Mixed Chicken Demand Impacts Producers

While grocery stores continue to see high demand there is room for "eventual recovery in the chicken cycle."

NEW YORK (AP) -- Demand for chicken is mixed, with weakness in restaurants and the food industry and strength at grocers, an analyst said Thursday.

Akshay Jagdale of KeyBanc Capital Markets said in a client note that demand in the foodservice sector -- which includes restaurants -- is soft partly because of weak consumer demand and high inventories.

"We do not expect foodservice demand to improve by any meaningful extent unless the employment picture gets better," Jagdale wrote.

Mike Cockrell, chief financial officer at Sanderson Farms Inc., said in an interview that traffic at the restaurants that it produces chicken for has been dismal since 2008 because of rising gas prices and difficult economic conditions. There is now a significant imbalance between supply and demand for that market, he explained.

"Consumers are just not eating out," Cockrell said.

Jagdale anticipates that breast meat supply will have to be cut significantly in order for prices to rise.

On the flip side, Jagdale says retail chicken prices will probably continue to be high at grocery stores because the demand is there.

Cockrell says demand at grocers that Sanderson Farms produces chickens for has been relatively firm since 2008.

Pilgrim's Pride Corp. spokeswoman Margaret McDonald said in an interview that while demand is not as weak among grocers as it is on the restaurant side, it is difficult for demand to build further at grocers because chicken prices are not being lowered for consumers.

Jagdale raised the 2012 earnings estimates for chicken producers Tyson Foods Inc., Sanderson Farms and Pilgrim's Pride on Thursday, citing lower feed costs. The analyst now expects earnings of $2.40 per share for Tyson Foods, up from $2.13 per share. Jagdale calls Tyson "the way to play an eventual recovery in the chicken cycle."

Jagdale predicts earnings of $1.27 per share for Sanderson Farms compared with a prior estimate of $1.07 and earnings of 17 cents per share for Pilgrim's Pride compared with a previous forecast for a loss of 5 cents per share.

Analysts surveyed by FactSet expect 2012 earnings of $2.08 per share for Tyson Foods, $1.51 per share for Sanderson Farms and 28 cents per share for Pilgrim's Pride.

Tyson Foods said it is in the quiet period leading up to earnings and would rather not comment.

Shares of Tyson Foods slipped 31 cents to $18.12 in midday trading, while Sanderson Farms dipped 16 cents to $47.53. Shares of Pilgrim's Pride shed 9 cents to $3.94.