Net losses widen for Cal-Maine Foods in second quarter

While Cal-Maine Foods achieved a 42.4 increase in net sales for the second quarter of fiscal year 2018, charges related to the settlement of antitrust claims were a key factor in the company recording a net loss of $26.1 million for the quarter.

Roy Graber Headshot
(Roy Graber)
(Roy Graber)

While Cal-Maine Foods achieved a 42.4 increase in net sales for the second quarter of fiscal year 2018, charges related to the settlement of antitrust claims were a key factor in the company recording a net loss of $26.1 million for the quarter.

The company on January 5 reported its financial results for the quarter, which ended on December 2, 2017.

Cal-Maine’s net loss of $26.1 million widened from a net loss of $23 million during the second quarter of fiscal year 2017, but for the first half of the year it experienced a net loss of $42.1 million, an improvement from the net loss of $53.9 million for the first half of fiscal year 2017. Had it not been for a charge of $52.8 million related to the settlement of previously disclosed antitrust claims, Cal-Maine would have achieved a net income of $26.6 million for the quarter and a net income of $10.7 million for the first half, the company announced in a press release.

The world’s largest egg company reported net sales of $361.2 million for the quarter and $624 million for the first 26 months of the fiscal year, both of which were increases on a year-over-year basis.

“At the end of 2017, we reached an agreement on material terms of the settlement of antitrust lawsuits that several large purchasers had filed nearly a decade ago against the company and many other egg producers. While we deny any liability in these cases and still believe that our conduct has always been lawful, we decided that it was in the best interests of our shareholders, customers, and employees to settle these long-standing cases at this time. This settlement eliminates the substantial risk, uncertainty, expense, and distraction associated with continuing the litigation against these purchasers. While the charge related to this settlement affected our financial results for the second quarter of fiscal 2018, we had a solid operating performance during the quarter,” stated Dolph Baker, chairman, president and chief executive officer of Cal-Maine Foods.

Pursuant to the agreement, which the parties intend to be legally binding, the company agreed to pay $80.8 million after all parties sign a formal settlement agreement, which the parties agreed to work in good faith to execute no later than January 10, 2018. The settlement does not affect the remaining previously disclosed antitrust claims, which consist of claims of indirect purchasers of shell eggs (who have twice failed in efforts to certify a class) and the dismissed claims of non-class purchasers of egg products (who have appealed this dismissal), Baker explained.

Egg market conditions

Cal Maine’s second-quarter results reflected a significant improvement in egg market conditions when compared to the conditions of fiscal year 2017. Cal-Maine, according to Baker benefitted from higher market prices and solid demand trends.  

“Market prices for conventional shell eggs continued to move higher throughout the quarter with our average customer selling prices for all eggs and conventional eggs up 36.0 percent and 77.6 percent, respectively, in the second quarter compared with a year ago. Market prices remained strong through the Thanksgiving holiday,” said Baker.

According to Nielsen data, retail egg demand has been very good and in line with normal seasonal trends, supported by increased egg promotions in grocery stores. After a period of sluggish demand from institutional food customers, this sector has returned to more egg usage.

Export demand for U.S. eggs has also increased as a result of the reported Fipronil contaminations across Europe and Southeast Asia, Baker stated.

Impact of Tax Cuts and Jobs Act law

On December 22, 2017, U.S. President Donald Trump signed into law the Tax Cuts and Jobs Act tax reform legislation. While Cal-Maine Foods continues to assess the impact of the tax reform legislation on its business and consolidated financial statements, the legislation does reduce the U.S. corporate tax rate from the current rate of 35 percent to 21 percent.

At December 2, 2017, the company had a deferred tax liability of approximately $75.3 million based on a U.S. federal tax rate of 35 percent. Since this legislation was enacted after the close of the company's second quarter of fiscal 2018, this liability will be revalued at a lower rate during the third quarter of fiscal 2018, which ends on March 3, 2018. This revaluation will result in a benefit to income tax expense in continuing operations and a corresponding reduction in the deferred tax liability, the company stated. 

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