Cal-Maine Foods, Inc. — Form 10-K Summary
Period: Fiscal year ended May 29, 2021 (52 weeks), compared with fiscal 2020 ended May 30, 2020. The request metadata says “2020 Q4,” but the filing is the fiscal 2021 annual report; it also reports fourth-quarter results. Amounts are in U.S. dollars.
Business context
Cal-Maine is the largest U.S. producer and distributor of shell eggs. It sold 1,073.2 million dozen shell eggs in fiscal 2021, about 19% of U.S. domestic shell-egg consumption. The company operates one business segment and sells conventional and specialty eggs, as well as egg products.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $1,349.0 million | $1,351.6 million |
| Gross profit / gross margin | $160.7 million / 11.9% | $179.6 million / 13.3% |
| Operating income (loss) | $(26.3) million / (1.9)% | $1.3 million / 0.1% |
| Net income attributable to Cal-Maine | $2.1 million | $18.4 million |
| Diluted earnings per share | $0.04 | $0.38 |
| Cash from operating activities | $26.1 million | $73.6 million |
- Sales were nearly flat, but gross profit declined $18.9 million. Lower conventional egg prices and higher feed costs pressured results; feed cost per dozen produced rose 9% to $0.446.
- Net income included a $12.0 million income-tax benefit, principally related to CARES Act net-operating-loss carrybacks. The company estimated a $36.5 million tax refund, expected in fiscal 2022’s third quarter; income-tax receivable was $42.5 million at year-end.
- Specialty egg sales increased 11.2% to $539.8 million and represented 41.1% of net sales, versus 36.8% in fiscal 2020. Conventional egg sales fell 7.7% to $766.3 million.
- Year-end cash was $57.4 million; current assets were $519.9 million and current liabilities $90.1 million. Working capital was $303.5 million and the current ratio was 5.77.
- No long-term debt was outstanding, and the $100 million revolving credit facility was undrawn. Standby letters of credit totaled $4.1 million. Capital expenditures were $95.1 million.
Material changes and fourth-quarter results
- Fiscal 2021 net sales decreased $2.6 million year over year, while net income attributable to Cal-Maine declined from $18.4 million to $2.1 million.
- For the 13 weeks ended May 29, 2021, net sales were $349.8 million versus $453.3 million a year earlier. The quarter recorded a $4.2 million net loss attributable to Cal-Maine, compared with $60.5 million net income in the prior-year quarter.
- Conventional egg volume sold fell 3.4% for the year; specialty volume rose 12.5%. Specialty growth reflected additional cage-free production and promotional spending.
- Operating cash flow declined by $47.5 million year over year, primarily reflecting weaker gross margins. Inventories rose to $218.4 million from $187.2 million.
Outlook, risks and unusual items
- Management expected feed ingredient prices to remain elevated and volatile in fiscal 2022, citing supply-chain disruption, weather, export demand and geopolitical issues. It did not anticipate difficulty securing adequate feed ingredients.
- The company plans continued selective growth and investment in cage-free capacity. A cage-free layer, pullet and processing project had projected cost of $140.9 million, with $47.3 million remaining at May 29, 2021. Management said existing cash, investments, operating cash flow and the revolver should meet current capital needs, though future growth may require long-term debt.
- After year-end, the company acquired the remaining 50% interest in Red River Valley Egg Farm for $48.5 million, making it wholly owned. Red River operates a cage-free complex with approximately 1.7 million laying hens. The filing describes the transaction’s effective date inconsistently in different sections.
- COVID-19 shifted demand between retail and foodservice channels and raised packaging, labor and medical costs. Fiscal 2021 pandemic-related costs were $2.3 million excluding medical insurance claims; COVID-related claims added $1.4 million. Retail demand weakened in the fourth quarter as consumer behavior began normalizing, while foodservice demand was recovering but remained below pre-pandemic levels.
- Major risks include volatile egg prices and feed costs, avian disease and food-safety events, cage-free transition costs and uncertain customer commitments, labor availability and costs, customer concentration, and litigation. Walmart and Sam’s Club represented 29.8% of fiscal 2021 sales; the top three customers represented 48.6%.
- The company faces remaining processed-egg antitrust litigation seeking injunctive relief and treble damages. Management said a material adverse outcome was reasonably possible but could not estimate exposure. The company reported the risk of material loss as remote in the Texas COVID-pricing cases and Oklahoma watershed litigation.
- The variable dividend policy is tied to quarterly net income and cumulative profitability. At fiscal year-end, $4.2 million of cumulative losses had to be recovered before a dividend could be paid under the policy.
Key facts for investors to verify
- Whether the anticipated $36.5 million CARES Act tax refund was received in fiscal 2022 and how it affected liquidity.
- Subsequent feed costs, egg prices, retail versus foodservice demand, and the resulting effect on margins and operating cash flow.
- Red River’s completed acquisition accounting, integration, and contribution to earnings and cage-free capacity.
- Remaining cage-free construction spending, customer commitments, and the balance between specialty demand and higher production costs.
- Developments in the processed-egg antitrust case, for which the filing provides no clear estimate of potential monetary exposure.