Cal-Maine Foods net income, net sales up

After experiencing a net loss one year ago, Cal-Maine Foods reported a return to profitability during the most recent quarter.

The world’s largest egg company reported a net income of $71.8 million, or $1.48 per basic and diluted share, for the fourth quarter of fiscal 2018, compared with a net loss of $24.5 million, or $0.51 per basic and diluted share, for the fourth quarter of fiscal 2017. The fourth quarter of fiscal 2018 was a 13-week period compared with 14 weeks for the same period in fiscal 2017. The company reported net income of $125.9 million, or $2.60 per basic and diluted share, for fiscal 2018, compared with net loss of $74.3 million, or $1.54 per basic and diluted share, for the year-earlier period. Fiscal 2018 included 52 weeks compared with 53 weeks for fiscal 2017.

Cal-Maine Foods also experienced a substantial jump in net sales for the most recent quarter. Net sales for the fourth quarter of fiscal 2018 were $443.1 million, a 61.4 percent increase, compared with $274.6 million for the fourth quarter of fiscal 2017.  For the fiscal year ended June 2, 2018, net sales were $1.5 billion compared with $1.07 billion for the prior-year period.

Results for fiscal 2018 were favorably affected by a $43.0 million, or $0.89 per basic and diluted share, tax benefit related to the Tax Cuts and Jobs Act (TCJA) tax reform legislation and the subsequent revaluation of the company’s deferred tax liabilities at the new, lower corporate tax rate. The company recorded provisional adjustments related to the TCJA in the third quarter and recorded adjustments related to the completed analysis in the company’s fourth quarter. These results also include an after-tax charge of $54.8 million, or $1.13 per basic and diluted share, recorded in the second quarter of fiscal 2018, related to the settlement of certain previously disclosed antitrust litigation.

Executive commentary

Dolph Baker, chairman, president and chief executive officer of Cal-Maine Foods, stated, “We are pleased with our financial and operating performance for the fourth quarter, marking a strong finish to fiscal 2018. Notably, these results represent the best fourth quarter performance in the company’s history. The impressive sales gains reflect strong consumer demand and significantly higher average selling prices compared with the same period a year ago. The Easter holiday and retail grocery promotions featuring shell eggs were key drivers of sales for the fourth quarter along with good foodservice demand. These favorable market conditions supported our business with a significant improvement in profitability compared with a year ago. Importantly, our financial performance allows us to resume our quarterly cash dividend payment to our shareholders.

“Market prices were exceptionally strong during the first part of the quarter, but fell significantly following the Easter holiday. Overall, average customer selling prices were up 74.1 percent compared with the fourth quarter last year. According to reports from IRI, a consumer market research firm, retail demand has been favorable throughout this period, especially around the Easter holiday season. Export demand remained at near historical levels during the fourth quarter. Together, these demand trends have supported market prices at recent production levels. However, according to recent USDA reports, the chick hatch rate has been up for the last eight months, and has increased by approximately 10 percent since the beginning of calendar 2018. Given these trends, the projected increase in the U.S. laying hen flock and potential excess shell egg supply could create additional pricing pressure.”

Specialty egg supply and demand

Specialty eggs, excluding co-pack sales, accounted for 25.5 percent of Cal-Maine’s sales volumes for the fourth quarter, compared with 22.7 percent a year ago. Specialty egg revenue was 29.0 percent of total shell egg revenue, compared with 42.0 percent for the fourth quarter of fiscal 2017, reflecting significantly higher market prices for non-specialty eggs in the current period, Baker said.

“Specialty eggs remain a primary focus of our growth strategy, and we strive to offer a favorable product mix that reflects consumer demand trends. As the egg industry moves forward in anticipation of the expected increase in demand for cage-free eggs, we are working closely with our customers to ensure their needs are met through this transition. As such, we intend to make the required investments in our operations and adjust our cage-free production capacity in line with expected demand.

“We are also closely monitoring industry developments surrounding a proposed referendum that will be on the ballot for voters in California later this calendar year. This referendum mandates, over a period of time, that all egg production in California must be cage-free with specific space requirements for laying hens. In addition, if passed, the referendum will require that all eggs and egg products sold in the state of California must be cage-free by a certain future date. This referendum, if adopted, could affect sourcing and production of eggs in California, which would create uncertainty surrounding supply and pricing in other areas of the country.

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