Bonus payouts, egg setbacks slow Sanderson growth
By - Published 26/08/2014

Bonus payouts to staff, and weaker-than-expected chicken volumes, eroded the boost to Sanderson Farms from lower grain prices, leaving the poultry group with a smaller-than-expected rise in earnings.

Sanderson Farms unveiled a 12.0% rise to \$76.08m in earnings for the May-to-July quarter, on revenues up 4.0% at \$768.4m, underpinned by the boost to margins from elevated chicken prices and depressed grain cost.

The company paid 29% less for its corn, a major feed ingredient, during the quarter than a year before, and 17.6% less for its soymeal.

"Market conditions were favourable during the quarter," said Joe Sanderson, the group's chairman and chief executive.

"Market prices for poultry products were higher," he said, putting the improvement down to  "good retail grocery store demand".

Bonus, volume hits

However, the earnings, equivalent to \$3.30 per share, fell short of Wall Street expectations of a \$3.82-a-share result.

"Results were affected by accruals booked for the company's bonus award programme and a contribution to the company's employee stock ownership plan," Mr Sanderson said.

Accruals for the bonus plan for the quarter soared to \$15.5m, from \$6.5m a year before, with those for the stock ownership scheme doubling to \$11.0m.

Furthermore, "the quarter was negatively affected by lower-than-anticipated volume processed at the company's poultry plants," Mr Sanderson said, saying that the group had handled 770.4m pounds of fresh poultry 44.7m pounds below a forecast made in May.

The group blamed the shortfall on "lower-than-target hatch rates at our hatcheries and lower-than-target live weights of chickens processed."

Production puzzle

In fact, the relatively low rate of production increase in the US poultry industry has surprised many analysts, given the potential for demand at a time of elevated prices of rival meats beef and pork.

Paragon Economics and Steiner Consulting has said that it appears that the sector "is either struggling to take advantage of a golden opportunity or has learned that market share is not the holy grail of success measures.

"Chicken output is increasing very little, even with competitive conditions that would normally have driven companies to cut-throat expansion."

Some commentators have attributed the weak output response to US poultry producers possessing an aging flock, producing eggs with relatively low viability.

Data on Friday showed US inventories of poultry in cold storage, at 612.6m tonnes, down 13% year on year.

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