Jeffrey Bash, et. al., more on MIKL (CALM)
Here's what I'm seeing. MIKL, a large eqg producer also, has a different strategy from CALM. MIKL is transitioning to "value-added egg products" - shelf life liquid eggs, for example. They have an exclusive patent, they say, on the technology used to create this stuff. This is now 40% of their egg business. To get more access to shell eggs, they bought, this year, "Papetti's" for $83M in stock and cash, which "exceeded the fair value of assets by $63M." (They bought this shell egg producer at 4X book looks like.)
CALM is looking for lower earnings next year. This year's had a positive confluence of major factors - strong spot price demand and lower feed costs. Regarding next year, CALM notes the maybe not so favorable factor of El Nino on their raw material costs. According to MIKL, feed costs are 2/3 of egg production costs. (I assume that's of fully burdened cost.)
Some items I am still mulling over: The president of CALM sold a bunch of shares at time of the offering. Coupled with previous poster noting continued insider sales -- I don't like that. However, we're talking about a small (relatively IMO) company here, so I can see some of these farmer? executives trying to diversify. Also, CALM is structured as a family farm for tax purposes. I don't know what that means (other than they have deferred taxes that are affected if there are some changes to family farm status). (Aside: if I buy this stock I become part of a family farm? Hey, I could be part of Jeffrey Bash and maybe James Clarke and other value players' family! That would be an interesting family.)
Regarding competition, I want to think what the affect of having "extended shelf liquid whole eggs" means. When shell egg prices are low MIKL just builds to stock at grocery store distn. centers.?? There's no more spoilage to worry about. (I've seen one version in restaurants where they just pop open a paint-can size container to make their customer orders for omelettes, over mediums, etc. Very smooth, efficienct (saved steps), no disposal of shells). And what about Mexico? Labor costs lower, I assume. Environmental disposal is much easier and less costly I assume too. (And of course, that is a big item with chickens -g-). So where is that Mexican competition. Barriers to entry aren't that great (I've always thought that in the chicken business - which is maybe diff. from egg biz. - that you can do okay with less than 11 chickens or more than 50,000. Anything in between and you go bust.) Shouldn't be a problem for Mexico guys to get a couple of orders from groceries in SW USA and routinely truck the eggs to the USA. (Easy to think, but maybe not so easy to actually do??). And if there is access to extended-life technology, there's not a spoilage problem.
HOWEVER, all that spinning aside, the basic numbers look pretty good. It's a commodity product all right, but CALM can make money when times are good, they look like they're well capitalized and know their business. CALM, at 6+ is roughly 20% over book; a large competitor got taken out recently at 4x -- some indication of what the business could be (MAYBE) worth to an acquirer. Long term, as Jeffrey Bash points out, price of the stock should move up. I like what I see on the CALM numbers. MIKL - that's a different story. Looks way overpriced to me.
Give me some feedback. Paul. |
