* Q1 EPS $0.75 vs Wall Street view $0.64
* Q1 revenue up 8 pct to $420.1 mln, short of Street view
* Results benefit from lower feed costs
* Trying new rinse to win back chicken sales to Russia
* Shares down 0.7 percent
(Adds analyst and CEO comments, share price)
By Bob Burgdorfer
CHICAGO, Feb 23 Sanderson Farms Inc (SAFM.O)
posted a higher-than-expected quarterly profit as the U.S.
chicken industry recovers, but investor concerns over trade
restrictions from Russia and China weighed on its shares.
Lower feed costs, higher chicken prices and industrywide
production cuts have helped Sanderson and rival poultry
producers, including market leader Tyson Foods Inc (TSN.N).
Earlier this month, Tyson, which also produces beef and
pork, posted a better-than-expected profit for its chicken
business, pushing its shares to their highest level since
But Sanderson shares fell as much as 2.5 percent on Tuesday
amid worries a slowdown in exports could affect future
"Russia is still a big question mark and China is an even
bigger question mark," Paul Aho, economist with Poultry
Perspective, said of export market uncertainties.
Russia, the top export market for U.S. chicken, recently
banned the meat because of a chlorine wash used here. China,
another important market, has applied anti-dumping duties on
"The numbers do not reflect the Russian and China trade
situations," said Allendale Inc analyst Rich Nelson. "Until we
have those two issues worked out, I don't expect these equity
guys to be too excited about poultry."
Sanderson is using a new wash at some plants in the hope of
appeasing Russia's concerns, Chief Executive Joe Sanderson said
on a conference call. The new wash costs about $20,000 a month
extra per plant. [ID:nN23111280]
SEES LOWER FEED COSTS
Laurel, Mississippi-based Sanderson posted net income of
$15.8 million, or 75 cents a share, for the first quarter ended
on Jan. 31, compared with a year-earlier net loss of $6.7
million, or 33 cents a share.
Analysts, on average, expected a profit of 64 cents a
share, according to Thomson Reuters I/B/E/S.
Revenue rose 8 percent to $420.1 million. Analysts had
expected $430.76 million.
JPMorgan analyst Ken Goldman called Sanderson's earnings "a
strong beat" and said in a note that he awaited additional
comments from the company about talks with Russia to restore
Sanderson, like other chicken companies, struggled in the
past two years as it was hit by high feed costs and later by a
global recession that slowed domestic and international sales.
It responded by cutting production and costs.
Now Sanderson and its rivals are restoring some of that
production as they assume a better economy in 2010 will lift
sales. Sanderson is building a new plant in North Carolina that
will be online in 2011.
"Grain prices have come down over recent weeks in reaction
to the USDA's January crop estimates, and we believe our feed
costs for fiscal 2010 will remain below last year's levels,"
CEO Sanderson said in a statement.
The U.S. Agriculture Department forecast that 2010 U.S.
chicken production will be up 1.2 percent from 2009.
However, more of that production may stay in the United
States due to the Russia and China situation. USDA estimates
chicken exports will be down 14 percent this year.
Investors have anticipated improvement in chicken and on
Monday sent Sanderson shares to a 5-1/2 year high of $51.47.
The stock closed at $51.04.
Sanderson shares fell 2.5 percent early on Tuesday, but
later were down 28 cents, or 0.55 percent, at $50.74 in Nasdaq
trading, while Tyson was up 11 cents at $16.75 on the New York
(Reporting by Bob Burgdorfer; editing by Michele Gershberg,
Lisa Von Ahn and Andre Grenon)