Turbulent Times For Cal-Maine Foods

Cal-Maine Gets Crushed By Inflation 

Cal-Maine Foods NASDAQ: CALM had a good quarter and a bad quarter during the calendar 3rd quarter and it looks like the underlying trends will remain in place for at least the near to mid-term. On the one hand, rising demand and tightening conditions within the hen flock are pushing up prices and driving revenue gains. On the other hand, inflationary pressures are hitting the company from all sides and digging deep into the bottom-line results. The good news is the company posted a profit for the quarter, the bad news is that it was far below the consensus estimates and means the company won’t be paying a dividend any time soon. 

Insiders Are Riding Out The Volatility In Cal-Maine Shares 

Believe it or not, the insiders are riding out the volatility in Cal-Maine shares and that is saying quite a lot. To start, the insiders are holding 13.50% of the company and have made no trades since the middle of 2020. In that time, shares of the stock moved up to hit a multi-year high and then fell steadily to shed 20% at the low of the movement. Most recently, the market got ahead of itself and traced out what could have been a beautiful reversal pattern only to have sentiment dashed by the quarterly results. 

On the flip-side, institutions have been net buyers of the stock all year. Net inflows topped $121.00 million over the past 12 months to equal roughly 6.7% of the market cap as of the close of trading pre-earnings release. That activity brought total institutional ownership in the nation’s 2nd largest egg producer to 78.9% which we think is very significant. Cal-Maine is having trouble with inflationary pressures now but long-term profitability and growth are still in the forecast, and the institutions want to hold a piece of it. 

Cal-Maine Falls On Mixed Results 

Cal-Maine reported $390.3 million in net revenue for a gain of 12.5% over last year. The gain was driven by an 11.9% increase in average price per dozen coupled with a 1% increase in volume. Specialty eggs, the company’s growth driver, saw average price hold flat but volume increase and its contribution to the net increase as well. Specialty eggs accounted for 41.1% of net revenue or up 140 basis points from last year. The company also cited foodservice demand as a driver of revenue. 

Moving down the report, the news gets bleak. The company reported a 21.6% increase in the average cost per dozen with costs rising on all fronts. The main impact to margin is the cost of feed which is up 29% due to supply chain and weather factors that led to a lower than expected yield. Processing, packaging, transportation, and labor were also cited. 

On the bottom line, the company reported a GAAP loss and a small profit on an adjusted basis. The adjusted earnings of $0.02 missed the Marketbeat.com consensus by $0.28, however, and left the company far short of recouping its prior losses. As it stands now, the company needs to recoup another $21.1 million before it will pay out the next dividend. 

The Technical Outlook: Cal-Maine Fails To Reverse 

Shares of Cal-Maine advanced strongly the very day before earnings were released and looked ready to make a full reversal. The post-earnings action, however, has the shares down about 7.0% and well below resistance. The move is driven in part by short-sellers and in part by the weak results. The key takeaway is that this market is not ready to reverse and may even move lower.