Sanderson Farms Management Discusses Q1 2014 Results - Earnings Call Transcript

| About: Sanderson Farms, (SAFM)

Sanderson Farms (NASDAQ:SAFM)

Q1 2014 Earnings Call

February 25, 2014 11:00 am ET

Executives

Joe F. Sanderson - Chairman and Chief Executive Officer

D. Michael Cockrell - Chief Financial Officer, Treasurer and Director

Lampkin Butts - President, Chief Operating Officer and Director

Analysts

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Michael Piken - Cleveland Research Company

Farha Aslam - Stephens Inc., Research Division

Jeremy Scott - CLSA Limited, Research Division

Brett M. Hundley - BB&T Capital Markets, Research Division

Andrew Strelzik

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Operator

Good day, and welcome to the Sanderson Farms' First Quarter Fiscal 2014 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.

Joe F. Sanderson

Thank you. Good morning, and welcome to Sanderson Farms' first quarter conference call. We issued a news release this morning announcing net income of $28.9 million or $1.25 per share for our first quarter fiscal 2014. This compares to a net loss of $6.9 million or $0.31 per share for our first quarter fiscal 2013. I'll begin the call with comments about general market conditions and grain cost, and then turn the call over to Lampkin and Mike for a more detailed account of the quarter. Before we make any further comments, I will ask Mike to give the cautionary statement regarding forward-looking statements.

D. Michael Cockrell

Thank you, Joe, and good morning, everyone. This morning's call will contain forward-looking statements about the business, financial condition and prospects of the company. Examples of forward-looking statements will include statements regarding supply and demand factors future grain and chicken market prices, poultry prices and economic conditions and production levels. The actual performance of the company could differ materially from that indicated by our forward-looking statements because of various risks and uncertainties. Those risks and uncertainties are described in our most recent Annual Report on Form 10-K and in the company's Quarterly Report on Form 10-Q filed with the SEC this morning, in connection with our first fiscal quarter ended January 31, 2014.

Joe F. Sanderson

Thank you, Mike. The first fiscal quarter marked a solid start to fiscal 2014. Demand from retail grocery store customers has remained stable and that stability has reflected in a Georgia Dock whole bird price that hovered near record territory throughout the first quarter. On the other hand, food service demand remains weak primarily as a result of lingering weak macroeconomic conditions. In addition, weather negatively affected food service traffic during our first fiscal quarter. This weakness is reflected in across the board, lower market prices for product produced at our big bird deboning plants. Market prices for boneless breast meat, tenders and leg quarters were all lower during the quarter compared to last year's first fiscal quarter and wing prices were significantly lower. I do anticipate seasonal improvement in all of these prices other than wings as weather improves and we move into springtime.

While overall market prices for chicken were mixed during the quarter compared to last year, market prices for corn and soybean meal were materially lower. Our feed costs were down almost $0.11 per pound of chicken processed during our first fiscal quarter, with market prices for corn and soybean meal have moved some higher in February following the USDA's lower than expected estimate of the corn carryout at the end of the 2014 crop year. The next events the grain market we'll watch will be the South American harvest, the March supply and demand report and the March 31 planning intentions report. There's no reason not to expect American farmers to plant every available acre this spring and with normal weather, the grain balance sheets should improve further. However, a lot has to happen between now and then. For these and other reasons, we remain short, both corn and soybean meal. While we have priced a portion of our soy and corn basis, through July, we are, for the most part, pricing our grain needs hand to mouth. Based on our costs through the first fiscal quarter, and what we have priced so far in February, when combined with prices we could have locked in through the balance of the year. At yesterday's close, our grain costs for fiscal 2014, including the cost of additional volume, would be approximately $153 million less than during fiscal 2013. This decrease in fiscal 2014 would translate into a $0.0625 per pound decrease and our cost per process pound of poultry. At our Annual Shareholders' Meeting a couple of weeks ago, I told our shareholders we're watching 5 things closely, during fiscal 2014. First, as I just mentioned, we are watching the quality and quantity of the South American crop. A strong harvest in this region could take some pressure off U.S. exports of grains. Secondly, we have been watching Washington and the political debate regarding our country's fiscal health and debt ceiling. We are pleased the debt ceiling debate is over and are hopeful that this successful resolution might actually spur some optimism and relief among consumers who will resume more normal spending patterns. Of course, we believe springtime will also help. Third, we will be watching the Planning Intentions Report in March as I'd just mentioned. Fourth, we will, of course, watch chicken production numbers and consumer spending behavior. It is possible the industry could produce 2% to 3% more chicken during 2014 than last year. Although healthy, more optimistic, fully employed American consumers could easily absorb that increase, we will not know the impact higher production numbers will have on chicken markets until we get there. We do know, for certain, that chicken will be competing, once again, during 2014 with high-priced beef and pork. However to the extent to which food service customers will feature chicken over beef, and to the extent to which consumers in grocery stores will switch from higher-priced beef and pork to a lower cost options is not known. While we should enjoy significantly lower costs during fiscal 2014, the extent to which, if at all, we give some of those lower costs back to the chicken market is a question we will have to wait and answer. Finally, we will focus our effort on Palestine, and work to get that complex built and ready to begin operation. Construction is underway and while weather has delayed construction to some extent, we remain on schedule to begin operations at that plant sometime during the first calendar quarter of 2015. I remain optimistic about 2014. I believe lower grain markets will give us an opportunity to make good margins with a little bit of help from the chicken markets. The chill pack environment is good and could improve even more seasonally as we move past Easter and into the summer. We need some help from the food service market, but that too should get better as we move into spring and summer, especially with high-priced beef likely impacting margins in food service. During our first fiscal quarter, feed costs were down almost $0.11 per pound. We gave $0.015 per pound back to the chicken margin in lower sales price but this combination worked well. Our plan for the balance of the year is to remain focused on what we can control and let the markets take care of themselves. At this point, I'll turn the call over to Lampkin for a more detailed discussion of the chicken markets and our operations during the quarter.

Lampkin Butts

Thank you, Joe, and good morning. As Joe mentioned, market prices for poultry products were mixed during the quarter when compared to our first quarter last year. The Georgia dock price for whole bird reflected continued good chill pack demand during the quarter and averaged $1.04 per pound, an increase of 6.5% compared to last year's first quarter average of $0.98 per pound. The Georgia Dock whole bird price quoted as of today is $1.045 per pound and continues to reflect a good balance between supply and demand of chill pack product destined for the retail grocery consumers. Bulk leg quarter prices during our first quarter were lower by 15.6% compared to last year. Urner Barry leg quarters average $0.413 per pound during our first fiscal quarter compared to $0.49 per pound last year. Final numbers for calendar 2013 reflect a 1% increase in the volume of all roller parts exported during calendar 2013 and we expect the export markets to be steady during calendar 2014.

The average price for jumbo wings was significantly lower during our first fiscal quarter compared to last year, decreasing 40.7%. Jumbo wing prices averaged $1.06 per pound during our first quarter of this year compared to $1.79 per pound during last year's first quarter. You might recall wing prices set record highs before last year's Super Bowl but this year supply has felt burdensome and market prices failed counter-cyclically this winter. While we might see some improvement around March Madness, history tells us not to expect a bump in wing demand until football season. Boneless breast prices decreased by 4.3% when compared to the first quarter 1 year ago. The Urner Barry bonus market averaged $1.33 per pound during the 2014 first quarter compared to $1.39 per pound last year. These prices reflect a market that continues to be adversely affected by a challenged United States consumer and weak food service demand, which demand was further impacted by adverse weather this winter. We sold 720.4 million pounds of poultry products during the first quarter, that's a 0.5% decrease from 723.7 million pounds sold during last year's first quarter. Process pounds were down from last year's first quarter in part as a result of weather related down days this year and a couple of more Saturday runs last year versus this year. Our process pounds were down slightly from 731 million to 728 million pounds. The down days loss to weather will be made up during our second fiscal quarter. We expect to process approximately 751.9 million pounds during our second quarter, up 6.5% from 705.8 million pounds processed during last year's second quarter. Recall that we were cut back during last year's second fiscal quarter.

Prepared food sales were up $4.4 million or 20.2%, on $2.6 million more pounds sold, offset by a slight decrease in our sales price per pound. Our sales team has done a good job identifying new customers for the foods plant and we expect better performance for the year. Our performance during the first fiscal quarter was good and we will continue to operate this company the same way we always do. We will continue to look for efficiency improvements and we'll do everything we can to meet our goal of performing at the top of our industry. At this point, I'll turn the call over to Mike to discuss our financial statements.

D. Michael Cockrell

Thank you, Lampkin and good morning, again. Net sales for the quarter totaled $584.9 million and that's down from $595.8 million for the same quarter of fiscal 2013. Our net income of $1.25 per share during the quarter compares to a loss of $0.31 per share during last year's first quarter. Our cost of sales for poultry products during the 3 months ended January 31 as compared to the same 3 months, 1 year ago decreased 12.8%. This decrease is a result of a slight decrease in pounds of poultry sold compared to the first quarter last year and significantly lower feed cost. Our feed cost per pound of poultry products processed decreased 25.1% to $0.324 per pound compared to $0.4325 per pound last year. While our feed cost per pound of poultry products processed were lower by $0.109 per pound, our sales price per pound was also lower, decreasing 2.2% or $0.018 per pound. This combination though resulted in significantly improved gross margins. SG&A expenses for the first quarter were $3 million higher than the same 3 months, 1 year ago. This increase is a result of higher accruals for sales and marketing expenses, accruals related to the Sanderson Farms Championship and higher trainee costs as the company prepares for its future growth. I want to remind everyone that SG&A expenses will include start up costs for Palestine going forward for the balance of this year and the first quarter of next year. Our expectations are that SG&A expenses during Q2 will include $732,000 of those expenses, $1.3 million in Q3 and $3 million in Q4. And then for the first quarter of 2015, we are budgeting $4 million for those costs. Our balance sheet does remain strong. At the end of the quarter, stockholders' equity was $696.8 million, and net working capital was $281 million. Our current ratio is 3.4:1 and our debt at the end of the quarter totaled $40 million and our debt-to-cap ratio was 5.4% as of January 31, 2014. We spent $28.8 million on CapEx during the first quarter and have approved $60 million in CapEx for existing operations during the year. We expect to spend an additional $110 million in Palestine, Texas. Of the $28.8 million spend in CapEx during the quarter, $8.5 million was spent in Palestine. Our depreciation and amortization during the first quarter totaled $14.7 million and we expect $62 million for the full year. Like Joe and Lampkin, I'm pleased with the start of the year. I believe our 7.7% operating margin and 4.9% net margins are not bad for our first quarter when volumes are down due to holidays and this year, also due to weather. If we can get normal seasonal improvement in chicken markets, I agree with Joe that we have the opportunity to earn pretty good margins this year. With that, Alicia, we will open up the call for questions, so feel free to open up the lines.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Ken Goldman of JPMorgan.

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Mike, I wanted to pick your brain if I could, about some of your expectations for COGS going forward. In particular, I'm looking at what you guys classify as other or non-feed. It's been up as a percentage of your sales fairly substantially the last year. I know you've talked about this to some extent in the past. Just curious how we should think about modeling that going forward. Do you guys expect as a percentage of your sales, that sort of other category of COGS to keep rising.

D. Michael Cockrell

Yes. Last year, the primary culprit for that, Ken, was the fact that we were cut back. When we were cut back, our other cost of goods sold, ex-feed, as we predicted last year, we thought it was going to be up about $0.01 a pound, because of 2 things, really, the 6% cut back and inefficiencies that we continued to experience at Kinston. But this first quarter, they were flat to up a little bit but again, as I just said in my closing remarks, that's in part due to volume during our first fiscal quarter as we expect -- as we move through the year and the plants begin running full...

Joe F. Sanderson

Was he talking about just plant costs?.

D. Michael Cockrell

Yes. Just on the...

Joe F. Sanderson

No, the plant costs are little down compared to a year ago.

D. Michael Cockrell

Other COGS are not. Other COGS are -- ex-feed, everything other than feed is up slightly.

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Just the way you guys break it out in the Q.

D. Michael Cockrell

Because I don't know.

Joe F. Sanderson

Yes. But I'm just saying plant costs other than grower pay, you got to increase in the grower pay for the year. Plant costs for the year and plant costs going forward will be down compared to a year ago.

D. Michael Cockrell

It will.

Joe F. Sanderson

And SG&A is going to be up, in particular with marketing and with training expense and then maybe accrual.

D. Michael Cockrell

Right. I think what Ken -- I'm not sure you were talking about it.

Joe F. Sanderson

I don't know but is specifically.

D. Michael Cockrell

Primarily plant costs.

Joe F. Sanderson

Plant costs.

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Let me be clear, I was not talking SG&A. I am COGS ex-feed.

Joe F. Sanderson

And COGS ex-feed should be down compared to a year ago.

D. Michael Cockrell

Compared to a year ago as we move to the year. Now we predicted that until the cut back, we said, once we get Kinston up and running they're going to come down, that never happened and that was primarily because of the cut back last year but it should this year.

Joe F. Sanderson

Yes, it should all come down.

Kenneth Goldman - JP Morgan Chase & Co, Research Division

Okay. And then Mike, one follow-up on the tax rate. It's come in -- it came in a little bit lighter than what I thought this quarter. It's coming a little bit lighter than what it used to recently. I think you guys used to say that when your earnings were higher, your tax rate would go up as well and I just -- I have that in my notes somewhere but I don't really know exactly why I wrote that down or when it was. I'm just curious if you can give us some help on the tax rate going forward also.

D. Michael Cockrell

I would model 35%, Ken. We are able to take advantage right now of some tax credits but 35% model for the rest of this year would be spot on, I believe. It was down significantly from last year's first quarter but recall, last year, we had a loss and that tax rate last year was impacted by some tax credits as well, which actually caused the rate to look higher but 35% for this year will be good.

Kenneth Goldman - JP Morgan Chase & Co, Research Division

And then a little bit higher in years after or is that too early to tell.

D. Michael Cockrell

Too early to tell.

Operator

We'll go next to Michael Piken of Cleveland Research.

Michael Piken - Cleveland Research Company

I just wanted to dig a little bit more deeply in terms of your thoughts of the industry expansion. I know you guys have talked about 2% to 3% this year. If you could just give a little bit of color in terms of where we stand with the grandfather clock and when we might start to see some of those all types of numbers start to ratchet up a little bit in your opinion.

Joe F. Sanderson

We had originally thought that we would start seeing pullet placements start trending up in April and May. And therefore, maybe egg sets start trending up in November, December. But we actually got worried yesterday that those primary breeders may have -- may be having a little trouble with housing and they really hadn't -- really started ramping up as quickly as they wanted to placements of the grandparents stock yet and the parents stock. So I don't really know yet. We only are in touch with one of the primary breeders and so we know they have not begun as rapidly as they wanted to their expansion. So I don't -- I can't answer that -- we felt certain that it was going to begin in April -- the April, May time period but I'm not so sure now.

Michael Piken - Cleveland Research Company

Okay. So if that's the case, I mean, theoretically, I mean, I guess, are you still going to -- you think you have enough breeders available for Palestine or is that sort of incorporated in addition to the weather as 1 of the reasons potentially why you might not ramp it up.

D. Michael Cockrell

No, no -- not exactly.

Joe F. Sanderson

No, we have our breeders.

Michael Piken - Cleveland Research Company

Okay, so you're set. So that's good news. And then, I guess, potentially if the rest of industry is not able to ramp up as quickly, I mean, how do you sort of think about maybe your production plans for the rest of this year and specifically, during the -- typically November, December period where you typically take cuts.

Joe F. Sanderson

We would -- right now, we would anticipate taking our normal seasonal puts.

Lampkin Butts

We'll be running full production up until the...

Joe F. Sanderson

Through October.

Lampkin Butts

Yes, through October until the pre-Thanksgiving, pre-Christmas season, we'll be running full.

D. Michael Cockrell

Michael, that would translate -- Lampkin said we were going to process 751.8 million pounds in the -- in Q2. We would process, if we run our plants full, 827 million pounds each during Q3 and Q4.

Joe F. Sanderson

The second quarter has the Easter cut back in it.

Michael Piken - Cleveland Research Company

Okay. Last question, I mean, in light of what you heard yesterday, I mean, what is sort of your expectations then for 2015. I know you talked about 2% to 3% growth in '14. Do you have sort of an updated estimate in terms of what expansion might look like for the industry in '15.

Joe F. Sanderson

I do not -- I know the industry wants to expand. I can tell by the age of this breeder flock and but the breeder flock is doing every -- there's 200 -- almost 201 million eggs is all the industry can do right now. Cannot do anymore than that. It's doing everything it can do. Might get a little bit better when Springtime gets here, gets a little warmer and the days get a little longer, the hens may be a bit more productive. But flocks doing all that it can do right now.

Operator

We'll go next to Farha Aslam of Stephens, Inc.

Farha Aslam - Stephens Inc., Research Division

I'm just -- again, back to the SG&A question. Because Mike -- thank you, for detailing the additions. But last year, you were not accruing in the first quarter for bonuses. This year, did you accrue for bonuses? Is that for the increase?

D. Michael Cockrell

No, we did not. The culprit for the higher SG&A during the first quarter were trainee expenses, which were up from $9.83 million to $2.4 million. The Sanderson Farms Championship, we begin accruing for that this first quarter because last year, we didn't even agree to do that until the second quarter, so we didn't start accruing for it until later in the year. And then higher marketing, but no, nothing for bonuses. We don't -- as you know, historically, we don't begin doing that until we can deem it probable that we are going to pay bonuses. And until we get through the first half of the year, Farha, that's almost impossible for us to do to say with any probability that we're going to earn a specific amount and the target for the bonus award program this year starts at $5.61, I believe. So until we get more visibility end of the year, we certainly can't say that probably and won't begin accruing until we...

Farha Aslam - Stephens Inc., Research Division

And so when you look at last year...

Joe F. Sanderson

Wait a minute. There's a possibility you could begin accruing for performance share awards.

D. Michael Cockrell

You could during the second quarter.

Joe F. Sanderson

During the second quarter. It's not a material number but in the second quarter, we could begin accruing for performance share awards that were...

D. Michael Cockrell

Granted in 2012.

Joe F. Sanderson

Granted in 2012.

D. Michael Cockrell

There's a discussion of that exact thing in the queue if you want to look back at it Farha, but that's not much money. The big accruals are the bonuses.

Joe F. Sanderson

Yes.

D. Michael Cockrell

Historically, we haven't done that till after the half of the year.

Farha Aslam - Stephens Inc., Research Division

Okay. And then last year, how much of SG&A was the bonus accrual.

Joe F. Sanderson

$21 million.

D. Michael Cockrell

$22 million totaled for everything.

Farha Aslam - Stephens Inc., Research Division

So $22 million and you won't have to accrue that $22 million unless you hit $561 million.

Joe F. Sanderson

No.

D. Michael Cockrell

Well. That would just get us to the bottom of the bonus. Last year, we paid top bonuses because we exceeded the earnings per share target at the top end. If we -- if we hit $561 million in the bottom of the target that would just be a small portion of that $2 million.

Farha Aslam - Stephens Inc., Research Division

That was $22 million in SG&A for bonuses?

D. Michael Cockrell

I'm sorry. $22 million in total, part of that was booked to cost of goods sold. How much of that is put into SG&A.

Joe F. Sanderson

The $22 million, included ESOP, it included Agri Stats bonus and it included earnings per share bonus. We earned Agri Stats and earnings per share. At the top end -- the top end of the earnings per share is $6 and...

Lampkin Butts

$6.51, I can't remember.

Joe F. Sanderson

$6, plus 20% of average equity.

D. Michael Cockrell

We booked $8.4 million to SG&A last year, Farha, and $14 million to cost of goods sold for a total of $22 million.

Farha Aslam - Stephens Inc., Research Division

Okay. I think that's really goes back to Ken's question about your cost of goods sold. I think that's exactly $14 million that we were all confused on. And so if you go to last year, SG&A was roughly $100 million if we knock off the bonus accruals. But then we add on Sanderson Championship, we add on marketing, we add on your trainee costs, in that SG&A kind of, what do you expect it to run at, pre-bonus and post-bonus?

D. Michael Cockrell

$95 million to $100 million without the bonus, Farha.

Farha Aslam - Stephens Inc., Research Division

Okay. So roughly flat would be a good place to be.

D. Michael Cockrell

Yes, because we're going to add back $5.5 million for Palestine. We're going to add $3 million for the -- for marketing and the golf tournament and trainee expenses. Yes, that's $95 million to $100 million what we had last year.

Joe F. Sanderson

Yes. Okay, yes. There's a possibility that we might make a decision on marketing. We'll update then when that happens.

Farha Aslam - Stephens Inc., Research Division

Okay. And then my final question would be on weight. Joe, you mentioned that with the exits at around 200, 201. The most recent week, we saw weights kind of jumped up around 4% year-over-year. Any thoughts on how much this industry can push weights going into the summer season.

Joe F. Sanderson

I think, in the springtime -- how many 9-pound chickens do we see in this last Agri Stats? 7.

Lampkin Butts

10, probably 10.

Joe F. Sanderson

It looks like to me, that in the big bird deboning there are 8 to 10 plants from week to week running 9-pound bird now. We are not one of those. Our weights are up a little bit but not in that 9-pound range. I think they've made a conscious decision around the 9-pound chicken and tray pack I don't think you'll see change. I don't think you'll see the small bird change. But I do think you'll see weights were very high for December until this cold weather hit, and cold weather hit them just a little bit. But when spring gets here, I think you're going to see them go up again like they did in October and November. And then depending on the summertime, it's just going to depend on how hot it gets. You could see them come back down a little bit. Our 9-pound chicken won't weigh 9 pounds in July if it's 100 degrees. You'll never make that weight -- just it'll be impossible, particularly if you're in Texas.

Operator

And we'll go next to Jeremy Scott of CLSA.

Jeremy Scott - CLSA Limited, Research Division

Just want to touch on some commentary in the press release regarding the menu shift to chicken. Obviously, it's early and the slot prices we saw last year set a really high bar. However, the word out of the USDA forum last week was at least 4 million hogs lost from PED. And from a timing perspective, sharpest drops in supplies coming from the summer. And when you combine that with the sickness of the cattle herd, is there any reason to think that the shift to chicken items on the menu won't go even further in summer of 2014 than it did in summer of '13? I'd have to imagine that the conversations you are having with customers are tilting away from capturing many trends and more towards what can be supplied at a reasonable price. So if you can add any color there.

Joe F. Sanderson

Well, we are not as engaged with the casual dining customers as some of our competitors. But the scenario you just painted is very much like what it was last summer. We don't compete so much. Chicken didn't compete with pork so much in food service. That's more in the retail growth for store. But I think the same thing is going to happen. But last summer, we had a perfect storm in May where there were multiple food service outlets featuring chicken at the same time during the month, on television. I don't know that, that is going to happen again. But I do think that there will be chicken. I do think chicken is going to be featured at food service and for sure, in the retail grocery store. I don't know if what it's going to be or who's going to do it but beef is higher than it was a year ago. And pork, right now, the cut out yesterday was extremely high. So yes, we kind of like the environment we're in.

Jeremy Scott - CLSA Limited, Research Division

And just to dig into 2014 again. As you said, pullet replacements aren't really where they need to be to significantly grow the flock. And looking at hatchability rates, so far this year, maybe there's a little weather impact but it doesn't look like extending current hens is going to give you much. Is that 2% to 3% at risk then or do you think weights will be able to make it up.

Joe F. Sanderson

I think weights will make some of it up. I think the reason the hatch is down is because they're holding the hens to older age and they're just not as productive. And they're squeezing out all they can and the hens are just not very productive when they're 67 weeks old. So -- but right now, you're seeing the max, this current flock can get out. But I believe the flock gets a little bigger in March, and April and May, maybe by 1% or 2% than it is right now. So I think you can get maybe 1% or 2% more and they'll be more productive in March and April than they are in December and January and February, for sure, because of the weather.

Jeremy Scott - CLSA Limited, Research Division

And then just on the weather issues, did you see any yield issue in the quarter.

D. Michael Cockrell

See what?

Joe F. Sanderson

Yield issues.

D. Michael Cockrell

No.

Joe F. Sanderson

No.

Jeremy Scott - CLSA Limited, Research Division

Okay. So that -- would that mean that the 2Q birds are going to come in a little bit heavier.

Joe F. Sanderson

Yes.

Operator

We'll go next to Brett Hundley of BB&T Capital Markets.

Brett M. Hundley - BB&T Capital Markets, Research Division

Joe, I'm sorry if I missed it but what is the early world on maybe what the timing shift might be on those pullet placements. I mean, if you are expecting April, May, is it now or a June, July thing or later, can you give some further color that?

Joe F. Sanderson

What did Randy say about that?

Lampkin Butts

He said that he didn't have the housing...

Joe F. Sanderson

The primary breeder -- for the 1 we talked to, there's only 1 we talked to, that's first thing I need to say. But when they cut back in 2008 and '09, and they went back to start placing grandparents stock, they had lost that housing. So they're actually having to build houses and that started -- it takes a year to get -- find a grower, get financing, build the house. So they've started that last summer and so they told us last week there are lot of production people that they were in that process. So they're behind -- their housing wasn't available April, May, when they went back to their old growers, it's either gone or been taking up by somebody else. So they're in the process, however, and it's going to happen. It's just going to be delayed a bit. I don't have any idea of when it's going to happen.

Brett M. Hundley - BB&T Capital Markets, Research Division

That's fair. That's fair. And then you guys, you sold from inventory this quarter. Was that entirely due to plant shutdowns.

Lampkin Butts

No.

Joe F. Sanderson

No. That's timing of boats.

Brett M. Hundley - BB&T Capital Markets, Research Division

Timing of what.

Lampkin Butts

Of ships.

D. Michael Cockrell

Ships, for the export market.

Brett M. Hundley - BB&T Capital Markets, Research Division

So would you expect somewhat of a reinstallation on inventories during Q2?

D. Michael Cockrell

Yes. I would. The number of head we have on the ground right now is significantly higher than 1 year ago because last year, we were cut back at this time. So we've got more head. Of course, the lab inventory number will be down per head because of lower grain costs but we've got more heads. So yes, I would.

Brett M. Hundley - BB&T Capital Markets, Research Division

Okay. And, I mean, Mike, do you or anyone, do you think that Q1 was your lowest feed cost for the year?

D. Michael Cockrell

Don't know that.

Joe F. Sanderson

Don't know yet. It's going to be lower than the -- it'll be lower than the second quarter. But I don't know about going forward.

D. Michael Cockrell

Yes. Good question. If we were to -- as Joe said in the comments and as we detailed in our Q, grain costs were down 11 -- just under $0.11 per pound. If we priced everything yesterday, as Joe described, they would actually be up slightly during the second quarter just barely. But we don't know. Just don't know until we get there because we are so hand-to-mouth on corn and soy right now.

Brett M. Hundley - BB&T Capital Markets, Research Division

Okay. And the other thing I want to ask you guys was your breast chicken pricing came in better than we had expected during the quarter, and I'm wondering if that is kind of the same for you guys. Is there anything that contributed to pricing during the quarter relative to your own expectations because you operated pretty solidly during what was a tougher quarter. So I'm just curious to get your take on how pricing came in relative to your own expectation.

Joe F. Sanderson

Well, our breast pricing was not good during the first quarter. The leg quarter pricing was adequate. Wing pricing into the $1 was not anything like it was for the last year or 2. What was really good was the Georgia dock and our Tray Pack Plants. They ran well, they yielded well, their cost was not as good as it could have been because we were in 4 days a week, probably 2 and 3 weeks out of November and December. But the Georgia dock is a dollar forward, that's where the price came from. Big bird plants were okay but they're not as good as they're going to be when you get past -- when you get into March, we think and even into April. We think leg quarters are going to start improving next month in March. And we'll get rid of these polar vortex invasions, give a little springtime and a little bit of grilling season, we think, some dark meat in the U.S. and even white meat are going to improve. But it was the Georgia Dock and our Tray Pack plants that really contributed to our pricing.

Brett M. Hundley - BB&T Capital Markets, Research Division

Okay. And then just 1 last question for me, Joe. M&A continues to be a hot topic and the chicken business isn't a bad business to be in right now and there's also a more kind of pronounced desire by foreign firms to locate where production is more efficient. So I just wanted to get your openness or your view on if you would ever be a seller or if you would prefer to continue building as you are or even be a buyer, I would love to just get your comments.

Joe F. Sanderson

Well, I think I've answered that before. We would do the best thing for our shareholders. But if then somebody wants to buy Sanderson Farms, it's -- it will be fully valued and if we were to sell, people will say, afterwards, that we sold it as well as we ran the company and that's really good. So whatever's best for our shareholders is what we're going to do.

Operator

[Operator Instructions] We'll go next to Ken Zaslow of BMO Capital.

Andrew Strelzik

This is Andrew Strelzik for Ken. So my first question, I just was wondering what the impact of basis was this year relative to the same time last year?

D. Michael Cockrell

Soy meal basis, let me look just a minute. Let's see soy.

Lampkin Butts

Soy basis, that's for the year.

Joe F. Sanderson

I don't have it, about period. Where's corn for the year? All I've got is annually. I think our soy was a little bit lower this year than it was a year ago, maybe. And -- but I can't swear to that. Let me just pass on that because I don't have the data in front of me. If you can call later, we will get that information. I just don't have it and I don't want to speculate on it.

Andrew Strelzik

Okay. I appreciate that. I guess more importantly, you had some positive commentary on the pricing outlook, at least, seasonally, supply, obviously limited and feed costs have ticked picked up but I would think that dealt on the basis it should get better throughout the year. Is there any reason to think that these recent margins will not be trough percentage of farms for the next several quarters?

Joe F. Sanderson

Yes. We think margins should improve going forward.

Andrew Strelzik

Is there a similar period in history that you could point to, that we kind of conceptualize how good things could be going forward?

Joe F. Sanderson

It's kind of feels like '09 and '10, maybe. This is different because the reason I say '10 is because the industry is constrained in '10. We had a good '09 and then '10 came behind it and the industry was constrained in '10 and couldn't -- that couldn't expand and they wanted to but they couldn't do it. They couldn't expand until '11 and I think same thing is true now. They want to expand but they can't. And it kind of feels like '09 and '10 to me. And the grain market feels a little bit higher to me. I think nobody believed that USDA corn report but it is what it is and -- but it feels like '09 and '10.

Operator

We'll go next to Akshay Jagdale of KeyBanc Capital Markets.

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

First question, just a follow-up on that revenue performance this quarter. How did you do within Agri Stats, you think in terms of your overall profitability. It seems to me that you outperformed at least our spot revenue and gross profit calculation for the industry and that outperformance was more than it typically is. So is that fair and if it is, what might explain that?

Lampkin Butts

We don't have January.

Joe F. Sanderson

We don't have January but we don't know the answer to that question. We think we did okay. November was not a pretty month for us because of volume. We had -- big bird deboning plants ran every 4 days every week during the month of November. But December, on the other hand, was pretty good month and... but we were competitive when you put the quarter together, we think.

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Okay. And just thinking of pricing relative to supply, I think, it will be fair to say that most -- from compared to where expectations were, at least on our side, supply is far more constrained than some people had thought. Yet, I would argue that pricing has been much weaker, so I understand the argument that things are going to get better on the pricing side I mean it make sense, logical. But can you help us understand, why do you think pricing is a cut out and aggregate is down as much as it is despite supply being really flat?

Joe F. Sanderson

I think you went in -- in the fall, people were instead of cutting back for November and December, I think people were making money, so they kept setting eggs. And I think you went into the holidays with bird and some supplies. And I think it kind of built-up supplies, leg quarters built-up supplies in foreign markets and also in cold storage and leg quarter prices dropped from, let's say, Labor Day to Christmas from -- Lampkin, what? From what were they? 48 down to...

Lampkin Butts

Down to 41.

Joe F. Sanderson

Down to 41. And then breast came off from where they were Labor Day down to $1.33. But then they held at $1.33, and they've held at $1.33 for 90 plus days, which is kind of resilient, I think. We hadn't -- we didn't get a bump in January but we didn't get a decline either. And we've had some terribly bad weather and people are not out barbecuing, I can tell you that, not down here. And we usually are the first ones to go. But I just think it's just been in the fall, there was just too much chicken and that kind of, I think, that kind of put us on a hold. But I think we'll be climbing out of it. I don't think there's too much chicken right now.

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Okay. So that's a great transition to my next question, which is why -- give us some color on why you're expecting leg quarter pricing to improve.

Joe F. Sanderson

Lampkin.

Lampkin Butts

I'll tell you, we're -- our net returns for leg quarters going to export range is from $0.34 to $0.40 a pound. The countries that are on the high end of that range, we call that market very steady. The ones on the lower end, we think, they're going to pay $0.02 or $0.03 a pound more for the next bookings.

Joe F. Sanderson

For March.

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Okay. And just a follow-up for Mike. You mentioned that 1 point that you expect feed costs maybe to tick up slightly. Is that -- I'm assuming you were saying sequentially from the $0.33 to perhaps $0.34, but not year-over-year, right?

D. Michael Cockrell

That's correct. Right. The -- if we have priced everything at yesterday's prices, our grain costs would be up slightly, very slightly during the second, third and fourth quarters. But it's really virtually flat. But it would be up just a little bit that's what we were talking sequentially.

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

And when I look at your pounds sold with this pounds processed, you did add I think, 7 million or something like that pounds, to inventory, if I may. In line with what you added last year, same time, but historically, you tend to add more than that. Is that anyway a sign of demand being relatively stable or we shouldn't really read into it one way or the other.

D. Michael Cockrell

I wouldn't read anything into that, Akshay. As we said in the past, it's very difficult for us to predict pounds sold, so we don't even try because depends on what happens at end of the month, whether you load a boat and it gets moved from inventory to receivable or if it stays in inventory at end of the month. And our exports can skew that number significantly.

Akshay S. Jagdale - KeyBanc Capital Markets Inc., Research Division

Okay. And then just going back to that question on non-feed that I think Ken had to ask, non-feed cost per pound. I look at them on a per pound basis, not percentage of sales, per se. They've been picking up recently for various reasons including plant expansion and actually, in this quarter too, they were up year-over-year a couple of pennies a pound. But as you get closer to 100%, utilized on your assets, should we expect that to trend more to like $0.35 per pound number overtime. Or -- and if so, when might that happen.

D. Michael Cockrell

No. I think it'll actually come down. It was $34.82 in the quarter. That compared to $34.21, 1 year ago. Up very slightly part of that increase, was the -- as we explained in the Q, we expensed $1 million for some finished goods that were destroyed in a fire. You take that out, they were up roughly $0.05 a pound 47 points. And as Joe said, once we're running full I expect that number to trend down from $34.82. Not up.

Operator

And at this time, we have no further questions.

Joe F. Sanderson

Good. Thank you, all, for spending time with us this morning, and we look forward to reporting our results to you throughout the year.

Operator

That does conclude today's conference. We thank you for your participation.

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