Cal-Maine Foods (CALM -2.13%) stock fell 7.3% on Wednesday following the country's largest shell egg producer's Tuesday afternoon release of its results for the first quarter of fiscal 2024 (ended Sept. 2). Revenue and earnings fell short of Wall Street's expectations, with the bottom-line miss a big one.
A sizable annual drop in the company's realized prices for its shell eggs dragged its sales and profit down substantially from the year-ago period when average U.S. egg prices were surging (see chart below) due largely to a severe outbreak of avian flu, decreasing the number of egg-laying hens in the country. In other words, the company faced extremely tough year-over-year comparables, as the year-ago period was unusually profitable.
What a difference a year makes. In 2023, Cal-Maine stock, including dividends, is down 12.1% through Wednesday, while the S&P 500 index has returned 12.4% over this period. In 2022, Cal-Maine returned 51.9%, demolishing the broader market, as the S&P 500 was in the red by more than 18%. Indeed, last year, Cal-Maine stock was one of the year's top performers in the entire consumer staple sector, including food stocks and other necessities.
Cal-Maine Foods' key numbers
| Metric | Fiscal Q1 2023 Result | Fiscal Q1 2024 Result | Change (YOY) |
|---|---|---|---|
| Revenue | $658.3 million | $459.3 million | (30%) |
| Operating income | $163.9 million | ($6.8 million) | The result flipped to negative from positive. |
| Net income | $125.3 million | $926,000 | (99%) |
| Earnings per share (EPS) | $2.57 | $0.02 | (99%) |
Data sources: Cal-Maine Foods and Yahoo! Finance. Fiscal Q1 2024 ended Sept. 2, 2023. YOY = year over year.
The company had an operating loss, and the only reason it didn't post a net loss is because it had more than $7 million in "other income," likely stemming from interest income.
CFO Max Bowman attributed the operating loss to "lower conventional shell egg prices and increased labor costs, partially offset by lower farm production costs due to the decrease in feed ingredient prices."
Wall Street was looking for earnings per share (EPS) of $0.33 on revenue of $479.5 million, so Cal-Maine whiffed big on the bottom line and missed on the top line.
The company ended the quarter with cash of $610 million and no long-term debt.
Average U.S. Egg Farm Price Received data by YCharts.
What happened with Cal-Maine during the quarter?
- The company's total volume of eggs sold shrunk nearly 1% year over year to 273.1 million dozen.
- Specialty eggs (which mainly include cage-free but also organic and pasture-raised) accounted for 34% of total volume sold and an outsize 48% of total sales dollars because they are more expensive (and more profitable for the company) than conventional eggs. This factor should prove a long-term positive for Cal-Maine as it continues investing in expanding its specialty egg business to meet increasing demand.
- Average selling price (ASP) per dozen dropped to $1.589 from $2.275 in the year-ago period. (This is a wholesale price, not a retail one.) That 30% decline was driven by a 48% drop in ASP per dozen for conventional eggs to $1.241. ASP per dozen for specialty eggs increased 8.4% to $2.278.
What management had to say
Here's part of CEO Sherman Miller's statement in the earnings release:
Our results for the first quarter of fiscal 2024 reflect the current dynamic market conditions. After reaching record high levels in fiscal 2023, average selling prices for shell eggs have since returned to more normalized levels as the overall egg supply recovers from the most recent highly pathogenic avian influenza ("HPAI") outbreak, which depleted the national hen supply. ... Our operations ran well during the quarter, and we benefited from lower feed costs, although we generally continued to incur higher input costs.
Cal-Maine has not had an outbreak of avian flu in its flocks and invests considerably in measures to lower its risk of such an outbreak.
Looking ahead
Management doesn't provide guidance. It would be nearly impossible to do so because the average price of shell eggs is volatile, varying with unpredictable factors that include weather and outbreaks of avian flu.
That said, while acknowledging Cal-Maine faces "ongoing challenges related to the threat of HPAI and inflationary headwinds," Miller said the company is "uniquely positioned to support the nation's food supply with nutritious and affordable protein, and we believe demand for our products will continue to grow."
Indeed, the company does seem uniquely positioned, given its status as the country's largest shell egg producer and distributor. That said, Cal-Maine is a volatile stock, which makes it suited only for investors comfortable with wide price swings.
