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Cal-Maine Foods shares fall, after legal payout drags it to another loss

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An $80.8m payout relating to a long-standing anti-trust dispute overshadowed a boost to Cal-Maine Foods from egg market improvements to leave the group reporting a third successive quarter in the red, and a further miss on a dividend.


Shares in Mississippi-based Cal-Maine Foods, the world’s biggest egg producer, slumped 9.0% to $39.70 in early deal, after it unveiled a net loss of $26.1m for the quarter to December 2.


The loss was the group’s sixth in the seven quarters, and meant a further period without dividend for shareholders, given a company policy based on cumulative income.


“At December 2, cumulative losses that must be recovered prior to paying a dividend were $116.8m,” said the group, which has not paid a dividend for nearly two years.


Legal claims


The loss in the latest quarter reflected a one-off charge of $52.8m, relating to an $80.8m payout that Cal-Maine has made to settle price fixing claims lodged by larger buyers nearly decade ago against a number of egg producers.


“While we deny any liability in these cases, and still believe that our conduct has always been lawful, we decided that it was in the best interests of our shareholders, customers, and employees to settle these long-standing cases at this time,” said Dolphy Baker, the Cal-Maine chief executive.


The settlement eliminated “substantial risk, uncertainty, expense, and distraction” associated with the legal battle.


The group acknowledged that some separate legal cases remained to be settled, representing “claims of indirect purchasers of shell eggs (who have twice failed in efforts to certify a class) and the dismissed claims of non-class purchasers of egg products (who have appealed this dismissal)”.


Egg prices soar


The payout overshadowed what Mr Baker termed a “solid operating performance” in the latest quarter, with the group, excluding the one-time charge, achieving net income of $26.6m.


Revenues soared 42% at $361.2m, “as we benefitted from higher market prices and solid demand,” with the egg market showing “significant improvement” year on year, he said.


The group’s average egg sales price, at $1.321 per dozen, was up 36% year on year, with values staying “strong through the Thanksgiving holiday” - helped by supermarket promotion campaigns, and a return of eggs to favour among key customers.


“After a period of sluggish demand from institutional food customers, this sector has returned to more egg usage,” Mr Baker said.


‘Evolving health perspectives’


The comments echo those last month from the US Department of Agriculture, which reported US egg prices late last year reaching the highest levels since 2015, when an outbreak of bird flu prompted the liquidation of several flocks, curtailing production.


“Strong prices may reflect robust market demand,” the USDA said in a pre-Christmas briefing, noting that “projected disappearance per capita for 2017 is nearly 7% above the 2010-14 average.


“Factors underlying strong demand may include higher seasonal consumption in the current period, evolving health perspectives on eggs, and improving export markets.”


Meanwhile, US egg production showed a “slight” decline in the October-to-December quarter, with output estimated 0.7% down year on year at 1.94m dozen.


Price outlook


The USDA added that “going forward, prices will likely be higher than previously expected, but they should temper as the producer response underway results in more eggs on the market”.


Cal-Maine’s Dolph Baker flagged that “recent USDA reports show an increase in chicks hatched, which could indicate future increases in supply”.

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