CALM

[BigSully1]

Cal-Maine Foods

AP
Cal-Maine Foods Profit Up on Egg Prices
Monday March 31, 7:46 am ET 
Cal-Maine Foods Fiscal 3rd-Quarter Earnings Soars on Record-High Egg Prices and Demand


JACKSON, Miss. (AP) -- Egg producer Cal-Maine Foods Inc. said Monday its fiscal third quarter profit soared, helped by record-high egg prices that boosted revenue.
For the quarter ended March 1, net income rose to $57.2 million, or $2.41 per share, from $17.4 million, or 74 cents per share in the prior year quarter.

Revenue rose 59 percent to $278 million from $175.2 million in the third quarter of 2007.

The company said high egg prices and strong demand for eggs in both the retail and food segments contributed to its results.
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Follow The Smart Money To Cal-Maine Foods
April 02, 2008  | By Will Ashworth


Egg prices continue to rise as commodity costs spiral out of control. Corn and soybeans, two important crops for feeding egg-producing chickens, have gone up 15-20 cents per dozen eggs in the last year, increasing the break-even price for a dozen eggs to 95 cents from 70 cents one year ago, according to Chad Gregory senior vice president of United Egg Producers.

These are passed on to the consumer, so it's no wonder a dozen regular eggs today cost an average of $2.18, up 45% in just eight months. Food inflation is certainly helping Cal-Maine Foods (Nasdaq:CALM) deliver record profits and the institutional investors have noticed. Year-to-date, Cal-Maine Foods stock is up 43%. In 2007, it was up 210%. The year before that came in at 27%. Can this continue?


Big Cages, Fewer Chickens
Interestingly, there is a supply problem caused by a move to larger birdcages (more humane treatment), reducing the number of chickens per barn, sometimes by as much as 30%. Fewer chickens mean fewer eggs. The Department of Agriculture estimates there are 2% fewer chickens today than in 2007, keeping egg prices higher than they traditionally are. That's made a difference in Cal-Maine's top and bottom line.

How Good Are Profits?
In 2007, Cal-Maine sold 685 million dozen eggs making it the No.1 producer of shell eggs in the United States, commanding a 15% market share, which is sure to grow. Revenue in fiscal 2007 was $598 million, up from $375 million two years earlier; and operating income was $58 million, a $70 million turnaround from 2005. Its second quarter, ended December 1, 2007 was tremendous. Sales were $224 million, up 62% from the previous year and operating income up just under 500%. The company is firing on all cylinders and folks are starting to notice.

Follow The Money
Professional investors are taking a shine to the company, in part, due to its new dividend policy that will pay out 33% of profits to shareholders. Considering the company will likely make $6 a share in fiscal 2008, this translates to a $2 dividend per share, yielding 5.3%. No analysts cover the stock but that hasn't deterred pros like James O'Shaughnessy, whose O'Shaughnessy Asset Management owns 6.5% of the shares. Even more compelling is the amount of stock short, just over 50% of the shares outstanding. Obviously, there are divergent opinions out there about the direction of the share price.

Cal-Maine stock is up about 150% in the last year versus about -7% for the S&P 500. Many shorts feel the stock is due for a correction. Looking more closely at valuation metrics, there's reason to believe this stock is only getting started. Its price to sales ratio is 1.12, very low when you consider it's growing sales at a 60% pace. Sure, it can't keep up this pace, but even if growth slows to 20% a quarter, Cal-Maine is still almost doubling sales annually. Its return on assets and return on equity are both above 20% and the operating margin in the second quarter a robust 26.3%.

Bottom Line
Two years ago the company was losing money when eggs were retailing for $1.25 a dozen. Today, selling at $2.18 a dozen, it's making $6 per share in profit. Many would tie the stocks fortunes to which direction they thinks egg prices will move in the next year. For me, the question of direction is moot. I believe Cal-Maine is positioning itself to make money at either price, in good times or bad, and that's the real story.

By Will Ashworth

Will Ashworth lives and works in Toronto, Canada. He's worked in and around the financial services industry for much of his adult life. He loves investing and is passionate about helping others do the same.

At the time of writing, Will Ashworth did not own shares in any of the companies mentioned in this article.
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I haven't bought this one yet, but looking for the most opportune time. Anyone have a good technical low buy point? It sold off hard on last Q's outstanding earnings report also at end of Dec to mid Jan, before almost doubling from there.

[Garoh]

David don't forget about this one ..
It's one of the best stocks in the market at these prices 30.40 to 32 

Hi BigSully1   I bought it last week at $30 and looking forward to see at least $50 in a few months 

If it pullback to 30+ i'm gonna buy some Option contracts ..

Nice choice

[BigSully1]

Hi Garoh.

I still haven't bought the stock. It's one of those I've wanted for over a year but for some stupid reason always failed to buy. Maybe it was the huge short interest hindering me from purchase. It's had a huge short interest for several years now, don't know why it still does.

By the way, even at $2.20/dozen, about three times what they were a year or so ago, eggs are still some of the cheapest wholesome food available and it wouldn't hinder me from purchasing them at all, and I don't mind at all paying a little more for the specialty eggs either.

So you think around $30 or so should be a good entry?

[Garoh]

Yes It's a good entry and I'll hold it for at least 3 months

Let's hope it wil close above $32 today to see a nice run

[BigSully1]

just bought alot in the $28.50's

8:41AM Cal-Maine Foods announced it will commence new dividend policy for third quarter of fiscal 2008 (CALM) 29.84 : Co announced that it will commence payment of the co's new variable rate dividend policy for Q3 of fiscal 2008. Pursuant to this new policy, the amount of the quarterly dividend is computed in accordance with generally accepted accounting principles in an amount equal to one-third (1/3) of the co's quarterly income. For Q3 of fiscal 2008, which ended March 1, 2008, Cal-Maine will pay a cash dividend of ~$.807 per share to holders of its common stock. In addition, a cash dividend of $.767 per share will be paid to holders of its Class A common stock, which represents 95% of the amount paid to holders of common stock.

[Garoh]

We could see $26.6  and still see it as a golden chance at these prices ..

It's a good long term investment ..

I'll buy more around $26+ 

Good luck BigSully1

[BigSully1]

We could see $26.6  and still see it as a golden chance at these prices ..

It's a good long term investment ..

I'll buy more around $26+ 

Good luck BigSully1

So far, your 26.60 is the low today, on the money. I doubled down at 26.70's per your "what could happen". Thanks, and good luck to you too, Garoh.

[David Randolph]

David don't forget about this one ...

I'm looking at it now for the first time.

The fundamental trends are just awesome and the valuation is very attractive on every metric, be it p/e ratio or dividend yield.

But ever since TBSI I'm a bit suspicious about this type of trades/investments. Let me expose you two bearish arguments:

1 - The stock was up 6 fold in about 18 months:



This was totally due to the rise in egg prices. However, eggs are a commodity and I guess that with prices up so much, new production/producers will show up in the market, driving up supply of eggs and bringing prices back down over the long term. In the latest quarter CALM had a net profit margin of 20.6%. Do you think such fat profit margin is sustainable over the long term, producing eggs?

This situation has plagued some of my picks in the past ... for example, TBSI went down 60% from its high, to a p/e of less than 5, just because people believed freight rates are unsustainable at current levels.

There are more examples ...

2 - The news is great and the stock goes down on heavy volume?



News on "1" was:

• Cal-Maine Foods Profit Up on Egg Prices
AP (Mon, Mar 31)

With the news being so good and the stock down ... I think a major top was formed. Anyway, the stock looks like it will rebound ... but I would get out of it between $30 and $35 you know?

I don't want to weaken your hands, I mean, you guys probably know more than I do, I'm just exposing the results of my past experiences with similar fundamental/technical situations.

Good luck

[BigSully1]

David don't forget about this one ...

I'm looking at it now for the first time.

The fundamental trends are just awesome and the valuation is very attractive on every metric, be it p/e ratio or dividend yield.

But ever since TBSI I'm a bit suspicious about this type of trades/investments. Let me expose you two bearish arguments:

1 - The stock was up 6 fold in about 18 months:



This was totally due to the rise in egg prices. However, eggs are a commodity and I guess that with prices up so much, new production/producers will show up in the market, driving up supply of eggs and bringing prices back down over the long term. In the latest quarter CALM had a net profit margin of 20.6%. Do you think such fat profit margin is sustainable over the long term, producing eggs?

This situation has plagued some of my picks in the past ... for example, TBSI went down 60% from its high, to a p/e of less than 5, just because people believed freight rates are unsustainable at current levels.

There are more examples ...

2 - The news is great and the stock goes down on heavy volume?



News on "1" was:

• Cal-Maine Foods Profit Up on Egg Prices
AP (Mon, Mar 31)

With the news being so good and the stock down ... I think a major top was formed. Anyway, the stock looks like it will rebound ... but I would get out of it between $30 and $35 you know?

I don't want to weaken your hands, I mean, you guys probably know more than I do, I'm just exposing the results of my past experiences with similar fundamental/technical situations.

Good luck

David my hands are not that strong on almost everything currently. I'm prepared to cut my loss very short and quick if need be.

I can't really make a strong argument against the points you make, except

1) the stock also sold off very hard (from 31.45 to 20.75), immediately at the late December ER, which was also excellent, only to almost double from there to the most recent high.

2) Alot of CALM's high margins are due to the sale of specialty eggs like Eggland's best, which is supposed to be much lower in cholesterol, cage free eggs etc. Personally, I don't mind at all paying a few cents more for an egg that is supposed to be much healthier, as I eat alot of eggs and find them to be a very good value anyway. But yes I think that earnings havve peaked for awhile now that the holidays are over. Probably the stock has too for awhile.

That said, I respect and value your opinion, and surely it will tone down my enthusiasm, probably for my own good. Thanks.

[Garoh]

I doubled my position and my order filled at $26.66 

Also bought some option contracts when it got to that price and I'm up %65  on them .

Thanks David for the excellent fundmental anlysis .. You maybe right about reaching a top , but when I look at the chart I see similar behaviour in the past and technically the stock in a bullish mood unless it close below $26 .
anyway $33 in hand very soon and I'm planning to sell half of my position there ..

Your analysis cleared the sky for us and very helpful  David 
by the way , look at this one  SIM

Thanks David

[BigSully1]

I doubled my position and my order filled at $26.66 

Also bought some option contracts when it got to that price and I'm up %65  on them .

Thanks David for the excellent fundmental anlysis .. You maybe right about reaching a top , but when I look at the chart I see similar behaviour in the past and technically the stock in a bullish mood unless it close below $26 .
anyway $33 in hand very soon and I'm planning to sell half of my position there ..

Your analysis cleared the sky for us and very helpful  David 
by the way , look at this one  SIM

Thanks David

I'll likely sell some too Garoh around there, but only because I have a bit too much. The rest I'll continue holding until given a good reason to sell. Nice job, Garoh and thanks  for the $26.60 suggestion, it was spot on so far and I suspect it was a bottom.

here's a very good research report on them

http://www.financialtrader.com/Investor_Contributed_Research/Calm_bullish_4.17.2008.html

[kslifka]

I recently noticed that the price of eggs have come down a little over the past couple of weeks...along with the price of milk.  Maybe it's just a temporary thing...but just a heads-up.

Ya know I really wish I would have paid more attention to food prices over the past year.  A dozen eggs from $1 a year ago to $2+ recently.  Obviously egg producers would have stellar performance this past year.  Sometimes you have to see the forest through the trees...I guess...just like this credit crisis we're in now. 

[BigSully1]

I recently noticed that the price of eggs have come down a little over the past couple of weeks...along with the price of milk.  Maybe it's just a temporary thing...but just a heads-up.

Ya know I really wish I would have paid more attention to food prices over the past year.  A dozen eggs from $1 a year ago to $2+ recently.  Obviously egg producers would have stellar performance this past year.  Sometimes you have to see the forest through the trees...I guess...just like this credit crisis we're in now. 

Thanks Ksilfka, appreciate your input. Certainly, egg prices have come down some very recently. They always do after peaking during the holidays season and especially Easter. Two or three years ago, egg prices had averaged probably .59 to .79 cents, and they had been around that price for many, many years, as long as I can remember. Maybe stores were using them as loss leaders like milk and bread and the actual price to them was higher? Small operations have been squeezed out as have small dairy farmers. Regulations have limited production, etc.

I think the days of a really cheap egg are forever over now and I would be very surprised to see prices drop all that much, and then only temporarily, IMO. I really doubt they would ever even approach $1 again. Unless there is unfair anti-cholesterol campaign against them again. Personally, I would still buy them if they were $6/dozen and think them still a pretty good value, especially for animal protein. What does a slice of ham or a  bowl of cereal cost nowadays? It aint cheap either anymore and food superinflation is here to stay, IMO.  Another reason I very much like stocks like SDA, FEED, AGU, LNN etc.

[David Randolph]

Personally, I would still buy them if they were $6/dozen and think them still a pretty good value, especially for animal protein.

I don't think the issue is how much you're willing to pay (or anyone else, I think I would be willing to pay $10/dozen if needed) but how much it costs to produce. If the cost is $0.5 and they're selling for $2, this will bring more and more producers to the market, increasing supply and driving the price and profit margin back down.

CALM has a 20.6% net profit margin and I guess this is unsustainable over the long term.

With the news being so good and the stock down ... I think a major top was formed. Anyway, the stock looks like it will rebound ... but I would get out of it between $30 and $35 you know?

The rebound already happened ... we'll see what happens next, if the sequence of lower lows and lower highs continues or the stock manages to close above $35. Good luck

You like FEED? Trailing p/e is 66, Jesus, it's impressive what macro trends can do to stocks. Anyway, I have here the analysis which probably was responsible for part of FEED's move, I'll post it in the respective thread.

[BigSully1]

sold half at 34.26-34.15. Holding rest for LT and dividends.