Premium consumer goods company, Sanderson Farms, Inc. SAFM, reported lower-than-expected results for second-quarter fiscal 2015. Quarterly earnings of $3.13 per share missed the Zacks Consensus Estimate of $3.50 by 10.6%, but surged 41.6% year over year on the back of lower feed costs and fall in grain costs.
Sanderson Farms Inc. – Earnings Surprise | FindTheCompany
Sanderson Farms generated net sales of $716.6 million that came below the Zacks Consensus Estimate of $732 million but increased 8.5% year over year. The increase in net sales was mainly attributable to higher demand in the company’s retail grocery store, improving macroeconomic factors and lower gasoline prices.
Operating margin in the quarter was 15.3%, up 340 basis points (bps) year over year. Selling, general and administrative expenses were down 1.4% year over year to $29.5 million.
Other Financial Aspects
Exiting the second quarter of fiscal 2015, Sanderson Farms had cash and cash equivalents of $153.6 million, down from $165.6 million as on Oct 31, 2014. However, the company’s long-term debt, less current maturities, was nil compared with $10 million recorded as on Oct 31 2014.
Outlook
Sanderson Farms believes that higher demand of chicken in the summer months would support its revenue and margin growth, going forward. Also, the company aims to improve its margin in the near term helped by strategic cost-saving programs.
However, although the company remains positive regarding its present business performance, we have reasons to believe that certain industry-specific issues do plague it. For instance, benefits reaped from increased meat demand are partially offset by lower market price that forces the company to sell its major product at a lower value.
Moreover, an Avian flu outbreak in the meat industry continues to pose serious problems for meat producers like Sanderson Farms, Hormel Foods Corporation HRL and Pilgrims Pride Corp PPC. Sanderson Farms’ international revenues in second-quarter fiscal 2015 were slightly hurt by the ban put on U.S. poultry imports in major emerging economies like Russia and China. We believe such headwinds might dampen the company’s results in the upcoming quarters.
Sanderson Farms currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
A better-ranked stock in the industry is Tyson Foods, Inc. TSN, with a Zacks Rank #2 (Buy).
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