Jackson, Mississippi-based Cal-Maine Foods Inc. (CALM) posted third-quarter 2011 adjusted earnings of $1.28 per share, which were well ahead of the Zacks Consensus Estimate of $1.02 per share but down from year-ago quarter’s earnings of $1.45 per share. The year-over-year decline in net earnings was attributable to higher feed costs, which according to the company would remain a cause of concern for the rest of fiscal 2011 as well.
Inside the Headline Numbers
Total revenue, in the quarter under review, nudged up 1.3% year over year to $274.7 million. The increase in revenue resulted from stronger volume of eggs sold, partially offset by a slight decrease in net average selling price to $1.234 from $1.238. The largest U.S. producer and distributor of fresh-shell eggs stated that demand for eggs at the retail level remained strong. Specialty egg sales continued to expand and accounted for 23.5% of revenues for the quarter and 17.5% of total dozens sold.
Gross profit decreased 12.4% from the prior-year quarter to $65.6 million and gross margin contracted 370 basis points (bps) year over year to 23.9%, mainly due to a spike in feed cost. During the quarter, feed cost per dozen produced jumped 16.4% year over year to $0.404 backed by higher overall grain prices, especially for corn, which reached nearly record levels. Operating income also fell 22.0% year over year to $39.0 million, while operating margin dropped 420 bps year over year to 14.2%.
Financial Position
Cal-Maine ended the quarter with cash and short-term investment of $213.4 million, long-term debt of $95.2 million and shareholder equity of $412.2 million. The company also announced a dividend of 47 cents per share during the quarter. The dividend will be paid on May 12, 2011 to shareholders of record as of April 27, 2011.
Our Take
Cal-Maine engages in the production, grading, packaging, marketing and distribution of shell eggs primarily in about 29 states across the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S.
Given the slower growth in earnings and decline in margin as well as escalating feed cost, we remain cautious on the stock. Management expects price of corn to remain high for the remainder of fiscal 2011 and beyond. Hence, Cal-Maine Foodscurrently retains a Zacks #5 Rank, which translates into a short-term Strong sell rating. We also maintain our long-term Neutral recommendation on the stock. Cal-Maine faces intense competition from BRF – Brasil Foods S.A. (BRFS).
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CAL-MAINE FOODS (CALM): Free Stock Analysis Report
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