SAFM

Sanderson Farms, Inc. (SAFM)

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Sanderson Farms (SAFM)

Q2 2013 Earnings Call

May 30, 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

Robert Sloan

Analysts

Farha Aslam - Stephens Inc., Research Division

Christine McCracken - Cleveland Research Company

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

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

Kenneth B. Zaslow - BMO Capital Markets U.S.

Presentation

Operator

Good day, and welcome to the Sanderson Farms Inc.'s Second 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 Second Quarter Conference Call. We issued a news release this morning announcing net income of $24.4 million or $1.06 per share for our second fiscal quarter of 2013. This compares to net income of $23.9 million or $1.04 per share during last year's second quarter.

I'll begin the call with some general observations, but before I do, I'll ask Mike to give the cautionary statement regarding forward-looking statements.

D. Michael Cockrell

Thank you, Joe, and good morning, everyone.

This morning's call will contain forward-looking statements about the business, financial condition and prospects of the company. 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, in the company's quarterly report on Form 10-Q filed this morning with the SEC in connection with our second fiscal quarter and in the press release we published this morning.

You are cautioned not to place undue reliance on the forward-looking statements made this morning, and each such statement speaks only as of today. We undertake no obligation to update or revise our forward-looking statements. External factors affecting our business such as feed grain cost, market prices for poultry meat, and the health of the economy, among others, remain volatile, and our view today might be very different from our view a few days from now.

Joe F. Sanderson

Thank you, Mike.

Improving poultry markets and continued high grain cost drove our results during our second fiscal quarter.

Our sales volume of fresh chicken was down by 3.8% compared to last spring's volume and reflected the fact that while our Kinston, North Carolina facility operated near full production during this year's second fiscal quarter and was still moving in that direction last year, the increased production at Kinston was more than offset by the 6% production cut at all our plants that we announced last fall.

Our feed cost per pound of fresh chicken processed increased more than $0.05 per pound during the quarter compared to last year's second quarter, and our feed cost remains significantly higher than historical averages.

On the other hand, our net sales price per pound of fresh chicken sold was higher by $0.065 per pound during this year's second fiscal quarter when compared to last year's.

Market prices reflect improved demand for chicken products as demand has remained relatively strong in retail grocery store and export markets. Demand at food service has improved as a result of several new chicken items on quick serve, menus and chicken promotions at casual dining restaurants and as chicken competes with relatively high-priced beef. I will hasten to add that customer traffic at food service remains challenged by macroeconomic conditions, but demand for chicken products has improved.

Overall market prices for fresh chicken were higher during the quarter. The average Georgia Dock price was 9.9% higher during the quarter than last year, reflecting continued strong retail demand. While year-to-date overall industry export volume is down slightly from last year, export demand during the quarter was better, and that strength is reflected in late quarter market prices.

Prices for boneless breast meat increased 14.2%. On the other hand, wing prices, after spending much of January and February in record territory, fell seasonally after March Madness.

Prices paid per bushel of corn and per ton of soybean meal were higher during the quarter compared to last year's second fiscal quarter, but were lower than during our first fiscal quarter this year. Likewise, our feed cost and flocks processed, while higher than last year, were lower than our first quarter.

While the 97.3 million acres of corn the USDA initially expected to be planted in the U.S. this spring would be a near record number of acres, it now appears not all of those acres will get planted. Planting progress reports indicate that weather has caused near record low planting progress, although significant progress has been made over the second half of May. Approximately 86% of this year's corn acres were planted through last week compared to a 90% historical average. And 44% of this year's soybeans were in the ground as of last week compared to a 61% average.

Despite the late plant, U.S. farmers could still harvest an excellent crop, which could result in lower grain cost after the harvest. But all crop, corn and soy supplies remain very tight. While our cost per grain this summer will be higher than last year's, we have priced our needs through July at levels that will allow us to reduce our grain cost per pound each successive month through July.

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