Cal-Maine Foods, Inc. — Fiscal 2022 Second-Quarter Form 10-Q
Reporting period: Thirteen and twenty-six weeks ended November 27, 2021; comparable periods ended November 28, 2020. Amounts are in U.S. dollars; financial statement figures below are in millions unless stated otherwise.
Business context
Cal-Maine is a vertically integrated U.S. producer, processor, marketer and distributor of shell eggs, with one operating segment. Results depend heavily on volatile egg selling prices and feed costs. In the quarter, specialty products represented 41.1% of sales; shell eggs accounted for 97.1% of total sales.
Key financial results
| Metric | Quarter ended Nov. 27, 2021 | Prior-year quarter | 26 weeks ended Nov. 27, 2021 | Prior-year 26 weeks |
|---|---|---|---|---|
| Net sales | $390.9 | $347.3 | $722.6 | $640.1 |
| Gross profit / margin | $43.7 / 11.2% | $58.5 / 16.8% | $50.4 / 7.0% | $75.2 / 11.8% |
| Operating income (loss) / margin | $(2.1) / (0.5)% | $14.5 / 4.2% | $(41.7) / (5.8)% | $(12.7) / (1.9)% |
| Net income (loss) attributable to Cal-Maine | $1.2 | $12.2 | $(16.9) | $(7.2) |
| Basic and diluted EPS | $0.02 | $0.25 | $(0.34) | $(0.15) |
Quarterly consolidated net income was $1.1 million; the amount attributable to Cal-Maine was $1.2 million because of a loss attributable to the noncontrolling interest.
- Cash flow: Operating cash use was $15.5 million in the first half, versus $10.7 million used a year earlier. Investing cash use was $26.3 million, including $44.8 million for the Red River acquisition, partly offset by net proceeds from investment securities. Capital expenditures were $28.6 million. Cash declined $41.9 million to $15.5 million.
- Liquidity and debt: At November 27, cash was $15.5 million and current available-for-sale securities were $69.7 million. Working capital was $364.7 million, down from $429.8 million at May 29, 2021; the current ratio was 4.13 versus 5.77. No long-term debt was outstanding. A new five-year, $250 million secured revolver had no borrowings and $4.1 million of letters of credit outstanding.
- Balance sheet: Total assets were $1.232 billion and stockholders’ equity was $997.4 million at November 27, 2021.
Changes versus the comparable periods
- Quarterly sales rose 12.5%, but gross profit fell 25.2% and operating results moved from income to a loss. Higher feed, processing, packaging and labor costs outweighed higher egg prices.
- Quarterly shell-egg dozens sold increased 0.9% to 276.1 million. Conventional volume declined 4.4%, while specialty volume rose 15.7%. The average selling price for all shell eggs increased to $1.373 per dozen from $1.227.
- Farm production cost per dozen produced increased 21.6% in the quarter to $0.878; feed cost per dozen rose 29.0%. Corn prices were up 38.4% year over year in the quarter.
- First-half sales increased 12.9%, while gross profit declined 33.0%. The first-half operating loss widened to $41.7 million from $12.7 million.
Outlook, management commentary and notable items
- No quantified earnings or sales guidance is provided. Management said corn and soybean supplies remained tight relative to demand and expected market prices to remain volatile amid pandemic-related disruption, weather and geopolitical factors.
- Management cited higher feed costs, supply-chain-related packaging costs, wage increases, labor shortages and inflation as pressures. It also noted seasonal variation in egg prices and demand.
- On May 30, 2021, the company acquired the remaining 50% of Red River Valley Egg Farm for $48.5 million cash, making it wholly owned. The transaction included a $4.5 million remeasurement gain and an $8.3 million discrete tax benefit; these are unusual items that affect comparability.
- The company announced an $18.5 million planned investment in MeadowCreek Foods, a venture focused initially on hard-cooked eggs, and a $23.0 million cage-free expansion at its Okeechobee, Florida facility. It expects to fund the expansion through cash, investments and operating cash flow. Approved construction projects had $51.7 million of projected remaining cost at quarter-end.
- The dividend policy generally provides for one-third of quarterly earnings, subject to recovery of cumulative losses after a non-dividend quarter. At the end of fiscal 2022’s second quarter, $21.1 million of cumulative losses remained to be recovered before a dividend could be paid.
- Legal contingencies: The company continues to defend an antitrust case brought by processed-egg-product plaintiffs; management said a material adverse outcome remains reasonably possible but monetary exposure cannot currently be estimated. A Texas consumer-price case was dismissed without prejudice, and plaintiffs sought to amend the judgment; that request remained pending. Management considers the Texas state case and Oklahoma watershed matter remote risks of material loss.
Most important facts for investors to verify
- Whether egg prices and product mix can offset elevated feed, packaging, labor and other operating costs.
- Progress and spending against cage-free construction plans and the MeadowCreek investment, including expected funding and returns.
- Liquidity trends, including operating cash use, investment-security balances and headroom under the revolver’s covenants.
- Developments in the processed-egg antitrust litigation and any changes to the company’s estimate of potential exposure.
- Whether cumulative losses are recovered sufficiently for dividends to resume under the stated policy.