Cal-Maine Foods, Inc. — FY2015 Form 10-K Summary
Reporting period: Fiscal year ended May 30, 2015 (52 weeks). Although the request metadata refers to 2014 Q4, this filing reports FY2015 and includes a comparison of its fourth quarter with the quarter ended May 31, 2014. Dollar amounts below are in millions unless noted.
Business context
Cal-Maine is the largest U.S. shell-egg producer and marketer, operating as a single segment. It sold 1,063.1 million dozen eggs in FY2015, approximately 23% of U.S. shell-egg consumption. Shell eggs accounted for about 97% of sales; the remainder was primarily egg products.
Financial and operating results
| Metric | FY2015 | FY2014 |
|---|---|---|
| Net sales | $1,576.1 | $1,440.9 |
| Gross profit / margin | $395.7 / 25.1% | $302.8 / 21.0% |
| Operating income / margin | $235.3 / 14.9% | $146.1 / 10.1% |
| Net income attributable to Cal-Maine | $161.3 | $109.2 |
| Diluted earnings per share | $3.33 | $2.26 |
| Cash provided by operating activities | $195.3 | $123.9 |
| Capital expenditures | $82.3 | $59.2 |
FY2015 sales rose 9.4% and net income rose about 48%. Egg volume sold increased 4.9%; average shell-egg selling price rose to $1.429 per dozen from $1.362. Feed cost per dozen produced fell to $0.44 from $0.49. Management attributed the earnings improvement principally to higher egg prices and volumes and lower feed costs. Annual net income margin was approximately 10.2%, versus 7.6%.
Fourth quarter: Net sales were $403.0 million versus $371.6 million in the prior-year quarter; gross profit was $109.4 million versus $91.3 million; and net income attributable to Cal-Maine was $46.1 million versus $31.5 million. Diluted EPS was $0.95 versus $0.65.
Balance sheet and liquidity: At May 30, 2015, working capital was $377.0 million, the current ratio was 3.86, total debt was $50.9 million, total assets were $928.7 million, and stockholders’ equity was $704.6 million. Cash and cash equivalents were $8.7 million and current available-for-sale investments were $250.0 million. Operating cash flow increased year over year; cash declined $5.9 million during the year after investing and financing activity. Dividends paid were $48.9 million; dividends were $1.11 per common share for FY2015, adjusted for the 2-for-1 stock split.
Changes, outlook and risks
- Specialty eggs grew in importance: they represented 27.2% of shell-egg sales dollars and 19.8% of dozens sold, compared with 24.3% and 17.2%, respectively, in FY2014. Co-pack specialty sales declined as a share of sales.
- FY2014 included Delta Egg operations only from March 1, 2014, following acquisition of the joint-venture partner’s interest; this affects comparability. FY2013 also included partial-year results from prior acquisitions.
- An avian-influenza outbreak began in April 2015. At filing, management cited estimates that about 13% of the national laying-hen flock had been affected. Cal-Maine reported no positive tests at its locations and was increasing biosecurity measures. Egg prices had risen sharply; management expected prices to remain high until the national flock could be replenished, but gave no earnings guidance.
- Feed prices remained volatile. Management expected corn and soybean meal supplies to be adequate but noted weather-related uncertainty. The company generally does not hedge feed purchases, other than limited customer-funded contracts.
- Cal-Maine entered the Red River Valley Egg Farm joint venture, planning a complex for approximately 1.8 million cage-free hens. It expected to fund its 50% share of approximately $73 million of construction and start-up costs in FY2016. Management said current cash, investments, borrowing capacity and operating cash flows should fund projected needs.
- Key risks include volatile egg prices and feed costs, disease and product recalls, seasonality, customer concentration (Wal-Mart and Sam’s Club together represented 25.7% of FY2015 sales), animal-welfare requirements, and acquisition and regulatory risks.
- Egg antitrust litigation remained a contingency: direct-purchaser class claims had been dismissed following settlement, but a motion concerning certain plaintiffs’ participation remained pending. Indirect-purchaser and several non-class cases continued; management said a material adverse outcome remained reasonably possible, but exposure could not be estimated and no adjustment was recorded. The Oklahoma watershed matter was assessed as remote; an EPA-related settlement concerning one Mississippi facility was not expected to materially affect results.
Investor facts to verify
- Whether the avian-influenza outbreak affects Cal-Maine’s flocks, industry supply, egg prices or subsequent-period results.
- Whether egg prices and lower feed costs that supported FY2015 margins persist, and how seasonality affects upcoming quarters.
- Progress, total funding needs and expected returns for Red River and the disclosed construction program.
- Developments in the remaining antitrust litigation and any resulting financial exposure.
- Customer concentration, specialty-egg growth and the company’s ability to pass through higher production or regulatory costs.
The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting. The filing provides no specific quantified earnings or revenue guidance.