Why Cal-Maine Shares Cracked

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Cal-Maine Foods (NASDAQ: CALM  ) plunged 10% today after the egg producer's quarterly profit easily missed Wall Street expectations.

So what: Cal-Maine's second-quarter revenue jumped 9.1% on higher selling prices, but a big miss on the bottom line -- EPS of $0.60 versus the consensus of $0.90 -- reinforces concerns over spiking feed costs. In fact, gross margins fell to 15.6% from 21.2% in the year-ago period, forcing analysts to lower their valuation estimates.

Now what: Unfortunately, management expects feed costs to remain high and volatile for the remainder of the year. "While we note these market dynamics for Cal-Maine Foods and our industry, we remain focused on executing our strategy to be an efficient low-cost producer," CEO Dolph Baker reassured investors in a statement. So while high input costs will continue to pressure margins in the short term, Cal-Maine's scale advantages, coupled with the increasing demand for specialty eggs, make today's pullback a tasty long-term opportunity.

Interested in more info on Cal-Maine? Add it to your watchlist.


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