The U.S. Department of Agriculture reported that egg consumption is on the rise and has reached a seven year high. This is mainly because people prefer to eat more of eggs instead of meat, which has resulted in higher demand for eggs. The largest producer of fresh eggs is Cal-Maine Foods (CALM, Financial), which is witnessing great days because of this uptrend in the egg industry. Its share price has risen by 26% in the last year. Its results have been impressive, and its recently reported second-quarter results were not an exception. However, the numbers missed the Street's estimates, resulting in a drop in its share price.
The results in detail
Revenue surged 7% to $379 million over last year's quarter. Thus, it was higher than the analysts' estimate of $365 million. The top line was helped by various factors, including increases in egg prices by 2.9%. Also, volumes increased by 4.2%, in terms of number of eggs sold. Thus, Cal-Maine Foods sold 263.4 million dozen eggs, up 4.2% over last year.
Further, the company produced 201.3 million dozen eggs, an increase of 8.5% over last year. Price grew to $1.379 per dozen, up 3.9 cents over last year's quarter. Prices for eggs increased mainly because of higher demand for specialty eggs, which is expensive.
In fact, specialty eggs make 19% of the total quantity sold and 27% of the total revenue of the company. Thus, growing demand for specialty eggs have been working in favor of the company. Since people have become health conscious and prefer to make a healthy choice when it comes to their food habits, specialty eggs have experienced growth.
Because of higher prices of such eggs, margins have expanded 240 basis points to 24.5%, as compared to the previous year. Gross margin was driven by lower feed costs as well as higher prices. Thus, the bottom line of the egg producer was also impressive. Earnings jumped 40% to $0.76 per share, over the prior year. This was higher than the analysts' estimate of $0.85 per share.
The future
The egg marketer is expected to benefit from more stable feed costs in 2015. Since feed costs have been decreasing and are expected to become stable, Cal-Maine Foods' bottom line and margins will get even better. Also, egg prices have doubled in the last 10 years and with the growing popularity of specialty eggs it is expected to get even better.
However, new rules for egg producers in California is something which to be cautious about because it can hurt 2015 results. The new rule requires that egg producers need to have bigger cages that allow hens to lie down, turn around as well as extend limbs. This will result in higher costs and less production.
Concluding thoughts
Cal-Maine Foods has been performing really well. It has completed 17 acquisitions in the last 25 years, which has helped the company grow. Moreover, it has large customers such as Walmart (WMT, Financial) and Sam's Club, which make 28% of total sales. Furthermore, it pays a third of its earnings as dividends, which makes Cal-Maine one of the most desirable pick.
