Sanderson shares down as analyst expects bigger losses
Published: August 22,2011
LAUREL — Shares of Sanderson Farms Inc. dropped 4 percent today as an analyst predicts the poultry producer’s third-quarter loss will be bigger than Wall Street’s forecast due to falling chicken prices and higher feed costs.
Jefferies analyst Jeff Farmer estimates Sanderson will lose $1.25 per share in the quarter, compared with Wall Street’s expectations for a loss of 86 cents per share, according to FactSet. Farmer says the loss will likely be driven by an 11 percent decline in chicken prices and a 36 percent increase in feed costs, year over year.
Poultry companies have come under pressure as restaurants order fewer chickens due to a decline in consumer spending. This has led to an oversupply, which keeps prices depressed. At the same time, feed costs have been rising.
Farmer said in a client note that it is likely that the Wall Street estimate will change for the worse as it gets closer to Thursday, which is when Sanderson is scheduled to report its quarterly results.
The analyst also thinks Sanderson will incur a quarterly inventory write-down of $10 million or more. This would be above its second-quarter write-down of $6 million, but less than its first-quarter write-down of $22 million.
Farmer reaffirmed a “Buy” rating and $55 price target for the Laurel-basecd company; however, since “Our work suggests that chicken prices have likely troughed — historically a bullish sign for SAFM shares.”
Sanderson Farms’ stock fell $1.66, or 4.1 percent, to $38.78 in morning trading. The shares have traded in a range of $38.17 to $49.47 over the last year.
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