Cal-Maine Foods Inc. reported strong results for the third quarter and nine month ended March 3, 2018. Net sales for the third quarter of fiscal 2018 were $435.8 million, a 42.2% increase compared to $306.5 million for the third quarter of fiscal 2017. The company reported net income of $96.3 million, or $1.99 per basic and diluted share, for the third quarter of 2018, compared to $4.1 million, or 9 cents per basic and diluted share, for the third quarter of 2017.
Cal-Maine said results for the 2018 third quarter were favorably affected by a $35 million discrete tax benefit related to the Tax Cuts & 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 nine-month period of fiscal 2018, net sales were $1.06 billion, compared with $799.9 million for the prior-year period. The company reported net income of $54.2 million, or $1.12 per basic and diluted share, for the 2018 fiscal year to date, compared with a net loss of $49.8 million, or $1.03 per basic and diluted share, for the year-earlier period. Fiscal 2018 results were favorably affected by the TCJA tax reform legislation noted above. These results also include an after-tax charge of $54.8 million, or $1.13 per basic and diluted share, as calculated using the new blended corporate tax rate for Cal-Maine's fiscal 2018. This charge was recorded in the second quarter of 2018 and was related to the settlement of previously disclosed antitrust claims that several large direct action purchasers had asserted against the company.
“We are pleased to report very strong financial and operating results for the third quarter of fiscal 2018 as we capitalized on improved market conditions compared with the third quarter last year,” stated Dolph Baker, chairman and chief executive officer of Cal-Maine Foods.
Baker attributed the rise in sales to strong consumer demand trends, continued grocery store promotions for shell eggs and more moderate production growth. Together, these factors have supported higher market prices.
“We continued to execute our growth strategy in this favorable market environment, resulting in a significant improvement in profitability compared with the prior-year period,” he added.
According to Baker, market prices for shell eggs have continued to trend higher this year. In fact, he said average customer selling prices were up 36.7% over the third quarter last year. Market prices for non-specialty eggs have been especially strong and were up 66.6% compared with the prior-year period.
“Prices remained high through the peak holiday selling season and have continued to move up since the end of the quarter. Reports from IRI, a consumer market research firm, indicate retail demand has been very good through this same period. We also benefited from higher egg exports compared with the same time last year,” Baker said.
While production has moderated, Baker said the laying hen flock size has increased modestly compared with prior-year levels, resulting in an improved balance of supply and demand. However, he did mention that recent U.S. Department of Agriculture reports show an increase in chicks hatched, which could indicate future increases in supply.
Baker noted the company’s operating income for the third quarter was $76.2 million, compared with an operating loss of $5.2 million a year ago.
“Farm production costs per dozen were up slightly compared with the prior-year period. For the third quarter of fiscal 2018, our feed costs per dozen produced were consistent with the same costs incurred a year ago. Based on 2017 harvested crops, we expect to have an ample supply of our primary feed ingredients for the balance of the fiscal year.”
Specialty egg focus
Baker said Cal-Maine’s specialty egg business remains a primary focus of its growth strategy, as favorable consumer demand trends remain. For the third quarter of fiscal 2018, specialty eggs, excluding co-pack sales, accounted for 24.3% of total sales volume, compared with 23.6% for the same period a year ago.
Despite the increased sales, Baker said specialty egg revenue was 30.2% of total shell egg revenue, compared with 40.8% for the third quarter of fiscal 2017, due to significantly higher market prices for non-specialty eggs in the current period.
Baker said the company is focused on aligning its future production capacity with the anticipated industry-wide change in product demand that is associated with public commitments to exclusively offer cage-free eggs by future specified dates.
“Our primary objective is to ensure we are ready to meet our customers’ needs through this transition period, and we are prepared to make the necessary investments in our operations," he said. "As always, Cal-Maine Foods provides a diverse product mix that includes cage-free eggs, as well as other healthy and affordable options for consumers including conventional, nutritionally enhanced and organic eggs.”