Cal-Maine Foods, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first six months ended December 2, 2023 (13 and 26 weeks, respectively), compared with periods ended November 26, 2022. Cal-Maine is an integrated producer, processor, marketer, and distributor of shell eggs and egg products.
Financial performance
| Metric | Q2 FY2024 | Q2 FY2023 | Six months FY2024 | Six months FY2023 |
|---|---|---|---|---|
| Net sales | $523.2 million | $801.7 million | $982.6 million | $1,460.0 million |
| Gross profit / margin | $91.1 million / 17.4% | $317.8 million / 39.6% | $136.6 million / 13.9% | $535.3 million / 36.7% |
| Operating income / margin | $14.2 million / 2.8% | $259.9 million / 32.4% | $7.5 million / 0.8% | $423.7 million / 29.1% |
| Net income attributable to Cal-Maine | $17.0 million | $198.6 million | $17.9 million | $323.9 million |
| Diluted earnings per share | $0.35 | $4.07 | $0.37 | $6.63 |
- Revenue and prices: Q2 sales declined 34.7%. Conventional shell-egg sales fell 48.2%, primarily as the average conventional price per dozen fell 49.4% to $1.458. Specialty shell-egg prices were $2.277 per dozen, down 3.9%. Total shell-egg volume increased 1.4% to 288.2 million dozen. For the six months, total sales declined 32.7%; all-shell-egg average selling price per dozen was $1.661 versus $2.496.
- Costs and margins: Lower feed prices partly offset lower selling prices. Q2 feed cost per dozen produced fell 19.1%; total farm production cost per dozen fell 8.0%. Lower conventional-egg prices were the primary driver of the substantial year-over-year gross-profit and margin contraction.
- Unusual expense: Q2 SG&A included a $19.6 million accrual related to an antitrust jury decision. Excluding its effect would improve reported operating income, but the filing does not present adjusted earnings excluding this item.
- Cash flow: Six-month operating cash flow was $73.7 million, down from $344.8 million. Investing activities provided $32.8 million, including proceeds from investment-security sales and maturities, partly offset by the $53.7 million Fassio acquisition and $65.8 million of property and equipment purchases. Financing activities used $37.5 million, mainly for dividends. Cash increased $69.0 million to $361.8 million.
- Liquidity and debt: At December 2, current assets were $1.064 billion and current liabilities were $153.8 million; working capital was $910.1 million and the current ratio was 6.9. Current available-for-sale securities were $206.0 million. No long-term debt was outstanding and the $250 million revolving facility was undrawn; $4.3 million of standby letters of credit were outstanding.
- Balance sheet and distributions: Total assets were $1.967 billion and stockholders’ equity was $1.624 billion. The company declared a Q2 dividend of approximately $5.7 million, or $0.116 per share, payable February 15, 2024.
Material changes and business developments
- The sharp earnings decline chiefly reflects normalization of conventional egg prices after prior-year supply constraints, partly offset by lower feed costs. Conventional egg volume rose, while specialty volume declined slightly in Q2. Cage-free eggs represented 30.4% of Q2 net shell-egg revenue, versus 18.2% a year earlier; this mix comparison was affected by lower conventional prices.
- On September 30, 2023, Cal-Maine acquired Fassio Egg Farms’ shell-egg production and processing assets in Utah for $53.7 million cash, with $1.0 million of contingent consideration. The operation had capacity for approximately 1.2 million laying hens, primarily cage-free.
- After quarter-end, the company announced an agreement to acquire a recently closed Tyson Foods broiler plant, hatchery, and feed mill in Missouri, with expected completion in fiscal Q3 and plans to repurpose the assets for egg and egg-product production.
- Approved construction projects had estimated total costs of $200.9 million; $127.2 million had been spent and $73.7 million remained at December 2, principally for cage-free facilities and a feed mill. Management expects cash, investments, operating cash flow, and the credit facility to cover needs for at least 12 months.
Outlook, risks, and contingencies
- No specific earnings or revenue guidance was provided. Management noted that egg and feed prices are volatile, with results also exposed to seasonality, changing supply and demand, labor and input costs, and customer demand for specialty and cage-free eggs. Management cited potential for near-term lower corn prices, while warning that market volatility may persist.
- Highly pathogenic avian influenza (HPAI): After quarter-end, Kansas outbreaks affected approximately 1.5 million layers and 240,000 pullets, or 3.3% of the December 2 flock. The company plans to repopulate affected facilities and resume normal operations within three to five months and expects eligibility for USDA indemnity programs. It said the net income effect cannot be reasonably estimated given egg-price and market uncertainty.
- Antitrust litigation: A jury awarded egg-products plaintiffs $17.8 million on December 1. If upheld, potential joint and several treble damages would be $53.3 million before applicable settlement credits, plus plaintiffs’ reasonable legal fees. Cal-Maine recorded a $19.6 million accrual for its estimated proportional share, excluding fees it believes may be offset by credits. The defendants sought a directed verdict; further proceedings and appeals remain. The accrual may change.
- Other legal matters: In Oklahoma watershed litigation, the court found defendants liable but has not determined remedies; management considers a material loss reasonably possible, but says exposure cannot presently be estimated. Management considers material loss remote in the Texas egg-pricing proceedings, although the State of Texas case is returning to trial-level proceedings.
- The filing states that other forward-looking risks include disease and biosecurity, egg-price and feed-cost fluctuations, cage-free supply and demand, acquisitions, litigation, inflation, interest rates, and global instability. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether egg prices and margins stabilize, and whether lower feed costs continue to offset price pressure.
- The outcome of the antitrust directed-verdict motion and subsequent proceedings, settlement credits, legal fees, and any changes to the $19.6 million accrual.
- The production, recovery timeline, USDA compensation, and financial impact of the post-quarter HPAI outbreaks.
- Completion, cost, and intended repurposing of the Tyson acquisition, alongside the remaining construction commitments.
- The progress and potential remedies in the Oklahoma watershed case, for which the company has not estimated possible monetary exposure.