Dive Brief:
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Net first-quarter sales for Sanderson Farms were $771.9 million, compared with $688.3 million for the first quarter of 2017, the company announced. Net Q1 income was reported as $51.2 million, or $2.24 per share, compared to $24 million, or $1.06 per share, for the same quarter a year ago.
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The company said the results reflected higher market prices for dark meat products from its deboning plants, but lower prices for white meat. The poultry producer also said that its first-quarter net income includes a one-time non-cash tax benefit of $37.5 million from the recent corporate tax cut.
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"Poultry market prices for tray pack products sold to retail grocery store customers were higher when compared with the same period a year ago and continued to reflect a healthy supply and demand balance in that customer market," Joe F. Sanderson, Jr., the company's chairman and CEO, said in a release. "On the other hand, the overall food service market remains weak. Traffic numbers through legacy food service chains continue to trend lower, and market prices for boneless breast meat reflect that weakness."
Dive Insight:
Founded in 1947, Sanderson Farms is the country's third-largest poultry company. Unlike its largest competitors — Tyson Foods, Pilgrim's Pride Corp. and Perdue Foods — Sanderson has opted not to reduce or remove the use of medically important antibiotics in its chickens, and has invested in an ad campaign to explain why. The company also recently claimed that the U.S. supply of antibiotic-free chicken had exceeded demand, although it hasn't shared any data to support that assertion.
Shareholder petitions were submitted at last week's annual meeting and also at last February's asking the company to stop using such antibiotics on healthy chickens. The plan received 43% of investor support last week and about 30% last year, according to Reuters. The company had urged a "No" vote on the proposal, although it also said that it was developing a plan to phase out antibiotic use if necessary.
Meanwhile, Sanderson's pro-antibiotic stance doesn't appear to have negatively impacted sales, and the company is moving ahead with its new production facilities. As those plants come online during the next year, they are likely to enhance the company's sales and income numbers on the next few quarterly earnings reports.
Sanderson reported that construction continues at its new production complex in Tyler, Texas, where operations are scheduled to begin during the first calendar quarter of 2019. As of last month, nearly full production has been reached at its new plant in St. Pauls, North Carolina, which should be at full production in April, the company said. According to government estimates, U.S. poultry and beef consumption is expected to hit record levels this year, and production levels are being adjusted to accommodate that trend.
During a Thursday earnings call with analysts, Sanderson said that the company expects to pay $56.4 million more for corn and soybean meal this fiscal year than in 2017. According to a call transcript from Seeking Alpha, Sanderson said he told shareholders last week that the company is closely watching the quality and quantity of South American feed crops and U.S. chicken production figures.
Sanderson also expects higher fuel costs and trucking expenses this year due to adverse weather conditions and fewer drivers being available during the holiday season. According to Lampkin Butts, company president and COO, Sanderson expects a 10% to 15% jump in freight costs during 2018.
The company's cost of goods sold has increased due to wage hikes granted to both salaried and hourly-wage workers. Mike Cockrell, Sanderson's treasurer and CFO, said on the earnings call that a detailed study of the company's wage ranges compared to the market had resulted in $24.5 million more being spent during fiscal 2018 compared to last year.