Well, we all knew this was coming. Every animal-protein producer that I track has had a rougher go of it lately, especially the chicken producers. Seeing Sanderson Farms (NASDAQ:SAFM) take its place next to Pilgrim's Pride (NYSE:PPC), Gold Kist (NASDAQ:GKIS), and Tyson (NYSE:TSN) hardly merits surprise.
Sales were down 13% this quarter, due in part to a significant decline in chicken prices. We've heard numbers like these before, but they bear repeating: Average whole chicken prices were down more than 7% (Georgia dock), leg quarters were down more than 43%, breasts were down 30%, and wings were down 13%.
Oh, but it gets better. Those precious pullets still have to eat up until their date with destiny, and though soy-meal costs were down 4.1% on average for the company, corn prices were up 6.5%. That, coupled with lower manufacturing efficiencies and higher prepared-product costs, led to a substantial drop in both operating income and net income.
So why have these chicken stocks been on the run toward higher prices lately? Well, Sanderson is cutting production by more than 4% a week, and other producers have already done likewise. What's more, the overseas markets appear to be reviving a bit, and the company reported that leg-quarter prices (the most commonly exported chicken portion) were up a fair bit sequentially in May.
And let's also not forget that a lot of these protein stocks got pretty cheap in the depths of the bird flu panic. It's entirely possible that the bird flu situation could get worse before it gets better -- or until the media moves on to something else -- but ultimately, folks will keep eating chicken. And since poultry production is increasingly in the hands of larger companies that don't want to commit murder-suicide with overproduction and price competition, I'm thinking that poultry producers' long-term picture is at least OK.
I've already invested happily in the meat-manufacturing sector, so I'm looking elsewhere for cheap food ideas. If you're also looking for some penny-pinching ideas among the edibles, consider Chiquita (NYSE:CQB) or SABMiller, and wait for Sanderson to get a little cheaper again.
Further Foolish food for thought:
If paying too much for stocks ruffles your feathers, take a few pecks at Philip Durell's Motley Fool Inside Value newsletter service. Philip's complete list of the market's best bargains can be yours with a free 30-day trial.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
