* 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 (Reuters) - 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 markets falter.
“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 Reuters I/B/E/S.
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)