Sanderson Farms, Inc. (SAFM)

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Sanderson Farms, Inc. (SAFM)

F3Q09 Earnings Call

August 25, 2009; 11.00 am ET


Joe Sanderson - Chief Executive Officer

Mike Cockrell - Chief Financial Officer

Lampkin Butts - President & Chief Operating Officer


Christina McGlone - Deutsche Bank

Farha Aslam - Stephens Inc.

Brett Hundley - BB&T Capital Markets

Christine McCracken - Cleveland Research

Ken Goldman - JP Morgan

[Steven Cher] - Wisco Research

Ken Zaslow - BMO

Akshay Jagdale - Keybanc Capital Markets



Good day, ladies and gentlemen, welcome to the Sanderson Farms Inc. third quarter 2009 conference call. Today’s call is being recorded and now at this time for opening remarks and introductions.

I would like to turn the conference over to Mr. Joe Sanderson. Please go ahead, sir.

Joe Sanderson

Thank you. Good morning and welcome to Sanderson Farms third quarter conference call. Lampkin Butts and Mike Cockrell are with me this morning. We reported today for our third fiscal quarter net earnings of $43 million or $2.09 per share. This compares to a net loss of $3.6 million or $0.18 per share during last year’s third quarter.

I will begin this morning’s call with a few general comments and we’ll then turn the call over to Lampkin and Mike for more details. Before making any further comments, I will ask Mike to give the cautionary statement regarding forward-looking statements.

Mike 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 and in the company’s Quarterly Report on Form 10-Q, which was filed with the SEC this morning for the third fiscal quarter ended July 31, 2009. You are cautioned not to place undue reliance on any forward-looking statement made this morning, as each statement speaks only as of today.

We undertake no obligation to update or to revise forward-looking statements. External factors affecting our business such as grain cost, market prices for poultry meat and the overall health of the economy, among others over which we have no control, have been more volatile than usual over the past year and our view this morning maybe very different from our view a few days from now.

Joe Sanderson

Thank you, Mike. Our results reflect improved market conditions during our third fiscal quarter, when compared to the third quarter of last year. Market prices improved seasonally during the quarter and our costs for corn and soybean meal were lower than during last year’s third quarter. We continued to operate well during the quarter and I thank everyone associated with Sanderson Farms for their focus on our operations.

That focus on our operations and attention to detail, together with a conservatively managed balance sheet, have put us in a position to again significantly grow this company and add value for our shareholders. Overall the market prices for fresh chicken improved during the quarter, compared last year’s third quarter, but I continue to believe the improvement has more to do with production cuts than demand improvement.

Retail grocery store demand remains strong, resulting in a higher Georgia Dock in last year. Exports as well as domestic demand for dark meat supported leg quarter prices during the first part of the current quarter at levels ahead of the past two quarters. Market prices for boneless breast meat were better than during last year’s third quarter, but softened toward the end of the quarter on continued weak food service demand.

While market prices for both corn and soybean meal have remained volatile, they were lower during the quarter than during last year’s third fiscal quarter and were slightly higher than during our second fiscal quarter of this year. We expect feed cost to remain below a year ago for the rest of this year. The USDA August crop report indicated there should be an adequate supply of corn next year and that the record number of soybean acres should produce a harvest that should help prepare the soybean balance sheet.

All of indications or this year’s corn and soybean crops will be adequate and that significant progress should be made replenishing depleted soybean stocks, market volatility will continue US concerns grow for an early frost and yield issues. This is particularly true for soybeans as old crop suppliers remain tight and the expected large crop is needed.

Despite about the grain markets this year, our feed ingredient costs will end the year significantly lower than last year. Based on what we had priced the rest of our needs through the end of the fiscal year at yesterday’s closing prices on the Chicago Board of Trade, our feed ingredient cost would be approximately a $118 million, lower this fiscal year than last year. This lower cost would translate to a decrease in cost per dressed pound of poultry of $0.047 for the year.

For the fourth quarter, feed costs will be $45 million lower than last year’s fourth quarter, if we priced all our needs today, which would lower cost by $0.069 per pound. It is too early to predict costs for fiscal 2010, but we will be carefully watching the markets for opportunities to begin pricing a portion of next year’s grain at lower cost. We will report our progress on our December call.

The chicken markets are no easier to predict than the grain markets. While egg sets have remained below a year ago, and we are heading into the fall with fewer chickens on the market, we are also heading into the fall and the seasonal reduction in chicken demand with weak demand at most food service establishments.

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