Dive Brief:
- Sanderson Farms reported net income of $41.9 million for the second quarter, falling from $67 million in the year-ago period, according to a company release. Revenue came in at $813.5 million, an uptick from the $802 million the protein producer reported the year prior, but falling below analyst estimates of $841.75 million.
- CEO Joe Sanderson blamed lukewarm foodservice demand for boneless chicken and jumbo wings for the subpar performance, despite lower feed costs and favorable retail grocery demand. The company predicts that chicken production will rise 2.8% in the third quarter and fall 4.7% during the third quarter of 2018.
- "Because of this weakness, our average sales price per pound decreased during the first half of this fiscal year," Sanderson said in the release. "Lower average sales prices were offset during the quarter by more pounds sold, as our new St. Pauls, North Carolina, facility is running at full capacity. Poultry pounds sold increased 3.1 percent during the quarter compared to last year's second quarter."
Dive Insight:
Despite its disappointing Q2 results, Sanderson's completion of its St. Pauls plant bodes well for the poultry giant's near future. For the period, poultry pounds sold jumped 3.1% compared to last year's second quarter. Still, market fluctuations dragged down its earnings — for the period, market prices fell 5.3% for boneless breast meat, jumped about 6.2% for bulk leg quarters and fell 23.6% for jumbo wings.
The company's stance on antibiotic use in food animals has not appeared to hurt sales. While major competitors such as Tyson Foods, Pilgrims Pride and Perdue have phased out drugs in their birds to quell consumer fears, the third-largest poultry producer stuck to its guns, maintaining that antibiotic use can improve animal welfare and environmental sustainability. In a past interview, COO Mike Cockrell told Food Dive that sick chickens require more feed, water and labor on the ground — as well as replacements when they die — and that this greatly expands a company's carbon footprint.
Sanderson has touted the benefits of antibiotics and ridiculed companies that have phased them out in a "truth-telling" commercial campaign that launched in 2016. The TV spots warn consumers against falling for what it considers "marketing gimmicks" in the chicken industry, pointing to claims about "happy" chickens. The company recently debuted the latest version of this advertising blitz, which focuses on transparency and educates viewers about production practices, bird health and welfare.
The company says that consumers are responding well to this tactic, and associate this with year-over-year increases in dressed poultry sales. The new commercial series' focus on transparency seems to be a savvy move. Products with value-adds related to transparency gained 9% year-over-year sales growth in 2017, and consumer hunger for more knowledge about their food and its sourcing shows no sign of dying off. This could prove to a be a bright spot for Sanderson, especially since 56% of consumers don't know what competitor claims about antibiotic-free poultry mean — a blow to competitors — manager of Nielsen's Fresh Growth & Strategy told Food Dive in a past interview.
It remains to be seen if the fruits of this campaign will strengthen the company's performance in the next financial period. There are already challenges on the horizon — the company expects grain prices to rise due to a slow start to the U.S. planting season.