Tailwinds Are In Place For Cal-Maine Foods
I’ve said it before, and I will probably repeat it again at some point in the future. Cal-Maine Foods (NASDAQ:CALM) is on track to reinstate the dividend. The company hasn’t paid a dividend since May 2019 because of its strict distribution policy but that’s all about to change. Based on the fiscal 2Q results and outlook the company should meet the requirement during the current quarter. That means a dividend, however, small could be declared as soon as the next earnings reporting season.
Cal-Maine Delivers Surprising Profit
Cal-Maine produced a surprising 11.5% increase in YOY revenue that was driven by a combination of factors that point to sustained profitability in the fiscal 3rd quarter of 2021. These factors include declining flock size in the U.S., record harvests for Cal-Maine, and record efficiency within the company’s operation. The first factor, flock size, is helping to underpin prices while the second and third allows Cal-Maine to leverage stay-at-home demand to unexpected profitability.
On the top-line, the $347.33 million in reported revenue topped the consensus by 4.1% as sales accelerate on a sequential basis. Total sales volume increased 18% from the Q1 to Q2 period but some of that gain was due to seasonal trends. Regardless, the 92.1% eggs dozens sold versus eggs dozens produced helped drive both top and bottom-line results.
Sales of specialty eggs, the company’s primary growth driver, increased 17.7% from the last year in regards to dozens sold. Price trends within the group were favorable as well and helped drive the category to a 150 basis point increase in its contribution to the bottom line. Specialty eggs like cage/hormone-free now account for 39.7% of sales.
Moving down to the bottom line, the same drivers of revenue growth helped to pad the company’s earnings as well. The increase in demand, production, and efficiency resulted in a surprise profit that puts the next dividend within sight. The FQ2 GAAP EPS of $0.25 beat the consensus by $0.33 and leaves only $8.6 million or about $0.176 per share in prior losses to recoup. Based on the trends and outlook that could easily happen during the current quarter.
Cal-Maine refrained from giving any guidance but did shed some positive light on the market as we go into the company’s higher-demand half of the year. The availability of shell eggs declined during the quarter due to smaller flock sizes and this situation is not expected to alter much over the coming quarter. Restricted supply should help underpin pricing going forward up to and until a broader economic reopening gets underway.
Cal-Maine Pops, Shorts Run Scared
Shares of Cal-Maine Foods popped on the 2Q news but there may be more to it than just good news. The short-interest on the stock is running near 12% so short-covering could be part of the story. That said, the 5% gain is very bullish and could lead to higher prices should market trends remain intact. The move above $38 definitely ends the recent downtrend even if a new uptrend has yet to begin. It looks like there is some resistance to higher prices at the $40 level so keep an eye on that.
In the near-term, shares of Cal-Maine may move lower to retest support at or near the short-term moving average. Over the long-term, Cal-Maine is a growing company with a major catalyst in the economic reopening in its sight so shares of the stock should move back up to retest the all-time high set in 2015. The caveat is that it may not happen until the dividend is reinstated.
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