Dive Brief:
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Sanderson Farms reported net sales of $919.9 million for the fourth quarter of 2017, compared with $790.8 million for the year-ago period. Income slipped during the fourth quarter to $72.9 million, or $3.20 per share, from $76 million, or $3.36 per share, for the same quarter of 2016.
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"Market conditions weakened during our fourth fiscal quarter of 2017, as market prices declined seasonally after Labor Day," Joe F. Sanderson, Jr., chairman and CEO of Sanderson Farms, Inc., said in a statement. "The seasonal decrease in demand was exacerbated by hurricane disruptions and higher than expected chicken production caused by higher than expected live weights. Despite this weakness, we performed well during the quarter."
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For fiscal 2017, the Mississippi poultry firm posted a record $3.34 billion in net sales and nearly $280 million in net income. They reported $2.8 billion in sales and $189 million in net income for the previous year. The company credited both higher prices and a 13.2% higher sales volume for this year's performance.
Dive Insight:
Even though the fourth quarter was not as strong as expected, Sanderson Farms' record profits in the fiscal year helped the company and its shareholders. In the report, Sanderson said that the increased funds allowed the company to complete new facilities in St. Pauls, North Carolina, start construction of a new complex in Tyler, Texas, and give shareholders a special dividend.
The company is definitely following trends in the poultry industry with its new construction. Poultry competitors Foster Farms and Tyson Foods are both investing in expansion through new building and expanding plants, according to Food Business News and Meat + Poultry.
However, there are areas where Sanderson Farms differentiates itself from other large providers. It seems centered on its poultry business, which may be a smart strategy given the public's demand for the protein source. According to estimates from the National Chicken Council, per-capita chicken consumption has increased recently. Americans eat nearly twice as much chicken — 91.3 pounds in 2017 — than they do beef and pork — 58 and 50.1 pounds this year, respectively. The company does not appear focused on acquisitions or on investing in plant-based meat substitutes, like some other poultry processors.
Sanderson Farms has also gone its own direction on antibiotics use in its chicken. In August 2016, it bucked the industry’s “no antibiotics” trend by advertising why the company uses them. Some are concerned that exposure to antibiotics in food may lead to resistance in humans when the drugs are used, but Sanderson has argued that this threat is overblown.
The company says it has “faced pressure from competitors, activist groups, and the media” because of the advertisements. Sanderson CFO Mike Cockrelt told Food Dive that while larger competitors are phasing out antibiotics as a point of differentiation, antibiotics help Sanderson keep bird deaths — and, by extension, prices — low. This helps the company's products stand out at stores. Heading into the new year, Sanderson is preparing to expand its pro-antibiotic campaign to give consumers a more nuanced explanation of drug use in the poultry industry.
Cockrell said he believes that the continuation of this campaign and increased production at a processing plant in St. Paul, Minnesota — which should reach full operating capacity in January — will bring the company continued financial growth. Sanderson Farms expects to produce roughly 6% more pounds of chicken in the new year.