^{Source: Los Angeles Times}

Investigation and Falling Shares: Cal-Maine's Price Surge Under the Microscope

Shares of Cal-Maine Foods, the largest egg producer in the U.S., took a sharp dive in after-hours trading on Tuesday after the company disclosed that it is currently under investigation by the U.S. Department of Justice's Antitrust Division. The investigation centers on recent egg price hikes, which have prompted heightened concerns over market manipulation.

The company, based in Ridgeland, Mississippi, confirmed receiving notice of the investigation last month and emphasized its full cooperation. The news led to a more than 4% drop in Cal-Maine’s stock value during after-hours trading.

Egg Price Surge: Factors Driving Record Highs

Egg prices in the U.S. have surged to unprecedented levels in recent months, a direct result of a devastating bird flu epidemic that has forced the culling of over 166 million birds, primarily egg-laying hens. This severe disruption to supply chains has sent egg prices skyrocketing, prompting both consumer concern and government scrutiny.

In February, the average cost for a dozen Grade A eggs soared to $5.90—a 10.4% increase compared to the previous year. This marked an all-time high, surpassing the previous record of $4.95 set in January. This surge in prices has placed significant attention on Cal-Maine, which is responsible for producing around 20% of all eggs consumed in the U.S.

Cal-Maine’s Financial Performance Amid Price Hikes

Despite the scrutiny, Cal-Maine's financial performance has been buoyed by the record prices. In its latest earnings report for the fiscal third quarter ending March 1, the company reported a staggering $1.42 billion in sales—almost double that of the same period last year. The significant revenue boost was largely attributed to the higher average prices, which climbed to $4.06 per dozen during the quarter, up from $2.25 per dozen in 2022.

However, the company's sales figure fell short of Wall Street expectations, which had pegged it at $1.43 billion, according to FactSet analysts. Despite this, the company's net income more than tripled to $508.5 million, marking a substantial year-over-year increase. This translated to a profit of $10.38 per share, although it still missed analysts' forecast of $10.72 per share.

Record Egg Sales Amid Challenges

In the face of these challenges, Cal-Maine reported selling a record 331.4 million dozen eggs during the quarter, a 10% increase compared to the same period last year. This highlights the company’s ability to scale up production despite the ongoing disruption caused by the bird flu crisis.

The company also noted progress in mitigating the negative effects of the bird flu outbreak. Measures such as increasing the number of layer hens and the number of chicks hatched have helped improve supply. Additionally, Cal-Maine has worked to recover from the flu-related shutdown of its facilities in Texas and Kansas, which had previously impacted production.

Rising Costs and Future Outlook

Cal-Maine also reported that its feed costs had decreased during the quarter, which provided some relief amid the higher egg prices. However, concerns remain about the ongoing impact of the bird flu and the investigation into its pricing practices.

While the company is optimistic about its ability to recover and grow, analysts remain cautious, noting that the future of the egg market will depend heavily on both external factors like the bird flu and internal factors like Cal-Maine’s ability to weather the regulatory storm surrounding its pricing strategy.

Looking Ahead: Regulatory and Market Impact

The investigation by the Department of Justice is just the latest challenge for Cal-Maine, which faces not only regulatory scrutiny but also the potential for changes in market conditions. With egg prices at record highs, both consumers and government officials are watching closely to ensure that the price hikes are driven by market forces and not by monopolistic behavior or price-fixing.

The outcome of this investigation could have broader implications for the food industry, particularly in areas where price manipulation concerns have already been raised, such as meat and dairy markets.

As the U.S. government continues to scrutinize the egg giant's practices, Cal-Maine Foods must navigate both economic and regulatory hurdles in the coming months. The next few quarters will be critical in determining how the company adjusts to the pressure of rising prices, competition, and potential legal challenges.

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