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 in one operating segment. This filing covers the 13 weeks ended August 28, 2021, the first quarter of fiscal 2022; the comparable period ended August 29, 2020. Results are unaudited. Egg prices and feed costs are volatile, and first-quarter results are seasonally weaker in the company’s business.
Financial performance and liquidity
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $331.7 million | $292.8 million |
| Gross profit / margin | $6.6 million / 2.0% | $16.8 million / 5.7% |
| Operating loss | $39.7 million | $27.2 million |
| Net loss / diluted loss per share | $18.0 million / $0.37 | $19.4 million / $0.40 |
| Operating cash flow | $(24.1) million | $(14.8) million |
- Revenue increased 13.3%, while cost of sales rose 17.8%. Gross margin contracted as higher feed and processing costs outweighed higher sales.
- Cash and cash equivalents were $16.7 million at quarter-end, down from $57.4 million at May 29, 2021. Current available-for-sale securities were $73.7 million. Working capital was $362.9 million and the current ratio was 4.72.
- The company had no long-term debt and no borrowings under its $100 million revolving facility; $4.1 million of standby letters of credit were outstanding under the facility. Balance-sheet lease obligations totaled approximately $1.5 million.
- Investing cash outflow was $16.5 million, including $44.8 million net cash paid for the Red River acquisition, offset in part by investment-security proceeds. Capital expenditures were $11.2 million. Cash used in financing was $0.1 million.
Material changes versus the prior comparable period
- Net sales rose primarily with higher egg prices. The average selling price for all shell eggs increased to $1.238 per dozen from $1.078. Shell-egg volume declined 1.7% to 259.4 million dozen; conventional volume fell 5.5%, while specialty volume increased 8.9%.
- Conventional egg sales increased 17.5% and specialty egg sales increased 7.3%. Egg-products sales increased 39.7%, primarily due to higher selling prices.
- Farm production cost per dozen increased 25.4% to $0.898. Feed cost per dozen rose 40.5%; the company cited elevated ingredient prices, export demand and weather-related supply pressures. Processing, packaging and warehouse costs increased 8.7%, including higher packaging and labor costs.
- Operating loss widened to $39.7 million from $27.2 million. Net loss narrowed, partly because of an $8.3 million discrete tax benefit related to the Red River acquisition and a $4.5 million non-cash gain from remeasuring the previously held investment.
- Red River became wholly owned effective May 30, 2021. The company paid $48.5 million for the remaining 50% interest; the acquisition included a specialty egg complex with approximately 1.7 million cage-free laying hens.
Outlook, commentary, risks and contingencies
- The company expects corn and soybean supplies to remain tight and prices elevated and volatile in the short term, citing export demand, weather, pandemic-related disruptions and geopolitical issues. No specific earnings or revenue guidance is provided.
- Management said current cash, investments, operating cash flows and the revolving facility should fund current capital needs, while noting long-term debt financing may be needed as cage-free expansion and growth continue. Approved cage-free construction projects had projected costs of $138.7 million, with $39.3 million remaining at quarter-end; completion was projected for fiscal 2022.
- COVID-19-related supply-chain, labor and medical costs continued. The company reported $553,000 of pandemic-related expenses, excluding medical insurance claims, and $267,000 of related medical claims in the quarter. Management noted estimates may change as pandemic conditions evolve.
- Risks include egg-price and feed-cost volatility, disease and other production hazards, changing demand for specialty eggs, regulatory requirements, pandemic impacts and litigation. Management reported no material changes to previously disclosed risk factors.
- The Texas consumer class action over alleged emergency-period egg pricing was dismissed without prejudice in September 2021. The separate Texas state action remained on appeal; management considered material loss remote. The processed-egg antitrust litigation remained pending; management said a material adverse outcome was reasonably possible but could not estimate monetary exposure. Management considered material loss remote in the Oklahoma watershed case.
- The company’s dividend policy generally pays a portion of quarterly income only when profitable and subject to cumulative-loss recovery. At quarter-end, $22.3 million of cumulative losses remained to be recovered before a dividend could be paid.
Important facts for investors to verify
- Whether egg prices and specialty-egg demand can sustain sales while feed, packaging and labor costs remain elevated.
- The cash-flow and return implications of the Red River acquisition and remaining cage-free construction commitments.
- Progress in recovering cumulative losses under the dividend policy and any resulting dividend resumption.
- Developments in the processed-egg antitrust litigation, for which potential monetary exposure was not estimable.
- Changes in feed availability and prices, pandemic-related operating costs, and other production risks.