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Cal-Maine Foods (NASDAQ: CALM) investors are holding a golden goose

by
Maria A. CONTRIBUTOR
Cal-Maine

Cal-Maine Foods (NASDAQ: CALM), a large US-based producer of fresh eggs, has been rewarding investors as prices for the hen’s bounty and favorite breakfast food remain elevated. It’s a classic lesson on supply and demand, and the company is returning the resulting profits directly to shareholders.

“National egg supply has declined due to the recent outbreaks of highly pathogenic avian influenza,” CEO Sherman Miller said earlier this month, commenting on its fiscal first quarter results that saw net profit soar to nearly $150 million from just $0.4 million in the same period a year earlier. “We have worked hard to increase our production and purchase more eggs from outside suppliers, and our team did an outstanding job bringing more eggs to the market despite this low-supply environment.”

The company, by policy, returns one-third of any net income, and that means shareholders will see their next dividend payment rise to $1.02 a share. That’s an increase of 32% from the previous quarter, and investors may continue to benefit from strong tailwinds with the United States Department of Agriculture expecting supply issues through at least 2025.

Although the egg prices aren’t at their all-time highs, they remain significantly elevated compared to prior years. In late 2022 and early 2023, the average price was around $4.82 per dozen. Now, a dozen eggs averages $3.20 in US supermarkets. The USDA expects egg production to decline by 77 million dozen in 2024, with another decline of 10 million dozen next year.

Cal-Maine Foods has been able to take full advantage of the market dynamics by reducing costs because of favorable commodity pricing for key feed ingredients. It’s also been expanding into value-added products such as egg wraps, protein pancakes, crepes and wrap-ups with the recent strategic investment in Crepini Foods. 

“Current indications for corn supply project an overall better stocks-to-use ratio, implying more favorable prices in the near term,” CFO Max Bowman said. “However, as we continue to face uncertain external forces including weather patterns and global supply chain disruptions, price volatility could remain.”

Cal-Maine Foods shares have surged amid the egg bonanza and dividends, rising 40% so far this year compared to an increase of around 20% in the broader S&P 500 over the same period. The company’s stock has also benefited from a trend that’s seen small-cap stocks outperform their larger counterparts as the Federal Reserve began to cut its benchmark interest rate.

The erratic swings in egg prices that first began in 2022 may have seemed like a one-off, but, as anyone who’s walked through a US supermarket recently knows, prices still seem to be rising. Cal-Maine Foods has emerged from the situation as a golden-egg-laying hen, cutting costs and boosting supply in a market hungry for more. It’s also been making strategic moves into value-added products that could keep paying dividends into the future.