Investopedia: Is There Still Time To Play The Rebound In Sanderson Farms?

Sanderson Farms (Nasdaq:SAFM) may be one of the best-run protein producers in North America, but that is not worth much to long-term investors, as big institutions run hot and cold on the shares based on the cyclical moves in poultry profitability. With the poultry market perhaps bottoming out and Sanderson's stock already off its lows, is there still time to play the eventual rebound in this business?


A Tough Second Quarter 
Sanderson definitely had a tough fiscal second quarter, but it could have been quite a bit worse. Revenue fell 2% this quarter (and rose almost 12% from the prior quarter) as increased production volume was offset by lower pricing. Although whole-chicken prices rose and leg-quarter prices increased on resumed Russian imports, boneless breast prices have been quite weak, and wing prices have plummeted.

At the same time, feed prices continue to march higher. Sanderson reported that feed costs rose 41%, and that pretty much corroborates what has been going on in the grain futures markets (chicken feed is usually about two-thirds corn and one-quarter soybean meal). Unlike Tyson (NYSE:TSN) and Pilgrim's Pride (NYSE:PPC), though, Sanderson Farms does not hedge grain exposure to a large degree.

To read the full piece, please follow this link:
http://stocks.investopedia.com/stock-analysis/2011/Is-There-Still-Time-To-Play-The-Rebound-In-Sanderson-Farms-SAFM-PPC-TSN-IBA-BWLD0526.aspx

(Repost) Investopedia: Does Tyson Deserve Better?

Tyson (NYSE:TSN) is a tricky stock. Commodity food producers like Tyson almost never get the valuation that packaged food companies like Hormel (NYSE:HRL) and General Mills (NYSE:GIS) carry. Even with that being said, though, Tyson has shown itself to be relatively less volatile than other protein producers but still gets no premium for that distinction. If Tyson can somehow maintain its current levels of free cash flow production, this is a stock that value investors should seriously consider.


Very Mixed Performance for Q2
Tyson's fiscal second quarter was a real mixed bag - solid top-line performance, but not a lot of great news on profitability. Tyson reported that revenue grew about 12% in the second quarter, comfortably above the average analyst estimate. Growth was consistently positive across the board, with the company's large beef operations showing 19% revenue growth and the pork business jumping 26%. Even as a laggard, the poultry business was still up 10%.

Profits were not nearly so solid. Gross margin slid to 6.7% from 8.2% a year earlier; not a surprise, given the increase in grain, energy, packaging and other inputs. Operating income fell 12% from last year, and the operating margin compressed by 1.2%. Although operating income in the pork segment more than doubled (and margins were better than 10%), the profit in beef fell by a quarter and poultry income dropped nearly 68%.


To read the full article, follow the link:
http://stocks.investopedia.com/stock-analysis/2011/Does-Tyson-Deserve-Better-TSN-HRL-SFD-SAFM-PPC0512.aspx

Investopedia: Transocean's Lull Creates Buying Opportunity

Offshore drilling company Transocean (NYSE:RIG) shows the power of the "whisper" number. Although the company reported disappointing results on Thursday, the stock actually traded up - a move that does not seem to make much sense until you look at the prior month's trading and see that the stock has been going almost straight down. 


Even allowing that other drillers like Noble (NYSE:NE) and Pride (NYSE:PDE) haven't done well either, Transocean stands out. Likewise, Rowan (NYSE:RDC), Atwood (NYSE: ATW), and SeaDrill (Nasdaq:SDRL) have all been weak on a generally poor near-term outlook for offshore operators. Also keep in mind that Transocean's earnings estimate dropped by about one-third over the past three months - investors were bracing for bad news, they got it, and they are apparently relieved it was not even worse than they assumed.


Q1 Results - No Work, No Money
Transocean owns an impressive fleet of rigs (about 20% of the worldwide offshore fleet), but they are little more than depreciating hunks of metal when there are not enough orders to keep them busy. For the first quarter, revenue was basically flat with the fourth quarter. Dayrates were actually a fair bit better, up about 5%, and rates were even better for ultra-deepwater and harsh-environment rigs. (For more, see A Primer On Offshore.)


To continue, please click below:
http://stocks.investopedia.com/stock-analysis/2011/Transoceans-Lull-Creates-Buying-Opportunity-RIG-NE-PDE-RDC-SDRL-APC-STO0509.aspx

Investopedia: Darling: Dirty Business, Sweet Cash Flow

Well-known fund manager Peter Lynch once wrote that he often knew he had found an interesting investment opportunity when the company in question performed a service that was unpleasant or sometimes even disgusting. The example Lynch used was Safety-Kleen, a company that built an attractive business from the collection and recycling of oil and other industrial waste products. The same could certainly be said though for Darling (NYSE:DAR), the only publicly-traded company with significant operations in the field of rendering, recycling and recovering the food industry's biological waste products. 

A Solid End to the Fiscal Year 

Darling took a bit of the wind out of its own sails by preannouncing results for the fourth quarter a little while ago. Nevertheless, reported revenue growth of 52% (and organic growth of 33%) is still quite impressive and was quite a bit better than the original projections for the quarter. Likewise, the company's adjusted EPS of 0.22 was not only a bit ahead of updated expectations, but well ahead of the 17-18 cent range in place a month ago.

Although Darling does not include much information with its press release, the company followed its press release with its 10-K. To that end, free cash flow again ticked up for fiscal 2010. Investors should note that free cash flow growth has been trailing revenue growth, but increased amounts of capital expenditures have clearly played a role in that equation. 

The full article awaits at:
http://stocks.investopedia.com/stock-analysis/2011/Darling-Dirty-Business-Sweet-Cash-Flow-DAR-TSN-PPC-PG-CL-VLO-HON0304.aspx

Smithfield's Good Times Won't Last

This has been a good year for pork and beef producers, particularly since the summer months. Stocks like Smithfield (NYSE:SFD), Tyson (NYSE:TSN), Hormel (NYSE:HRL) and Zhongpin (Nasdaq:HOGS) have all seen double-digit stock appreciation and have beaten the market by a pretty healthy margin. Unfortunately, history strongly suggests that these good times will not last, so investors need to really give careful thought to whether they want to jump on board at this point in the cycle.

A Quarter that was Good Enough
Although the world's biggest hog raiser and processor did miss the consensus top line estimate, Smithfield nevertheless did have a respectable second quarter report. Revenue rose 11% to just under $3 billion, with a big jump in revenue from hog production and double-digit growth overall in the pork business.

Profitability is where the story really gets good for this quarter. Gross margin more than doubled from the year-ago period, and operating profit rose substantially. While corn prices are at the highest levels since the summer of 2008, and corn is a major component of feed costs which are a major component of Smithfield's costs, the company nevertheless has a favorable grain cost position at present. That allowed the company to earn a record per-head profit of $16 in the fresh pork business. 


Please click below for the full piece:
http://stocks.investopedia.com/stock-analysis/2010/Smithfields-Good-Times-Wont-Last-SFD-TSN-HRL-HOGS-OINK-WMT-TGT1213.aspx

Should Investors Put Hormel On The Table?

Hormel (NYSE:HRL) is an odd company. On one hand, it is difficult to find sustained success investing in large North American food companies, particularly those that are very vulnerable to commodity prices. On the other hand, Hormel does what so very few protein-focused food companies ever manage to do - the company has successfully diversified itself into a wide range of products and produces an ROIC that stands out within the industry and actually exceeds that of the average S&P 500 company. 

A Quarter with Some Gristle
Hormel ended its fiscal year with a good news/bad news type of quarter. Top line reported growth of 23% certainly captures an investor's eye relatively easily. Backing that up, volume growth of 14% is quite good, and the 9% improvement in mix and pricing is not bad either. While this quarter did have an extra week in it, that is just a 7.7% tailwind, so clearly the company has some real growth even on a stricter apples-to-apples basis. 


Please follow the link for the full piece:
http://stocks.investopedia.com/stock-analysis/2010/Should-Investors-Put-Hormel-On-The-Plate-HRL-SFD-CPB-KFT-CAG-HOGS-PPC1125.aspx

Tyson Still Hard To Digest

Not all food stocks are equal. Companies like Kraft (NYSE:KFT) and Kellogg (NYSE:K) offer a certain level of stability because of their brand value and extensive product offerings, but meat producers like Tyson (NYSE:TSN) do not. With Tyson there are constant worries about oversupply, feed costs and export markets - issues that just by and large do not figure into the packaged goods companies. This June quarter is a good microcosm of that - although Tyson did deliver a solid result, worries about the next quarter are likely to keep a lid on the stock. 

The Quarter That Was
Tyson's revenue beat the average estimate by nearly $200 million, as it grew almost 12% to $7.4 billion. While the company's pork business was the growth leader (up 49% to $1.2 billion), the overall leader in terms of scale was once again the beef business, which grew more than 15% to $3.1 billion.

Profitability was quite a bit better this quarter, as gross profits jumped about 60% from the year-ago level. Tyson managed to maintain this leverage throughout the operating structure, leading to overall operating income growth of almost 84%. On a segment basis, the beef business was a standout - more than doubling to $176 million, while poultry operating profits climbed 30% to $186 million. (For more, see The Bottom Line On Margins.)
To read the full text of this article, click below:
http://stocks.investopedia.com/stock-analysis/2010/Tyson-Still-Hard-To-Digest-TSN-KFT-K-PPC-SAFM-HOGS-CRESY0810.aspx