* Q2 net income $3.13/share vs estimates of $3.32
* Shares fall 3.5 percent
* Strong dollar, avian flu outbreak hurt U.S. exports (Adds company comment, poultry price forecasts)
By Lisa Baertlein and Sruthi Ramakrishnan
May 28 (Reuters) - Sanderson Farms Inc, the third-largest U.S. poultry producer, said lower prices for boneless breasts and bulk leg quarters contributed to softer-than-expected net sales and profit last quarter and warned that a production ramp-up could leave processors with more birds than they can handle this fall.
The news sent shares in Laurel, Mississippi-based Sanderson down 3.5 percent to $81.56.
The industry has been enjoying high profit margins on chicken for more than a year due to muted feed prices. But processors, who placed large orders for birds to fatten up for meat, are now grappling with myriad issues that are depressing some product prices.
Sanderson executives said they expect export markets to remain locked up for the foreseeable future, citing the strong U.S. dollar, political issues and a domestic avian flu outbreak that has devastated the turkey and chicken egg industries.
Russia and China’s import bans could increase U.S. stockpiles of dark meat, driving down those prices even more. And, they said, grocery sellers could cut the price of pork.
“Chicken remains an attractive option to high-priced beef, and retailers have not yet passed through the lower wholesale prices for pork. When that happens, pork prices might be more competitive with chicken prices,” Chief Executive Officer Joe Sanderson Jr said on the call.
Sanderson’s net income in the second quarter jumped 39.7 percent to $71.2 million, or $3.13 per share, while net sales were up 8.5 percent to $716.6 million. Analysts on average had expected earnings of $3.32 per share and revenue of $727.3 million, according to Thomson Reuters I/B/E/S.
Exports to countries such as Russia, China and Mexico, the biggest buyers of U.S. chicken, accounted for about 10 percent of Sanderson’s net sales in the fiscal year ended October.
Avian flu has been confirmed in 16 U.S. states and Canada, and has devastated Midwestern poultry and egg producers in recent weeks, leading to the culling of more than 40 million birds.
CEO Sanderson said a wide outbreak in the broiler flocks it raises would be an “extraordinary” event and that the company would vaccinate breeder chickens if that were to happen.
“The cost would be minimal,” he added.
Average poultry product prices were mixed in the second quarter that ended April 30. Boneless breast meat fell 4.4 percent and bulk leg quarters dropped 20.3 percent. Whole chickens were up 8.1 percent and jumbo wing prices soared 40.3 percent.
Additional reporting by P.J. Huffstutter in Chicago; Editing by Kirti Pandey and Lisa Shumaker