Egg producer Cal-Maine Foods (CALM) posted its third-quarter 2019 earnings before the opening bell on Monday, April 1.
Net sales for the quarter slipped 11.9% to $384.0 million, generating a net income of $39.8 million or $0.82 per diluted share
The third quarter was favorably affected by a $35.0 million or $0.72 per share, discrete tax benefit related to the Tax Cuts and Jobs Act (TCJA) tax reform legislation enacted during the period.
Cal-Maine Foods CEO Dolph Baker said, “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,” he weighed in.
“Market prices for shell eggs have been volatile, 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, our average customer selling price for the quarter, due to the strength of our 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, we believe 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,” read the Cal-Maine Foods statement.
“Specialty eggs, excluding co-pack sales, accounted for 24.7 percent of our sales volumes for the third quarter, compared with 24.3 percent a year ago. Specialty egg revenue was 35.0 percent of total shell egg revenue, compared with 30.2 percent for the third quarter of fiscal 2018, reflecting slightly higher volumes and a 2.1 cent per dozen increase in average selling price for specialty eggs compared with the prior-year period. Specialty eggs remain a primary focus of our growth strategy, and we strive to offer a favorable product mix that reflects current demand trends. As the egg industry prepares for the expected continued increase in demand for cage-free eggs, we are working closely with our customers to ensure their needs are met through this transition,” added CEO Baker.
Following the November 2018 proposition by California regarding minimum space requirements for hen and egg products, Cal-Maine Foods said its board on March 29 approved a major expansion of the cage-free capacity at the company’s Delta, Utah, facility. “This expansion includes new facilities for 2.0 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 initial capacity expected 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 1.0 million hens in Pittsburg, Texas, and building new cage-free pullet housing in Zephyrhills, Florida,” read the statement by the company.
The total expenditure for the new expansion projects is $148 million. Including these expansion projects, remaining projected costs for material construction projects to add cage-free capacity are about $185.0 million. Cal-Maine expects to finance these expansions with cash on hand, investments, and operating cash flow.