Cal-Maine Foods Lays A Rotten Egg

Cal-Maine Struggles With Difficult Conditions

Cal-Maine NASDAQ: CALM has been on our radar for many years. The company is very well-run, is executing a nationwide growth strategy, is shifting its business to higher-margin specialty eggs, and it usually pays a pretty decent dividend. Over the last couple of quarters the company's dividend, which had been suspended due to the payout policy, was reinstated but the fundamentals have taken a turn for the worse. As much as we like this company, and as much as we hate to say it, it may be time to cut Cal-Maine out of your portfolio until the fundamental picture shows a clear Improvement.

Cal-Maine Misses On The Top And Bottom Line 

Cal-Maine had a weak fourth quarter due to the receding influences of the COVID-19 pandemic. The company's revenue of $349.80 million is down nearly 23% from last year and missed the consensus by 1350 basis points because of it. The only good news is that revenue is up nearly 25% over the past two years proving the long-term growth strategy is working. Revenue was driven by a decrease in both dozens-sold and prices realized per dozen. The number of dozens sold fell 9.4% while the average price per dozen came in at $1.32 versus $1.58 last year.

On a segment basis, the company says retail sales are on the decline while food and beverage sales have been picking up. In regards to specialty eggs, a pillar of the company's growth strategy, specialty egg sales increased by 1.6% from last year and accounted for 38.7% of revenue versus 29.9% last year. Looking forward, these figures should remain in a positive trend due to two factors. One is the fact that many states in the union are making moves towards requiring specialty eggs, including cage-free, etc while the other is the fact the company is actively purchasing specialty egg-laying capability.

Moving down to the bottom line, the company produced a GAAP loss of $0.09 per share to miss the consensus by  $0.35. The miss is due to revenue weakness as well as rising costs, the company reports its costs are up 15.3% over the same time last year with feed cost accounting for a large portion of the gain. Feed costs are up 27.7% year over year and are expected to remain volatile if not trend higher for the remainder of the calendar year.

Looking at the national fundamentals, it does not look like market pressures will be favorable for the company in the current quarter or for the first half of fiscal 2022. Although the flock size is down 1.6% from last year the number of eggs and incubation and the number of chicks destined to become laying hens are on the rise.

Don't Bet On A Dividend From Cal-Maine Soon

Cal-Maine's dividend policy helps keep the balance sheet in fortress-like condition but prevents it from paying a dividend this quarter and probably for the next two to three quarters. The company can't pay a dividend any quarter there are negative earnings or for any subsequent quarter until cumulative earnings are positive and we don't think the fundamentals are good for positive earnings the current quarter at least. If the loss grows wide enough it might be four or five quarters before Cal-Maine can pay a dividend again. 

Price action in Cal-Maine fell more than 4% at the open and appears to be finding support near recent support levels but we are not so sure. Early action shows resistance at and above $35 that we think may cap gains in the near-term at least. If price action is not able to move up from here we see the stock setting a new low and then moving down to the $31 level. Eventually, Cal-Maine will return to positive earnings and paying a dividend again, we’ll be ready to buy some when it does.