Business context and reporting period
Cal-Maine Foods, Inc. (NASDAQ: CALM) is the largest U.S. producer and distributor of shell eggs, with one reportable segment. This 10-K covers the fiscal year ended June 3, 2023 (FY2023), a 53-week year; FY2022 ended May 28, 2022 and included 52 weeks. The filing is an FY2023 annual report, not a fiscal 2022 fourth-quarter filing.
FY2023 fourth-quarter revenue was reported for 14 weeks, versus 13 weeks in the prior-year comparable quarter. Accordingly, the quarterly revenue comparison is not period-matched.
Key financial metrics
| Metric | FY2023 | FY2022 |
|---|---|---|
| Net sales | $3.146 billion | $1.777 billion |
| Gross profit / margin | $1.196 billion / 38.0% | $337.1 million / 19.0% |
| Operating income / margin | $967.7 million / 30.7% | $143.5 million / 8.1% |
| Net income attributable to Cal-Maine | $758.0 million | $132.7 million |
| Diluted EPS | $15.52 | $2.72 |
| Cash flow from operations | $863.0 million | $126.2 million |
| Capital expenditures | $136.6 million | $72.4 million |
| Dividends paid | $252.3 million | $6.1 million |
At June 3, 2023, cash and cash equivalents were $292.8 million and current available-for-sale investment securities were $355.1 million. Working capital was $942.2 million and the current ratio was 6.16, up from $476.8 million and 3.58, respectively, a year earlier. The company had no long-term debt outstanding and had not borrowed under its $250 million revolving facility; $4.3 million of standby letters of credit were outstanding.
FY2023 revenue growth was driven principally by higher egg prices amid supply constraints from highly pathogenic avian influenza (HPAI). The average selling price for all shell eggs rose to $2.622 per dozen from $1.579, while total dozens sold increased 5.9% to 1.147 billion. Conventional shell egg revenue was $2.052 billion; specialty egg revenue was $957.0 million; egg-products revenue was $122.3 million. Feed costs per dozen produced increased 18.4% to $0.676. Feed represented 63.1% of farm production costs.
FY2023 fourth-quarter net sales were $688.7 million, compared with $593.0 million in the prior-year quarter, but the reported periods were 14 and 13 weeks, respectively. The filing excerpt does not provide a clear standalone fourth-quarter net income, cash flow, or margin value.
Material changes versus the prior comparable period
- Net sales increased 77.0%, and net income attributable to Cal-Maine rose to $758.0 million from $132.7 million, reflecting sharply higher conventional egg prices during much of the year as HPAI reduced industry supply.
- Conventional egg sales rose to $2.052 billion from $1.062 billion, primarily on price; conventional volume was nearly flat. Specialty egg sales increased to $957.0 million from $648.8 million, supported by 18.6% higher volume and higher average prices.
- Egg-products revenue more than doubled to $122.3 million, largely because average selling prices increased. Meadowcreek began hard-cooked egg operations in March 2023.
- Cash from operations increased substantially, while cash and investment securities also rose. The company paid substantially higher dividends under its variable policy, which generally distributes one-third of quarterly GAAP income when policy conditions are met.
- The U.S. layer flock began recovering late in FY2023; conventional egg prices declined from earlier highs in the fourth quarter as supply improved and seasonal demand softened.
Outlook, risks, contingencies, and unusual items
- Outlook: Management expects continued upward pricing pressure and volatility in corn and soybean meal costs in FY2024. It anticipates greater need to promote specialty eggs as the market recovers from HPAI effects. No numerical revenue or earnings guidance is provided.
- Investment plans: Approved cage-free layer and pullet projects total $190.6 million, with $104.9 million of projected cost remaining at year-end and completions scheduled through FY2027. Management says cash, investments, operating cash flows, and the credit facility should fund needs for at least the next 12 months.
- Industry and operating risks: Egg prices are volatile and influenced by supply, demand, seasonality, and disease. Feed, packaging, labor, and delivery costs are significant exposures. HPAI had not been detected at company-owned or contracted facilities as of July 25, 2023, but a future outbreak could materially affect production, costs, and prices.
- Customer and regulatory risks: Walmart and Sam’s Club accounted for 34.2% of FY2023 net sales; the top three customers represented 50.1%. Cage-free laws and customer commitments create both capacity-investment risk and the possibility of oversupply or insufficient demand. Some customers revised earlier cage-free targets to 70% by the end of 2030.
- Litigation: Management considers material loss remote in Texas state and consumer COVID-era egg-pricing cases. In the Kraft/General Mills/Nestlé processed-egg antitrust case, management says a material adverse outcome remains reasonably possible, but exposure cannot be estimated; trial was scheduled for October 16, 2023. In Oklahoma watershed litigation, the court found defendants liable for nuisance and trespass in January 2023; remedies and the company’s potential share were unresolved and not estimable.
- Unusual items: FY2023 included a $2.0 million impairment of an investment in an unconsolidated entity and $3.3 million of insurance recoveries. FY2022 included a $4.5 million gain from remeasuring the prior Red River investment and an $8.3 million discrete tax benefit related to that acquisition. The FY2023 effective tax rate was 24.2% versus 20.2% in FY2022 (25.2% excluding the prior-year discrete benefit).
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. Litigation and claims were identified as a critical audit matter.
Most important facts for investors to verify
- How quickly egg supply, HPAI impacts, and conventional egg prices normalize, and the resulting effect on margins and earnings.
- FY2024 feed-cost assumptions and whether higher input costs can be passed through to customers.
- Returns on cage-free capacity spending, given evolving customer targets, state requirements, and the lack of long-term purchase commitments.
- Customer concentration, particularly Walmart and Sam’s Club, and any changes in purchasing or pricing terms.
- Developments and potential financial exposure in the Kraft antitrust and Oklahoma watershed cases.
- Liquidity and dividend capacity after $252.3 million of FY2023 dividends and planned cage-free capital expenditures.