Cal-Maine Foods, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and first 39 weeks ended February 25, 2023; comparable periods ended February 26, 2022. Although the request labels this “2022 Q3,” the filing reports fiscal 2023 Q3.
Business context and financial performance
Cal-Maine is a vertically integrated producer, processor, marketer and distributor of shell eggs, operating as one reportable segment. Results are highly sensitive to volatile egg selling prices and feed costs. Dollar figures below are in millions except per-share amounts and where noted.
| Metric | Q3 FY2023 | Q3 FY2022 | 39 weeks FY2023 | 39 weeks FY2022 |
|---|---|---|---|---|
| Net sales | $997.5 | $477.5 | $2,457.5 | $1,184.2 |
| Gross profit / margin | $463.0 / 46.4% | $91.6 / 19.2% | $998.4 / 40.6% | $142.0 / 12.0% |
| Operating income (loss) / margin | $407.8 / 40.8% | $39.6 / 8.3% | $831.5 / 33.8% | $(2.2) / (0.1)% |
| Net income attributable to Cal-Maine | $323.2 | $39.5 | $647.1 | $22.7 |
| EPS, basic / diluted | $6.64 / $6.62 | $0.81 / $0.81 | $13.31 / $13.25 | $0.46 / $0.46 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $706.5 | $20.8 |
- Q3 shell-egg net average selling price rose to $3.298 per dozen from $1.612. Conventional egg price was $3.678 per dozen; specialty egg price was $2.616.
- Q3 shell-egg volume increased 1.3% to 291.4 million dozen. Conventional volume fell 2.7%, while specialty volume rose 9.4%. For the 39-week period, total volume rose to 850.8 million dozen from 811.8 million.
- Q3 farm production cost increased 18.2% to $1.078 per dozen produced; feed cost per dozen rose 20.8%. Higher feed, labor, facility, flock-amortization, packaging and transport costs partially offset higher selling prices.
- Cash and cash equivalents were $221.6 million and current available-for-sale securities were $423.4 million at February 25, 2023. Working capital was $880.3 million and the current ratio was 3.8.
- 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.
- Capital expenditures were $86.2 million for the 39 weeks. Dividends paid were $144.6 million; $107.7 million of dividends were payable at quarter-end.
Material changes versus the prior comparable periods
- Revenue more than doubled in Q3 and the 39-week period, primarily reflecting higher egg prices amid reduced supply from highly pathogenic avian influenza (HPAI), alongside robust demand. Q3 conventional egg prices increased much faster than specialty prices.
- Q3 gross profit increased $371.4 million; 39-week gross profit increased $856.4 million. Profitability improved sharply despite higher production and distribution costs.
- Operating cash flow increased to $706.5 million from $20.8 million for the 39-week period. Cash increased $162.5 million from fiscal year-end, while the company also built its investment portfolio.
- Q3 interest income increased with higher cash and investment balances and interest rates. Other income included a $2.0 million impairment of an investment in an unconsolidated entity. Prior-year 39-week other income included a $4.5 million gain related to the Red River acquisition and a $1.4 million marketing-agreement payment.
Outlook, risks, contingencies and unusual items
- Outlook: The filing provides no specific earnings or revenue guidance. Management expected continued upward pricing pressure and volatility in corn and soybean meal costs during fiscal 2023.
- HPAI and egg supply: No positive HPAI tests had occurred at company-owned or contracted facilities as of March 28, 2023. Management said the outbreak was pressuring overall egg supply. Industry layer-hen inventory was 3.8% below the prior year as of March 1, 2023; an external forecast cited in the filing projected a return to the prior five-year average by January 2024.
- Cage-free transition: State mandates, customer commitments and potential legal challenges could affect production, sourcing and prices. Some customers had revised earlier targets to 70% cage-free by 2030; customer demand and purchase commitments remain difficult to predict.
- Legal matters: Management assessed the remaining processed-egg antitrust claims as presenting a reasonable possibility of material adverse outcome, but said exposure could not be estimated; trial was set for October 16, 2023. In the Oklahoma watershed litigation, the court found for the state in January 2023, with no penalties assessed at that time; remedies remained under negotiation and potential loss could not be estimated. Management considered material loss risk remote in the Texas state and consumer cases, both of which were proceeding through appeals.
- Capital commitments and liquidity: Approved cage-free construction projects totaled $178.5 million, with $117.8 million remaining at quarter-end. Management said cash, investments, operating cash flow and the credit facility should fund needs for at least 12 months.
- Results may be affected by egg-price and feed-cost volatility, HPAI, inflation, labor and supply-chain costs, customer demand and product mix, cage-free regulations, litigation, weather and other operating risks. Management reported disclosure controls were effective and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether elevated egg prices and margins persist as HPAI-related supply constraints ease and layer flocks recover.
- Current feed-cost trends and the extent to which rising input, labor, packaging and delivery costs offset selling prices.
- Progress, timing and remaining costs of cage-free projects, and customer requirements following changes to cage-free targets.
- Developments in the processed-egg antitrust and Oklahoma watershed cases, including potential remedies, exposure and trial timing.
- Investment portfolio composition and liquidity, capital spending, dividend payments and use of the revolving credit facility.