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Cal-Maine Foods warns of egg 'oversupply' as it tumbles into the red

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Cal-Maine Foods, the world's biggest eggs group, cautioned of a US market "oversupply" stemming from the 2015 bird flu scare as it unveiled a bigger-than-expected dip into the red – leaving it with its first annual loss in more than a decade.

Shares in the group plunged 8% at one point to a three-year low of $33.40 before recovering some ground in afternoon deals in New York to stand at $34.525, a drop of 6.9%.

Mississippi-based Cal-Maine Foods unveiled a loss of $24.5m for the three months of June 3, its fiscal fourth quarter, compared with a near-breakeven performance a year before.

The result helped drag the group $74.3m into the red for the full year, Cal-Maine's first dip into the red since 2006, and by far its worst performance on data going back 25 years.

And the quarterly loss, at the equivalent of $0.51 per share, was far worse than the $0.25-per-share loss than investors had expected, despite factoring in a $5.5m windfall in terms of a payment from BP for disruption stemming from the Deepwater Horizon oil spill seven years ago.

'Volatile and challenging'

The result reflected "volatile and challenging egg market fundamentals", said Dolph Baker, the Cal-Maine chairman and chief executive, flagging a drop in prices which saw the group's revenues for the latest quarter drop 8.7% to $274.6m despite growth in sales volumes.

While egg producers had "repopulated their flocks" after the 2015 US bird flu scare, which saw extensive culling in a bid to stop the spread of the disease, "market demand trends have not kept pace with these production levels", Mr Baker said.

Indeed, many corporate buyers have, after reformulating recipes during the avian influenza scare to use fewer eggs, failed to reverse all the changes since.

US egg exports also remain below levels ahead of the disease outbreak.

'Oversupply'

"Together, these factors have created an oversupply and market prices have fallen accordingly," said Mr Baker, with Cal-Maine's own achieve price down 15.5% in the latest quarter.

He added that the group did "not expect to see any meaningful improvement until there is a better balance of supply and demand".

One positive sign on this score was official data on chicks being hatched, a number which "has been trending down for the last 10 out of 11 months, suggesting there may be a moderation in the size of the laying hen flock as we move forward".

Dividend axed

The group added that it was not paying a dividend because of the loss, but remained open to acquisitions.

"Our strong balance sheet provides us with the flexibility to pursue acquisitions and additional growth opportunities that add value to our operations," Mr Baker said, adding that Cal-Maine Foods was "well positioned to benefit" from an improvement in market conditions.

Cal-Maine Foods shares stood 4.3% lower at $35.50 in before-the-bell deals on Monday.

By Mike Verdin

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