Sanderson Farms considers sale, WSJ reports

Dive Brief:

• Sanderson Farms is exploring a sale, The Wall Street Journal reported after speaking with people familiar with the matter. The poultry producer is the nation’s third largest, processing more than 4.8 billion pounds of meat in fiscal year 2020, with sales of more than $3.5 billion. Sanderson Farms CFO and board member Mike Cockrell told Food Dive in an email it is company policy not to comment on market rumors or speculation.
• The Journal reported that publicly traded Sanderson Farms hired Centerview Partners for advice on the potential sale. The company, it reported, garnered interest from potential buyers, including agricultural investment firm Continental Grain Co., which owns Georgia’s Wayne Farms chicken company. However, Sanderson Farms may ultimately decide not to sell, the newspaper reported.
• In October, Sanderson Farms rejected an unsolicited takeover offer from Durational Capital Management, which at the time was a new shareholder in the company. The company and its board decided that Durational’s buyout offer “very substantially undervalues” Sanderson and its future prospects.

Dive Insight:

As the coronavirus pandemic — and its disruption to the meat industry — begins to settle, it may be time for Sanderson Farms to look for an exit.

It’s unclear if the company, which was founded in 1947 as a feed market and transitioned to a poultry farm a few years later, has ever considered putting itself up for sale. However, after COVID-19 outbreaks spread through meat plants and demand skyrocketed, and as inflation is surging and employees are getting difficult to find, this may be the right time for Sanderson Farms’ management to bow out.

The markets are also looking at this consideration favorably. After The Wall Street Journal’s story came out Monday evening, Sanderson Farms’ stock reached an all-time high of $184.45 in pre-market trading on Tuesday. 

Right now is likely a good time for a poultry company to consider a sale. The high sales and demand experienced during the COVID-19 pandemic are continuing. A company like Sanderson Farms is in a position where its high value is in the spotlight. In its most recent quarter, Sanderson’s net sales were up 34% compared to 2020, reflecting strong demand. 

Chicken remains an important mealtime protein in the U.S., both at home as well as in restaurants. And Sanderson Farms hasn’t even been producing all it can. In April 2020, the company reduced production at some of its plants by 5% because of coronavirus outbreaks there and reduced foodservice demand. Chairman and CEO Joe Sanderson Jr. said in the company’s earnings call last month that the plants will ramp up to full capacity in the coming months.

Prices have also been increasing. In Sanderson Farms’ most recent earnings report, the company said that jumbo boneless chicken breast meat market prices are about 60.4% higher compared to a year prior, bulk leg quarters cost about 12.4% more, jumbo wing prices had skyrocketed 88.9%, and the market price for chicken breast tenders was about 54.5% higher. 

However, difficult times may lie ahead for Sanderson Farms. While chicken prices are skyrocketing, so are feed prices. The company has locked in its supply through September and October, Sanderson said on the earnings call last month, but it expects that feed cost will still be 7.5 cents higher per pound of chicken processed this year. These high costs — plus an increase in construction material costs — are also delaying a planned new processing plant for the company, Sanderson said.

Sanderson Farms is also one of several chicken providers implicated in a sprawling U.S. Justice Department investigation into chicken price fixing. Many restaurant chains, grocery stores, CPG companies and food distributors have also filed their own lawsuits against chicken suppliers over prices. Several of the providers involved in the investigation have reached settlement deals, but Sanderson Farms has not. This means there could eventually be massive damages for the company to pay — and a greater legal headache to unfold.

Regardless, Sanderson Farms is a powerhouse in the poultry industry and could be a lucrative component to any company. It processes more than 13.6 million chickens a week at 12 poultry plants and a state-of-the-art processing facility that opened in January 2019, the company says on its investor relations website. Sanderson Farms has more than 17,000 employees and works with more than 1,000 independent growers. And it has remained a family business; CEO Sanderson is the third generation to take a leadership role at the company.