uploads///Cal Maine Foods Revised EPS Estimates

Why Analysts Lowered Cal-Maine’s Earnings Estimates

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Jun. 30 2016, Updated 8:07 a.m. ET

Revised earnings estimates

Cal-Maine Foods’ (CALM) earnings estimates have been revised in the last three months. The earnings expectations don’t look positive for the company. Prior to fiscal 3Q16, analysts were expecting 4Q16 EPS (earnings per share) to be $1.35. Currently, they expect the EPS to be -$0.16.

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What can impact earnings?

Management mentioned during the Stephens Spring Investment Conference that the demand for eggs is less during summer. The demand picks up in the fall. The lower demand for eggs and fluctuating market conditions justify the lower revenue and earnings expectations for the fourth quarter ending July 28. As reported in the most current hatch report issued on May 23 by the U.S. Department of Agriculture, hen inventory was up 2.5 million compared to the same period in 2015. However, it was down 6.2 million compared to 2014. The faster rebound of the laying hen population caused a decline in egg prices. According to Economic Research Service’s forecast, egg prices are expected to fall by 12%–13% in 2016. This caused the estimated revisions to fall too.

Earnings are expected to decline 110% year-over-year. The falling earnings trend is expected to continue to fiscal 2017. The fiscal 2016 EPS estimate was revised to $6.38—a decrease of 17% from the earlier estimate of $7.64.

Expectations for fiscal 2017

Analysts expect declining earnings growth to continue until fiscal 3Q17. The sharp fall in estimates started after the 3Q16 results with the drop in egg prices. Currently, analysts also expect fiscal 2017 EPS to be $2.02—compared to the earlier estimate of $5.46.

Peers’ earnings estimate

Cal-Maine Foods’ peers can expect positive earnings growth in their upcoming quarters, according to Wall Street analysts’ estimates.

  • Hormel Foods’ (HRL) earnings for fiscal 3Q16 are expected to grow by 24%.
  • Tyson Foods’ (TSN) earnings for fiscal 3Q16 are expected to grow by 31%.
  • Pilgrim’s Pride’s (PPC) earnings for fiscal 2Q16 are expected to fall by 28%.

To invest in these stocks, you can consider the PowerShares Dynamic Food & Beverage ETF (PBJ). It invests 4.9% in Tyson, 5% in Hormel, and 2.5% in Cal-Maine. The iShares Morningstar Mid Value ETF (JKI) invests 1.3% in Tyson Foods.

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