5%-Yield Cal-Maine Foods Stock Hit Record High After Strong Q3 Results
April 10, 2024
Why CALM Stock Has a Sunny Outlook
An apple a day might keep the doctor away, but eggs can help juice your retirement portfolio. Why? Eggs are a $10.0-billion industry that experienced 13% annual growth from 2017 to 2022.
That’s good news for companies like Cal-Maine Foods Inc (NASDAQ:CALM), the largest egg producer in the U.S. and the leading egg producer and distributor globally.
It’s an easy company to understand; it only has one operating segment. Cal-Maine Foods produces, grades, packages, markets, and distributes fresh shell eggs. It produces conventional, cage-free, organic, pasture-raised, free-range, and nutritionally enhanced eggs.
Cal-Maine Foods has a 13% market share, which is almost double that of its next closest competitor. With 44.3 million layer hens, it has 75% more layer hens than its nearest U.S. competitor. (Source: “Q2 2024 Investor Presentation: January 2024,” Cal-Maine Foods Inc, last accessed April 5, 2024.)
Cal-Maine Foods’ operations include three breeding facilities, six distribution centers, 25 feed mills, two hatcheries, 43 processing and packaging facilities, 29 pullet facilities, 42 shell egg production facilities, and three egg product processing facilities. (Source: “Operating Locations,” Cal-Maine Foods Inc, last accessed April 5, 2024.)
Its production facilities can generate about 7.3 million eggs per hour. (Source: “Q2 2024 Investor Presentation: January 2024,” Cal-Maine Foods Inc, op. cit.)
As of fiscal 2023, 34% of Cal-Maine Foods’ revenues came from its largest customer, Walmart & Sam’s Club, aka Walmart Inc (NYSE:WMT). About 50% of its revenues come from its top three customers, Walmart & Sam’s Club, H‑E‑B, LP, and Publix Asset Management Company. Four of its other customers are Food Lion LLC, ALDI, and Costco Wholesale Corporation (NASDAQ:COST).
It’s not always sunny-side up for the egg industry, though; it can be very volatile. In 2021, you could buy a dozen eggs for $1.80. In 2022, egg prices cracked higher, with consumers forking out $4.30 per dozen of Grade A large eggs in December.
The big increase in price was a result of the deadliest outbreak of highly pathogenic avian influenza (HPAI)—aka bird flu—in U.S. history. The outbreak resulted in the “depopulation” of millions of egg-laying hens and pullets (hens less than one year old).
You might think that the bird flu would decimate the egg industry, but it has actually had the opposite effect. As a result of the outbreak, the hen population is below its five-year average, and should the crisis persist, it could fall even lower. That should result in additional price increases for eggs.
In December 2023, the bird flu was found at Cal-Maine Foods Inc’s Kansas facilities, affecting 3.3% of the company’s total flock. The spread was mitigated through flock rotations.
On April 2, 2024, the company reported that one of its facilities in Texas also tested positive for the bird flu. This resulted in the depopulation of approximately 1.6 million laying hens and 337,000 pullets, or about 3.6% of the company’s total flock (as of March 2). (Source: “Cal-Maine Foods, Inc. Reports Positive Test Result for Avian Influenza at Texas Facility,” Cal-Maine Foods Inc, April 2, 2024.)
The company has temporarily closed that Texas facility as it follows protocols prescribed by the United States Department of Agriculture (USDA).
Again, this would typically be bad news for a company, but it should have little impact on Cal-Maine Foods’ financials. With the demand for eggs at record-high levels and the number of egg-laying hens being down, the company can increase its prices.
Cal-Maine Foods Inc Reported Great Fiscal Q3 Results
For the third quarter of fiscal 2024 (ended March 2, 2024), Cal-Maine reported revenues of $703.1 million and net income of $146.4 million, or $3.01 per share. (Source: “Cal-Maine Foods Reports Results for Third Quarter Fiscal 2024,” Cal-Maine Foods Inc, April 2, 2024.)
The company’s sales volumes increased in its third fiscal quarter by 3.2% year-over-year to 300.8 million dozen eggs, from 291.4 million in the same prior-year period. These results represented Cal-Maine Foods’ highest number of total dozens of eggs sold and its highest number of specialty dozens of eggs sold in any quarter.
The company ended its third fiscal quarter with $694.0 million in cash and short-term investments, and zero debt.
Commenting on the results, Sherman Miller, Cal-Maine Foods Inc’s president and CEO, said, “Fueled by strong demand, our total sales volumes (dozens sold) for the quarter were higher than the third quarter of fiscal 2023 and reached a Company record. Consumer demand for eggs has been strong, especially during the winter holiday season.” (Source: Ibid.)
Looking ahead, Miller added, “We have a strong balance sheet that provides us with the flexibility to fund our growth initiatives, including potential acquisitions. We believe fiscal 2024 will be another successful year for the Company, and we look forward to the opportunities ahead for Cal-Maine Foods.”
Management Hiked Q3 Dividend to $1.00 Per Share
Cal-Maine Foods pays a variable dividend that’s equal to one-third of its quarterly income. As a result, Cal-Maine Foods stock’s dividends vary from quarter to quarter. (Source: “Variable Dividend Policy,” Cal-Maine Foods Inc, last accessed April 5, 2024.)
There have even been some quarters in which CALM stock didn’t pay dividends at all. Lately, though, the company has been making boatloads of money, so it has been able to pay dividends in each quarter.
In early April, it announced quarterly cash dividends of $1.00 per share, which translated to a yield of 5.23%. The $1.00-per-share dividend will be paid on May 16. (Source: Cal-Maine Foods Inc, April 2, 2024, op. cit.)
While the amount is down from $2.199 per share in the third quarter of fiscal 2023, it’s up sharply from $0.116 per share in the second quarter of fiscal 2024 and $0.006 per share in the first quarter of fiscal 2024.
Cal-Maine Foods Stock Up 37% Over Last 9 Months
As you can see in the chart below, over the short term, CALM stock can be volatile, but over the long term, it has provided investors with high capital appreciation and, more recently, high-yield dividends.
On April 3, the day after Cal-Maine Foods Inc reported its third-quarter results and announced that its Texas facility tested positive for bird flu, Cal-Maine Foods stock hit a new all-time record high of $63.14.
As of this writing, CALM stock is up by:
- 12.3% year-to-date
- 46.3% over the last six months
- 23% year-over-year
It’s when you look at Cal-Maine Foods stock’s long-term performance that you get a real feel for how well it has performed.
Since the start of the millennium, CALM stock has provided total returns of about 10,599%
(as of this writing). Over the same period, the S&P 500 has provided total returns of about 255%. Had investors opted to not reinvest their Cal-Maine Foods stock dividends, they would have received total returns of about 6,737%.
Chart courtesy of StockCharts.com
The Lowdown on Cal-Maine Foods Inc
As mentioned earlier, Cal-Maine Foods is the biggest and the only publicly traded U.S. egg producer. It’s also the leading global egg producer and distributor. Thanks to excellent supply/demand metrics and pricing, the company has been reporting a raft of outstanding financial results.
And because of long-term growth drivers, the outlook for Cal-Maine Foods Inc is robust. A whopping 97% of U.S. households purchase eggs, a new proposed Food and Drug Administration (FDA) definition designates eggs a “healthy food,” and eggs are “ranked as one of the most economical high-quality proteins.” (Source: “Q2 2024 Investor Presentation: January 2024,” Cal-Maine Foods Inc, op. cit.)
Over the last decade, egg supply and demand growth have been relatively consistent, tracking together. Moreover, the demand for eggs has experienced little long-term impact from the 2022 bird flu outbreak, compared to impact from the 2015 outbreak.
These industry dynamics are why Cal-Maine Foods Inc has been investing in new facilities, mergers, and acquisitions. The dynamics also help the company generate a lot of cash, which allows CALM stock to provide variable, high-yield dividends.
Variable dividends aren’t for everyone, but they’re a great way for companies to maintain financial discipline and stability while providing investors with income.
