Cal-Maine Foods, Inc. — Form 10-Q Summary
Reporting period: Second quarter and first six months of fiscal 2014, ended November 30, 2013. Comparisons are with the corresponding periods ended December 1, 2012. Amounts below are in U.S. dollars.
Business context and results
Cal-Maine is an integrated producer, processor, marketer, and distributor of shell eggs, with egg products and other sales also contributing. Results are sensitive to volatile egg selling prices and feed costs, and are subject to seasonal fluctuations. The prior-year comparison includes the November 2012 acquisition of Maxim commercial egg assets.
| Metric | 13 weeks ended Nov. 30, 2013 | 13 weeks ended Dec. 1, 2012 | 26 weeks ended Nov. 30, 2013 | 26 weeks ended Dec. 1, 2012 |
|---|---|---|---|---|
| Net sales | $354.3 million | $328.9 million | $673.8 million | $601.8 million |
| Gross profit / margin | $74.7 million / 21.1% | $51.3 million / 15.6% | $119.6 million / 17.7% | $96.0 million / 16.0% |
| Operating income / margin | $40.9 million / 11.6% | $20.4 million / 6.2% | $51.9 million / 7.7% | $36.0 million / 6.0% |
| Net income attributable to Cal-Maine | $26.1 million | $14.3 million | $34.9 million | $23.7 million |
| Diluted EPS | $1.08 | $0.60 | $1.44 | $0.99 |
Financial position, cash flow, and material changes
- For the quarter, sales increased 7.7%; dozens sold rose 6.2% to 252.8 million and average shell-egg selling price increased 1.3% to $1.340 per dozen. Excluding the Maxim acquisition, quarterly sales rose 1.6% and dozens sold declined 1.3%.
- For the six months, sales rose 12.0% and dozens sold increased 10.5% to 495.3 million. Excluding the acquisition, sales increased 4.0% and dozens sold increased 1.2%.
- Quarterly feed cost per dozen produced fell 15.3% to approximately $0.486, supporting the higher gross margin. For the six months, feed cost per dozen was $0.512, down 6.4%.
- Six-month operating cash flow was $9.5 million, versus $8.8 million. Investing cash use was $16.3 million, including $27.8 million of property and equipment purchases, partly offset by net proceeds from investment sales. Financing cash use was $7.1 million, including $5.7 million of debt principal payments. Cash declined $13.9 million to $11.1 million.
- At November 30, working capital was $301.1 million and the current ratio was 3.58. Cash and current available-for-sale securities totaled approximately $161.9 million. Total debt, including current maturities, was $59.4 million, down from $65.0 million at June 1, 2013. Total assets were $752.9 million and total liabilities were $209.4 million.
- The $28.0 million accrued legal-settlement liability shown at June 1 was no longer recorded at November 30; management reported payment of the settlement in the first quarter. Six-month dividends accrued were $10.3 million, with the dividend calculation reflecting the prior-year fourth-quarter loss.
Outlook, risks, contingencies, and unusual items
- Management expected lower feed costs for the remainder of fiscal 2014 than in fiscal 2013, citing improved crop supply, but cautioned that feed costs remain volatile. It stated that cash, investments, borrowing capacity, and operating cash flows should be sufficient for projected capital needs through the remainder of fiscal 2014 and into fiscal 2015. No earnings or sales guidance was provided.
- Planned and ongoing facility projects include south Texas expansion (expected cost $28.9 million; approximately $15.9 million remaining), Dade City conversion (expected cost $7.7 million; approximately $2.5 million remaining), and newly approved Okeechobee facilities (expected cost $12.4 million). The filing gives expected completion dates from August 2014 through the first quarter of fiscal 2015.
- The company agreed to a $28 million settlement resolving direct-purchaser putative class claims in egg antitrust litigation; court approval remained pending. Indirect-purchaser claims and seven non-class cases remained unresolved. Management said a material adverse outcome remained reasonably possible but that exposure could not then be estimated.
- Cal-Maine guaranteed 50% of approximately $7.2 million of Delta Egg Farm debt. Management considered payment under the guarantee unlikely because Delta Egg was well capitalized.
- Key business risks include egg-price and demand volatility, feed commodity prices, disease, pests, weather, recalls, acquisition-related obligations, and litigation. Management reported compliance with debt covenants and effective disclosure controls as of November 30, 2013.
Important facts for investors to verify
- Whether the direct-purchaser antitrust settlement received court approval and how remaining litigation developed.
- Whether feed-cost relief and egg prices persisted, and how they affected margins and earnings in subsequent periods.
- Actual spending, completion timing, and expected returns for the announced facility projects.
- Cash generation and investment liquidity, given the period’s modest operating cash flow and lower cash balance.
- Debt repayment, covenant compliance, and the terms and potential exposure of the Delta Egg debt guarantee.