What happened

Shares of Cal-Maine Foods (CALM -0.91%) were down by 8% through 10:51 a.m. Wednesday after America's largest producer of chicken eggs reported a huge earnings miss Tuesday night.

Ahead of the report for its fiscal Q1 2024, which ended Sept. 2, analysts had forecast that Cal-Maine would earn $0.33 per share on $479.5 million in sales. Not only did the company miss that sales target, reporting only $459.3 million, its earnings were the merest fraction of what Wall Street had forecast -- just $0.02 per share.  

So what

Needless to say, this came as quite a surprise to investors. After all, as Cal-Maine itself admitted, feed costs for the company's chickens are declining, and "customer demand has been favorable" as conventional egg prices have generally fallen as chicken populations have rebounded in the wake of the most recent bird flu outbreak. What's more, Cal-Maine has raised the average prices of its specialty eggs (organic, cage-free, grass-fed, etc.) by more than 8% since the year-ago quarter -- all of which should have added up to robust profits.  

Unfortunately, as Cal-Maine explained, its total input costs are still growing, while high specialty egg prices may have put off some customers, resulting in lower sales of those higher-margin products. Higher sales volumes for its "conventional" eggs weren't enough to offset the lower revenue from lower prices on those eggs -- all of which resulted in Cal-Maine laying something of an egg, itself, this quarter.

Now what

Management gave no specific guidance as to what future sales or profits might look like -- although what it did say was worrisome, citing "ongoing challenges related to the threat of [bird flu] and inflationary headwinds," and a need to control costs. And in that regard, management noted that its feed costs remain uncertain with soybean supplies "tight" and the potential for volatility in corn prices.

To offset these costs, management is continuing to emphasize production of higher-margin specialty eggs, for example, by building more cage-free facilities. As management pointed out, in its fiscal Q1, the company sold roughly half as many specialty eggs as conventional eggs, but those specialty eggs commanded an 84% price premium per dozen. With feed prices roughly the same for both types of eggs, it makes sense to focus on the higher-margin product.

That being said, Q1 has reminded us that just doing the logical thing to earn more profits doesn't guarantee that profits will grow -- especially in comparison to an abnormally profitable period such as Cal-Maine has enjoyed recently. While Cal-Maine stock looks like an incredible bargain, trading at a price-to-earnings ratio of 3.4 right now, if egg prices continue to fall, it might not be one at all.

Buy too soon, in fact, and it might turn out to be a value trap.