Don't Miss This Dividend Paying Stock
Himanshu is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
A company which comes out of a difficult situation smoothly is one to take note of. Recently, the biggest problem in the food industry has been increasing commodity costs. The drought conditions in U.S. have been a major concern for many companies, especially the ones who largely depend on crops for their animal feeding.
Cal-Maine Foods (NASDAQ: CALM), one of the largest producer of shell eggs in the United States, had been facing similar concerns as the drought was making its feed costs very expensive, taking a toll on its earnings and margins. Nonetheless, the company has managed as reflected in its recent quarter which overwhelmed investors, sending its stock price north.
Performance It Is!
Higher demand coupled with higher product prices drove Cal-Maine’s revenue 12% north to $272.9 million. The company’s cost cutting strategies and moves to attain efficiency pushed earnings per share higher, a whopping increase of 200% to 39 cents per share.
On the other hand, meat company Tyson Foods (NYSE: TSN) could not manage the situation efficiently, resulting in depressing third quarter results. Its initiative of fighting the problem by increasing product prices proved to be even more taxing as customers flew to cheaper options. This resulted in a profit drop of 49% in the meat segment.
Even Smithfield Foods (NYSE: SFD) is in the same problematic situation where rising costs are shrinking its margins. In fact, it had witnessed a 30% drop in its profits which made the company restructure its pork business. A restructuring of the business might help the company to cut down on its costs, bringing some relief to its margins.
For Cal-Maine, the biggest driver was its specialty eggs segment which has been delivering great results each quarter. Growing demand for the highly nutritious organic eggs, which gives a higher margin because of its premium price, has been a performance booster for the company. With a contribution of 23.5% of total revenue, specialty eggs is expected to go a long way to have a much higher contribution both in terms of volumes and the sales value. Hence, the egg provider is planning to expand this segment going forward.
Road Ahead…
Cal-Maine is not only expanding its specialty shell eggs segment but is also eying an overall expansion in the Texas region. It has recently announced its plan to acquire Pilgrim’s Pride’s two egg production facilities. This move will expand its capacity in a big way since the facilities have a capacity of 1.4 million laying hens.
This buyout looks like an interesting move since the provider of shell eggs is expecting higher demand in the months to come. The potential increase in demand is expected because of the Thanksgiving period and the peak holiday season.
Final Thoughts
Cal-Maine is looking attractive because of its efforts to shine amidst the prevailing conditions. Its widening gross margins are quite attractive, especially when most of the companies are finding it difficult to keep it in green. The company has also announced a quarterly dividend of 13 cents per share which has made the investors happier.
Moreover, Cal-Maine has been a great performer when it comes to giving return to its investors in terms of its stock price. Its stock price has increased 41% in the last one year which makes it even more attractive. With a growing specialty eggs segment, expansionary efforts and a great season ahead this company looks increasingly attractive.
justhimanshu has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
