projections, the U.S. broiler production in the calendar year 2019 is expected to rise nearly 1.7% from 2018. However, prices for boneless breast meat produced at plants that process a larger chicken are expected to remain weak.
The company is progressing well with its operations in the Tyler facility, which is now processing at 50% capacity. Management projects Tyler to reach full capacity during second-quarter fiscal 2020.
Additionally, the company anticipates $288.4 million of capital expenditure for fiscal 2019.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months. The consensus estimate has shifted -48.05% due to these changes.
At this time, Sanderson Farms has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Sanderson Farms has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.