Avangard cuts domestic egg supply for better pricing in 3Q13

Europe’s leading egg producer Avangard (AVGR LI) reported a 9% yoy increase in egg production to 5.12 bln in 9M13 on 14% yoy growth in its laying hen flock. Sales of shell eggs decreased 4% yoy to 3.74 bln as the company directed more eggs for processing (up 59% yoy to 1.27 bln). Output of dry egg products increased 47% yoy to 15.46 kt in 9M13. Export of shell eggs increased 15% yoy to 0.35 bln units. Avangard reported its average price of shell eggs was flat during 9M13 at UAH 0.65 per unit, while the average price of egg products increased 2% yoy to USD 7.61/kg.

Alexander Paraschiy: The company’s 9M results imply it sold 1.24 bln of eggs in 3Q13, including 1.13 bln units on the Ukrainian market. Those figures imply that internal sales of shell eggs are declining: -14% yoy in 3Q, after -10% yoy in 2Q and +11% yoy in 1Q. We regard this strategy as optimal for the company as the decreased egg supply on the domestic market allows Avangard to keep good pricing: average egg prices increased 17% qoq and 12% yoy in 3Q13. Remarkably, Avangard’s export of shell eggs showed a radical decline in 3Q13 (-22% yoy), which we attribute to unstable political conditions at the company’s target markets in the Middle East during the quarter.

We also are encouraged by Avangard’s reported numbers on shell egg prices. In 3Q13, for first time in its reporting history, Avangard reported smaller average prices of shell eggs (UAH 0.69/unit) compared to Ovostar (OVO PW: UAH 0.74/unit). This looks to us like a logical direction as Ovostar focuses more on the sale of branded eggs.