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Cal-Maine shares drop after it fumbles egg price boost

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Shares in Cal-Maine Foods plunged 12% after the egg producer revealed it had benefited less strongly than investors had expected from soaring prices - which the group expects to continue.

The US-based group, the world's biggest egg company, trumpeted a "strong finish to another record year" as it unveiled a 46% jump to $46.1m in earnings for the March-to-May period, on revenues up 8.4% at $403.0m.

However, Cal-Maine shares tumbled to $47.62 in early deals in New York - before recovering some ground to stand at $49.67 in late-morning trading, down 7.8% on the day – as the increased performance fell short of market expectations.

Wall Street had forecast sales of $418m for the quarter, and earnings of $1.04 per share, rather than the $0.95-per-share figure that the group revealed.

'Upward pressure on prices'

Market conditions have, through soaring egg prices and declining feed costs, given a double boost to US egg producers – provided flocks have not been affected by the outbreak of bird flu, or avian influenza.

Wholesale prices of grade A large eggs in the key New York market averaged $1.70 per dozen in the April-to-June quarter, a jump of 27% year on year, thanks to the squeeze on egg supplies from the epidemic, which has prompted a cut of more than 40m in the US flock of laying hens and pullets.

"Over the last two weeks of June and carrying over into the beginning of July, wholesale egg prices had been steady at $1.89 per dozen, but have moved higher in recent days," US Department of Agriculture said in a briefing last week.

"Lower table egg production during the second half of 2015 is expected to keep upward pressure on prices."

Cal-Maine backed the forecast for elevated values, saying that "egg prices are expected to remain high until the national laying hen flock can be replenished", even though the spread in bird flu has slowed with the end of the migration period of wild birds seen as central to the spread of the disease.

Volume vs price

The group itself has not seen any of its laying flocks test positive for bird flu, and indeed the company raised the volume of eggs sold by 6.2% year on year to 264.9m dozen in the March-to-May quarter.

However, Cal-Maine's average selling price was, at $1.471 per dozen, up a modest 2.7% year on year, with much of that increase coming from a shift in the make-up of revenues towards higher value, specialty eggs.

"Specialty egg sales were a key driver of our performance for the year as we continued to expand our market reach," said Dolph Baker, the Cal-Maine chairman and chief executive.

"For fiscal 2015, sales of specialty eggs accounted for 19.8% of our total number of shell eggs sold and 27.2% of our shell eggs revenue."

Average feed costs fell by 16.3% to the equivalent of $0.406 per dozen eggs.

'Proven strategy'

Mr Baker added that while bird flu "has created uncertain market conditions for our industry, we remain focused on managing our operations as efficiently and safely as possible.

"We are pleased with our execution to date, and believe we have a proven strategy for continued success in the year ahead."

The group's "strong" balance sheet "provides the flexibility to pursue new growth opportunities that will improve our operations".


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