Sanderson Farms: A Year For The Birds

Poultry producer faces a challenging year ahead as it fights bird-flu scares and recovers from hurricane-related damages.

What a year 2005 was for Laurel, Miss.-based poultry producer Sanderson Farms Inc. As if losing $7.9 million from Hurricane Katrina-related damages wasn't enough, the company must now contend with an avian flu scare that continues to make news headlines and threaten the nation's poultry industry.

Katrina's impact on Sanderson Farms -- one of IndustryWeek's IW 50 Best Manufacturing Companies for 2005 -- was reflected in a 4% drop in total sales for the fiscal fourth quarter, which ended Oct. 31, 2005. Net sales for the fourth quarter of 2005 were $249.1 million compared with $259.2 million for the same period in 2004.

Despite initial reports by Sanderson Farms CEO Joe Sanderson Jr. that the company experienced no 'significant damage' from Katrina, 72 of the company's 1,874 broiler houses in Mississippi were destroyed and another 86 incurred significant damage. Two of the company's 187 breeder houses in Mississippi were in ruins or heavily damaged and two of the company's 100 pullet houses were beyond repair or severely damaged, according to a Sept. 6 company statement. As a result of those losses, the company estimates that 3 million of its estimated 35 million chickens were killed.

Adding to Sanderson Farm's woes is the much-publicized bird flu. The bug actually could boost U.S. poultry sales if it decimates Asian stocks, but if the virus reaches the U.S., Sanderson and other U.S. poultry producers could suffer, reports The Motley Fool in a Jan. 1 analysis published by MSNBC.

Sanderson Farms Inc.
At A Glance


Sanderson Farms Inc.
Laurel, Miss.
Primary Industry: Food
Number of employees: 8,300
2004 In Review
Revenue: $1.1 billion
Profit Margin: 8.7%
Sales Turnover: 2.8
Inventory Turnover: 12.3
Revenue Growth: 20.6%
Return On Assets: 15.8%
Return On Equity: 46.4%
In response to the fervor over bird flu, Sanderson Farms now provides a link on its Web site to a page launched by the poultry industry that answers concerns and questions the public may have about bird flu.

The news isn't all negative, though, for Sanderson Farms. Fourth-quarter profit doubled to $10.1 million, or 50 cents per share, in 2005 from $5.1 million, or 25 cents per share, in the fourth quarter of 2004. The company attributes the increase in operating income to a 15% decrease in feed costs from fourth-quarter 2004 figures.

"We continued to execute well in all areas of our business despite softer market conditions at the close of our fiscal year and the effects of Hurricane Katrina on our operations," said Sanderson in a Dec. 6 statement.

Also encouraging is the company's expansion into Georgia with a new poultry-processing complex that recently began operations there.

"We are pleased with the results of our initial operations [in Georgia] and recently began a second shift on our first line as scheduled," said Sanderson. "The Georgia facility is dedicated exclusively to serving retail customers, and we intend to take advantage of its location in close proximity to our growing list of customers in the Southeast."

The company also is expanding and converting its Collins, Miss., poultry-processing facility and hatchery to exclusively service the deboning market for large birds. By converting the Collins plant to accommodate a larger-weight bird and the additional retail capacity from the Georgia facility, the company will increase its overall production by more than 26% when both projects are running at full capacity.

Indeed, increased profits and production capacity are positive signs for Sanderson Farms, but with chicken prices near three-year lows, the company will have to closely monitor the impact that avian flu is having on the poultry industry.


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