EXHIBIT 99.2
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
Confirmation #784852
Page 1
SANDERSON FARMS INCORPORATED
MODERATOR: JOE SANDERSON
MAY 25, 2004
10:00 AM CT
Operator: Please standby we're about to begin. Good day and welcome
to the Sanderson Farms Incorporated Conference Call.
Today's call is being recorded.
At this time for opening remarks and introduction, I would
like to turn the call over to the Chairman, President, and
Chief Executive Officer, Mr. Joe Sanderson. Please go
ahead sir.
Joe Sanderson: Thank you. Good morning and thank you for joining us
today. I would like to welcome you to Sanderson Farms
Second Quarter Conference Call with shareholders,
analysts, and investors.
With me on the call today is Mike Cockrell, Chief
Financial Officer of Sanderson Farms.
The purpose of this call is to review financial and
operating trends reflected during the second fiscal
quarter and six months ended April 30, 2004.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
Confirmation #784852
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We issued a press - a news release this morning announcing
net earnings of $33.4 million or $1.67 per fully diluted
share for our second fiscal quarter of 2004.
For the first half of fiscal 2004, we have earned $52.4
million or $2.64 per fully diluted share.
During our first quarter this year we reported the
recognition of $177,000 net of income taxes for the
company's share of the partial settlement of litigation
against vitamin suppliers for overcharges. There were no
recoveries during our second fiscal quarter, and we
believe such recoveries are complete.
During last year's first six months we recognized $7.6
million or 38 cents per fully diluted share for similar
litigation. Without these items our net earnings from
operations were $52.2 million or $2.63 per share for the
first six months of this year, compared to $10.5 million
or 53 cents per share last year.
We also announced this morning that we have selected sites
in Cook and Colquitt Counties Georgia, as the location of
a new poultry complex for the company. I will talk about
that complex more in a moment.
Each of you should have received a copy of the release and
accompanying financial summary. I will begin the call with
some brief comments about general market conditions, the
company's operations, and our Georgia expansion. I will
then turn the call over to Mike for a more detailed
account of the financial results.
Before we make any further comments I would like to ask
Mike to give the cautionary statement regarding
forward-looking statements.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
Confirmation #784852
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Mike Cockrell: Thank you Joe, and good morning to everyone. Before we
begin the call this morning I want to caution you, as
always, that the call will contain forward looking
statements about the business, financial condition, and
prospects of the company.
All forward looking statements are made pursuant to the
Safe Harbor Provisions of the Private Securities
Litigation Reform Act of 1995, and are based on
management's current expectations or beliefs as well as
assumptions made by and information currently available to
management.
The actual performance of the company could differ
materially from that indicated by the forward-looking
statements because of various risks and uncertainties.
These risks and uncertainties are described in Item 7, of
our most recent annual report on Form 10K, and in
management's discussion and analysis of financial
conditions and results of operations found in Item 2 of
Part 1 of the company's quarterly report on Form 10Q filed
in connection with our second quarter ended April 30,
2004, which 10Q was filed with the SEC this morning.
Joe Sanderson: Thank you Mike. Our financial and operating results for
the first half of the year marked a strong start for
fiscal 2004, and reflects stronger than normal market
conditions during these six months.
Market prices for all poultry products were higher during
the first half of the year compared with the first six
months of last year. The average Georgia dock price during
the first half of the year was 13.2% higher than last
year's first six months, and helped fuel an overall 26.5%
increase in the company's
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
Confirmation #784852
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average sales price of poultry products during our first
six months when compared to the same period a year ago.
As was the case with the Georgia dock price, chicken
market prices across the board were up. Bulk leg quarter
prices increased 77% for the second quarter and 73% for
the first six months of the year compared to last year's
second quarter and first six months.
Wing prices during our first six months $1.11 per pound,
up 82% from the average of 61 cents during the first six
months of last year. Boneless breast meat prices during
our second quarter were also higher. Increasing by 39%
when compared with the second quarter a year ago and have
increased 30% for the first six months of the year
compared to last year.
These numbers indicate the strength of the chicken markets
during the first half of our fiscal year and that strength
continues. Boneless breast meat prices average $2.06
during the second quarter, and today the market for
boneless is $2.50 per pound.
Bulk leg quarters average 32 cents per pound during the
first half of the year and are currently trading for 37
cents per pound.
The strong market for chicken is the result, we believe,
of increased real demand for chicken products in the
United States. This demand appears to have been fueled by
American's taste for high protein diets, the recovering
economy that has increased the American consumer's ability
to put more protein in their diets, and the higher costs
of competing meats.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
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This increased demand for chicken is supporting stronger
prices, despite an increase in the domestic supply of
chicken, generated by a combination of increased domestic
production and a decrease in export volume.
The USDA now expects domestic chicken production during
calendar 2004, to be 4% higher than during calendar 2003.
On the other hand, export volume during the first calendar
quarter of the year decreased 15% and the USDA is
forecasting the first year over year decline in export
volume in 20 years during calendar 2004.
While some of the decrease in export volume is in products
not usually consumed in the United States, such as chicken
paws, it appears some dark meat that would normally move
through export channels has come back into the domestic
market because of reduced export volume. However, despite
the increase pounds available domestically, increase
demand continues to support higher market prices.
In addition to high protein diets and a recovering
economy, the domestic chicken market is getting help from
higher beef and pork prices. Lower beef supplies and the
USDA's estimate for lower beef production during 2004,
have fueled higher prices for beef.
Over the last two years for example, box beef prices have
risen from $115 to $150 per 100 weight. Furthermore, the
USDA has reduced its estimate of beef supplies for the
balance of 2004. And it's first forecast for 2005 is for a
3% decline in beef production.
While the USDA is predicting a 4% increase in grower
production during 2004, and a 3.1% increase during 2005,
this increase will be somewhat offset
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
Confirmation #784852
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by the decrease expected in the red meat supply as a
result of the expected reduction in beef production.
While chicken prices across the board were higher during
our second quarter, compared with last year's second
quarter and during the first half of the year compared to
last year, the same can be said about feed grain prices.
Market prices for corn during our first six months were up
13% when compared to the first half of last year. Soybean
meal market prices for the first six months of this year
were also higher than the same period a year ago, rising
49.5%.
As we reported on our first quarter call, we expect corn
and soybean meal prices to be higher overall during fiscal
2004 then 2003. Grain prices have remained volatile
through the first half of the year and are expected to
remain so through the planning and growing season. Because
of this volatility, we have over the last few weeks,
locked in a substantial portion of our grain needs for the
balance of the fiscal year.
While the prices we have bought grain for are high
relative to historical values, we have removed the risk of
a run up in prices in this volatile and uncertain grain
market. Furthermore, in light of the current and expected
strength of the chicken market for the balance of the
year, we believe that the prices at which we have bought
feed grains will generate strong returns for our
shareholders.
We now estimate that grain costs during the second half of
this fiscal year will be $25 million higher than during
first half of the year. In addition to favorable market
conditions during the first six months of the year, we are
pleased to report that our operating performance also
continued to be strong.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
Confirmation #784852
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Both our processing division and our lab grow out
continued to compete very well in the industry. The
performance of our prepared foods division during the
first half of the year was impacted by high raw chicken
prices.
Our foods division purchases much of its fresh chicken
needs from our Hammond, Louisiana facility at market
prices. And its raw material cost for the first half of
the fiscal year increased over 41% compared to last year's
first six months.
We reported during our first quarter call, on an avian
influenza outbreak in the Northeastern United States and
in Texas that occurred this past winter. I'm pleased to
report that there were no new AI outbreaks reported
following that call and that most of our export customers
have resumed trade with the United States. There are still
some countries, most notably in the far east, that
continue their ban on US poultry products.
On April 14, 2004 we reported that we had received a
warning letter from FDA relating to certain alleged
deficiencies the FDA noted during a routine inspection of
our Hazlehurst feed mill during January. Like all of our
feed mills the Hazlehurst mill is subject to FDA oversight
and is subject to routine audits.
The observations made by the inspector during the January
audit related to certain documentation in connection with
the use of FDA regulated material in our feed. Following
the inspection in January we promptly made the suggested
changes to our practices at the Hazlehurst mill suggested
by the inspector, and informed the FDA of those changes.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
Confirmation #784852
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Nevertheless the warning letter was issued in April. We
have since provided the FDA documentation to support the
corrective action we took in January and by letter dated
April 16, 2004, the FDA has informed me that our actions
adequately address their concerns.
Following the warning letter, which was a first for me, I
sent a team to New Orleans to meet with the district
director of the FDA who signed a warning letter and the
inspector responsible for January audit. My goal in that
meeting was to make certain the lines of communication
between our company and the FDA remain open to understand
fully what expectations are regarding our feed mills and
to express to the FDA our commitment to following all
applicable rules and regulations affecting our business.
We take regulatory compliance very seriously and will do
everything in our power to make sure operations are
compliant with applicable law, rules, and regulations.
Looking ahead we will work to continue to improve our
operating performance in sales execution. While we
continue to operate very well, we have identified sales
and operating opportunities in all areas of our business
that if realized would allow us to partially offset known
increased cost we will experience from grain price
increases.
We will continue to look for ways to improve our
operation, ways to increase value for our shareholders and
ways to make Sanderson Farms a better company.
As you know the company's financial position is very
strong at this time. While the company continually
evaluates both external and internal strategic growth
opportunities, those efforts have intensified over the
last 18 months.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
Confirmation #784852
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We feel an obligation to continually evaluate growth
opportunities that allow us to continue our record of
revenue growth, earnings growth, and increase value for
our shareholders.
For almost a year now we have been evaluating an expansion
east of our current operations in order to better serve an
ever growing list of customers in that direction. We
announced this morning that we have selected sites in
South Georgia for the construction of a new poultry
processing complex.
The new complex will be modeled after our McComb,
Mississippi and Bryan County Texas complexes and will
include a feed mill, a hatchery, and a processing plant,
and wastewater treatment facility.
The feed mill and hatchery will be located on sites near
Adel in Cook County Georgia, and the processing and
wastewater treatment facility will be located on a site
near Moultrie, in Colquitt County Georgia.
These facilities will comprise a state of the art poultry
complex with capacity to process 1.2 million birds per
week. At full capacity the complex will employ
approximately 1,700 people and will require 130 contract
growers.
We expect to invest approximately $96 million in the
Georgia complex, and anticipate that associated contract
producers will invest an additional $85 million in
production facilities. Because we have been working on
this project for some time, we anticipate being able to
move quickly to begin construction.
Most of the engineering and other preliminary work are
done, and we will begin construction this summer. We
expect operations of the new plant to begin during the
fourth quarter of our fiscal year ending October 31, 2005.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
Confirmation #784852
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In developing this project, we received an extraordinary
amount of cooperation from economic development and
governmental officials in the cities of Adel and Moultrie,
as well as Cook and Colquitt Counties, the Georgia
Department of Industry Trade and Tourism, the University
of Georgia Poultry Science Department, the Georgia Poultry
Federation, and the Governor of Georgia.
As part of our due diligence in selecting this site, we
held meetings in several towns in this area to gauge the
interest among those in the agricultural community and
becoming independent contract poultry producers, and the
response has been outstanding.
In addition, the response from the communities at large in
the area, has been very positive and we are grateful for
the warm reception we have received. We believe Georgia
offers a unique opportunity to begin the next phase of
growth for Sanderson Farms and we are excited and anxious
to get started.
At this point I would like to turn the call over to Mike
Cockrell.
Mike Cockrell: Thank you Joe. As Joe said we are very pleased with our
financial performance during the first half of this year.
Net sales for the first six months totaled 499 million,
and that's up from 385.4 million for the same six months a
year ago. For the quarter our net sales totaled 272.7
million and that compares to 201.2 million for the second
quarter last year.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
Confirmation #784852
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The increase in net sales reflects an increase in the
pounds of poultry sold for the first half of the year at
7%, supported by the increases in market prices described
by Joe.
The $1.67 per share earned during the quarter compares to
46 cents earned from operations during last year's second
quarter.
Our cost of sales for the three months ended April 30,
2004, as compared to the same three months a year ago,
increased 17.8%. This increase is a result of the increase
in pounds of poultry products sold during second quarter
this year compared to last year's second quarter, as well
as an increase in the cost of feed grains.
As Joe already mentioned, corn and soybean meal cash
market prices were up 21% and 56% respectively for the
three months ended April 30, 2004 when compared to the
same period a year ago.
While our cost did not increase by that full amount
because of our commodity risk management activities, our
costs were higher. For the six months of the fiscal year
cost of sales increased 13.8% compared to the first half
of last year. Again the result of an increase in pounds of
poultry products sold and increase in feed grain cost.
SG&A expenses for the first half of 2004 were up 11.3
million compared to last year. This increase, which
continues the trend we experienced during our first
quarter, is primarily the result of our new advertising
and marketing initiatives started during this year.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
Confirmation #784852
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We also had higher accruals during the first half of the
year for retirement plan expenses and our bonus award
program than we did during the first half of last year.
We begin run a new television, radio, and outdoor
advertising during January to support Sanderson Farm's
brand of fresh, 100% all natural chicken. We have been
pleased with the feedback from this campaign, and will
continue to monitor its impact on our sales. We expect
this program to cost approximately $12 million for the
fiscal year.
Increased expenses decreased $568,000 to $864,000 during
the first six months reflecting lower outstanding debt. We
expect our interest expense during the year to be $800,000
lower than a year ago, or approximately $1.7 million.
At the end of our second quarter our balance sheet
reflects stockholders equity of $252.1 million and net
working capital of $128.4 million. The current ration was
3.1:1. Our debt totaled $25.8 million and our debt to cap
ratio at April 30, 2004 was 9.3%.
As of today we have over $59 million in cash on our
balance sheet resulting in a net debt of less than zero,
and a net debt to cash ratio of negative amount.
In light of this strong cash position we gave notice in
April of our intent to redeem early, the 6.2 million of
outstanding industrial revenue bonds issued by Robertson
County, Texas to construct our feed mill.
The company incurred no prepayment penalty in the early
redemption of those bonds. And on June 1, after the
payment of the bonds, the company's debt to cap ratio will
be down to around 7%.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
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We spent $14.2 million on capital expenditures during the
first half of the fiscal year, of our total annual capital
budget of $31.6 million. We also spent $3.2 million on
dividends, reflecting our higher dividend rate of 8 cents
per quarter.
During fiscal 2004 we expect to spend approximately $31.6
million on planned capital projects, other than the
Georgia project, which amount includes approximately $8.9
million in vehicle and other operating leases.
Our depreciation and amortization during the first six
months totaled right at $13 million, and we expect
approximately $26 million for the fiscal year.
At its meeting held on January 29, 2004, our board
declared a three for two stock split that was affected in
the form of a 50% stock dividend. This dividend was paid
on Thursday, February 26 to shareholders of record of
February 10, and increased the number of outstanding
shares to right at 19.7 million.
The increase of over 6.5 million additional shares should
help improve the float available in our stock, and all per
share numbers in our press release and discussed during
this call are adjusted to reflect the split.
As Joe mentioned a moment ago, we have budgeted $96
million for the new Georgia facility. Of that amount, $14
million is relating to rolling stock and other assets that
we will consider putting under operating leases. Because
we will begin construction this summer, we will increase
our fiscal 2004 capital budget by $5.4 million for the
Georgia complex. A majority of the balance of those
capital expenditures for this new complex will be made
during fiscal 2005.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
Confirmation #784852
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We enter this project with a strong cash position. As I
mentioned, we have more than $59 million in cash on hand
today and anticipate an even stronger cash position by
year end.
On May 18, we amended our revolving credit facility to
incorporate the new Georgia complex. Those amendments
included increasing the allowed capital expenditures, we
changed our net worth covenant to cover our new dividend
rate, we extended the committed revolver to five years
rather than three, we reduced the interest rate that will
be charged on outstanding amounts, and we removed a letter
of credit commitment related to the textural in Texas
industrial development bonds that we will prepay on June
1.
As Joe mentioned earlier we remain encouraged by the
strong market conditions as well as demand trends. Based
on existing factors, and factoring in the expected
increase in grain cost during the second half of the year
that Joe mentioned, we are comfortable with an earnings
estimate of $5.35 to $5.85 per share for this fiscal year.
As is our practice, we will not provide quarterly earnings
guidance.
That concludes our prepared remarks and we will now open
up the call for questions and answers.
Operator: Thank you. The question and answer session will be
conducted electronically. If you would like to ask a
question, please do so by pressing the Star followed by
the Digit 1 on your telephone keypad.
If you are using a speakerphone please make sure you're
mute function is turned off to allow your signal to reach
our equipment. Once again please press Star 1 for
questions.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
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We'll take our first question today from (Christine
MacKracken), FTN Midwest Research.
(Christine MacKracken): Good morning.
Joe Sanderson: Good morning.
Mike Cockrell: Good morning.
(Christine MacKracken): Congratulations, great quarter.
Joe Sanderson: Thank you.
(Christine MacKracken): So, in terms of this new plant, obviously you
have a lot of cash, you have a capacity to add it without
bringing on a lot of debt. Can you talk about, you know,
what your expectations are from a production standpoint to
be able to fill this plant? Are you anticipating adding
sufficient, I guess, chicken production to fill the plant?
And what does that mean for, you know, the overall
industry in terms of, you know, we've been looking at a
fairly modest rate of growth here in the US, what would
that expansion imply?
Joe Sanderson: Let me tell you the principle reason - there were two
reasons we decided to build this complex. Our number one
reason was to increase revenues for the purpose of
increasing earnings for the purpose of increasing
stockholder value. That's number one.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
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Number two, is that we have a marketing reason to locate
this complex over there. We are currently serving several
customers from North Carolina to Florida that this move is
going to take at least a day delivery time off of their
service level.
And thirdly, we believe that this gives us access to a
market, when you consider Georgia and Texas, larger than
we have in Texas and - pardon?
Mike Cockrell: Georgia and Florida.
Joe Sanderson: Georgia and Florida. What'd I say?
Mike Cockrell: Texas.
Joe Sanderson: Georgia and Florida. Those were the primary - that was the
primary rationale we used. Now, the plant is going to be
a retail products plant. They'll be chill pack. While we
are not at total sales capacity, we are buying out side
product almost every week into our chill pack plant, or
transferring product from our big bird de-boning plant to
fill needs in our chill pack sales.
So that was the reason - those were the reasons and
rationale. Georgia was proximity mainly to market and to
customers.
(Christine MacKracken): So at this point, you know, given, you know, the
current expected production, are you expecting that to
take away from existing producers in the areas or
processors, or is this entirely new capacity that's going
to be added to the industry?
Joe Sanderson: It'll be entirely new capacity that is added to the
industry and we would anticipate continuing to add
customers from wherever.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
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(Christine MacKracken): All right. And then just in terms of the feed
past outlook, clearly you've kind of reduced your risk
there. Can you give me some idea why you would lock in so
far forward given, you know, the fact, you know, we could
be looking at a slightly better crop in this next harvest?
Joe Sanderson: Well, based our beliefs about market, and our model that
we use to formulate our estimate for the year, we believed
that it would be worthwhile to remove the uncertainty of
a blow-off in the grain market. And we believe that is
entirely possible.
The carry outs next year of both corn and soybean meal -
soybeans are not large by historical standards with an
average crop. And actually the USDA forecast was for a
little better than an average crop. If you look at the
trend line yield assumptions they made on both corn and
beans, if there is any hiccup in weather, like is
occurring yesterday and today by the way, or any drought,
or anything like that, we believe that the grain markets
could explode.
We felt like it was worthwhile to remove that possibility
and to assure our shareholders of what we think is a
pretty good return for the year.
(Christine MacKracken): And do you have any coverage into '05?
Joe Sanderson: We do not.
(Christine MacKracken): Okay. And then, just you commented on the strength in
chicken markets, obviously it's very good at the moment.
But in terms of the outlook and you commented that you
kind of expected things to remain strong, can
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
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you talk about what impact, for example this avian
influenza outbreak in Canada might have on the exports?
What markets might open that are currently closed in Asia
tied to AI and what that might mean to exports? Are these
areas that could provide incremental upside, maybe the
life quarter prices over the near term?
Joe Sanderson: Yes, you know, I don't think the Canadian outbreak
represents a substantial production area. So I don't think
that's going to be - have an impact. We do believe that
Japan and China, which are the two primary markets that
are not open right now, we believe they will open sometime
in the future.
At the end of the day though I'm - we don't know exactly
why Japan and China have not opened. It appears there have
been rumors of both those markets opening and then a week
later the scenario changes. But I believe that somewhere
during the next six months both of those markets will open
and Japan would offer some market for some dark meat and
China would offer some market for maybe some dark meat but
mainly paws, and wings, and wing products.
And it could be incremental increases to profitability if
those both open.
(Christine MacKracken): But at this point in your current guidance you
haven't projected a strong rebound in export activity?
Joe Sanderson: No we have not.
(Christine MacKracken): So there's potential upside. Great thanks.
Joe Sanderson: Thank you.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
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Mike Cockrell: Thank you (Christine).
Operator: Our next question comes from (John Beerbud), shareholder.
(John Beerbud): Good morning.
Joe Sanderson: Good morning (John).
(John Beerbud): Good morning. Just a couple questions with respect to
Georgia. What - can you walk me through the timetable for
on the growers side to get that capacity going? Do you -
have you signed up growers and are they starting to, you
know, take down the loans that they will need to build
grow out houses?
Joe Sanderson: Yes. We opened an office in Moultrie in mid March - or
towards the end of March. And we've had people over
there - we had grower meetings and then we open the
office to answer questions and let growers look at our
contract, and to date we have signed up a substantial
of the growers that we will need.
We had forecast the plant to open in August of '05. That
means you'll need to put breeders pull its on the ground
in the fall, November. Hen production to start six months
after that and (brawlers) and houses sometime early summer
of 2005.
All of that is on schedule - actually the grow out is far
ahead of our experience in McComb or Texas. And it was a
good area that we determined that by demographic research
before we went over there. and it has proven to be a
fertile ground for attracting growers.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
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We plan to start the first shift up at the plan during the
third quarter - fourth quarter, excuse me, of '05, and the
second shift in the spring of '06.
(John Beerbud): Are you needing to provide any loan guarantees to these
potential...
Joe Sanderson: No.
(John Beerbud): ...new contract growers?
Joe Sanderson: No. We never have done that and we're not going to need
to do that at this time.
(John Beerbud): Okay. And lastly, can you comment - maybe Mike can handle
this, regarding the increases in both receivables and
inventory year over year?
Mike Cockrell: The inventory increases are primarily at our - we
increased the live weight at our Hammond division and
we increased the head processed last May at our Collins
production division. And much of the inventories on the
live side are a result of those increases.
We also had some increases in finished good inventories
that was really just a timing issue and the same on the
receivables (John). There was nothing extraordinary
happening in any of those numbers.
(John Beerbud): Very good, thanks very much.
Joe Sanderson: Nice talking to you (John).
(John Beerbud): Pleasure, likewise.
SANDERSON FARMS INCORPORATED
Moderator: Joe Sanderson
05-25-04/10:00 am CT
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Operator: Your next question comes from (Patrick Stow), Priority
Capital.
(Patrick Stow): Morning, and congrats. Most of my questions have been
covered, but just a few things. I think (Christine)
started to touch on it. As far as the industry as a whole
are you seeing further expansion other than Georgia plant?
I mean you clearly have reasons to do it, but when we
think about the pricing environment we worry about supply.
Joe Sanderson: Well, if you look at market prices and observe the level
of profitability that we see through our benchmarking
services and through those public announcement we see.
In principle you would expect some increase in supply
going forward. There's no doubt in my mind that's going
to happen.
I think that might be limited to somewhat by two or -
couple of factors. One is, some of the large producers
have recently made acquisitions and I think they may be
satisfied for the time being. And secondarily, I believe
that other people might because of past experience,
particularly 2002 to 2003, might be looking more at
further processing rather than fresh chicken processing.
And one of the things that tells me a little bit about
that is the last six and nine months pull it placements.
They're running 2% to 3%. The nine month is about 2% and
the six month is about 3%. We might be ahead of some
others, I do believe there's some others that might be
looking at building a facility, but I believe that might
be tempered a bit by those - the recent experience of 2002
for some people and the fact that some people have, in the
last 24 months, have made substantial acquisitions.
(Patrick Stow): And do you guys see any interest in the M&A market in the
near term?
Joe Sanderson: We're always open to opportunities for our shareholders.
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Page 22
(Patrick Stow): Okay. I guess then just two quick points, on the new
facility can you kind of lay out a timeline of how those
expenditures will occur and how you'll fund them -- the
$95 million?
Mike Cockrell: The - this is Mike, (Patrick).
(Patrick Stow): Hi Mike.
Mike Cockrell: As I said, the majority of those expenditures will be made
in fiscal 2005. we'll make about $5 million of them this
year, so we will add to our capital budget the $5.4
million for this year. But certainly the bulk of them
will be next year.
We're planning, from a cash flow perspective, to have
virtually all of the payments made next fiscal year. That
I'm sure there will some things that will carry over into
fiscal '06. As Joe said, our current schedule is to double
shift the plant in the spring of '06.
That's $96 million includes equipment and rolling stock
that will be required for that second shift. So those
expenditures will be made in '06. But $5 million this year
roughly, and then most everything else will be next fiscal
year with a little bit during the first quarter of '06.
(Patrick Stow): Okay and then just on the grain price, risk management
you mentioned.
Mike Cockrell: Right.
(Patrick Stow): Did you say that the second half grain cost will be $25
million more than the first half?
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Mike Cockrell: That's correct.
Joe Sanderson: Yes.
(Patrick Stow): Okay, so an incremental $25 million due to locking in the
grain prices?
Joe Sanderson: That's correct.
(Patrick Stow): All right great. Congrats again.
Joe Sanderson: Thanks (Patrick).
Mike Cockrell: Thank you.
Operator: We'll go next to (Alex Pleavlong), Key Colony Fund.
(Alex Pleavlong): Hey guys, most been covered everything. Just do it again,
I guess.
Joe Sanderson: Thanks (Alex).
(Alex Pleavlong): Curious, one thing I have noticed here is a lot more
advertising than I've ever seen you guys doing. And
compliments your ad agency - great ads. And again,
would I be correct in my assumption that at the top of the
rung in the (Aggrastat)'s as best as you can tell?
Joe Sanderson: Well we're in the top 25% we think. Actually grow out
processing really strong the - our marketing, as you know,
is about 60% retail chill pack and about 40% big bird
de-boning. The chill pack sector is not as - not quite as
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Moderator: Joe Sanderson
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Page 24
profitable as the bulk processors. So a few of them have
come up and passed us on the marketing side, but we've
done quite well.
(Alex Pleavlong): Congratulations guys.
Joe Sanderson: Thanks (Alex).
Operator: And once again if you would like to ask a question press
Star 1. We'll go next to (Gerald Hammad), shareholder.
(Gerald Hannas): (Gerald Hannas) thank you. You guys are incredible, the
numbers are incredible for seven years everything you all
said that would happen has happened. I just can't thank
you enough. Just congratulations. And then I've got a
couple questions.
Joe Sanderson: Sure, thank you.
(Gerald Hannas): It's just unbelievable. I met with you all eight years ago
in New York, there were two people from Sanderson, one
analyst and two other people and since that time it's
just, like I said, everything you all talk about it always
happens. And it's incredible in this time and this kind
of business to find a company like yours that does what
they say. It's incredible.
From time to time the family members, rightfully so, have
probably sold stock for estate reasons, have you ever
thought about using a dutch auction? It's hard to buy this
stock sometimes because the few market makers and you
really don't get a look at it. Have you ever thought about
using a dutch auction for some of this stock?
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Mike Cockrell: (Gerald) this is Mike. You know, the family as you know
and as the public - as is publically available there are
two estates that substantially settled all of their issues
during this calendar year - the first of this year. And
they made substantial distributions out to the next
generation that was both the Dewey Sanderson and Joe
Frank Sanderson estates. And the next generation currently
holds that stock.
There wasn't, as the Form 4's reflects and selling as some
of those in the next generation took the opportunity to
diversify their holdings. To my knowledge the family has
never seriously considered a Dutch auction or going out
into the secondary market at this time. Just because they
- the sales were done by individuals, there was not a lot
of coordination - or any coordination between those. They
were all on their own.
My, you know, my assumption is that the families, you
know, they've sold what they're going to sell. I don't
know that and maybe in the future if they do decide in any
particular volume I'm sure that's something they'll
consider, but obviously no plans at this time.
(Gerald Hannas): Okay thank you. And the other that, you know, it's just so
curious for me as an ex-broker, you know, you see a large
short position out here. Is that a correct position that
they're showing out there, you know, 500 plus thousand
shares short right now on this company?
Mike Cockrell: As far as I know it is (Gerald). I see the same numbers
you do. And as far as I know, yes.
(Gerald Hannas): That's unbelievable. But like I said congratulations, I
just can't thank you enough for everything that this
company has done for the shareholders.
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Joe Sanderson: Thank you.
Mike Cockrell: Thank you (Gerald).
Operator: At this time we're standing by with no further questions.
I'll turn the conference back over to you gentlemen for
any additional or closing comments.
Joe Sanderson: Good. Thank you for spending time with us this morning.
We are pleased with our results to date and look forward
to continued progress in fiscal 2004. We are excited
about the opportunities as well as the challenges before
us. And look forward to reporting our results to you
throughout the year. Thank you.
Operator: And this does conclude today's conference. We do
appreciate your participation; you may now disconnect.
END