One of the basic concepts from Macro Economics classes is the theory of supply and demand. And as the theory shows, when supply outpaces demand, the producer tends to be the big loser in the equation. This is what happened to our Zacks Bear of the Day, Cal-Maine Foods (CALM - Free Report) , who saw higher production levels while demand trends faltered.
This Zacks Rank #5 (Strong Sell) company is engaged in the production, cleaning, grading, and packaging of fresh shell eggs for sale to shell egg retailers. The company is the one of the largest producers and distributors of fresh shell eggs in the United States. The company markets its eggs primarily in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States.
Recent Earnings Data
In late November, CALM posted Q2 17 earnings results where they posted their third consecutive negative earnings EPS, and missed the Zacks consensus revenue estimate for the second consecutive quarter. Specifically, on a year over year basis, the company saw declines in Net sales -53.6%, Gross profit -98.1%, average customer selling prices -50.7%, and Net income was down to -$23,010 compared to +$109,230. Further, cash and short-term investments fell by -49.2% when compared to the year earlier quarter.
Management’s Take
Dolph Baker, Chairman and CEO commented on the poor quarter stating, “Our results for the second quarter of fiscal 2017 reflect extremely challenging market fundamentals in the egg industry. Following the 2015 avian influenza (AI)-related laying hen losses, USDA data shows the egg industry has repopulated farms with laying hen numbers beginning to approach pre-AI levels. However, market demand trends have not kept pace with the higher production levels. While retail customer demand has been steady, egg export demand has not fully recovered following the aftermath of the AI outbreak. We have also experienced reduced demand for egg products, as many commercial customers reformulated their products to use fewer eggs when prices spiked, and have been slow to resume previous egg usage. Together, these factors have created an oversupply of eggs, and prices have fallen dramatically from the record high levels last year. For the second quarter of fiscal 2017, our average customer selling prices were down 50.7 percent from the same period of fiscal 2016. While the egg market has been in oversupply, recent USDA reports show the chick hatch has been down for three consecutive months over prior-year levels, so we expect to see a moderation in the size of the laying hen flock.”
Price and Consensus Graph
As you can see below, the company’s stock price has fallen for most of 2016, and future expectations are well below the current stock price.
One of the basic concepts from Macro Economics classes is the theory of supply and demand. And as the theory shows, when supply outpaces demand, the producer tends to be the big loser in the equation. This is what happened to our Zacks Bear of the Day, Cal-Maine Foods (CALM - Free Report) , who saw higher production levels while demand trends faltered.
This Zacks Rank #5 (Strong Sell) company is engaged in the production, cleaning, grading, and packaging of fresh shell eggs for sale to shell egg retailers. The company is the one of the largest producers and distributors of fresh shell eggs in the United States. The company markets its eggs primarily in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States.
Recent Earnings Data
In late November, CALM posted Q2 17 earnings results where they posted their third consecutive negative earnings EPS, and missed the Zacks consensus revenue estimate for the second consecutive quarter. Specifically, on a year over year basis, the company saw declines in Net sales -53.6%, Gross profit -98.1%, average customer selling prices -50.7%, and Net income was down to -$23,010 compared to +$109,230. Further, cash and short-term investments fell by -49.2% when compared to the year earlier quarter.
Management’s Take
Dolph Baker, Chairman and CEO commented on the poor quarter stating, “Our results for the second quarter of fiscal 2017 reflect extremely challenging market fundamentals in the egg industry. Following the 2015 avian influenza (AI)-related laying hen losses, USDA data shows the egg industry has repopulated farms with laying hen numbers beginning to approach pre-AI levels. However, market demand trends have not kept pace with the higher production levels. While retail customer demand has been steady, egg export demand has not fully recovered following the aftermath of the AI outbreak. We have also experienced reduced demand for egg products, as many commercial customers reformulated their products to use fewer eggs when prices spiked, and have been slow to resume previous egg usage. Together, these factors have created an oversupply of eggs, and prices have fallen dramatically from the record high levels last year. For the second quarter of fiscal 2017, our average customer selling prices were down 50.7 percent from the same period of fiscal 2016. While the egg market has been in oversupply, recent USDA reports show the chick hatch has been down for three consecutive months over prior-year levels, so we expect to see a moderation in the size of the laying hen flock.”
Price and Consensus Graph
As you can see below, the company’s stock price has fallen for most of 2016, and future expectations are well below the current stock price.
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