Why Cal-Maine Shares Cracked


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Cal-Maine Foods plunged 10% today after the egg producer's quarterly profit easily missed Wall Street expectations.

So what: Cal-Maine's second-quarter revenue jumped 9.1% on higher selling prices, but a big miss on the bottom line -- EPS of $0.60 versus the consensus of $0.90 -- reinforces concerns over spiking feed costs. In fact, gross margins fell to 15.6% from 21.2% in the year-ago period, forcing analysts to lower their valuation estimates.

Now what: Unfortunately, management expects feed costs to remain high and volatile for the remainder of the year. "While we note these market dynamics for Cal-Maine Foods and our industry, we remain focused on executing our strategy to be an efficient low-cost producer," CEO Dolph Baker reassured investors in a statement. So while high input costs will continue to pressure margins in the short term, Cal-Maine's scale advantages, coupled with the increasing demand for specialty eggs, make today's pullback a tasty long-term opportunity.

Interested in more info on Cal-Maine?Add it to your watchlist.

The article Why Cal-Maine Shares Cracked originally appeared on Fool.com.

Fool contributor Brian Pacampara and The Motley Fool have no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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