Lower market prices hurt Cal-Maine Foods in Q1 2017

Cal-Maine Foods reported a net loss of $30.9 million during the first quarter of fiscal year 2017 as egg prices dropped dramatically when compared to the prices of the same period one year ago, when the company reported a net income of $143 million.

Cal-Maine Foods also reported net sales were down 60.7 percent when compared to the first quarter of fiscal year 2016. Net sales for the most recent quarter were $239.8 million.

Dolph Baker, chairman, president and chief executive officer of Cal-Maine Foods, stated in a press release, “Our results for the first quarter of fiscal 2017 reflect a disappointing shell egg market with more challenging market conditions and significantly lower market prices than the first quarter of fiscal 2016. Average customer selling prices dropped 58 percent from the record high levels we experienced a year ago.

“As the supply of shell eggs moved higher after the disruptions created by the avian influenza outbreak in the spring of 2015, market prices declined. Retail demand remained favorable; however, lower institutional demand for egg products and reduced egg exports pushed inventory levels higher and created additional pricing pressures. As cited in recent USDA Chickens and Eggs Reports, the increase in chicks hatched indicates the national laying flock will continue to expand. Based on this report, we expect the shell egg supply will continue to grow through calendar 2016, and then we may begin to see a correction early next year.”

Specialty eggs’ impact on Cal-Maine financial results

Baker reported that the company was also adversely affected by a small decline in specialty egg volume. While specialty egg prices held up better than non-specialty egg prices, they were still down 20 percent from the extremely high levels in the first quarter of last year.

“As non-specialty shell egg prices dropped, we experienced margin and volume pressures on specialty eggs as well,” Baker said. “Consumer demand trends remain favorable, and we are focused on the continued expansion of our specialty egg business, especially cage-free eggs, in light of current and anticipated customer demand. As reported, many food service providers, national restaurant chains and major retailers, including our largest customers, have made public commitments to exclusive offerings of cage-free eggs by future specified dates.”

Cal-Maine cage-free egg ventures

Cal-Maine Foods is making significant investments across its operations, including a joint venture with Rose Acre Farms in Texas and additional conversion projects, to expand cage-free egg production and meet this expected future demand.

“Above all, we will continue to support our customers with a favorable product mix that includes cage-free eggs, as well as other healthy and affordable options for consumers including conventional, nutritionally enhanced and organic eggs,” said Baker

Pending merger and acquisition activity

Cal-Maine Foods is in the process of acquiring substantially all of the assets of Foodonics International, Inc. and its related entities doing business as Dixie Egg Company.

The assets to be acquired include commercial egg production and processing facilities with capacity for approximately 1.6 million laying hens and related feed production, milling and distribution facilities in Georgia, Alabama and Florida as well as contract grower arrangements for an additional 1.5 million laying hens.

In addition, the assets to be acquired include the Egg-Land’s Best, Inc. franchise with licensing rights for portions of certain markets in Alabama, Florida and Georgia as well as Puerto Rico, Bahamas and Cuba.

“We expect to close this transaction in the second quarter of fiscal 2017, and we are excited about the opportunities this acquisition will provide for Cal-Maine Foods and our customers,” said Baker.