Sanderson Farms chicken
The avian influenza that affected U.S. poultry negatively impacted Sanderson Farms' first quarter earnings.

LAUREL, MISS. – An export market marred by closures to U.S. poultry products due to last year's highly pathogenic avian influenza and a domestic food service sector in the midst of a slowdown both had an impact on poultry processor Sanderson Farms’ first-quarter earnings.

Net income for the first quarter ended Jan. 31 was $10,681,000, equal to 47c per share on the common stock, down sharply from net income of $66,503,000, or $2.87 per share, during the first quarter of fiscal 2015.

Sales for the quarter also fell to $605,166,000 from $667,363,000 the previous year.

Joe Sanderson, Sanderson Farms
Joe Sanderson Jr., chairman and c.e.o. of Sanderson Farms

“Food service and export demand are the wild cards for 2016,” said Joe Sanderson Jr., chairman and chief executive officer, Feb. 25 in a conference call with financial analysts. “Lower gasoline prices help consumers. But recent stock market volatility and uncertainty about the global economy are hampering food service demand.

“The restaurant association's Restaurant Performance Index fell sharply in December and stood below 100 for the first time since February 2013, which signifies contraction in key industry indicators. The contraction continued in January, as at least one survey shows traffic decline year over year by 1.8% at casual dining and by almost 1% in Q.S.R.s. At least a portion of that decline, however, was probably due to severe weather in many parts of the country in January.”

Despite the headwinds, Mr. Sanderson said the company would continue to focus on growth as it ramps up operations at its new processing plant in Palestine, Texas, and continues construction on its new plant in St. Pauls, N.C.

“I remain optimistic about 2016,” he said. “I believe grain markets will at worst be benign. The chill pack environment remains strong, and supply and demand for tray pack products seem balanced.”

Sanderson Farms processing plant in Palestine, Texas
Sanderson plans to focus on growth as it ramps up operations at its new processing plant in Palestine, Texas.

With regard to export bans in place due to the incidence of A.I. in the United States last year, executives also see light at the end of that tunnel. Mr. Sanderson said South Africa has opened its market again and both China and South Korea are considering reopening their markets to U.S. poultry products.

“ … We've been thinking it was going to be 2017 before China opened back up, and I think that's a conservative way to look at that,” Mr. Sanderson said. “There is a possibility it could open before that, but I think the conservative thing is to think 2017.”

Prepared foods also remain a focus for Sanderson Farms. In 2015, prepared foods sales were about 7% of total sales, and Mr. Sanderson said the company has a goal of achieving 10% of total sales.

“With Palestine and St. Pauls coming on, it's going to fall further behind,” Mr. Sanderson said. “So we need to increase our volume of prepared foods.”

When a financial analyst asked if increasing that volume may involve an acquisition, Mr. Sanderson was succinct in his answer.

“Yes,” he said.