Q4 2019 Earnings Call
Good day and welcome to the Sanderson farms incorporated fourth quarter 2019 Conference call. Today's call is being recorded at this time for opening remarks introductions I would like to turn the call over to Mr. jokes Anderson. Please go ahead Sir.
Thank you.
Good morning, and welcome to Sanderson farms fourth quarter in fiscal yearend conference call.
Morning, We reported a net loss of $22.9 million or dollar in five cents per share for fourth fiscal quarter.
49 Jane.
During the fourth quarter last year, we lost $43.2 million or dollar 95 cents per share.
The year ended October 30, 129 chain, we reported net income of $53.3 million or $2.41 per share for physical 28 chain, we reported net income.
$61.4 million or $2 and 70 should for sure.
The results for the quarter in the fiscal year ended October 30, 128 gene.
In a Josh <unk> of $9.6 million.
Proximately 32 cents per share at net income taxes to record lab inventories on hand at October 31, Fournier, saying that the lower of cost or net realizable value as required by generally accepted accounting principles.
Results for the quarter in fiscal year ended October 30, 129 chain include a similar Josh went up $2.8 million or 10 cents per share net income taxes.
You did not received a copy of the relationship accompanying financial summary, they are available on our website at www Dot Sanderson farms Dot com.
Before we continue I will ask Mike to give the cautionary statement.
Regarding forward looking statements.
Thank you Joe and good morning, everyone. This morning's call will contain forward looking statements about the business financial condition and prospects for the company.
Examples of forward looking statements include statements about future earnings expenditures supply and demand factors production levels grain cost and supply poultry prices growth plans and economic conditions.
Words believes expects anticipates estimates model should plans.
And similar words are intended to identify forward looking statements the actual performance as a company could differ materially.
If I look forward looking statements because of various risks and uncertainties.
These risks and uncertainties are described in our press release and in the annual report on Form 10-K for the year ended October 31, 2019, which was filed with the FCC. This morning.
All forward looking statements speak only as of today and are based on current expectations beliefs and assumptions.
Good change quickly based on many external factors affecting our business.
We undertake no obligation to update older Dodge forward looking statements. Thank you Mike.
For natural results for the fourth fiscal quarter. In your ended October 31 reflect weak market prices for boneless breast meat reduced at our big Bird debone implants fewer than normal features for chicken products at retail grocery stores.
Continued and efficiencies that are Tyler, Texas complex as we move that complex to full production.
Slightly higher costs are afraid grain and planned downtime at processing plants to replace an upgrade equipment.
Overall poultry market prices increase slightly for the year compared to fiscal 28, Jane and grain prices were also slightly higher during the year.
That said feed cost in flocks sold were flat as improved efficiencies offset the higher prices paid for brain.
Our net sales for fiscal 2019 were $3.44 billion and our net income of 2041 cents per share.
We showed a record 4.53 billion pounds of poker product.
The start up at Tyler has gone very well and we continue to move that plant toward full production.
We also continue to evaluate side, so far next phases grow.
Well, we have room to materially improve our performance I'm very grateful to the efforts of our growers and our employees during this past fiscal year.
And I look forward to working with them to capture the significant opportunities.
Two during the coming here.
Well that introduction I'll ask plant there Mike to ride some detail on the quarter now retired after they finish.
Scratch, our focus during fiscal 2020 and to answer your question.
Thank you Joe and good morning, everyone.
As Joe said overall market prices for chicken well higher during fiscal year compared to fiscal 2008, and I don't think off for example, the year were essentially flat.
Hi Tech prices during our fourth quarter and the fiscal year continues to reflect relatively balanced supply and demand dynamics.
Volumes reflect fewer than normal figures at retail grocery stores and at national foodservice restaurants during the year.
Which we believe as a result.
Full availability and lower wholesale prices for competing proteins.
Well the year Oxitec prices were lower by 1.37 cents per pound compared to 2008 thing.
But with a 2.25 cent per pound improvement in our mix.
Overall average realized price reflects that sale increased point 89 cents per plan.
Well the fourth quarter, Hi Tech sales prices were higher by 0.12 cents per pound compare to the fourth quarter fiscal 2008 thing.
Our mix was also better so that is so that our net average sales prices during the fourth quarter were higher by 2.3 once that's booked on them. So.
Sequentially market prices were lower by one cents per pound and our mix improved by the same amount for flat pricing sequentially.
We remain constructive on our outlook for the tray pack markets during 2020.
Walk leg quarter prices were approximately 20.6% higher during the quarter compared to last year's fourth quarter.
And for the full year were higher by 1.3% compared to fiscal 2018.
Arterberry quoted market prices for leg quarters average 34.1 cents per pound during the fourth quarter and 33.5 cents for fiscal year.
Total industry export volume for the calendar year through October was up slightly compared to 2018.
Market prices are boneless breast during our fourth quarter were lower by 1% compared to the fourth quarter, a year ago, but were significantly lower than historical averages even post labor day.
Quoted market price will boneless averaged 94.4 cents per pound during the fourth quarter.
And the dollar six cents per pound for the fiscal years.
All this breast prices weakened substantially both labor day and aren't very market price for jumbo boneless breast is currently 98 cents per pound.
Jumbo wing market prices during our fourth quarter averaged $1.73 cents per pound.
Up 19% from the average of $1.46 profile than last year's fourth quarter.
Well the jumbo wing prices were higher by 19.9% from an average of $1.44 cents per pound during 2008 thing to an average of $1.72 cents per pound right 2000 my team.
Current Urner Barry quote for Jumbo wings, as a dollar and 57 cents profile.
Our average sale price for both products during the full fiscal year was higher by 2.4 cents per pound compared to last year, increasing 3.5. For example, the year ended October 31, 2009 thing when compared to year ended October October 31008.
For the full fiscal year vehicles, and broad process were lower by 110th of a cent per pound.
Or half of 1%.
For the fourth quarter, our overall cash call for Gray and delivered to our big males were higher than last years fourth quarter.
Prices play for colon delivered during our fourth quarter were higher by 12.8% compared to last year's fourth quarter.
Well, so flooding prices were lower by 8.4%.
Our vehicles for sale and brawler flocks processed were lower by one quarter of is that 4.9.
Like 9% during this year fourth quarter.
Compared to a year ago.
During this year fourth fiscal quarter, we process 1.28 billion pounds of dressed poultry and sold 1.27 billion pounds.
We processed 4.61 billion pounds fiscal 2009 thing and so 4.3 billion plus.
Well those are the modeling fiscal 2020, we currently expect to process 4.9 billion pounds of that folks.
All right fiscal 2020.
Which would represent a 6.3% increase in pounds processed compared to fiscal 2009 thing.
If we run our plants as expected those pads would be processed as follows 1.14 billion. In Q1 1.22 billion. If you to 1.28 billion in Q3 and 1.26 billion Q4.
Of course. These estimates are subject to change as result of weather changes in target live weights market conditions and other factors.
Like Joe I'm Grateful for every one associated with Sanderson farms.
Employees role with customers in vendors and look forward to the new year.
At this point I'll turn the call over to my for discussion of the quarter financial results.
Thank you Lincoln.
Net sales for the fourth fiscal quarter totaled $906.5 million and that's up from $798.1 million for the same quarter again in fiscal 2018.
The increase in net sales for the quarter reflects an increase in pounds or poultry products sold of 10.5% and a 4.5% increase in our average sales price for poultry products compared to last year's fourth quarter.
Our cost of sales are poultry products for the quarter ended October 31 increased 13.6%.
Reflecting a slight decrease in cost of feed and wall as process, an increase of 1.8 cents per pound in non fee related cogs in the additional sounds so.
For the full fiscal year net sales totaled $3.44 billion up 6.3% from $3.24 billion in fiscal 2018.
Cost of sales for the year increased 6.2 per cent compared to a year ago and totaled $3.16 billion.
The average cost per pound in our poultry business increased two cents per pound or 3.4% compared to last fiscal year, reflecting higher non fee related cost of goods sold and relative that the cost.
Non fee related Cogs were up were 40.21 cents per pound during fiscal 2019.
2.72 cents per pound compared to fiscal 18, and up four and a half cent per pound compared to 17.
Lob cost were just under a penny a pound compared to fiscal eight.
Fiscal 2018 on higher chip cost and higher lower pay.
Labour costs were higher by sent a pound fixed cost were higher by half a cent per pound and other cost consisting primarily of maintenance and anti microbial interventions in the plant or higher by just under one half cent per pound.
The reclassification of freight that is separately invoiced to customers from a reduction in Cogs to in addition to revenue added another half a cent per pound.
Any efficiencies at Tyler cost a third incentive plan.
We'll capture those efficiencies and tie or when we get to full production next spring.
However, I will point out that we were down a week at our browser, Texas facility and data weaken mccomb to install new equipment. During this first quarter of fiscal 2020.
And we'll also be down a week during Q2 of 2020, yet moultrie as we complete dip equipment upgrades at all of our plants.
We sold 23.9 million more pounds are prepared chicken, a 23.6% increase and our sale net sales price averaged 9.5 cents per pound lower or 4.9% decrease.
Yes, DNA expenses for fiscal 19 were lower by $10.8 million compared to fiscal 18, due primarily to a decrease in advertising expenses trainee expenses startup cost and other expenses offset by increases in legal cost administrative salaries and the reclassification of sales commissions.
As SDMA calls.
For fiscal 2020 were modeling $197.3 million per S. DNA.
And I'd estimate includes no accruals for bonus comp or the shop.
Both of those items are independent are dependent on profitability and we'll consider profitability as we move through the year and adjust this estimate accordingly.
We estimate SGN a expenses at $49.5 million in Q1, 48, and a half million dollars in Q2, 48, and a half million dollars in Q3 and 50.8 million in Q4.
At the end the fiscal year, our balance sheet and effective stockholders' equity of $1.42 billion and net working capital of 365.4 million.
For the year, we spent 250 million on Capex improvements and we paid 28.3 million and dividends.
Fiscal 2019 interest expense was 4.3 million an increase of 2.1 million over to 2018.
We had $55 million and get on the balance sheet at year end, our effective tax rate was 16.5% during the year and that is because the company recognized a 2.1 million dollar discrete income tax benefit due to certain income tax credits during the year.
Absent all discreet items, our effective tax rate would have been in 23.6% and going forward, we continue to model and effective tax rate of 24.4% exclusive of discrete items.
We expect our capex for construction maintenance and special special projects during fiscal 2020 to be approximately $198.3 million and to be funded by cash on hand internally generated working capital cash flows from operations and as needed liquidity provided by our revolving credit.
So the.
That totaled 41, and a half million is expected to be spent only equipment upgrades at several plants 15 million for a new hatchery in Jones County, Mississippi to replace and expand the hatchery currently serving the law Mississippi complex.
$11.3 million for vehicles, which in past years might have been leached.
And 130.5 million for annual maintenance.
The company has a billion dollar unsecured revolving credit facility of which 923.4 million was available at October 31 2019.
Depreciation and amortization during fiscal 19 totaled $134.4 million.
And we expect approximately $154.6 million for 2020.
The way we're modeling that is 37.4 million in depreciation in Q1 38.8 million in Q2 38.9 million in Q3, and 39 and a half million in Q4.
And with that I'll turn the call back over to Joe's comments about our grain strategy and false and 20 point. Thank you Mike.
Our feed cost per pound during fiscal 2019 were flat with previous year and represented the seventh straight year of relatively flat feed cost.
Given the supply feed grain and uncertainties regarding trade issues.
We continue to expect relatively benign feed costs.
During fiscal 2020.
If we had locked in prices for all of our need for fiscal 2008 twinning, including what we have already priced at current values that is abusing the Chicago board of trade contract prices for our current and future and age ASIC close last night.
Our cash cost for grain during fiscal 2020.
Would be $22.4 million higher.
Then during fiscal 2019, nice stones 2019 volumes.
Given that carry out in both corn and soybeans remains healthy despite challenges what to 2019 products in the United States.
And given ample worldwatch Pfizer both range, we should be able to bag, writing it prices only slightly higher than last year.
Corn basis values remain elevated as farmers remain reluctant sellers or lower prices.
We have taken opportunities to price our corn age through December and are showing me on the age through March.
And we remain patient for now on the rest of the year.
We are on corn basis through March is well.
As always on this year and Carl I'll share a few things were watching closely as we start a new fiscal year.
First as always we'll keep one a on the South American crop.
As of today, the corn in short crops in Brazil, and the rest of South America progressing normally.
Second we will watch in United States planting intentions report.
Next March most everyone believes corn acres will increase in 2020, well soybean acres will decrease and we will closely watch that report.
Third we will watch chicken production numbers.
You ask a estimates that the industry will produce approximately 3.2% more pounds kick in during calendar 2020.
Imperative 2019.
Looking at egg sets chick placements.
Placements in the size of the hen flock.
We believe the U.S. gaze estimate as reasonable.
Several facilities and expansions have been completed and closing our Tyler, Texas complex and we understand from publicly available information that a couple more expansion projects have you started operations or our near completion nasal add new production in our industry over the next.
Two years or so.
Whether or not and to what extent that new production exceeds demand for chicken remains to be saying well, we will do it continued to execute our growth strategy continue to look for side for our next plant and that the markets take care than sales.
We will of course also be watching the chicken markets market prices for boneless breast meat produced at our Big Bird plans for the foodservice market.
Have moved counter seasonally higher over the past few weeks.
The same is true for dark meat prices.
We have mentioned several times recently, we shall fewer than normal features for chicken from food service you establish vegetarian 2019 and during calendar 2020 counter 29 Jane.
That said, we are encouraged by the current chicken Sandwich war and the QSR market and we wish all the protest bridge much success.
As I have been said, we feel good about retail grocer demand going forward at least for everyday business.
Im hearing 29 change suffered from a lack the feature activity of grocery stores.
As many chose to take advantage of relatively low wholesale prices for beef and pork during the year.
Of course ship product news today retail growth of branch does it go to go into it freight to get showed a grocery stores is packed low income page and an already solved foodservice market.
However at market prices for beef and pork move higher during 2020 as many are expecting chicken could certainly draw more features.
Finally, we will keep a close out on the impact of African swine fever.
Okay and in chicken markets.
While there remain conflicting reports on the exact number of hogs lost to the disease in China and other Asian countries.
The fact that the world is facing an unprecedented protein deficit over the short term is real.
Exactly what the impact on chicken markets will be is unknowable.
However, we are very encouraged that were once again eligible to ship product in China.
And expect to material benefit from the open market.
We are packing power and all of our processing plants for exports to China.
At full production, we will produce approximately 87 million pounds of chicken feet per year.
And at current pricing estimate a 71 million dollar operating income benefit annually from shipping shifting phage China.
We start to new year in good shape.
Chicken markets are improving fade cost a relatively flat our balance sheet distro.
We start physical 20 point it was little debt and the company is well positioned to continue our growth strategy in future.
The new Tyler complex demonstrates our optimism and confidence in the long term success of Sanderson farms and our industry.
Are you complex will add value for investors opportunities for our employees in their communities and more high quality products for new customers. We remain committed to continuing our growth beyond Tyler and look forward to finding a site soon.
Market conditions are improving as we start to year and we believe the optimism surrounding the chicken industry as we move into the new calendar year is warranted.
With that we will now take your questions.
Thank you and ladies and gentlemen to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Star one at this time.
And we'll take our first question from Jonathan Feeney with consumer edge. Please go ahead.
Good morning, Thanks, very much Joe could you.
Could you tell us what that $71 million from.
Chicken feed how does that compare with your peak profitability from that product shipping into China in the past and can you refresh my memory I'm, we do.
And I do but back to the mid to high what that would not stopped.
I didn't hear that second half yes.
We were doing.
Yeah, Dan did not stop project compare with your peak profitability in that product in the past and when did that stop.
January .
2015, we.
The bandwidth put in place we stopped package.
That year accounts with $40 million before tax.
This year growth of course, we have more volume.
And the markets, so low, but so we're estimating 71.
John .
Lifted the ban on U.S. felt rail November reporting.
Ill Nov the 22nd.
All of the Sanderson Plath were added to the U.S.J. export library will improve.
The pack for China.
No one of the 24th we began fact involves as every plant.
For exports to China.
And we put our first falls on the water in a container on December the fifth.
So we're back down or will we start is just on the fifth and we'll continue to shift as product is ready.
Okay.
That's really really helpful and if I could ask one follow up.
How about your old there, how but other chicken parts into China could you talk a little bit thought the outlook for I know historically, that's been just very limited demand for a lot of.
A lot of chicken parts, but.
Any comment you have about that the prospects for think specified suite at the chart at the 2020.
Here's here's what we say.
The Chinese are being very cautious about.
Pricing Dave.
Paid a little too much.
Yes from product.
When they started ban heavily outside.
From some other suppliers, so they've been very cautious about pricing.
But here's what we think there's going to happen.
We think in the early part of January .
They're going to signed the agreement.
With the United States and then over the next 60 to 90 days after that the tariffs will come out.
We we we think we're going to sell some product for them and in January though.
And but.
It may be that there'll be tariffs on that initial product.
Yeah with them and the value added tax in addition to that but eventually.
60 to 90 days after that that entire comes out.
And we will be more competitive there's also a telephone Brazilian chicken.
And anti dumping tariff we think.
We know there's a terrorists.
And much set tear comes off own chicken and it just as importantly for us on port.
That's another big deal for us.
When those pairs to come off as a result of side in that phase one trade agreement.
Which we think might be March before that all that happens.
But we'll ship product before that we think we think will that'll happen in January .
Oh muscle I'm talking about we've we've had inquiry from China for.
Domestic whole legs and headquarters.
Blake lower than some bonus well probably start.
Got you well that's all very helpful. Thank you.
Absolutely. Thank you.
We'll take our next question from Michael Picken with Cleveland Cleveland Research. Please go ahead.
Yeah, just wanted that sort of follow up and get your thoughts in terms of Bob what it's going to close to get the breast market. Following I mean, I know you talk a little bit about.
Sycamore leather.
Got it small bird, but well how do we book but.
Mark as long as it can do that more block will report group.
To be more people, what a pretty wallet block.
It would probably to me in my mind it affect combination of things.
Okay.
Some meat no one to export.
And then I when I say me I'm talking about poultry.
These and port all that.
Maybe.
And then it will take some features at retail grocery stores and we'll take some features at in QSR, it's going to take how's that for for breast meat to.
To move.
When it will.
Oh.
Okay, that's lining up to half when all of that is lining up to happen.
Okay.
Close on the 1.4 coming by their prices typically rallying globally, but I mean.
Yeah, it's possible that we could quickly.
Cycle.
The current below the levels of about five years ago come out from a product.
Other product.
World form.
Well for the current law or Alkar oil equivalent.
Yes, you have a you'd have a low rally in January but breast meat norm. They moved most in March your biggest moving.
Grants made it normally in March and then again.
And.
Moves significantly moves on some.
But I believe margins.
You know the last two years boneless has gone up.
40% in March.
Both both years, we got little optimistic about the rest of year after that move in March and accounting leveled out that's the last two years that's been the big.
You can get little bump in January but your biggest moves and mark.
Hi, so well not possible.
Talk little bit about what Poppel workable.
Super Bowl a valid for a little color.
Well we.
I mentioned this in my comment weighing prices. It run 57 are higher than they were a year ago.
We.
We've really been surprised we haven't bad as short this football season.
As we normally on and we wouldn't expect these learnings that.
To be higher than that but I think going into the.
New years and Bowl games, and followed by the Super Bowl.
Optimistic about winning play.
We think we think with wings.
Minutes Dollarsseventy four level.
That a lot of operators are unique and bonus branch vanweigh. Thanks, a lot of allows operators using boneless wings.
And this set of.
Dollar 70%.
Things.
Right after labor day.
Hi.
Hi, Mike.
Our next question will come from Ken Goldman with JP Morgan. Please go ahead.
Hey, good morning, everybody.
I am.
I wanted to ask two questions if I can first.
Joel you had some.
Nonrecurring costs I guess in 20 my team they're.
<unk> expenses were up some inefficiencies in the production side.
And you guys are also talking about.
Having some down weeks in terms of production just to get those plants little bit more efficient. This year, how do we think about sort of the balance between.
Is there anyway to quantify I guess some of the costs, whether they're Cogs. The rest you name. It gets you last year that may or may be are not coming back this year versus some of the new ones I'm just trying to get it some kind of sense for how to model that happens because a lot of moving pieces there.
Well I know you had $13 million at.
Tyler that you will not have.
How much training costs going way down next year.
Seven or 8 million.
Well was this year and it's going to be down another 2 million next year.
But you will have the seven that's right seven put up to $9 million.
Layer.
I don't think weakening.
Thank you will have not been labeling I mean, you're going to say, leaving that she won't be legal expenses.
The year thing.
There were three things inefficiencies at Tyler is a third in the system pounding you'll get that back.
About the spring.
And the down days at all of our plan is set and you're right. We had seven issue a story that's right.
It was three things we.
Looking at it though.
Advertising.
Well, you're not going to have them.
But there were three things.
Once again it is still want to ask the question.
Well take our next question from Heather Jones with Heather Jones Research.
Okay.
That will kick in on that.
The other.
Operator, please check your mute function.
I don't hear has or not.
There is.
Yeah.
Okay. Okay.
Thank you.
Going back to.
He's saying in the days at your were down four equipment upgrades.
Three of those and.
2020.
Evan and 19.
Yes.
I'll give a number for that so how much that could be a reduction in cost.
No you know been the in the in our volume in our second and third quarters of 29.
Team it cost us a third of showing a pound each quarter I don't know I think it will cost us about that again 11 differ at all today.
For the full year right, but in the first quarter. We have two plans, which is what we had during last year, yes second quarter. So I'm going to say a third person a pound has.
And first quarter Okay.
But as a net which by the way the first quarter is already challenged with for holidays and down days ahead of crude oil volumes and Thanksgiving.
Right.
Oh, It's Jay you mentioned that you think that in January even with the tariffs.
The industrial ships.
Product to China, and did I hear you say whole muscle so you're thinking product in addition to pause.
Yeah.
Okay. Okay.
I ask you guys about the whole cold storage facility this year.
Wow.
Back down to.
Approved that list.
In December .
When he said.
20 faster they sentiment.
They will give us.
His brother.
Yes that that's what we're expecting.
And we are that from the rest of the U.S. the a report.
Okay and do you think it's going to be an actual announcement or is it just.
How are you expecting that to handle.
I'm not going away I understood. It was.
And last had been submitted to and.
If they do not.
Publish it.
Well I'll be approved.
Radically if they don't inspect them and they're not going into that goes.
No.
There are.
Going to be approved automatically just like they did the plans.
They were all.
Oh alone lists for yes, and no plants when will this fall.
I got approved the fact, though.
So basically if we all here may.
December 20 so.
It's.
Yes, that's right.
Okay.
One to talk about cash.
So.
It's the supply shortage turns out to be as expected.
Generally some pretty good.
Hello can you give us a sense of your parties for that.
Well, our first priority would be to build another complex, but you know we don't feel like we can do that right. This minute. So in my mind.
The Oh special dividend.
Which is what we've done historically and.
Prepare to build a plan those are.
Those are two things Atlanta.
Yep.
Okay. Okay perfect. Thank you so much had the Merry Christmas.
Thank you had the same do you.
And we'll take our next question will return with Ken Goldman with JP Morgan. Please go ahead.
Thank you good I think through.
I heard your deliberations and silence I know you guys I don't know I don't know what have I wait.
I I can't get it out of my guys, but we identified three things.
And I can't get it out of them and I will get back to you.
Were three things, we identified to a and then.
It was training cost that was going away.
Yeah.
Right, but labor expenses legal expenses are going away well.
The legal level and what started up and start to those three things are going to go away and it was a penny a pound, but legal are not going away next year.
Got it okay.
Thank you for that and that capitalism in pound.
We're going to prepare for me.
Okay. Thank you for that and then I just a very.
Quick one you were mentioning that the first quarter has.
Reasonable number of headwinds we are the messaging, they're more about just typical seasonality or was it more about.
A certain number of headwinds that maybe are unusual to the first quarter of 2020.
No you know the central holidays, or every year down days ahead of Thanksgiving and Hanukkah Christmas or every year. The things we will kind of this year's mckone was down all last week.
Getting it some equipment upgrade and you were down in Brazos in November . So you had a those additional down days lower top of the lower volume you normally get yeah, no, but you're absolutely right. Yeah. Those are every year, except the admissions were down days.
Well I don't want got somebody.
Thank you.
Our next question will come from the entire with Barclays. Please go ahead.
Hey, good morning, Joe lacking Mike. Thank you very much and congrats on the results just wanted to follow up on the 71 million figure you've mentioned operating income benefit for Paul could China.
Got it obviously it includes moving close for full year look the current carrying fall pause to go to China, because you've mentioned you expect those curves to fade away. So when you gave the 71 million is that inclusive off tariffs going away or is that still with carriers and actually the number.
Could be higher if carriers were to go away and you would actually get a bit uprising bought out of the POS you ship.
Good day higher if the tariff school as well.
Well.
Let me.
Well we're.
We have three plants.
I've never pack pause before.
Adelstein, Tyler and St Paul's.
Hey.
And we're just starting up and so they really good you need to pack, 65% to 70% of your policy and Gray day Polish.
And we're not there yet we're not 100% of fishing, we're not pack and 60, 570% and tell the story plant and we're really not there at any of the other plants trader. So we've got it well.
They there by the end of January .
We started back in November the.
Finally, there 25th that's going to take US a couple of months to get up to capacity and a good bye trained.
Nobody.
Really nobody.
The people in the plants the division managers had done it before major summer superintendents, but no employee and glad it doesn't it.
And so we get ramping up right now on.
But I answered the question is that window to Paris go away your margin probably going to go up a little bit.
Okay.
Perfect and without that carried away with its just which could be just additional incremental and can you remind us what the actual charge right now is.
On page 30, 35% terrorists.
Plus there's a value added tax and I don't know how much.
It's 10 or 12% for the value added tax.
Okay.
Now that's not going to go play value added tax will go away the 35%.
It's what we believe will go away and that's all.
They have actually.
Portends <unk> has a 70% tariffs on it but they have been Wayne.
The port.
Parents for the last 45 days.
And they have allowed some paper and bring in some port.
We think.
So.
[noise], but they're not buying as much volume as they couldn't big bringing it I can't remember when we read that.
He said.
Steiner.
Yeah, well I'd like to they say well, yes one.
When estimate out there by.
Somebody in the industry is it.
The pork industry could export as much as 30 or 32% of their production in 2020, you know that's the.
That's the high end of what I've seen but that would still be a lot of product.
Going into that export market.
That could use that mode I couldn't use that much.
Okay, perfect and that's in that and important.
That [noise].
As important.
As ship and chicken over there.
Okay.
All right. Thank you very much for that and then just one question I mean shrink. Thank you very much for all the breakdown you gave on the non feed related costs and we take a look at you or your outlook in terms of.
Cost into into next year and also has junaid it seems to be a little lower than what was 2019 can you elaborate.
We're receiving comes from I'm, particularly on the as Jumei side, because that that seems to be lower number close to 200 million horses, where we've been seeing.
In 2019, which was while more like a 200 and a ton of 10 million 211 million centered theories about 5% savings.
Where does that come from the marketing is that.
Hi, good labor, what what's driving that that number down on the year over year basis for Judy.
Yeah, I'll tell you that you know 9.4 million of it is the absence of startup cost you'll recall that he started the title plan in February .
Our January and you had startup cost in November and December which was last year's first fiscal quarter. So nine 9 million there 1.8 million additional savings trainees calls.
Legal expenses we.
Optimistically, probably not easily have reduced about 3 million for next year. He shop, we don't we concluded they shop accrual than we had a $3 million cool in fiscal 2019. So.
And then that'll be upset about.
Offset by an increase of 2.8 million and administrative salaries and.
Small increase and some other things, but what was marketing compare.
Advertising expenses flat flat.
Oh.
Okay perfect.
Thank you very much in congratulations again.
Thank you.
Our next question will come from Ben.
Now with Stephens Inc. Please go ahead.
Good morning, guys.
Oh I'm sorry.
Yes.
Okay comments about corn basis.
Had a hard time pricing basis, I, just want to get your sense of relative to a two weeks ago or a month ago isn't getting any easier to price basis.
And what do you all looking for what do you think farmers are looking for for that basis to break a normalized.
Oh.
It's Howard and price basis for the.
Fiscal year.
Which I'm not going to do.
It would be up 24 cents a bushel.
I see that 82, 18 24 cents Bush.
Oh, we price during March up price January February March last week.
And it was about 18 should it should look.
At about 18.
Yeah.
Okay.
And.
I had some truck corn about from <unk>.
Our Texas and.
Mississippi and North Carolina that was.
Less expensive than.
It kind of blended that down a little bit but.
You know the farmers are Jewish.
That said irritated they had a bad planning and then they had perfect pollination perfect rain. So they made more.
When they thought they were going to make better yields and now they are having.
Not this week with Monday, a week ago.
That we're still 900 million eight bush bushels of corn in the field that can't get it out.
And that's problematic for them and for the supply.
But you know they want their they'd like to get it out and get it in a band and.
I've had a bad time with this crop and.
And I don't want to sell it for.
You know Cohen's rallied in the last two weeks. It was it was 375 unless you're on the board and the and the basis was negative 40.
50 cents, a bushel, particularly where this coordinators.
In Minnesota, and Wisconsin in North Dakota, probably.
60 cents a bushel negative.
There.
And Oh, yes, just a bad then a bad crop forum and.
I understand that much like southern boneless breast for setting to shut down.
Like that either.
That's helpful. Thanks.
And then Mike I want to ask about freight rates.
I know you guys had the accounting changes for freight in 2019, putting that aside.
You know it sounds like freight rates are going to be better in 2020, I'm wondering if you could give us a sense of what exposure you guys have a contract versus spot and what you think about freight rates into 2020 seems like it could be a nice tailwind.
Yeah, you know it could be they go out you know we did a lot of range for the full year, the the logistics team downstairs.
Sure, where they're going to be shipping product and they'll go out to be it for those lines and get a lot of unpriced in January and then they feel even during the year showed prices come down or go up were exposed to that but most of it is price for the year.
Maybe I hadn't heard any numbers I'd say I made its a.
They're not going to run it on local will save a lot of money. This is not expecting.
Oh fuel.
So I don't have a number yet we but there's good question and we'll fill that in February call. After we get everything priced in January .
Okay, Great lakes that bad Crystal.
Say it again Ben.
I just said Merry Christmas Good luck with Oh [laughter] band so much good good talking to me.
Our next question will come from Eric Larson with Buckingham Research. Please go ahead Sir.
Yeah. Thank you everyone happy holidays to all as well.
Hi, Thanks very much.
So Joe we talk I I'm forgetting some of the timing here I guess I guess its age that I have an excuse for but you took you made a.
Conscious decision to bump your your salaries up for your employees.
I think we talked a lot at March or April and then you Phil Thank you.
In the second bench.
Okay. So you also felt that you had.
The ability to improve your efficiency prove a series of efficiencies that would pay for that.
And I think you probably did get some benefit of that this year, but it is that because that maybe I can that be a tailwind in in 2020, as well or would that be more of a neutral cost and pack.
Uh huh.
I think neutral we.
Actually we're gonna start out the year.
Let me just petition contact were no I'll start out 2020.
In much better shape and the plants.
Then we did 2019 as far as.
Yields and the plants Oh, the plants or are the yields are much better.
Every plant we have.
They're all Oh every one of them or close to the top 25% all the big bird plants are in the top 25%.
And.
All but one of the tray packs are in the top 25%.
We hadn't done that and that I I attribute that those to the management and also to the fact that we're staffed at all those plants I pricing at all the tray pack plants are excellent.
And and.
Then a year long process getting that.
And.
And a lot production is again I had another great here or there in.
Up 10%.
And I I am attributing that to pay that we did.
And.
We were pretty close to our live weight.
Target.
Now one thing we have Oh, we have about what we call an extra board, which is about 10% over labor force.
And mostly plants have never had an extra board and they've never managed an extra board.
Which.
Never were able to hard enough and.
Uh huh.
The trick when an extra border it's.
Very good Amanda platinum worked very hours and asking for volunteers to go home.
Train.
And then.
I'd people go home extra barge cover absentees and paper out only season and.
Pardon vacate vacations and things like that well, where it were hired up full everywhere there have extra boards. So first variable five months, we had too many people and plant.
And.
They have to learn how to manage those extra boards and.
Well, we'll get that done pretty quickly and.
But I think that.
I think that abating.
They back on the back and get it tray pack plants.
There are excellent their costs are excellent.
They boenning plant.
As was it hadn't really gotten back I wouldn't say to neutral yes.
There's still a.
However, going through a lot of training.
But I think I think that all big fan soon.
Got it.
So is it is the issue was still building a new plant here is it still.
We just still finding adequate labor in any of the reasons that you all would like to put the amendments that is that the constricting factor.
Yes.
Hadn't identified a site where.
Where there's ample labor and I think it's not a good time to.
The.
Looking for contractors and it's not a good timing.
I think material cost are very expensive right now.
This should not a good time to be there we would just bad Alpha hatchery.
Small had Korean and.
Ah Jones County, and.
Yeah.
We we where it came in below a good bit higher than we thought it would just metairie when this concrete.
The all in.
Ali.
It's very expensive right now.
Yep.
Alright, gentlemen, thank you again happy holidays.
Thank you very much without thanks, Eric.
We'll take our next question from Adam Samuelson with Goldman Sachs. Please go ahead.
Yes, thanks, good morning, everyone.
Data.
Joe Lampkin, Mike I was hoping to get a little more color on on the retail market. Maybe just I know this is a slower time of the year from a retail perspective, but you getting any kind of visibility on featuring picking up through the first quarter and any comments you could have just around just done with like the base.
Contracting kind of activity for for for 2020, and just making sure you're products got that got the space at the retailers, where you want it.
We January is shaping up nicely as far as.
Boneless breast features at retail.
I would use.
Which is usually January usually is like that usually january's.
A big bought four features especially on boneless breast.
A lot of people make their new years resolutions regarding their diets and they won't eat healthy and so that go the chicken and allow them go to boneless breast. So that's that's developing nicely, but for our customer base.
[noise] for January .
I'm not sure understood. The second question would just contract. Just is are you seeing I mean, just I mean, you guys sold out his hand, Kenny contracting commentary just in terms of make sure you got the customer base that and you got your the retailers. The you want to be in <unk>.
We had talked about your start taking it to where we're still a we're still selling the move production out of Tyler.
That's about all of that products not placed.
Exactly where we've always to be but we are starting up two new accounts and.
In January that will vote.
The beneficial for that's out of client and B.
Might be a big good luck toward getting that plant completely so that we still have some of the sale.
And.
Got a number of rig times, we're talking to about that.
Okay, and then maybe just in on the food service side with QSR is with the with the Chicken Sandwich Wars. Just are you guys seeing kinda orders or some of those further processors they pulling in jumbo breast meat and not a lot of a lot of its been small bird, but are you seeing some others start to stockpile <unk> jumbo boneless breast is as competitive.
Response, or just any activity in that part of the channel.
We are not saying that we we sell a number of brother processes and they're buying.
Their orders or our normal, but we're not seeing any ramp up weight, Adam as Joe We think just move and boneless breast we saw.
When it went from I don't know 80, 88 98, we think that was further processors calling in.
Bonus in anticipation of higher prices.
And the first quarter.
And so they were ban.
The.
But we don't know exactly for.
Any special feature or anything where do you expect they weren't stockpiling swing cheaper bonus Cogs I taught boneless breast prices will go move up things break.
Got it okay that colors, a super helpful. You all have a happy holidays and happy new year.
Yeah, you too.
Thanks.
Our next question will come from Robert Moskow with Credit Suisse. Please go ahead.
Hi, Thank you for the question.
Hi. This is my bad earnings call, Yeah, I Didnt expect so many questions about cost I think my initiation had 30 pages on chicken pricing in China, So maybe I need to sharpen [laughter] on your cost structure and all the complexity my goodness.
One thing I was hoping maybe you could kind of pull it all together for us on is that no I look at your EBIT. This year and what consensus is for next year.
It's it's like a 200 million dollar improvement baked in and is there anyway to kind of tied together and say how much of that you can get to just from self help to all these operational efficiencies are just easier comparisons.
And then maybe even layer into that you know the chicken cost shipments opportunity how much is that maybe I'm prepared it that way, but I was just curious and I had a follow up.
Well, yeah, I mean, I mean, we think.
Internally.
Uh huh.
Some stuff, we can do internally, there's $50 million to $80 million.
Yeah, we've identified that we can do and then has to do it the.
Yields at our plants.
Has to do a shown packaging improvement should it has to do with some getting getting in Tyler sold out getting in the right Nick chain Tyler It has to do with Ah Ah.
We put in a lot of dark meat deep owning we don't have all that so well.
And Ah things like that in.
There's some other things, but those are.
<unk>.
Some of some of the ones. So we think $50 million to $80 million, we can do entirely.
Those we call those operational goals.
We will identify those at the end of the fiscal year and then the rest of it is gonna be help from the market.
And.
We think.
That a this african billions and fever.
This protein shortage.
It's not just chicken.
I want to emphasize it's a chicken is going be a part of it.
Moving chickens don't be up 3% reports go me up 5%.
Hey production on top of what it was in 2019 what Jewish.
Billionfold a half pushing it.
It's just as important did.
The U.S. export pork and beef.
To China and other countries in Asia.
So.
When we know we had we believe.
And that's a forward looking statement.
That the market, there's going to me.
As much Hill.
As or more than what we want to do our sales.
Sure and then that that's where you would get.
Improvement.
Right and then my follow up was on that 3% increasing production.
It's been a multiyear increase in industry capacity from new plant construction.
And my sense was at.
2020 would kind of BT end of that maybe three or four year cycle.
Is that how you would characterize a two based on what you're seeing competition doing or is it they're kind of like a spillover effect from all that capacity that would.
Uh huh add incremental pounds in 2021 as well.
I would I want thank.
You would see 2021.
As well it feel well if you look at the egg sets in Chick placements.
I don't have that in front of me, but.
I believe you will note I was looking at it and Executive Committee and we were looking at seven and 8 million eggs and seven 8 million chicks a week.
Over a year ago and it feel that up there now.
But playing out.
And where they are.
That doesn't add up to seven and 8 million that adds up.
Half of that.
The Sanderson the they now they're the right for the.
Uh huh.
Costco just got started so they're not.
They started labor day, they're not.
Semolina engines, yes, they're not there is some there some other people that had.
And.
Increased production that didnt them now.
And and so there's there's there's much more there it didn't know now and they have increased production I don't I don't know that to Tyson plan is opened yet so there are 2021 and 2022.
And someone's.
It's a bigger plant.
And they're going to be a 2020 122.
And Ah I believe right for.
Uh Huh right for a built a bigger plant and they had so they're going to be a warning 20 122.
And.
A chat and Casco Bay and 2021, they will ramp up to full production and 20 I wouldn't think that thing to have been 2021.
So I think you've got right pointed and 2021.
Alright, okay. Thank you.
You bet.
Thank you.
Our next question will come from Peter Double with Bank of America. Please go ahead Sir.
Hey, guys. Good afternoon. Thank you for out for fitting me in.
Absolutely just to two quick ones for me.
Joe I'd Love to just get your commentary you know on the opportunity in China, Yeah. The U.S. trade representative came out and said that it would be kind of around a billion dollar opportunity for you industry. There have been headlines out. This morning that you know it could be as much as a double that I'm, sorry, I just want to kind of trying to gauge how large that the overall.
Opportunity of China, you think could be.
I have no I I have no clue about.
The Savage.
I mean I.
No I mean people there, but they prefer port.
And Oh.
You know.
It's a huge though I mean.
Uh huh.
<unk>.
The limitation and Adobe.
Vessels and shipments and cold storage in China and.
Things like that.
And I also remind everybody that there is a ceiling on prices.
For a you know.
They are they being very cautious about prices right now we've talked to them and.
I have a without made our salespeople have there been very deliberate about prices and.
Oh, there, they're good barge and.
There.
There are cautious.
I don't have.
Total about.
But.
But it's it's.
Good good opportunity for Us I believe.
Got it okay.
And Mike I don't know if you provided this in your prepared comments or not but did you give a feed cost per pound estimate for the first quarter.
[noise] no and we don't typically do that.
You know we priced are generally goes Joe's jokes JV price just going through December he's got his saw advice through the first quarter and then tomorrow.
We don't.
That's typically had no.
Uh huh.
Yeah.
You will have some of the.
<unk> corn call October was packed products coal.
So you'll have that pricing going into the takes anymore and then you got to put born after that.
And I don't know watch so actually show.
Uh huh.
Are there.
That's similar whispers.
Nothing that's been significantly change from Q4 to Q1.
Got it okay. Thanks.
That's what I call are available.
Oh basis.
And we'll take our next question from Dan May you with bank of Montreal. Please go ahead.
Hey, guys. Thanks for taking my question.
You bet.
Okay.
So just one question.
At your Investor Day this year.
I said that chicken exports, we need to increase roughly 10% to get chicken margins back to normal levels is that thinking still apply here.
What you just go back to institutional would need to go up 10% or chicken products used to normalize.
I don't remember that the I don't remember that but and I don't know.
Yeah.
You know it feels like that's going to happen.
But.
I don't remember that who said that he and I said that.
So.
You might have kind of bumping counseling for Oh.
Oh yeah.
Yeah [laughter].
It's just there this thing.
Because of the increasing supply domestically, yes of course, there's a lot there a lot more move in bars to that them just exports you.
Hey, Good thing to me you got two or three things that are.
On the horizon.
You have.
Export chickens.
To chat.
You had exports pork.
Before.
But and you have the possibility of a very large employer.
Featuring a chicken sandwich.
In the United States.
And if that if you will go back in history, and look and see what happens when that particular player features chicken in the United States. She's a pretty good really good it's not a bad situations and is it's not one thing that's happening there's a multitude.
Things that are on the horizon and beef and pork go up we get more features the result.
And the pricing benefit that's what I'm talking about Islam talking about yeah basin, putting in export that same retail same same players also going to feature.
Because chicken disappear, yes, darden and 22 and trying to send off from competition from some other is ever going to start doing breakfast yeah.
<unk>.
Is there a lot of things happening, there's not just one thing.
Right fair enough.
That's my only question.
Holidays to everyone over there.
Thank you.
Thank you feel like that.
All right.
And this does conclude today's question and answer session I like to turn the conference back over to Joe Samsung for additional or closing remarks. Thank.
Thank you and thank you for spending time with us on behalf of everyone at Sanderson farms happy Hanukkah, and Merry Christmas and happy prosperous and piece lunar new year to everyone. Thank you.
And this does conclude today's call. Thank you for your participation you may now disconnect.
[noise] Oh.
[noise] Oh.
[noise].
Oh.
Uh huh.
[noise].
Uh huh.