Sanderson Cuts Chicken Output Estimate on Grocery Shift

28 May 2020, 07:55 PM IST

(Bloomberg) -- Sanderson Farms Inc. lowered its expectation for poultry production as one of the top U.S. growers adjusts to shifting consumer behavior in the pandemic.

“Unprecedented social and economic impact of the virus and the related government actions to contain its spread materially affected every aspect of our business, including our labor force, sales, operations and production levels, as well as our customers,” Chief Executive Officer Joe Sanderson said in a statement Thursday.

Sanderson Farms hasn’t seen significant Covid-19 outbreaks or plant shutdowns, although it has slowed processing due to absenteeism. The company has also been upping output at plants that serve grocery stores, though some restaurant-related demand is being restored. It should benefit from a tighter domestic chicken market, Stephens Inc. analyst Ben Bienvenu said in a report.

Key Insights

Poultry producers have cut output due to labor constraints as well as poor food-service demand in the pandemic. It’s unclear whether plants will be able to fully staff facilities in 3Q, Sanderson has said.
Food-service demand came back to about two-thirds of normal in mid-May for Sanderson.
The company said chicken breast prices were volatile in the quarter, dropping at one point to a historic low.
Sanderson expects prices paid for feed to be lower in the second half, compared to a year ago.
Expects to produce 5.9% fewer pounds in 3Q compared with February outlook, as it reduces production at plants that process larger birds for food-service customers.
On the earnings call to discuss results with management, investors will be looking for updates on domestic supply and demand, exports and virus-related impacts.

Market Reaction

Sanderson, down 20% this year, traded lower before the start of regular trading Thursday.

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Second-quarter earnings were 28 cents a share compared with the average analyst estimate for a $1.34 loss and profit of $1.83 a year ago. The beat was due to one-time tax benefit.
“Clearly performance is being hindered by COVID-19 more than consensus expected,” said JPMorgan Chase & Co. analyst Ken Goldman in a note.
Click here for the earnings statement.
Conference call 11 a.m. ET.