Cal-Maine Foods (NASDAQ: CALM) reported Q4 EPS of ($0.51), $0.26 worse than the analyst estimate of ($0.25). Revenue for the quarter came in at $274.6 million versus the consensus estimate of $277.55 million.

These results include a payment of $5.5 million included in other income for the final BP settlement from the Deepwater Horizon oil spill in 2010. The fourth quarter of fiscal 2017 was a 14-week period compared with 13 weeks for the same period in fiscal 2016.

Dolph Baker, chairman, president and chief executive officer of Cal-Maine Foods, Inc., stated, “Our results for the fourth quarter of fiscal 2017 reflect the volatile and challenging egg market fundamentals that have prevailed throughout this fiscal year. While our volumes were up due to the extra week of sales, our average customer selling prices for the fourth quarter of fiscal 2017 were down 15.5 percent from the same period a year ago. For fiscal 2017, average customer selling prices were down 42.0 percent compared with fiscal 2016.

“The egg markets have been affected by increased production levels, as producers repopulated their flocks after the 2015 avian influenza (AI)-related laying hen losses, and the younger, more productive hen population has produced a higher number of eggs. Overall, market demand trends have not kept pace with these production levels. According to Nielsen data, retail customer demand for shell eggs has remained seasonal. However, relatively weak institutional and export demand have placed additional pressure on the egg markets. During the AI-related price spike, institutional egg customers reformulated their products to use fewer eggs, and while egg prices have since come down, these customers have not returned to their previous usage levels. While the USDA reports that egg export demand has improved since the beginning of fiscal 2017, U.S. egg exports are still below the peak levels prior to the AI outbreak. Together, these factors have created an oversupply and market prices have fallen accordingly. We do not expect to see any meaningful improvement until there is a better balance of supply and demand. However, we are encouraged by recent USDA reports indicating the chick hatch has been trending down for the last 10 out of 11 months, suggesting there may be a moderation in the size of the laying hen flock as we move forward.

“Specialty eggs, excluding co-pack sales, accounted for 22.7 percent of our total sales volume for the fourth quarter of fiscal 2017, compared with 23.3 percent for the same period a year ago. Specialty egg revenue was 42.0 percent of total shell egg revenues, compared with 40.2 percent for the fourth quarter of fiscal 2016. The average selling price for specialty eggs, which is typically higher and less volatile than conventional eggs, was down 9.3 percent over the fourth quarter of last year. For the year, specialty eggs accounted for 43.6 percent of total shell egg revenues, compared with 29.1 percent last year, and specialty egg prices were down 12.4 percent compared with fiscal 2016 prices.

“Our specialty egg business has continued to be a primary focus of our growth strategy. We have made significant investments across our operations to meet anticipated demand for cage-free eggs, 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. However, with the recent low prices of conventional eggs and typical seasonal fluctuations, demand trends for cage-free eggs slowed down in the fourth quarter, resulting in a higher supply of specialty eggs. We have adjusted our production levels to meet the demands of our customers who still prefer cage-free eggs, and we are well positioned to serve our customers as demand trends change. 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.”

Baker continued, “In spite of challenging market conditions, we have remained focused on managing our operations in an efficient and responsible manner. We were able to benefit from lower grain costs for the past year due to favorable harvest results. For the fourth quarter of fiscal 2017, our feed costs per dozen were down 3.8 percent compared with a year ago, and our overall farm production costs per dozen were down 1.0 percent over the fourth quarter of fiscal 2016. For the year, feed costs per dozen were down 3.6 percent, while overall farm production costs per dozen were at the same level as the prior year, even with higher capital expenditures for recent conversion and other improvement projects. Looking ahead, we expect to have an adequate supply of our primary feed ingredients in fiscal 2018 while grain prices remain volatile.

“While we faced extraordinary market conditions in fiscal 2017, we continued to demonstrate consistent execution of our growth strategy. We will follow this same direction in the year ahead, and we believe Cal-Maine Foods is well positioned to benefit from improved market conditions. As always, our top priority is to meet the demands of our customers with exceptional service. We will continue to manage our operations efficiently and provide a favorable product mix, including cage-free and other specialty eggs, in line with customer demand. Importantly, our strong balance sheet provides us with the flexibility to pursue acquisitions and additional growth opportunities that add value to our operations. Together, we believe these efforts will reward both our customers and shareholders in fiscal 2018,” Baker concluded.

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