Ann Berry (6:01)

Yes, well, let's start with Cal Maine Foods Ticker. Cal Main Calm C A L M One of the best tickers around. Market cap $3.6 billion. And here are the quarter results. That morning the company posted earnings of $2.13 a share for the quarter that beat estimates of $1.95. So why was the stock down five and a half percent this morning? Well, last year the company posted earnings of $4.47 a share. So down over a half year over year. And net sales this last quarter 770 million. Down 19% year over year and gross profit of 207 million, down 42% year over year.

John Krato (6:39)

So those are big downdraft numbers. Right. And again, we did see the stock go down again this morning. The egg business is a pretty interesting one. Before we go in there though, can we just talk about this ticker? Calm. Calm, John, Calm. The most misleading ticker I could possibly imagine for this kind of business given volatility.

Ann Berry (7:00)

And there's an app that I think has that.

John Krato (7:02)

Meditation app. Yes, totally. At some point if that, if a meditation or wellness business ever wants to go public, they really going to be annoyed that they don't have this particular ticker anyway. So for producers like Cow Main Foods, of course revenue is driven by egg prices, right? That for a fixed number of eggs, that's your volume, the price you get per egg. That's a simple arithmetic is how you can figure out what your sales is going to be. But relative to that, if you've got egg prices that can be volatile and as a result revenue that can be volatile. The problem here is when you take a look at the costs of a business like Cow Main Foods, those tend to be pretty fixed in the short term. Those costs are things like feed for the chickens and the labor that's involved here. And so it's very difficult to adjust your cost base while your revenue is perhaps jumping around quite a lot for factors outside of your control. So let's talk about what's been going on. Lots of things can impact revenue and can impact Prices, things like avian flu can impact what's going on. Things like shocks to the distribution network can impact what's going on. So let's talk about what's been going on in the grocery stores. Right.

Ann Berry (8:09)

So anyone who was paying attention last year, back in March, a dozen eggs on average was $6.23. That was right around Easter egg time.

John Krato (8:18)

Yeah.

Ann Berry (8:18)

And then the prices cents dropped to half of that, so about $3. And just what you were saying with the avian flu that was blamed for the high price. But I read that Cal Maine is so big that over the years they've invested in biosecurity and so they were able to avoid severe flak loss compared to their competitors. So while prices went up, competitors were crippled and Cal Maine had eggs to sell at those higher prices.

John Krato (8:41)

So they stood to gain a ton of market share, at least temporarily. Just because they were literally the last chicken standing in some of these cases.

Ann Berry (8:47)

Correct.

John Krato (8:48)

So let's take a look then, what's been happening. Despite a bit of a moat around their business, shares in Cal Maine have been down more than 30% over the past four months. But this is very interesting, right, because when we take a look at what analysts have been saying, this is an example where uh, the research says you gotta look through the short term cycle and take a longer term perspective in order to think about what's the right price target. Because if you actually are just going to move your price target with the near term changes in revenue given the volatility, you are going to end up having your price targets moving around all the time. And so in the case of Cal Main, analysts have actually maintained a bit of a higher price target. As high as 100 bucks per share, averaging about $96. This is compared to a share price day of about 77 buc. And the reason that they've done that is they've basically been impressed by a part of the strategy of this company which is interesting, which is moving to higher margin what they call specialty eggs.

Ann Berry (9:45)

That's right.

John Krato (9:46)

Which means eggs that are coming from organic, cage free and pasture raised environments.

Ann Berry (9:53)

They said on the call today that consumers are trading up for these kind of eggs. CEO Sherman Miller highlighted the strong price and volumes of those specialty eggs.

John Krato (10:02)

So it's really interesting. We're seeing the consumer preferences move towards something that is perceived to be healthier. Right. This is part of an overall consumer push into wellness. Eggs aren't alone in this. We've seen this across the food landscape. We've seen it for example in Salty snacks struggling. Right. We've seen it in terms of high sugar foods struggling and seeing consumers shift where they can afford to, which is by the way, not in all cases trying to find healthier, but tends to be more expensive alternatives. So this is sort of timely actually the earnings report today because lo and behold, there was an announcement that came out of the administration.

Ann Berry (10:40)

That's right, RFK Jr. Came out with a sort of a new food pyramid that reorganized some of the things that we grew up with in this country. And there right in the middle is the wonderful edible egg.

John Krato (10:53)

And so this is the real food initiative. This has been launched by the administration to try to say to folks, we think about how you compile your nutrition intake. The big change in the food diagram that was released today was there's been a de emphasis under RFK away from carbohydrates towards the kinds of foods that are pictured in that, in that food diagram, which is more protein. Exactly. More vegetables and fruits, more whole grains and really dialing down processed food, which is sort of the key takeaway here. So the slight irony is then just to go back to Cal Maine Foods. So there is an element of this company that's doing quite well which is in fact processed or at least prepared. And that's where Cal Main is moving into French toast or pre cooked scrambled eggs. So if you take a look at some of the brands, there's crepini, which is, as it says, it's a pre made crepe. And you've also got snack attack eggs where you can buy a sachet of eggs that seem to be pre boiled. And the idea is that consumers are eating eggs not just at breakfast, but they're actually moving into other day parts as well. And Cal Maine wants to meet them.

Ann Berry (11:59)

Where they are over and they're doing it aggressively. In today's earnings report, the company highlighted that prepared food sales were $72 million of their quarter and that was up 586% year over year. So they're really leaning into these prepared foods and you make a good point that they're, they're getting consumers coming and going because then GLP1s are making consumers seek more protein. And on the earnings call The President said GLP1 users are gravitating towards satisfying nutrient dense foods. Younger consumers and families are treating eggs as an everyday staple. So you're getting the GLP1 folks eating the actual eggs and maybe folks looking for convenience eating these processed eggs.

John Krato (12:40)

It's really interesting too because there was a point in time when there was a debate, do you remember this, whether eating too many eggs were an issue when it came to cholesterol levels. So there seems to have been a bit of a debate over the actual health implications there. Well, just on a lighter note on this one, we should talk a bit about how eggs and the knowledge of egg prices has been used. Gotcha.

Ann Berry (13:03)

Yes, exactly. Grocery prices in general. Like how in touch are you? And someone of my Generation remembers in 1992, George Herbert Walker Bush was in a presidential debate with Bill Clinton and was asked what the price of milk is and he didn't know. And it was seemed to hurt him. And then two decades later on the TV show Arrested Development, I don't know if you're a fan, but the character Lucille Bluth says, I mean, it's one banana. Michael, how much could it cost? $10.

John Krato (13:30)

Totally, totally divorced from reality. $10 now. Price of coffee in New York, by the way, just to. Yeah, that is really miserable in terms of price inflation. But yeah, how much are a dozen eggs? Is something that now politicians are asked around the campaign trail as a sign of actually knowledge of what it is like. Look, one of these things that we're going to talk about later on in the show is the cost of living in the United States, whether it's the cost of housing, whether it's the cost of groceries. And so it is going to be interesting to see how this push towards this real food movement is going to tie into policies potentially around the actual cost of, of getting a hold of healthier food, which for a lot of families it's just too expensive to get non processed foods in a lot of places. Well, let's take a quick break and when we come back, we survey a flurry of posts from President Trump today, each of which represents a pretty major policy shift for the sectors they impact directly. So we're going to take a quick look at defense at financials and housing and look at how stocks really moved. In response, we're going to break down how and why. And now a word from our sponsor, Vanguard Financial Advisors. Listen up. Capturing value in fixed income is not easy. Bond markets are massive, murky. And let's be real, lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard.

Ann Berry (14:41)

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Ann Berry (14:57)

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Ann Berry (15:20)

That's right. Major indices today were mixed. The S&P 500 finished down a third of a percent. The NASDAQ was up 2.10 of a percent, and the Dow fell nearly a full percentage point. And some interesting market headlines that you alluded to before.

John Krato (15:33)

Yeah. Well, let's start with defense stocks because my goodness, how this has seesawed. If you think about we come out of the weekend, we've seen military action in Venezuela. We saw defense stocks pop up on Monday as the market said, well, if this is a sign of what's to come, then we're going to put more money behind the defense stocks. Today in the opposite direction, we saw some of the leading defense stocks decline. General Dynamics, Lockheed Martin, Northrop GRUMMAN each dropped about 2% this afternoon. And that's in response to some posts that came out around 2ish this afternoon in which President Trump posted to say he will, quote, not permit defense companies to issue dividends or stock buybacks until firms such as these address some complaints that he has about the industry.

Ann Berry (16:24)

That's right. And he went on to further say that these complaints include, quote, exorbitant or unjustifiable executive pay packages. And his post on Truth Social said, quote, defense companies are not producing our great military equipment rapidly enough and once produced, not maintaining it properly or quickly.

John Krato (16:40)

So to put this in context, right, for this particular sector, take a look at General Dynamics. That stock has a track record of yielding over 30 consecutive years of dividend increases over Lockheed has had about 22 years of dividend growth. So from a market perspective, these are names that are really associated with giving some income out to its stockholders. Now, the dividend yields, so that's defined as the dividend as a percent of the share price. They're not massive, right. They're about one and a half to two and a half percent. But the point is that these are stocks that are associated with a dividend profile with that kind of income for shareholders, and they're valued in a way that reflects that. So while it's unclear what authority the White House House has to have public companies cease returning cash to shareholders in this fashion, either through a dividend or through a share buyback. We're going to have to keep on watching this one because again, this would be a recharacterization of one of the fundamental bases upon which these stocks trade. So, yeah, after decades of dividends, after decades of decades. So I'm going to be nerding out on this one. This has definitely got my full nerd focus. Not alone though, the defense sector in being the focus of some of President Trump's post today, write a busy day.

Ann Berry (17:53)

Making market moving announcements. Also writing on true social that he is, quote, immediately taking steps to ban large institutional investors from buying more single family homes. Trump said he plans and outline additional housing and affordability proposals in a speech in Davos, Switzerland in two weeks.

John Krato (18:09)

Right. So he's going to be at the World Economic Forum. He's scheduled to have a speech there. This is a huge conference that happens every year in Switzerland. It brings together heads of states, big CEOs, a lot of media go and cover it, lots of thought leaders and they gather together in Davos, Switzerland and they talk about sort of the topics du jour. So AI was a big theme last year, of course, after Covid, health care and longevity was a big theme in the Davos gatherings that happened right after the pandemic. So this is a big stage that President Trump is choosing to go and make what I suspect are going to be very big statements about addressing affordability. And if we just look back at 2025, when the tariff programs were rolled out, there was huge debate and concern and a point of real political contention that those tariffs were set to harm consumers in the United States who are already struggling to afford some basics. So we've subsequently seen a rollback of some of those tariffs beef. For example, we've seen things like home furnitures see a bit of a pause in terms of the tariff program, clearly because the White House is saying we're going to take a beat and try and readdress what the affordability impact is. So here then, with that context, let's talk about the specific post again, President Trump putting on trust social that he's, quote, immediately taking steps to ban large institutional investors from buying more single family homes. Well, let's take the shares of some companies impacted by this. Let's take Blackstone, which is a big institutional buyer of family homes. They then subsequently often rent them out. Shares dropped over 5% in reaction, even though Blackstone told CNBC in August it owns less than 1% of the housing available in each market it operates in. Nevertheless, the the poster child for exactly this kind of ownership structure. Part of a broader issue though. Do you remember, John, we had onto the show last month the CEO of Caldwell Banker Realty. So we had K. Rangapan Lanen and she threw out a statistic that I remember you and I really noted. She said that from her vantage point as LE as leader of a massive residential broker here in the United States. She said, look, one in four homes are currently owned by investors. And as she looks at the market right now, she sees investors moving quickly to buy more single family and multifamily homes. Whereas you or I thinking about, you know, purchasing our own home might move more slowly. So it is really interesting the point that she made about the concentration 25% of home ownership basically for commercial use. So President Trump, and let's also remember that he is has a background in real estate. Right. He is talking place of knowing how this industry works. Really going hard after this one. We saw some of the rental home companies struggle today as a result.

Ann Berry (20:51)

That's right. Invitation homes with a $16 billion market cap and AMH at over $11 billion market cap bumped down in response.

John Krato (20:59)

Yeah. So we're going to again keep on watching this one. Too big just to recap, defense, major policy implication there in a big sector. And then again another real estate, residential real estate, major implication there if any of this goes on through.

Ann Berry (21:14)

Well, finally for the show, we love to talk about travel and I haven't yet mentioned my passion for Alaska Airlines. When I lived on the West Coast, I took advantage of their 99 DOL companion fare and generous upgrades. Well, today Alaska Air Ticker ALK announced the largest airplane order in the company's history, including 105 of Boeing's 737 Max 10 jets. Shares in Boeing ticker BA were up nearly 1%, ended the day down and shares in Alaska finished down around one and a half.

John Krato (21:41)

Interesting. So it looks as the market's not completely embracing the expansion of the fleet and perhaps one reason for that. Just as we talk about the domestic travel environment, we are seeing all of the airlines now really focusing on trying to win share amongst one particular class of flyer, and that is the premium flyer. And we've seen the rollout of improved lounges, improve food, improve amenity kits. We've sort of seen that across a lot of the major banners. And one of the battlegrounds that these airlines are fighting on is with respect to their frequent flyer and their reward programs. So American Airlines. I feel about American Airlines the way you feel about Alaska Air, John. Right. You love Alaska. I fly American a lot because frankly, there's a lot of connectivity between London and New York where I spend most of my time. They said they were going to keep the spending requirements to earn elite frequent flyer status. They're going to keep it steady for a third consecutive year. They've learned their lessons. They've watched other airlines get real pushback when they've been attempts to try and change these frequent flyer programs. And just another sign that everyone's trying to court the highest spending travelers and the business travelers as well. American Airlines also announced something yesterday which absolutely caught my eye. It's rolling out free WI Fi for its loyalty program members. And I'm really glad to see this because my bug bear.

Ann Berry (23:01)

Yes.

John Krato (23:01)

Is I have. I travel to the West Coast a lot. I sort of go from the east coast to the west coast. And I've travel on JetBlue. I travel in American, I travel United, I travel on Delta. All of them. Some of them have WI fi for like 8 bucks for the whole flight. For some of them, it's free. American has been incredibly expensive. So thank you, American Airlines for doing this. The market thinks G2 shares in the airline were up 3% today.

Ann Berry (23:23)

When we're prepping for the show, I sometimes know which flight you're on because I either hear from you more and we can collaborate more or sometimes when it's not happening, I think, oh, she's on a bad WI fi flight.

John Krato (23:33)

Yes, on a bad WI fi flight. And then when I land, you get a flurry of emails coming in. That's it, folks, for today's Brew Markets Daily.

Ann Berry (23:40)

Brew Markets Daily is hosted by Ann Berry and produced by John Krato, Tarkab Delatif and Emily Millard. Our technical directors, Uchena Waugh, Brittany Dotacco is our audio engineer. And the president of Morning Brew Inc. Is Devin Emery.

John Krato (23:52)

Wake up tomorrow with the Morning Brew newsletter and tune in to Neil and Toby on Morning Brew Daily. We'll see you back here tomorrow, same time, same place.