Why Is Sanderson Farms (SAFM) Down 4.4% Since Last Earnings Report?

It has been about a month since the last earnings report for Sanderson Farms (SAFM). Shares have lost about 4.4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Sanderson Farms due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Sanderson Farms' Loss Wider Than Estimates in Q1

Sanderson Farms posted wider-than-expected loss when it reported first-quarter fiscal 2020 results. The company reported net loss of $1.76 per share, which was wider than the Zacks Consensus Estimate of a loss of 74 cents. Also, the figure is wider than a loss of 82 cents reported in the year-ago quarter.

Net sales came in at $823.1 million, which surpassed the Zacks Consensus Estimate of $804.8 million. Also, the top line advanced 10.7% year over year.

Cost of sales escalated 16.3% to $823.5 million on increased pounds sold and higher average cost of goods sold. Average feed costs per pound for poultry products increased 6.3%. Costs of corn meal went up 10.1%, while costs of soybean meal declined 2.3% in the quarter. Soybean meal and corn are part of the company’s primary feed ingredients. Further, SG&A expenses declined 15.5% to $49.5 million in the reported quarter.

Balance Sheet/Cash Flow

Sanderson Farms ended the quarter with cash and cash equivalents of $63.4 million, long-term debt of $165 million and total shareholders’ equity of $1,369.4 million.

Outlook

The company is optimistic about demand and prices for its poultry products courtesy of worldwide protein deficit stemming from African swine fever’s impact on Asian pork supplies. Also, since China lifted the ban on the import of U.S. chicken at the end of 2019, Sanderson Farms has received orders for roughly 18 million pounds of chicken products. However, management is witnessing some disruptions in China stemming from the outbreak of coronavirus.

Apart from these factors, increased promotions for chicken at quick-serve restaurants are likely to drive growth in poultry market in 2020. Per the current USDA projections, chicken production in the industry during calendar year 2020 is expected to rise more than 4.3% from 2019 levels.

Further, the company anticipates a healthy demand as well as supply balance for corn and soybean meal in 2020. Moreover, Sanderson Farms is progressing well with its operations in the Tyler facility. Management projects Tyler to reach full capacity during second-quarter fiscal 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates review. The consensus estimate has shifted 35.22% due to these changes.

VGM Scores

At this time, Sanderson Farms has a poor Growth Score of F, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision looks promising. Notably, Sanderson Farms has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.