Sector financial performance:

This company, who primarily produces and processes chicken, has been grouped in Meet processing – chicken sector of food industry.

While demand for chicken products of companies in this sector seems to be still not strong, demand may be picking up as indicated by signs from both increase in sales volume of them and rebounding selling price of their products. Backed by increasing sales volume and, to less extent, by rising price, sales of those companies has been growing in the past two years (annual 4-5% growth) as compared with  negative revenue growth ( -7%-0%) in 2016 and 2015.

Profitability of companies in this sector seems to be directly related with price and input costs of live stocks(feeding costs and live poultry costs). Between 2015 and 2016, continuingly declining selling price of chicken resulted from imbalanced supply and demand significantly hurt margin of companies while input cost such as feeding grain price declined as well. While we have seen improved margin in 2017 from those companies as a result of bouncing back of price and benefiting from renewed future contracts of feeding commodity, the margin turned to go down again as selling price went down and input costs went up in 2018. Therefore, most companies have been seen shrinking margin and cash flow in the past several years due primarily to declining price with weak demand behind it. And the current typical gross margin is about 12% with 5% SG&A and 6% operating margin.

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Company performance:

Demand seems to have rebounded since 2017 driven by either sale volume but price fluctuated.

For the first 39 weeks of fiscal 2018 compared with same period of 2017 (20180930)

Organic sales (US market) increased about 0.9% due to increase of 5.2% in volume offset by decrease of 4.4 in in average price.

For fiscal 2017 compared with 2016 (20171231)

Organic sales (US market) increased about 5% due to increase of 8% in average price offset by decrease of 3% in volume.

For fiscal 2016 compared with 2015

Organic sales (US market) decreased about 6.6% due to decrease of 4.2% in volume and decrease of 2.3% in average price.

Sales decreased 5% in 2015.

Margin seems to have been determined by selling price and input costs (feeding costs and live poultry costs). Due to fluctuation in selling price and increasing input costs, its margin and profitability presents downturn trend in the past several years. Its gross margin is currently about 9% with about 3% SG&A and 6% operating margin.

Stock price

Our valuation methods and analysis indicate that this stock is currently relatively fairly valued compared with its peers but may be overvalued by the market with its current enterprise price/EBI ratio of 17 since we cannot find any support for this high multiple from both increase in demand and potential improvement in margin/price of this company.