Are Bird Flu Fears at Cal-Maine Foods Overblown?

Key Points

• Cal-Maine Foods is the largest egg producer in the U.S., selling under brands like Eggland's Best, Land O'Lakes and Farmhouse Eggs.
• Its fiscal Q1 2024 revenues fell by 32%, stemming from the normalization of egg prices and the hen population that was severely hurt during the 2022 bird flu outbreak.
• Only one reported human infection from bird flu in April 2022, where the person had infected backyard poultry.

The country's largest egg producer, Cal-Maine Foods Inc. NASDAQ: CALM, saw its stock collapse over 10% on its fiscal Q1 2024 earnings report. Revenues fell by 32% as egg pricing and the hen population normalized from the bird flu outbreak in 2022.

The company sells its eggs under various brands, including Eggland's Best, Land O'Lakes, Cal-Maine Foods, Lucerne, Safeway Select, Signature Select, Farmhouse Eggs and numerous private-label brands. Investors are uncertain heading into the autumn bird migration season with the avian flu still active among the wild bird population.

Bird Flu Fears

The bird Flu is technically called Highly Pathogenic Avian Influenza (HPAI) A or H5N1. Since 2022, It has destroyed over 60 million chickens, turkeys and other birds. The U.S. saw 52.7 million birds die in 2022, severely damaging turkey and egg operations. This led to production shortfalls amid high inflation for poultry products like Pilgrim’s Pride Inc. NASDAQ: PPC, Tyson Foods Inc. NYSE: TSN and Cal-Maine Foods.

The outbreak in the U.S. began in February 2022 and hit poultry and non-poultry birds throughout 46 states, making it the worst bird flu outbreak in history as the death toll for birds surpassed the 2015 level of 50.5 million. The outbreak also created a supply shortage that drove food inflation much higher. Bird flu has up to 90 100% chance of killing chickens within 48 hours.

Egg Facilities Clean As of Oct. 2, 2023

Egg prices have been normalizing as the bird population recovers. Cal-Maine noted that it hasn't shown any positive tests for bird flu at its production facilities since Oct. 2, 2023. However, bird flu is still prevalent in the wild bird population, and future outbreaks are possible during the autumn migration season.

Can Bird Flu Hurt Humans?

Technically, the H5N1 strain can lead to illness or death in humans who come in contact with an infected bird. According to the Centers for Disease Control (CDC), human infections are rare, usually after contact with infected birds. The risk to the general public is low. According to the CDC, only one person in the U.S. had a case of H5N1 in the U.S. in April 2022, as of May 2022.

The infected person had backyard poultry. He had close contact with the infected birds from cleaning their coop and collecting eggs. His health was minimally impacted, only experiencing fatigue with no respiratory symptoms. Bird-to-human transmissions have been found with poultry workers or people who have slaughtered or prepared infected birds. While there's no vaccine for bird flu, many antiviral drugs are used to treat it. 

Infected Earnings Report

On Oct. 1, 2023, Cal-Maine released its fiscal first-quarter 2024 results for August 2023. The Company reported a profit of 2 cents per share, missing consensus analyst estimates of 33 cents by 31 cents. It recorded a net income of $926,000 and an operating loss of $6.8 million compared to an operating income of $163.9 million in the year-ago period. The net average selling price for specialty eggs rose 8.4% QoQ. These are cage-free and organic eggs.

Normalization of Egg Prices and Hen Population

Revenues fell 30.2% year-over-year (YoY) to $459.34 million versus $479.52 consensus analyst estimates. The company will pay a dividend of $0.006 per share for fiscal Q1 2024. The shortfall was attributed to the normalization of egg prices after the sharp spike in 2022 into early 2023 driven by the bird flu.

The hen flock has largely recovered but is still slightly lower than the five-year average. Cal-Maine will acquire all the assets of Fassio Egg Farms Inc., which include facilities with a current capacity of 1.2 million egg-laying hens in Utah. The deal is expected to close in fiscal Q2 2024.

Cal-Maine CEO Sherman Miller commented, “Our operations ran well during the quarter, and we benefitted from lower feed costs, although we generally continued to incur higher input costs. Our team has continued to focus on managing our operations efficiently and sustainably.

While there have been no recent outbreaks of HPAI in commercial egg-laying flocks, we remain diligent in following strict protocols and continue to invest in additional resources to reduce future risk.”

Cal-Maine Foods analyst ratings and price targets are at MarketBeat. Cal-Maine Foods peers and competitor stocks can be found with the MarketBeat stock screener.

Daily Cup and Handle Pattern Breakdown

The daily candlestick chart on CALM formed a cup and handle pattern with the cup lip line commencing on May 8, 2023, at $49.66. CALM fell to a low of $42.59 on July 17, 2023, before returning to retest the lip line at $49.66 on Sept. 11, 2023. Shares fell to $45.73 before forming the handle on a rebound back to the cup lip line on Sept. 26, 2023. CALM couldn't trigger the breakout through the lip line as it floundered to $47.30 on Oct. 3, 2023, preceding the earnings report.

The Q2 earnings shortfall and lowered guidance gapped down CALM to $42.25 the following day, Oct. 4, 2023. However, shares sprung back to $46 just two days later. The daily relative strength index (RSI) bounced back off the 35-band. Pullback support levels are $43.96, $42.25, $41.78 and $40.73.