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.
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.
The company recently reported fourth quarter results and is poised to grow. Though the net income and net sales during the quarter decreased due to volatile egg market conditions and supply disruptions, the company witnessed record sales and had higher net income for the fiscal year 2016. Retail demand trends for shell eggs have been favorable. The company’s operations performed very well in fiscal 2016.
Fourth quarter results
Net sales during the fourth quarter of fiscal 2016 were $303.0 million (which was a 24.8% decrease from $403.0 million in the prior-year quarter).
The company reported a net loss of $376,000, or 1 cent per basic and diluted share (which was a net income of $46.1 million, of 96 per cents basic share and 95 cents per diluted share, in the prior-year quarter).
For the fiscal year 2016, net sales were $1.91 billion, compared to $1.58 billion in the prior year-period.
The company reported record net income of $316.0 million (the highest annual net income in the its history), or $6.56 per basic share and $6.53 per diluted share, compared to $161.3 million, or $3.35 per basic share and $3.33 per diluted share, in the prior-year period.
During the year, the company reported operating income of $470.3 million, (which was $235.3 million in the prior-year peiod).
For fiscal 2016, Cal-Maine Foods paid a total of $105.6 million in dividends, or $2.175 per share, compared to $53.8 million, or $1.11 per share, in the prior-year period.
Per Cal-Maine Foods’ variable dividend policy, no dividends are paid in a quarter for which the company does not report net income. Therefore, it did pay a dividend for the fourth quarter of fiscal 2016.
Strong attributes at the moment
- Steady growth in demand for specialty eggs.
- Increase in sales volumes by 14.7% for the year.
- Specialty egg prices remained strong during the year.
- Good product mix.
- Strong balance sheet.
Focus
- The company continues to enhance its product mix in line with customer demand.
- Pursue acquisitions and additional growth opportunities.
- Leverage the additional capacity from its most recent joint ventures and expansion projects.
- The company’s cage-free joint venture with Rose Acre Farms in Texas is on schedule to reach full expected capacity in early calendar 2017.
U.S. egg industry
The egg industry has changed over the years. In 2014, the it 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, according to the American Egg Board.
On a concluding note
As the food service industry, restaurant chains and major retailers increasingly demand 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.
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. And 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.
Cal-Maine is improving its innovation process and is here to stay. It is well-positioned to respond to demand trends for specialty eggs I am bullish about this company, and investors should consider adding it to their portfolios.
Disclosure: I do not hold any position in the company.
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