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One of the basic concepts from Macro Economics classes is the theory of supply and demand. And as the theory shows, when supply outpaces demand, the producer tends to be the big loser in the equation. This is what happened to our Zacks Bear of the Day, Cal-Maine Foods (CALM - Free Report) , who saw higher production levels while demand trends faltered.
This Zacks Rank #5 (Strong Sell) company is engaged in the production, cleaning, grading, and packaging of fresh shell eggs for sale to shell egg retailers. The company is the one of the largest producers and distributors of fresh shell eggs in the United States. The company markets its eggs primarily in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States.
Recent Earnings Data
In late November, CALM posted Q2 17 earnings results where they posted their third consecutive negative earnings EPS, and missed the Zacks consensus revenue estimate for the second consecutive quarter. Specifically, on a year over year basis, the company saw declines in Net sales -53.6%, Gross profit -98.1%, average customer selling prices -50.7%, and Net income was down to -$23,010 compared to +$109,230. Further, cash and short-term investments fell by -49.2% when compared to the year earlier quarter.
Management’s Take
Dolph Baker, Chairman and CEO commented on the poor quarter stating, “Our results for the second quarter of fiscal 2017 reflect extremely challenging market fundamentals in the egg industry. Following the 2015 avian influenza (AI)-related laying hen losses, USDA data shows the egg industry has repopulated farms with laying hen numbers beginning to approach pre-AI levels. However, market demand trends have not kept pace with the higher production levels. While retail customer demand has been steady, egg export demand has not fully recovered following the aftermath of the AI outbreak. We have also experienced reduced demand for egg products, as many commercial customers reformulated their products to use fewer eggs when prices spiked, and have been slow to resume previous egg usage. Together, these factors have created an oversupply of eggs, and prices have fallen dramatically from the record high levels last year. For the second quarter of fiscal 2017, our average customer selling prices were down 50.7 percent from the same period of fiscal 2016. While the egg market has been in oversupply, recent USDA reports show the chick hatch has been down for three consecutive months over prior-year levels, so we expect to see a moderation in the size of the laying hen flock.”
Price and Consensus Graph
As you can see below, the company’s stock price has fallen for most of 2016, and future expectations are well below the current stock price.
Due to decreased sales, and increased farm production costs estimates earnings estimates for Q3 17, Q4 17, FY 17 and FY 18 have all seen large declines over the past 30 days; Q3 17 fell from $0.57 to $0.08, Q4 17 dropped from $0.54 to $0.12, FY 17 plummeted from $0.45 to -$0.92, and FY 18 declined from $2.45 to $1.95.
Bottom Line
With the overall demand for eggs declining and higher production levels continuing, the remainder of FY 2017 will be very difficult for the company. While management expects these supply and demand issues to be resolved, it will take a quarter or two to see these positive results.
Overall, of the companies within the Agriculture products sector, non-currently have a Zacks Rank #1 or #2 (Strong Buy, Buy) rating. All the members all have a Hold or Sell rating. Therefore, it would be best to look into another sector for an investment opportunity.
More Stocks to Sell. Now.
Beyond our Bear Stock of the Day, today's list of 220 Zacks Rank #5 Strong Sells demand even more urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. Many appear to be sound investments but, since 1988, such stocks have actually performed more than 11X worse than the S&P 500. See today's Zacks "Strong Sells" absolutely free >>.
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Bear of the Day: Cal-Maine Foods (CALM)
One of the basic concepts from Macro Economics classes is the theory of supply and demand. And as the theory shows, when supply outpaces demand, the producer tends to be the big loser in the equation. This is what happened to our Zacks Bear of the Day, Cal-Maine Foods (CALM - Free Report) , who saw higher production levels while demand trends faltered.
This Zacks Rank #5 (Strong Sell) company is engaged in the production, cleaning, grading, and packaging of fresh shell eggs for sale to shell egg retailers. The company is the one of the largest producers and distributors of fresh shell eggs in the United States. The company markets its eggs primarily in the southwestern, southeastern, mid-western and mid-Atlantic regions of the United States.
Recent Earnings Data
In late November, CALM posted Q2 17 earnings results where they posted their third consecutive negative earnings EPS, and missed the Zacks consensus revenue estimate for the second consecutive quarter. Specifically, on a year over year basis, the company saw declines in Net sales -53.6%, Gross profit -98.1%, average customer selling prices -50.7%, and Net income was down to -$23,010 compared to +$109,230. Further, cash and short-term investments fell by -49.2% when compared to the year earlier quarter.
Management’s Take
Dolph Baker, Chairman and CEO commented on the poor quarter stating, “Our results for the second quarter of fiscal 2017 reflect extremely challenging market fundamentals in the egg industry. Following the 2015 avian influenza (AI)-related laying hen losses, USDA data shows the egg industry has repopulated farms with laying hen numbers beginning to approach pre-AI levels. However, market demand trends have not kept pace with the higher production levels. While retail customer demand has been steady, egg export demand has not fully recovered following the aftermath of the AI outbreak. We have also experienced reduced demand for egg products, as many commercial customers reformulated their products to use fewer eggs when prices spiked, and have been slow to resume previous egg usage. Together, these factors have created an oversupply of eggs, and prices have fallen dramatically from the record high levels last year. For the second quarter of fiscal 2017, our average customer selling prices were down 50.7 percent from the same period of fiscal 2016. While the egg market has been in oversupply, recent USDA reports show the chick hatch has been down for three consecutive months over prior-year levels, so we expect to see a moderation in the size of the laying hen flock.”
Price and Consensus Graph
As you can see below, the company’s stock price has fallen for most of 2016, and future expectations are well below the current stock price.
CAL-MAINE FOODS Price and Consensus
CAL-MAINE FOODS Price and Consensus | CAL-MAINE FOODS Quote
Declining Estimates
Due to decreased sales, and increased farm production costs estimates earnings estimates for Q3 17, Q4 17, FY 17 and FY 18 have all seen large declines over the past 30 days; Q3 17 fell from $0.57 to $0.08, Q4 17 dropped from $0.54 to $0.12, FY 17 plummeted from $0.45 to -$0.92, and FY 18 declined from $2.45 to $1.95.
Bottom Line
With the overall demand for eggs declining and higher production levels continuing, the remainder of FY 2017 will be very difficult for the company. While management expects these supply and demand issues to be resolved, it will take a quarter or two to see these positive results.
Overall, of the companies within the Agriculture products sector, non-currently have a Zacks Rank #1 or #2 (Strong Buy, Buy) rating. All the members all have a Hold or Sell rating. Therefore, it would be best to look into another sector for an investment opportunity.
More Stocks to Sell. Now.
Beyond our Bear Stock of the Day, today's list of 220 Zacks Rank #5 Strong Sells demand even more urgent attention. If any are lurking in your portfolio or Watch List, they should be removed immediately. Many appear to be sound investments but, since 1988, such stocks have actually performed more than 11X worse than the S&P 500. See today's Zacks "Strong Sells" absolutely free >>.