A weekend trip to Costco (COST) yielded more evidence that egg prices finally may be normalizing.
It was not uncommon to see eggs at the supermarkets in my area selling for more than $4 a dozen, but there was always the Costco option. That meant buying five dozen at a time; back in January, the cost was $15, or $3 a dozen. Following drops in egg prices of 7% in February and 11% in March, that same five dozen now costs $12.
One of the big beneficiaries of inflated egg prices has been Cal-Maine Foods (CALM) , which ran up 52% last year as revenue rose nearly 32%. The top line has continued to increase this year and CALM enjoyed a blowout third quarter. Revenue jumped 109% to $977.5 billion ($98.5 million ahead of consensus) and earnings per share of $6.62 were $1.15 cents better than the consensus. CALM's net profit margin for the quarter was an incredible 32.4%.
However, the market response to Cal-Maine's third-quarter results has been tepid. While CALM shares rose 7% the day after the March 28 after-hours announcement, they since have given that back and a bit more. CALM is down about 2% year to date and the huge earnings gains may be in the rear view mirror. Earnings-per-share estimates for full-year 2024 ($4.72) and 2025 ($2.93) are well below 2023 ($16.43). Markets are looking ahead and suggesting that CALM's run may be over, at least for now.
Cal-Maine certainly made hay out of the situation and bolstered its balance sheet. It ended its last quarter with cash and short-term investments of $645 million, or $13.26 a share, up from $96.7 million, or $1.98 a share, a year earlier. Some of that war chest is being used to pay dividends, including the recently declared $2.20 a share. CALM is one of the few companies that has a variable dividend policy, paying out one-third of quarterly income. That's why you've got to view both the trailing 12-month and indicated dividend yields with a grain of salt.
This is a situation where you can't expect the future to be anything like the past couple years. It reminds me to a lesser extent of Lakeland Industries LAKE, a member of my 2020 Double Net Value Portfolio, which manufactures protective clothing and enjoyed a major run during the first year of the pandemic, then fell back to earth. Eggs are certainly more widely used and needed by consumers than protective clothing, but you get the point.