August 1, 2012

 

 

Despite acknowledging that its "high and volatile" feed bills would be further raised by prospects of a poor US corn harvest, Cal-Maine Foods will seek further acquisition opportunities.

 

The group, the largest producer and distributor of fresh-shell eggs in the US, said that its purchase earlier this month of Pilgrim's Pride's commercial egg operations, to boost its hold on the important Texas market, had not quelled its appetite for deals.

 

"We will continue to look for additional strategic acquisition opportunities and pursue a growth strategy that we believe will reward both our customers and shareholders," Dolph Baker, the Cal-Maine chief executive, said.

 

The quest comes despite an expectation that "feed costs will continue to rise for the near term, especially in light of the severe drought this summer and the damage to the national corn crop".

 

Pilgrim's Pride, the world's second-ranked chicken producer, on Friday (July 27) said it was finalising talks to import corn from Brazil in the face of high domestic corn prices, which on Chicago's futures market returned close to record levels on Monday (July 30).

 

The best-traded December lot indeed set a contract high of US$8.17 ¾ a bushel. And separately on Monday (July 30), a coalition of livestock organisations urged an easing in US ethanol use rules to lower the pressure on dwindling corn supplies.

 

Cal-Maine's feed costs in the three months to June 2, the last quarter of the group's financial year, were, at US$0.48 per dozen eggs, up 7.3% on the same period of 2011. For the year as a whole, feed costs were 19.0% higher.

 

However, Baker said, "While our feed costs were high and volatile during the year, our management team has remained focused on executing our strategy of being an efficient, low-cost producer."

 

Sales in the latest quarter rose 13.6% to U$275.2 billion, albeit on a period which included an extra week to last year. Earnings soared five-fold to US$37.3 million, a figure swollen by a US$27.0 million tax gain.

 

On a per-share basis, earnings hit US$1.56, up from US$0.30 a year earlier, helped by the one-off uplift equivalent to US$1.12 per share.

 

The group's improvement reflects largely a move into premium eggs, which accounted for more than one-quarter of sales in the latest quarter.

 

"Specialty eggs generally have a higher and more stable average retail selling price," Baker said.

 

"We expect specialty eggs will continue to gain market share over regular eggs as consumer demand trends shift toward the perceived health benefits of organic and natural food alternatives."

 

The group in May arranged a joint venture with Land O' Lakes, the farmer-owned co-operative, to boost further its spread in the specialty-egg market. The results followed Cal-Maine's announcement on Friday (July 27) that Fred Adams, its founder and chairman, was resigning as a director "due to health issues". His role as chairman will be taken on by Baker.

 

Cal-Maine shares closed up 3.9% at US$37.91 in New York.