As Pilgrim’s Pride and Tyson Foods bid against one another to acquire Hillshire Brands, the CEO of Sanderson Farms exhibited unflappable resolution during a May 29 earnings conference call to build and grow his company through new plant construction and expansion of existing facilities.
After announcing second fiscal quarter earnings of $2.21 a share, CEO Joe Frank Sanderson Jr. told listeners on the call that his sights are set on building a new big bird deboning plant in the Carolinas and adding another cooking line at the Kinston, North Carolina, plant.
In answer to a question about whether the company would pursue acquisitions once those expansion goals are realized, Sanderson said, “I would never rule that out ... but building [new chicken facilities] works very well for us.”
Palestine, Texas, poultry complex under
Sanderson Farms is mid-stream in the construction of a big bird deboning chicken operation in Palestine, Texas.
“Construction of the chicken processing complex in Palestine, Texas, is on schedule and coming along well. We will have pullets on the ground in a matter of days. Processing operations there are targeted to begin in the first calendar quarter of 2015,” Sanderson said.
CFO Mike Cockrell said during the call that the company expects to spend $175 million on capital projects in fiscal 2014, with $66 million of those expensed through the first half of the year.
The company projects it will spend $110 million on the Palestine complex during the fiscal year.
Possible future expansions being contemplated by the company include a big bird deboning plant in the Carolinas to serve customers in Northeast markets. The company also anticipates adding a cooking line at the Kinston plant.
Sights set on chicken deboning plant in Carolinas
“We will take a look at [the possibility of building the plant in the Carolinas] at the end of this crop year,” Sanderson said.
Saying the company would first evaluate its balance sheet and other factors to support the expansion, Sanderson said, “If we have a site [for the construction] and our board approves, it would be time to build a plant, in my judgment.”
He indicated temporary market factors involving the supply and demand of poultry would not play a role in the timing of the expansion.
“We build a plant for the next 50 years,” he said. “Our decision on this expansion will be based on our balance sheet, having the people in place to manage the expansion and whether we are operating well. It does not matter what we think the poultry supply is going to be.”
Poultry feed costs down, non-feed costs up
Other commentary during the call included the following:
Feed costs accounted for 48.8 percent of the cost of poultry products sold in the second fiscal quarter of 2014 compared to 53.4 percent in the second quarter of the previous year.
Feed cost per pound of fresh chicken processed decreased 7.8 cents per pound in the second quarter, while the price per pound of chicken sold was lower by 3.1 cents per pound.
Based on Chicago Board of Trade futures in May, feed costs for 2014 would be projected to be 5.11 cents lower per pound of chicken processed than a year ago.
At the time of the call, the company had locked in the basis on feed grains (corn and soybeans) only through July.
Non-feed costs were up around 2 cents per pound in recent quarters as a result of increases in grower pay, labor expenses, and the startup of wing deboning operations at the Kinston plant. Those costs trended down some in the second fiscal quarter and may continue to trend down half a cent or so.
Sanderson’s prepared foods division sold 33.3 million pounds of processed chicken through the first half of the fiscal year compared to 22.5 million pounds in the first half of the previous year.