Gold Kist May Be Scratching Bottom

Forget beating or missing analyst estimates by a penny here or a penny there. When poultry producer Gold Kist (NASDAQ:GKIS) misses, it really misses. Last quarter's earnings came in about one-third lower than the average estimate, and this quarter was even worse: The company reported $0.05 in earnings per share versus the consensus estimate of $0.26.

Given the bad news we've all heard lately from the likes of Tyson (NYSE:TSN) and Pilgrim's Pride (NYSE:PPC), investors were pretty much prepared for this, and the stock was down only about 2% in early trading.

Gold Kist's fiscal first quarter wasn't much to look at. Revenue dropped 1%, principally because of broiler prices falling about 2%. On a more positive note, the company upped its share of value-added sales relative to the overall mix, and sales to private-label customers were up solidly in terms of poundage. As we've heard from other poultry producers, though, pricing is suffering from oversupply and a reduction in exports to places like Russia: Bird flu fears apparently have some people avoiding poultry in general.

Operationally, things weren't a whole lot better. While Gold Kist's feed costs were a little lower, utilities and freight were a fair bit higher. Consequently, gross and operating margins fell, and net income took a sizable haircut from last year's level.

I'll be the first to admit that some of these food names are getting tempting. I'm not really very excited about Pilgrim's Pride, but companies like Tyson, IndustriasBachoco (NYSE:IBA), and Sanderson Farms (NASDAQ:SAFM) are another matter. Ditto for Gold Kist -- a company that, in better days, produced some solid returns on capital.

A low valuation is enticing, but not let's not fool ourselves into thinking things can't get worse. Companies like Sealed Air (NYSE:SEE) and Packaging Corp. (NYSE:PKG) tell us that food packaging costs are likely to rise, and the avian flu scare isn't over yet. What's more, who's to say that more nasty weather couldn't lead to higher feed prices or higher natural gas prices, or both? All that said, I'm inclined to think that the long-term risk/reward-o-meter is starting to point more and more toward reward these days.

For more Foolish thoughts on birds of a feather:

• Tyson Gets Gored
• Pilgrim's Pride Gets Clucked
• Gold Kist Gets the Kiss-Off

Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).