Cal-Maine Foods (CALM 34.76, -2.59) has slumped 6.9% in pre-market after reporting disappointing results for the third quarter.
The egg producer reported below-consensus earnings of $0.09 per share on a 31.9% year-over-year drop in revenue to $306.50 million, which was also shy of market expectations.
Lower market prices and weaker demand trends fueled the sharp decline in revenue. The company saw an increase in prices after Thanksgiving, but that spike was retraced after Christmas. At the end of the third quarter, average selling prices were down 27.9% when compared to the same quarter one year ago.
Cal-Maine management noted that the egg market has been out of balance since dealing with a bout of avian influenza in 2015. Producers have taken steps to repopulate their farms, but a surge in younger, more productive hens led to a surplus of eggs. Furthermore, USDA data released in February showed that the size of the laying hen flock for 2015 and 2016 was greater than previously reported. Demand has yet to catch up to the notable increase in supply.
Specialty egg sales made up $72.34 million or 23.6% of total sales. This proportion was consistent with last year's figure. Specialty egg revenue represented 40.8% of total shell egg revenue, up from 31.0% one year ago. Average selling price for specialty eggs was down 5.2% year-over-year to $1.97/dozen while average price for non-specialty eggs tumbled 38.7% year-over-year to $1.13/dozen.
Feed costs per dozen declined 4.3% year-over-year while overall farm production costs fell 1.3%.
Although Cal-Maine did not provide forward guidance, the company noted that its growth strategy is focused on expanding its specialty egg business, where average selling prices are considerably higher. The company completed the acquisition of Happy Hen Egg Farms in the third quarter, and it believes that a strong balance sheet leaves room for other selective acquisitions.
Shares of Cal-Maine have not been able to keep pace with the market so far in 2017, having dropped 21.3% versus a 5.8% gain for the consumer staples sector and a 4.7% advance for the S&P 500.