CALM's Gross Margin Surges on Favorable Feed Costs: Is It Sustainable?

Core Insights - Cal-Maine Foods, Inc. (CALM) reported a significant increase in gross profit for Q3 of fiscal 2025, reaching $716 million, which is more than three times the profit from the previous year, resulting in a gross margin of 50.5% [1][10] - The increase in gross margin is attributed to higher egg prices and lower feed ingredient costs, particularly for corn and soybean meal, which have seen a decline in prices [1][4][10] Financial Performance - The gross margin for Cal-Maine Foods has shown consistent growth throughout fiscal 2025, increasing from 31% in Q1 to 50.5% in Q3, driven by higher egg prices and reduced feed costs [3] - Farm production costs per dozen eggs decreased by 5.7% year over year, primarily due to favorable pricing for key feed ingredients [2][10] - Feed costs per dozen fell by 9.6% year over year, mainly due to lower soybean meal prices [2] Market Trends - Soybean futures recently rose above $10.65 per bushel, but are still 8.3% lower than the previous year, while corn futures have dropped to around $4.30 per bushel, down 3.55% year over year [4] - The reduction in feed costs is expected to continue benefiting Cal-Maine Foods' gross margin performance, even if egg prices decrease as avian flu risks lessen [4] Strategic Initiatives - Cal-Maine Foods has made strategic acquisitions to further reduce production costs, including the purchase of feed mills and storage facilities, allowing for more efficient internal production and transportation of feed [5] Industry Impact - Tyson Foods and Pilgrim's Pride, which also rely on corn and soybean meal for feed, have benefited from lower feed costs, leading to significant savings in their cost of sales [6][8] - Tyson Foods reported savings of approximately $895 million in fiscal 2024 due to reduced feed costs, with additional savings in fiscal 2025 [7] Valuation and Estimates - Cal-Maine Foods is currently trading at a forward 12-month price/earnings (P/E) ratio of 17.62X, compared to the industry average of 11.45X [11] - The Zacks Consensus Estimate for Cal-Maine Foods' fiscal 2025 earnings is $22.73 per share, indicating a year-over-year increase of 299.5%, while the estimate for fiscal 2026 shows a decline of 74.9% [12]