Sanderson Farms reports fiscal Q2 net loss of US$16.3M, versus net income of US$35.1M a year ago, on overall lower average sales prices of chicken, 41.3% increase in feed costs; net sales down 1.6% to US$479.3M

Kendall Sinclair

LAUREL, Mississippi , May 24, 2011 (press release) – Sanderson Farms, Inc. (NASDAQ:SAFM - News) today reported results for its second fiscal quarter and six months ended April 30, 2011.

Net sales for the second quarter of fiscal 2011 were $479.3 million compared with $487.1 million for the same period a year ago. For the quarter, the net loss was $16.3 million, or $0.74 per share, compared with net income of $35.1 million, or $1.62 per share, for the second quarter of fiscal 2010. The Company’s results for the second quarter of fiscal 2011 include a charge of $6.0 million, before income taxes, to reduce the value of live inventory from cost to market. Excluding this adjustment, the net loss for the second quarter of fiscal 2011 was $12.3 million, or $0.56 per share.

Net sales for the first six months of fiscal 2011 were $907.1 million compared with $907.2 million for the same period of fiscal 2010. The net loss for the first half of the year totaled $49.8 million, or $2.25 per share, compared with net income of $50.9 million, or $2.39 per share, for the first six months of last year.

“The results for our second quarter of fiscal 2011 reflect current market conditions and the overall economic environment," said Joe F. Sanderson, Jr., chairman and chief executive officer of Sanderson Farms, Inc. “Despite slightly higher volume as a result of our new North Carolina facility, our net sales were down 1.6% percent compared with the second quarter of fiscal 2010 reflecting overall lower average sales prices of chicken. Retail grocery store demand for chicken has remained strong. Export demand improved during the second quarter compared with the same period last year when U.S. poultry meat was banned from Russia. Demand from our food service customers has remained weak, and we expect this trend will continue with rising gas prices and high unemployment keeping consumers from dining away from home.

“Our profitability for the second quarter was also adversely affected by the significant increase in our feed costs. Feed costs in flocks sold increased 41.3% compared to last year’s second fiscal quarter, and we expect grain prices to remain high and volatile for at least the rest of this year, as there is no margin for error with the 2011 grain crop. While market conditions remain challenging, our operating performance during the second quarter was solid, and we are pleased with the performance of our growers, managers and employees,” added Sanderson.

According to Sanderson, market prices for poultry products were mixed, but lower overall, during the second quarter of fiscal 2011 compared with the same quarter a year ago. As measured by a simple average of the Georgia dock price for whole chickens, prices increased approximately 2.0 percent in the Company's second fiscal quarter compared with the same period in 2010. Bulk leg quarter market prices were 17.7 percent higher compared with last year's second quarter, primarily due to the resumption of export volume to Russia. Boneless breast meat prices during the second quarter were 10.6 percent lower than the prior year period. Jumbo wing prices have remained very weak and were down 45.5 percent for the second quarter of 2011 compared with the same period last year. Prices paid for corn and soybean meal, the Company’s primary feed ingredients, increased 82.3 percent and 27.4 percent, respectively, compared with the second quarter of fiscal 2010.

The Company records the value of its inventory of live birds at the lower of cost or market value. When market conditions are favorable, the Company values its live broiler inventory on hand at cost, and accumulates costs as the birds are grown to a marketable age subsequent to the balance sheet date. Because market prices for corn and soybean meal have increased substantially, the projected cost to complete, process and sell broilers included in live inventory at April 30, 2011, is expected to exceed the market value of the finished product. As a result, inventories of live poultry on hand at April 30, 2011, were reported at market value, resulting in an adjustment of $6.0 million, before income taxes.

Sanderson added, “We are pleased with the continued progress at our Kinston, North Carolina, facility. We began processing chickens in January and this plant is now operating at about 25 percent capacity. We expect to meet our scheduled production goal to reach full capacity in January 2012.

“Looking ahead, we will continue to closely monitor the chicken markets and production levels as we head into the summer months and what is typically a period of better demand for chicken. Broiler egg sets ran slightly higher than a year ago until two weeks ago. Egg sets for the past two weeks have been below a year ago and remain below historical averages. With the current economic conditions affecting consumer behavior, we expect to see continued weakness in food service demand. We are mindful of these cycles that characterize our industry and remain confident in our ability to execute our strategy, regardless of market conditions. Above all, we remain focused on operating at the top of our industry and delivering long-term value for our shareholders.”

Sanderson Farms will hold a conference call to discuss this press release today, May 24, 2011, at 10:00 a.m. Central, 11:00 a.m. Eastern. Investors will have the opportunity to listen to a live Internet broadcast of the conference call through the Company's Web site at www.sandersonfarms.com or through www.earnings.com. To listen to the live call, please go to the Web site at least 15 minutes early to register, download, and install any necessary audio software. For those who cannot listen to the live broadcast, an Internet replay will be available shortly after the call and continue through June 24, 2011. Those without Internet access may listen and participate in the call by dialing 888-211-9937, confirmation code 7310367.

Sanderson Farms, Inc. is engaged in the production, processing, marketing and distribution of fresh and frozen chicken and other prepared chicken items. Its shares trade on the NASDAQ Global Select Market under the symbol SAFM.

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