Sanderson Farms, Inc. (NASDAQ: SAFM) today reported results for
the third fiscal quarter and nine months ended July 31, 2020.
Net sales for the third quarter of fiscal 2020 were $956.5
million compared with $945.2 million for the same period a year
ago. For the quarter, the Company reported net income of $32.8
million, or $1.48 per share, compared with net income of $53.4
million, or $2.41 per share, for the third quarter of fiscal
2019.
Net sales for the first nine months of fiscal 2020 were $2,624.2
million compared with $2,533.8 million for the first nine months of
fiscal 2019. Net income for the first nine months of fiscal 2020
totaled $0.35 million, or $0.02 per share, compared with net income
of $76.2 million, or $3.44 per share, for the first nine months of
fiscal 2019.
Results for the nine months ended July 31, 2020, include a net
discrete income tax benefit of approximately $38.1 million related
to net operating loss carry-back provisions allowed by the
Coronavirus Aid, Relief and Economic Security (“CARES”) Act, which
became law during the second fiscal quarter of 2020. Excluding this
discrete income tax benefit, the Company’s net loss for the nine
months ended July 31, 2020, was $37.7 million, or $1.72 per
share.
“We continue to face challenging and unprecedented times, both
socially and economically,” said Joe F. Sanderson, Jr., chairman
and chief executive officer of Sanderson Farms, Inc. “I am grateful
for the dedication and perseverance of our employees, contract
poultry producers, customers, vendors, consumers who buy our
products, and the communities and states in which we operate. With
their support, our facilities have been able to continue producing
and delivering safe, high quality and affordable chicken products
during this time of great uncertainty. We are also especially
thankful for the healthcare professionals and first responders who
continue to work tirelessly to protect the health of our
nation.
“Protecting the health and safety of our employees has been our
top priority from the beginning of the COVID-19 crisis, and it
continues to be our top priority today. We continue to regularly
communicate and consult with various healthcare professionals to
ensure we are doing everything in our power to mitigate the spread
of COVID-19 and keep our employees safe. Additionally, our COVID-19
response team continues to meet twice daily to discuss and monitor
the effects of the disease on our stakeholders and operations.
“Our financial results for the third quarter of fiscal 2020
reflect extreme market volatility for products sold to food service
customers, continued strong demand for products sold to retail
grocery store customers, reduced volumes due to planned egg set
reductions implemented during the early stages of the pandemic, and
lower costs of feed grains. The market volatility for the products
sold to our food service customers is a result of governmental
actions to contain the spread of COVID-19 by requiring the nation’s
restaurants to operate at significantly reduced capacity or to
close completely. Additionally, the subsequent phased reopening
across the nation and a resurgence of COVID-19 cases in July in
certain areas of the country adversely affected our food service
business. The increase in COVID-19 cases caused some state
governments to roll back certain phases of their reopening, which
affected restaurants, bars and other venues where food is consumed
away from home. Because many of the nation’s restaurants remain
closed or are operating at significantly reduced capacities,
consumers continue to prepare more meals at home. As a result,
demand for our products sold to retail grocery store customers
remained strong throughout the quarter. Lastly, we produced
approximately 1.23 billion pounds during the quarter, which is 60.0
million, or 4.7 percent, fewer pounds than we estimated in
February, prior to the pandemic’s effects being known. This
reduction in volume is attributable to planned egg set reductions
implemented to compensate for the decrease in demand from our food
service customers.”
According to Sanderson, overall realized prices for chicken
products sold to retail grocery store customers remained strong
during the third quarter, and volumes reflected the strong demand
driven by consumers preparing more meals at home. However, the
quoted commodity markets for products sold to food service
customers were lower overall, reflecting the reduced demand caused
by the widespread closures of venues where food is consumed away
from home. While the average quoted market price for boneless
breast meat was 3.2 percent higher during the quarter compared with
the third quarter of fiscal 2019, the average market price for bulk
leg quarters decreased by 39.1 percent, the average market price
for chicken breast tenders decreased by 26.8 percent and the
average market price for jumbo wings decreased by 13.2 percent.
During the third quarter of fiscal 2020, the Company’s average
feed costs per pound of poultry processed decreased by 5.6 percent
when compared to the third quarter of fiscal 2019, while prices
paid for corn and soybean meal, the Company’s primary feed
ingredients, decreased 9.6 percent and 3.2 percent, respectively,
compared with the third quarter of fiscal 2019. In its report
published August 12, 2020, the USDA increased its yield estimates
for both corn and soybeans for the 2020-2021 crop year. While the
USDA increased production estimates, it also increased its previous
estimates for feed use and grain exports. However, even if the
higher demand is actually realized, the USDA’s current yield and
harvest estimates for the United States’ 2020 corn and soybean
crops would leave both grains adequately supplied going into fiscal
2021. Had the Company priced its remaining 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 $46.8
million compared to fiscal 2019, based on fiscal 2019 volumes. The
Company estimates those lower prices would lower feed cost per
pound of poultry processed during fiscal 2020 by 0.83 cents per
pound compared to fiscal 2019.
“With respect to chicken production levels, the USDA’s latest
estimates forecast United States broiler production during calendar
year 2020 to increase approximately 2.7 percent compared to
calendar year 2019,” Sanderson added. “Given our planned reduction
in production at our plants that target food service customers in
response to the decreased demand caused by the pandemic, we
estimate our total production during the fourth quarter of fiscal
2020 will be lower by 5.0 percent compared to the fourth quarter of
fiscal 2019. If that projection holds true, our total fiscal 2020
production will be 4.0 percent higher than our fiscal 2019
production.
“Sanderson Farms has taken numerous actions throughout the
pandemic focused on protecting the health, safety and welfare of
our employees, as well as addressing other operational challenges
created by the pandemic. Collectively, these actions have increased
our operating costs and negatively affected our volumes, and we
expect that those factors will continue for the remainder of fiscal
2020 and until the impact of the pandemic on our operations
subside,” Sanderson concluded.
Sanderson Farms will hold a conference call to discuss this
press release today, August 27, 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, 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 for 30 days.
Those without internet access or who prefer to participate via
telephone may call 866-524-3160 and request to be joined to the
Sanderson Farms, Inc. conference call.
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 July
31, 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, global
economic conditions, 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 Ended July
31,
Nine Months Ended July
31,
2020
2019
2020
2019
Net sales
$
956,455
$
945,152
$
2,624,244
$
2,533,769
Cost and expenses: Cost of sales
865,997
824,144
2,521,804
2,273,377
Selling, general and administrative
50,590
52,226
156,289
159,991
916,587
876,370
2,678,093
2,433,368
Operating income (loss)
39,868
68,782
(53,849
)
100,401
Other income (expense) Interest income
466
-
466
-
Interest expense
(1,521
)
(1,492
)
(4,492
)
(3,174
)
Other
2
4
7
6
(1,053
)
(1,488
)
(4,019
)
(3,168
)
Income (loss) before income taxes
38,815
67,294
(57,868
)
97,233
Income tax expense (benefit)
6,005
13,932
(58,220
)
21,068
Net income
$
32,810
$
53,362
$
352
$
76,165
Earnings per share:
Basic
$
1.48
$
2.41
$
0.02
$
3.44
Diluted
$
1.48
$
2.41
$
0.02
$
3.44
Dividends per share
$
0.32
$
0.32
$
0.96
$
0.96
SANDERSON FARMS, INC. AND
SUBSIDIARIES
Condensed Consolidated Balance
Sheets
(In thousands)
July 31, 2020
October 31, 2019
(unaudited)
(1)
Assets Current assets: Cash and cash
equivalents
$
66,119
$
95,417
Accounts receivable, net
150,773
131,778
Receivable from insurance companies
-
445
Inventories
285,941
289,928
Refundable income taxes
41,247
6,612
Prepaid expenses and other current assets
66,249
56,931
Total current assets
610,329
581,111
Property, plant and equipment, net
1,229,771
1,185,860
Right-of-use assets
42,473
-
Other assets
5,982
7,163
Total assets
$
1,888,555
$
1,774,134
Liabilities and stockholders' equity
Current liabilities: Accounts payable
$
102,753
$
132,741
Dividends payable
7,117
-
Accrued expenses
94,836
82,940
Lease liabilities
14,401
-
Total current liabilities
219,107
215,681
Long-term debt
95,000
55,000
Claims payable and other liabilities
11,801
11,646
Deferred income taxes
135,287
74,132
Long-term lease liabilities
28,072
-
Commitments and contingencies Stockholders' equity:
Common stock
22,240
22,204
Paid-in capital
88,582
86,010
Retained earnings
1,288,466
1,309,461
Total stockholders' equity
1,399,288
1,417,675
Total liabilities and stockholders' equity
$
1,888,555
$
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/20200827005141/en/
Mike Cockrell Treasurer, Chief Financial Officer
& Chief Legal Officer (601) 649-4030
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