Cal-Maine Foods, Inc. — Form 10-Q Summary
Reporting period: First quarter of fiscal 2023, the 13 weeks ended August 27, 2022; comparable period ended August 28, 2021. Cal-Maine produces, processes, packages, markets and distributes shell eggs and egg products in one operating segment.
Financial performance and liquidity
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Net sales | $658.3 million | $325.0 million |
| Gross profit (margin) | $217.5 million (33.0%) | $6.6 million (2.0%) |
| Operating income (loss) | $163.9 million (24.9% margin) | $(39.7) million |
| Net income (loss) attributable to Cal-Maine | $125.3 million; $2.58 basic and $2.57 diluted EPS | $(18.0) million; $(0.37) basic and diluted EPS |
| Cash from operations | $172.8 million | $(24.1) million |
| Capital expenditures | $27.7 million | $11.2 million |
- Sales increased about 103% year over year. Total shell-egg volume rose 8.1% to 275.3 million dozen; average shell-egg selling price increased to $2.275 per dozen from $1.235.
- Conventional shell-egg revenue was $425.6 million and specialty shell-egg revenue was $200.8 million. Egg-products revenue was $27.6 million.
- Farm production cost per dozen increased 16.5% to $1.046, including feed cost per dozen up 22.4%. SG&A increased 15.2% to $53.6 million, with higher delivery, labor and wage costs.
- At August 27, cash and cash equivalents were $136.0 million and current available-for-sale securities were $145.8 million. Working capital was $548.5 million; current ratio was 3.4.
- 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.
- Cash dividends paid were $36.7 million. The company accrued a first-quarter dividend of approximately $0.853 per share under its policy of distributing one-third of quarterly attributable net income.
Material changes and management commentary
- Management attributed the sharp earnings improvement principally to higher egg prices and greater specialty-egg sales. The Southeast large-egg index rose 133.8% year over year; the company’s average selling price rose 84.2%.
- Management said higher conventional-egg prices reflected reduced supply associated with highly pathogenic avian influenza (HPAI) and good demand. Specialty dozens sold increased 35.1%, while conventional dozens sold decreased 2.3%.
- Feed-price and supply pressures continued: average CBOT corn and soybean-meal prices increased 11.5% and 25.4%, respectively. The company expected continued upward feed-price pressure and market volatility in fiscal 2023; it did not provide full-year earnings or revenue guidance.
- Operating cash flow benefited from earnings and included a $67.4 million income-tax-payable balance. The company increased investment-security purchases as cash generation improved.
- Approved construction projects totaled $293.9 million, with $150.9 million of projected costs remaining at quarter-end. Projects include cage-free capacity and facilities; completion dates span fiscal 2023–2025. Management believes cash, investments, operating cash flow and available credit will fund needs for at least 12 months.
Risks, contingencies and unusual items
- HPAI: No positive tests had been reported at company-owned or contracted facilities as of September 27, 2022. Management nevertheless expected the outbreak to affect overall egg supply through the rest of calendar 2022 and possibly beyond. Disease, flock losses and resulting market-price volatility are material business risks.
- Feed, labor and inflation: Corn and soybean-meal prices, regional corn basis, packaging, wages, contract labor and transportation costs may pressure margins.
- Cage-free transition: State mandates and customer targets may require investment and change product supply, mix and pricing. Some customers revised targets, and customers generally do not commit to long-term purchase volumes. California’s law was subject to a pending Supreme Court challenge.
- Litigation: In the egg-products antitrust case, management acknowledged a reasonable possibility of a material adverse outcome but said any monetary exposure could not be estimated; no related adjustment was recorded. The trial was expected to be rescheduled for the first or second calendar quarter of 2023. Management assessed the Texas price-gouging matters as having remote material-loss risk.
- Prior-period correction: The company corrected immaterial intercompany sales and cost-of-sales overstatements of $6.7 million in Q1 FY2022 and $9.2 million in Q2 FY2022. The correction did not affect operating income, net income or EPS. Fiscal 2022 also included a $4.5 million gain from remeasurement of the Red River investment, reducing the year-over-year comparison in other income.
- Operations are seasonal, and management cautioned that quarter-to-quarter comparisons may not be meaningful. The filing reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether egg prices and supply conditions remain favorable as HPAI effects, flock inventories and demand change.
- Whether feed, labor, packaging and delivery cost inflation offsets selling-price gains.
- Progress, remaining spending and expected returns on the cage-free and other construction projects, alongside evolving laws and customer commitments.
- Developments in the egg-products antitrust litigation and any subsequent estimate of potential exposure.
- Cash conversion and liquidity, including the income-tax-payable balance and continued availability of the revolving credit facility.