Cal-Maine Foods, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended November 26, 2022 (13 and 26 weeks, respectively). The filing is dated December 28, 2022. Cal-Maine produces, processes, markets, and distributes shell eggs and egg products in one operating segment.
Financial performance
| Metric | 13 weeks ended Nov. 26, 2022 | 13 weeks ended Nov. 27, 2021 | 26 weeks ended Nov. 26, 2022 | 26 weeks ended Nov. 27, 2021 |
|---|---|---|---|---|
| Net sales | $801.7 million | $381.7 million | $1,460.0 million | $706.7 million |
| Gross profit / margin | $317.8 million / 39.6% | $43.7 million / 11.5% | $535.3 million / 36.7% | $50.4 million / 7.1% |
| Operating income (loss) | $259.9 million | $(2.1) million | $423.7 million | $(41.7) million |
| Net income (loss) attributable to Cal-Maine | $198.6 million | $1.2 million | $323.9 million | $(16.9) million |
| Diluted earnings (loss) per share | $4.07 | $0.02 | $6.63 | $(0.34) |
- Second-quarter shell-egg sales averaged $2.709 per dozen, versus $1.365 a year earlier. Conventional average price was $2.883 per dozen and specialty price was $2.370. Shell-egg volume rose 5.4% to 284.1 million dozen; conventional volume fell 2.2%, while specialty volume rose 24.1%.
- For the first six months, shell-egg volume rose 6.7% to 559.4 million dozen. Higher prices drove the sharp sales increase; conventional egg prices rose amid HPAI-related supply constraints and solid demand. Egg-products sales also increased substantially, primarily because of higher selling prices.
- Costs rose: second-quarter cost of sales increased 43.2% to $483.9 million. Farm production cost per dozen increased 22.0% to $1.071, including a 29.5% increase in feed cost per dozen. Average CBOT corn and soybean-meal prices were up 24.8% and 25.5%, respectively, year over year.
- Six-month operating cash flow was $344.8 million, compared with $15.5 million used in the prior-year period. Capital spending was $59.7 million; dividends paid were $78.4 million. Cash increased to $178.6 million from $59.1 million at fiscal year-end.
- At November 26, current assets were $974.0 million and current liabilities $306.5 million; working capital was $667.5 million and the current ratio was 3.2. Available-for-sale current investments were $200.7 million. Total assets were $1.763 billion and total liabilities $443.1 million.
- No long-term debt was outstanding, and no amounts were drawn on the $250 million revolving credit facility. Standby letters of credit totaled $4.1 million. The company said cash, investments, operating cash flow, and the facility should cover needs for at least 12 months.
Changes, outlook, risks, and unusual items
- Primary performance driver: Management attributed the much higher earnings mainly to elevated shell-egg prices, supported by reduced industry supply following the 2022 highly pathogenic avian influenza (HPAI) outbreak. Higher feed, packaging, labor, processing, and outside egg-purchase costs partly offset the benefit.
- Outlook: No specific earnings or revenue guidance is provided. Management expected continued upward pricing pressure and volatility in corn and soybean meal costs for fiscal 2023. Egg prices are seasonal and volatile; results may vary with supply, demand, and market pricing.
- HPAI: As of December 28, 2022, no Cal-Maine-owned or contracted production facility had tested positive. Management said the outbreak was expected to continue pressuring U.S. egg supply, while timing of flock replenishment remained uncertain.
- Regulatory and demand uncertainty: Cage-free mandates in several states, court challenges to such requirements, changing customer commitments, and uncertain cage-free supply and demand could affect production, pricing, and capital needs. Approved construction projects had $130.0 million of projected costs remaining at quarter-end.
- Legal contingency: In the remaining processed-egg antitrust case brought by Kraft, General Mills, and Nestlé, trial was scheduled for October 16, 2023. Management said a material adverse outcome was reasonably possible but could not estimate monetary exposure; no adjustment was recorded. Management considered the Texas egg-pricing matters and Oklahoma watershed litigation risks of material loss remote.
- Other developments: On December 13, 2022, the board approved an additional $13.8 million investment in MeadowCreek to support expansion; the operation was expected to be fully operational by or before March 2023. This approval occurred after the reporting date.
- Prior-period correction: The company disclosed an immaterial fiscal 2022 intercompany accounting error that overstated first- and second-quarter net sales and cost of sales by $6.7 million and $9.2 million, respectively, with no impact on operating income, net income, or EPS. The cumulative correction was reflected in fiscal 2022’s third quarter.
Most important facts for investors to verify
- Whether exceptionally high egg prices and supply constraints persist, and how HPAI and flock recovery affect industry supply.
- Whether feed and other input costs continue rising and how quickly those costs flow through to selling prices and margins.
- The extent of cage-free customer demand, applicable state-law developments, and remaining spending on approved construction projects.
- Updates to the processed-egg antitrust case, including trial developments and any ability to estimate potential exposure.
- Progress, funding, and expected operating contribution from MeadowCreek’s expansion and the company’s proposed next phase of ProEgg cooperative participation.