Sanderson Farms CEO: Ethanol demand raises costs
Sanderson Farms, Inc. (Nasdaq: SAFM) CEO Joe Sanderson said ethanol demand will keep the grain market “high and volatile.” The chief executive said grain costs will add about $0.02 per pound to the poultry processor’s cost of producing a pound of dress chicken. Sanderson made the comments during a midday conference call.
“In order to offset this cost, the chicken market must move in tandem with this cost. While I have confidence that the fundamental rules of supply and demand in economics will work to maintain industry profitability over the long term, we recognize that short-term swings are inevitable,” Sanderson said. “However, we will manage our company as we always do, which is the same goal regardless of where we are in the chicken cycle.”
Before the opening, Sanderson Farms reported fourth-quarter net sales of $426.9 million, below analyst estimates of $429.2 million. Last year, Sanderson Farm’s fourth-quarter net sales totaled $291.7 million.
The firm’s net income for the three months ended Oct. 31 rose 126% to $24 million, or $1.18 per share, below Wall Street projections of $1.71 per share. Sanderson Farm’s fourth-quarter net income totaled $10.5 million, or $0.52 per share, a year earlier.
The company’s new Waco, Texas, facility began processing chicken during the fourth quarter.
An analyst on the call asked what Sanderson Farms plans to do with cash flow in 2008, since it “looks like [Sanderson will] have a fair amount if prices stay solid.” The chief executive said the company has several financial models worked out and it will depend on the circumstances, but that the normal options — pay down debt or buy back stock — will be available.
“It’s a very important part of our job to continue to grow the company,” Sanderson said. “It’s the main lever we have to increase earnings per share and we are not going to let the balance sheet sit idle.”
In midday trading, SAFM shares are up 8.13%, or $2.52, at $33.50. Over the last 52 weeks, shares have ranged from $27.81 to $47.93.
