At a time when so many poultry companies are increasing their production of value-added products, Sanderson Farms is keeping its emphasis on big bird deboning. Joe Sanderson Jr., CEO of Sanderson Farms, discussed that approach to business March 12 during the 18th annual Goldman Sachs Agribusiness Conference.
Sanderson said he believes sales out of the company's further processing plant will likely double in 2014, but Sanderson Farms value-added products from those plants have not proven as profitable as the company would like.
"We have always said we are going to get our margins out of our value-added plants, or we're not going to do it," said Sanderson.
As a publicly traded poultry company, Sanderson Farms has an obligation to aim for the biggest return on investor dollars. And the single-digit returns on further processing and value-added products are simply not enough. Sanderson said his father taught him very early to strive for no less than 20 percent margins.
"We feel the best use of capital is in big bird deboning and tray packs. Every processor and tons of independents can make breaded chicken tenders," said Sanderson. "We feel like our best use of capital is somewhere else, so we're not enamored by further processing. We like what we have and we'd like it to do well, but we think we can make more money in other channels."
Relying more heavily on value-added products may be a safe route to take for some, but Sanderson said his company has long had a philosophy to handle its balance sheet in a manner that it can ride out an economic downturn. Over the past eight years, Sanderson Farms has persevered through the avian influenza outbreak of 2006, the economic downturn of 2008, overproduction in 2011 and the drought and high feed costs of 2012.
"Our business model is based on high margins and high returns, and not to be safe," Sanderson said. "Our balance sheet is what keeps us safe."