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High feed costs have recently been disappointing several meat processors and egg suppliers. Corn and soybean meal are primary feed ingredients, and their rising prices have pinched margins and reduced the profitability of various companies. Good examples of this trend are the less-than-expected quarterly earnings of meat processor Tyson Foods, as well as the rising costs of Hormel Foods. With this backdrop, a good quarter posted by a similar company is worth reading about.
Cal-Maine (Nasdaq: CALM ) , the country's largest producer and distributor of fresh shell eggs in U.S., recently posted better-than-expected third-quarter results. Sales jumped 24% to $290.4 million. Profits increased to $23.3 million, rising over 50%. The company earned $0.97 per share, comfortably beating the analysts' estimate of $0.89 per share.
So, what drove these results? Three factors: higher prices, specialty eggs, and strong holiday demand.
- During the quarter, feed prices rose sharply by 20%. The company did a good job battling this by increasing prices. Cal-Maine sold a dozen eggs at a wholesale rate of $1.27, which is 16.5% more than the price it charged before. Although this absorbed the cost increase for now, it would be wise to be concerned about the future. This is because the company expects costs to be "high and volatile" for the rest of the fiscal year.
- Sales of specialty eggs, which are growing rapidly, were quite beneficial. This high-demand category of eggs includes nutritionally enhanced, organic, and cage-free eggs, offering a wide variety for consumers with special preferences. Interestingly, specialty eggs comprise 16% of the total dozens sold, but contribute 23% to sales, as they have a higher selling price.
- Demand for eggs was reasonably strong this quarter mainly due to the holiday season. The total number of eggs sold was up 6% over last year.
The Foolish bottom line
Cal-Maine has posted good numbers supported by strong demand. Although price increases are a strategy the company cannot constantly use to improve revenue, the increasing sales of specialty eggs are a good sign.
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