Cal-Maine Foods Inc (NASDAQ:CALM) Halts Dividend Payment, Price Target Cut

Cal-Maine Inc (NASDAQ:CALM) has suspended quarterly dividends after an atrocious F1Q2017. The company said it will not pay a dividend for F4Q2016 and F1Q2017 even as it posted a wider loss than analysts expected.

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Cal-Maine will not resume its dividend payment until its EPS loss of $0.65 is recouped. If that is the case, analysts estimate that a return to paying dividends might only occur in F2018.

Cal-Maine’s posted EPS loss of $0.64 for F1Q, though analysts on the average were looking for EPS loss of $0.33 for the quarter. At D.A. Davidson, where Cal-Maine’s price target has been cut to $35 from $37, the analysts were looking for EPS loss of $0.45.

As for the top line, Cal-Maine generated revenue of $239.8 million in F1Q, down 60.7% YoY and below the consensus estimate that called for revenue of $275 million for the quarter.

Demand supply mismatch

The challenge for Cal-Maine stems from the egg supply-demand imbalance. While egg production is near an all-time high, institutional demand for eggs has plummeted. Though there still remains strong retail demand because of low egg prices, retail sales aren’t enough to sustain top line growth or a return to profits.

Institutional buyers give eggs a wide berth

One of the factors analysts cite as rattling Cal-Maine is that many institutional buyers moved to reduce their egg usage or adopted egg substitutes when prices of eggs were high. The prolonged absence of large egg buyers and the high production rates have combined to weaken overall demand and lower prices.

According to CEO Dolph Baker, the shell egg market is disappointing and prices are significantly lower. He said that the average customer selling price eased 58% from the record high levels that they experienced a year ago.

Cal-Maine stock eased 0.7% to $40.80 in the last session. The stock is down 12% YTD and down more than 29% over the last one year.

D.A. Davidson has an Underperform rating on Cal-Maine.

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