JACKSON, Miss. — Cal-Maine Foods Inc. has reported results for the third quarter (13 weeks) ended March 2, 2019.
Net sales for the third quarter of fiscal 2019 were $384 million, an 11.9 percent decrease, compared to $435.8 million for the third quarter of fiscal 2018. The company reported net income of $39.8 million, or 82 cents per basic and diluted share, for the third quarter of fiscal 2019, compared to net income of $96.3 million, or $1.99 per basic and diluted share, for the third quarter of fiscal 2018.
Results for the third quarter of fiscal 2018 were favorably affected by a $35 million, or 72 cents per basic and diluted share, discrete tax benefit related to the Tax Cuts and Jobs Act (TCJA) tax reform legislation enacted during the period, and the subsequent revaluation of the company’s deferred tax liabilities at the new, lower corporate tax rate.
For the 39 weeks ended March 2, 2019, net sales were $1.08 billion compared to $1.06 billion for the prior-year period. The company reported net income of $74 million, or $1.53 per basic and $1.52 diluted share, for the 39 weeks ended March 2, 2019, compared to net income of $54.2 million, or $1.12 per basic and diluted share for the year-earlier period.
Results for the 39 week period of fiscal 2018 were favorably affected by the TCJA tax reform legislation noted above. The results for both year-to-date periods also include after-tax charges of $1.7 million and $52.8 million, respectively, related to previously disclosed antitrust claims that several large direct- action purchasers had asserted against the company.
“Cal-Maine Foods had a solid financial and operating performance for the third quarter of fiscal 2019, supported by favorable demand trends and continued growth of our specialty egg business,” said Dolph Baker, chairman and CEO of Cal-Maine Foods Inc. “The decline in net sales compared to the prior-year quarter reflects lower average market prices and the timing of the Easter holiday. In fiscal 2018, the Easter holiday occurred three weeks earlier and was preceded by a strong pre-holiday sales bump in our third quarter.
“Market prices for shell eggs have been volatile, with the Southeast large market average price down 19.5 percent in the third quarter compared with the prior-year quarter. At the same time, our average customer selling price for the quarter, due to the strength of our specialty egg business, was down 11.1 percent. While demand trends have been strong throughout fiscal 2019, with near record per capita U.S. egg consumption, we believe future supply concerns are affecting market prices. Actual hen numbers from the March 2019 USDA report are 336.1 million, up 1.7 percent over last year. These numbers continue to trend upwards and could negatively affect market prices for our fourth fiscal quarter and on through calendar 2019.”
“Specialty eggs, excluding co-pack sales, accounted for 24.7 percent of our sales volumes for the third quarter, compared with 24.3 percent a year ago,” Baker added. “Specialty egg revenue was 35 percent of total shell egg revenue, compared with 30.2 percent for the third quarter of fiscal 2018, reflecting slightly higher volumes and a 2.1 cent per dozen increase in average selling price for specialty eggs compared with the prior-year period. Specialty eggs remain a primary focus of our growth strategy, and we strive to offer a favorable product mix that reflects current demand trends. As the egg industry prepares for the expected continued increase in demand for cage-free eggs, we are working closely with our customers to ensure their needs are met through this transition.”
Cage-free expansion
In November 2018, California passed Proposition 12, which provides for minimum space requirements per hen beginning in 2020 and mandates that all eggs and egg products sold in California must be cage-free by 2022.
On March 29, 2019, Cal-Maine Foods’ Board of Directors approved a major expansion of the cage-free capacity at the company’s Delta, Utah, facility.
This expansion includes new facilities for 2 million cage-free hens, a processing plant, additional pullet capacity, and renovation of existing capacity to cage-free for another 1.4 million hens, with initial capacity expected to come on line beginning in late 2019 and completion by early 2022.
With these additions, the Delta facility will have approximately 3.4 million cage-free hens to help meet the demands of the California market. Other approved expansion projects include adding pullets and cage-free capacity for 1 million hens in Pittsburg, Texas, and building new cage-free pullet housing in Zephyrhills, Fla.
The total expenditure for these new expansion projects is $148 million. As of March 29, 2019, including these new expansion projects, remaining projected costs for material construction projects to add cage-free capacity are approximately $185 million, which the company expects to finance with cash on hand, investments, and operating cash flow.
“We have continued to focus on responsible and efficient management across all of our operations in fiscal 2019,” Baker said. “For the third quarter, our farm production costs per dozen were up 6.9 percent over the third quarter last year, primarily due to higher feed costs. Our feed costs per dozen were up 6.3 percent, reflecting higher prices paid for feed ingredients primarily related to less favorable crop conditions in the south central United States, which adversely affected ingredient prices at some of our larger feed mill operations. Also, our organic and other specialty egg production continues to grow, which requires a higher priced feed formulation.
“With the record harvest of the U.S. corn and soybean crops in 2018, we have access to a sufficient supply of feed ingredients. However, grain prices have been volatile due to the ongoing uncertainties and geopolitical issues surrounding trade agreements and international tariffs.”
“We are pleased with the trends in our business and our ability to execute our growth strategy and respond to both the challenges and opportunities in a dynamic market,” he added. “We continue to invest in our operations, and we are well positioned to expand our own capacity or consider potential acquisitions to support our future growth. Above all, we are focused on meeting the demands of our valued customers with a favorable product mix, including cage-free and other specialty eggs.”
For the third quarter of fiscal 2019, Cal-Maine Foods will pay a cash dividend of approximately 27 cents per share to holders of its common and Class A common stock. 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. The amount paid could vary slightly based on the amount of outstanding shares on the record date. The dividend is payable on May 16, 2019, to holders of record on May 1, 2019.
More information can be obtained at www.calmainefoods.com.
