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Category: Stock Market and Cal-Maine Foods
Date: 7 January 2020 Stock Price: $37.76 We take a look at the 2nd quarter earnings report of their 2020 fiscal year of Cal-Maine Foods, the largest producer and marketer of shell eggs in the United States. Bad news for stockholders is the fact that the group is still making significant losses
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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 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.
Overview of Cal-Maine Foods' 2nd quarter 2020 earnings report
- Net sales: $311.522 million (down from $356.040 million for the same quarter of the previous year
- Revenue decreased by -12.5% over the last 12 months
- Cost of sales: $282.147 million (down from $285.505 million for the same quarter of the previous year)
- Cost of sales decreased by -1.17% over the last 12 months
- Net loss: -$10061 million (down from a profit of $21.807 million for the same quarter of the previous year)
- Diluted loss per share: -$0.21 (down from $0.45 profit for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 48.447 million (down from 48.534 million for the same quarter of the previous year)
- Cash and cash equivalents: $134.523 million
- Cash and cash equivalents per share: $2.77
- Cash and cash equivalents makes up 7.35% of Cal-Maine Foods' market capital
- Cash and cash equivalents makes up 12.1% of Cal-Maine Foods' total assets
- Accounts receivable: $118.046 million
- Accounts receivable makes up 10.6% of Cal-Maine's total assets
- Stockholders equity in Cal-Maine Foods' : $934.293 million
- Stockholders equity per share for Cal-Maine Foods': $19.28
- Cal-Maine Foods' is trading at 1.95 times its stockholders equity per share, which is outside 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)--Jan. 6, 2020-- Cal-Maine Foods, Inc. (NASDAQ: CALM) today reported results for the second quarter (thirteen weeks) ended November 30, 2019.
Dolph Baker, chairman and chief executive officer of Cal-Maine Foods, Inc., stated, “We continued to experience challenging market conditions for the second quarter of fiscal 2020. While our sales volumes remained relatively flat in the second quarter compared to last year, our financial results reflect lower average selling prices compared with the same period of fiscal 2019. The Southeast large market average price for conventional eggs dropped 12.7 percent for the second quarter of fiscal 2020 compared to the second quarter of fiscal 2019. At the same time, our average sales price was down 11.5 percent, due to an unfavorable balance of egg supply and demand. Hen numbers, as reported by the USDA Chickens and Eggs report as of December 23, 2019, are 340.5 million, which is 4.6 more million hens than a year ago. The increase in the number of hens continues to contribute to the oversupply of eggs.
“During the second quarter of fiscal 2020, we lost a portion of our sales of non-specialty eggs to a major customer in the Southeast region, representing 4.6 percent of total shell egg dozens and 6.1 percent of non-specialty egg dozens for fiscal 2019. This did not materially affect sales during the second quarter of fiscal 2020. However, we expect our new capacity additions and our previously disclosed plans to decommission some older, less efficient facilities will help optimize our operations, improve our sales mix, and better align our production and sales within the region.
“Our specialty egg business remains a key component of our growth strategy in fiscal 2020. For the second quarter, specialty eggs, excluding co-pack sales, were $109.4 million accounting for 36.0 percent of our sales revenue, compared with $120.8 million, or 35.0 percent of sales revenue, in the second quarter of fiscal 2019. Average pricing for specialty eggs was down by 4.1 percent to $1.88 per dozen in the second quarter compared to the prior-year second quarter. Specialty dozens sold were also down 5.7 percent, as sales of specialty dozens were negatively affected by low conventional egg prices.
Dolph Baker, chairman and chief executive officer of Cal-Maine Foods, Inc., stated, “We continued to experience challenging market conditions for the second quarter of fiscal 2020. While our sales volumes remained relatively flat in the second quarter compared to last year, our financial results reflect lower average selling prices compared with the same period of fiscal 2019. The Southeast large market average price for conventional eggs dropped 12.7 percent for the second quarter of fiscal 2020 compared to the second quarter of fiscal 2019. At the same time, our average sales price was down 11.5 percent, due to an unfavorable balance of egg supply and demand. Hen numbers, as reported by the USDA Chickens and Eggs report as of December 23, 2019, are 340.5 million, which is 4.6 more million hens than a year ago. The increase in the number of hens continues to contribute to the oversupply of eggs.
“During the second quarter of fiscal 2020, we lost a portion of our sales of non-specialty eggs to a major customer in the Southeast region, representing 4.6 percent of total shell egg dozens and 6.1 percent of non-specialty egg dozens for fiscal 2019. This did not materially affect sales during the second quarter of fiscal 2020. However, we expect our new capacity additions and our previously disclosed plans to decommission some older, less efficient facilities will help optimize our operations, improve our sales mix, and better align our production and sales within the region.
“Our specialty egg business remains a key component of our growth strategy in fiscal 2020. For the second quarter, specialty eggs, excluding co-pack sales, were $109.4 million accounting for 36.0 percent of our sales revenue, compared with $120.8 million, or 35.0 percent of sales revenue, in the second quarter of fiscal 2019. Average pricing for specialty eggs was down by 4.1 percent to $1.88 per dozen in the second quarter compared to the prior-year second quarter. Specialty dozens sold were also down 5.7 percent, as sales of specialty dozens were negatively affected by low conventional egg prices.
"We continue our efforts to position Cal-Maine Foods as an industry leader in meeting future customer requirements for cage-free eggs. We are preparing for the additional demand created by legislation in California, Washington and Oregon requiring cage-free eggs, as well as three other states with similar laws defining minimum space requirements. We have invested over $314 million to expand our cage-free production and continue to make progress with our expansion plans in Florida, Texas and Utah, which will provide significant additional processing, pullet and cage-free capacity upon completion.
“We continue to pursue our strategy to grow our business through selective acquisitions as well as focused expansion and conversion of our existing farms, based on a timeline to meet our customers’ needs. During the second quarter of fiscal 2020, we completed the acquisition of certain assets of Mahard Egg Farm, relating to its commercial shell eggs production, processing, distribution and sales. We are working to integrate these operations into our existing footprint in the South Central region, and we look forward to the additional opportunities to expand our business and better serve our customers.”
Baker continued, “Across our operations, we have remained focused on efficient and responsible management of our production facilities. Our farm production costs per dozen were up 2.3 percent over the second quarter last year. A majority of the increase was amortization expense 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 over the same time period. Based on the USDA’s current yield and harvest estimates for 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 for the second half of the year.
“In spite of challenging conditions, we will continue to manage our business for the long term, regardless of the volatility in market prices and other external factors outside our control. We are well positioned to execute our growth strategy, and we are committed to making 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 second quarter of fiscal 2020.
“We continue to pursue our strategy to grow our business through selective acquisitions as well as focused expansion and conversion of our existing farms, based on a timeline to meet our customers’ needs. During the second quarter of fiscal 2020, we completed the acquisition of certain assets of Mahard Egg Farm, relating to its commercial shell eggs production, processing, distribution and sales. We are working to integrate these operations into our existing footprint in the South Central region, and we look forward to the additional opportunities to expand our business and better serve our customers.”
Baker continued, “Across our operations, we have remained focused on efficient and responsible management of our production facilities. Our farm production costs per dozen were up 2.3 percent over the second quarter last year. A majority of the increase was amortization expense 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 over the same time period. Based on the USDA’s current yield and harvest estimates for 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 for the second half of the year.
“In spite of challenging conditions, we will continue to manage our business for the long term, regardless of the volatility in market prices and other external factors outside our control. We are well positioned to execute our growth strategy, and we are committed to making 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 second 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 time for Cal-Maine Foods stockholders with basically no gains or losses to show for it. 5 years ago the stock was trading at $37.70 a stock and it is currently trading at $37.76 a stock. So over a 5 year period the stock of Cal-Maine gained 2.05%.
The stock is also trading at a lot closer to its 52 week low of $36.65 than it is to its 52 week high of $47, which is a clear indication to us that the short term sentiment and momentum of Cal-Maine foods is negative.
The stock is also trading at a lot closer to its 52 week low of $36.65 than it is to its 52 week high of $47, which is a clear indication to us that the short term sentiment and momentum of Cal-Maine foods is negative.
Recent coverage of Cal-Maine Foods
The extract below covering Cal-Maine stock is as obtained from Zacks.com and is dated 8 November 2019
Cal-Maine Foods, Inc. (CALM - Free Report) has been struggling lately, but the selling pressure may be coming to an end soon. That is because CALM recently saw a Hammer Chart Pattern which can signal that the stock is nearing a bottom.
What is a Hammer Chart Pattern?
A hammer chart pattern is a popular technical indicator that is used in candlestick charting. The hammer appears when a stock tumbles during the day, but then finds strength at some point in the session to close near or above its opening price. This forms a candlestick that resembles a hammer, and it can suggest that the market has found a low point in the stock, and that better days are ahead.
Other Factors
Plus, earnings estimates have been rising for this company, even despite the sluggish trading lately. In just the past 60 days alone 1 estimate has gone higher, compared to none lower, while the consensus estimate has also moved in the right direction. Estimates have actually risen so much that the stock now has a Zacks Rank #2 (Buy) suggesting this relatively unloved stock could be due for a breakout soon. This will be especially true if CALM stock can build momentum from here and find a way to continue higher of off this encouraging trading development.
Cal-Maine Foods, Inc. (CALM - Free Report) has been struggling lately, but the selling pressure may be coming to an end soon. That is because CALM recently saw a Hammer Chart Pattern which can signal that the stock is nearing a bottom.
What is a Hammer Chart Pattern?
A hammer chart pattern is a popular technical indicator that is used in candlestick charting. The hammer appears when a stock tumbles during the day, but then finds strength at some point in the session to close near or above its opening price. This forms a candlestick that resembles a hammer, and it can suggest that the market has found a low point in the stock, and that better days are ahead.
Other Factors
Plus, earnings estimates have been rising for this company, even despite the sluggish trading lately. In just the past 60 days alone 1 estimate has gone higher, compared to none lower, while the consensus estimate has also moved in the right direction. Estimates have actually risen so much that the stock now has a Zacks Rank #2 (Buy) suggesting this relatively unloved stock could be due for a breakout soon. This will be especially true if CALM stock can build momentum from here and find a way to continue higher of off this encouraging trading development.
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 their operations (and this can clearly be seen as their cash and equivalents in their 1st quarter 2020 earnings report was a lot more than their current cash and equivalents).
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 $27.70 a stock. We therefore believe that Cal-Maine Foods (NASDAQ: CALM) stock is overvalued at this point in time.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price, which in this case is $27.70. We therefore believe a good entry point into Cal-Maine stock would be at $24.90 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 and we rate the stock as Cal-Maine as avoid.
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 $27.70 a stock. We therefore believe that Cal-Maine Foods (NASDAQ: CALM) stock is overvalued at this point in time.
We usually recommend that long term fundamental or value investors look to enter a stock at least 10% below our target price, which in this case is $27.70. We therefore believe a good entry point into Cal-Maine stock would be at $24.90 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 and we rate the stock as Cal-Maine as avoid.
Next earnings release of Cal-Maine Foods
It is expected that Cal-Maine will release their 3rd quarter 2020 earnings report in early April 2020