Who could have guessed corn at 3.80. Huge tailwind going forward. Congrats Bogis
--“secular bull market in protein” --
Eggs and chicken are the “gateway” proteins to emerging markets
They are the low cost super foods that will feed the growing global middle class… and the healthy choice as well. They will always be cheaper compared to other proteins because chickens have a cost advantage in that they convert feed into eggs and chicken pounds more efficiently, much more in the case of beef.
Beef convert 6-7 lbs of feed into 1 lb of meat. Hogs about 3.5 … chickens about 2 and eggs about 3. But with eggs the chicken is not terminal as the hens lay for one to two years.
Both corn and soybeans down huge. This will flow into P&L mostly in Q2 and forward. Since feed is a larger component of specialty eggs margins will be even larger there as prices don't fluctuate on the non-commodity product.
I believe very strongly in the secular bull market in protein driven by appetite for protein from BRIKS and other emerging middle classes globally..Think when the global oil price doubled its historical trading range from 20-40 quickly to 60-80. It is my belief the same is going on in the protein complex
Delta Egg is the only recent acquisition that was not reflected in Q3 … they’ve got 1.2m generic egg producing hens and 400k organic egg producing hens … CALM already owned half of that operation … the bigger impact will be the expansion at Delta’s Chase Ks organic operation.
Michaels recently sold at 50 times 2013 EPS and 2013 was a very good year for MIKL … based on their Q1 they won’t repeat a $50m profit year this year…. So when a purchase doesn’t make sense from a profit standpoint … the buyer has to quote EBITDA … Apply HSH’s EBITDA multiple to CALM and you get a price that the Adams family would have a hard time saying no to … in the end it’s up to them and doubt they would even consider anything less than $100.
Interesting analysis..agree on all points and management seems very good at running the ship here..
Question does Calm not get a huge boost from closed acquisitions over next 2 quarters?
I personally think someone will buy them its just to attractive given EPS multiple at 13x eps current year ( assumes they make 5.50 in 2015) for a PPC Hormel or even a Kellogs to add an accretive acquisition..
-- will ppc come callg? --
would be ironic considering PPC sold CALM a million laying hens a year or two back ... PPC would NOT get CALM at a price any where close to what they sold for on a price per bird basis.
$1.45 for Q4 EPS is very much in the realm of possibility … A strong Q4 would be an indication CALM’s pricing for generics is back to prior year norms and that Q3 was just flukishly weak … up until 2003 a profitable Q1 was a rarity for CALM … not anymore … CALM will not however make $1.50 for Q1 … maybe Q2 … not Q1 … but the future is bright for CALM
- Per capita egg consumption is on the rise
- CALM is in the process of replacing some of their low profit purchased eggs with very high margin produced eggs.
- With the thought of CA Prop 2 type legislation potentially hitting all of U.S. producers over the next decade or two …. Only the strong balance sheets will survive and they don’t get stronger than CALM
- Retail egg prices compare very favorably to competing proteins … beef … pork.
- Chicken and eggs are just better for people … fifty years from now people will look back on bacon consumption like we look back on cigarettes in the 50’s
With today’s prices paid to acquire food producers … CALM will be hard pressed to find the bargains they have in the past... future growth will be more “organic”
On a year over year basis it appears corn grain prices dropped 34.3% and Soybean prices were down 6.1%. In addition USDA Egg prices by the dozen rose to $ 1.23 vs $ 1.04. This excludes the huge rise in production on a year over basis and the rise in prices for specialty eggs and volumes. Back of envelope says we kill yr/yr number obviously and even with a seasonally weaker quarter should come in close to $ 1.45. This will lead to raised estimates for May 2015 way above $ 5.15 current number. The first quarter looks extremely promising as feed costs for both corn grain and soybeans will be far lower than prior year and egg prices at least 25%++ over prior year quarter. I think Q1 has the chance to blow through $ 1.50 versus estimate of $ 0.79 cents. The pricing comparisons could not be better aligned for a giant Q1 and very strong Q2.
Poultry production whether for eggs or meat is a 24/7 business where management must be on their toes nonstop. That is different from plant based products which allow management more sleep. The issue is disease prevention and outbreaks are horrific, particularly for rapid spreading diseases like Infectious Lyringo tracheitis, Newcasltle Disease etc. Such outbreaks can necessitate destroying entire flocks of chickens. Salmonella control also keeps management on pins and needles.
Point of above:
I very much doubt grain based companies are not sufficiently tuned in the the acute needs of this type of business. That is why animal science base industries are more likely have an interest in CALM. In fact, the most likely buyer would be China because China has a ghastly reputation for poultry industry management and would benefit tremendously from the education CALM management could provide. There was a China poultry company listed on the market here in USA with ticker YUII which is a good example of a management nightmare, typical of China poultry. I do not know if it is still listed.
Maybe ConAgra CAG or another animal protein grower but not cereal company although CALM would be a great diversification for K or GIS.
Note: CAG is really cheap right now relative to the market.
you probably already know this but in case you don't. the sale price of specialty eggs does not change with the UB quote for commodity eggs. If the sale price of commodity eggs is higher than the sale price of specialty eggs that could account for the "gap" per dozen when comparing price per dz. sold.
Michaels (MIKL) is a good example of how hard it is to make money on outside egg purchases, especially when prices are high. MIKL made only $1.7 million on $474 million sales for their last Q ended March 31. That’s a whopping .36% …. POINT 3 6 %! Compared to CALM who made $43 million on $395 million sales for a very respectable 11% return on sales margin for their Q3. This when the industry is enjoying near record egg and product prices.
MIKL was having to buy breakers and liquid egg at very very high prices and was not able to pass those costs onto their customers. Egg Whites were in very high demand and prices near record highs, yet MIKL total revenue was less for March Q 2014 than March 2013.
Most eggs and egg product sold to CALM, MIKL and other large egg companies are sold based on Urner Barry pricing (UB). UB prices nest run and breakers too high IMO. If CALM and MIKL can’t make money on those eggs they have to add capacity which hurts everyone, because now there are too many hens and all prices go down and the guy who used to sell to CALM has no place for his eggs and dumps them for low prices. UB is not helping in this situation. So how would you like to be CALM’s supplier, making the same type of $$’s per dozen as CALM makes while CALM manages REAL customers. AND watching CALM build new houses to replace you. Not good to have your competitor be a good customer.
The value in an egg company is its company owned hens … they make the best margins … even if you “add value” like MIKL … MIKL states it as well in their 10Q … which is why I often say if MIKL is worth $2.5B then CALM is worth $3B.
Like most Ag companies you have to make hay while the sun shines, which CALM is doing, while MIKL … I don’t know what they’re making …
Is CALM not a a favorable comparison in size to Michaels who was bought by Post for $ 2.6 B? Difference being Michaels buys 75% of its eggs and produces 25% the exact opposite to CALM...Placing same metric on CALM which should deserve a lot more, would equate to a share target of $ 109