Cal-Maine Foods (NASDAQ:CALM) is cooking, but investors are probably wondering how long the party will last.
The nation's largest egg producer reported yesterday that fiscal fourth-quarter sales were up almost 38% to $142 million from $103.4 million in last year's fourth quarter. Net income, meanwhile, surged 300% to $17.2 million from $4.3 million. The company's shares were richly rewarded yesterday with an 11% gain.
Cal-Maine explained that its performance had a lot to do with -- who would've guessed? -- "very strong demand for eggs." This demand in turn is being driven by the low-carbohydrate, high-protein dietary trend that has commanded the attention of investigative journalists everywhere. The latest word, though, is that the trend has peaked and may be on the wane.
The Wall Street Journal suggested yesterday that low-carbohydrate products have lost some of their luster. American Italian Pasta (NYSE:PLB) has had trouble selling its low-carb noodles, and General Mills (NYSE:GIS) has had to lower the price of its Total Protein cereal. Meanwhile, the percentage of Americans on forms of the diet has declined from 9% in February to between 6% and 7% in June.
Many investors may be concerned that Cal-Maine is in for a fall. Still, Fred Adams Jr., the company's chairman and CEO, remarked that demand for eggs continues to be strong. There is good reason to be optimistic, even if the low-carb trend is headed for the trash heap. Eggs' reputation has been rehabilitated so that they are now seen as relatively healthy. In addition, as a naturally occurring high-protein food, eggs may be less vulnerable to a decline than reformulated products that may not share the taste characteristics of the originals.
Alas, as W.D. Crotty has pointed out, eggs are a cyclical commodity. No doubt Cal-Maine competitors are adding capacity so that the tight market may soon turn into a glut. But even if this comes to pass, Cal-Maine should be able to continue its consolidation of the fragmented industry. The company has increased its cash holdings to $73 million from $6 million and reduced long-term debt to $80 million from $96 million. With its more solid balance sheet, Cal-Maine is poised to take advantage of any environment.
Fool contributor Brian Gorman is a freelance writer living in Chicago, Ill. He does not own shares of any companies mentioned here.
