Brazilian poultry packer Sadia (NYSE:SDA) will report 2006 financial results on Thursday, Feb. 1. Here's what the prognosticators are saying.

What analysts say:

  • Buy, sell, or waffle? There are no analysts saying buy, sell, or hold here, which explains why it was an under-the-radar selection of the Motley Fool Hidden Gems newsletter service.
  • Revenues. Sales for the year are expected to top $3.4 billion, up 9% over last year.
  • Earnings. Profits, though, are expected to fall 24% to $0.29 per share, down from $0.38 for 2005.

What management says:
While poultry represents more than 40% of Sadia's revenues, it has been subject to some severe market fluctuations in response to fears of an avian flu epidemic. Thus the company has taken to expanding its operations beyond just chickens and now includes pork and beef as well. Pork, however, only represented about 10% of revenues in 2005, and beef is in with the "other" operations.

Management says it hopes to double its slaughtering capacity from the current 1,000 heads per day, 80% of which is shipped to international markets. It plans to do this by acquiring other slaughterhouses, if necessary, or expanding its facilities, which could double revenues to 400 million Brazilian reais, or about $187.4 million.

What management does:
The company has suffered from lower cash-generating potential as excess supply coupled with price deterioration pushed margins down. So even though Sadia has experienced higher volumes, particularly in its domestic markets, it has not been enough to offset deterioration in other areas, or in the effects of currency exchange rates.

Margin

09/05

12/05

03/06

06/06

09/06

Gross

26.5%

27.2%

26.7%

25.2%

24.6%

Operating

8.1%

9.3%

6.9%

8.5%

5.0%

Net

8.7%

8.2%

8.7%

6.4%

4.9%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
The global consumption of poultry is rising again, despite fears of pandemics, which should help Sadia's top and bottom lines. As worries about tainted poultry rise in Asia, prices of its chickens rise in response, particularly when it takes care to point out the safe handling practices it uses. Even so, it can't escape the effects it has on poultry markets. Still, it has been able to capture a large segment of the Arab market as a result of its marketing practices there, and poultry sales to Arab countries represent 20% to 25% of revenues over the past few years. Management reports that Egypt should begin importing foreign poultry and Iraq will resume its purchases.

While mad cow disease has dropped from the headlines as a threat to world beef markets, those kinds of fears also help Sadia and account for part of the reasons behind its expansion plans. Yet bans on Brazilian pork in Russia have hurt the company, too. Although a lot of factors impinge on Sadia, it's still determined to make sure Brazil stays the world's third-largest poultry producer and its largest exporter.

Competitors:

  • Tyson (NYSE:TSN)
  • Smithfield Foods (NYSE:SFD)
  • Pilgrim's Pride (NYSE:PPC)
  • Sanderson Farms (NASDAQ:SAFM)

Related Foolishness:

A 30-day guest pass gives you inside access to the market-crushing Hidden Gems newsletter. Sadia has also earned a five-star rating from Motley Fool CAPS, the new investor intelligence community. You can add your voice to the new stock rating service by joining today. It's free!

Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. Sanderson Farms is a former Stock Advisor selection. The Motley Fool has a disclosure policy.