SAFM

Sanderson Farms, Inc. (SAFM)

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Sanderson Farms, Inc. (SAFM)

F4Q08 Earnings Call

December 4, 2008 11:00 am ET

Executives

Joe F. Sanderson, Jr. – Chief Executive Officer

D. Michael Cockrell – Chief Financial Officer

Lampkin Butts – President and Chief Operating Officer

Analysts

Farha Aslam - Stephens Inc.

Ken Goldman - JP Morgan

Christina McGlone - Deutsche Bank

Kenneth Zaslow - BMO Capital Markets

Heather Jones - BB&T Capital Markets

Christine McCracken - Cleveland Research Company

Christopher Bledsoe - Barclays Capital

Presentation

Operator

Welcome to the Sanderson Farms, Inc. fourth quarter 2008 conference call. Today’s call is being recorded. At this time for opening remarks and introductions, I would like to turn the conference over to Joe Sanderson.

Joe F. Sanderson, Jr.

Good morning and welcome to Sanderson Farms’ fourth quarter and year end conference call. Lampkin Butts and Mike Cockrell are with me this morning. We issued a news release this morning announcing a net loss of $51.9 million, or $2.56 per fully diluted share, for our fourth fiscal quarter of 2008. During the fourth quarter of fiscal 2007 we earned $24.1 million, or $1.18 per diluted share. The $51.9 million net loss during the fourth quarter included an adjustment of $29.7 million net of income taxes, or $1.46 per share, to our live and processed inventories to reflect those inventories at the lower of cost of market. Mike will discuss that adjustment in detail in a moment

For the year ended October 31, 2008, we reported a net loss of $43.1 million, or $2.13 per diluted share. The year-end numbers also include the effect of the inventory adjustment. For 2007 we reported net income of $78.8 million, or $3.88 per diluted share.

Each of you should have received a copy of the release and accompanying financial summary. If you did not, they are available on our website at www.sandersonfarms.com.

I will begin the call with brief comments about the year and then turn the call over to Lampkin and Mike for a detailed account of the operating and financial results. After their remarks I will come back to discuss feed grain prices and our outlook for fiscal 2009 before opening the call for your questions. Before we make any further comments, I would like to ask Mike to give the cautionary statement regarding forward-looking statements.

D. Michael Cockrell

Before we begin the call this morning we need to caution you that the call will contain forward-looking statements about the business, financial condition, and prospects of the company. All forward-looking statements are based on management’s current expectations and beliefs as well as assumptions made by, and information currently available to, management. The actual performance of the company could differ materially from that indicated by forward-looking statements because of various risks and uncertainties. These risks and uncertainties are described in our most recent annual report on Form 10-K and in the company’s most recently filed quarterly report on Form 10-Q. We expect to file our annual report on Form 10-K for the year ended October 31, 2008, with the SEC on or before December 19, 2008.

Joe F. Sanderson, Jr.

While the Georgia dock and leg quarter prices were higher for the year, the overall chicken markets were lower during our fourth fiscal quarter when compared to the fourth quarter of last year and market conditions were less favorable during the quarter than during the third quarter of this fiscal year.

Feed grain prices, which I will discuss in more detail in a few minutes, provided significant headwinds throughout the year. Despite the deteriorating market conditions versus a year ago, our net sales for the full year were $1.7 billion, an increase of 17% compared to fiscal 2007. Our increased sales primarily reflect our growth in Waco.

Mike will explain the significant inventory adjustment that contributed to our net loss in a few moments, but first I will turn the call over to Lampkin for a discussion of our operations.

Lampkin Butts

As Joe mentioned, market prices for poultry products were mixed during our fourth quarter when compared to our fourth quarter last year, but overall prices were considerably lower. The average Georgia dock price during our fourth quarter was approximately 9% higher than last year’s fourth quarter, averaging $0.881 for the quarter.

For the year, the Georgia dock averaged $0.83 per pound, which represented an 8% increase over the $0.767 per pound averaged during fiscal 2007. The Georgia dock price is currently $0.87 per pound.

As many of you know, the Georgia dock price is a good indicator of the supply and demand dynamics for products sold at retail. While the spot market prices for products produced at our big-bird plants have been under significant pressure, the balance of supply and retail demand has been much better. This balance is reflected in the improvement in the Georgia dock price during 2008.

Bulk leg quarter prices increased approximately 17% for the quarter compared to last year’s fourth quarter and increased approximately 12% for the year. Leg quarters averaged $0.524 per pound during the fourth quarter and $0.464 per pound for the year, but the current Urner Barry quote is $0.27 per pound.

The deterioration in leg quarter prices over the past month and a half reflects the impact of current economic conditions around the world on our export customers. Credit issues are impacting our customers in Russia and other former Soviet Union countries, making it difficult for them to obtain the credit needed to buy our products.

Read the rest of this transcript for free on seekingalpha.com