The humble egg turned into a barometer of food inflation last year for consumers nationwide. Now egg prices are rising again and beef prices are eyeing fresh records.
The culprit? Another outbreak of bird flu. Since 2022, the H5N1 type of bird flu virus has been found in 92 million poultry birds and has even spread to 58 dairy herds. As a result, farmers have been forced to conduct widespread culls. That, in turn, has crimped supplies and pushed up prices.
The suppliers of eggs and meat to U.S. tables have faced price shocks of their own, due to the avian flu, record inflation and other factors. Some are faring far better than others as they navigate still-challenging markets.
An earnings boom lifted shares of Vital Farms and Pilgrim's Pride in the past year. But Cal-Maine, Tyson Foods and Hormel Foods face greater challenges, with key markets they serve taking longer to recover.
Volatile 'Commodity-Like' Food Stocks
Theirs is a very volatile industry. Egg, poultry and meat producers in the food industry are exposed to volatile commodity and selling prices from supply-demand dynamics, which translates to volatility in earnings and share prices.
"Especially compared with a typical consumer packaged food company, profits swing wildly year to year," said Morningstar analyst Kristoffer Inton. He does not see that as a bad thing for investors.
"Those swings downward can also create opportunity," Inton said. He added a savvy investor would be on the lookout for these dislocations and anticipate "normalizing action" because headwinds don't stick around forever.
A case in point: Pilgrim's Pride stock. It jumped 59% in the past year as a chicken glut eased. Tyson could enjoy big upside next as it gets past current hurdles and starts to see the eventual beef recovery, Inton said.
The sizable growth numbers sported by some of these "commodity-like stocks" would impress even a technology investor, Inton said. That may help to explain their sustained appeal despite extremely difficult markets and in the midst of the exuberance about AI.
As of Wednesday, the Food-Meat Products group, which includes Pilgrim's, Tysons and Vital, showed a 20.5% year-to date gain. That's almost double the S&P 500's 11.6% advance.
Vital Farms Stock: Winner Despite Premium Egg Prices
Vital Farms, which went public in July 2020, stands out within the meat food group. Shares have rocketed as investors digest sustained sales momentum and margin improvement.
Vital Farms stock is sitting on a steep four-month advance, up 177% for the year through Wednesday, and breaking through record highs set in August 2020.
The Austin-based company provides premium-branded, pasture-raised eggs and butter. The welter of terms such as cage-free eggs, pasture-raised eggs, free-range eggs and organic eggs can be confusing and even controversial. But mid- to upper-level consumers — those least stressed by recent inflation trends — tend to know precisely what they want.
Vital Farms reported avian flu incidents in 2022 and 2023. Despite those hits, the company says its network of 300 family farms tends to reduce disruptions to its egg supply and operations.
Premium Eggs Net Earnings Premium
Vital Farms earnings exploded 1,867% in 2023 as sales climbed 30%, FactSet shows. On May 9, Vital Farms hiked 2024 guidance after smashing earnings estimates for the first quarter. It delivered EPS of 43 cents vs. 21 expected.
"Vital Farms presents a compelling and robust growth opportunity for investors through its participation in the fast-growing specialty egg category," Stifel analyst Matthew Smith wrote in a May 13 note after meeting with management.
More than half of America's 131.4 million households already buy premium eggs, and 32,000 retailers stock premium eggs, the Stifel note said. Currently, Vital's penetration stands at 33% of its 34 million household target and 75% of the retailers. The brand shows up in a range of grocery chains including Whole Foods, Kroger, Food Lion, Giant, Harris Teeter, Target and others.
So Smith sees a "long runway of growth" for the company. His note also highlighted the "potential to expand into premium value-added egg and dairy adjacencies."
On the Amazon website, Vital sells its "ethically produced" pasture-raised eggs for $7.29 a dozen and organic eggs for $9.29 per dozen. That compares with competitor pricing of roughly $5-$8.
Growth is slowing at high levels. Analysts forecast Vital Farm's profits will grow 50% in 2024 and a further 21% in 2025. They project revenue growth of 22% and 17% over the two years.
Cal-Maine Navigates Food Inflation, Bird Flu
By comparison, Cal-Maine faces sharp earnings and sales declines this year and next. The company blamed a 30% revenue decline in the February-end quarter on lower egg prices vs. a year ago, saying demand remains strong. It also disclosed in April that it lost 1.6 million hens to the avian flu.
Amid stubborn inflation, consumers look at eggs as an "affordable protein option," management said.
The average price of eggs — a U.S. breakfast staple — is pushing $3 per dozen as of April, a nearly 47% gain since last August. It's far lower than the $4.82 peak in January 2023 that frustrated shoppers, though nearly double the pre-pandemic prices of around $1.50.
Cal-Maine stock is shaping a cup base, sitting on a market-lagging gain of just 6%.
Vital Farms has spread its wings through an era of inflationary, Covid-19 and bird flu. As a result, it has developed competitive advantages, says analyst Brian Holland of DA Davidson. A "unique supply chain" model shields the company from volatile feed costs and ensures consistently high-quality eggs, Holland said.
The analyst also pointed out that the consumer trend toward cage-free eggs is now backed by legislation across 10 states and counting.
On Wednesday, Vital Farms stock capped its stellar run with a fresh 52-week high, taking its advance over this period to 199%.
'Amazing' Year For Poultry King Pilgrim's Pride
Food is, to put it mildly, a competitive industry. Meat and poultry producers play in a hypercompetitive space, in part because it's tough to make a package of beef steak or chicken breast stand out on a grocery shelf.
That leaves two of the nation's largest chicken producers, Tyson Foods and Pilgrim's Pride, with little comparative branding or pricing power. Margins are thin in their commodity business. And they often suffer from oversupply or undersupply conditions in the beef, poultry and pork markets.
But things have turned around for one of those markets.
"You move into this year and chicken is doing amazingly," Morningstar's Inton told IBD. "Pilgrim's Pride is a chicken pure play and that is why they have performed so well."
The company entered 2024 on a strong note after cutting production to deal with excess supply. The bird flu did its bit to rightsize flocks as well, boosting prices.
And consumer demand for chicken has stayed strong, the company says, due to high beef prices.
On May 2, Pilgrim's reported stronger-than-expected results for the first quarter. Earnings surged 862% on a 5% sales increase, as the company lapped easy year-ago comparisons. Post earnings, Pilgrim's Pride stock is engaged in a three-week pullback, dipping below its 10-week moving average, after notching a 53% jump in the last year.
Analysts forecast a 110% EPS surge in 2024 and a 5% decline in 2025.
Beef Prices Weigh on Bellwether Tyson Foods
Unlike Pilgrim's Pride, Tyson Foods is a diversified producer of beef, pork and chicken.
That diversification gives it less exposure to a rebounding chicken market. It simultaneously shelters the company from the ongoing beef downturn.
Tyson's earnings collapsed in 2023 as a severe drought slashed cattle inventories. The company, a meat industry bellwether, remains under pressure from as cattle supplies linger at a seven-year low. In addition, Tyson has previously tied the high beef prices stressing consumers to market forces outside its control, including inflation and labor shortages.
This year, chicken and pork are driving Tyson's profit recovery. Beef remains a challenge. The company projected a bigger loss for the beef business, its largest, in May. Cattle take longer to raise than hogs or chicken, so Inton predicts the beef recovery will take a couple of years at least.
Growth Challenges For Meatpacker Hormel Foods
While Hormel also focuses on meat, it sits somewhat apart. It depends far more on packaged brands like Spam and Applegate than on raw meat. And it's expanding into plant proteins via the Planters and Skippy acquisitions.
Growth is weak, though the company expects earnings to recover in the second half of 2024. Still, Hormel's branded products mean higher margins vs. its peers and lower volatility from the raw meat business.
They also contribute to the company's Steady Eddie image, meaning a moderate but consistent earnings grower. In fact, Hormel holds an Earnings Stability Factor of 5 out of 100, far closer to the 4 owned by boxed cereal giant General Mills than the 69 held by Pilgrim's Pride or the 61 held by Tyson Foods. (A lower number denotes more stable earnings).
Of course, there's another aspect to this enviable lower earnings volatility. Hormel Foods has seen less upside than its two meat-producing peers from the chicken and pork recovery.
Shares traded at 30.64 on Wednesday, in line with last October's low after news broke of the largest wage increases in Hormel's history.
