CALM Cal Maine Foods Inc

Cal-Maine Foods, Inc. (NASDAQ: CALM) today reported results for the third quarter and thirty-nine weeks ended February 25, 2017.

Net sales for the third quarter of fiscal 2017 were $306.5 million, a 31.8 percent decrease, compared with $449.8 million for the third quarter of fiscal 2016. The Company reported a net income of $4.1 million, or $0.09 per basic and diluted share, for the third quarter of fiscal 2017, compared with net income of $64.2 million, or $1.33 per basic and diluted share, for the third quarter of fiscal 2016.

For the thirty-nine weeks ended February 25, 2017, net sales were $799.9 million compared with $1,605.6 million for the prior-year period. The Company reported a net loss of $49.8 million, or $1.03 per basic and diluted share, for the thirty-nine weeks ended February 25, 2017, compared with net income of $316.4 million, or $6.57 per basic share and $6.54 per diluted share, for the year-earlier period.

Dolph Baker, chairman, president and chief executive officer of Cal-Maine Foods, Inc., stated, “Our results for the third quarter of fiscal 2017 reflect the volatile market conditions the egg industry has experienced throughout this fiscal year. Our results were affected by lower market prices and weaker demand trends compared with the third quarter last year. Market prices moved significantly higher after Thanksgiving, but dropped back down after Christmas, and our average customer selling prices for the third quarter of fiscal 2017 were down 27.9 percent from the same period a year ago.

“The egg markets have remained under pressure, and we do not expect to see any meaningful improvement until there is a better balance of supply and demand. Following the 2015 avian influenza (AI)-related laying hen losses, United States Department of Agriculture (USDA) data showed that the egg industry repopulated farms and laying hen numbers were reported to approach pre-AI levels. The younger, more productive hen population has resulted in a greater number of eggs. Additionally, in February 2017, the USDA issued revised data that showed the size of the laying hen flock for 2015 and 2016 was actually meaningfully higher in both years than previously reported. Overall, market demand trends have not kept pace with these higher production levels. According to Nielsen data, retail customer demand for shell eggs has remained strong. The USDA reports that egg export demand has improved since the beginning of fiscal 2017; however, it has still not fully recovered to levels prior to the AI outbreak. Additionally, we have experienced reduced demand for egg products, as many of our commercial customers reformulated their products to use fewer eggs when prices spiked and have been slow to resume previous egg usage. Together, these factors have created an oversupply of eggs, with continued pressure on market prices. However, recent USDA reports show the chick hatch has been trending down, suggesting there may be a moderation in the size of the laying hen flock as the year progresses.

“Specialty eggs, excluding co-pack sales, accounted for 23.6 percent of our total sales volume for the third quarter of fiscal 2017, the same proportion as the third quarter last year. Specialty eggs revenue was 40.8 percent of total shell egg revenues, compared with 31.0 percent for the third quarter of fiscal 2016. The average selling price for specialty eggs, which is typically higher and less volatile, was down 5.2 percent over the third quarter of last year, while the average selling price for non-specialty eggs was down 38.7 percent over the prior-year period.

“Our specialty egg business is a primary focus of our growth strategy. We have continued to make significant investments across our operations to meet anticipated demand for cage-free eggs, as food service providers, national restaurant chains and major retailers, including our largest customers, have stated objectives to exclusively offer cage-free eggs by future specified dates. While we expect the multi-year conversion to cage-free production will present new challenges and higher costs for our industry, we believe it also provides additional market opportunities for Cal-Maine Foods. We are working with our customers to facilitate a smooth transition to meet this demand. Our latest joint venture with Rose Acre Farms in Texas is expected to reach full capacity in the production of cage-free eggs during our fiscal 2018 first quarter. In addition to cage-free eggs, our product mix provides a wide variety of healthy choices for consumers including conventional, nutritionally enhanced and organic eggs. As such, we believe Cal-Maine Foods is well positioned to respond to future demand trends and meet the needs of all of our customers.”

Baker continued, “Our operations ran well during the third quarter as we continued to focus on efficient and responsible management and respond to dynamic market conditions. For the third quarter of fiscal 2017, our feed costs per dozen were down 4.3 percent compared with a year ago, and our overall farm production costs were down 1.3 percent over the third quarter of fiscal 2016.

“Another key aspect of our growth strategy is to expand our business through selective acquisitions. Importantly, we have a strong balance sheet and the financial strength to support this strategy. During the third quarter, we completed the acquisition of substantially all of the assets of Happy Hen Egg Farms, Inc., relating to their commercial production, processing, distribution and sale of shell eggs. The acquired assets include commercial egg production and processing facilities with current capacity for approximately 350,000 laying hens and related distribution facilities located near Harwood and Wharton, Texas. Located near our other Texas locations, Happy Hen Egg Farms’ current site is designed for capacity of up to 1.2 million laying hens, and we intend to capitalize on specific market opportunities created by this additional production capacity. We look forward to the opportunity to extend our market reach and deliver greater value to both our customers and shareholders,” added Baker.

Over the past month, there have been reported outbreaks of AI in certain poultry operations located in southeastern states. None of these outbreaks has affected the commercial table egg layer flock, and there have been no positive tests for AI at any Cal-Maine Foods locations. Since the spring 2015 AI outbreaks, Cal-Maine Foods significantly enhanced its biosecurity measures at all of its locations, and its flocks are being monitored and tested according to state and federal guidelines. The Company continues to work closely with state and federal agencies and other interested parties to monitor developments and seek to prevent the occurrence of the disease at Cal-Maine Foods’ facilities.

Pursuant to Cal-Maine Foods’ variable dividend policy, for each quarter for which the Company reports net income, the Company pays a cash dividend to shareholders in an amount equal to one-third of such quarterly income. Following a quarter for which the Company does not report net income, the Company will not pay a dividend with respect to that quarter or for a subsequent profitable quarter until the Company is profitable on a cumulative basis computed from the date of the last quarter for which a dividend was paid. Therefore, the Company did not pay a dividend with respect to the fourth quarter of fiscal 2016, or the first and second quarters of fiscal 2017, and will not pay a dividend for the third quarter of fiscal 2017. At February 25, 2017, cumulative losses that must be recovered prior to paying a dividend were $50.2 million.

Selected operating statistics for the third quarter and year-to-date period of fiscal 2017 compared with the prior-year periods are shown below:

      13 Weeks Ended     39 Weeks Ended

February 25,

2017

   

February 27,

2016

   

February 25,

2017

   

February 27,

2016

Dozen Eggs Sold (000) 263,613     277,574     758,114     800,520 Dozen Eggs Produced (000) 222,492 213,285 633,246 620,356 % Specialty Sales (dozen)* 23.6 % 23.6 % 23.0 % 22.8 % % Specialty Sales (dollars)* 40.8 % 31.0 % 44.1 % 27.0 % Net Average Selling Price (dozen) $ 1.130 $ 1.568 $ 1.020 $ 1.919 Net Average Selling Price Specialty Eggs (dozen) $ 1.965 $ 2.073 $ 1.980 $ 2.279 Feed Cost (dozen) $ 0.396 $ 0.414 $ 0.406 $ 0.420  

*Excludes co-pack specialty eggs

 

Cal-Maine Foods, Inc. is primarily engaged in the production, grading, packing and sale of fresh shell eggs, including conventional, cage-free, organic and nutritionally-enhanced eggs. The Company, which is headquartered in Jackson, Mississippi, is the largest producer and distributor of fresh shell eggs in the United States and sells the majority of its shell eggs in states across the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States.

Statements contained in this press release that are not historical facts are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. The forward-looking statements are based on management’s current intent, belief, expectations, estimates and projections regarding our company and our industry. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions and other factors that are difficult to predict and may be beyond our control. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include, among others, (i) the risk factors set forth in the Company’s SEC filings (including its Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K), (ii) the risks and hazards inherent in the shell egg business (including disease, pests, weather conditions and potential for recall), (iii) changes in the demand for and market prices of shell eggs and feed costs, (iv) our ability to predict and meet demand for cage-free and other specialty eggs, (v) risks, changes or obligations that could result from our future acquisition of new flocks or businesses and risks or changes that may cause conditions to completing a pending acquisition not to be met, and (vi) adverse results in pending litigation matters. SEC filings may be obtained from the SEC or the Company’s website, www.calmainefoods.com. Readers are cautioned not to place undue reliance on forward-looking statements because, while we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. Further, the forward-looking statements included herein are only made as of the respective dates thereof, or if no date is stated, as of the date hereof. Except as otherwise required by law, we disclaim any intent or obligation to publicly update these forward-looking statements, whether as a result of new information, future events or otherwise.

         

CAL-MAINE FOODS, INC. AND SUBSIDIARIESFINANCIAL HIGHLIGHTS(Unaudited)(In thousands, except per share amounts)

 

SUMMARY STATEMENTS OF OPERATIONS

        13 Weeks Ended     39 Weeks Ended

February 25,

2017

   

February 27,

2016

February 25,

2017

   

February 27,

2016

Net sales $ 306,540 $ 449,760 $ 799,929 $ 1,605,630 Gross profit 39,165 132,726 33,544 607,394 Operating income (loss) (4,573 ) 85,771 (92,441 ) 472,038 Other income 8,738 11,744 11,298 14,143 Income (loss) before income taxes and noncontrolling interest 4,165 97,515 (81,143 ) 486,181 Income (loss) before income taxes attributable to Cal-Maine Foods, Inc. 4,173 97,337 (81,134 ) 484,256   Net income (loss) $ 4,139   $ 64,164 $ (49,807 ) $ 316,417   Net income (loss) per share: Basic $ 0.09   $ 1.33 $ (1.03 ) $ 6.57 Diluted $ 0.09   $ 1.33 $ (1.03 ) $ 6.54 Weighted average shares outstanding Basic 48,286   48,204 48,285   48,177 Diluted 48,417   48,367 48,285   48,359

     

SUMMARY BALANCE SHEETS

          February 25, 2017     May 28, 2016 ASSETS Cash and short-term investments $ 189,575 $ 389,545 Receivables 79,179 67,448 Income tax receivable 49,919 11,830 Inventories 163,818 154,799 Prepaid expenses and other current assets 2,310 2,661 Current assets 484,801 626,283   Property, plant and equipment (net) 461,378 392,274 Other noncurrent assets 139,096 93,208 Total assets $ 1,085,275 $ 1,111,765   LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued expenses $ 77,128 $ 67,131 Current maturities of long-term debt 15,449 16,320 Current liabilities 92,577 83,451   Long-term debt, less current maturities 7,302 9,250 Deferred income taxes and other liabilities 117,034 101,703 Stockholders' equity 868,362 917,361 Total liabilities and stockholders' equity $ 1,085,275 $ 1,111,765        

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Cal-Maine Foods, Inc.Timothy A. Dawson, 601-948-6813Vice President and CFOorDolph Baker, 601-948-6813Chairman, President and CEO