Should Investors Scramble Over to Cal-Maine Foods?

Cal-Maine Foods offers stability just like General Mills and unlike Campbell Soup Company.

Jan 17, 2014 at 10:25AM

It's often been said that no matter how bad the economy gets, people still gotta eat. Cal-Maine Foods (NASDAQ:CALM) describes itself as the largest producer and distributor of fresh-shell eggs. No matter how bad times are, most everybody has a few pennies for some good old-fashioned eggs. While General Mills (NYSE:GIS) provides evidence that other breakfast items such as cereal also see sustainable demand every quarter, Campbell Soup (NYSE:CPB) serves as a warning that all things food don't automatically sell.

You may be asking yourself how Cal-Maine Foods ties into General Mills and Campbell Soup.  The main thing all of these have in common is reliance on brand name for their success in selling foods.  While you are most likely more than familiar with the various products under General Mills and Campbell Soup already, Cal-Maine Foods also relies on its various brands.  Cal-Maine Foods website states: 

We market our specialty shell eggs under the following brands: Egg-Land's Best(TM), Farmhouse(TM), and 4-Grain(TM). We are a member of the Egg-Land's Best, cooperative, which markets the leading brand in the specialty shell egg segment. We have exclusive license agreements to market and distribute Egg-Land's Best(TM) specialty shell eggs in major metropolitan areas, including New York City, and a number of states in the southeast and southwest. 

Cal-Maine Foods' results
On Dec. 30, Cal-Maine Foods reported fiscal second-quarter results. Net sales jumped 8% to $354.3 million. Net income leaped 83% to $26.1 million or $1.08 per diluted share. Part of the reason for the increase was an acquisition that Cal-Maine foods made in November 2012 that contributed 6.2% to the volume of eggs sold, but the main reason net income leaped was that average selling prices went up 1%. This might not sound like much, but Cal-Maine Foods only saw a 4% profit margin in the year-ago period, so a 1% increase in prices meant a huge percentage change in the bottom line.

CEO Dolph Baker also pointed out that specialty egg sales rose to 16.4% of volume and 23.7% of revenue during the quarter. Specialty eggs tend to bring higher prices and higher profits than regular eggs, with prices rising by 4.1% this quarter alone. This niche is a particular area of further profitable growth opportunity for Cal-Maine Foods.

On the cost side, Baker mentioned that feed costs were 15% lower than they were last year. Lower input costs and higher sale prices are of course the perfect recipe for shareholder value. Cal-Maine Foods believes feed costs will stay at their current reduced levels. However, the company did warn that its principal feed ingredients of corn and soybean meal will remain volatile throughout the fiscal year.

Dividends instead of egg shells
Cal-Maine Foods is committed to paying a dividend equal to one-third of its net income. This means reliable and measurable consistent dividends for shareholders that automatically increase in direct and immediate correlation to the company's growth. In keeping with this policy, Cal-Maine Foods declared a cash dividend of $0.361 per share on Jan. 7.

General Mills at ease
Cal-Maine Foods isn't the only one doing well and providing shareholders with reliable earnings and growth when it comes to breakfast foods. Last quarter, General Mills reported sales of $4.88 billion. Although this was flat compared to last year, the quarter last year included the Thanksgiving holiday, while this quarter did not, so it was considered a great quarter. Adjusted earnings per share were down a bit, at $0.83 from $0.86 last year. General Mills expects to see acceleration in earnings growth over the next six months. Just as with the eggs business, General Mills sees solid performance.

Campbell Soup
Meanwhile, this is not to say that anything in any food category will succeed no matter what. Last quarter, Campbell Soup reported sales down 2% and organic sales down 4%, and earnings got clipped by 20%. Campbell Soup blamed in part the "weak consumer environment," which suggests that people will cut back on their favorite soups during tough times but they won't necessarily cut back on eggs and cereal.

Foolish final thoughts
For Cal-Maine Foods, it seems like the sunny side is up all the time. While there are all sorts of areas where customers can cut back when times are tough, including soup from the can, consumption of eggs does not seem to be part of the cutback equation. Fools looking for a stable, consistent-growing moneymaker with limited fundamental downside due to the economy should take a peek at Cal-Maine Foods.

The three perfect stocks to wake up to every morning
If you're looking for some long-term investing ideas, you're invited to check out The Motley Fool's special report, "The 3 Dow Stocks Dividend Investors Need." It's absolutely free, so simply click here now and get your copy today.

Fool contributor Nickey Friedman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information