The shares of Cal-Maine Foods (CALM, Financial) have appreciated by 48% in the last year. The company is engaged in the production, grading, packaging, marketing and distribution of shell eggs in the U.S. and is doing very well. Higher demand for eggs and rising prices for the same has helped the company in registering great results.
The producer of shell eggs reported a decent quarter, wherein the top line was way ahead of the Street’s estimates. However, the bottom line was slightly below the expectations. Nonetheless, its shares soared up. Let’s take a look.
A snapshot of the quarter
The revenue for the quarter was up by 11% over last year, clocking in at $437.6 million. This was higher than the analysts’ estimate of $410.7 million. Increased demand for shell eggs was one of the key drivers during the quarter. The company sold 283 million dozen eggs, an increase of 5.2% over last year’s quarter. The average selling price of the eggs rose 6.1% to $1.503 per dozen eggs. Thus, the top line witnessed an upsurge. Also, the egg production of the retailer was up by 7.4%.
Further, the feed costs dropped 5% to $0.436 per dozen, owing to lower corn prices. Therefore, higher prices and lower costs resulted in an expansion of the margins. The margins jumped by 250 basis points to 25.7%.
In fact, volumes of specialty eggs, which are nutritionally enhanced, were up by 22% during the quarter. These eggs now make 20.3% of total egg sales of the company, more than 17.4% earlier.
Although the bottom line of the egg producer was higher, it failed to meet the estimates. Earnings jumped to $1.05 per share from $0.89 per share in the previous year. This was below the analysts’ estimate of $1.10 per share.
Some facts to consider
The overall demand for shell eggs has increased, especially in the retail and the export market. This has resulted in an increase in the prices of eggs. However, increased hen supply might lower product prices which will also result in lower margins as well.
The company has grown its business, in the last few years, through significant acquisitions and now produces 1 billion dozen eggs on an annual basis, which is mainly used for retail consumption. Since Cal-Maine foods sells through big box retailers such as Wal-Mart and Sam’s Club, customers get attracted. Thus, these retailers make 28% of its sales.
A probable hurdle
A California law, which is expected to get into effect in January, will regulate the production of eggs sold in that state. This might affect the production levels of Cal-Maine Foods, leading to lower sales. It will be interesting to see how the company manages to overcome this hurdle.
Summarizing
Overall, the egg retailer has reported a decent quarter. All the key numbers have grown over the previous year. Also, it announced a quarterly dividend of $0.35 per share in cash, which impressed the investors. The company has a dividend yield of 3.65%. Moreover, it plans to expand in many new regions such as Texas, Florida, Kansas and Georgia. Considering its expansion plans and the growing demand for eggs, this looks like a great investment bet.
