Sanderson Farms Inc.: Still Battling Bird Flu Scares

Feb. 15, 2007
More educated public could soften the impact of future outbreaks.

The bird flu is back, but that might not mean disaster for the poultry industry this time around. That's because the poultry producers are more prepared and the public is less reactionary than before, according to economist and poultry expert Paul Aho.

After the most-recent publicized outbreak in eastern England, which resulted in the killing of 160,000 turkeys on Feb. 5 in the UK, Aho was quoted in Reuters news service as saying consumers now are more educated and less likely to panic when outbreaks are reported.

That' s good news for Laurel, Miss.-based Sanderson Farms Inc., which has experienced losses in the past two years because of avian flu scares. In 2006, revenue was nearly flat at $1.05 billion from the previous year. The company posted a net loss of $11.5 million, or 57 cents per share, compared with a profit of $70.6 million in 2005.

Sanderson Farms, one of IndustryWeek's 50 Best Manufacturers for 2006, attributes the loss, in part, to concerns caused by avian influenza. Bulk leg quarter prices decreased 24.6% in 2006 primarily from bird flu fears, the company reported. In addition, the company's cost for corn and soybean meal, its primary feed ingredients, increased 6.7% and 3.2% respectively for the year.

That trend is expected to continue. "Prices for feed grains continue to trend upward, and the company's costs for feed grains will be materially higher during fiscal 2007 than during fiscal 2006," said Joe Sanderson Jr., chairman and CEO of Sanderson Farms, in a Dec. 5, 2006, statement. "On the other hand, leading indicators of chicken production support consensus estimates of modest growth in poultry supplies for calendar 2007.

Regardless of market conditions, however, we are focused on managing Sanderson Farms for the long term."

Sanderson Farms Inc.
At A Glance

Sanderson Farms Inc.
Laurel, Miss.
Primary Industry: Food
Number of Employees: 8,645
2005 In Review
Revenue: $1.006 billion
Profit Margin: 7.02%
Sales Turnover: 2.26
Inventory Turnover: 10.31
Revenue Growth: -4.38%
Return On Assets: 18.84%
Return On Equity: 25.29%

The company fared a little better during the year-end quarter. Revenue during fourth-quarter 2006 rose to $291.7 million compared with $262.5 million during the year-earlier period. Profit during the quarter increased 4% to $10.5 million, or 52 cents per share.

"Our fourth-quarter performance reflects an improvement in market prices for poultry products over the first half of fiscal 2006," said Sanderson in the Dec. 5 statement. "Overall, we are pleased with our results during the quarter. While we benefited from stronger market prices during the first half of our fourth fiscal quarter compared to earlier in the year, prices remained below last year's fourth quarter and have continued to weaken through the fall months. Average market prices for poultry products continue to be lower than a year ago."

Meanwhile, the company is on track to begin operations at its new Waco, Texas, hatchery and processing facility during fourth-quarter 2007, according to Sanderson. The company announced in early 2006 that it was building a $50.5 million, 170,000-square-foot poultry processing plant in northeast Waco.

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