Cal-Maine invests to meet Proposition 12 egg demand

Cal-Maine Foods is expanding its cage-free egg capacity to help meet the approaching demand for cage-free eggs brought on by the November passage of Proposition 12 in California, which will mandate that all eggs and egg products raised and sold in California come from cage-free operations.

While announcing its financial results for the third quarter of fiscal year 2019, the world’s largest egg company revealed that its board of directors on March 29 approved a major expansion for its egg production facility in Delta, Utah.

According to a press release from the company, the expansion calls for few facilities for 2 million cage-free hens, a processing plant, additional pullet capacity and renovation of existing capacity to cage-free for another 1.4 million hens, with the initial capacity to come on line beginning in late 2019 and completion by early 2022.

With these additions, the Delta facility will have approximately 3.4 million cage-free hens to help meet the demands of the California market.

Other approved expansion projects include adding pullets and cage-free capacity for 1 million hens in Pittsburg, Texas, and building new cage-free pullet housing in Zephyrhills, Florida.

The total expenditure for these new expansion projects is $148 million. As of March 29, including these new expansion projects, remaining projected costs for material construction projects to add cage-free capacity are approximately $185 million, which the company expects to finance with cash on hand, investments, and operating cash flow.

Quarterly financial results

Cal-Maine Foods reported that its net income for the third quarter of fiscal year 2019, which ended March 2, was $39.8 million, down from the net income of $96.3 million for the third quarter of fiscal year 2018.

Net sales for the third quarter of fiscal 2019 were $384.0 million, an 11.9 percent decrease, compared to $435.8 million for the third quarter of fiscal 2018.

Results for the third quarter of fiscal 2018 were favorably affected by a $35.0 million, or $0.72 per basic and diluted share, discrete tax benefit related to the Tax Cuts and Jobs Act (TCJA) tax reform legislation enacted during the period, and the subsequent revaluation of the company’s deferred tax liabilities at the new, lower corporate tax rate.

 Dolph Baker, chairman and chief executive officer of Cal-Maine Foods, stated: “Cal-Maine Foods had a solid financial and operating performance for the third quarter of fiscal 2019, supported by favorable demand trends and continued growth of our specialty egg business. The decline in net sales compared to the prior-year quarter reflects lower average market prices and the timing of the Easter holiday. In fiscal 2018, the Easter holiday occurred three weeks earlier and was preceded by a strong pre-holiday sales bump in our third quarter.”

Market prices for shell eggs have been volatile, Baker said, with the Southeast large market average price down 19.5 percent in the third quarter compared with the prior-year quarter. At the same time, Cal-Maine’s average customer selling price for the quarter, due to the strength of its specialty egg business, was down 11.1 percent. While demand trends have been strong throughout fiscal 2019, with near record per capita U.S. egg consumption, Baker believes future supply concerns are affecting market prices. Actual hen numbers from the March 2019 USDA report are 336.1 million, up 1.7 percent over last year. These numbers continue to trend upwards and could negatively affect market prices for our fourth fiscal quarter and on through calendar 2019, he said.

Feed costs a factor

Baker said Cal-Maine Foods is putting a special focus on responsible and efficient management across all of its operations in fiscal 2019, particularly with the rise in feed costs during the third quarter..

“For the third quarter, our farm production costs per dozen were up 6.9 percent over the third quarter last year, primarily due to higher feed costs. Our feed costs per dozen were up 6.3 percent, reflecting higher prices paid for feed ingredients primarily related to less favorable crop conditions in the south central United States, which adversely affected ingredient prices at some of our larger feed mill operations,” Baker said.

“Also, our organic and other specialty egg production continues to grow, which requires a higher priced feed formulation. With the record harvest of the U.S. corn and soybean crops in 2018, we have access to a sufficient supply of feed ingredients. However, grain prices have been volatile due to the ongoing uncertainties and geopolitical issues surrounding trade agreements and international tariffs.”