Cal-Maine Foods, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter ended March 1, 2014 (13 weeks), with year-to-date results for the 39 weeks ended March 1, 2014. Comparatives are the periods ended March 2, 2013. The filing describes fiscal 2014, notwithstanding the request metadata’s “2013 Q3” label.
Business context and financial performance
Cal-Maine is a vertically integrated U.S. producer and marketer of shell eggs. Results are sensitive to volatile egg selling prices and feed costs, and are seasonal. Shell eggs accounted for approximately 96% of year-to-date net sales.
| Metric | 13 weeks ended Mar. 1, 2014 | 13 weeks ended Mar. 2, 2013 | 39 weeks ended Mar. 1, 2014 | 39 weeks ended Mar. 2, 2013 |
|---|---|---|---|---|
| Net sales | $395.5 million | $360.4 million | $1,069.3 million | $962.2 million |
| Gross profit / margin | $91.9 million / 23.2% | $67.0 million / 18.6% | $211.5 million / 19.8% | $163.1 million / 16.9% |
| Operating income / margin | $46.6 million / 11.7% | $30.9 million / 8.6% | $98.5 million / 9.2% | $66.9 million / 6.9% |
| Net income attributable to Cal-Maine | $42.9 million | $30.6 million | $77.7 million | $54.3 million |
| Diluted EPS | $1.77 | $1.27 | $3.22 | $2.26 |
- Quarterly sales rose 9.7%; dozens sold increased 4.6% and average shell-egg selling price per dozen rose 4.8% to $1.416. Year-to-date sales grew 11.1%, with dozens sold up 8.4% and average price up 2.3% to $1.338.
- Quarterly gross-margin improvement primarily reflected lower feed cost per dozen produced ($0.459 versus $0.547) and higher selling prices. Feed represented about 66% of farm egg production cost for the quarter.
- SG&A increased 25.4% in the quarter to $45.3 million. The company cited specialty-egg promotion costs, a confidential litigation settlement and related legal fees, and higher audit and tax expense.
- Other income included a $4.0 million noncash, nontaxable gain from acquiring the remaining 50% of Delta Egg Farm. Lower patronage dividends and royalty income partly offset the gain.
Cash flow, balance sheet and liquidity
- For the 39 weeks, operating cash flow was $70.9 million, compared with $42.6 million a year earlier. Investing cash use was $62.5 million, including $40.9 million of capital expenditures and $11.5 million, net of cash acquired, for the Delta Egg interest. Financing cash use was $17.9 million, including $7.9 million of debt payments and $10.3 million of dividends. Cash declined $9.6 million to $15.4 million.
- At March 1, 2014, current assets were $439.9 million and current liabilities $128.7 million; working capital was $311.2 million and the current ratio 3.42. Available-for-sale securities were $175.3 million.
- Total debt, including current maturities, was $64.0 million, versus $65.0 million at June 1, 2013. The company reported compliance with its loan covenants. Total assets were $797.1 million and stockholders’ equity was $572.9 million.
- Quarterly dividends were $0.591 per common share; the company’s policy generally provides for dividends equal to one-third of quarterly attributable income, subject to cumulative-profit and other conditions.
Material changes, outlook and risks
- On March 1, 2014, the company acquired its joint venture partner’s 50% interest in Delta Egg for $17.0 million, funded from available cash. Delta Egg’s facilities include capacity for approximately 1.2 million laying hens and a 400,000-hen organic complex. The purchase-price allocation was preliminary.
- Management expected lower feed costs for the remainder of fiscal 2014 than in fiscal 2013, primarily due to lower corn prices, but cautioned that feed costs remain volatile. It said cash, investments, borrowing capacity and operating cash flow should fund current and projected capital needs. No specific earnings or revenue guidance was provided.
- Approved construction projects totaled $100.8 million, with $68.1 million of projected costs remaining at March 1, 2014. Projects included cage-free and organic capacity expansions.
- Egg antitrust litigation remains a material contingency. A direct-purchaser class settlement received preliminary court approval, with a final fairness hearing scheduled for September 18, 2014. Other indirect-purchaser and non-class cases continued; management said a material adverse outcome remained reasonably possible but could not estimate monetary exposure.
- Other key risks include egg-price and feed-cost volatility, disease, pests, weather, recalls, changes in demand, acquisition-related obligations and pending litigation. Management reported effective disclosure controls and no material change in internal control during the quarter.
Key facts for investors to verify
- Whether the direct-purchaser settlement receives final court approval and how the remaining antitrust cases develop; potential exposure is not estimable in the filing.
- Whether improved margins persist as egg prices, corn and soybean-meal costs, and seasonal supply and demand change.
- Delta Egg’s final purchase-price allocation, integration and contribution to operating results; the reported $4.0 million gain is nonrecurring and noncash.
- Progress, timing and final cost of the $100.8 million approved construction program, and continued compliance with debt covenants.