Cal-Maine Foods, Inc. — Form 10-Q Summary
Business context and reporting period
Cal-Maine produces, processes, markets and distributes shell eggs and egg products. This filing covers the fiscal third quarter and first 39 weeks ended February 26, 2022, compared with the periods ended February 27, 2021. Although the request labels the period “2021 Q3,” the filing is for fiscal 2022 Q3.
Financial results and liquidity
| Metric | 13 weeks ended Feb. 26, 2022 | 13 weeks ended Feb. 27, 2021 | 39 weeks ended Feb. 26, 2022 | 39 weeks ended Feb. 27, 2021 |
|---|---|---|---|---|
| Net sales | $477.5 million | $359.1 million | $1,184.2 million | $999.2 million |
| Gross profit / margin | $91.6 million / 19.2% | $47.5 million / 13.2% | $142.0 million / 12.0% | $122.7 million / 12.3% |
| Operating income (loss) / margin | $39.6 million / 8.3% | $(0.5) million / (0.2)% | $(2.2) million / (0.2)% | $(13.2) million / (1.3)% |
| Net income attributable to Cal-Maine | $39.5 million | $13.5 million | $22.7 million | $6.3 million |
| Diluted EPS | $0.81 | $0.28 | $0.46 | $0.13 |
| Operating cash flow | Not presented for the quarter | $20.8 million | $14.7 million |
- Quarterly sales rose about 33%; year-to-date sales rose about 18.5%. Third-quarter shell-egg volume increased 2.8% to 287.7 million dozen. The average selling price for all shell eggs increased to $1.612 per dozen from $1.246.
- Third-quarter results benefited from higher egg prices and greater specialty-egg volume. Year-to-date operating results remained negative; year-to-date net income also included higher other income and an acquisition-related tax benefit.
- At February 26, cash and cash equivalents were $15.6 million and current investment securities were $81.1 million. Working capital was $401.3 million and the current ratio was 4.31, versus $429.8 million and 5.77 at May 29, 2021.
- No long-term debt was outstanding. The company had a $250 million revolving facility with no borrowings and $4.1 million of letters of credit outstanding. Total liabilities were $251.8 million; stockholders’ equity was $1,030.2 million.
- For the 39 weeks, capital spending was $49.2 million, and $48.5 million was paid to acquire the remaining interest in Red River Valley Egg Farm. Cash declined $41.8 million from fiscal year-end.
Material changes and unusual items
- Third-quarter conventional egg sales increased 38.1%, primarily on price, while conventional dozens sold fell 5.2%. Specialty dozens sold increased 24.1%, supported by added cage-free capacity, the Red River acquisition and cage-free demand.
- Farm production cost per dozen rose 16.9% in the quarter and 21.1% year to date. Higher feed prices, labor, packaging and facility costs pressured margins; corn and soybean prices were identified as key cost drivers.
- Cal-Maine acquired the remaining 50% of Red River effective May 30, 2021, for $48.5 million cash and recognized a $4.5 million remeasurement gain and an $8.3 million discrete tax benefit. These items increased reported year-to-date other income and reduced income tax expense.
- The company corrected an immaterial intercompany-sales error by reducing year-to-date net sales and cost of sales by a cumulative $15.9 million. It reported no effect on operating income, net income or EPS.
- Third-quarter dividend accrual was approximately $0.125 per share under the company’s policy of distributing one-third of qualifying quarterly income, subject to its cumulative-profitability condition.
Outlook, commentary and risks
- No specific earnings or revenue guidance was provided. Management said market indications pointed to higher corn and soybean prices and increased volatility associated with the Russia-Ukraine war and export demand. It expects available cash, investments, operating cash flow and the credit facility to fund current capital needs.
- Approved construction projects totaled $155.7 million, with $114.8 million spent and $40.8 million remaining at quarter-end. Projects include cage-free facilities; a $23 million Okeechobee expansion was expected to be completed by February 2023. MeadowCreek Foods, focused initially on hard-cooked eggs, was planned to receive up to $18.5 million in debt and equity.
- HPAI outbreaks were a significant industry risk: the company reported no positive tests at its owned or contracted facilities as of the filing. Management cited biosecurity measures and continued monitoring. Egg and feed prices are volatile, and disease, inflation, supply constraints, labor costs, seasonality and changing specialty-egg demand may affect results.
- The remaining Egg Products Plaintiffs antitrust litigation could have a material adverse outcome; management said the potential monetary exposure could not then be estimated. The Texas state egg-pricing case was on appeal, while management viewed material loss risk as remote. Other disclosed proceedings include consumer claims related to COVID-era egg pricing.
- The company reported effective disclosure controls as of February 26, 2022, and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether higher egg prices and specialty-egg growth continue to offset rising feed, labor, packaging and facility costs.
- HPAI developments, any effect on industry supply or Cal-Maine operations, and the timing and cost of cage-free capacity expansion.
- The durability of year-to-date profitability after excluding Red River-related remeasurement and discrete tax benefits, and the drivers of the year-to-date operating loss.
- Progress, spending and expected returns for approved construction projects and MeadowCreek Foods.
- Developments in the Egg Products Plaintiffs antitrust case and any change in management’s assessment of potential exposure.