Sanderson Farms May Be Profitable in Six Months, CEO Says

Sanderson Farms Inc., the fourth-largest U.S. chicken processor, said it may return to a profit in six months after the company today posted a wider-than-expected loss in the fiscal third quarter.

“Chicken prices will rise as a result of reduced production in our industry,” helping the company’s profitability, Chief Executive Officer Joe Sanderson Jr. said today in a telephone interview. The Laurel, Mississippi-based company plans to cut production by 4 percent starting at the end of this year and into 2012, he said on a conference call with analysts earlier today.

The net loss was $55.7 million, or $2.51 a share, in the three months through July compared with net income of $36.1 million, or $1.55, a year earlier, Sanderson said in a statement. The loss excluding a 65-cent inventory-adjustment charge was $1.86 a share, wider than the average estimate for a 91-cent loss from 10 analysts surveyed by Bloomberg.

U.S. chicken processors lost on average 12 cents a pound in August, compared with a 14-cent-per-pound loss in July, according to estimates from Stephens Inc. Chicken producers have been facing higher costs for corn and soybean-meal feed and lower prices for items such as chicken breasts amid high U.S. unemployment, the company said in the statement.

Cash prices for corn delivered to the company rose 85 percent from a year earlier while soybean meal increased 26 percent, the company said.

‘Nadir in July’

“The poultry industry’s profits hit a nadir in July and are beginning to bounce,” Farha Aslam, a New York-based analyst for Stephens, said in a report today. “We believe that it will take six months for profits to recover.” Aslam raised her rating on Sanderson shares to “overweight” from “equal-weight” and boosted her price target to $48 from $45.

Sanderson Farms fell 92 cents, or 2.3 percent, to $39.42 at 4:29 p.m. in Nasdaq Stock Market trading. The shares have declined 9.7 percent in the past 12 months.

U.S. chicken production should be down at least 3 percent in August, a level of cuts not seen since October 2009, Jeff Farmer, a Boston-based analyst for Jefferies & Co. who rates the shares “buy,” said in a report today. Prices on the Urner Barry chicken price index, a measure tracked by the industry, have jumped 9 percent in the past three weeks as a result, he said.

Supply Cuts

Improved profitability will come from supply cuts rather than rising demand, the CEO said.

“We don’t see a significant improvement in demand until unemployment improves, and we don’t see anything on the horizon where that is going to improve,” Sanderson said.

The company is putting proposed plans to build a second chicken plant in North Carolina on hold “indefinitely” and may delay the project until the next corn harvest in the fall of 2012, Sanderson said. The company recently opened a new plant in Kinston, North Carolina.

“I am disappointed that we have to wait,” Sanderson said. “It will be when we return to profitability first, and we pay down some of our debt and the U.S. makes a good corn crop and the price of input costs, corn and soybean meal, comes down.”

Tyson Foods Inc. was the largest U.S. chicken processor last year, followed by JBS SA’s Pilgrim’s Pride Corp. and closely held Perdue Inc., according to WATT PoultryUSA, an industry publication.

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