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Feed Costs Hold Down Cal-Maine Profits
Egg producer Cal-Maine Foods (Nasdaq:CALM) reported strong fiscal first quarter revenue increases on higher average selling prices as well as sales volume increases, but higher feed costs from rapidly rising corn prices drove down its net income.
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Cal-Maine's First Quarter Results
Cal-Maine generated $243.8 million in revenue for its first quarter of fiscal 2012, compared to $190.4 million in the year ago quarter (a 28% increase). Net income, however, dipped to $3.1 million or 13 cents a share, compared to $4.8 million or 20 cents in the first quarter of 2011. Cal-Maine sold its eggs at a higher average selling price during the quarter, and increased its production by 3% for total dozens of eggs, while it sold 7% more total dozens. Average feed cost rose by nearly 15 cents per dozen, to 48 cents from 33.44 cents in the year ago quarter, while average net selling price per dozen rose to $1.117 from 93 cents. Sales of specialty eggs, with their higher selling price, increased by 13% in the quarter and represent 16% of total sales volume for the quarter, though total specialty sales' dollar amount was down. (For related reading, see Understanding The Income Statement.)
Food Producers Face Higher Feed Costs
Many food producers face cyclical pressures, such as Smithfield Foods (NYSE:SFD) along with other large industry players, and most have also been facing higher feed costs for animal feed. This has been across the board with chicken and pork producers, as well as egg producers like Cal-Maine. Smithfield, known for its pork production, reported strong earnings recently, with income and revenue both rising roughly 7%. Smithfield, however, had hedged against the rapid increases in corn prices.
Tyson Foods (NYSE:TSN), has shown the difficulties of the poultry business. In addition to rising feed costs, demand has slackened and overproduction has been a problem. There are now fewer eggs being produced so this may eventually help demand, but although the longer-term outlook for Tyson and the food producers is good, near term the producers are still fighting through the headwinds. Tyson's diversity of beef and pork production helps. Others in the food industry such as Pilgrim's Pride (NYSE:PPC), Sanderson Farms (Nasdaq:SAFM) and even Hormel (NYSE:HRL) are also facing the feed cost issue. Some producers in the poultry industry are considering using wheat as chicken feed instead of corn. The feed corn issue will continue to impact Cal-Maine, though. (For more, see Investing Seasonally In The Corn Market.)
Still, the food producers and the meat industry, including the poultry business, are far from bereft. Tyson is expected to turn a strong profit for its fiscal year, which ends September 30, and a turn for better things is expected for the chicken business in 2012. The fortunes of the producers won't necessarily be unfailingly positive, but even Cal-Maine suggests that despite the high feed prices, which they expect to continue and be volatile in 2012, the company feels it's positioned to still do well in the difficult environment. Its fiscal first quarter is also seasonally traditionally weaker than others, so it's looking forward to increased demand by the holiday season.
The Bottom Line
Cal-Maine stock traded roughly in the middle of its 52-week range, at just over $30 a share after its earnings report was released. The sales and income growth for the last 12 months has been similar to what it was for the first quarter, with revenue rising but income falling slightly. This no doubt is due to the input cost issues that will - as the company admits - still follow them for the near term. The company, though, is well managed and longer term should see some smoothing out with the cost-versus-pricing issues, but until then, investors might want to take a "wait and see" approach.
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Cal-Maine's First Quarter Results
Cal-Maine generated $243.8 million in revenue for its first quarter of fiscal 2012, compared to $190.4 million in the year ago quarter (a 28% increase). Net income, however, dipped to $3.1 million or 13 cents a share, compared to $4.8 million or 20 cents in the first quarter of 2011. Cal-Maine sold its eggs at a higher average selling price during the quarter, and increased its production by 3% for total dozens of eggs, while it sold 7% more total dozens. Average feed cost rose by nearly 15 cents per dozen, to 48 cents from 33.44 cents in the year ago quarter, while average net selling price per dozen rose to $1.117 from 93 cents. Sales of specialty eggs, with their higher selling price, increased by 13% in the quarter and represent 16% of total sales volume for the quarter, though total specialty sales' dollar amount was down. (For related reading, see Understanding The Income Statement.)
Food Producers Face Higher Feed Costs
Many food producers face cyclical pressures, such as Smithfield Foods (NYSE:SFD) along with other large industry players, and most have also been facing higher feed costs for animal feed. This has been across the board with chicken and pork producers, as well as egg producers like Cal-Maine. Smithfield, known for its pork production, reported strong earnings recently, with income and revenue both rising roughly 7%. Smithfield, however, had hedged against the rapid increases in corn prices.
Still, the food producers and the meat industry, including the poultry business, are far from bereft. Tyson is expected to turn a strong profit for its fiscal year, which ends September 30, and a turn for better things is expected for the chicken business in 2012. The fortunes of the producers won't necessarily be unfailingly positive, but even Cal-Maine suggests that despite the high feed prices, which they expect to continue and be volatile in 2012, the company feels it's positioned to still do well in the difficult environment. Its fiscal first quarter is also seasonally traditionally weaker than others, so it's looking forward to increased demand by the holiday season.
The Bottom Line
Cal-Maine stock traded roughly in the middle of its 52-week range, at just over $30 a share after its earnings report was released. The sales and income growth for the last 12 months has been similar to what it was for the first quarter, with revenue rising but income falling slightly. This no doubt is due to the input cost issues that will - as the company admits - still follow them for the near term. The company, though, is well managed and longer term should see some smoothing out with the cost-versus-pricing issues, but until then, investors might want to take a "wait and see" approach.
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by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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