Dive Brief:
- Sanderson Farms' Q4 net sales dropped to $798.1 million, down 13.2% compared with $919.9 million for the same period a year ago, according to the company's most recent earnings report.
- The company's operating income plunged from $108.9 million this time last year to a loss of $57.7 million in the most recent quarter. Sanderson also saw a net loss this quarter of $43.2 million, or $1.95 per share, compared with net income of $72.9 million, or $3.20 per share, last year.
- Chairman and CEO Joe Sanderson, Jr. said it was "the end of a challenging year" in the report. "Market conditions weakened significantly during our fourth fiscal quarter of 2018, as market prices declined after Labor Day, reflecting weak demand for products produced for the food service market at our plants that process a larger bird. The decrease in demand and resulting weak market prices were exacerbated by hurricane disruptions," he said.
Dive Insight:
These sluggish numbers shouldn't come as a surprise given the struggles that Sanderson Farms has faced this year. In anticipation of these declines, the company warned shareholders in previous earnings statements that rising feed costs and other factors would put pressure on the company's fiscal 2018 earnings.
Sanderson Farms has seen a huge oversupply of chicken this year and chicken producers across the country have been hit hard by the trade wars. Weak poultry prices have hurt Sanderson Farms' earnings each quarter this year. The fourth quarter was expected to bring in a seasonal drop in demand — and it did.
Poultry prices were 9.2% lower in fiscal 2018 compared to last year, and were significantly lower for the most recent quarter. Boneless breast meat market prices averaged 26.1% lower in the fourth quarter than the year before.
On top of the drop in prices and oversupply, the decline this year was also impacted by costs and inefficiencies from two hurricanes that hit North Carolina and Georgia.
But the slow market hasn't just impacted Sanderson Farms. As the industry increased production, new tariffs on exports have brought sluggish demand. Tyson Foods also recently reported a price drop and saw chicken sales fall.
But that could change soon. The new United States-Mexico-Canada Agreement and a recent trade truce with China could bring progress in international markets for poultry — although the Trump administration's trade policies bring a perpetual degree of uncertainty.
Overall, Sanderson Farms' net sales for its fiscal 2018 were $3.2 billion, compared with $3.3 billion in the prior year. Net income saw a more dramatic decrease this fiscal year, dropping 78% to $61.4 million, compared to $279.7 million for last fiscal year. Sanderson Farms' stock price decreased by more than a third in the last 12 months.
More changes for the company could help turn around this negative streak. Shareholders seem to be focusing on the positives; Thursday morning trading saw Sanderson's stock prices up 5.6%.
If demand increases again, the company has the facilities to provide supply. Construction on Sanderson Farms' new facilities in Tyler, Texas is on target to be completed in the next few months.
