April 2, 2019

Cal-Maine Foods reports third quarter fiscal 2019 results

Net sales for the third quarter of fiscal 2019 were US$384.0 million, an 11.9% decrease, compared to US$435.8 million for the third quarter of fiscal 2018. The company reported net income of US$39.8 million, or US$0.82 per basic and diluted share, for the third quarter of fiscal 2019, compared to net income of US$96.3 million, or US$1.99 per basic and diluted share, for the third quarter of fiscal 2018. Results for the third quarter of fiscal 2018 were favorably affected by a US$35.0 million, or US$0.72 per basic and diluted share, discrete tax benefit related to the Tax Cuts and 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 thirty-nine weeks ended March 2, 2019, net sales were US$1,080.6 million compared to US$1,059.8 million for the prior-year period. The company reported net income of US$74.0 million, or US$1.53 per basic and US$1.52 diluted share, for the 39 weeks ended March 2, 2019, compared to net income of US$54.2 million, or US$1.12 per basic and diluted share for the year-earlier period. Results for the thirty-nine week period of fiscal 2018 were favorably affected by the TCJA tax reform legislation noted above. The results for both year-to-date periods also include after-tax charges of US$1.7 million and US$52.8 million, respectively, related to previously disclosed antitrust claims that several large direct-action purchasers had asserted against the company.

Dolph Baker, chairman and CEO of Cal-Maine Foods, Inc., stated: "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. 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.

"Market prices for shell eggs have been volatile, with the [US] Southeast large market average price down 19.5% in the third quarter compared with the prior-year quarter. At the same time, our average customer selling price for the quarter, due to the strength of our specialty egg business, was down 11.1%. While demand trends have been strong throughout fiscal 2019, with near record per capita US egg consumption, we believe future supply concerns are affecting market prices. Actual hen numbers from the March 2019 USDA report are 336.1 million, up 1.7% over last year. These numbers continue to trend upwards and could negatively affect market prices for our fourth fiscal quarter and on through calendar 2019."

Baker further added: "Specialty eggs, excluding co-pack sales, accounted for 24.7% of our sales volumes for 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% for the third quarter of fiscal 2018, reflecting slightly higher volumes and a 2.1% dozen increase in 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."

In November 2018, the US state of California passed Proposition 12, which provides for minimum space requirements per hen beginning in 2020 and mandates that all eggs and egg products sold in the state must be cage-free by 2022.

On March 29, 2019, Cal-Maine Foods' board of directors approved a major expansion of the cage-free capacity at the company's Delta, Utah, facility. This expansion includes new facilities for two million cage-free hens, a processing plant, an additional pullet capacity and the renovation of an existing capacity to cage-free for another 1.4 million hens, with initial capacity expected to come on line beginning in late 2019 and completion by early 2022.

With these additions, the Delta facility will have approximately 3.4 million cage-free hens to help meet the demands of the Californian market. Other approved expansion projects include adding pullets and cage-free capacity for one million hens in Pittsburg, Texas, and building new cage-free pullet housing in Zephyrhills, Florida. The total expenditure for these new expansion projects is US$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 US$185 million, which the company expects to finance with cash on hand, investments and operating cash flow.

Baker said: "We have continued to focus on responsible and efficient management across all of our operations in fiscal 2019. 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. 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. Also, our organic and other specialty egg production continues to grow, which requires a higher priced feed formulation. With the record harvest of the US 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.

"We are pleased with the trends in our business and our ability to execute our 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."

- Cal-Maine