Cal-Maine Foods Inc. has reported results for the first quarter of fiscal 2018 ended Sept. 2. Net sales for the first quarter of fiscal 2018 were $262.8 million, compared with $239.8 million for the prior-year period. The company reported a net loss of $16.0 million, or 33 cents per basic and diluted share, for the 13 weeks ended Sept. 2, compared with a net loss of $30.9 million, or 64 cents per basic and diluted share, for the year-earlier period.
Dolph Baker, chairman, president and chief executive officer of Cal-Maine Foods, stated, "We are pleased to report higher sales for the first quarter of fiscal 2018 compared with the same period last year, in spite of the ongoing challenges and price volatility in the egg markets. The first quarter of our fiscal year is typically a seasonally slow period for our business. While we are disappointed to report a loss for the quarter, we are encouraged by the year-over-year improvement in our performance. Our results reflect continued solid retail demand and a modest increase in both volumes and prices compared with the first quarter of fiscal 2017. Market prices for conventional shell eggs moved higher over the summer, and our average customer selling prices for all eggs were up 6.8% in the first quarter compared with a year ago. Market prices have significantly improved since the end of the quarter and are currently trending well above levels from a year ago.
"Following the 2015 avian influenza-related laying hen losses, producers repopulated their flocks and the younger, more productive hen population produced a higher number of eggs," he added. "Total supply still remained high through the first quarter in relation to overall market demand trends."
According to Nielsen data, retail demand has been in line with normal seasonal trends and continues to show year-over-year improvement. However, lower institutional demand for egg products and reduced export demand have resulted in an oversupply environment and created additional pricing pressures.
The U.S. Department of Agriculture reported that shell egg exports have returned to historical levels since the beginning of calendar 2017 but are still below the peak levels reached prior to the avian influenza outbreak.
Cal-Maine said, "We are encouraged that the export outlook has improved for both shell eggs and egg products. While overall market conditions are more favorable than a year ago, we do not expect any sustained improvement in pricing until we have a more stable supply and demand balance. The most recent USDA reports indicate the chick hatch has been trending down for most of the past year compared with the previous year, which could influence future supply levels."
The company added that specialty eggs, excluding co-pack sales, accounted for 21.7% of total sales volume for the 2018 first quarter, compared with 22.9% for the same year-ago period, while specialty egg revenue accounted for 39.6% of total shell egg revenue, compared with 46.7% for the first quarter of fiscal 2017. The average selling price for specialty eggs was down 4.8% versus the first quarter of fiscal 2017.
"Our specialty egg business remains an important area of focus for our growth strategy, and we have made investments in our operations and production capacity to meet expected demand trends," Baker said. "As reported, many foodservice providers, national restaurant chains and major retailers, including our largest customers, have made public commitments to transition away from conventional eggs and exclusively offer cage-free eggs by future specified dates. However, the higher price gap between conventional eggs and specialty eggs has resulted in reduced demand for specialty eggs. We have adjusted our production levels in line with current customer demand for cage-free eggs, and we are well positioned to increase our capacity when demand trends change. Above all, we will continue to support our customers with a favorable product mix that includes cage-free eggs as well as other healthy and affordable options for consumers, including conventional, nutritionally enhanced and organic eggs."
Baker added, "Our operations ran well during the summer months, and our farm production costs per dozen were down 6.1% over the prior-year period. We remain focused on managing our operations in an efficient and responsible manner, regardless of market conditions. While the recent hurricanes that hit the U.S. following the quarter caused disruptions to our operations in Texas, Florida and Georgia, we were fortunate to not sustain any material loss of egg production. We commend the heroic efforts of Cal-Maine Foods employees across our operations who supported these affected locations and worked tirelessly to continue production under such extraordinary conditions."
Cal-Maine reported that feed costs per dozen produced for the first quarter were down 13.0% compared with a year ago due to ample supplies of grain from last fall's harvest. While grain prices have been volatile, USDA harvest estimates this year indicate that there should be an ample supply of the company's primary feed ingredients in fiscal 2018 as well.
Pursuant to Cal-Maine's 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 Cal-Maine 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. Therefore, the company did not pay a dividend with respect to the fourth quarter of fiscal 2016 or any quarter of fiscal 2017 and will not pay a dividend for the first quarter of fiscal 2018. As of Sept. 2, cumulative losses that must be recovered prior to paying a dividend equal $90.6 million.
Cal-Maine Foods is primarily engaged in the production, grading, packing and sale of fresh shell eggs, including conventional, cage-free, organic and nutritionally enhanced eggs. The company, headquartered in Jackson, Miss., is the largest producer and distributor of fresh shell eggs in the U.S. and sells the majority of its shell eggs in states across the southwestern, southeastern, midwestern and mid-Atlantic regions.