Sanderson Farms reported results for its second fiscal quarter, which ended April 30, 2019.
Net sales for the second quarter of fiscal 2019 were $845.2 million compared with $813.5 million for the same period a year ago. For the quarter, net income was $40.6 million, or $1.83 per share, compared with net income of $41.9 million, or $1.84 per share, for the second quarter of fiscal 2018.
“Financial results for our second quarter of fiscal 2019 reflect higher feed costs per pound, continued favorable demand for poultry products from retail grocery store customers and a favorable export environment," said Joe F. Sanderson, Jr., chairman and chief executive officer of Sanderson Farms. “While market prices for boneless breast meat produced at our plants that target food service customers remained below historical averages for the period and averaged 2.4 percent below last year’s second fiscal quarter, they improved significantly compared to market prices during our first fiscal quarter of 2019. Market prices for jumbo wings reflected strong seasonal demand during the quarter, and values have held up well in May. Our average sales price per pound of fresh and frozen poultry increased 3.5 percent during the second quarter of this fiscal year compared with the same period last year and were higher by 0.6 percent through the first half of this fiscal year compared to the first half of last year.
“Lower volumes of fresh and frozen chicken processed and sold during the second fiscal quarter compared to last year’s second quarter reflect scheduled down days at four plants to install new equipment, and lower live weights at our Hammond, Louisiana, plant,” added Sanderson. “Hammond was also down a week to allow bird weights to move back to weights that target the needs of food service customers. The lower volume at these plants, when combined with inefficiencies inherent in lower volumes during the startup of our new Tyler, Texas poultry complex, contributed just over two cents per pound to the three and one half cent per pound increase in non-feed related cost of goods sold during this year’s second fiscal quarter compared to the same period last year.”
According to Sanderson, overall market prices for chicken products sold to retail grocery store customers remained relatively strong during the second quarter and continued to reflect good demand. Compared with the second fiscal quarter of 2018, quoted boneless breast meat market prices were approximately 2.4 percent lower, the average market price for bulk leg quarters decreased approximately 7.0 percent, and jumbo wing market prices were higher by 32.7 percent. Market prices for chicken breast tenders averaged 4.4 percent higher than a year ago. The company’s average feed costs per pound of poultry products processed increased by 3.0 percent when compared with the second quarter of fiscal 2018, while prices paid for corn and soybean meal, the company’s primary feed ingredients, increased 4.9 percent and decreased 11.6 percent, respectively, compared with the second quarter of fiscal 2018.
“Looking ahead to the second half of the fiscal year, we continue to expect prices paid for grain to be lower for the year compared to fiscal 2018,” added Sanderson. “While there are ample supplies of both corn and soybeans worldwide, a slow start to the United States planting season for 2019 corn and soybean crops due to the cold, wet spring in the United States grain belt has put upward pressure on market prices. Planting progress for corn stands at 58 percent this week, which is below the five-year average of 90 percent. Only 29 percent of the soy bean crop has been planted, versus a five-year average of 66 percent.
“With respect to chicken production numbers, the USDA reports that the United States broiler breeder flock is approximately 1.0 percent larger than a year ago, but the agency also reports that egg production, hatch rates and livability continue to trend below historical averages. The current USDA forecast is for United States broiler production during calendar year 2019 to increase approximately 0.9 percent over calendar year 2018 and that forecast seems reasonable. We expect our production during our third and fourth fiscal quarters of 2019 to be up 6.0 percent and 7.5 percent, respectively, compared to the same quarters of fiscal 2018,” added Sanderson.
Pay rate increase
Sanderson Farms announced on May 23 hourly wages for all hourly employees with the company will be raised by at least $1.00 per hour, so that all employees who have worked for the company for at least 90 days will earn at least $15.00 per hour, effective June 2, 2019. Hourly rates for truck drivers, hourly maintenance employees and upgraded positions will increase by more than $1.00 per hour. This decision reflects, in part, the company’s efforts to continue to recruit and retain the best employee base possible. The company already pays 75 percent of the cost of health insurance for employees and their families and offers a generous retirement package.
“We believe these hourly rate increases, when combined with other benefits, will allow the company to remain very competitive in an economic climate where employees have more choices available to them. We also estimate that the costs of this increase can be offset with increased efficiencies, by reaching our target plant yields and by achieving our target live weights,” Sanderson concluded.