Last week's earnings report from Brazilian poultry producer Sadia
Domestic sales were up 5% on the year, and up almost 8% for the quarter. The export market, however, dropped 15% from 2005, though the last quarter showed promise, as it ticked up 2% from the year-ago period. Sadia was still languishing from an import ban on Brazilian pork in Russia and new European Community quotas that limit growth but give exporters a greater say in negotiating.
Truth is, lingering fears of avian flu still haunt the poultry market. U.S.-based chicken maven Tyson
While the Motley Fool Hidden Gems recommendation saw stronger revenue growth in its domestic markets for poultry, pork, and beef, these were offset by lower prices; the company had to redirect stock from international markets, leading to higher volumes sold. For example, poultry volume increased 9.4% during the quarter, to 155.5 tons sold, but that led to a 3.9% decline in poultry revenues. Beef also saw volumes climb 108% to 9 tons sold, and while gross operating revenues jumped 56%, the average price per pound fell 25% year over year.
The bird flu epidemic has been tough for the poultry producers, and various bans on shipping birds overseas have cut into profits. Sadia has also had to contend with pork restrictions in Russia and a dollar-to-Brazilian-real depreciation of more than 10% from last year. And while the company's revenues were down year over year, it would have been worse had it not won a tax court ruling and realized a tax credit of nearly $76 million real.
So although the overall picture looks gloomy, the fourth quarter actually revealed an improving scenario. Demand is beginning to pick up again internationally, which should help to stabilize prices, if not increase them. It was a similar story at other chicken producers; Sanderson Farms
Sadia is well-positioned to take advantage of the rebound. It is profitable -- a boast that Tyson and Pilgrim's Pride can't currently make -- and the company is expanding plants and facilities to help increase production. It's looking for 10%-12% growth in international markets in 2007 and wants to expand production to include Middle Eastern countries like Iraq, Lebanon, Jordan, and Egypt -- where an avian flu outbreak would necessitate that the country buy more foreign poultry.
While Sanderson Farms has a lower price-to-earnings ratio (P/E), Sadia's P/E of 14 is below that of competitors like Smithfield Foods
Take wing with these related Foolish articles:
- Tyson Emerging From Slump
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- Foolish Forecast: Reading Sadia's Chicken Bones
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