Cal-Maine Foods, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 and 39 weeks ended March 2, 2013, compared with periods ended February 25, 2012. Although the request metadata says 2012 Q3, the filing is for fiscal 2013 Q3. Dollar amounts below are in millions unless noted.
Business context and results
Cal-Maine produces, grades, packages, markets and distributes shell eggs. Results are sensitive to volatile egg prices and feed costs; management says feed averages about 70% of farm egg production cost. The company completed acquisitions of Pilgrim’s Pride egg assets and Maxim Production assets during the period.
| Metric | Q3 2013 | Q3 2012 | 39 weeks 2013 | 39 weeks 2012 |
|---|---|---|---|---|
| Net sales | $360.4 | $303.7 | $962.2 | $837.9 |
| Gross profit | $67.0 | $65.1 | $163.1 | $160.4 |
| Gross margin | 18.6% | 21.5% | 16.9% | 19.1% |
| Operating income | $30.9 | $34.9 | $66.9 | $76.6 |
| Net income attributable to Cal-Maine | $30.6 | $26.1 | $54.3 | $52.5 |
| Diluted EPS | $1.27 | $1.09 | $2.26 | $2.19 |
Q3 sales rose 18.7%, reflecting 12.2% more dozens sold and a 6.0% increase in average shell-egg selling price, alongside acquired volume. Excluding the acquisitions, Q3 sales increased 4.7%, while dozens sold declined 2.5%. For the 39 weeks, sales rose 14.8%; excluding acquisitions, sales increased 7.2% while dozens sold declined 0.3%.
Margins weakened as cost of sales increased faster than sales. Q3 feed cost per dozen produced rose 21.8% to $0.547; year-to-date it increased 17.0% to $0.545. Management cited higher feed and purchased-egg costs, with feed prices pressured by drought-reduced crop yields and tight supply. Q3 operating income fell 11.5% despite higher sales; net income increased partly due to higher other income, including cooperative patronage refunds and dividends.
Cash flow, balance sheet and liquidity
- Operating cash flow was $42.6 for the 39 weeks, down from $84.9 a year earlier. Management attributed the decline mainly to increased receivables and lower accrued expenses.
- Cash and cash equivalents were $37.4 at March 2, 2013, down from $97.1 at June 2, 2012. Current available-for-sale investments were $149.8. Cash decreased $59.7 during the period.
- Working capital was $289.0 and the current ratio was 3.20. Total debt, including current maturities, was $67.7, compared with $76.2 at June 2, 2012. The company reported compliance with its debt covenants.
- Investing cash outflow was $73.9, including $74.9 for acquisitions and $19.1 of capital spending; financing cash outflow was $28.5, including $20.4 of dividends paid and $8.5 of debt principal payments.
Outlook, risks and unusual items
- No quantified earnings or sales guidance was provided. Management expected existing cash, investments, borrowing capacity and operating cash flows to fund current and projected capital needs.
- Planned projects included a $16.1 cage-free complex in Kentucky, an approximately $8.0 cage-free expansion in south Texas, and a $7.7 pullet-facility conversion in Florida, with completion dates extending from fiscal 2013 to August 2014.
- Egg prices are volatile and seasonal; supply, demand and feed commodity prices may materially affect results. Management noted tight corn and soybean supply through at least summer 2013, with prices dependent in part on weather and crop yields.
- The egg antitrust litigation is described as reasonably possible to have a material adverse outcome, but the company said monetary exposure could not presently be estimated; no related loss accrual was recorded. Other legal matters include chicken-litter personal-injury cases, an Oklahoma watershed case, and environmental allegations concerning the Edwards, Mississippi facility.
- The company guarantees 50% of approximately $8.0 of Delta Egg Farm debt; management considers payment unlikely because Delta Egg is well capitalized. The Pilgrim’s Pride acquisition includes a contingent payment valued at about $2.5; the Maxim acquisition includes a potential $4.4 earn-out for which no liability was recorded because a material payout was considered remote.
- Interim results are not necessarily indicative of full-year results. The filing identifies no material change in previously disclosed risk factors and says disclosure controls were effective.
Important facts for investors to verify
- Reconcile the filing’s patronage-income disclosures: the income statement reports $11.5 for Q3 and $14.3 year to date, while the MD&A narrative appears to attribute $14.3 to the quarter.
- Check operating-margin descriptions: the statement-based figures are approximately 8.6% for Q3 and 6.9% year to date; MD&A text gives 11.5% for prior-year Q3 and 7.0% for current-year year to date, differing slightly from the table.
- Monitor feed and purchased-egg costs against selling prices, and assess whether acquisition-related volume and integration support margins and cash generation.
- Track developments in antitrust and environmental proceedings, including any change in the ability to estimate exposure or record a loss.
- Review liquidity after acquisition spending, planned capital projects, dividends and the Delta Egg debt guarantee.