SAFM

Sanderson Farms, Inc. (SAFM)

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Industry: Consumer Non-Durables
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Sanderson Farms (SAFM)

Q1 2013 Earnings Call

February 21, 2013 11:00 am ET

Executives

Joe F. Sanderson - Chairman and Chief Executive Officer

D. Michael Cockrell - Chief Financial Officer, Treasurer and Director

Lampkin Butts - President, Chief Operating Officer and Director

Analysts

Farha Aslam - Stephens Inc., Research Division

Heather L. Jones - BB&T Capital Markets, Research Division

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Christine McCracken - Cleveland Research Company

Andrew Strelzik

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Katya Voronchuk - Sidoti & Company, LLC

Presentation

Operator

Good day, and welcome to the Sanderson Farms Incorporated First Quarter Fiscal 2013 Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Joe Sanderson. Please go ahead, sir.

Joe F. Sanderson

Thank you. Good morning, and welcome to Sanderson Farms first quarter conference call. We issued a news release this morning, announcing a net loss of $6.9 million or $0.31 per share for our first quarter fiscal 2013. This compares to a net loss of $8 million or $0.36 per share for our first quarter of fiscal 2012.

I'll begin the call with comments about general market conditions, grain cost and production decisions, and then turn the call over to Lampkin and Mike for a more detailed account of the quarter.

Before we make any further comments, I'll ask Mike to give the cautionary statement regarding forward-looking statements.

D. Michael Cockrell

Thank you, Joe, and good morning to everyone. This morning's call will contain forward-looking statements about the business, financial conditions and prospects of the company. Examples of forward-looking statements include statements regarding the supply and demand factors, future grain and chicken market prices, economic conditions in production levels. The actual performance of the company could differ materially from that indicated by the 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 on the company's quarterly report on Form 10-Q, filed with the SEC this morning, in connection with our first fiscal quarter ended January 31, 2013.

Joe F. Sanderson

Thank you, Mike. As was the case during last year's first fiscal quarter, our financial results for the first fiscal quarter reflect continuing -- continued challenging, but somewhat improving market conditions. Conditions improved steadily through the quarter, and the company was profitable in January. While demand from retail grocery store customers has remained stable, and that stability is reflected in the record high Georgia Dock whole bird price, those service demand remains weak. Our grain costs peak with flocks sold in November and had leveled off and even come down slightly since.

While overall market prices for chicken were higher during the quarter than last year, the same is true for the market prices for both corn and soybean meal. Grain prices have stabilized below the highs set last August, but they remained high relative to historical averages.

Optimism regarding the size and quality of South America's crops has helped somewhat, but weather concerns will keep pressure on both corn and soy prices. And tight supplies will likely support relatively high grain prices, at least, until the market gets some visibility on the quantity and quality of the 2013 crops in the U.S.

Most everyone, who follows the grain market will now turn their attention to the March supply and demand report, and more importantly, the March 28 planning intentions report. Many expect the record number of acres to be planted this spring, with some predicting as many as 99 million acres of corn. The bottom line is we need these acres, and we need a good crop.

Even if we get adequate acres in the March 28 planning intentions report, those acres must still get planted, and there's little margin of error with weather as we head through the growing season. We have had 3 below-average years in a row in yields. And given record demand for grain, we need a good crop year.

Because of the tightness in supply, the market will most likely exaggerate its reaction to any real or perceived weather threat as we move into the planning and growing season.

We have priced most all of our corn needs through March, and about 50% of our needs for each of April and May. We have also priced all of our soybean meal needs through March, but have none priced past then. We have no grain priced past May.

Based on our cost through the first quarter, what we have priced so far and what prices we could lock in for the balance of the year, our grain cost for fiscal 2013, including the cost of additional volume, would be $94.7 million more than during 2012. This increase from fiscal 2012 would translate into $0.225 per pound increase and our cost per processed pound.

While grain costs will remain high, the company and the industry can still earn good margins if chicken prices moves sufficiently higher to allow us to offset these higher costs. Exit numbers relative to a year ago were lower through fiscal 2012, but have started moving a bit higher than a year ago. Despite slightly higher production, however, market prices have been steady or rising. That certainly indicates that demand has improved somewhat.

While retail demand is better, however, demand at food service is still weak. I said on every conference call the past 2 years that I continue to believe we won't see a meaningful increase in food service demand until employment in the United States moderates and Americans get their jobs back in significant numbers. I still believe that.

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