Q2 2021 Sanderson Farms Inc Earnings Call
Good day and welcome to Sanderson farms second quarter 2021 conference call. Today's call is being recorded at this time for opening remarks, and introductions I would like to turn the call over to Mr. Joe Sanderson. Please go ahead Sir.
Thank you.
Good morning.
Welcome to Sanderson farms second quarter conference call.
We are proud of the second quarter results. This morning, announcing net income of $96.9 million or $4 from 34 cents per share for our second fiscal quarter of 2021.
This compares to net income of $6.1 million or 28 cents per share.
During last year's second quarter.
Results for this year's second fiscal quarter reflect an accrual for probable Asia contribution and the negative impacts related to the winter storms that affected our operations during the quarter, Mike will discuss both of those in more detail later.
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 as a company.
Actual performance from the company could differ materially from that indicated by the forward looking statements because of various risks and uncertainties.
Risks and uncertainties are described on our most recent annual report on form 10-K, our quarterly report on form 10-Q filed this morning with the SEC and our press release that we published this morning. These documents are all available at our website at Sanderson farms Dot com.
You should not place undue reliance on any forward looking statements. We make this morning, each such statement speaks only as of the day and we might not update or revise our forward looking statements external factors affecting our business such as feed grain cost market prices for poultry meat, the health of the economy and of course.
The COVID-19 pandemic, among others remain highly uncertain and volatile and our view today may be very different from our view a few days from now.
Thank you Mike.
The past 14 months have been challenging for Sanderson farms, we continue to navigate through a pandemic and faced historic winter ice storms.
Hey, Jeff political and social on rich, a global recession, and volatile grain and poultry markets.
During our second quarter call last may.
<unk> spent most of our time discussing the extraordinary resilience and dedication of our employees and the steps we were taking to protect their health and safety.
A year later on.
I remain so very grateful for the work and dedication of everyone associated with Sanderson farms.
I believe we are emerging from this challenging time and a day.
A stronger company thanks to their efforts.
Sanderson farms operate very well during the second quarter of fiscal 2020, 1 and on.
All areas of our business.
Improved polka markets more than offset feed grain costs that were significantly higher compared to last year's record fiscal quarter.
Resulting in increased operating margins.
Improvement in the poultry markets was largely driven by higher demand from food service customers as consumers slowly return to restaurants and several quick serve restaurant chains featured chicken sandwiches on their menus. In addition to the improved domestic demand for.
Chicken export demand also improved during the quarter as a result of higher crude oil prices improve liquidity as a result of currency valuations and some relief from COVID-19 related restrictions.
Price is paid for corn and soybean meal increased significantly during the quarter compared to last year.
The USDA updated its 20.
'twenty, 1 grain balance sheets and published his first flow as we have projected on <unk>.
'twenty 1 'twenty 2 crop balance sheet on May 20 May 12.2021.
Reported confirm this rise low corn and soybeans.
Relative to expected demand remained tight in the United States and the world.
'twenty 'twenty 'twenty, 1 corn balance sheet.
Estimated carryover next year at $1.3 billion bushels for next year, the USDA assumed trend yields.
<unk> was $83.5 million harvested acres.
To get to an ending stock projection of $1.5 billion bushels at the end of the 2022 marketing year.
Expect to surprise, a solid range or even tighter.
The ending Scott estimate for the 22021, you were just 120.
Million bushels.
That represents a 2.6.
Stocks to use ratio.
But on the 'twenty 'twenty, 1 'twenty 2 year, the estimated stocks to use ratio moved to 3.2%.
On the Usda's estimates for next year wood, it's realized somewhat as supply strange.
Those estimates don't mean too much today, especially given current weather concerns in both the United States in Brazil.
We have price all of our soy meal basis through October and most of our corn basis through September.
We have also price all of our sewing me on needs for the balance on the fiscal year.
All of our corn for June and July.
And half of our corn age for August and September.
Given where futures price closed yesterday on the Chicago Board of trade Heather.
<unk> price to our remaining needs through the end of the fiscal year at yesterday's close cash.
Cash corn and soybean meal prices during fiscal 'twenty 'twenty 1 Mike.
Just on our own fiscal 2020 volume wood.
It'd be $367.6 million higher than a year ago.
These higher costs would translate into an increase in feed costs of approximately 7 on a half cents per pound of chicken processed for the year compared to fiscal 2020.
Our actual feed cost per pound on chicken processed through the.
First half of the fiscal year.
Average 29.2 cents per pound.
Heavily price to our remaining needs yesterday.
Feed cost per pound would be approximately 35.31 cents per pound.
In Q.
Q3, and 34 point.
5.1 cents per pound.
In Q4.
In addition to our costs, we will be closely watching the chicken markets and production numbers.
Weekly exits as reported by USDA have hovered, just under 240 million H a week for 11 weeks, while egg sets are well ahead of last year's Covid effect of numbers. The number of chicks placed for the past several weeks implied hedge rate below.
80%.
In addition to low hedge ability brought on 11 ability is also lower than historical average averages.
These production issues are translating into fewer pounds than 1 might expect given the size of the layer fought.
The current USDA forecast is for United States Broiler production during calendar 2021 to increase by approximately 4 tenths of a percent compared to calendar 2020, and by 1.2% in 2022 compared to.
The 2021 estimate.
We expect total production during our third and fourth and fourth fiscal quarters to decrease by.
6%.
And 2.3% respectively compared to the same quarters in fiscal 2020, primarily because we lowered our target live weight at our Haynesville Mrs.
Mississippi plant.
Better meet demand from our retail grocery store customers.
In April 2020, we began reducing production at our big bird plants by 5% in response to lower foodservice demand.
Its own set of the pandemic.
In response to improve customer demand, we will start returning those plants to full production in June and.
And we will be back to full production and all but 2 of our big bird plants by early September.
Our balance sheet is strong and we are well positioned to execute on our strategic organic growth plan.
We're in the final stages of vetting the site of our net new poultry complex, we hope to announce the site soon but 1 assets.
Our construction schedule.
Until we get better visibility on the 2021 grain crops.
In a reasonably sure of adequate feed grains, and perhaps see some normalization of construction commodity cost <unk>.
She is lumber steel and concrete.
At this point I'll turn the call over to Lampkin for a more detailed discussion of the market and our operations during the quarter.
Thank you Joe and good morning, everyone.
As Joe mentioned overall market prices for poultry products were higher during the quarter when compared to our second quarter last year realized prices for chicken products sold to retail grocery store customers increased on price and mix improvements compared to last year's second quarter and tray pack demand has remained.
So long as many customers continue to cook more of their meals at home realized tray pack pricing during the second quarter was up by 6.2 cents per pound compared to last year's second quarter and was higher by $2.07 per pound sequentially.
Bulk leg quarter market prices were higher for the quarter compared to last year's second quarter, averaging 35, 3 cents per pound during our second quarter. This year compared to 31.4 cents per pound last year as Joe mentioned, many of our export partners have more liquidity and demand should increase.
COVID-19 related restrictions are eased.
In addition to survive leg quarters available for export the decrease.
As domestic foodservice demand or be both on the increase.
That said lower leg quarter showed up on the market in may.
We believe we believe this could be the result of labor shortages is more labor is required to produce day bone dark meat as opposed to bulk leg quarters.
Market prices for Jumbo wings were significantly higher during our second quarter than last year's second quarter Jumbo wings averaged $2.64 per pound up 88, 9% from the average of $1.46 per pound during last year's second quarter price for Jumbo wings.
Much of calendar 'twenty 'twenty, 1 in record territory.
Quoted market prices for jumbo boneless breast moved significantly higher during our second quarter today.
Today, they are on a very quote for jumbo boneless is $2.24 ships profile.
Overall market prices for jumbo boneless breast were higher on average by 64, 4% when.
When compared to the second quarter a year ago.
The overall result of these market price changes was an increase of $22.3 per pound.
And our average sales price per pound of chicken sold compared to last year's second quarter.
We sold $1.2 billion pounds of price and frozen poultry during the second quarter.
On the increase from the $1, 1.8 billion pounds sold during last year's second quarter.
We processed $1.2 billion pounds of dressed poultry during the quarter up 3.4% from the $1.181 billion pounds processed during last year's second fiscal quarter.
46, 2% of the payout were processed at our tray pack plants 53, 8% at our Big Bird plants. We now expect to process approximately $4.3 billion pounds of fresh chicken this fiscal year a decrease of approximately.
3% compared to fiscal 2020.
We estimate we will process approximately 1.2 billion pounds in our third quarter and 123 billion.
Fourth quarter.
These estimates reflect our decision from return to return our big Bird glass before production starting in June.
Weather bird performance and other factors could affect these estimates.
So $45.7 million pounds or further processed chicken at our prepared chicken plant through the first half of this year compared to 48 million pounds through the first half of last year.
The average sales price for the first half of the year was lower by 6% compared to last year.
Demand from our foodservice customers for prepared chicken was significantly affected by the pandemic.
March and April last year, and we had several weeks when the plant operated only a few days orders improved as states opened up especially from customers will drive through capabilities.
We removed <unk> from the play out during the first fiscal quarter of this year and then place that line with the par Fry Cook line.
We now have the capacity to prepare $2.6 million pounds wood products each week and believe this move will help us better meet our customers' demand from par fried partially cooked chicken products at this point I will turn the call over to Mike.
Thank you Lampkin net sales for the quarter of $1.3 billion were higher than the $844.7 million last year and reflect a slight increase in pounds sold and higher selling prices and 1 <unk>.
Hundred and $9.7 million increase on our cost of goods sold for the quarter ended April 30, as compared to the same months last year was the result of higher non feed related costs, an increase in pounds of poultry products sold of $20.7 million pounds or 1.8%.
And higher feed cost per pound.
Non feed related Cogs during Q2 were $43.7.
Gotcha pounds, and Thats up 0.8 cents per pound or 1.9%.
Paired with last year's second fiscal quarter.
The increase in non feed related Cogs includes increases in labor packaging fixed cost lower pension costs.
We spent $8.6 million on direct Covid related expenses during Q2 of.
Of that total $3.7 million is included in Cogs, and $4.9 million and SG&A. We estimate net COVID-19 related expenses will be $6.75 million during Q3 and $5 million during Q4.
The $8 million increase in SG&A expenses for Q2 compared to last year's second quarter reflects higher legal costs attributable primarily to litigation higher administrative salaries for $9 million in COVID-19 related expenses.
And in <unk>, and an accrual of $6.5 million from a probable E shop contribution.
We expect SG&A of $58 million in Q3 and $60 million in Q4, but those estimates do not include on Aesop accrual will consider on an accrual as we move through the balance of the year and that accrual will be somewhere between 4 and 4.5% of pre tax income.
Based on our results for the first half of the fiscal year management is not yet determined that it is probable that the company will meet the 12 point O $2 per share earnings per share targets that interest the threshold requirement under the company's bonus reward program Accordingly, our Q3 and Q4 estimate.
Do not include accruals for bonuses.
That is also true for the portion of the bonus award paid based on performance and our benchmarking.
Although our managers today would on a bonus based on year to date performance, we have not yet determined that it is probable that that will be the case at year end.
In addition to the Aesop accrual results from the second fiscal quarter reflect uninsured losses of $2.75 million or.
Our non <unk> per share net of income taxes associated with the winter storms that affected the company during the quarter.
This amount represents our deductible and retention under our property and casualty policies, we booked $4 million, Inc. Covered expenses above that deductible as an insurance receivable during the quarter.
The company's results for the second quarter were also negatively affected by <unk>.
Business interruption losses related to the store.
While we expect to recover some portion of those business interruption losses, we are subject to a 7 day waiting period deductible under our applicable policy.
We continue to work with our insurers the adjusters the accountants and we will continue to refine the calculation of losses stemming from the storms as well as well as any amount of those losses that will be recoverable outside the deductible period, and we will book a receivable when we reach an agreement with our insurance partners.
If werent, saying once again as we did in February that the hard work and resourcefulness of our employees contract poultry producers vendors contractors and customers. During those unprecedented unprecedented few days allowed the company to significantly mitigate possible losses and protect.
The company's assets during the storm, we remain very grateful to everybody associated with Sanderson farms for their efforts.
Our balance sheet and liquidity position are very strong we ended the second quarter with $55 million drawn on the revolver and $122.9 million in cash we actually paid off net outstanding balance this morning.
Our net debt to cap was negative and our total debt to cap of 3.5%.
We now have $974.8 million available to us under the revolver after todays payment.
We're very comfortable with our balance sheet and the liquidity, we have available to us as we navigate through the pandemic.
We were pleased to report that on April 23, the company executed an extension of this $1 billion unsecured revolving credit facility for another 5 years.
I haven't got a credible having net credit available to us together with the strength of our balance sheet gives us confidence, we can navigate interest industry cycles and unforeseen circumstances, while at the same time continuing on our strategic growth plan.
We now expect to spend approximately $191.9 million on capital projects during the fiscal year.
Net total we expect to spend $10.1 million to complete actually is complete the new hatchery in Mississippi, $46.4 million on building and equipment upgrades and $13.3 million on trucks and trailers that in prior years, we've leased the <unk>.
Balance of $122.1 million as for regular maintenance items.
We intend to use cash on hand cash flows from operations and as needed on our revolver to fund these capital budget items.
Our depreciation and amortization during the first half of the year was $81.6 million and we expect approximately $170 million for the full fiscal year of 2021.
Finally, before we answer your questions I want to mention that Sanderson farms is scheduled to host this annual Investor Conference in New Orleans. This fall the conference here if it happens in person will open with dinner on Thursday Night October 14th and the conference will start at 8 o'clock Friday morning October 15.
The conference will be at the Windsor Court this year and the dinner on Thursday night will be the same place as always.
We hope we're able to host hosted a conference line and that many of you will join US in New Orleans, if we're unable to host the conference in person, we'll certainly amongst the virtual conference.
You will find the information regarding the conference or on our website and we will add to registration and hotel information soon but for now please save the date from the conference and if you think you might appear on the conference consider getting your reservation sooner than later, the New Orleans Jazz Festival, which is normally held in the spring as move through the fall.
Paul and we will be hailed weekend following our conference hotel rooms will be hotter in the jumbo wing market.
Ali that completes our prepared remarks. This morning, and you can open up the call for questions.
We will now begin the question and answer session to ask a question you May Press Star then 1 on your Touchtone phone.
If you are using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2.
Our first question today comes from Ken Goldman with JP Morgan.
Hi, good morning, and thank you.
Good morning.
Good morning, I wanted to ask.
You guys have obviously had a very strong tone for a while now about fundamentals with good reason.
It looked like in earner, Barry breast meat on breast meat did peak and earn a barrier in a berry seemed to have a tone of okay.
The great times are over we've hit peak I'm just curious do you have any <unk>.
<unk> forecast or any thoughts around where breast meat will go from here over the next month or 2 just in relation to where it peaked and earn a Barry just I know it's impossible to be exact on that any thoughts would be helpful. Though.
Sure.
We think we.
We're right at the end of the month end.
Breast meat might be solved for.
A few days.
But we think.
Whereas for the summer.
Wood.
We're gonna see.
On a pretty pretty.
Pretty strong market.
Ed.
S edge stage continue to open up restaurants continued to.
Opening up and.
We feel pretty good I don't know, if it's going to stay over $2.
Can but.
We think it's.
I'm going to stay pretty strong.
And we.
We think boneless dark meat is going to do the same thing as more and more restaurants opening back up.
And more and more restaurant sure Bill.
We feel pretty good about it.
Okay. Thank you for that and then.
Mike.
What can you tell us.
About.
What youre looking for from your cost of goods sold from a non feed basis going forward.
I look at it.
It declined obviously by over 100 basis points as we look at it.
Quarter to quarter, just trying to think about.
The other 1 on an absolute basis or on a percentage basis do you have any thoughts about how we should be modeling that for the back half of the year.
I would model it flat.
So that make up the.
That labor is going to be it's going to be it's going to be steady for the rest of the year I don't see any reason for packaging and fixed cost in.
Grower pay and chick cost and big items in that are baked in for the balance of the year Kian I would model.
I would model something similar to what you saw in Q2.
So just to be clear it was $504 million when you exclude feed and prepared chicken Cogs are you talking about something close to $500 million each quarter going forward or is that on a pump or on a percentage of sales basis, you were saying it's Scott.
That's good that's good.
Okay.
Great I'll, let it go there thank you.
Thank you.
Okay.
Our next question comes from Ben Theurer with Barclays.
Hey, good morning, Congrats on the strong results.
Thank you.
Thank you Dan.
So just following up a little bit on the pricing side.
Mike continued to be a little behind the curve I would say on the price increases what are you seeing on the demand side for leg quarters.
Into the more shorter term just to stay with Ken's question around it what are you expecting here I know, it's difficult, but clearly it's an important piece just to put together. So we can basically think about the entire.
Third price realized just considering that.
What you've just said price likely to stay over $2. So what do you think about leg quarters and wings in particular as well from a pricing perspective from an ex.
A couple of weeks.
We don't we don't think we're going to see.
Any a lot of movement in late quarters low.
Quarters were very strong in April.
And.
We think because of labor situations in some plants.
Or the lack of labor.
More on leg quarter showed up in may for export.
Actually the price drop maybe a nickel a pound.
For May shift.
And.
If.
Is there some resolution.
Some of the labor situations.
Leg quarter should go up but right now.
There's a tremendous incentives.
2 deep zone.
Uh huh.
Joe.
Linked quarters.
On the Stanley is trading for.
On $1.82.
Uh huh.
$2 a pound.
So there is a tremendous incentive to do more.
Sure.
Boneless.
Dark meat.
And if people could get to labor.
And that might occur with some of the stage.
Uh huh.
I'm not.
Taking the federal.
Supplement.
4.
Unemployment.
Federal unemployment benefit.
And I can't tell you all states South Carolina.
Georgia, Mississippi and Texas.
And most of that's going to come out in June.
If that occurs.
There may be more labor available and placements.
And the planning on it.
You can see.
Leg quarters.
You might see boneless dark meat.
That's a joke.
Okay got you I don't see anything happening to leg quarters on.
Till that occurs.
Okay, and then just sticking with Labour you've set for the new plant you would need to see some grain supply clarity and to be like comfortable but the supply of grain and obviously the cost of grain.
Comfortable are you.
The availability of labor because it's an industry wide issue on we've had many companies talk about the shortage of labor, which clearly partially is related.
2 the unemployment benefits, you've just talked about but in general. It seems there is some sort of labor shortage and obviously, considering if you were to build a new plant you would need an entire new.
Staff. So how do you how do you think about the labor shortage also in light of those plans for the new facility.
The area, where we are looking.
Has ample labor I can't give you the statistics I don't recall.
The other labor pool, but it should be.
There's plenty of labor there.
And it.
Resembles.
Some of our other numbers are similar to <unk>.
Where we are in some of our other areas.
Uh huh.
So we don't go to a place where there's not ample labor.
Uh huh.
We are.
We have been able to.
John a very close to our product mix and to take care of our customers.
At our other plants because we.
We're tight on line.
No question about it we have more at <unk> and <unk>.
Uh huh.
We can hire a bunch of people right now.
But we think some of it to on a resolve.
Later in the summer.
But the new place, we're looking has ample leg rest 1 other things if we don't.
If we don't see that.
It's a beginning.
We walked away from that spot immediately.
This place we're looking right now.
Plenty of labor.
Okay.
Well, thank you very much and congrats again, thank you. Thanks Dan.
Our next question comes from Dan Dan venue with Stephens, Inc.
Hey, Thanks, good morning, everybody.
On it.
So I wanted to ask about kind of 2 part question as it relates to the bonus expense and just your outlook for the remainder of the year.
I know, it's still early in the third quarter, but things looked like they strengthened pretty materially in the business.
On the supply demand setup.
I think you all would characterize it as pretty favorable through the balance of the year. So.
Little surprised to hear you say that.
The the bonus expense accrual is subject to a degree of certainty around earning $12. A share. This year is that hesitancy to make that call just a function of how early it is on the year still or is there something else that's in that calculus for you all.
No.
Strictly because of where we are in a year. If you look back historically when we paid a bonus last time was 2017.
We don't crew that until third quarter. We're just you know it's got to be probable.
Certainly possible.
But probable is a little bit higher standard.
So we'll get into the third quarter.
End of May June as we move through the third quarter and make that call.
Okay that makes sense.
As a follow up to that.
I don't want to put words in your mouth, but in light of what seems to be a really strong environment. You guys can find yourself with with quite a bit of cash at the end of this year.
Paid off your debt you said, Mike This morning, I think he said.
You've got intentions to build a plant, but it sounds like that might be a little ways out.
Uh huh.
Is that money going to burn a hole in your pocket or what do you. What are you going to do with all that cash do you think.
We will not burn a hole in my pocket.
[laughter].
It'll be a good day, but we certainly would be a good position to be on you know historically after a special year. Our board considers special dividends, that's always a possibility.
Joe just said that he is not quite ready to put a shovel in the ground yet.
Until we resolve some of these contingencies out there but.
Move with all deliberate speed to continue our growth strategy.
His work and Uh huh.
Hopefully.
I don't know about commodity prices and lumber and steel and wood the biggest staying about building a complex right now.
Concrete and steel or a high price.
We there's a there's an embargo on steel coming into the U S. So that has driven up the price.
Steel and a lot of people build and stuff and so concrete.
Is it as high price, but the main thing.
That would get wood.
Cause you to pause as the price of lumber.
Our chicken houses, we have to build 400, 425 chicken houses for bullish and hands and growers.
And the price of lumber has tripled in the last 18 months.
So if you go and build a conflict right now.
And you have to build those 425.
Houses or whatever the number is.
He was on a half to what we try to.
Guarantee.
A certain return to our growers.
Youre going to have to Nike in a.
And it would put.
Net to guarantee that returned to our growers.
You would bake in a.
Our return.
Oh on grower pay that will put them all out of sync with all of our other growers.
Now all of our growers Cross Sanderson farms from North Carolina detectors, Mike at the same pace.
And this just run up in lumber has happened over the last 18 months.
Everybody in the World is building a house because of low interest rates.
And.
My Heart Challenge me.
Uh huh.
Bill with pioneer.
Right now.
My head tells me.
On the patient.
And so on a more big picture.
Uh huh.
We need a plant we need we have sales right now for that fine.
And it takes US 18 months to build a plant.
But this is not a good time to build a plant.
We.
We can make a double digit return on that plane.
But if you go build a plant right now you're going to Cook in some calls.
And does that plan.
And then we build it from 50 years, we don't build it for the next 2 years 3.
Are you fully but we built it for 50 years and he was on my feet on some cost in net finance a conflict.
It's going to be way too high.
I didn't mean to.
Go off on your wood.
No that's great. It makes perfect sense to me.
Congrats on having a happy Memorial day weekend.
Thank you thank.
Thank you too.
Our next question comes from Peter Galbo with Bank of America.
Hey, guys. Good morning, Thank you for taking the morning, David I paid you bet.
Lindsay I was just hoping to get a little bit more detail on the production plan for the third and fourth quarter, just just the split.
Big Bird vs tray pack kind of how youre thinking about it.
Hey, Peter this is Mike. So we can say, what we're going to process $1.2 billion pounds. In Q3.661 million of those are at big Bird plants 559 million on tray pack plants.
The 123 billion pounds in Q$4.679 million of that.
Those are our big bird and 550 million pets tray pack plants.
Our tray pack plant on.
Our tray pack plants are full.
We've been able to run full production of Detroit, but.
We've cut back at the Big Birdie Boeing plants going back to last spring, but we're storing those goods now at all but 2 plants. It will just take us.
Some of them will come back on line middle of the summer on some of them at all from some of them after labor day.
Yeah.
Got it that's helpful and then maybe just.
Just switching to tray pack.
You saw a nice price.
Price mix improvement at least in the quarter and I think you know a fair amount of that was maybe mix just.
Is that expected to kind of continue into the back half I know you were taken on some some incremental business. Joe. So maybe just any color you can give us there on how that's going so far thanks very much guys.
I think the improvement will continue I don't know if it'll be that much.
There's a lot on the tray pack prices or not.
They're not going up.
It goes up.
The mix, yes, the mix will continue to improve.
So that's what's happening in tray pack is youre not having a edge.
And so that helps you price go up you took on a bunch of new business flow.
I don't think you'll see the percentage.
Increase in the next quarter that you show on this quarter I agree with it it will be shown on but it won't be to the same standard.
But you picked up.
In the second.
The second quarter.
You'll see some of that uncertainty.
Yeah.
Yes.
Our next question comes from Eric Larson with Seaport Global.
Yeah. Thanks, guys. Thanks for the question.
So the first question I have is you know in your Capex for the second quarter.
How much did you spend on a wheel barrels.
[laughter] without too [laughter], well wheel barrel wouldnt do it either you need a semi trucks like you already have some of those that you can use right.
Yeah.
So.
In all seriousness about good great quarter really nice good day.
Great to see your execution is so strong Joe assault the question that I have been weak.
We've talked about this I think before.
Labor has been an issue.
You really for several years now on it it looks like it could be something that goes on for awhile and we had talked about how you know on them.
Good day Boenning plants. He has he was kind of breakeven probably a couple of years ago and now with derived from labor cost is probably.
Therefore on this you would probably pay for itself, so where do you sit with automating some of your more labor intensive pieces of your plants.
If you were able to do that in full scale from let's say for all of your plants. What is the capital requirement for that for that type of thing to take place.
$5 million or plan for what we do each other what Mike why which is 50% of it yeah.
We it's not it's $5 million per plant.
We have automated a 3.
But this is white meat deep on all of our dark meat day Boeing is already automated we have oh made 3 of our tray pack plants.
For white meat and we were in July.
This is 1 of our big Bird day barring.
Plant.
<unk> tested it has not been done.
Successfully anywhere that we know about.
But we're going to try 1 and sit on the floor.
I've done this before with our Eviscerating machine I remember.
Clearly as a male when I was working on other plant manager Laura I'll back in the seventies.
And we shed on the floor and watched it operate.
And had the manufacturing and they modified it we go on where it was doing right and what it was doing wrong.
And over a period of time, they modified the sponge on debt on this ratio in the machine.
The other better job.
And that's what's going to happen with dish.
Are they buying machine, we won't put it on 1 of our plants.
And it may take 6 months to get it right, but we're on track and.
1 of our.
Day Boeing up plants.
And it's not a it's $5 million of plan, it's not that big.
On deals in that that machine.
Uh huh.
And the hard the hard part about it is.
Eliminate 75 people roughly.
Payback is quick but couch that you absorbed it.
What you are trying to do is not lose yield.
And $2 <unk>.
Estimate.
It's very expensive if you put that thing in there and lose yield out of it.
And Oh.
We're estimating 25, you're still 1% your loss history.
Sales serious.
So we've got to put it in.
Get it modified.
And get it right and that's going to take some time.
Okay Yeah.
It's not the capital expense.
Getting machine right, where you don't live right.
Right I.
I I I knew that the yield was the issue in the past as 1 of the major constraints on it sounds like you're probably still listen and there's some work to do on that day.
Yeah.
Second piece the follow on to that question of course is if you could.
Solve some of that labor problem.
Labor issues the amount of labor that you need wood that you know would that.
Allow you to have.
More variable or more choices strategic choices the war on them.
Put your plants I mean, maybe closer to <unk>.
Some of your your your grain sources in the south that would lower your costs not only transportation, but on the basis of everything else that maybe there's a secondary benefit to that that we're not looking at.
No we're getting relocated plant.
I guess, they're not there.
50 boxes, we have to check.
And the other fabrics shapes that are on.
Oh April and 1 of them is water.
All of our growers have to be able to drill a well.
Where are they have water.
1 of them is labor we all.
You have to have plenty of labor coach.
They've been on and it's not the only thing we do it on our plants we have.
A lot of other jobs and you have to have growers show Theres got to be a lot of growers and you can tell that from Intel it from.
Sure.
And.
I'm not going to tell you all of them, but.
The 50 things that check out, but we will although we will never go to a place where there's not a lot of labor.
I gave you an example.
St Pauls.
North Carolina.
To the north of Bush.
Can even say it will Kennedy I'm checking you take the name of the county, there their 300000 people 10 miles to the north.
And there are 150010 miles to the south.
There's plenty of labor.
And we're having trouble right now with labor that Brian.
Because of the federal unemployment benefits.
Net.
We know the Labor's there plenty of labor.
And.
So I'm not going anywhere where there's not a lot of labor.
Uh huh.
They're there.
We're always going on whether it's labor.
Okay.
Our next question comes from Ken Zaslow with bank of Montreal.
Hey, good morning, guys.
Good morning, Ken.
I just have 2 questions do you think the capital investments that you've made on day Boenning.
And the opening of the day trade.
Trade to China with the chicken paws to make this chicken.
Margin environment better than what you've seen historically.
Yes.
Right now.
Does this environment feel like op margins can be better than historical.
Other than historical cycles, yeah, because of the investment that you've put in which Tony as well as the chicken paw environment that we really never saw real like before.
Yes.
Right now Joe.
Day.
If you just look at right now.
And not look at.
We have no clue what the next 5 months June July through October.
Today.
Uh huh.
No no go ahead Scott.
You are at historical Mike Yeah, you are and you know we built a wood.
We ran a model just last weekend, where we took 5 year average margins and look at that very question and.
If you look at 5 year average margin you've got 3 years that didn't include chicken feet. So you have to add chicken feet back to that and then we yes. We did also do an adder for the additional margins that we're going to earn on dark meat day bony now I'll be honest I did not assume $2 a pound.
Dark meat day bony, but it was a nice addition.
Addition to the 5 year average model.
But.
If you look at just.
What you're doing right now.
You don't know what should be on mid June July August September October.
But if you look at today.
Your historical margin.
Okay.
Then just going on the other part of it the duration low 2014 to 2017 was a net.
Curious, Dan if I remember correctly it was on Woody breast issue today, we have a rooster that doesn't do as well maybe in the market that maybe it sounds like theres not a lot of production increases. So is there a lot of compare can you make a comparison between 2014.2017 to today in terms of duration or.
There are their parallel to that in terms of the longevity of this I know you said that you don't know what's going to happen on 4 or 5 months, but kind of not in the next week, but kind of bigger picture with production and demand things like that can you talk to that.
Are there 2 or 3 things I'll comment about production.
If you look at the pool, it's going down.
At least.
I don't know what percentage of the poet's going down there.
Right.
At least half of those in my opinion are going down with that.
An antibody and it's because.
People are using the males backdrops, the brothers of the Polish and.
And our no antibiotic program.
And so if they.
Using the backdrop.
Brothers of the pool it.
With with no antibiotic program.
They are not giving a pull it.
Antibiotics.
Mobility is poor.
And the productivity of that pull it.
Once she gets into production of 'twenty 5 'twenty 6 weeks is not as good.
And the pull it live ability.
It is not as good.
So you may see 8.2 million.
Will it go on the ground.
And everybody is assuming 8.
8.2 million Polish is going on in a lot of eggs.
And we're going to expand.
That is not going to happen.
Pullet mortality.
Is.
Excessive right now.
And and.
And then there's a.
There is another.
The ratio of delay.
If poor.
And it doesn't matter about which Mayo.
Oh wait wait.
You've heard 1 of our competitors talk about their meal and they were switching.
And in.
But it doesn't matter if it was their mail or the mail that we use.
Yeah.
You all recall I talked about dish.
456 years ago.
We had over fed from my old and they Wouldnt breed.
And.
But you you have to be very careful.
Trading and trading any of these mattos Jr.
Q U E U.
You either have their their bread.
To produce resonate.
Our high yield males.
And are we we've kind of figured it out we screwed up every now and then 1 slot.
Our production people have done a great job.
And our hatch buildup to run normally.
A 5% higher than you.
Then the industry average.
And you can get just from the USDA you didn't see it every week.
The industry average on.
The USDA is running about 80% well, we'd run normally we run about 5% higher than net and then.
Cash because of our lack of production basically they have figured it out.
And now we.
We will screw up a block every now and then we'll either undertreated or <unk>.
But it's that's not on a norm.
But you got to watch them, all the time, but.
Look it.
The live ability to pull it.
Look at the hatch ability and then look at deliverability.
Of the borrower.
The brokers are not making it to the plants, because they're being raised without antibiotics.
So the Polish.
You say pullet placements you'd have to subtract 3 times.
For the mortality as a pilot.
It performed much right on lay on the pull it and the live ability and mortality.
On the boroughs.
Yeah.
So that's why I don't think there's going to be a big.
<unk> increase does 3 things.
They might try to put eggs and machines.
It does not and I Didnt mentioned 8.
I don't think there's going to be a lot more pounds.
On the market to summer.
So.
So I know you're not forecasting pricing.
How does this environment that's strong change if production is kind of muted demand seems reasonable.
Is this something that could last like in 2014 to 2017 type of episode.
Or is it or do you think its very short lived.
Or.
Just and I'll leave it there if that's okay.
Yeah, I don't think it's short lived but what I do think is.
There is a limit to everything at some point.
$3.25 shouldn't winge.
If somebody's going to figure out.
Some way to substitute for that.
2 dollar breast I don't think is a big you know I think people can buy that and make money.
Tenders, I think people can buy that and make money on it.
Joe.
$2 boneless dark meat, I think people can buy that and make money on it.
Particularly in light of the price of pork and beef.
Those prices are very are.
Relatively high right now.
Compared to where they were a year ago show chicken prices.
Our.
I'm not that not that high.
Compared to our competing proteins.
Great as always Joe I appreciate it. Thank you guys. Thank you. Thank you can't.
Our next question comes from Michael price win with Cleveland Research.
Yes. Good morning, just 1 on a Michael a little bit more on what I just wanted to talk a little bit more on the tray pack side I know you mentioned that youre going to be moving in a couple of your plants back on to the big boat side and just wondering I mean do you have the capability to meet all the orders you tray pack customers or how are you going to handle that until.
The next facility is ready.
I understand that yeah.
Ask that again, Mike I think on extreme where it says Ryan its Mike.
The other ones.
That will take her so I'm just wondering do you have enough capability to meet all your trade possible.
No we're not moving Haynesville Hearts Mac hydro <unk> is going to remain in a tray pack size bird for the foreseeable future to help us meet that demand to cut the plants going back to full production or the foodservice plants. The big bird plants that we took down last year during the pandemic by 5%.
And we're just restoring those cuts, but haynesville harsh we'll stay.
Tray pack size bird.
But until we get that next plant open them, because we need to.
To meet demand from our customers.
Got it okay.
So we're going on.
Whereas on a run.
We're gonna need we'll go run all of our plants from Memorial day to shift to me.
Meet demand.
Look we have great demand.
Demand with no wage next.
Next week.
Uh huh.
Both.
Foodservice counts and retail accounts.
For next week.
That's what about on your chicken specials.
Okay. Yeah. That's helpful. So I guess how.
How are you thinking about the tray pack side of the business I know that theres been obviously a lot of increase in prices on the big bird side of the business and on 1 of your competitors talk recently about the.
Having some success renegotiating some view on contracts I mean, how do you sort of see the.
The tray pack side of the book.
The equation on the profitability of that going forward and is there room for upside on that side, maybe the big bird.
That's made in wing prices, maybe dropped off a little bit in coming months.
Well you know we made a.
We made an agreement in the fall with primarily in the following on with all every 1 of our great cash on cash some of them happened during the year.
[noise] wood.
We don't go back to our customers when the price of corn goes up in price.
Neither of those Oh, we've made a deal with them Joe.
Like we did with all of our customers it bash from our prepared.
Prepared foods plant.
We price that off with price to all of them off of what we felt boneless breast and tenders, we're going be.
And we price on all of that in the fall when we went to market.
With them.
And.
You can imagine how badly wood missed.
That.
There you.
Our prepared foods plant.
Not looking show sporty right now.
But we don't go back to those people and say hey.
And 1 of the reasons, we don't do that because corn and soy go down.
I don't really want them coming to me and say hey.
Prices are down let's look at on a formula.
So.
That's kind of think that's our job.
So deal with corn and so it's not their job to day over that and.
So we're not trying to reprice anybody will deal with it in the fall.
When we.
We if corn and sugar prices are higher in the fall.
When we reprice our contracts.
We'll take that into account then.
We have renegotiated.
A few trade pack.
In March and April and we were able to get more money from that yeah.
Our next question comes from Adam Samuelson with Goldman Sachs.
Hi, yes, thanks, good morning, everyone.
Good morning, Adam.
Good morning, a lot of Ground's been covered so a couple of just quick clean ups and Joe Lampkin, Mike just thinking about the kind of thing the big bird plants back to full rate.
Do you have any early sense on what that implies on your fiscal 'twenty 2 production, obviously, you're not going to be new production capacity in terms of a new plant next year. So it's really just the operating rates and the facilities are you on.
Well you know absent you know absent.
You didn't you know like the pandemic caused us to reduce production at those big bird plants, we would anticipate fiscal 'twenty 'twenty 2.
To run our plants normally and normally means we were cut back November December and then we run full from new year's day through Halloween.
100%.
And you know shift from being down of course from holidays, and that's what we would plan to do in 'twenty 'twenty 2 I don't have that pounds number in front of me right now.
I know it's shown are in our investor presentation, which is on our web. So actually you can look at it there but that's.
That's what we would anticipate you know and that translates to a 97% utilization rate for the full year.
Okay, and I guess in that kind of along those lines I mean, what do you think at the industry level. I mean, you took you slow down your big Bird facilities do you think that there is any other kind of latent kind of capacity.
For others in the industry, just given the margin environment that were on even with grain.
It would seem that.
People should be trying to do that if they can't given kind of where price of oil.
I would think.
Not so much big bird I think maybe there from others and.
In other market segments.
Not big Bird.
But there might be some others in other market segments.
It might not be enjoying.
I think big bird people or day Boners would probably.
Probably run and everything that I, probably running on everything they can do right now and I think it's in other market segments.
Alright fair enough.
We don't know what other people are yeah, we don't even though we know what we're doing right now.
Fair enough I appreciate the color I'll pass it on thank you.
Mike can I get them.
Our next question comes from Robert Moskow with Credit Suisse.
Hi, Thanks.
Just a quick detail your production came in higher than what you. Originally forecasted is that just good productivity and yield at the plants during the quarter.
And then secondly can you just speak more broadly about what the impact on your business and the industry has been from the challenges that the industry leader has had this past year.
Is there.
We're talking about like on an industry issue, but is there anything more specific that you could point to.
What about our production came in here Yeah, we had heavier we had heavier birds in Texas. After the chapter stone had some heavier live weights than we had previously guided to and in our head to head processed was right on what we anticipated that it was on.
All bird weight, Robert we had a little bit heavier birds than we anticipated because of it.
Good day cleaning up.
And that's right and better yields or yields where about a mystery on above what we had and what we estimated.
No comment on others in the industry, Mike we don't they.
They don't have.
Any insight on that.
Okay.
Thank you very much.
Thank you.
This concludes our question and answer session I'd like to turn the call back over to Joe Sanderson for any closing remarks.
Good thank you all for.
Spending time with us today, and we look forward to reporting our results are and all of them to you.
Thank you.
The conference has now concluded. Thank you for attending today's presentation, you may now desk come on.