* Q2 EPS $1.62 vs Street view $1.44
* Net sales up 14 pct, below expectations
* Supermarket sales strong, food service soft
* Shares fall along with sharp drop in broader market
(Adds company comments, updates share price)
By Bob Burgdorfer
CHICAGO, May 25 Sanderson Farms Inc (SAFM.O)
posted a quarterly profit that beat expectations, but shares of
the chicken producer fell 4 percent as steep declines in the
broader market raised new fears about consumer sentiment.
Sanderson, which is building two new plants, said it was
cautiously optimistic about demand as it heads into summer.
"Demand for chicken at retail grocery stores remains strong
and the ongoing issues we and our industry face in export
markets have not yet significantly disrupted the markets,"
Chief Executive Joe Sanderson said in a statement.
However, it forecast ongoing slow sales to restaurants and
other food service clients due to the weak economy.
Russia, once the top export market for chicken, has banned
U.S. chicken, while China has slapped duties on it. The United
States and Russia have reached a settlement on chicken, but
sales have not resumed so far.
Russia banned U.S. chicken because a chlorine wash used
here violates its food safety policy, while China applied
anti-dumping duties on the chicken, claiming it was being sold
there below cost.
During a conference call with Wall Street analysts, company
officials speculated that U.S. chicken could be going into
Russia from neighboring countries.
Economist Paul Aho said the chicken industry appears poised
to have a profitable year, even with renewed concerns over a
consumer recovery as unemployment remains high and European
"Grain prices are going to stay relatively low and chicken
prices will be seasonally high this summer. Everything looks
good for this calendar year for the chicken industry," said
Aho, an economist for Poultry Perspective.
Sanderson officials on the call estimated the company's
feed costs could be down $13 million to $14 million this fiscal
year from the previous one.
For the second quarter ended April 30, Sanderson reported
net income of $35.1 million, or $1.62 a share, up 34 percent
from $26.2 million, or $1.25 a share, a year earlier.
Net sales at the Laurel, Mississippi-based company rose 14
percent to $487.1 million.
Analysts on average were expecting earnings of $1.44 a
share on revenue of $489.5 million, according to Thomson
Earlier this month, chicken producer Pilgrim's Pride Corp
PPC.N said it was trying to recover business that shifted to
other suppliers as it moved through bankruptcy.
"We wonder whether Sanderson took market share from
competitors that recently reported difficulties in securing new
business," JP Morgan analyst Ken Goldman said in a note.
Sanderson is building a new plant in Kinston, North
Carolina, and plans another one in Goldsboro, North Carolina,
and the two will add a combined 30 percent in production, with
much of that product going to East Coast markets.
Sanderson shares fell $1.79, or 3.3 percent, to $52.03 on
Nasdaq early Tuesday afternoon. Through Monday, the stock was
up 28 percent this year.
(Reporting by Bob Burgdorfer; Additional reporting by Shradhha
Sharma in Bangalore; Editing by Vinu Pilakkott, John Wallace,
Matthew Lewis and Richard Chang)