The Importance of CALM Earnings

Cal-Maine Foods, Inc. (CALM), a leading producer and marketer of shell eggs in the United States, released its financial results for the second quarter of fiscal 2024. The results were notable for the broader market. 

This may seem like an odd statement for an egg producer that has a market cap of $2.6 billion. The importance has to do with the negative impact deflation had on its earnings. Market participants will debate the upcoming earnings season and what it means for 2024. The CALM results will raise questions around upcoming earnings consensus numbers. 

Net sales for the quarter stood at $523.2 million, representing a decline of 35% compared to the same period last year. This decrease was primarily driven by a significant drop in the net average selling price for conventional eggs. 

Sales volumes experienced a slight uptick, with a total of 288.17 million dozens sold, an increase of 1.4% year-over-year. The net average selling price per dozen was $1.730, down 36% compared to the prior year. Conventional eggs were particularly affected, with a net average selling price of $1.458, representing a substantial decline of 49.4%. Specialty eggs also experienced a slight decrease in net average selling price, falling by 3.9% to $2.277 per dozen. 

Sherman Miller, the president and CEO of Cal-Maine Foods, Inc., acknowledged the challenging market environment but emphasized the companys ability to maintain favorable consumer demand for shell eggs. This demand was especially prominent leading up to the Thanksgiving holiday.

Despite the decline in sales revenue, net income attributable to Cal-Maine Foods, Inc. for the second quarter of fiscal 2024 was $17.0 million, or $0.35 per diluted share. This is in comparison to $198.6 million, or $4.07 per diluted share, in the same quarter of the previous fiscal year. The Q2 earnings fell 38 cents short of analyst expectation. These results include a loss contingency accrual of $19.6 million for expected damages and fees in an ongoing anti-trust legal proceeding. The company intends to challenge and, if necessary, appeal these decisions. 

Cal-Maine Foods, Inc. experienced a decrease in operating income as well, reporting $14.2 million for the second quarter of fiscal 2024, compared to $259.9 million in the prior-year quarter. This decline primarily reflects the impact of lower market prices. However, the company benefited from reduced feed ingredient costs compared to the same period last year. 

 In conclusion, CALM's results highlight the "ugly" downside of deflation. The earnings season will highlight winners and losers, which will depend on pricing powers witnessed during the quarter. Investors should research companies' products to understand who will face pricing pressures. Companies that can manage these declines by offsetting costs associated with products and manage margins will find investment dollars flowing into its stock. 

Shares of CALM are down 10% following the news. The stock is holding above the $50-psyche support, but this level will be tedious at best. The stock looks destined to test its 200-sma ($48.93). We would allow for some further downside before attempting to play a bounce in the name.