Cal-Maine Foods, Inc. — Form 10-Q Summary
Reporting period: The filing covers the 13 and 39 weeks ended February 27, 2021, compared with the periods ended February 29, 2020. This is fiscal 2021’s third quarter; the request metadata’s “2020 Q3” does not match the filing period.
Financial results
| Metric | 13 weeks ended Feb. 27, 2021 | 13 weeks ended Feb. 29, 2020 | 39 weeks ended Feb. 27, 2021 | 39 weeks ended Feb. 29, 2020 |
|---|---|---|---|---|
| Net sales | $359.1 million | $345.6 million | $999.2 million | $898.3 million |
| Gross profit / margin | $47.5 million / 13.2% | $49.8 million / 14.4% | $122.7 million / 12.3% | $58.1 million / 6.5% |
| Operating income (loss) | $(0.5) million | $5.2 million | $(13.2) million | $(74.8) million |
| Net income (loss) attributable to Cal-Maine | $13.5 million | $13.7 million | $6.3 million | $(42.1) million |
| Diluted EPS | $0.28 | $0.28 | $0.13 | $(0.87) |
| Operating cash flow | Not presented by quarter | $14.7 million | $(36.5) million |
- Third-quarter sales rose 3.9%, driven by 3.1% higher dozen volume and a modest increase in average shell-egg selling price. Specialty egg volume increased 16.2%; conventional volume fell 1.1% and its average price declined 2.2%.
- Quarterly gross profit fell $2.3 million as higher production and processing costs outweighed sales growth. Farm production cost per dozen rose 7.0%, chiefly because feed cost per dozen increased 15.0%.
- Year-to-date sales increased 11.2%, reflecting higher average selling prices and 3.9% more dozens sold. Gross profit improved substantially, but the company still reported a year-to-date operating loss.
- Third-quarter net income included a $5.0 million discrete tax benefit from CARES Act net operating loss carrybacks. The company reported a $1.7 million income-tax benefit for the quarter; excluding the discrete benefit, tax expense was $2.9 million.
Financial position and liquidity
- At February 27, 2021, cash and cash equivalents were $52.9 million, current available-for-sale investment securities were $127.8 million, and working capital was $422.0 million. The current ratio was 5.19.
- Total assets were $1.231 billion and total liabilities were $214.8 million. Stockholders’ equity was $1.016 billion.
- No long-term debt was outstanding, and no amounts were drawn on the $100 million revolving credit facility. Standby letters of credit under the facility totaled $4.1 million. Finance and operating lease obligations were reported separately.
- For the first 39 weeks, capital expenditures were $73.8 million; investing cash outflow was $38.9 million, including net purchases of investment securities. Cash declined $25.2 million from fiscal year-end.
- Management said cash, investments, operating cash flows, and the revolving facility should cover projected capital needs for at least 12 months. Approved construction projects totaled $141.6 million, with $51.7 million of projected cost remaining at quarter-end.
Management commentary, outlook, risks, and contingencies
- Management attributed resilient retail egg demand to consumers preparing more meals at home during the pandemic. It cited increased specialty-egg demand and growth in specialty offerings as meaningful business drivers.
- Management warned that higher corn and soybean meal prices, export demand, weather, geopolitical conditions, and supply-chain disruption could pressure feed costs. It expected continued feed-price volatility and greater exposure to market movements in the fourth fiscal quarter.
- Management noted that higher hen-hatch numbers could increase future supply. As food-service demand returns, a growing supply of eggs could affect market balance and selling prices. Egg and feed prices are volatile, and results are seasonal.
- The company reported $1.8 million of pandemic-related costs, excluding medical insurance claims, in the first 39 weeks; it also paid $1.1 million in COVID-19-related medical claims. It donated approximately 1.5 million dozen eggs during that period.
- The CARES Act carryback is expected to generate an estimated $14.6 million tax refund, which the company anticipated receiving in fiscal 2022. The tax benefit materially affected reported results.
- In the processed-egg antitrust case brought by Kraft, General Mills, and Nestlé, management said a material adverse outcome remained reasonably possible, but the amount of any exposure could not be estimated. Claims seek injunctive relief and treble damages; the financial statements do not reflect any potential adjustment.
- Texas state and consumer cases alleging excessive egg prices during the pandemic remained in litigation; management assessed the risk of material loss as remote. Management also assessed the Oklahoma watershed matter’s material-loss risk as remote.
- The Adams and Baker families controlled approximately 57.7% of total voting power. The filing also identified potential share-sale overhang, including approximately 5.0 million shares remaining registered for possible resale after a related-party secondary offering.
- The company’s dividend policy links quarterly dividends to earnings and cumulative profitability. It disclosed an approximately $0.034-per-share dividend for the third quarter.
Most important facts for investors to verify
- Whether egg-price and volume trends, particularly specialty-egg growth, can offset feed-cost inflation and possible increases in supply.
- The timing and receipt of the estimated $14.6 million tax refund, and the extent to which reported earnings depend on the nonrecurring tax benefit.
- Remaining construction commitments, actual capital spending, and the company’s liquidity as cash declined during the period.
- Developments and potential exposure in the processed-egg antitrust case; the filing says exposure cannot currently be estimated.
- Potential impact of family voting control and registered shares available for resale on governance and the share price.