February 23, 2010 / 12:00 PM / 8 years ago

UPDATE 4-Sanderson profit beats, but exports a concern

* 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 (Reuters) - 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 August 2008.

But Sanderson shares fell as much as 2.5 percent on Tuesday amid worries a slowdown in exports could affect future results.

“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 U.S. chicken.

“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]


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 chicken trade.

    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 Stock Exchange. (Reporting by Bob Burgdorfer; editing by Michele Gershberg, Lisa Von Ahn and Andre Grenon)

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