Cal-Maine Foods (NASDAQ: CALM) reported Q2 EPS of ($0.48), in-line with the analyst estimate of ($0.48). Revenue for the quarter came in at $253.5 million versus the consensus estimate of $262.83 million.

Will not pay a dividend for the second quarter of fiscal 2017.

Dolph Baker, chairman, president and chief executive officer of Cal-Maine Foods, Inc., stated, “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. Egg prices have also risen sharply since the end of our second quarter.

“Specialty eggs, excluding co-pack sales, accounted for 22.4 percent of our total sales volume for the second quarter of fiscal 2017, the same level as the previous-year period. Specialty eggs revenue was 45.8 percent of total revenues, compared with 26.1 percent for the second quarter of fiscal 2016. Specialty egg prices have typically been less volatile than conventional eggs, which proved to be the case in the second quarter, as the average selling price for specialty eggs was down 13.2 percent over the second quarter of last year, while the average selling price for non-specialty eggs was down 64.9 percent over the prior-year period.

“We remain focused on expanding our specialty egg business, especially cage-free eggs. We have made significant investments across our operations to meet anticipated demand, as food service providers, national restaurant chains and major retailers, including our largest customers, have stated objectives to exclusively offer cage-free eggs by future specified dates. While we expect this multi-year conversion will be a disruption for our industry, we believe it provides an opportunity for Cal-Maine Foods, and we are working closely with our customers to achieve a smooth transition. Our latest joint venture to produce cage-free eggs with Rose Acre Farms in Texas is on schedule to reach our full expected capacity in early calendar 2017. In addition to cage-free eggs, our product mix provides a wide variety of healthy choices for consumers including conventional, nutritionally enhanced and organic eggs.

“In spite of challenging market conditions, we continued to manage our operations in an efficient and responsible manner. Our feed costs per dozen were down 7.7 percent compared with a year ago. Our overall farm production costs were slightly lower than the second quarter of fiscal 2016, even with higher capital expenditures for conversion and other improvement projects.

“During the second quarter, we were pleased to complete the acquisition of the assets of Foodonics International, Inc. and its related entities doing business as Dixie Egg Company, relating to their commercial production, processing, distribution and sale of shell eggs business. The additional production capacity and the inclusion of the Egg-Land’s Best, Inc. franchise with licensing rights for portions of certain markets in Alabama, Florida and Georgia, as well as Puerto Rico, Bahamas and Cuba, further advances our strategy to grow our business through selective acquisitions. We have a strong balance sheet, and we continue to look for opportunities to make additional acquisitions that meet our criteria. As always, we are focused on delivering greater value to our shareholders in fiscal 2017,” added Baker.

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