Cal-Maine Foods, Inc. — Form 10-Q Summary
Reporting period: Fiscal second quarter and first half of fiscal 2015, ended November 29, 2014. The quarter covers 13 weeks; year-to-date covers 26 weeks. Comparisons are with the periods ended November 30, 2013. Amounts below are in millions except per-share data and percentages. The company produces, processes, markets, and distributes shell eggs and egg products.
Financial performance
| Metric | 13 weeks ended Nov. 29, 2014 | 13 weeks ended Nov. 30, 2013 | 26 weeks ended Nov. 29, 2014 | 26 weeks ended Nov. 30, 2013 |
|---|---|---|---|---|
| Net sales | $378.6 | $354.3 | $735.6 | $673.8 |
| Gross profit / gross margin | $92.7 / 24.5% | $74.7 / 21.1% | $173.8 / 23.6% | $119.6 / 17.7% |
| Operating income / margin | $55.6 / 14.7% | $40.9 / 11.6% | $96.8 / 13.2% | $51.9 / 7.7% |
| Net income attributable to Cal-Maine | $36.6 | $26.1 | $64.3 | $34.9 |
| Diluted earnings per share | $0.76 | $0.54 | $1.33 | $0.72 |
| Net cash provided by operating activities | Not separately reported for quarter | $68.1 | $9.5 |
- Sales and volume: Quarterly sales rose 6.9%; first-half sales rose 9.2%. Dozens sold increased 4.2% in the quarter and 4.0% year to date. Average shell-egg selling prices per dozen rose 2.9% to $1.379 for the quarter and 5.4% to $1.367 for the first half.
- Profitability drivers: Lower feed costs and higher egg prices expanded gross margins. Feed cost per dozen produced fell about 11% in both comparison periods. Specialty egg dozens sold grew 20.6% year over year; egg-product sales grew 15.7% in the quarter and 25.6% in the first half, supported by higher market prices and demand.
- Expenses and other income: SG&A increased 9.8% for the quarter and 13.9% for the first half, including higher payroll, delivery, specialty-egg, and stock-compensation expenses. First-half royalty income declined to $2.0 million from $2.4 million; quarterly royalty income benefited from a bonus on a new mineral-rights lease.
- Cash flow and investment: First-half operating cash flow was $68.1 million, versus $9.5 million a year earlier. The prior-year comparison was affected by payment of a $28.0 million legal settlement. Investing cash outflow was $47.2 million, including $43.0 million of capital expenditures and an $8.2 million investment in Southwest Specialty, LLC. Financing cash outflow was $25.5 million, including $19.7 million of dividends and $5.2 million of debt repayments. Cash declined $4.6 million to $9.9 million.
- Liquidity and debt: At November 29, current assets were $470.8 million and current liabilities were $140.7 million; working capital was $330.1 million and the current ratio was 3.35. Available-for-sale investment securities were $191.5 million. Total debt, including current maturities, was $55.9 million, down from $61.1 million at May 31, 2014. The company reported compliance with debt covenants.
- Dividend: Under the company’s policy, one-third of quarterly net income attributable to Cal-Maine is accrued for dividends, subject to cumulative-profit provisions. The reported dividend was $0.252 per share for the quarter.
Changes, outlook, and risks
- Results improved substantially year over year, with higher sales volume and selling prices and lower feed costs lifting gross and operating margins. A record-high U.S. laying flock could increase egg supply and pressure prices.
- Management said favorable 2014 crop conditions improved first-half feed costs and expected lower feed prices in the second half of fiscal 2015 versus the prior-year period. It expected cash, investments, borrowing capacity, and operating cash flows to be sufficient for projected capital needs; no numerical earnings or revenue guidance was provided.
- Approved construction projects had projected total costs of $118.4 million, of which $78.1 million had been spent; $40.3 million remained projected. Projects include cage-free, organic, and other capacity expansions.
- California Proposition 2 and Assembly Bill 1437, effective January 1, 2015, set egg-production standards. Management said California sales had not been material to date, but the rules could affect future sales, production, supply, and prices nationally.
- Egg prices are volatile and seasonal; feed costs depend on commodity markets and factors including weather and harvests. Other stated risks include disease, pests, weather, recalls, acquisitions, and litigation.
- Legal matters: The direct-purchaser antitrust settlement received final approval and claims against the company were dismissed with prejudice. Indirect-purchaser and non-class antitrust matters remained; management said a material adverse outcome remained reasonably possible, but exposure could not be estimated. Separate settlements in principle and an environmental settlement in principle were not expected to materially affect results.
- Unusual items: In the first quarter, the company recorded an $886,000 gain on fire-damaged property and $60,000 of insurance proceeds as a reduction of cost of sales. The filing also reports a $239,000 first-half expense from increased fair value of acquisition-related contingent consideration.
- The company effected a 2-for-1 stock split on October 31, 2014; share and per-share data in the filing were adjusted retroactively.
Important facts for investors to verify
- Whether egg prices, supply growth, and feed-cost trends support the improved margins, particularly after the expected second-half feed-cost benefit.
- How California’s new production standards affect compliance costs, sales, and broader egg supply and pricing.
- Developments in remaining antitrust litigation, including whether the company’s potential exposure becomes estimable.
- Progress and spending on the $40.3 million of remaining approved construction costs, and the returns from capacity expansions and the Southwest Specialty investment.
- Cash generation, investment-security liquidity, covenant compliance, and debt repayment needs as seasonal working-capital demands change.