It's been almost 14 months since I first took a look at egg producer Cal-Maine Foods (NASDAQ:CALM) on these pages, and what an interesting ride it's been -- and continues to be -- for the company that's based not in California or Maine but Jackson, Miss. Unfortunately for investors, the speed and direction of that ride, however, seems to be moving in an unfavorable direction.
Shares of Cal-Maine fell more than 11% yesterday on heavy trading volume -- especially heavy if you consider the very limited investor interest in the company's shares until about last November, when Cal-Maine's aborted plans to go private coincided neatly with the low-carb craze -- after the company reported downbeat fiscal Q2 (ended Nov. 27) and first-half financial results.
Cal-Maine's fortunes are a textbook example of supply and demand at work. The company's sales jumped substantially as people started eating eggs like the concept of cholesterol was as real as the bogeyman -- I've never seen a human eat eggs like my roommate, who certainly hasn't curtailed his habit. Supply increased, but so did prices, leading to yummy margins.
Eggs were a great business to be in during the heyday of low-carb mania. A staple food, heavy marketing was unnecessary and small changes in price were unlikely to be noticed by most consumers, and they're relatively inexpensive in any economy. No research and development was needed to bring them to market -- they were already there. On top of that, they're versatile and easy to prepare. No wonder the big gains at Cal-Maine.
Now, it seems, investors can't get off the low-carb bandwagon fast enough. That's perhaps unsurprising: Tried-and-true diet plans such as "eat less, exercise more" have enough trouble finding traction in this country, so it was always going to be even more difficult for relatively labor-intensive and sometimes expensive low-carb diets.
Luckily for Cal-Maine, people will still be eating eggs as long as there are chickens. Sales and profit margins will likely come under fire for a while as the market deals with all the capacity that built up in recent years, bucking a consolidation trend. When the smoke clears, Cal-Maine will almost certainly be financially and competitively stronger than it was a few years ago.
In the near term, however, investors may want to help their company by stocking up and learning some new recipes.
Fool contributor Dave Marino-Nachison doesn't own shares of Cal-Maine.
