SAFM

Sanderson Farms, Inc. (SAFM)

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Sanderson Farms Inc. (SAFM)

F4Q09 Earnings Call

December 8, 2009 11:00 am ET

Executives

Joe Sanderson – Chairman, Chief Executive Officer

Michael Cockrell – Chief Financial Officer

Lampkin Butts – Chief Operating Officer

Analysts

Farha Aslam – Stephens Inc.

Christina McGlone – Duetsche Bank

Christine McCracken – Cleveland Research

Akshay Jagdale – Keybanc Capital Markets

Kenneth Zaslow – BMO Capital Markets

[Steven Cher – Lithgo Research]

Ken Goldman – J.P. Morgan

Jeff Kanter – UBS

Heather Jones – BB&T Capital Markets

Presentation

Operator

Welcome to the Sanderson Farms Incorporated fourth quarter 2009 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.

Joe Sanderson

Good morning and welcome to Sanderson Farm’s fourth quarter and year end conference call. This morning we reported net income of $19.8 million or $0.96 per fully diluted share for our fourth fiscal quarter of 2009. During the fourth quarter of last year, we lost $51.9 million or $2.56 per diluted share.

Last year’s $51.9 million net loss 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 or market. No such adjustment is present in this year’s results.

For the year ended October 31, 2009 we reported net income of $82.3 million or $3.99 per diluted share. For fiscal 2008 we reported a net loss of $43.9 million or $2.13 per diluted share which numbers also reflect the inventory adjustment.

If you did not receive a copy of the release and accompanying financial summary, they are available on our website at www.sandersonfarms.com. Before we continue I will ask Mike to give the cautionary statement regarding forward-looking statements.

Michael Cockrell

Good morning everyone. This morning’s call will contain forward-looking statements about the business, financial condition and prospects of the company. 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 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, 2009 with the SEC on or before December 22, 2009.

All forward-looking statements speak only as of today and are based on our current expectations, beliefs and assumptions which could change quickly based on many external factors affecting our business. We of course undertake no obligation to update or revise our forward-looking statements.

Joe Sanderson

While the chicken market was mixed during our fourth fiscal quarter compared to last year’s fourth quarter, the markets were less favorable across the board during the quarter when compared to the third quarter of this fiscal year. However, feed grain prices were also lower during the quarter compared to last year resulting in improved margins compared to last year.

Our net sales for the full year were $1.789 million, an increase of 3.8% compared to fiscal 2008. Our increased sales reflect our growth in Wico offset by our production cuts during the year. Fiscal 2009 was a successful year for Sanderson Farms. We returned to profitability during our second fiscal quarter, reported our largest ever quarterly earnings during our third fiscal quarter and remained profitable during our fourth quarter’s quite challenging market conditions.

I’m proud that we put our Kingston, North Carolina project back on track and am pleased to report that the project is moving forward on schedule. We will place our first pullets in North Carolina in April 2010 and look forward to beginning operations there in January of 2011.

Our success during fiscal 2009 allowed us to pay down a significant amount of debt and there were actually a few weeks during the fourth quarter when the outstanding balance on our revolver was zero. We ended the year with a debt/cap ratio under 20% while return on average equity was 212%.

I’m very proud of the manager’s, employees and growers at Sanderson Farms who are responsible for this success. I’m also proud of our strong balance sheet primarily because its strength allows us the flexibility to meet our obligations to our shareholders; that is, we fully recognize our obligation to find ways to increase the value of our shareholders investment in Sanderson Farms and our balance sheet has allowed us to move forward the Kingston project to do just that.

I also fully believe that our balance sheet strength is a strategic asset in our cyclical business. I’ll now ask Lampkin and Mike to provide details on the quarter and will return to discuss grain and answer your questions when they finish.

Lampkin Butts

Good morning everyone. I’m struggling a bit with my voice this morning. I’ll ask your indulgence and apologize.

Overall market conditions were improved when compared to our fourth quarter last year, but market prices were considerably lower than during our third quarter and mixed when compared to last year’s fourth quarter.

The average price for the Georgia Dock during our fourth quarter was approximately 3.38% lower than last year’s fourth quarter, averaging $0.847 for the quarter. For the year, the Georgia Dock averaged $0.865 per pound which represented approximately a 4% increase over the $0.83 per pound average during fiscal 2008.

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