According to financial results reported by Cal-Maine Foods Inc., net sales for the third quarter of fiscal 2019 declined by nearly 12% compared to last year.

The company reported that third-quarter 2019 net sales were $384.0 million, an 11.9% decrease compared to $435.8 million for the third quarter of fiscal 2018. It 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. However, Cal-Maine said results for the third quarter of fiscal 2018 were favorably affected by a $35.0 million, or 72 cents per basic and diluted share, 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 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 $74.0 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.

Cal-Maine further noted that results for the first three quarters of fiscal 2018 were favorably affected by the TCJA legislation. 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,” Cal-Maine chairman and chief executive officer Dolph Baker said. “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.”

Further, Baker said market prices for shell eggs have been volatile, with the Southeast large market average price down 19.5% in the third quarter compared with the prior-year quarter. At the same time, the average customer selling price for the quarter, due to the strength of the specialty egg business, was down 11.1%.

“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,” he said.

Baker also pointed out that the U.S. Department of Agriculture reported laying hen numbers in March 2019 at 336.1 million, up 1.7% from last year. The numbers, he said, continue to trend upwards, which could negatively affect market prices for the company’s fourth quarter and calendar year 2019.

Regarding specialty eggs, Baker said sales, excluding co-pack sales, accounted for 24.7% of the company’s sales volumes in the third quarter, compared with 24.3% a year ago. Specialty egg revenue was 35.0% of total shell egg revenue, compared with 30.2% in the third quarter of 2018. The increase reflected slightly higher volumes and an increase of 2.1 cents/doz. in the 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,” Baker said.

Expanding cage-free production

The Cal-Maine board of directors approved on March 29 a major expansion of the cage-free capacity at the company’s Delta, Utah, facility. The expansion includes new facilities for 2.0 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 completed by early 2022.

With the additions, the Delta facility will have approximately 3.4 million cage-free hens to help meet the demands of the California market, where the recently passed Proposition 12 requires minimum hen space and mandates that all eggs and egg products sold in California must be cage free by 2022.

Other approved expansion projects include adding pullets and cage-free capacity for 1.0 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 $185.0 million, which the company expects to finance with cash on hand, investments and operating cash flow.

Responsible management

Cal-Maine has continued to focus on responsible and efficient management across all of its operations in fiscal 2019, according to Baker.

“For the third quarter, our farm production costs per dozen were up 6.9% over the third quarter last year, primarily due to higher feed costs,” he said. “Our feed costs per dozen were up 6.3%, 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.”

The growth in organic and other specialty egg production also means higher-priced feed formulations, he added.

“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,” Baker explained.

Still, Baker said the company is pleased with the trends in its business and its ability to execute the growth strategy and respond to both the challenges and opportunities in a dynamic market.

“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.”