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Profits soar at Cal-Maine - but by less than investors expected

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The squeeze in the US egg market hatched a profits jump at Cal-Maine Foods – but not as big a rise as investors had expected, with egg prices proving "lower than expected in spite of the reduced supply".

The Mississippi-based group, the world's largest table egg provider, reported a tripling to $109.2m in earnings for the three months to November 28 - a result beaten only in the company's history by the $144m reported for the previous quarter.

Revenues soared 44% to $546.0m, reflecting soaring egg prices after the outbreak in the spring of avian influenza forced culls in particularly among the egg-laying flock.

"This impressive growth is primarily due to higher average selling prices and a modest increase in volumes compared with the same periods a year ago," said Dolph Baker, the Cal-Maine chairman and chief executive.

The group sold its eggs for an average of $1.97 per dozen during the quarter, a rise of 43% year on year.

The US table egg flock was, at 278m hens in October, 9% smaller than a year before, according to the US Department of Agriculture, which foresees domestic table egg output during the October-to-December quarter at 1.69bn dozen, a decline of 10% year on year.

'Lower-than-expected prices'

However, the group's earnings, which came in at $2.26 on a per-share basis, fell short of the $2.40 per share that Wall Street had expected.

Mr Baker acknowledged that egg prices had suffered setbacks during its latest quarter, falling "considerably" in October from "higher-than normal levels… before moving back up due to higher demand related to the Thanksgiving holiday".

Furthermore, egg values have "declined since the end" of last month.

Indeed, egg prices "have moved lower than expected in spite of the reduced supply", Mr Baker said, adding that "we expect prices will remain volatile until the industry has more clarity on future supply levels".

Weaker outlook

The comments tally with a report from the USDA last week which said that while egg prices, -as measured by wholesale Grade A supplies in New York - soared 26% month on month in November to $2.09 per dozen thanks to a "spike in demand going into the Thanksgiving period", they had retreated since.

"Prices have fallen sharply in the first part of December," the USDA said, forecasting prices averaging 183-186 cents per dozen for the October-to-December period.

While up some 13% year on year, that would represent a decline of at least 21% from values reached in the July-to-September period.

And the USDA forecast egg prices extending their decline until at least hte July-to-September period of 2016, when they were forecast averaging 149-161 cents a pound.

"Wholesale egg prices are forecast to remain higher than the previous year through first-quarter 2016 but then to move lower than the previous year as table egg production increases to levels closer to those before the [bird flu] outbreak," the USDA said.

Share reaction

Mr Baker said that Cal-Maine, which has avoided bird flu outbreaks at any of its facilities, was continuing to boost its prospects by focusing on higher-value, specialty eggs, and increasing production in cage-free facilities able to meet enhanced animal welfare regulations in California.

"Our customers look to us to provide a product mix that meets changing consumer demand," Mr Baker said.

"We have a number of major capital projects underway across our operations to expand our cage-free capacity, to meet increased customer demand for this product," while offering a "full complement" too of "conventional, nutritionally enhanced and organic eggs".

Nonetheless, Cal-Maine shares looked set for a weak start in New York on Thursday, falling 3.8% in after-hours trade.

By Mike Verdin

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