What’s Cal-Maine’s growth strategy?
Cal-Maine Foods (CALM) has a track record of identifying and completing strategic acquisitions in the past. Pursuing acquisition opportunities is part of its growth strategy. It does this by extending its capability to identify, implement, and integrate additional operations and hence improve margins. Cal-Maine intends to develop capabilities in existing markets and to expand its geographic reach by improving its national presence and strengthening customer relationships.
Update on the joint venture
Management mentioned in the 3Q16 press release they’re happy with how the progress of the venture with Rose Acre Farms in Texas is shaping up. This joint venture allowed Cal-Maine to significantly expand its production of cage-free eggs while sharing the costs and risks with an experienced partner.
As part of this deal, the initial flock was placed in early November. They’re also on schedule for continued placements until they reach their full expected capacity at the beginning of fiscal 2017.
Cal-Maine has some major capital projects in hand across its operations to develop its cage-free capacity. It expects to meet customer demand and reduce the dependence on spot market purchases through this strategy. The company expects new market opportunities from these projects.
Strategy to enhance production capacity and efficiency
Consistent with its growth strategy, Cal-Maine has over $167 million in capital projects underway. Projects in Texas, Arkansas, Kansas, and Kentucky are expected to increase the cage-free and organic capacity. Projects in Florida, Texas, and Georgia are projected to improve the non-specialty capacity. A project in Utah is estimated to increase California’s capacity up to 620,000 hens with a net 345,000 additional hens. This will ultimately be an addition of 2 million more hens to the fiscal year end numbers.
Cal-Maine Foods’ peers in the industry include Pilgrim’s Pride (PPC), Hormel Foods (HRL), and Tyson Foods (TSN). They reported respective net margins of 3.2%, 10.2%, and 5.0% for their recent reported quarters. The iShares Morningstar Mid Value ETF (JKI) and the Fidelity MSCI Consumer Staples Index ETF (FSTA) both in total invest ~2% of their holdings in Hormel stock.