Cal-Maine: This Company Has Pricing Power

It’s Not Too Late For Income Investors To Buy Cal-Maine

Cal-Maine (NASDAQ: CALM) is an interesting income stock due to the nature of the payout. The company has a very strict capital return program that only allows a dividend when the company is turning a profit, which can be intermittent. The company was unable to pay a dividend for much of the pandemic for this very reason but market fundamentals changed and so has the dividend outlook. The first significant payout in nearly three years occurred in early 2022 and a second consecutive payout was just declared. The $0.75 payout is worth 5.7% on an annualized basis and is the largest payout since 2016. The best news is that market fundamentals support healthy business and profitability in the current and coming quarters which means healthy dividend payments are likely to continue as well. 

Cal-Maine Has Record-Setting Quarter 

Cal-Maine had a record-setting quarter for more reasons than one. Not only was there a favorable supply-demand outlook coming into calendar 2022 but the pathogenic avian bird flu helped to cull competition. Cal-Maine says it is as-yet unaffected by the flu due to its state-of-the-art biosecurity measures and that has it in a unique position to sell eggs at premium prices. 

The company reported $592.96 million in revenue for the quarter which is up 69.5% from last year on the combination of higher volume and higher pricing. The revenue beat the Marketbeat.com analyst's consensus as well, and the strength carried through to the bottom line. On a volume basis, shell egg dozens sold increased by 6.3% and were boosted by a 57% increase in average selling price. 

“Egg prices in (the fiscal) fourth quarter 2022 increased, primarily driven by decreased supply caused by the recent highly pathogenic avian influenza (“HPAI”) outbreak, and supportive consumer demand. Overall, we are pleased with the improved supply and demand balance compared to prior periods and with the solid demand tailwind that drove strong top- and bottom-line fourth quarter results,” says CFO Max Bowman. 

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Moving down to the margin, the company experienced upward price pressure for fuel and feed which are the two largest expenses but the rise in cost was fully mitigated by price increases. The gross margin improved by 710 basis points YOY because of it and led to a record net income of $225 million while the EPS of $2.25 beat by $0.29. 

Turning to the outlook, the company does not offer formal guidance but the update on hen flocks and expected supply remains favorable. The USDA reports a 5% reduction in the national flock size and a 5% reduction of eggs in incubators which suggests tight supplies will continue for the foreseeable future. As for the bird flu, no cases have been reported since June. 

The Technical Outlook: Cal-Maine Is In An Updraft

Cal-Maine’s share price is in an updraft that began in late 2021. The updraft cooled off a bit prior to the Q4 report but appears to be blowing strongly again. Shares are up more than 3.0% in premarket trading and confirming support at the 30-day moving average. Assuming the market follows through on this move, we see the stock moving back up to the $59 region if not higher. A move above $59 would put the company on track for a new all-time high that could top out above $65 or about 22% above the current action.