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Sanderson Farms' (SAFM) Loss Wider Than Estimates in Q2

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Sanderson Farms, Inc. (SAFM - Free Report) posted wider-than-expected loss when it reported second-quarter fiscal 2020 results. Moreover, the top line missed the Zacks Consensus Estimate.

During the fiscal second quarter, boneless breast meat market prices declined nearly 18% year over year. Moreover, average market price for bulk leg quarters and jumbo wing prices were lower by 7.8% and 23.1%, respectively.Meanwhile, Sanderson Farms witnessed a significant shift in consumer demand from food service to retail grocery store consumers amid the coronavirus crisis.

Q2 in Detail

The company reported net loss of $1.43 per share, which was wider than the Zacks Consensus Estimate of a loss of 80 cents. Sanderson Farms had reported earnings of $1.83 per share in the year-ago quarter.

Net sales came in at $844.7 million, which missed the Zacks Consensus Estimate of $872 million. The metric came in at $845.2 million in the year-ago quarter.

Sanderson Farms, Inc. Price, Consensus and EPS Surprise

Sanderson Farms, Inc. Price, Consensus and EPS Surprise

Sanderson Farms, Inc. price-consensus-eps-surprise-chart | Sanderson Farms, Inc. Quote


Cost of sales increased 12.4% to $832.3 million. Average feed costs per pound for poultry products inched down 1.1%. Costs of corn meal increased 2.8%, while costs of soybean meal declined 1.3% in the quarter. Soybean meal and corn are part of the company’s primary feed ingredients. Further, SG&A expenses rose 14.2% to $56.2 million in the reported quarter.

Balance Sheet/Cash Flow

Sanderson Farms ended the quarter with cash and cash equivalents of $61.3 million, long-term debt of $200 million and total shareholders’ equity of $1,371.4 million.


Per the current USDA projections, broiler production in the industry during calendar year 2020 is expected to decline 0.3% from 2019 levels. The downside will be caused by the coronavirus outbreak and its adverse impacts on food service demand. In this regard, the company is likely to take certain planned production cuts at its food service units for the remaining half of fiscal 2020. Notably, management expects total production during the fiscal third and the fiscal fourth quarters to be up 2.2% and down 5%, respectively.

Apart from these, the company has been incurring increased operating costs related to higher employee expenses amid the COVID-19 outbreak. Notably, reduced production along with increased operating costs is likely to persist until situations induced by the coronavirus pandemic improve. Nevertheless, management anticipates feed grain costs to decline year over year for the remaining half of fiscal 2020.

Price Performance

Notably, shares of this Zacks Rank #3 (Hold) company have declined 5.9% in the past year against the industry’s growth of 1.8%.


Solid Staple Bets

General Mills, Inc. (GIS - Free Report) , with a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 7.5%.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Conagra Brands Inc. (CAG - Free Report) , with a Zacks Rank #2, has a long-term earnings growth rate of 7%.

The Kraft Heinz Company (KHC - Free Report) , with a Zacks Rank #2, has a long-term earnings growth rate of 6%.

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