Cal-Maine Foods Is Poised For Growth And Income

| About: Cal-Maine Foods, (CALM)
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Increasing commodity prices and growing demand from the emerging markets are sending food prices sky high. The summer drought decimated corn yields and has already impacted the cost of feed. This is seen in the amount of livestock being sent to market sooner than normal due to elevated the cost of feeding. While food prices hit consumers around the world, what companies are benefiting from this boom? Surprisingly, this egg producer just produced outstanding sales and profits during a very challenging environment for food producers.

Cal-Maine Foods' (NASDAQ:CALM) fiscal first-quarter earnings more than tripled as the U.S. egg producer and distributor saw its margins widen and revenue pop, buoyed by a double-digit rise in average selling prices.

Cal-Maine Foods just reported a 12% increase in sales and a 200% increase in net income in its first quarter fiscal year 2013 results compared to the same quarter one year earlier. The increase in sales was related to an increase in the price of eggs as total volume was flat. However, specialty egg (such as nutritionally enhanced, organic and cage free) sales have continued to trend higher and represented over 16.1 percent of dozens sold and 23.5 percent of total shell egg sales revenue for the quarter.

The higher cost of feed was offset with a focused increase in operating efficiency as well as the higher price for eggs. This is important as the damage to the national corn and grain crops caused by the extreme summer drought conditions will likely keep feed costs near record high levels in fiscal 2013.

This is impressive considering this is the company's most challenging quarter each year. For the first quarter of fiscal 2013, net sales were $272.9 million, compared with net sales of$243.8 million for the first quarter of fiscal 2012. The company reported net income of$9.4 million, or $0.39 per basic and diluted share, for the first quarter of fiscal 2013 compared with net income of $3.1 million, or $0.13 per basic and diluted share, for the year-earlier period.

Current market conditions are favorable with strong retail demand for eggs, especially as we head into the busy holiday season. Cal-Maine Foods is poised for future growth through its acquisition of new egg production facilities. As previously announced on July 18, 2012, the company acquired the egg production assets of Pilgrim's Pride Corporation, adding two additional production complexes with capacity for approximately 1.4 million laying hens located near Pittsburg, Texas.

For the first quarter of fiscal 2013, Cal-Maine Foods will pay a cash dividend of approximately $0.13 per share to holders of its common stock. The dividend is payable November 15, 2012, to shareholders of record on October 31, 2012. Cal-Maine Foods has a current dividend yield of 3.13% which has been increased 57% in the last year. Cal-Maine Foods has a 5-year average dividend growth of 93%.

Cal-Maine Foods is trading at what the market considers to be a poor operating environment for food stocks due to perceived increase in food inflation. The company has a current PE ratio of 10 and a price to sales ratio of 0.90. As Cal-Maine Foods exceeds earnings expectations over the coming month, the stock should see an increase in PE multiple resulting in an increase in stock price.

Cal-Maine Foods is projected to increase earnings by 15% in fiscal year 2013. First Call analysts have a buy recommendation with a rating of 2.0. The 12-month price target is $50 based on FY 2013 earnings of $3.04 and FY 2014 earnings of $3.23.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.