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Cal-Maine Foods Inc. posted third-quarter 2012 adjusted earnings of $1.09 per share, which fell short of the Zacks Consensus Estimate of $1.14 per share. Reported earnings also deteriorated from the year-ago level of $1.40. The year-over-year decline in earnings was attributable to lower profit.

Inside the Headline Numbers

Total revenue, in the quarter under review, grew 10.6% year over year to $303.7 million. The upswing resulted from strong retail demand for eggs as well as higher average selling prices. 

The largest U.S. producer and distributor of fresh-shell eggs stated that demand for eggs at the retail level remained very strong during the holidays. However, prices came down about 35% in the post-holiday period owing to slower seasonal demand and warmer weather.

Net average selling prices for shell eggs increased 3.3% year over year, and sales of specialty eggs accounted for 23.8% of shell egg revenue in the third quarter and 16.8% of total dozen eggs sold.

Specialty eggs, which have higher selling prices, continued to see improved sales and accounted for 16.8% of total dozens sold compared with 17.5% in the year-ago period.

Gross profit dipped 0.8% from the prior-year quarter to $65.1 million, mainly due to the hike in feed cost. During the quarter, feed cost climbed 11.1% to nearly 45 cents per dozen compared with the third quarter of fiscal 2012, on the back of higher corn and soybean prices. Operating income declined 10.3% year over year to $34.9 million.

Financial Position

Cal-Maine ended the quarter with cash and short-term investment of $225.7 million, long-term debt of $67.5 million and shareholders’ equity of $453.6 million.

Our Take

Jackson, Mississippi-based Cal-Maine engages in production, grading, packaging, marketing and distribution of shell eggs primarily in about 29 states across the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S.

The company has been struggling with slower growth in earnings and margin pressure for some time. While the company turned around in second-quarter 2012, its earnings again lacked luster in the quarter under review. Feed costs continued to hurt the company’s production costs. Management predicts feed costs to remain high and volatile for the rest of the fiscal year. However, revenue growth momentum continued on strong retail demand.

Cal-Maine Foods currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. Cal-Maine faces intense competition from BRF - Brasil Foods S.A. (BRFS - Snapshot Report).

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