Fast food, specialty eggs propel Cal-Maine
Right now is a good time to be a leader in the U.S. egg market.
Americans have a growing national appetite for nutritionally enhanced organic eggs and are forsaking cold cereal and yogurt in favor of picking up a hot egg breakfast at traditional lunch stops like Taco Bell and Subway. And the egg aisle is a must stop for shoppers at dominant food retailers Walmart and Sam’s Club.
Overall U.S. consumption numbers have climbed just slightly since 2010, growing from 2.519 billion dozen to 2.547 billion dozen in 2013. But the percentage of “heavy egg” eaters grew from 38 percent to 45 percent from 2009 to 2013, a rise that accounts for the decline in “light” consumers of eggs from 32 percent to 21 percent, the American Egg Board reports.
The increase in heavy egg eaters can explain Egg Board consumption numbers that show individual U.S. consumers bought 2.1 cartons of eggs a month in 2009 and 2.4 cartons in 2013.
The numbers also show Jackson’s Cal-Maine Foods has been a big beneficiary of the growing egg demand.
In the fiscal year just ended, the publicly held company set a record by selling nearly a quarter of all eggs bought in the United States. Those 1.014 billion dozen eggs sold marked the first time any domestic or world egg supplier has surpassed annual sales of over one billion dozen eggs, the company said in a July press statement.
“It’s a good milestone for us,” said Tim Dawson, Cal-Maine vice president and CFO, in an interview last week.
He cited recent acquisitions, the growing specialty egg market and increasing demand from both commercial users and individual consumers.
Through producers in 16 states and purchases from independent producers, Cal-Maine sells eggs in half of the states. “We sell from the Sun Belt all the way up to New York,” Dawson said, putting company-produced eggs at about three-quarters of the total.
The company nationwide employs more than 2,000 workers. It has about 60 people at its Jackson headquarters and dozens more at a pair of production complexes in Edwards and Mendenhall, home to a breeder farm and hatchery, which produces laying hens that are shipped to Cal-Maine producers around the country, Dawson said.
“We control the development of our hens very carefully,” he added, and put Cal-Maine’s number of layers at about 31 million.
Modern climate-controlled production facilities help to keep down mortality among layers and increase production. And more efficient feed sources have kept production costs in line, Dawson noted.
“We’ve continued to be more efficient with our ability to produce eggs. We can produce more with less food.”
And less wastage, he added. “We’ve become much more careful about wastage.”
Cal-Maine sold 948,000 million dozen eggs in fiscal 2012-2013 before hitting its one-billion-plus level in fiscal 2013-2014. “I think a lot of this is due to breakfast being served at fast-food and quick-service restaurants that generally includes eggs,” Dawson said.
In addition to a growing preference for Omega-3 enriched organic eggs, consumers are also relying on non-specialty eggs as one of the most inexpensive sources of protein, he noted.
Having Walmart and Sam’s Club as destinations for its products help, as well. The two retailer account for “30 percent of our business,” Dawson said.
It all translates to an attractive bottom line for Cal-Maine, which started life as Adams Enterprises under Fred R. Adams in 1957 and became Cal-Maine in a 1969 merger with Dairy Fresh of California and Maine Egg Farm.
Earnings last fiscal year climbed 115.24 percent, according to CNN Money.
Shareholders have seen a 17.58 percent share price increase in the current fiscal year. Shares have ranged from $43.65 to $81.91 the past 52 weeks, closing Tuesday at $72.99.
Acquisitions have been a big part of Cal-Maine’s growth story. The Mississippi Business Journal reported in April that the company had made 17 acquisitions since 1989.
In a significant move announced in July, Cal-Maine said it is in a joint venture for specialty egg sales with Hickman’s Egg Ranch Inc. of Buckeye, Arizona. Hickman’s Egg Ranch has been family-owned and operated since 1944 with processing operations located in Arizona, Colorado and California, and capacity for about 6 million laying hens. Hickman’s ranks among the top 20 family egg farms in the United States.
While sales and revenue trends are upward, Cal-Maine cautions shareholders that market prices for wholesale shell eggs are volatile and outside the company’s control.
Fast-food restaurant consumption and favorable news on egg consumption from the medical community are market pluses. But they do not guarantee continued sales and revenue growth, not with ever-changing medical findings and a population that could move away from high-protein diets at any time, Cal-Maine notes in its most recent 10-K filing with the Securities and Exchange Commission.
The filing also cautions that Cal-Maine’s reliance on large customers, the top 10 of which account for 68.5 percent of sales this year, make it vulnerable to the loss or reduced purchases by one or more larger buyers.
“Increased competition could result in price reductions, greater cyclicality, reduced margins and loss of market share,” Cal-Maine says.
Meanwhile, there’s that world record to celebrate. Dawson said.
“I think we’re a good Mississippi story,” Dawson said.
(This version of the story corrects an earlier error in reporting Cal-Maine’s share of the U.S. egg market.)
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