|
Related Topics
|
Category: Stock Market and Cal-Maine Foods
Date: 30 September 2019 Stock Price: $40.16 We take a look at the 1st quarter earnings report of their 2020 fiscal year of Cal-Maine Foods, the largest producer and marketer of shell eggs in the United States.
|
About Cal-Maine Foods
Cal-Maine Foods, Inc. (“we,” “us,” “our,” or the “Company”) is the largest producer and marketer of shell eggs in the United States. In fiscal 2019, we sold approximately 1,038.9 million dozen shell eggs, which we believe represented approximately 19% of domestic shell egg consumption. Our total flock of approximately 36.2 million layers and 9.4 million pullets and breeders is the largest in the U.S. Layers are mature female chickens, pullets are female chickens usually under 18 weeks of age, and breeders are male and female chickens used to produce fertile eggs to be hatched for egg production flocks.
The Company has one operating segment, which is the production, grading, packaging, marketing and distribution of shell eggs. The majority of our customers rely on us to provide most of their shell egg needs, including specialty and non-specialty eggs. Specialty eggs represent a broad range of products. We classify nutritionally enhanced, cage free, organic and brown eggs as specialty products for accounting and reporting purposes. We classify all other shell eggs as non-specialty products. While we report separate sales information for these egg types, there are many cost factors which are not specifically available for non-specialty or specialty eggs due to the nature of egg production. We manage our operations and allocate resources to these types of eggs on a consolidated basis based on the demands of our customers.
We sell most of our shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S. through our extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores, food service distributors and egg product consumers. Some of our sales are completed through co-pack agreements – a common practice in the industry whereby production and processing of certain products is outsourced to another producer. The strength of our position is evidenced by having the largest market share in the grocery segment for shell eggs. We sell shell eggs to a majority of large U.S. food retailers.
We are one of the largest producers and marketers in the U.S. of value-added specialty shell eggs, which have been a significant and growing segment of the market in recent years. A significant number of our food service customers, large restaurant chains, and major retailers, including our largest customers, have committed to exclusive offerings of cage-free eggs by specified future dates. We are working with our customers to ensure a smooth transition in meeting their goals. Our focus for future expansion at our farms will be environments that are cage-free or with equipment that can easily be converted to cage-free, based on a timeline to meet our customer’s needs.
Cal-Maine Foods, Inc. operates farms, processing plants, hatcheries, feed mills, warehouses, offices and other properties located in Alabama, Arkansas, Florida, Georgia, Kansas, Kentucky, Louisiana, Mississippi, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Utah. As of June 1, 2019, the facilities included three breeding facilities, two hatcheries, six wholesale distribution centers, 23 feed mills, 42 shell egg production facilities, 28 pullet growing facilities, 43 processing and packing facilities, and one egg products facility. We also own a significant interest in a company that owns an egg products facility, which is consolidated in our financial statements. Most of our operations are conducted from properties we own.
As of June 1, 2019, we owned approximately 27,458 acres of land in various locations throughout our geographic market area. We have the ability to hatch 21.2 million pullet chicks annually, grow 26.2 million pullets annually, house 44.4 million laying hens, and control the production of 40.3 million layers, with the remainder controlled by contract growers. We own mills that can produce 766 tons of feed per hour, and processing facilities capable of processing approximately 500,000 dozen shell eggs per hour. Over the past five fiscal years, our capital expenditures, excluding acquisitions of shell egg production and processing facilities from others, have totaled an aggregate amount of approximately $312.7 million.
The image below key points for Cal-Maine as a investment case according to the group's latest investor presentation.
The Company has one operating segment, which is the production, grading, packaging, marketing and distribution of shell eggs. The majority of our customers rely on us to provide most of their shell egg needs, including specialty and non-specialty eggs. Specialty eggs represent a broad range of products. We classify nutritionally enhanced, cage free, organic and brown eggs as specialty products for accounting and reporting purposes. We classify all other shell eggs as non-specialty products. While we report separate sales information for these egg types, there are many cost factors which are not specifically available for non-specialty or specialty eggs due to the nature of egg production. We manage our operations and allocate resources to these types of eggs on a consolidated basis based on the demands of our customers.
We sell most of our shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S. through our extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores, food service distributors and egg product consumers. Some of our sales are completed through co-pack agreements – a common practice in the industry whereby production and processing of certain products is outsourced to another producer. The strength of our position is evidenced by having the largest market share in the grocery segment for shell eggs. We sell shell eggs to a majority of large U.S. food retailers.
We are one of the largest producers and marketers in the U.S. of value-added specialty shell eggs, which have been a significant and growing segment of the market in recent years. A significant number of our food service customers, large restaurant chains, and major retailers, including our largest customers, have committed to exclusive offerings of cage-free eggs by specified future dates. We are working with our customers to ensure a smooth transition in meeting their goals. Our focus for future expansion at our farms will be environments that are cage-free or with equipment that can easily be converted to cage-free, based on a timeline to meet our customer’s needs.
Cal-Maine Foods, Inc. operates farms, processing plants, hatcheries, feed mills, warehouses, offices and other properties located in Alabama, Arkansas, Florida, Georgia, Kansas, Kentucky, Louisiana, Mississippi, North Carolina, Ohio, Oklahoma, South Carolina, Tennessee, Texas and Utah. As of June 1, 2019, the facilities included three breeding facilities, two hatcheries, six wholesale distribution centers, 23 feed mills, 42 shell egg production facilities, 28 pullet growing facilities, 43 processing and packing facilities, and one egg products facility. We also own a significant interest in a company that owns an egg products facility, which is consolidated in our financial statements. Most of our operations are conducted from properties we own.
As of June 1, 2019, we owned approximately 27,458 acres of land in various locations throughout our geographic market area. We have the ability to hatch 21.2 million pullet chicks annually, grow 26.2 million pullets annually, house 44.4 million laying hens, and control the production of 40.3 million layers, with the remainder controlled by contract growers. We own mills that can produce 766 tons of feed per hour, and processing facilities capable of processing approximately 500,000 dozen shell eggs per hour. Over the past five fiscal years, our capital expenditures, excluding acquisitions of shell egg production and processing facilities from others, have totaled an aggregate amount of approximately $312.7 million.
The image below key points for Cal-Maine as a investment case according to the group's latest investor presentation.
Overview of Cal-Maine Foods' latest earnings report
- Net sales: $241.166 million (down from $340.583 million for the same quarter of the previous year
- Revenue decreased by -29.19% over the last 12 months
- Cost of sales: $262.292 million (down from $283.455 million for the same quarter of the previous year)
- Cost of sales decreased by -7.46% over the last 12 months
- Net loss: $45.760 million (down from a profit of $12.405 million for the same quarter of the previous year)
- Diluted loss per share: -$0.94 (down from $0.26 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 48.446 million (down from 48.516 million for the same quarter of the previous year)
- Cash and cash equivalents: $236.086 million
- Cash and cash equivalents per share: $4.87
- Cash and cash equivalents makes up 12.13% of Cal-Maine Foods' market capital
- Cash and cash equivalents makes up 21.52% of Cal-Maine Foods' total assets
- Accounts receivable: $78.359 million
- Accounts receivable makes up 7.14% of Cal-Maine's total assets
- Stockholders equity in Cal-Maine Foods' : $943.767 million
- Stockholders equity per share for Cal-Maine Foods': $19.48
- Cal-Maine Foods' is trading at 2.05 times its stockholders equity per share, which is within the expected range of between 2 and 4 times that most firms tend to trade at.
Cal-Maine Foods' management commentary on the results and earnings guidance
JACKSON, Miss.--(BUSINESS WIRE)--Sep. 30, 2019-- Cal-Maine Foods, Inc. (NASDAQ: CALM) today reported results for the first quarter (thirteen weeks) ended August 31, 2019.
Dolph Baker, chairman and chief executive officer of Cal-Maine Foods, Inc., stated, “Our financial and operating results for the first quarter reflect the very challenging market conditions that prevailed throughout the summer. While our sales volumes were up 1.7 percent over the first quarter last year, the extreme drop in market prices adversely affected our results. The Southeast large market average price for conventional eggs dropped 40.7 percent for the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019. At the same time, our average sales price was down 30.0 percent for the first quarter compared to the same period last year. The significant drop in market prices reflects the oversupply of eggs that began to affect the market starting in early calendar 2018. This trend has continued as the most recent USDA Chickens and Eggs Report showed 331.4 million laying hens as of September 1, 2019, which was approximately 800,000 more hens than a year ago.
“Our specialty egg business will continue to be a primary focus of our growth strategy in fiscal 2020. For the first quarter, specialty eggs, excluding co-pack sales, accounted for 22.2 percent of our sales volumes, compared with 23.8 percent a year ago. Specialty egg volumes were affected by the significant price differential between conventional and specialty eggs. However, specialty egg revenue was 44.9 percent of total shell egg revenue, compared with 34.2 percent for the first quarter of fiscal 2019, reflecting less volatility in the average selling price for specialty eggs. Specialty egg prices were only down 1.4 percent as compared to the first quarter of fiscal 2019.
“We remain committed to offering a favorable product mix that meets the changing demands of our customers. As a result of California Proposition 12 and other industry changes, we are preparing for the expected higher demand for cage-free eggs. Throughout the first quarter, we have made considerable progress with our expansion plans designed to increase our cage-free capacity. As previously announced, we have capital projects underway in Florida, Texas and Utah, which at completion, will provide significant additional processing, pullet and cage-free capacity.”
Baker continued, “In spite of challenging conditions, we have remained focused on efficient and responsible management across our operations. For the first quarter, our farm production costs per dozen were up 2.3 percent over the first quarter last year. A majority of the increase was due to flock rotation adjustments, as we sold flocks early in response to market conditions, and higher labor costs. Our feed costs per dozen have remained relatively flat since the first quarter of fiscal 2019. Based on the USDA’s current yield and harvest estimates for the calendar 2019 corn and soybean crops, we expect to have an adequate supply of both grains in fiscal 2020. However, ongoing uncertainties and geopolitical issues surrounding trade agreements and international tariffs could create more price volatility in the coming year.
“As we move forward in fiscal 2020, we will focus on the aspects of our business we can control, regardless of market prices and challenging conditions. We are well positioned to execute our growth strategy and make the right investments to support our operations and continue to serve our valued customers,” added Baker.
Pursuant to Cal-Maine Foods’ variable dividend policy, for each quarter for which the Company reports net income, the Company pays a cash dividend to shareholders in an amount equal to one-third of such quarterly income. Following a quarter for which the Company does not report net income, the Company will not pay a dividend with respect to that quarter or for a subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter for which a dividend was paid. Therefore, the Company will not pay a dividend with respect to the first quarter of fiscal 2020.
Dolph Baker, chairman and chief executive officer of Cal-Maine Foods, Inc., stated, “Our financial and operating results for the first quarter reflect the very challenging market conditions that prevailed throughout the summer. While our sales volumes were up 1.7 percent over the first quarter last year, the extreme drop in market prices adversely affected our results. The Southeast large market average price for conventional eggs dropped 40.7 percent for the first quarter of fiscal 2020 compared to the first quarter of fiscal 2019. At the same time, our average sales price was down 30.0 percent for the first quarter compared to the same period last year. The significant drop in market prices reflects the oversupply of eggs that began to affect the market starting in early calendar 2018. This trend has continued as the most recent USDA Chickens and Eggs Report showed 331.4 million laying hens as of September 1, 2019, which was approximately 800,000 more hens than a year ago.
“Our specialty egg business will continue to be a primary focus of our growth strategy in fiscal 2020. For the first quarter, specialty eggs, excluding co-pack sales, accounted for 22.2 percent of our sales volumes, compared with 23.8 percent a year ago. Specialty egg volumes were affected by the significant price differential between conventional and specialty eggs. However, specialty egg revenue was 44.9 percent of total shell egg revenue, compared with 34.2 percent for the first quarter of fiscal 2019, reflecting less volatility in the average selling price for specialty eggs. Specialty egg prices were only down 1.4 percent as compared to the first quarter of fiscal 2019.
“We remain committed to offering a favorable product mix that meets the changing demands of our customers. As a result of California Proposition 12 and other industry changes, we are preparing for the expected higher demand for cage-free eggs. Throughout the first quarter, we have made considerable progress with our expansion plans designed to increase our cage-free capacity. As previously announced, we have capital projects underway in Florida, Texas and Utah, which at completion, will provide significant additional processing, pullet and cage-free capacity.”
Baker continued, “In spite of challenging conditions, we have remained focused on efficient and responsible management across our operations. For the first quarter, our farm production costs per dozen were up 2.3 percent over the first quarter last year. A majority of the increase was due to flock rotation adjustments, as we sold flocks early in response to market conditions, and higher labor costs. Our feed costs per dozen have remained relatively flat since the first quarter of fiscal 2019. Based on the USDA’s current yield and harvest estimates for the calendar 2019 corn and soybean crops, we expect to have an adequate supply of both grains in fiscal 2020. However, ongoing uncertainties and geopolitical issues surrounding trade agreements and international tariffs could create more price volatility in the coming year.
“As we move forward in fiscal 2020, we will focus on the aspects of our business we can control, regardless of market prices and challenging conditions. We are well positioned to execute our growth strategy and make the right investments to support our operations and continue to serve our valued customers,” added Baker.
Pursuant to Cal-Maine Foods’ variable dividend policy, for each quarter for which the Company reports net income, the Company pays a cash dividend to shareholders in an amount equal to one-third of such quarterly income. Following a quarter for which the Company does not report net income, the Company will not pay a dividend with respect to that quarter or for a subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter for which a dividend was paid. Therefore, the Company will not pay a dividend with respect to the first quarter of fiscal 2020.
Cal-Maine Foods (NASDAQ: CALM) stock price history
The image below, obtained from Google, shows the stock price history of Cal-Maine Foods (NASDAQ: CALM) over the last 5 years. And it's been a very volatile and slightly negative time for Cal-Maine Foods. 5 years ago the stock was trading at $46 a stock and it is currently trading at $40.16 a stock. So over a 5 year period the stock of Cal-Maine declined by -12.7%. The stock is also trading at a lot closer to its 52 week low than it is to its 52 week high, which is a clear indication to us that the short term sentiment and momentum of Cal-Maine foods is negative.
Cal-Maine Foods (NASDAQ:CALM) latest stock valuation
So what is Cal-Maine Foods (NASDAQ: CALM) stock worth based on the release of their latest earnings report? Well they made a significant loss in the 1st quarter of their 2020 fiscal year and based on the group's management commentary it looks like the tough times will continue for the group, considering the fact that they stated that there is a massive oversupply of eggs which is forcing prices down significantly. While these over and under supply of eggs will come and go, it affecting the group's income statement and will start affecting their balance sheet as they keep burning cash to run the operations. This seasonal and cyclical nature of their only product they sell makes it hard to value the stock. This also plays a role on the stock price and is one of the reasons for the very volatile nature of Cal-Maine's stock price.
All things consider our valuation models provide a target (full value) price for Cal-Maine Foods (NASDAQ: CALM) of $29.30 a stock. We therefore believe that Cal-Maine Foods (NASDAQ: CALM) stock is overvalued at this point in time. We would not recommend long term fundamental or value investors buy into the stock at its current price, but rather at least 10% below our target (full value) price of $29.30. So a good entry point into Cal-Maine would be around $26.40 or below. Based on all the above we expect the stock price of Cal-Maine Foods to pull back to closer to our target price in coming weeks and months.
All things consider our valuation models provide a target (full value) price for Cal-Maine Foods (NASDAQ: CALM) of $29.30 a stock. We therefore believe that Cal-Maine Foods (NASDAQ: CALM) stock is overvalued at this point in time. We would not recommend long term fundamental or value investors buy into the stock at its current price, but rather at least 10% below our target (full value) price of $29.30. So a good entry point into Cal-Maine would be around $26.40 or below. Based on all the above we expect the stock price of Cal-Maine Foods to pull back to closer to our target price in coming weeks and months.