SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 30, 2013
SANDERSON FARMS, INC.
(Exact name of registrant as specified in its charter)
Mississippi | 1-14977 | 64-0615843 | ||||
(State or other jurisdiction of incorporation) |
(Commission File Number) | (I.R.S. Employer Identification No.) | ||||
127 Flynt Road Laurel, Mississippi |
39443 | |||||
(Address of principal executive offices) | (Zip Code) |
(601) 649-4030
(Registrants telephone number, including area code)
Not applicable.
(Former name or former address, if changed since last report)
Check the appropriate box if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Section 2 Financial Information
Item 2.02 Results of Operations and Financial Condition.
On May 30, 2013, the Registrant issued a press release announcing its earnings for its fiscal quarter ended April 30, 2013. The press release is furnished herewith as Exhibit 99.1. Also on May 30, 2013, the Registrant held a conference call to discuss its earnings for its fiscal quarter ended April 30, 2013. A transcript of the conference call is furnished herewith as Exhibit 99.2. The information in the press release and transcript is not to be considered filed for purposes of the Securities Exchange Act of 1934 and is not incorporated by reference into the Registrants filings under the Securities Act of 1933.
Section 9 Financial Statements and Exhibits
Item 9.01 Financial Statements and Exhibits.
(d) | The following exhibits are furnished with this Current Report: |
Exhibit No. |
Description | |
99.1 | Press release of Sanderson Farms, Inc. dated May 30, 2013. | |
99.2 | Transcript of conference call held by Sanderson Farms, Inc. on May 30, 2013. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
SANDERSON FARMS, INC. | ||||||
(Registrant) | ||||||
Date: May 31, 2013 | By: | /s/ D. Michael Cockrell | ||||
D. Michael Cockrell Treasurer and Chief Financial Officer |
EXHIBIT INDEX
Exhibit No. |
Description | |
99.1 | Press release of Sanderson Farms, Inc. dated May 30, 2013. | |
99.2 | Transcript of conference call held by Sanderson Farms, Inc. on May 30, 2013. |
Exhibit 99.1
Contact: | Mike Cockrell |
Treasurer & Chief Financial Officer |
(601) 649-4030 |
SANDERSON FARMS, INC. REPORTS
RESULTS FOR SECOND QUARTER OF FISCAL 2013
LAUREL, Miss. (May 30, 2013) Sanderson Farms, Inc. (NASDAQ: SAFM) today reported results for its second fiscal quarter and six months ended April 30, 2013.
Net sales for the second quarter of fiscal 2013 were $621.2 million compared with $595.0 million for the same period a year ago. For the quarter, net income was $24.4 million, or $1.06 per share, compared with net income of $23.9 million, or $1.04 per share, for the second quarter of fiscal 2012.
Net sales for the first six months of fiscal 2013 were $1,217.0 million compared with $1,112.9 million for the same period of fiscal 2012. Net income for the first half of the year totaled $17.4 million, or $0.76 per share, compared with net income of $15.9 million, or $0.69 per share, for the first six months of last year.
The results for our second quarter of fiscal 2013 reflect improved market conditions driven primarily by an overall increase in demand for poultry products, said Joe F. Sanderson, Jr., chairman and chief executive officer of Sanderson Farms, Inc. Our net sales were 4.4 percent higher compared with the second quarter of fiscal 2012, reflecting higher average sales prices of chicken. While our volumes reflect the production cuts we put in place last fall, demand for chicken remains strong from our retail grocery store and export customers. In addition, while customer traffic through food service establishments remains challenged by macroeconomic factors, several new chicken items on quick serve menus and chicken promotions in casual dining restaurants, coupled with relatively high priced beef, contributed to better market prices during the quarter for products produced at our food service plants.
Our profitability for the second quarter continued to be adversely affected by relatively high feed costs, added Sanderson. Feed costs in flocks processed increased 14.3 percent compared with last years second fiscal quarter, and remain high relative to historical costs. Because of the tight supply of both corn and soybeans, we expect grain prices to remain high and volatile at least until markets get some visibility on the quantity and quality of this years corn and soybean crops. The late planting season caused by cold and wet weather across much of the corn belt is contributing to price volatility. That said, we have priced most all of our grain needs through July at levels that will allow us to slightly reduce our feed costs per pound each successive month through July.
According to Sanderson, overall market prices for poultry products were higher during the second quarter of fiscal 2013 compared with the same quarter a year ago. As measured by a simple average of the Georgia dock price for whole chickens, prices increased approximately 9. 9 percent in the Companys second fiscal quarter compared with the same period in 2012 and remain at record levels. Bulk leg quarter market prices were flat with last years second quarter, and continue to reflect strong export demand. Boneless breast meat prices during the second quarter were
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Sanderson Farms Reports Results for Second Quarter Fiscal 2013
Page 2
May 30, 2013
14.2 percent higher than the prior year period, and have continued to move higher in May. Jumbo wing prices were down 4.4 percent for the second quarter of 2013 compared with the same period last year. Prices paid for corn and soybean meal, the Companys primary feed ingredients, increased 15.9 percent and 37.2 percent, respectively, compared with the second quarter of fiscal 2012.
Looking ahead, we are reasonably optimistic as we head into the summer months and what is typically a period of better demand for chicken. While grain costs remain above historical levels, demand for chicken products is strong. Weekly broiler egg sets continue to run slightly above last years numbers, but breeder placements remain lower and it appears the reduced size of the breeder flock will constrain production over the short term despite higher industry returns. While macroeconomic conditions have continued to affect consumer behavior, market prices for boneless breast meat sold to our food service customers improved through April and May, and market prices for retail grocery store products have also moved higher. Regardless of market conditions, however, we will maintain our focus on our operating performance and sales execution, Sanderson concluded.
Sanderson Farms will hold a conference call to discuss this press release today, May 30, 2013, 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 Companys Web site at www.sandersonfarms.com or through www.earnings.com. To listen to the live call, please go to the Web site 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, 2013. Those without Internet access may listen and participate in the call by dialing 888-596-2572, confirmation code 6119362.
Sanderson Farms, Inc. is engaged in the production, processing, marketing and distribution of fresh and frozen chicken and other prepared chicken items. 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 the Private Securities Litigation Reform Act of 1995, 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 Companys Quarterly Report on Form 10-Q for the quarter ended April 30, 2013, and the following:
(1) Changes in the market price for the Companys 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, either 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 Companys or the industrys access to foreign markets.
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Sanderson Farms Reports Results for Second Quarter Fiscal 2013
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May 30, 2013
(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 market 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 market 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 Companys 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 Companys major customers. |
(11) Inclement weather that could hurt Company flocks or otherwise adversely affect its operations, or changes in global weather patterns that could impact the supply of feed grains.
(12) | Failure to respond to changing consumer preferences. |
(13) | Failure to successfully and efficiently start up and run a new plant or integrate any business the Company might acquire. |
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, 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 Companys belief about future earnings, production levels, grain prices, supply and demand factors, and other industry conditions.
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Sanderson Farms Reports Results for Second Quarter Fiscal 2013
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May 30, 2013
SANDERSON FARMS, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended April 30, |
Six Months Ended April 30, |
|||||||||||||||
2013 | 2012 | 2013 | 2012 | |||||||||||||
Net sales |
$ | 621,195 | $ | 595,046 | $ | 1,216,955 | $ | 1,112,872 | ||||||||
Costs and expenses: |
||||||||||||||||
Cost of sales |
562,233 | 535,901 | 1,147,100 | 1,044,905 | ||||||||||||
Selling, general and administrative |
19,832 | 18,165 | 40,397 | 36,068 | ||||||||||||
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582,065 | 554,066 | 1,187,497 | 1,080,973 | |||||||||||||
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Operating income |
39,130 | 40,980 | 29,458 | 31,899 | ||||||||||||
Other income (expense): |
||||||||||||||||
Interest income |
4 | 4 | 7 | 6 | ||||||||||||
Interest expense |
(1,807 | ) | (2,426 | ) | (3,612 | ) | (5,388 | ) | ||||||||
Other |
(120 | ) | (1 | ) | 51 | (565 | ) | |||||||||
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(1,923 | ) | (2,423 | ) | (3,554 | ) | (5,947 | ) | |||||||||
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Income before income taxes |
37,207 | 38,557 | 25,904 | 25,952 | ||||||||||||
Income tax expense |
12,836 | 14,692 | 8,476 | 10,076 | ||||||||||||
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Net income |
$ | 24,371 | $ | 23,865 | $ | 17,428 | $ | 15,876 | ||||||||
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Basic earnings per share |
$ | 1.06 | $ | 1.04 | $ | 0.76 | $ | 0.69 | ||||||||
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Diluted earnings per share |
$ | 1.06 | $ | 1.04 | $ | 0.76 | $ | 0.69 | ||||||||
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Dividends per share |
$ | 0.17 | $ | 0.17 | $ | 0.34 | $ | 0.34 | ||||||||
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Sanderson Farms Reports Results for Second Quarter Fiscal 2013
Page 5
May 30, 2013
SANDERSON FARMS, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
April 30, 2013 |
October 31, 2012 |
|||||||
(Unaudited) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 24,087 | $ | 27,802 | ||||
Accounts receivable, net |
113,092 | 98,022 | ||||||
Inventories |
226,590 | 235,912 | ||||||
Refundable income taxes |
0 | 4,467 | ||||||
Deferred income taxes |
1,895 | 3,945 | ||||||
Prepaid expenses and other current assets |
27,466 | 27,639 | ||||||
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Total current assets |
393,130 | 397,787 | ||||||
Property, plant and equipment |
1,009,432 | 985,198 | ||||||
Less accumulated depreciation |
(515,475 | ) | (489,885 | ) | ||||
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493,957 | 495,313 | |||||||
Other assets |
3,142 | 3,353 | ||||||
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Total assets |
$ | 890,229 | $ | 896,453 | ||||
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LIABILITIES AND STOCKHOLDERS EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses |
$ | 114,418 | $ | 124,837 | ||||
Current maturities of long-term debt |
10,757 | 10,757 | ||||||
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Total current liabilities |
125,175 | 135,594 | ||||||
Long-term debt, less current maturities |
139,840 | 150,212 | ||||||
Claims payable |
9,900 | 4,000 | ||||||
Deferred income taxes |
54,378 | 56,572 | ||||||
Stockholders equity: |
||||||||
Common stock |
23,015 | 22,969 | ||||||
Paid-in capital |
136,495 | 135,283 | ||||||
Retained earnings |
401,426 | 391,823 | ||||||
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Total stockholders equity |
560,936 | 550,075 | ||||||
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$ | 890,229 | $ | 896,453 | |||||
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-END-
Exhibit 99.2
Sanderson Farms, Inc. | SAFM | Q2 2013 Earnings Call | May 30, 2013 | |||
Company p | Ticker p | Event Type p | Date p |
PARTICIPANTS
Corporate Participants
Joe Frank Sanderson Chairman & Chief Executive Officer, Sanderson Farms, Inc.
D. Michael Cockrell CFO, Treasurer, Director & Head-Investor Relations, Sanderson Farms, Inc.
Lampkin Butts President, Chief Operating Officer & Director, Sanderson Farms, Inc.
Other Participants
Farha Aslam Analyst, Stephens, Inc.
Christine Lee McCracken Analyst, Cleveland Research Co.
Akshay S. Jagdale Analyst, KeyBanc Capital Markets
Heather L. Jones Analyst, BB&T Capital Markets
Kenneth B. Zaslow Analyst, BMO Capital Markets (United States)
MANAGEMENT DISCUSSION SECTION
Operator: Good day and welcome to the Sanderson Farms, Inc.s. Second Quarter Fiscal 2013 Conference Call. Todays call is being recorded.
At this time for opening remarks and introductions, I would like to turn the call over to Mr. Joe Sanderson. Please go ahead, sir.
Joe Frank Sanderson, Chairman & Chief Executive Officer
Thank you. Good morning and welcome to Sanderson Farms second quarter conference call. We issued a news release this morning announcing net income of $24.4 million or $1.06 per share for our second fiscal quarter of 2013. This compares to net income of $23.9 million or $1.04 per share during last years second quarter.
Ill begin the call with some general observations, but before I do, I will ask Mike to give the cautionary statement regarding forward-looking statements.
D. Michael Cockrell, CFO, Treasurer, Director & Head-Investor Relations
Thank you, Joe, and good morning, everyone. This mornings call will contain forward-looking statements about the business, financial conditions, and prospects of the company. The actual performance of the company could differ materially from that indicated by the forward-looking statements, because of various risks and uncertainties. These risks and uncertainties are described in our most recent Annual Report on Form 10-K, in the companys Quarterly Report on Form 10-Q filed this morning with the SEC in connection with our second fiscal quarter and in the press release we published this morning.
You are cautioned not to place undue reliance on the forward-looking statements made this morning and each such statement speaks only as of today. We undertake no obligation to update or revise our forward-looking statements.
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Sanderson Farms, Inc. | SAFM | Q2 2013 Earnings Call | May 30, 2013 | |||
Company p | Ticker p | Event Type p | Date p |
External factors affecting our business such as feed grain cost, market prices for poultry, meat and the health of the economy among others remain volatile, and our view today might be very different from our view a few days from now.
Joe Frank Sanderson, Chairman & Chief Executive Officer
Thank you, Mike. Improving poultry markets and continued high grain cost drove our results during our second fiscal quarter. Our sales volume of fresh chicken was down by 3.8% compared to last springs volume and reflected the fact that while our Kinston, North Carolina facility operated near full production during this years second fiscal quarter and were still moving in that direction last year, the increased production at Kinston was more than offset by the 6% production cut at all our plants that we announced last fall.
Our feed cost per pound of fresh chicken processed increased more than $0.05 per pound during the quarter compared to last years second quarter. And our feed cost remain significantly higher than historical averages. On the other hand, our net sales price per pound to fresh chicken sold was higher by $0.065 per pound during this years second fiscal quarter when compared to last year.
Market prices reflect improved demand for chicken products, as demand has remained relatively strong in retail grocery store and export markets. Demand at food service has improved as a result of several new chicken items on quick serve menus and chicken promotions at casual dining restaurants and as chicken competes with relatively high priced beef. I will hasten to add that customer traffic at food service remains challenged by macroeconomic condition, but demand for chicken products has improved.
Overall, market prices for fresh chicken were higher during the quarter. The average Georgia dock price was 9.9% higher during the quarter than last year, reflecting continued strong retail demand.
While year-to-date overall industry export volume is down slightly from last year, export demand during the quarter was better and that strength is reflected in leg quarter market prices. Prices for boneless breast meat increased 14.2%. On the other hand, wing prices, after spending much of January and February in record territory, fell seasonally after March Madness.
Prices paid for bushel of corn and per ton of soybean meal were higher during the quarter compared to last years second fiscal quarter, but were lower than during our first fiscal quarter of this year. Likewise, our feed costs in flocks processed, while higher than last year, were lower than our first quarter.
While the 97.3 million acres of corn the USDA initially expected to be planted in the U.S. this spring would be a near-record number of acres, it now appears not all of those acres will get planted. Planting progress reports indicate that weather has caused near-record low planting progress, although significant progress has been made over the second half of May. Approximately, 86% of this years corn acres were planted through last week compared to a 90% historical average, and 44% of this years soybeans went to ground as of last week compared to a 61% average.
Despite the late plant, U.S. farmers could still harvest an excellent crop, which could result in lower grain cost after the harvest. But all crop, corn and soy supplies remain very tight. While our cost per grain this summer will be higher than last years, we have priced our needs through July at levels that would allow us to reduce our grain cost per pound each successive month through July. We indicated during our first quarter conference call in February that we had priced a portion of our grain needs through May. We have now priced most all of our corn and soybean soy meal needs through July, but have priced nothing past July.
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Sanderson Farms, Inc. | SAFM | Q2 2013 Earnings Call | May 30, 2013 | |||
Company p | Ticker p | Event Type p | Date p |
Given where our future prices closed Tuesday on the Chicago Board of Trade, have we priced all of our needs through the end of the fiscal year on Tuesday, cash corn and soybean meal prices during fiscal 2013 would be $74.3 million higher than a year ago. This number includes though the addition of volume of grain we will need to purchase this year to feed the additional chickens we have on the ground now that we are moving back to full production and the higher basis we will pay for both corn and meal this year.
In addition to our costs, we will be closely watching the chicken markets and production numbers. Weekly egg sets continued to trend slightly higher than a year ago. The breeder flock, however, is smaller and pullet placements are down. Given the size of the breeder flock, I do not expect to see a significant increase in production over the short-term.
Im pleased to report that our plants are prepared to move to full production next week. The additional volume will improve our efficiencies and that improvement when paired with slightly lower feed cost this month through the summer and improved poultry markets makes us reasonably optimistic for the summer.
That said, our attention for the balance of the year will be on several things. First, we will continue to focus our attention on those things we cant control; such as our operating efficiencies and sales execution. We will keep one eye on the still fragile economic recovery in the United States and the world. The improved demand were enjoying at food service as a result of menu mix shifts, not more foot traffic. Foot traffic will increase as the employment numbers improve and consumers gain confidence. We will also, of course, keep an eye on the development of this years corn and soy crops and hope for good weather.
Finally, Lampkin will discuss export markets in a moment, but we will watch the developments of avian influenza in China and monitor any impact it may have on export demand. As always in our industry, there are many moving parts that will impact our results. Much of what we are watching that will influence our business is out of our control. So, while well keep an eye on the grain crop, macroeconomic conditions, AI in China, and employment numbers, we will focus our efforts on returning to full production, improving our efficiencies, getting the most for our shareholders from our assets, and preparing for our next phase of growth.
With respect to our next phase of growth, I know many of you want to know when we plan to break ground on our new facilities in Texas. We have said the timing of that new project is subject to the health of our balance sheet, the quality of our performance at our existing plants, this years grain crop, and final approval of our Board of Directors.
We have made progress paying down our debt and I expect to continue that to summer. And I am satisfied our balance sheet is in good shape. While we have opportunities at all of our facilities, our existing operations are performing well. We will watch the progress of the grain crops and talk with our Board later this summer regarding the start date.
At this point, I will turn the call over to Lampkin for a more detailed discussion of the market and our operations during the second quarter.
Lampkin Butts, President, Chief Operating Officer & Director
Thank you, Joe, and good morning, everyone. As Joe mentioned, the overall market prices for poultry products were higher during the quarter, when compared to our second quarter last year. The average Georgia dock price during our second quarter was 9.9% higher than last years second quarter, averaging $1.015 per pound during the quarter compared to $0.924 per pound last year.
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Sanderson Farms, Inc. | SAFM | Q2 2013 Earnings Call | May 30, 2013 | |||
Company p | Ticker p | Event Type p | Date p |
The Georgia dock price for this week is $1.05 per pound, which compares to $0.945 per pound for the same week last year. The Georgia dock price reflects continued strong demand for chicken and retail grocery stores and remains at record levels.
Bulk leg quarter prices were slightly lower for the quarter compared to last years second quarter, averaging $0.505 per pound during our second quarter of this year, compared with $0.507 per pound last year, a decrease of less than one-half of $0.01. While lower, these prices reflect continued good export demand. Through March, United States export volumes were down 1.1% compared to last year.
Urner Barry bulk leg quarters are currently quoted at $0.52 per pound. Export demands on Russia, and particularly Mexico and several emerging markets remained steady, although, they may be slightly lower prices may be slightly lower in June.
Indeed, export during March to all four top markets; Mexico, China, Russia and Angola were up. However, as Joe mentioned, the AI outbreak in China has adversely affected demand from that important customer.
We export approximately 5 million pounds of chicken paws each month to our customers in China and receive a significant price upgrade compared to alternative markets. While demand slowed after the first human infections were reported, demand has slowly improved. While shipments continue into China at this time, our net selling price for paws is approximately $0.15 per pound lower than before the crisis started.
Prices for jumbo wings retreated from record levels during our second fiscal quarter. Jumbo wings averaged a $1.51 per pound, down 4.4% from the average of a $1.58 per pound during last years second quarter. The current Urner Barry quote for jumbo wings is $1.20 per pound.
Boneless breast prices improved during our second quarter. Market prices increased 14.2%, when compared to the second quarter a year ago. This years average Urner Barry price of $1.56 per pound compared to an average of $1.37 per pound during last years second quarter.
Today, the Urner Barry quoted market for boneless breast is $2.12 per pound as prices increased significantly during April and May in response to several new items on QSR menus; and in response, we believe to relatively high priced beef. The overall result of these market price changes was an increase of $0.065 per pound in our average sales price per pound of chicken sold.
We sold 714.9 million pounds of poultry during the second quarter, a decrease from the 743.3 million pounds sold during last years second fiscal quarter. We processed 705.8 million pounds of dressed poultry during the quarter, down 2.8% from the 726.3 million pounds we processed during last years second quarter.
We previously projected we would process 704.4 million pounds during the quarter, while we actually processed slightly fewer head than we projected. That miss was offset by higher live weights and yields than we expected. These numbers reflect the additional pounds processed at our Kinston, North Carolina plant, offset by the 6% reduction cut at all our plants we announced last fall.
For the first six months of the year, we sold 1.44 billion pounds of poultry products compared to 1.41 billion last year and processed 1.44 billion pounds this year compared to 1.42 billion last year. We now expect to process approximately 3.05 billion pounds of fresh chicken this fiscal year, an increase of approximately 2.9% compared to 2012.
We estimate we will process approximately 794.7 million pounds in our third fiscal quarter and approximately 813.7 million pounds during our fourth fiscal quarter. Both of these estimates could, of course, be impacted by weather, bird performance and other factors, some of which are beyond our control.
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Sanderson Farms, Inc. | SAFM | Q2 2013 Earnings Call | May 30, 2013 | |||
Company p | Ticker p | Event Type p | Date p |
Results at our prepared foods division improved during the second quarter, but continue to reflect a weak casual dining market. We sold 22.5 million pounds of processed chicken at our foods division through the first half of this year compared to 23.4 million pounds through the first half of last year.
The average sales price increased from $1.88 per pound last year to $2.01 per pound this year. We will benefit from several new customers during the back half of the year and expect steady improvement at the foods division.
At this point, Ill turn the call over to Mike Cockrell, Chief Financial Officer.
D. Michael Cockrell, CFO, Treasurer, Director & Head-Investor Relations
Thank you, Lampkin. The 4.4% increase in net sales for the quarter to $621 million from $595 million last year was the result of an increase in our sales price per pound of poultry products sold of $0.065 per pound or 8.5%, offset by a 3.8% decrease in the pounds of poultry products sold.
The 4.9% increase in our cost of goods sold for the three months ended April 30, 2013, as compared to the same three months a year ago, was a result of higher feed cost per pound of poultry products processed at $0.051 per pound or 14.3% offset by a decrease in poultry pound sold at 28.4 million pounds or 3.8%.
Feed cost accounted for 53.4% of our cost of poultry products sold during the quarter and that compares to 50.5% last year. Our non-feed related cost for poultry sales increased $0.01 per pound processed during this years second quarter compared to last year cost, primarily by a decrease in efficiencies resulting from our production cut, which was in place during the entire quarter.
While our production cut remained in place for one month of our third quarter, we will return to full production next week. We expect efficiency improvements to generate just under $0.01 per pound improvement in our non-feed related cost of goods sold as we return to full production.
The $4.3 million increase in SG&A expenses for the first half of the year reflects $1.8 million paid in North Carolina as a result of our decision not to proceed with the second site there. As a percent of sales, SG&A expenses increased from 3.2% to 3.3%.
Interest expense decreased from $2.4 million to $1.8 million during the quarter, reflecting lower outstanding debt. And going forward, interest cost should be lower than last year during our next two fiscal quarters, as outstanding debt continues to move lower.
We did make progress during our second quarter paying down our debt and weve also paid an additional $20 million on the revolver in the month of May. We currently have $90 million outstanding on the revolver plus approximately $11 million in letters of credit, leaving $399 million available to us as needed.
We also paid the second of five annual $10 million payments under our $50 million fixed-term debt, leaving $30 million outstanding under that loan. Our debt to total cap ratio at the end of our second quarter stood at 21.2% and thats down from 22.9% at the end of the first quarter.
Our working capital at the end of the second quarter was $268 million and our stockholders equity, which began moving back in the right direction during the quarter, stood at $561 million.
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The companys effective tax rate during the quarter in the first six months ended April 30, 2013, was 34.5% and 32.7% respectively. And for the balance of the year, were modeling a tax rate of 34%.
During fiscal 2013, we now expect to spend approximately $46.7 million on CapEx projects and weve spent $21 million through the first half of the year. We intend to use cash flow from operations to fund the balance of our capital budget and to continue to pay down debt during the second half of the year.
Our depreciation and amortization during the first half of the fiscal year was $30.3 million, and we expect $61 million for the full fiscal year.
Kayla, that completes our prepared remarks for this morning and you can now open up the call for questions.
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QUESTION AND ANSWER SECTION
Operator: Thank you. [Operator Instructions] And well take our first question from Farha Aslam with Stephens, Inc.
<Q Farha Aslam Stephens, Inc.>: Hi, good morning.
<A Joe Sanderson Sanderson Farms, Inc.>: Good morning, Farha.
<Q Farha Aslam Stephens, Inc.>: Great quarter.
<A Joe Sanderson Sanderson Farms, Inc.>: Thank you.
<Q Farha Aslam Stephens, Inc.>: Question about the outlook in terms of how feed grain costs flow through Sandersons P&L. If you look at the start of the quarter versus the end of the quarter, would you be able to quantify how much the monthly decline in costs were or sort of where your feed costs per pound were at the end of the quarter? Just so, we can gauge how they progressed?
<A Joe Sanderson Sanderson Farms, Inc.>: I think our costs were down probably $0.005 per month roughly. We have some high priced grain in December and January that wherein some flocks processed in February and probably we probably averaged a $0.005 a pound per month decline from February to April.
<Q Farha Aslam Stephens, Inc.>: Okay. Thats helpful. And then when you look out, you highlighted that one of the reasons breast meat pricing is so strong is due to mix changes and QSRs. As you look at the industry and forward read, do you anticipate that mix change to continue to occur over the summer? So, do you expect breast meat prices to remain firm? Any thoughts on the outlook for breast meat going forward?
<A Joe Sanderson Sanderson Farms, Inc.>: Well, we think its going to remain demand for breast meat is going to remain good. What we had in April and May, and to at quick serve, you had McDonalds, you had Wendys, you had KFC, all featuring boneless breast. And KFC had boneless thighs, and they were on television, they were introducing new products and it was all boneless breast and it was a perfect storm, so to speak.
And you had some other people at casual dining introducing a new product. I think, we had and there was a fixed amount of breast out there and it cant be raised right now. You cant increase it. And probably whats going to happen, youre going to get into the summer time, youre going to get some heat and supply may even decrease a little bit.
And so and youre operating under the umbrella of half-priced beef, particularly at places like McDonalds and BURGER KING and Wendys. Wendys had a flatbread chicken sandwich they were featuring.
And so, you kind of had a perfect storm going on in May and so you got spiking breast meat. And we dont know that, that advertising is going to continue, but those conditions are going to remain. And so, we think breast meat is going to be good. And the same thing, to a certain extent, exist in the grocery store. Relative to beef, chicken is still in pretty good shape at the retail grocery store.
<Q Farha Aslam Stephens, Inc.>: And so, with profitability so good in the chicken sector, its notable that you havent seen much of an expansion in terms of egg sets and pullets and breeders. What do you think is causing that constrained supply out near-term and how long do you anticipate that to continue?
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<A Joe Sanderson Sanderson Farms, Inc.>: Well, I think the primary breeders do not have the grandparent or the parent stock to produce the pullets and cockerels. And I think that process will take a year. Theyve got to produce the grandparent stock and that takes 26 weeks, and then theyve got to produce the parent stock and that takes another 26 weeks.
So, I think youre a year away or almost a year away from seeing any meaningful increase in the breeders, the pullets replacement pullets or additional pullets for the processors. And you actually have the if you look at the pullet placements and the resulting layer flock, its going to be declining in the months in front of us.
So, I dont think you can and if youll look at the USDA report like last week, they revised it downward the week before. And I think the industry is pushing all it can, if you look at calculate the hatch-ability, I think the industry is pushing this hen flock as far as it can go to get eggs out. And then and hatching, the fertility is both going to decline in the summer time.
<Q Farha Aslam Stephens, Inc.>: So, tight markets ahead?
<A Joe Sanderson Sanderson Farms, Inc.>: I would think so.
<Q Farha Aslam Stephens, Inc.>: Okay. Great. Thank you very much.
<A Joe Sanderson Sanderson Farms, Inc.>: Thank you.
Operator: And well take our next question from Christine McCracken with Cleveland Research.
<Q Christine McCracken Cleveland Research Co.>: Good morning.
<A Joe Sanderson Sanderson Farms, Inc.>: Good morning.
<Q Christine McCracken Cleveland Research Co.>: Joe, with the delays in planting and the expected delay then in harvest by, call it three to four weeks, are you at all worried about that gap between July and when you might be able to get new crop? And how do expect to bridge that?
<A Joe Sanderson Sanderson Farms, Inc.>: I think itll be more pronounced on soy meal, we think well get corn. The basis will be high on both products; itll be unbelievable on soy. Weve already gotten quotes on August-Sep soy, and it is triple where we bought our June-July soy our initial basis quotes were triple for August-Sep soy.
Corn, not so bad, we think well get we think corn will well be able to handle the corn, but soy is going to be dislocated and very expensive. But we can buy it. So but, Im not really worried about it, its just going to be very expensive.
<Q Christine McCracken Cleveland Research Co.>: So, what gives you the confidence that youll be able to buy it? Has somebody given you a guarantee?
<A Joe Sanderson Sanderson Farms, Inc.>: Yes.
<Q Christine McCracken Cleveland Research Co.>: Okay.
<A Joe Sanderson Sanderson Farms, Inc.>: Yes.
<Q Christine McCracken Cleveland Research Co.>: Good. And then just on wings, seasonally, this obviously isnt the peak period for demand, but prices seemed to have gone maybe a little bit further down than Id expected. Do you think were getting close to a bottom in anticipation.
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<A Joe Sanderson Sanderson Farms, Inc.>: Of what?
<A Lampkin Butts Sanderson Farms, Inc.>: Wings. [ph] They bounced off it (28:23).
<A Joe Sanderson Sanderson Farms, Inc.>: Yeah, yeah, yeah, Im sorry. Yeah. We think weve seen the bottom of wings and theyve come up now. And we think youre going to see the cold storage inventory start climbing on wings. We think people are putting them in the freezer now that theyre confident that the bottom is hit. Freezer operators that use them are going to inventory them for the football season.
<Q Christine McCracken Cleveland Research Co.>: Okay. And so, youve already seen that improvement in demand then for the fall?
<A Joe Sanderson Sanderson Farms, Inc.>: Yeah.
<Q Christine McCracken Cleveland Research Co.>: Okay.
<A Joe Sanderson Sanderson Farms, Inc.>: Yes. Yes. We as soon as people thought the bottom hit they started buying them and we have some distributors that are buying them and put them in the freezer and we have some end users that are buying them and put them in the freezer. We are not putting them in the freezer, but we know some of our customers are buying them and put them in a freezer.
<Q Christine McCracken Cleveland Research Co.>: Great. And then final just one last question. On the COOL legislation that was just pushed through, are you at all worried about your export exports to Mexico and is there any risk there?
<A Lampkin Butts Sanderson Farms, Inc.>: Christine, it has always risk. As you know, Mexico, theres a dumping charge down there now, although, it hadnt resulted in any tariff. But were working in Washington with our trade association to be sure that it doesnt. Wed like to disengage in that as quickly as we can and let that be a beef and pork issue and not a chicken issue. Theres always risk, but I think well be able to disengage the chickens, anyway.
<Q Christine McCracken Cleveland Research Co.>: All right. Good stuff. Thanks.
<A Joe Sanderson Sanderson Farms, Inc.>: Thank you.
Operator: And well take our next question from Akshay Jagdale with KeyBanc.
<Q Akshay Jagdale KeyBanc Capital Markets>: Good morning.
<A Joe Sanderson Sanderson Farms, Inc.>: Good morning.
<Q Akshay Jagdale KeyBanc Capital Markets>: Congratulations on a good quarter.
<A Joe Sanderson Sanderson Farms, Inc.>: Congratulations on your call.
<Q Akshay Jagdale KeyBanc Capital Markets>: Thank you. So, first question is, it looks like this quarter so far the quarter youre in, looks significantly better on the revenue side. In the spot market were seeing somewhat close to $0.08 per pound sequential improvement, and then youre telling us that your feed costs are going to be down slightly sequentially and your all other costs are going to be down about $0.01 a pound, if youre operating at a full schedule.
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So, it seems like this is shaping up to be a very strong quarter. Id just so first, is there anything Im saying there that you dont agree with? And secondly, what impact, which is specific to Sanderson, would the Chinese issue have on your revenue per pound, roughly, this quarter?
<A Joe Sanderson Sanderson Farms, Inc.>: China will not be material for the quarter. We calculated if China were to completely disappear, it would be about $0.40 per share for the year. So, $0.15 would not be material and we dont think actually China is improving right now, so we dont think China is going to be material.
What you said is right. I cant speak to June and July, because we dont know whats going to happen. Leg quarter is going to be a little bit softer. When you get to $0.50 a pound on leg quarters, export market is slow and thats Lampkin indicated that June is going to be a little bit softer in export market.
Boneless breast is slowing a little bit right now. I think we think, its because its the end of the month. Well get a better read next week when you get to the first of the month, but May is going to be a record month profit-wise for the industry, I believe. I think, itll we hadnt seen margins yet, but its going to be close to a record month profit-wise, June and July, you dont know yet until you get there, but its youve had a spiking market both at retail and with boneless breast and with good support from the export market and wings at $1.20, Im never going to complain about that.
<Q Akshay Jagdale KeyBanc Capital Markets>: Thats very helpful. Can you talk a little bit about you talked about the breeders and the issue about building up supply. Typically, what we have noticed just then, this is just data analysis, nothing else. But it takes about nine months from the time companies start making money, so they really sort of step on the supply accelerator, if I may. It seems as though theres constraint this time such that perhaps that timeframe could be longer.
Is that I mean, first of all, are those timeframes ones that you sort of keep in your mind as benchmarks or is there some other timeframe we should be looking at? But overall, are you basically saying that its going to take longer than it typically does because of the issues on the breeder side?
<A Joe Sanderson Sanderson Farms, Inc.>: I think, its going to take a year because I dont think the primary breeders have the breeding stock to supply any increase in pullets. And I think also that there are some processors that will keep an eye on this crop. And I dont think they necessarily would start, even if they were available, I dont think theyd start placing pullets until they see what this crop is going to do.
They might recall 2011 and but the primary roadblock is the breeders. They dont have the they do not have the I dont believe they have the product, if somebody were to order pullets. They do not have the grandparent stock or the parent stock right now.
<Q Akshay Jagdale KeyBanc Capital Markets>: And just two questions. One is, with all the moving parts on your youre moving up to full capacity soon and then you also plan on building a new plant and moving ahead with that. Are you ready right now to sort of give us at least a sense of what fiscal 2014 pounds processed would look like?
<A Joe Sanderson Sanderson Farms, Inc.>: Pounds processed?
<Q Akshay Jagdale KeyBanc Capital Markets>: Yeah.
<A Joe Sanderson Sanderson Farms, Inc.>: No. I mean, itll itll no. No, well give you that in July.
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<Q Akshay Jagdale KeyBanc Capital Markets>: Okay. And then last question. With the announcement this week that a Chinese company is buying Smithfield, I mean, what is your overall view on M&A as it relates to this new news? I mean, does it change your view at all or in your opinion, is it more or less likely that international players would come in to buy chicken companies specifically? I mean, just can you just give us your current view and let us know, if at all its changed and perhaps make any comments that you can regarding your appetite for M&A, whether youre buying or selling? Thank you.
<A Joe Sanderson Sanderson Farms, Inc.>: We want a build a plant processing plant. And I dont have that doesnt say I have no we want to do it right we want to do the best we can for our shareholders. And our appetite is to build processing plants.
<Q Akshay Jagdale KeyBanc Capital Markets>: And any any just any thoughts on the recent news, I mean, just your thoughts, they dont have to be specific to Sanderson, but do you think it at all changes the M&A landscape, per se, for chicken companies in the U.S.? I mean, we have seen smallish type of deals by international players trying to buy assets, distressed assets for chicken. But any thoughts there would be great, if you have any to share.
<A Joe Sanderson Sanderson Farms, Inc.>: I dont have any.
<Q Akshay Jagdale KeyBanc Capital Markets>: Perfect. Okay, Ill pass it on. Thank you.
<A Joe Sanderson Sanderson Farms, Inc.>: Thank you.
Operator: And well take our next question from Heather Jones with BB&T Capital Markets.
<Q Heather Jones BB&T Capital Markets>: Good morning.
<A Joe Sanderson Sanderson Farms, Inc.>: Good morning.
<Q Heather Jones BB&T Capital Markets>: Nice quarter.
<A Joe Sanderson Sanderson Farms, Inc.>: Thank you.
<Q Heather Jones BB&T Capital Markets>: Going to go to weights. You mentioned that weights may move down this summer just because of heat. Im wondering, last summer, we understand that some producers purposely brought down their weights into the summer just given what happened with corn mid-June moving forward. This summer has been well, were not in the summer yet, but spring has been relatively mild. I mean, do you think that weight gains this year could be fairly significant year-on-year? Or not weight gains, but average weights could be significantly higher than last year for the summer given those factors?
<A Joe Sanderson Sanderson Farms, Inc.>: I think May was very mild, but I also think that processors were running all out and we were for sure and our weights are a little bit light, frankly. Weve been short all month and we needed to put some age on our chickens, particularly our big birds, deboning birds. My guess is other processors might be in the same boat. And I would not be surprised if, even though, weve had mild weather, I would not be surprised if weights may not be as heavy in May as they were in April, because processors are running all out to keep up with this demand weve experienced in May.
I dont know what the weather is going to be like in June and July. We have not been to 90 degrees yet in Laurel. Texas has, the Mississippi, we wont next week, be the first days we hit 90 degrees and thats very unusual; so weve had very mild weather, but weve also been running all out and we need to put a little age on our chickens to get back to our normal weights.
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<Q Heather Jones BB&T Capital Markets>: I mean, what do you think about the thought, though, that comparisons could be fairly easy in late June and July, that last year some processors were purposefully pulling down weights? I mean, what are your thoughts on that?
<A Joe Sanderson Sanderson Farms, Inc.>: Yeah. I think you might be right. I dont remember if we saw a weight decline last year, [ph] Bob (41:22), do you remember?
<A>: I dont know.
<A Joe Sanderson Sanderson Farms, Inc.>: In Agri Stats? I dont know. Heather, you could be right. I just dont know.
<Q Heather Jones BB&T Capital Markets>: Okay.
<A>: Weights have been weights are heavier in Agri Stats.
<A Joe Sanderson Sanderson Farms, Inc.>: Yeah, theyre heavier in Agri Stats since January.
<Q Heather Jones BB&T Capital Markets>: Are you talking about year-on-year?
<A Joe Sanderson Sanderson Farms, Inc.>: Yeah.
<A Lampkin Butts Sanderson Farms, Inc.>: Yeah.
<Q Heather Jones BB&T Capital Markets>: Okay. You talked about the menu mix shift at QSR and all the examples that you gave. We understand that some of those ad campaigns are going to be winding down in the next few weeks.
<A Joe Sanderson Sanderson Farms, Inc.>: Yeah.
<Q Heather Jones BB&T Capital Markets>: Do you know of any new menu introductions that are coming after that, that could continue to trigger really strong boneless, skinless demand?
<A Joe Sanderson Sanderson Farms, Inc.>: No. No. We dont really we dont we dont know of any. We dont service any of those people. We do know that two of the one of the major suppliers to several of the major quick service chains has bought a great deal of boneless breast from another processor through August, and which leads us to believe theres some more stuff coming on.
<Q Heather Jones BB&T Capital Markets>: Okay. Okay. And my final question is on your comments on the primary breeders being short parent and grandparent stock. I mean, we all know whats going on in Mexico, but that doesnt seem to be the only contributor. What are your thoughts regarding why the industry has been so slow to build out this time? Was it fear? You mentioned the crop, but do you think its just given several disappointing or surprising years with regard to feed costs, they just like you said, want to make sure the crop is made. Is that the primary reason?
<A Joe Sanderson Sanderson Farms, Inc.>: I think the primary reason is they cant get pullets and cockerels. And the secondary reason is I think weve had three droughts in a row or droughty years in a row. And I think those two things are the primary reasons.
<Q Heather Jones BB&T Capital Markets>: Well, I guess, Im wondering why are the pullets and cockerels not there, I mean, why havent the why are the primary breeders so short?
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<A Joe Sanderson Sanderson Farms, Inc.>: Because theyre not going to keep theyre not going to keep that production just theyre not going to keep that production there, if they dont have orders for it. Theyre not going to keep feeding those grandparent and parent stock, if they dont have orders for them.
<Q Heather Jones BB&T Capital Markets>: Right. And so the orders have been have the orders been short because of concerns related to the crop?
<A Lampkin Butts Sanderson Farms, Inc.>: Well, the industry is 10% smaller...
<A Joe Sanderson Sanderson Farms, Inc.>: Yeah.
<A Lampkin Butts Sanderson Farms, Inc.>: ...than we were in 2007. And the primary breeders have theyve adjusted to that number.
<A Joe Sanderson Sanderson Farms, Inc.>: Yeah.
<Q Heather Jones BB&T Capital Markets>: Okay. All right. Thank you very much.
<A Joe Sanderson Sanderson Farms, Inc.>: Thank you.
Operator: [Operator Instructions] And well take our next question from Ken Zaslow with Bank of Montreal.
<Q Ken Zaslow BMO Capital Markets (United States)>: Hey, good morning, everyone.
<A Joe Sanderson Sanderson Farms, Inc.>: Good morning.
<Q Ken Zaslow BMO Capital Markets (United States)>: Good. Ive just two questions. One is, what is the optimal corn and soybean meal environment for you? Do you what is the type of price level that youre actually hoping for? I mean, can you just give some color on what youre hoping for?
<A Joe Sanderson Sanderson Farms, Inc.>: Well, we dont I dont hope for anything.
<Q Ken Zaslow BMO Capital Markets (United States)>: Would you prefer $4 corn or $2 corn or $7 corn? If you could kind of give us some ideas of what you guys would consider your optimal environment where youd actually maximize your profit for an extended period of time.
<A Joe Sanderson Sanderson Farms, Inc.>: We dont do hypothecate. We operate in an environment were given and do the best we can with what we have to work with.
<Q Ken Zaslow BMO Capital Markets (United States)>: Okay. And my next question is, is there a trend within the chicken industry to change the contracts more to shorter-term and more grain-based contracts? Have you guys done that or you guys are stuck with your way of doing it over the period where youre more still the commodity-based and the prices kind of move with the prices of chicken more than the Georgia dock?
<A Joe Sanderson Sanderson Farms, Inc.>: Were stuck. I mean, we are our contracts are all the same. And we base ours off of the Urner Barry and off of the Georgia dock and we dont have any grain-based and we take that risk. We dont think our customers ought to thats our business and theyre in the grocery business or in the food service business and were in the chicken business, and it works out fine that way for us.
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And were aware of some cost-plus stuff in fast food business, primarily, but we still do it rather the way weve always done it.
<Q Ken Zaslow BMO Capital Markets (United States)>: [ph] chicken (47:30), can you talk about how long breast prices will stay at these levels? I didnt fully understand you, I think.
<A Joe Sanderson Sanderson Farms, Inc.>: Youre breaking up on me.
<Q Ken Zaslow BMO Capital Markets (United States)>: Oh, sorry about that. Is it better?
<A Lampkin Butts Sanderson Farms, Inc.>: Yeah. You asked how long breast meat, we expect breast meat.
<Q Ken Zaslow BMO Capital Markets (United States)>: Yeah. I didnt fully understand. You said that some of the promotions are coming off, but some of the promotions are coming back on. I just didnt understand it. I guess, if you could just give a...
<A Joe Sanderson Sanderson Farms, Inc.>: Yeah.
<Q Ken Zaslow BMO Capital Markets (United States)>: ...clarification on that and what youre thinking for the next six months or so. I just didnt understand that, Im sorry.
<A Joe Sanderson Sanderson Farms, Inc.>: Yeah. What I said was, we dont have any direct knowledge about the ads, because we dont service any of the quick serve people. We do know that one of the suppliers to several of the chains has bought breast meat from another processor through August. So, that leads to believe that some of the there are going to be some ads all the way through the summer, but we dont have any direct knowledge of anything, because we dont sell any of them.
<Q Ken Zaslow BMO Capital Markets (United States)>: All right. I appreciate it. Thank you very much.
<A Joe Sanderson Sanderson Farms, Inc.>: Thank you very much.
Operator: And it appears there are no further questions at this time.
Joe Frank Sanderson, Chairman & Chief Executive Officer
Good, thank you. Thank you all for spending time with us this morning, and we look forward to reporting our results to you throughout the year. Thank you all.
Operator: And this concludes todays conference. Thank you for your participation.
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