Sanderson Farms on August 27 reported results for the third fiscal quarter and nine months ended July 31, 2020.
Net sales for the third quarter of fiscal 2020 were $956.5 million compared with $945.2 million for the same period a year ago. For the quarter, the company reported net income of $32.8 million, or $1.48 per share, compared with net income of $53.4 million, or $2.41 per share, for the third quarter of fiscal 2019.
Net sales for the first nine months of fiscal 2020 were $2.62 billion compared with $2.54 billion for the first nine months of fiscal 2019. Net income for the first nine months of fiscal 2020 totaled $0.35 million, or $0.02 per share, compared with net income of $76.2 million, or $3.44 per share, for the first nine months of fiscal 2019.
Results for the nine months ended July 31, 2020, include a net discrete income tax benefit of approximately $38.1 million related to net operating loss carry-back provisions allowed by the Coronavirus Aid, Relief and Economic Security (“CARES”) Act, which became law during the second fiscal quarter of 2020. Excluding this discrete income tax benefit, the company’s net loss for the nine months ended July 31, 2020, was $37.7 million, or $1.72 per share.
“We continue to face challenging and unprecedented times, both socially and economically,” said Joe F. Sanderson, Jr., chairman and chief executive officer of Sanderson Farms. “I am grateful for the dedication and perseverance of our employees, contract poultry producers, customers, vendors, consumers who buy our products, and the communities and states in which we operate. With their support, our facilities have been able to continue producing and delivering safe, high quality and affordable chicken products during this time of great uncertainty. We are also especially thankful for the healthcare professionals and first responders who continue to work tirelessly to protect the health of our nation.
“Protecting the health and safety of our employees has been our top priority from the beginning of the COVID-19 crisis, and it continues to be our top priority today. We continue to regularly communicate and consult with various healthcare professionals to ensure we are doing everything in our power to mitigate the spread of COVID-19 and keep our employees safe. Additionally, our COVID-19 response team continues to meet twice daily to discuss and monitor the effects of the disease on our stakeholders and operations.
“Our financial results for the third quarter of fiscal 2020 reflect extreme market volatility for products sold to food service customers, continued strong demand for products sold to retail grocery store customers, reduced volumes due to planned egg set reductions implemented during the early stages of the pandemic, and lower costs of feed grains. The market volatility for the products sold to our food service customers is a result of governmental actions to contain the spread of COVID-19 by requiring the nation’s restaurants to operate at significantly reduced capacity or to close completely. Additionally, the subsequent phased reopening across the nation and a resurgence of COVID-19 cases in July in certain areas of the country adversely affected our food service business. The increase in COVID-19 cases caused some state governments to roll back certain phases of their reopening, which affected restaurants, bars and other venues where food is consumed away from home. Because many of the nation’s restaurants remain closed or are operating at significantly reduced capacities, consumers continue to prepare more meals at home. As a result, demand for our products sold to retail grocery store customers remained strong throughout the quarter. Lastly, we produced approximately 1.23 billion pounds during the quarter, which is 60.0 million, or 4.7 percent, fewer pounds than we estimated in February, prior to the pandemic’s effects being known. This reduction in volume is attributable to planned egg set reductions implemented to compensate for the decrease in demand from our food service customers.”
According to Sanderson, overall realized prices for chicken products sold to retail grocery store customers remained strong during the third quarter, and volumes reflected the strong demand driven by consumers preparing more meals at home. However, the quoted commodity markets for products sold to food service customers were lower overall, reflecting the reduced demand caused by the widespread closures of venues where food is consumed away from home. While the average quoted market price for boneless breast meat was 3.2 percent higher during the quarter compared with the third quarter of fiscal 2019, the average market price for bulk leg quarters decreased by 39.1 percent, the average market price for chicken breast tenders decreased by 26.8 percent and the average market price for jumbo wings decreased by 13.2 percent.
During the third quarter of fiscal 2020, the company’s average feed costs per pound of poultry processed decreased by 5.6 percent when compared to the third quarter of fiscal 2019, while prices paid for corn and soybean meal, the company’s primary feed ingredients, decreased 9.6 percent and 3.2 percent, respectively, compared with the third quarter of fiscal 2019. In its report published August 12, 2020, the USDA increased its yield estimates for both corn and soybeans for the 2020-2021 crop year. While the USDA increased production estimates, it also increased its previous estimates for feed use and grain exports. However, even if the higher demand is actually realized, the USDA’s current yield and harvest estimates for the United States’ 2020 corn and soybean crops would leave both grains adequately supplied going into fiscal 2021. Had the Company priced its remaining fiscal 2020 feed grain needs at yesterday’s Chicago Board of Trade closing prices, cash paid for feed grains during fiscal 2020 would be lower by $46.8 million compared to fiscal 2019, based on fiscal 2019 volumes. The company estimates those lower prices would lower feed cost per pound of poultry processed during fiscal 2020 by 0.83 cents per pound compared to fiscal 2019.
“With respect to chicken production levels, the USDA’s latest estimates forecast United States broiler production during calendar year 2020 to increase approximately 2.7 percent compared to calendar year 2019,” Sanderson added. “Given our planned reduction in production at our plants that target food service customers in response to the decreased demand caused by the pandemic, we estimate our total production during the fourth quarter of fiscal 2020 will be lower by 5.0 percent compared to the fourth quarter of fiscal 2019. If that projection holds true, our total fiscal 2020 production will be 4.0 percent higher than our fiscal 2019 production.
“Sanderson Farms has taken numerous actions throughout the pandemic focused on protecting the health, safety and welfare of our employees, as well as addressing other operational challenges created by the pandemic. Collectively, these actions have increased our operating costs and negatively affected our volumes, and we expect that those factors will continue for the remainder of fiscal 2020 and until the impact of the pandemic on our operations subside,” Sanderson concluded.