The largest egg producer in the United States has visions of getting even bigger, with potential acquisitions at the top of its growth strategy.
Cal-Maine Foods, with 33.5 million laying hens in production, tops the list of the nation's biggest egg producers. It is also one of few publicly traded producers. However, some of the larger family-owned companies may soon fit into Cal-Maine's business plan.
"We're excited about the future. We think we have a lot of opportunities to grow our business, and we look forward to that," Cal-Maine President and CEO Dolph Baker said while participating in the 17th annual Burkenroad Reports Investment Conference, held April 26 in New Orleans.
Acquisition opportunities are plentiful
When it comes to the purchase of a competing egg company, Cal-Maine believes no company is too big or too small. Showing a list of the country's 60 biggest producers published in the February issue of Egg Industry magazine, Baker said "We consider all of these potential targets."
Baker specifically identified six of the companies among the top 10 - Rose Acre Farm, Daybreak Foods, Rembrandt Enterprises, Hillandale Farms, Trillium Farm Holdings and Midwest Poultry Services - as being family owned.
"This is a family business," said Baker. "With all the regulatory and compliance issues everyone's facing in this current environment, these families are getting tired and frustrated.
"We know all the companies, they know us, and they know our track record of getting the deal done. There will continue to be a generational turnover in the family business, and we think that's a great opportunity for Cal-Maine Foods."
Previous acquisitions helped hatch success
Since 1989, Cal-Maine Foods has completed 18 acquisitions that have helped it become the industry leader. Through that growth, Baker said the company has been able to expand capabilities in its existing markets, broaden its geographic reach and strengthen its customer relationships.
Two of the company's most recent acquisitions - the egg division of Pilgrim's and Maxim Production Co. - took place in the latter half of 2012.
Pilgrim's egg division, which was only a small portion of its former parent company, gave Cal-Maine an additional 1.4 million hen production capacity. Maxim provided them with an additional 3.5 million hen production capacity and .5 million more contract hens.
Specialty egg production growing with demand
The demand for nutritionally-enhanced eggs, cage-free eggs and organic eggs keeps increasing, so Cal-Maine views its specialty egg markets as another way to expand the company.
Because specialty eggs do not follow commodity prices, Baker said, Cal-Maine has more pricing power. That flexibility helps the company offset increased feed and production costs, and has contributed to improving Cal-Maine's bottom line. Baker reported that in 2012, 16.4 percent of its eggs sold were specialty eggs, though they accounted for 23.4 percent of the company's sales revenues.
Wal-Mart and Publix, Cal-Maine's two biggest customers, reported an increase of 3.9 percent in specialty egg sales, and the company's sales team has been working with the two grocery giants on their strategies to improve the product mix and enhance shelf positioning.
Cal-Maine also expects to benefit from a joint venture between Eggland's Best and Land O' Lakes to produce and sell branded specialty eggs. That agreement, announced last May, gave Cal-Maine an additional license to market the Land O' Lakes brands, Baker said, because Cal-Maine is the largest franchisee for Eggland's Best.
"Proven brand recognition of two leaders in the egg business enhances Cal-Maine's market reach in specialty eggs," Baker said.
Also in an effort to increase sales of specialty eggs, Cal-Maine is adding to its cage-free capacities in Bremen, Kentucky, and Flatonia, Texas, said chief financial officer Tim Dawson, who also participated in the conference.