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MarketWatch  Apr 2  Comment 
Cal-Maine Foods Inc. reported Monday fiscal third-quarter net income that rose to $96.3 million, or $1.99 a share, from $4.1 million, or 9 cents a share, in the same period a year ago, amid a continued increase in egg prices. The egg seller said...
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Cal-Maine Foods (CALM) is the largest producer and marketer of shell eggs in the United States. Cal-Maine is primarily engaged in the production, grading, packing, and sale of fresh shell eggs. The company provides over 15% of the total U.S. consumption of eggs.

Cal-Maine operations are fully integrated. Their facilities hatch chicks, grow pullets, manufacture feed, and produce, process, and distribute shell eggs. Shell eggs accounted for approximately 96% of Cal-Maines net sales in fiscal 2007 and 94% in fiscal 2006. Egg products accounted for approximately 2% of the net sales in fiscal 2007 and 2% in fiscal 2006. Shell eggs are sold directly by Cal-Maine primarily to national and regional supermarket chains.

Cal-Maine also produces specialty egg products such as cholesterol free, free range chicken, and organic eggs. In the specialty category, Cal-Maine has exclusive rights to use the Egg-Land's Best and Farmhouse brands.

The company sells egg products in 29 states across the southwest, southeast, mid-Atlantic, and midwest portions of the United States.

Cal-Maine currently use contract producers for approximately 10% of their total egg production. Contract producers operate under agreements with Cal-Maine for the use of their facilities in the production of shell eggs by layers owned by Cal-Maine. Cal-Maine owns the eggs produced. Also, shell eggs are purchased, as needed, for resale by Cal-Maine from outside producers.

Cal-Maine operating income was $58.2 million for fiscal 2007, as compared to operating income of $4.5 million for fiscal 2006. The operating income as a percent of sales for fiscal 2007 was 9.7%, as compared to operating income of .9% for fiscal 2006.

Cal-Maine sold 679 million dozen shell eggs in fiscal 2008 (ending May), 685 million dozen in fiscal 2007 and 683 million dozen in fiscal 2006.

Growth Strategy

Since 1989, Cal-Maine has acquired 14 companies with 600,000-7,500,000 layers. Despite significant consolidation, the market in which Cal-Maine operates in remains highly fragmented with 65 producers that has more than 1 million layers and the 10 largest producers own 43% market share.

Recent acquisitions by the Company include Zephyr Egg ($27 million in cash; 2 million layers), George's Inc ($11 million in cash; 1 million layers), Green Forest Foods (50% interest for $2 million in cash; the Company owns 50%; 1 million layers) and Hillandale LLC ($49 million in net cash)

Pricing and Costs

The pricing of shell eggs in the US has been increasing due to food price inflation. In fiscal 2008, the Company's average selling price for a dozen of its shell eggs was $1.260 compared to $0.832 in fiscal 2007 and $0.428 in fiscal 2006. Due to the current recession, selling prices decreased to $1.206 for the quarter ended February 28, 2009, compared with $1.480 for the quarter ended March 1, 2008.

Other than increases in average selling prices, the Company's principal feed ingredients, corn, soybean and other gains, have also increased significantly due to food price and energy price inflation. Feed cost, which represents the largest component of production cost, for fiscal year was $0.334 per dozen in fiscal 2008, compared to $0.252 per dozen in fiscal 2007 and $0.206 per dozen in fiscal 2006. Feed cost increased to $0.370 per dozen for the quarter ended February 28, 2009, compared with $0.347 per dozen for the quarter ended February 28, 2008.


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