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Category: Stock Market and Cal-Maine Foods
Date: 31 March 2020 Stock Price: $42.82 We take a look at the 3rd quarter earnings report of their 2020 fiscal year of Cal-Maine Foods, the largest producer and marketer of shell eggs in the United States.
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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' 3rd quarter 2020 earnings report
- Net sales: $345.588 million (down from $383.922 million for the same quarter of the previous year
- Revenue decreased by -9.9% over the last 12 months
- Cost of sales: $295.760 million (down from $301.511 million for the same quarter of the previous year)
- Cost of sales decreased by -1.9% over the last 12 months
- Margin pressure being experienced by Cal-Maine as their sales decreased at a faster rate than their cost of sales
- Net earnings: $13.749million (down from a profit of $39.777 million for the same quarter of the previous year)
- Diluted earnings: $0.28 (down from $0.82 profit for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 48.588 million (up from 48.533 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 their 3rd quarter 2020 results
JACKSON, Miss.--(BUSINESS WIRE)--Mar. 30, 2020-- Cal-Maine Foods, Inc. (NASDAQ: CALM) today reported results for the third quarter (thirteen weeks) ended February 29, 2020
Dolph Baker, chairman and chief executive officer of Cal-Maine Foods, Inc., stated, “Our results for the third quarter of fiscal 2020 reflect more challenging market conditions than we experienced for the same period last year. However, we were pleased with our ability to execute our strategy in this environment and return to profitability for the quarter. While our sales volumes were in line with last year, our overall sales revenue was down due to the lower average selling prices compared with the same period of fiscal 2019. The Southeast large market average price for conventional eggs dropped 13.8 percent for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019, while our average sales price was down 10.0 percent. Since the end of the third quarter, market prices have moved significantly higher to record levels, and we expect to see continued price volatility through the end of our fiscal year.
Dolph Baker, chairman and chief executive officer of Cal-Maine Foods, Inc., stated, “Our results for the third quarter of fiscal 2020 reflect more challenging market conditions than we experienced for the same period last year. However, we were pleased with our ability to execute our strategy in this environment and return to profitability for the quarter. While our sales volumes were in line with last year, our overall sales revenue was down due to the lower average selling prices compared with the same period of fiscal 2019. The Southeast large market average price for conventional eggs dropped 13.8 percent for the third quarter of fiscal 2020 compared to the third quarter of fiscal 2019, while our average sales price was down 10.0 percent. Since the end of the third quarter, market prices have moved significantly higher to record levels, and we expect to see continued price volatility through the end of our fiscal year.
“For the third quarter, specialty eggs, excluding co-pack sales, were $117.7 million, accounting for 35.0 percent of our sales revenue, compared with $131.1 million, or 35.0 percent of sales revenue, in the third quarter of fiscal 2019. Average pricing for specialty eggs was down by 3.4 percent to $1.89 per dozen in the third quarter compared to the prior-year third quarter. Specialty dozens sold were also down 7.1 percent, as sales of specialty dozens were negatively affected by low conventional egg prices.
“An unfavorable balance of egg supply and demand continued to adversely affect market prices during the third quarter and year-to-date periods. However, hen numbers, as reported by the USDA Chickens and Eggs report on March 23, 2020, were 330.0 million, which is 11.8 million less hens than reported a year ago. The USDA also reported that hatch rates decreased 4.95 percent for the last three consecutive months through February 2020, including a 8.0 percent decrease in February, as compared to the same period in the prior year.
"We have worked hard to prepare Cal-Maine Foods to meet future customer requirements and the expected additional demand for cage-free eggs. This demand has been supported 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 are committed to meeting the demands of our customers, and we have invested over $344 million to expand our cage-free production starting with our first facility in 2008. We are pleased with our progress to date, with expansion projects underway in Florida, Texas and Utah, which will provide significant additional processing, pullet and cage-free capacity upon completion.
“Our operations ran well during the third quarter, and we have remained focused on efficient and responsible management of our production facilities. Overall, our farm production costs per dozen were down 1.6 percent over the third quarter last year, reflecting a 3.6 percent drop in feed costs offset by slight increases in other farm production costs. According to USDA reports, current supplies of corn and soybeans are favorable heading into the 2020 planting season, and we believe we will continue to have an adequate supply of both grains. However, current ongoing uncertainties and supply chain disruptions related to the COVID-19 outbreak and geopolitical issues surrounding trade agreements and international tariffs could create more price volatility in the future.
“Looking ahead into the fourth quarter of fiscal 2020 and fiscal 2021, we believe we are taking all reasonable precautions in the management of our operations in response to the outbreak of COVID-19. To date, Cal-Maine Foods facilities are operating normally, and we have not experienced any supply chain or delivery disruptions. Our top priority is the health and safety of our employees, who work hard every day to produce eggs for our customers. As part of the nation’s food supply, we work in a critical infrastructure industry, and we have a special responsibility to maintain our normal work schedule. As such, we are providing supplemental pay to all of our employees to assist them and their families at this critical time. We are in daily communications with our managers across our operations and continue to closely monitor the situation in the communities where we live and work. We are following published guidelines by the Centers for Disease Control (CDC) and other government health agencies in implementing procedures to protect our employees, and we have strict sanitation protocols and biosecurity measures in place throughout our operations with restricted access to visitors. All non-essential corporate travel has been suspended. Fortunately, there are no known indications that COVID-19 affects hens or can be transferred through the food supply, and we remain focused on meeting the current high demand for eggs.
“An unfavorable balance of egg supply and demand continued to adversely affect market prices during the third quarter and year-to-date periods. However, hen numbers, as reported by the USDA Chickens and Eggs report on March 23, 2020, were 330.0 million, which is 11.8 million less hens than reported a year ago. The USDA also reported that hatch rates decreased 4.95 percent for the last three consecutive months through February 2020, including a 8.0 percent decrease in February, as compared to the same period in the prior year.
"We have worked hard to prepare Cal-Maine Foods to meet future customer requirements and the expected additional demand for cage-free eggs. This demand has been supported 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 are committed to meeting the demands of our customers, and we have invested over $344 million to expand our cage-free production starting with our first facility in 2008. We are pleased with our progress to date, with expansion projects underway in Florida, Texas and Utah, which will provide significant additional processing, pullet and cage-free capacity upon completion.
“Our operations ran well during the third quarter, and we have remained focused on efficient and responsible management of our production facilities. Overall, our farm production costs per dozen were down 1.6 percent over the third quarter last year, reflecting a 3.6 percent drop in feed costs offset by slight increases in other farm production costs. According to USDA reports, current supplies of corn and soybeans are favorable heading into the 2020 planting season, and we believe we will continue to have an adequate supply of both grains. However, current ongoing uncertainties and supply chain disruptions related to the COVID-19 outbreak and geopolitical issues surrounding trade agreements and international tariffs could create more price volatility in the future.
“Looking ahead into the fourth quarter of fiscal 2020 and fiscal 2021, we believe we are taking all reasonable precautions in the management of our operations in response to the outbreak of COVID-19. To date, Cal-Maine Foods facilities are operating normally, and we have not experienced any supply chain or delivery disruptions. Our top priority is the health and safety of our employees, who work hard every day to produce eggs for our customers. As part of the nation’s food supply, we work in a critical infrastructure industry, and we have a special responsibility to maintain our normal work schedule. As such, we are providing supplemental pay to all of our employees to assist them and their families at this critical time. We are in daily communications with our managers across our operations and continue to closely monitor the situation in the communities where we live and work. We are following published guidelines by the Centers for Disease Control (CDC) and other government health agencies in implementing procedures to protect our employees, and we have strict sanitation protocols and biosecurity measures in place throughout our operations with restricted access to visitors. All non-essential corporate travel has been suspended. Fortunately, there are no known indications that COVID-19 affects hens or can be transferred through the food supply, and we remain focused on meeting the current high demand for eggs.
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 $39.30 a stock and it is currently trading at $42.72 a stock. So over a 5 year period the stock of Cal-Maine gained 8.70%.
The stock is also trading at a lot closer to its 52 week high of $47 than it is to its 52 week low of $30.74, which is a clear indication to us that the short term sentiment and momentum of Cal-Maine foods is positive, which is pretty rare these days considering the massive stock market sell offs across the world which has lead to market sentiment being overwhelmingly negative. Read more about recent market sell offs here.
The stock is also trading at a lot closer to its 52 week high of $47 than it is to its 52 week low of $30.74, which is a clear indication to us that the short term sentiment and momentum of Cal-Maine foods is positive, which is pretty rare these days considering the massive stock market sell offs across the world which has lead to market sentiment being overwhelmingly negative. Read more about recent market sell offs here.
Recent coverage of Cal-Maine Foods
The extract below covers the latest earnings report from Cal-Maine as obtained from TheStreet.com
Things are looking sunnier for Cal-Maine Foods (CALM) - Get Report, one of the nation's largest egg producers, as its shares were buoyed by a strong quarterly performance and its report that it's seen no supply-chain disruption during the coronavirus outbreak. Cal-Maine's stock at last check climbed 3.7% to $44.
The Jackson, Miss., company reported that for the third quarter ended Feb. 29, earnings were 29 cents a share, beating analyst estimates of 19 cents. Cal-Maine's revenue declined 10% to $345.6 million but beat analyst estimates of $338 million. While supermarkets and food suppliers have been under tremendous strain amid the disruptions caused by covid-19, Cal-Maine Chairman and Chief Executive Dolph Baker said in a statement that the egg producer's facilities "are operating normally, and we have not experienced any supply chain or delivery disruptions."
The company warned, however, that prices could become more volatile, given the "ongoing uncertainties" surrounding the coronavirus pandemic and its impact on supply chains. In fact, in March, "market prices have moved significantly higher to record levels," Baker said.
Read the full article here
Things are looking sunnier for Cal-Maine Foods (CALM) - Get Report, one of the nation's largest egg producers, as its shares were buoyed by a strong quarterly performance and its report that it's seen no supply-chain disruption during the coronavirus outbreak. Cal-Maine's stock at last check climbed 3.7% to $44.
The Jackson, Miss., company reported that for the third quarter ended Feb. 29, earnings were 29 cents a share, beating analyst estimates of 19 cents. Cal-Maine's revenue declined 10% to $345.6 million but beat analyst estimates of $338 million. While supermarkets and food suppliers have been under tremendous strain amid the disruptions caused by covid-19, Cal-Maine Chairman and Chief Executive Dolph Baker said in a statement that the egg producer's facilities "are operating normally, and we have not experienced any supply chain or delivery disruptions."
The company warned, however, that prices could become more volatile, given the "ongoing uncertainties" surrounding the coronavirus pandemic and its impact on supply chains. In fact, in March, "market prices have moved significantly higher to record levels," Baker said.
Read the full article here
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? While the group made a profit for the third quarter their earnings is still well below what they achieved 12 months ago. Theseasonal 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 $29.10 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 $29.10. We therefore believe a good entry point into Cal-Maine stock would be at $26.20 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.
All things consider our valuation models provide a target (full value) price for Cal-Maine Foods (NASDAQ: CALM) of $29.10 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 $29.10. We therefore believe a good entry point into Cal-Maine stock would be at $26.20 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 4th quarter and full fiscal 2020 earnings report in early July 2020