Cal-Maine Foods (CALM, Financial) is the largest producer and marketer of shell eggs in the U.S. Its primary business includes production, grading, packaging, marketing and distribution of shell eggs.
This Mississippi-based company is one of the largest producers and marketers of value-added specialty shell eggs in the U.S. Specialty shell eggs include nutritionally enhanced, cage-free, organic and brown eggs.
In 2014, Cal-Maine sold approximately 1.014 billion dozen shell eggs, which represented approximately 23% of domestic shell egg consumption. It is a leader in this industry and ranks among the largest producers and marketers of value-added specialty shell eggs in the U.S.
With the highest annual net income in this industry, this company seems to have loads of opportunities in the future. Eggs make a favorite breakfast option across the globe. We can see how much this company may tap growth in the immediate future. The company already provides organic products. It is currently working to provide hormone-free eggs.
The third-quarter results marked a strong finish to another record year for Cal-Maine Foods. This impressive growth is primarily due to higher average selling prices and a modest increase in volumes compared with the same period a year ago. Specialty eggs have been a key driver of growth. The third quarter demonstrated consistent execution of strategy in changing market conditions.
Third-quarter results
Net sales for the third quarter of fiscal 2016 were $449.8 million (a 2.8% increase from $437.6 million during the prior-year quarter).
The company reported net income of $64.2 million, or $1.33 per basic and diluted share, for the third quarter of fiscal 2016 (which was $50.9 million, or $1.06 per basic share and $1.05 per diluted share, during the prior-year quarter).
Specialty eggs volumes increased by 13.7% from the prior-year quarter. Specialty egg sales accounted for 23.6% of the dozens of shell eggs sold and 31.0% of total shell egg sales revenue for the third quarter of fiscal 2016 (20.3% of the dozens of shell eggs sold and 26.9% of total shell egg sales revenue for the third quarter of fiscal 2015).
Operating income for the third quarter of fiscal 2016 was $85.8 million (an increase of 19.2% from $72.0 million for the third quarter of fiscal 2015).
Gross profit during the quarter was $132.8 million ($112.5 million during the prior-year quarter).
For the third quarter, Cal-Maine Foods will pay a cash dividend of approximately 44.1 cents per share to holders of its common and Class A common stock. The dividend is payable May 12 to shareholders of record on April 27.
Emphasis
The company is focused on:
- Enhancing production capacity and efficiency.
- Increasing value-added specialty egg business.
- Pursuing acquisitions of existing shell egg production and processing facilities.
- Meeting consumer demand in rapidly growing segment.
U.S. egg industry
The egg industry has changed over the years. In 2014, the U.S. egg industry set a record by exporting a total of 352.65 million dozen eggs. There was a total shell egg production of 8 billion as of May 2015.
Eggs are a source of protein, and the health benefits are enormous. Over the years, egg prices have increased. The top five egg-producing states are Iowa, Ohio, Pennsylvania, Indiana and California. These five states produce about 45% of all U.S. eggs.
Egg production has changed to a more vertically integrated system over the last 45 years. The U.S. poultry industry is the world's largest producer and second-largest exporter of poultry meat and a major egg producer.
(Source: American Egg Board)
On a concluding note
The shares of this egg producer have soared. There is a growing demand for eggs, and the export market holds a lot of opportunities. The company, for many years, pursued a growth strategy focused on the acquisition of existing shell egg production and processing facilities, as well as the construction of new and more efficient facilities. It has improved consistently and is a long-term story.
As the food service industry, restaurant chains and major retailers are increasingly demanding more cage-free eggs in response to market forces, the company is working with customers to facilitate a smooth transition to meet this demand. Cal-Maine Foods is well positioned to respond to dynamic market conditions and future demand trends.
Cal-Maine Foods delivered solid results for the third quarter of fiscal 2015. This validates the fact that the company witnessed improved sales volumes during the holiday season. Favorable market conditions also contributed to its success.
There are more growth opportunities for this company. Strong demand for shell eggs from the three major market sectors – retail, egg products and exports – is contributing to its success. The company is improving its innovation process and is here to stay. I am bullish about this company, and investors should consider adding it to their portfolios. It is expected to create shareholder returns in the near future.
Disclosure: I do not hold any position in the company.
