MW Here's when Vital Farms predicts it will be selling more eggs

By Ciara Linnane

Supply constraints in first part of the year will ease as new egg production comes online in the second half

Vital Farms Inc.'s stock jumped 3.3% early Friday, as analysts weighing in on its fourth-quarter earnings said an accounting issue that triggered a selloff Thursday was overdone and looked to increase egg production in the second half of the year.

The stock of the Austin, Texas-based company $(VITL)$, a Certified B Corporation that produces ethically produced foods and is the leading U.S. brand of pasture-raised eggs by retail dollar sales, closed Thursday's session down 9%, after better-than-expected earnings were overshadowed by a disclosure of "control deficiencies" in its accounting.

Jefferies said it sees limited risk from the issue, and explained that the company is shifting from an "emerging growth" filer with the Securities and Exchange Commission to an "accelerated filer."

That shift typically happens five years after an initial public offering or when its market cap exceeds $700 million. Vital Farms went public on July 31, 2020, and its stock rose a stunning 63% on its first day of trade.

"Given Vital Farms '24 growth and share appreciation, market cap ended the year above that $700 million mark, causing the shift in filing status earlier than planned," analysts led by Rob Dickerson wrote in a Friday note to clients.

Vital Farms' current market cap is $1.4 billion, according to FactSet, after the stock gained 76.7% in the last 12 months, outperforming the S&P 500's SPX 15.6% gain.

"If the shift had occurred in '25 as expected, VITL would have had enough time to build out its 'control' team and improve processes that are part of the company's digital transformation plan," said the Jefferies analysts.

After a discussion with the company's management, the Jefferies team is confident that restatements will not be required and they reiterated their buy rating on the stock and raised their price target by 36% to $46. That's 49% above its closing price Thursday of $30.79.

TD Cowen analysts agreed the internal control issues appear benign, noting the auditor did not find any instances of overstating sales, which would lead to a restatement.

"The auditor told them that it is not unusual to find design flaws like these at emerging companies during their first formal audit," analysts led by Robert Moskow wrote in a note to clients.

TD Cowen also reiterated a buy rating on the stock, but stuck with its $42 price target. All eight analysts offering coverage of the stock on FactSet have a buy rating after Stifel upgraded the stock early Friday.

Vital Farms posted net income of $10.6 million, or 23 cents a share, for the quarter, up from $7.2 million, or 17 cents a share, in the year-earlier period. The FactSet consensus was for EPS of 16 cents.

Revenue rose 22% to $165.9 million from $135.8 million a year ago, while FactSet was expecting $160.0 million.

Revenue was boosted by volume growth, new offerings and retail distribution gains with new and current customers.

"Our outlook for 2025 reflects our expectation that we will continue to be supply constrained early in the year, but we expect those constraints to ease into the second half as we benefit from new family farms coming online and our new washing and packing line at our Egg Central Station facility in Springfield, Missouri becoming operational in the fourth quarter of 2025," Chief Financial Officer Thilo Wrede said in prepared remarks.

The company will continue to invest in brands and supply-chain capabilities as it targets $1 billion in sales by 2027, he added.

The company is expecting fiscal 2025 revenue of at least $740 million, or 22% growth from 2024. That's ahead of the FactSet consensus for 2025 sales of $728 million.

Not surprisingly, the company's earnings call was dominated by questions about the current avian flu outbreak, which has led to the culling of 166 million birds, including chickens, turkeys, ducks and wild birds since the first cases were detected in 2022, according to data from the Centers for Disease Control and Prevention.

The moves have sent egg prices soaring and infected cattle as well as several humans.

For more, read: Here's why the U.S. is not working to vaccinate birds against avian flu

Vital Farms Chief Executive Russell Diaz Conceicao said the company added 125 family farms to its roster in 2024 to boost the total to 425.

"When completed, these new farms will expand our egg sourcing capacity by more than 40%," he told analysts, according to an Investing.com transcript.

New farms typically take about nine months to start egg production, he said. That means the company's 2025 guidance is heavily weighted toward the second half of the year when there will be more product on shelves.

Egg shortages triggered by avian flu have drained the company's inventories, he said.

"The farms we signed in the early part of last year are now yielding a good supply of eggs," he said. "By the fourth quarter of the year, more and more of the farms we signed throughout last year will begin providing supply, which we expect will accelerate into the second half of the year."

Vital Farms has survived the current avian flu outbreak well, with just four positive cases across its 425 farms since 2022.

That's less than one-half of 1% of its hens during the outbreak. In the last 12 months, the company had just one single case, he said. None of the company's farms accounts for more than one-half of 1% of production capacity, he said.

And while the current egg shortage is expected to extend through the end of the year, Vital Farms has already grown its flock to 7.7 million laying hens at the end of 2024 from 5.2 million at the end of 2023, he said.

Crucially for consumers, Vital Farms is not planning to make price a major contributor to egg sales this year. The U.S. Department of Agriculture said egg prices rose 13.8% in January, after rising 8.4% in December.

Read also: Egg prices are surging again. Why Powell and the Fed's grip on inflation may be slipping.

See now: Moderna's stock stumbles on report HHS is reviewing $590 million award for bird-flu vaccine

-Ciara Linnane

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February 28, 2025 08:33 ET (13:33 GMT)

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