Cal-Maine Foods, Inc. — Form 10-Q summary
Business and period: Cal-Maine produces, processes, markets, and distributes shell eggs, with most sales in the United States. This filing covers the 13 weeks and 39 weeks ended February 25, 2012; the comparable periods ended February 26, 2011. Amounts below are in millions unless noted.
Financial performance
| Metric | Quarter | 39 weeks |
|---|---|---|
| Net sales | $303.7, up 10.6% | $837.9, up 19.8% |
| Gross profit / margin | $65.1 / 21.5% (prior: $65.6 / 23.9%) | $160.4 / 19.1% (prior: $143.5 / 20.5%) |
| Operating income / margin | $34.9 / 11.6% (prior: $39.0 / 14.2%) | $76.6 / 9.1% (prior: $69.8 / 10.0%) |
| Net income attributable to Cal-Maine | $26.1 (prior: $33.6) | $52.5 (prior: $53.6) |
| Diluted EPS | $1.09 (prior: $1.40) | $2.19 (prior: $2.24) |
- Quarterly shell-egg sales volume increased 6.5% to 229.2 million dozen; average selling price rose 3.3% to $1.275 per dozen. For the 39-week period, volume rose 6.5% and average price rose 12.3% to $1.224 per dozen.
- Feed costs rose to $0.449 per dozen produced in the quarter, up 11.1%; for the 39 weeks, they rose 23.9% to $0.466. Higher feed costs and outside egg purchase prices offset higher selling prices, compressing gross margins.
- Quarterly other income was $5.6 million versus $11.6 million, partly because the prior-year quarter included a $4.8 million gain on sale of Eggland’s Best non-voting stock. Current-quarter Eggland’s Best patronage refunds and dividends were $6.5 million.
- Year-to-date operating income increased, but lower other income and higher taxes contributed to slightly lower net income. Selling, general, and administrative expense rose 13.8% year to date, including higher specialty-egg and delivery costs.
Cash flow, liquidity, and debt
- For 39 weeks, operating cash flow was $84.9 million (prior: $59.9 million); capital expenditures were $19.1 million. Cash increased $23.1 million to $80.7 million.
- At February 25, 2012, available-for-sale investments were $145.0 million; cash plus these investments totaled approximately $225.7 million. Working capital was $283.0 million and the current ratio was 3.11.
- Total debt, including current maturities, was $78.9 million, down from $88.2 million at May 28, 2011. The company reported compliance with loan covenants. It also reported $5.1 million of cash-collateralized standby letters of credit.
- Dividends per common share were $0.364 for the quarter, compared with $0.470 a year earlier. The company’s policy generally targets one-third of quarterly net income, subject to its cumulative-profit condition and debt restrictions.
Outlook, risks, contingencies, and notable items
- No specific earnings or revenue guidance was provided. Management expected feed costs to remain high and volatile in the year ahead; increased 2012/13 corn acreage could ease supply concerns if a larger crop is realized. Management said cash, investments, borrowing capacity, and operating cash flow should cover current and projected capital needs.
- Egg prices are volatile and seasonal, and the filing identifies feed prices, disease, weather, pests, product recalls, acquisitions, and litigation as risks. Management cautions that interim results are not necessarily indicative of full-year results.
- The company faces egg antitrust litigation alleging a conspiracy to restrict supply and raise prices. Management considers a material adverse outcome reasonably possible, but says monetary exposure cannot currently be estimated; no related loss accrual was recorded. Other disclosed proceedings include watershed pollution, wage-and-hour, and chicken-litter cases.
- Cal-Maine guarantees 50% of Delta Egg Farm’s approximately $9.9 million long-term debt; management considers payment under the guarantee unlikely because Delta Egg is well capitalized.
- A replacement layer house at the Shady Dale, Georgia site was completed and at full production. The company reported a $624,000 insurance receivable related to the earlier fire; any gain or loss and business-interruption recovery will be recognized when settlement contingencies are resolved.
- Construction was underway on a roughly $15.3 million cage-free complex in Bremen, Kentucky, expected to be completed by August 2013, and a roughly $7.3 million South Texas cage-free expansion expected in fiscal 2013.
Important facts for investors to verify
- Whether egg prices and sales volumes can sustain revenue growth while feed and purchased-egg costs pressure margins.
- Developments in the antitrust litigation, including potential class certification, settlement activity, and any change in the currently unestimable exposure.
- Capital-project spending, completion schedules, and expected effects on production and cash flow.
- Subsequent insurance recoveries for the Shady Dale fire and any changes to the related receivable.
- Liquidity and covenant compliance as seasonal working-capital needs and commodity-price volatility evolve.