Sanderson Farms, Inc. (NASDAQ: SAFM) today reported results for
its second fiscal quarter and six months ended April 30, 2020.
Net sales for the second quarter of fiscal 2020 were $844.7
million compared with $845.2 million for the same period a year
ago. For the quarter, the Company reported net income of $6.1
million, or $0.28 per share, compared with net income of $40.6
million, or $1.83 per share, for the second quarter of fiscal
2019.
Net sales for the first six months of fiscal 2020 were $1,667.8
million compared with $1,588.6 million for the same period of
fiscal 2019. The net loss for the first half of the fiscal year
totaled $32.5 million, or $1.48 per share, compared with net income
of $22.8 million, or $1.03 per share, for the first six months of
fiscal 2019.
Results for the second fiscal quarter of 2020 include a net
discrete income tax benefit of approximately $37.4 million related
to the net operating loss carry-back provisions allowed by the
CARES Act, which became law during the second fiscal quarter.
Excluding this discrete income tax benefit, the Company’s net loss
for the second quarter of fiscal 2020 was $31.3 million, or $1.43
per share.
“These are challenging and unprecedented times for all of us,”
said Joe F. Sanderson, Jr., chairman and chief executive officer of
Sanderson Farms, Inc. “I am especially proud of the dedicated work
and perseverance of our 18,000 employees, contract poultry
producers, customers, vendors, consumers who buy our products and
the communities and states in which we operate. Our facilities have
continued to operate normally because those who support our ability
to continue to produce and deliver safe, high quality and
affordable chicken products during this crisis have risen to the
challenge, and I am very grateful for that. We are also grateful
for the healthcare professionals and first responders across this
country who are working tirelessly to protect the health of all of
us.
“Protecting the health and safety of our employees has been our
top priority from the beginning of this crisis. When it became
evident in late February that we were facing a crisis of then
unknown proportions, we consulted with various health care
professionals, including infectious disease specialists,
epidemiologists and others to determine steps we should take to
mitigate the spread of the disease. With the input of these health
care professionals, our COVID-19 Response Team developed a
comprehensive list of measures and protocols designed to protect
the health, safety and welfare of our employees and their families.
The team meets twice daily to discuss the day’s activities and to
monitor the effects of the virus on our employees, growers,
customers and operations. Health and safety will continue to be our
top priority as we manage through this crisis.
“The financial results for our second quarter of fiscal 2020
reflect the impact of the extraordinary challenges caused by the
COVID-19 pandemic. The unprecedented social and economic impact of
the virus and the related government actions to contain its spread
materially affected every aspect of our business, including our
labor force, sales, operations and production levels, as well as
our customers. Sanderson Farms entered this crisis with and
continues to have a strong financial position, little debt and
ample liquidity. The Company had $776.9 million of borrowing
capacity available under its revolving credit facility at the end
of the second fiscal quarter.
“The market volatility caused by this event is reflected in the
market prices for boneless breast meat produced at our plants that
target food service customers. Quoted market prices for boneless
breast meat began moving seasonally higher in late February, and
reached $1.35 per pound during the fourth week of March. Less than
one month later, the quoted market price was at an historic low of
$0.74 per pound, with some realized prices below $0.50 per pound.
However, prices began to move higher at the end of April, as
certain parts of the country began to relax restrictions to
mitigate the spread of the virus and moved to $1.58 per pound by
mid-May. The current quoted market price for boneless breast meat
is $1.31 per pound. Our average sales price per pound of fresh and
frozen poultry decreased 8.3 percent during the second quarter of
this fiscal year compared with the same period last year and was
lower by 2.5 percent through the first half of this fiscal year
compared to the first half of last year.
“Demand for our products shifted among our customer base during
the quarter, as orders from food service customers declined
dramatically due to widespread closures of restaurants and other
venues where food is consumed away from home, while orders from our
retail grocery store customers surged. We were able to shift
production from our food service program into our retail program to
some extent, but overall, we processed 4.2 percent fewer pounds
during the second quarter than we expected when we announced our
first quarter results on February 27, 2020. Moving into our third
fiscal quarter, we have reduced egg sets relative to our
expectations, and we now expect to produce 5.9 percent fewer pounds
during our third fiscal quarter than we projected in February, as
we shift production into our retail grocery store program and
reduce production levels at our plants that process a larger bird
for food service customers.”
According to Sanderson, overall realized prices for chicken
products sold to retail grocery store customers remained relatively
strong during the second quarter and volumes reflected the surge in
demand caused by consumers cooking more meals at home instead of
going to restaurants and bars. On the other hand, commodity quoted
markets for products from the Company’s food service plants were
lower across the board. Compared with the second fiscal quarter of
2019, quoted boneless breast meat market prices were approximately
18.2 percent lower, the average market price for bulk leg quarters
decreased approximately 7.8 percent, and jumbo wing market prices
were lower by 23.1 percent. Market prices for chicken breast
tenders averaged 29.0 percent lower than a year ago. The Company’s
average feed costs per pound of poultry products processed
decreased by 1.1 percent when compared with the second quarter of
fiscal 2019, while prices paid for corn and soybean meal, the
Company’s primary feed ingredients, increased 2.8 percent and
decreased 1.3 percent, respectively, compared with the second
quarter of fiscal 2019.
“Looking ahead to the second half of the fiscal year, we
continue to expect prices paid for feed grain to be lower for the
year compared to fiscal 2019,” added Sanderson. “There are ample
supplies of both corn and soybeans worldwide, and the pandemic has
had a material impact on demand for feed grain, especially corn
used for ethanol. Planting progress for corn stands at 88 percent
this week, well ahead of last year’s weather-delayed planting
season, when progress at this time of the year was at 58 percent.
At the same time, 65 percent of the soy bean crop has been planted,
versus a five-year average of 55 percent and 26 percent last year.
Planting conditions have been favorable, and the USDA’s most recent
estimates project corn production at a record 16 billion bushels on
trend line yields. Had we priced all of our fiscal 2020 feed grain
needs at yesterday’s Chicago Board of Trade closing prices, cash
paid for feed grains during fiscal 2020 would be lower by $49.1
million during fiscal 2020 compared to fiscal 2019 using fiscal
2019 volumes. We estimate those lower costs would lower feed cost
per pound of poultry processed during fiscal 2020 by 0.69 cents per
pound.
“With respect to chicken production numbers, the USDA reports
that broiler egg sets and chick placements in the United States
have trended materially lower in recent weeks in response to the
sharp decline in demand in food service markets caused by the
pandemic. The current USDA forecast is for United States broiler
production during calendar year 2020 to decrease approximately 0.29
percent compared to calendar year 2019. Given the reduction in
planned production at our food service plants for the balance of
the fiscal year, we expect our total production during our third
and fourth fiscal quarters of 2020 to be up 2.2 percent and down
5.0 percent, respectively, compared to the same quarters of fiscal
2019.
“Among other measures taken to manage through the current
environment, Sanderson Farms announced on March 31, 2020, that,
effective immediately and continuing to June 26, 2020, all hourly
employees who work their scheduled hours are eligible to earn an
attendance bonus of $1.00 per hour. In addition, steps we have
taken to protect the health, safety and welfare of our workforce
and to address other challenges of this pandemic will increase our
operating costs and negatively affect our volumes for the remainder
of fiscal 2020. We anticipate these lower production rates and
higher operating costs will continue until the effects of COVID-19
on our company, our customers, our employees and the communities in
which we operate diminish,” Sanderson concluded.
Sanderson Farms will hold a conference call to discuss this
press release today, May 28, 2020, at 10:00 a.m. Central, 11:00
a.m. Eastern. Investors will have the opportunity to listen to a
live internet broadcast of the conference call through the
Company's website at www.sandersonfarms.com. To listen to the live
call, please go to the website at least 15 minutes early to
register and download and install any necessary audio software. For
those who cannot listen to the live broadcast, an internet replay
will be available shortly after the call and continue through June
30, 2020. You may listen and participate in the call by dialing
888-204-4368, confirmation code 7782528.
Sanderson Farms, Inc. is engaged in the production, processing,
marketing and distribution of fresh, frozen and minimally prepared
chicken. Its shares trade on the NASDAQ Global Select Market under
the symbol SAFM.
This press release includes forward-looking statements within
the meaning of the “safe harbor” provisions of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Forward-looking
statements are based on a number of assumptions about future events
and are subject to various risks, uncertainties and other factors
that may cause actual results to differ materially from the views,
beliefs, projections and estimates expressed in such statements.
These risks, uncertainties and other factors include, but are not
limited to, those discussed under “Risk Factors” in the Company’s
Annual Report on Form 10-K for the fiscal year ended October 31,
2019 and Quarterly Report on Form 10-Q for the quarter ended April
30, 2020, and the following:
(1) Changes in the market price for the Company’s finished
products and feed grains, both of which may fluctuate substantially
and exhibit cyclical characteristics typically associated with
commodity markets.
(2) Changes in economic and business conditions, monetary and
fiscal policies or the amount of growth, stagnation or recession in
the global or U.S. economies, any of which may affect the value of
inventories, the collectability of accounts receivable or the
financial integrity of customers, and the ability of the end user
or consumer to afford protein.
(3) Changes in the political or economic climate, trade
policies, laws and regulations or the domestic poultry industry of
countries to which the Company or other companies in the poultry
industry ship product, and other changes that might limit the
Company’s or the industry’s access to foreign markets.
(4) Changes in laws, regulations, and other activities in
government agencies and similar organizations applicable to the
Company and the poultry industry and changes in laws, regulations
and other activities in government agencies and similar
organizations related to food safety.
(5) Various inventory risks due to changes in market conditions,
including, but not limited to, the risk that net realizable values
of live and processed poultry inventories might be lower than the
cost of such inventories, requiring a downward adjustment to record
the value of such inventories at the lower of cost or net
realizable value as required by generally accepted accounting
principles.
(6) Changes in and effects of competition, which is significant
in all markets in which the Company competes, and the effectiveness
of marketing and advertising programs. The Company competes with
regional and national firms, some of which have greater financial
and marketing resources than the Company.
(7) Changes in accounting policies and practices adopted
voluntarily by the Company or required to be adopted by accounting
principles generally accepted in the United States.
(8) Disease outbreaks affecting the production, performance
and/or marketability of the Company’s poultry products, or the
contamination of its products.
(9) Changes in the availability and cost of labor and
growers.
(10) The loss of any of the Company’s major customers.
(11) Inclement weather that could hurt Company flocks or
otherwise adversely affect the Company’s operations, or changes in
global weather patterns that could affect the supply and price of
feed grains.
(12) Failure to respond to changing consumer preferences and
negative or competitive media campaigns.
(13) Failure to successfully and efficiently start up and run a
new plant or integrate any business the Company might acquire.
(14) Unfavorable results from currently pending litigation and
proceedings or litigation and proceedings that could arise in the
future.
(15) Changes resulting from the COVID-19 pandemic, which could
exacerbate any of the risks described above, and could include:
high absentee rates that have prevented and may continue to prevent
the Company from running some of its facilities at full capacity,
or could in the future cause facility closures; an inability of
contract poultry producers to manage their flocks; supply chain
disruptions for feed grains; further changes in customer orders due
to shifting consumer patterns; disruptions in logistics and the
distribution chain for the Company’s products; liquidity
challenges; and a continued or worsening decline in global
commercial activity, among other unfavorable conditions.
Readers are cautioned not to place undue reliance on
forward-looking statements made by or on behalf of Sanderson Farms.
Each such statement speaks only as of the day it was made. The
Company undertakes no obligation to update or to revise any
forward-looking statements. The factors described above cannot be
controlled by the Company. When used in this press release or in
the related conference call, the words “believes,” “estimates,”
“plans,” “expects,” “should,” “could,” “outlook,” and “anticipates”
and similar expressions as they relate to the Company or its
management are intended to identify forward looking statements.
Examples of forward-looking statements include statements of the
Company’s belief about future production levels, commodity market
conditions, grain prices, supply and demand factors, growth plans
and other industry conditions.
SANDERSON FARMS, INC. AND
SUBSIDIARIES
Condensed Consolidated
Statements of Operations
(Unaudited)
(In thousands, except per share
amounts)
Three Months EndedApril 30, Six Months EndedApril
30,
2020
2019
2020
2019
Net sales
$
844,711
$
845,229
$
1,667,789
$
1,588,617
Cost and expenses: Cost of sales
832,283
740,833
1,655,807
1,449,233
Selling, general and administrative
56,214
49,230
105,699
107,765
888,497
790,063
1,761,506
1,556,998
Operating income (loss)
(43,786
)
55,166
(93,717
)
31,619
Other income (expense) Interest expense
(1,783
)
(1,173
)
(2,971
)
(1,682
)
Other
3
2
5
2
(1,780
)
(1,171
)
(2,966
)
(1,680
)
Income (loss) before income taxes
(45,566
)
53,995
(96,683
)
29,939
Income tax expense (benefit)
(51,684
)
13,359
(64,225
)
7,136
Net income (loss)
$
6,118
$
40,636
$
(32,458
)
$
22,803
Earnings (loss) per share: Basic
$
0.28
$
1.83
$
(1.48
)
$
1.03
Diluted
$
0.28
$
1.83
$
(1.48
)
$
1.03
Dividends per share
$
0.32
$
0.32
$
0.64
$
0.64
SANDERSON FARMS, INC. AND
SUBSIDIARIES
Condensed Consolidated Balance
Sheets
(In thousands)
April 30, 2020
October 31, 2019
(unaudited)
(1)
Assets Current assets: Cash and cash equivalents
$
61,330
$
95,417
Accounts receivable, net
132,072
131,778
Receivable from insurance companies
-
445
Inventories
297,477
289,928
Refundable income taxes
127,372
6,612
Prepaid expenses and other current assets
63,396
56,931
Total current assets
681,647
581,111
Property, plant and equipment, net
1,235,556
1,185,860
Right of use assets
45,913
-
Other assets
6,394
7,163
Total assets
$
1,969,510
$
1,774,134
Liabilities and stockholders' equity Current liabilities:
Accounts payable
$
119,961
$
132,741
Dividends payable
7,117
-
Accrued expenses
82,214
82,940
Lease liabilities
15,188
-
Total current liabilities
224,480
215,681
Long-term debt
200,000
55,000
Claims payable and other liabilities
11,475
11,646
Deferred income taxes
131,388
74,132
Long-term lease liabilities
30,725
-
Commitments and contingencies Stockholders' equity: Common stock
22,239
22,204
Paid-in capital
86,430
86,010
Retained earnings
1,262,773
1,309,461
Total stockholders' equity
1,371,442
1,417,675
Total liabilities and stockholders' equity
$
1,969,510
$
1,774,134
(1)
The Condensed Consolidated Balance Sheet at October 31, 2019,
was derived from the audited consolidated financial statements at
that date, but does not include all of the information and
footnotes required by U.S. generally accepted accounting principles
for complete financial statements.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200528005165/en/
Mike Cockrell Treasurer, Chief Financial Officer &
Chief Legal Officer (601) 649-4030
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