Sanderson extends cutbacks, citing 'soft demand'

Sanderson Farms sounded a cautious note on prospects for the US chicken market even as it unveiled a return to fourth-quarter profit significantly further than Wall Street had expected.

The US poultry group which last year unveiled production cuts set to last from January 1 "through fiscal 2012", which ended in October said on Tuesday that the cutbacks would be left in place "through fiscal 2013" as well.

The reductions, which were initially set at 4% for its historic factories, but with another 2% added in August, were instigated in the face of oversupply in the US chicken market, which left producers without the pricing power to pass on to consumers a hit from soaring grain costs.

The impact of the tempered a boost to Sanderson's production from the opening of a plant in Kinston, Northern Carolina.

'Supply uncertainty'

Joe Sanderson, the Sanderson Farms chairman and chief executive said on Tuesday: "We expect demand from our food service customers to remain soft until American consumers regain their confidence and the employment outlook brightens."

Mr Sanderson also flagged "uncertainty regarding supply" of feed, after the droughts in the US  and South America which saw the group pay 11.6% more for corn in the August-to-October quarter than a year before, and 40% more for soymeal.

The group last month revealed it had shelved plans for a further plant in North Carolina, "pending improvement in market fundamentals, including the supply and price of corn and other feed grains".

'Another challenging year'

Indeed, Mr Sanderson said that the latest quarter had "marked the end of another challenging year for Sanderson Farms and the poultry industry".

Nonetheless, the group reported earnings of $9.3m for the quarter, compared with a loss of $21.6m a year before, on revenues up 15.8% at $648.4m.

The rise reflected "improved" poultry markets, with prices of breast meat up 11.6% year on year, and the start of its Kinston plant, "offset in part by higher feed costs".

The earnings equated to $0.41 per share, above analyst forecasts of a $0.32-a-share result.

Sanderson Farms shares closed 0.8% higher at $50.18 in New York.

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