Item 2. Management’s Discussion and Analysis
ITEM
2.
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND
RESULTS
OF
OPERATIONS
The following
should be
read in
conjunction
with Management’s
Discussion and
Analysis of
Financial Condition
and Results
of Operations included
in Part II Item
7 of the Company’s
Annual Report on
Form 10-K for its
fiscal year ended May
29, 2021
(the “2021 Annual Report”), and the accompanying financial statements and
notes included in Part II Item 8 of the 2021 Annual
Report and in
Part
I Item 1
of this Quarterly Report on Form 10-Q (“Quarterly Report”).
This
report
contains
numerous
forward-looking
statements
within
the
meaning
of
Section
27A
of
the
Securities
Act
of
1933
(the “Securities
Act”) and
Section 21E
of the
Securities Exchange
Act of
1934 (the
“Exchange Act”)
relating to
our shell
egg
business,
including
estimated
future
production
data,
expected
construction
schedules,
projected
construction
costs,
potential
future
supply
of and
demand
for
our
products,
potential
future
corn
and
soybean price
trends,
potential
future
impact
on
our
business
of
the
COVID-19
pandemic,
potential
future
impact
on
our
business
of
new
legislation,
rules
or
policies,
potential
outcomes
of
legal
proceedings,
and
other
projected
operating
data,
including
anticipated
results
of
operations
and
financial
condition.
Such
forward-looking
statements
are
identified
by
the
use
of
words
such
as
“believes,”
“intends,”
“expects,”
“hopes,”
“may,”
“should,”
“plans,”
“projected,”
“contemplates,”
“anticipates,”
or
similar
words.
Actual
outcomes
or
results
could
differ
materially
from
those
projected
in
the
forward-looking
statements. The
forward-looking
statements
are
based
on
management’s
current
intent,
belief,
expectations,
estimates,
and
projections
regarding
the
Company
and
its
industry. These
statements
are
not
guarantees
of
future
performance
and
involve
risks,
uncertainties,
assumptions,
and
other
factors
that
are
difficult
to predict
and
may be
beyond
our
control. The
factors
that
could cause
actual results
to
differ
materially
from those
projected
in the
forward-looking
statements include,
among others,
(i) the
risk factors
set forth
in Part
I, Item
1A of
the 2021
Annual
Report
(ii)
the
risks
and
hazards
inherent
in
the
shell egg
business
(including
disease, pests,
weather
conditions,
and
potential for
product recall),
(iii) changes
in the
demand for
and market
prices of
shell eggs
and feed
costs, (iv)
our ability
to
predict
and
meet
demand
for
cage-free
and
other
specialty
eggs,
(v)
risks,
changes,
or
obligations
that
could
result
from
our
future
acquisition
of
new
flocks
or
businesses
and
risks
or
changes
that
may
cause
conditions
to
completing
a
pending
acquisition not
to be
met, (vi)
risks relating
to the
evolving COVID-19
pandemic, including
without limitation
increased costs
and growing
inflationary rates, and
(vii) adverse results
in pending
litigation matters. Readers
are cautioned
not to place
undue
reliance on forward-looking statements because,
while we believe the assumptions on
which the forward-looking statements are
based
are
reasonable,
there
can
be
no
assurance
that
these
forward-looking
statements
will
prove
to
be
accurate. Further,
forward-looking statements
included
herein
are
only
made
as
of
the
respective
dates
thereof,
or
if
no
date
is
stated,
as
of
the date
hereof. Except
as
otherwise
required
by
law,
we
disclaim
any
intent
or
obligation
to
update
publicly
these
forward-
looking statements, whether because of new information, future events,
or otherwise.
GENERAL
Cal-Maine
Foods,
Inc.
(the
“Company,”
“we,”
“us,”
“our”)
is
primarily
engaged
in
the
production,
grading,
packaging,
marketing
and
distribution
of
fresh
shell
eggs.
Our
operations
are
fully
integrated
under
one
operating
segment.
We
are
the
largest producer
and distributor
of fresh
shell eggs
in the
United States
(“U.S.”).
Our total flock
of approximately
42.9 million
layers
and
9.3
million
pullets
and
breeders
is
the
largest
in
the
U.S.
We
sell
most
of
our
shell
eggs
to
a
diverse
group
of
customers, including
national and
regional grocery
store chains,
club stores,
companies servicing
independent supermarkets
in
the U.S., food
service distributors, and
egg product consumers
in states across
the southwestern, southeastern,
mid-western and
mid-Atlantic regions of the U.S.
We
are
a
member
of
the
Eggland’s
Best,
Inc.
(“EB”)
cooperative
and
produce,
market
and
distribute
EB
and
Land
O'Lakes
branded
eggs,
both
directly
and
through
our
joint
ventures
Specialty
Eggs,
LLC
and
Southwest
Specialty
Eggs,
LLC,
under
exclusive
license
agreements
in
Alabama,
Arizona,
Florida,
Georgia,
Louisiana,
Mississippi
and
Texas,
and
in
portions
of
Arkansas, California,
Nevada, North
Carolina Oklahoma
and South
Carolina.
We
also have
an exclusive
license in
New York
City in addition to exclusivity in select New York
metropolitan areas, including areas within New Jersey and Pennsylvania.
Our
operating
results
are
materially
impacted
by
market
prices for
eggs
and
feed
grains
(corn
and
soybean
meal),
which
are
highly
volatile,
independent
of
each
other,
and
out
of
our
control.
Generally,
higher
market
prices
for
eggs
have
a
positive
impact
on
our
financial
results
while
higher
market
prices
for
feed
grains
have
a
negative
impact
on
our
financial
results.
Although we
use a
variety of
pricing mechanisms
in pricing
agreements with
our customers,
we sell
most of
our conventional
shell eggs
based on
formulas that
consider,
in varying
ways, independently
quoted regional
wholesale
market prices
for shell
eggs
or
formulas
related
to
our
costs
of
production
which
include
the
cost
of
corn
and
soybean
meal.
As
an
example
of
the
volatility in the market prices
of shell eggs, the Urner-Barry
White Large, Southeast
Regional Egg Market Price per
dozen eggs
(“UB southeast large
index”) for the first
half of fiscal year
2022
ranged from a low
of $1.00 in June
2021 to a high of
$1.66 in
November 2021.
Index
21
Generally,
we purchase
primary feed
ingredients,
mainly corn
and soybean
meal, at
current market
prices. Corn
and soybean
meal
are
commodities
and
are
subject
to
volatile
price
changes
due
to
weather,
various
supply
and
demand
factors,
transportation and storage costs, speculators, and agricultural, energy
and trade policies in the U.S. and internationally.
An important competitive advantage
for Cal-Maine Foods is
our ability to meet
our customers’ evolving needs
with a favorable
product
mix
of
conventional
and
specialty
eggs,
including
cage-free,
organic
and
other
specialty
offerings,
as
well
as
egg
products.
We
have
also
enhanced
our
efforts
to
provide
free-range
and
pasture-raised
eggs
that
meet
consumers’
evolving
choice
preferences.
While
a
small
part
of
our
current
business,
the
free-range
and
pasture-raised
eggs
we
produce
and
sell
represent attractive offerings
to a subset of
consumers,
and therefore our customers,
and help us continue
to serve as the trusted
provider of quality food choices.
Specialty shell
eggs have
been a
significant and
growing portion
of the
market. In
recent years,
a significant
number of
large
restaurant chains, food
service companies and
grocery chains, including
our largest customers,
announced goals to
transition to
an
exclusively
cage-free
egg
supply
chain
by
specified
future
dates.
Additionally,
several
states,
representing
approximately
24% of the U.S. total population
according to the 2020 U.S. Census,
have passed legislation requiring
that all eggs sold in those
states
must
be
cage-free
eggs
by
specified
future
dates,
and
other
states
are
considering
such
legislation.
In
California
and
Massachusetts, which represent about
14% of the total U.S. population
according to the 2020 U.S.
Census, cage-free legislation
goes into effect
January 1, 2022.
For additional information,
see the 2021
Annual Report, Part
I, Item 1,
“Business – Specialty
Eggs,”
“Business
–
Growth
Strategy”
and
“Business
–
Government
Regulation,”
and
the
first
risk
factor
in
Part
I
Item
1A,
“Risk Factors” under the sub-heading “Legal and Regulatory Risk Factors.”
Retail
sales
of
shell
eggs
historically
have
been
highest
during
the
fall
and
winter
months
and
lowest
during
the
summer
months. Prices
for shell
eggs fluctuate
in response
to seasonal
demand factors
and a
natural increase
in egg
production during
the
spring
and
early
summer.
Historically,
shell
egg
prices
tend
to
increase
with
the
start
of
the
school
year
and
tend
to
be
highest
prior
to
holiday
periods,
particularly
Thanksgiving,
Christmas,
and
Easter.
Consequently,
and
all
other
things
being
equal, we would
expect to experience
lower selling prices, sales
volumes and net
income (and may incur
net losses) in our
first
and
fourth
fiscal
quarters
ending
in
August/September
and
May/June,
respectively.
Because
of
the
seasonal
and
quarterly
fluctuations,
comparisons
of
our
sales
and
operating
results
between
different
quarters
within
a
single
fiscal
year
are
not
necessarily meaningful comparisons.
COVID-19
Since early
2020, the
coronavirus (“COVID-19”)
outbreak, characterized
as a
pandemic by
the World
Health Organization
on
March
11,
2020,
has
caused
significant
disruptions
in
international
and
U.S.
economies
and
markets.
We
understand
the
challenges
and
difficult
economic
environment
facing
families
in
the
communities
where
we
live
and
work,
and
we
are
committed
to
helping
where
we
can.
We
have
provided
food
assistance
to
those
in
need
by
donating
approximately
479
thousand
dozen
eggs
to
date
in
fiscal
2022.
We
believe
we
are
taking
all
reasonable
precautions
in
the
management
of
our
operations in
response to
the COVID-19
pandemic. Our
top priority
is the
health and
safety of
our employees,
who work
hard
each day
to produce
eggs for
our customers.
As part
of the
nation’s
food supply,
we work
in a
critical infrastructure
industry,
and
we
believe
we
have
a
special
responsibility
to
maintain
our
normal
work
schedule.
As
such,
we
are
in
regular
communication with our managers across our operations and continue
to closely monitor the situation in our facilities and in the
communities where we live and work. We
have implemented procedures designed to protect our employees, taking
into account
guidelines
published
by
the Centers
for
Disease Control
and
other
government
health
agencies,
and
we
have
strict sanitation
protocols
and
biosecurity
measures
in
place
throughout
our
operations
with
restricted
access
to
visitors.
There
are
no known
indications that COVID-19 affects chickens or
can be transferred through the food supply.
We
continue to
proactively monitor
and manage
operations during
the COVID-19 pandemic,
including additional
related costs
that
we
incurred
or
may
incur
in
the
future.
The pandemic
had
a
negative
impact
on our
business
through
disruptions in
the
supply chain such
as increased costs and
limited availability of packaging
supplies, and increased labor
costs and medical costs
and, more recently,
inflation.
In the
second quarters
of fiscal
2022 and
2021, we
spent approximately
$713 thousand
and $612
thousand (excluding
medical
insurance
claims) related
to the
pandemic
and its
effects,
respectively.
The majority
of these
expenses
in fiscal
2022 resulted
from additional
labor costs
and increased
cost of
packaging materials,
primarily reflected
in cost
of sales.
In fiscal
2021, most
of
these
expenses
related
to
additional
labor
costs.
Medical
insurance
claims
related
to
COVID-19
paid
during
the
second
quarter of fiscal
2022 were an
additional $870
thousand as compared
to $529 thousand
paid in the
comparable quarter in
fiscal
2021.
Index
22
In the
first half
of fiscal
2022 and
2021, we
spent approximately
$1.3 million
and $1.4
million
(excluding
medical insurance
claims)
related
to
the
pandemic
and
its
effects,
respectively.
The
majority
of
these
expenses
in
fiscal
2022
resulted
from
additional
labor
costs
and
increased
cost
of
packaging
materials,
primarily
reflected
in
cost
of
sales.
In
fiscal
2021,
most
of
these
expenses
related
to
additional
labor
costs.
Medical
insurance
claims
related
to
COVID-19
paid
during
the
first
half
of
fiscal 2022 were an additional $1.1 million as compared to $818 thousand paid
in the comparable period in fiscal 2021.
EXECUTIVE OVERVIEW
For the second quarter of fiscal 2022,
we recorded a gross profit of $43.7 million compared to $58.5
million for the same period
of
fiscal
2021,
with
the
decrease
due
primarily
to
the
higher
costs of
feed
ingredients
and
higher
processing
costs.
Our
total
dozens sold
increased 0.9%
to 276.1
million dozen
shell eggs
for the
second quarter
of fiscal
2022 compared
to 273.7
million
dozen for
the same
period of
fiscal 2021.
For the
second quarter
of fiscal
2022, conventional
dozens sold
decreased 4.4%
and
specialty dozens sold
increased 15.7%
as compared to
the same quarter
in fiscal 2021.
Specialty dozens sold
increased as more
cage-free facilities came into production which helped increase our
cage-free egg sales.
The
daily
average
price
for
the
UB
southeast
large
index
for
the
second
quarter
of
fiscal
2022
increased
14.6%
from
the
comparable period
in the
prior year.
Our net
average selling
price per
dozen for
the second
quarter of
fiscal 2022
was $1.373
compared to $1.227
in the prior-year
period. Hen numbers
reported by the
USDA as of December
1, 2021, were
327.8 million,
which is approximately 913
thousand more hens than
the comparable period of
the prior year.
The USDA also reported
that the
hatch
from
July
2021
through
November
2021
decreased
2.0%
compared
to
the
prior-year
period.
As
of
December 1,
2021,
eggs in incubators were down 9% versus the prior-year period.
Our farm
production costs
per dozen
produced for
the second
quarter of
fiscal 2022
increased 21.6%,
or $0.156,
compared to
the second
quarter of
fiscal 2021.
This increase
was primarily
due to
increased prices
for feed
ingredients. Feed
costs started
trending
higher
midway
through
the
second
quarter
of
fiscal
2021
and
have
remained
elevated
compared
to
historical
costs.
Though these feed costs
began trending higher
in fiscal 2021, we initially
benefitted from filling our
storage bins at harvest and
locking in the
basis portion of
our grain purchases
several months in
advance,
which reduced our
feed costs in
fiscal 2021. We
did not
experience the
same benefits
in fiscal
2022 given
sustained elevated
feed costs
that increased
our feed
costs compared
to
the
comparable
fiscal
2021
period.
For
the
second
quarter
of
fiscal
2022,
the
average
Chicago
Board
of
Trade
(“CBOT”)
daily market
price was
$5.43 per
bushel for
corn and
$338 per
ton for
soybean meal,
representing an
increase of
38.4% and
a
decrease of
5.9%, respectively,
compared to
the average
daily CBOT
prices for
the comparable
period in
the prior
year.
Other
farm
production
costs for
the second
quarter
of
fiscal
2022
increased
11.9%
versus
the
comparable
period
in
the prior
fiscal
year, driven by higher flock amortization
and facility expense.
Effective
May
30,
2021,
we
acquired
the
remaining
50%
membership
interest
in
Red
River
Valley
Egg
Farm,
LLC
(“Red
River”). Red River owns and operates a specialty shell egg
production complex with approximately 1.7 million
cage-free laying
hens,
cage-free
pullet capacity,
feed
mill, processing
plant, related
offices
and outbuildings
and
related
equipment located
on
approximately 400
acres near
Bogata, Texas.
For additional
information,
see
Note 2 – Acquisition
of the
Notes to
Condensed
Consolidated Financial Statements included in this Quarterly Report.
During October
2021, we
announced
that our
Board of
Directors approved
a strategic
investment that
will specialize
in high-
value
commercial
product
solutions
targeting
specific
needs
in
the
food
industry.
The
initial
focus
will
include
hard-cooked
eggs.
The
new
entity,
located
in
Neosho,
Missouri,
will
operate
as
MeadowCreek
Foods,
LLC
(“MeadowCreek”).
We
will
capitalize MeadowCreek
with up
to $18.5
million in
debt and
equity to
purchase property
and equipment
and to
fund working
capital,
and we
will retain
a controlling
interest in
the venture.
We
will serve
as the
preferred provider
to supply
specialty and
conventional
eggs
that
MeadowCreek
needs
to
manufacture
egg
products.
MeadowCreek’s
marketing
plan
is
designed
to
extend
our
reach
in
the
foodservice
and
retail
marketplace
and
bring
new
opportunities
in
the
restaurant,
institutional
and
industrial food products arenas.
Also during
October 2021,
we announced
that our
Board of
Directors
approved a
$23.0 million
capital project
to expand
our
cage-free egg production
at our Okeechobee,
Florida, production facility.
The project is
designed to include
the construction of
two cage-free layer
houses and one cage-free
pullet house with capacity
for approximately 400,000
cage-free hens and 210,000
pullets, respectively.
Construction
has commenced,
with first
pullet placements
planned
by mid-May
2022 and
the first
layer
house planned
to be
finished by
October 1,
2022, with
the second
layer house
and project completion
expected by
February 1,
2023. The Company
plans to fund the
project through a combination
of available cash on
hand, investments and
operating cash
flow.
Effective December
5, 2021, we made
an additional investment
in our joint
venture Southwest Specialty
Eggs, LLC, to acquire
warehouse
and
distribution
capability
to
expand
Southwest
Specialty
Eggs,
LLC’s
customer
base
in the
southern
California, Arizona and Nevada markets.
Index
23
RESULTS OF
OPERATIONS
The
following
table
sets
forth,
for
the
periods
indicated,
certain
items
from
our
Condensed
Consolidated
Statements
of
Operations expressed as a percentage of net sales.
Thirteen Weeks
Ended
Twenty-six Weeks
Ended
November 27, 2021
November 28, 2020
November 27, 2021
November 28, 2020
Net sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of sales
88.8
%
83.2
%
93.0
%
88.2
%
Gross profit
11.2
%
16.8
%
7.0
%
11.8
%
Selling, general and administrative
12.2
%
12.6
%
13.1
%
13.7
%
(Gain) loss on disposal of fixed assets
(0.5)
%
—
%
(0.3)
%
—
%
Operating income (loss)
(0.5)
%
4.2
%
(5.8)
%
(1.9)
%
Total other income, net
0.6
%
0.4
%
1.2
%
0.5
%
Income (loss) before income taxes
0.1
%
4.6
%
(4.6)
%
(1.4)
%
Income tax (benefit) expense
(0.2)
%
1.1
%
(2.3)
%
(0.4)
%
Net income (loss)
0.3
%
3.5
%
(2.3)
%
(1.0)
%
NET SALES
Total
net
sales for
the
second quarter
of
fiscal
2022
were $390.9
million
compared
to $347.3
million
for
the same
period
of
fiscal 2021.
Net
shell
egg
sales
represented
97.1%
of
total
net
sales
for
the
second
quarters
of
fiscal
2022
and
2021.
Shell
egg
sales
classified
as “Other”
represent
sales of
hard-cooked
eggs,
hatching
eggs and
other
miscellaneous
products
included
with
our
shell egg operations.
Total
net
sales for
the twenty-six
weeks
ended
November 27,
2021
were
$722.6 million,
compared
to $640.1
million
for
the
comparable period of fiscal 2021.
Net
shell
egg
sales
represented
97.1%
and
97.4%
of
total
net
sales
for
the
twenty-six
weeks
ended
November
27,
2021
and
November 28, 2020, respectively.
Index
24
The table below presents an analysis of our conventional and specialty shell egg
sales (in thousands, except percentage data):
Thirteen Weeks
Ended
Twenty-six Weeks
Ended
November 27, 2021
November 28, 2020
November 27, 2021
November 28, 2020
Total net sales
$
390,903
$
347,328
$
722,607
$
640,110
Conventional
$
223,258
58.8
%
$
201,725
59.8
%
$
405,807
57.8
%
$
357,109
57.3
%
Specialty
155,853
41.1
%
134,082
39.7
%
294,510
42.0
%
263,327
42.2
%
Egg sales, net
379,111
99.9
%
335,807
99.5
%
700,317
99.8
%
620,436
99.5
%
Other
391
0.1
%
1,589
0.5
%
1,523
0.2
%
3,037
0.5
%
Net shell egg sales
$
379,502
100.0
%
$
337,396
100.0
%
$
701,840
100.0
%
$
623,473
100.0
%
Net shell egg sales as a
percent of total net sales
97.1
%
97.1
%
97.1
%
97.4
%
Dozens sold:
Conventional
192,403
69.7
%
201,317
73.6
%
376,890
70.4
%
396,555
73.8
%
Specialty
83,705
30.3
%
72,334
26.4
%
158,603
29.6
%
141,090
26.2
%
Total dozens sold
276,108
100.0
%
273,651
100.0
%
535,493
100.0
%
537,645
100.0
%
Net average selling price per
dozen:
Conventional
$
1.160
$
1.002
$
1.077
$
0.901
Specialty
$
1.862
$
1.854
$
1.857
$
1.866
All shell eggs
$
1.373
$
1.227
$
1.308
$
1.154
Egg products sales:
Egg products net sales
11,401
9,932
20,767
16,637
Pounds sold
16,009
15,967
31,278
30,996
Net average selling price per
pound
0.712
0.622
0.664
0.537
Shell egg net sales
Second Quarter – Fiscal 2022 vs. Fiscal 2021
-
In the second quarter of fiscal
2022,
conventional egg sales increased $21.5
million, or 10.7%, compared to
the second
quarter of
fiscal 2021,
primarily due
to the
increase in
price for
conventional shell
eggs,
partially offset
by a decrease
in volume
of conventional
eggs sold.
Changes in
price resulted
in a
$30.4 million
increase and
the change
in volume
resulted in a $10.3 million decrease in net sales, respectively.
-
We
believe prices
for conventional
eggs were
positively impacted
by a
decrease in
the conventional
production layer
hen
flock.
According
to
reports from
the
USDA,
as
of
November
1,
2021,
the
estimated
number
of
hens
producing
conventional
eggs decreased
11.3
million, or
4.6%, versus
the prior-year
comparable period.
In addition,
foodservice
demand
improved
compared
to
the
comparable
prior-year
period.
Lower
conventional
egg
prices
in
the
prior-year
period were
primarily tied
to a
surplus of
conventional eggs
entering the
retail channel
from the
foodservice channel
during
the pandemic.
A stronger
export market
in our
second quarter
of fiscal
2022 also
supported
conventional egg
prices.
-
The
decrease
in
volume
of
conventional
eggs
sold
was
primarily
due
to
elevated
retail
demand
during
the
second
quarter
of fiscal
2021 given
consumers’
preferences
to purchase
eggs for
in-home
meal preparation
during
the more
restrictive
phases
of
governmental
and
business
shutdowns
due
to
the
pandemic.
We
saw
this
consumer
preference
begin to shift
in the fourth quarter
of fiscal 2021
as consumers began
to resume out-of-home
dining and prepare
fewer
meals at home.
-
Specialty
egg
sales
increased
$21.8
million,
or
16.2%,
in
the
second
quarter
of
fiscal
2022
compared
to
the
second
quarter of
fiscal 2021,
primarily due
to a
15.7% increase
in the
volume of
specialty eggs
sold, of
which resulted
in a
$21.2
million increase
in net
sales. Our
specialty egg
sales in
the second
quarter of
fiscal 2022
versus the
prior-year
period benefitted from our acquisition of the remaining 50% membership
interest in Red River, which helped drive
our
cage-free
egg
retail
sales.
Our
cage-free
sales
also
benefitted
from
our
continued
investment
in
expanded
cage-free
Index
25
capabilities as additional
cage-free production
capacity came online
during the quarter.
Cage-free egg sales
comprised
24.0% of our total sales in second quarter fiscal 2022 and 23.8% of total sales fiscal year-to-date.
-
We
believe that
the demand
for specialty
eggs has increased
as consumers
have evolved
their preferences
to purchase
higher-priced
specialty
eggs for
at-home
meal preparation
and
as retailers
have
committed
to selling
more cage-free
products.
Twenty-six weeks – Fiscal 2022
vs. Fiscal 2021
-
For
the
twenty-six
weeks
ended
November
27,
2021,
conventional
egg
sales
increased
$48.7
million
or
13.6%
compared
to
the
same
period
of
fiscal
2021,
primarily
due
to
the
increase
in
price,
partially
offset
by
a
decrease
in
volume of conventional eggs
sold. Changes in price resulted in
a $66.3 million increase and
change in volume resulted
in a $21.2 million decrease in net sales, respectively.
-
We
believe prices
for conventional
eggs were
positively impacted
by a
decrease in
the conventional
production layer
hen
flock.
In
addition,
foodservice
demand
improved
compared
to
the
same
period
in
the
prior
year.
Lower
conventional
egg
prices
in
the prior
-year
period
were
primarily
due
to
conventional
eggs entering
the
retail
channel
from the foodservice channel due to the pandemic.
-
The decrease
in volume of
conventional eggs
sold was primarily
due to elevated
retail demand
during the
first half
of
fiscal
2021
due
to
consumers’
preferences
to
purchase
eggs for
in-home
meal
preparation
due
to
the
pandemic.
We
saw this
consumer preference
begin to
shift in
the fourth quarter
of fiscal
2021 as
consumers began
to resume
out-of-
home dining and prepare fewer meals at home.
-
Specialty egg
sales increased
$31.2 million,
or 11.8%,
for the
twenty-six weeks
ended November
27, 2021
compared
to the
same period
of fiscal
2021, primarily
due to
a 12.4%
increase in
the volume
of specialty
dozens sold,
partially
offset by a
decrease in specialty egg
prices. Changes in price
resulted in a $1.4
million decrease and
change in volume
resulted
in
a
$32.5
million
increase
in
net
sales,
respectively.
We
also
benefitted
from
our
additional
cage-free
production capacity.
Egg products net sales
Second Quarter – Fiscal 2022 vs. Fiscal 2021
-
Egg
products
net
sales increased
$1.5
million
or
14.8%
for
the
second
quarter
of
fiscal
2022
compared
to
the
same
period of fiscal
2021, primarily due
to a 14.5%
selling price increase,
which had a
$1.4 million positive
impact on net
sales.
-
Selling
prices
for
egg
products
in
the
second
quarter
of
fiscal
2021
were
negatively
impacted
by
a
decline
in
foodservice demand due to the pandemic.
Our egg products net average selling
price increased in the second quarter
of
fiscal 2022 compared
to the same period
in fiscal 2021
as foodservice channel
demand has begun
to shift more
to pre-
pandemic levels.
Twenty-six weeks – Fiscal 2022
vs. Fiscal 2021
-
Egg products
net sales
increased $4.1
million or
24.8%, primarily
due to
a 23.6%
selling price
increase compared
to
the first twenty-six weeks of fiscal 2021, which had a $4.0 million positive
impact on net sales.
-
Our egg products net average selling
price increased in the twenty-six
weeks end November 27, 2021, compared
to the
same
period
in
fiscal
2021
as
foodservice
channel
demand
has
begun
to
shift
more
towards
pre-pandemic
levels.
Selling
prices
for
egg
products
in
the
twenty-six
weeks
ended
November
28,
2020
were
negatively
impacted
by
a
decline in
foodservice demand
during the
more restrictive
phases of
governmental and
business shutdowns
due to
the
pandemic.
COST OF SALES
Costs
of
sales
for
the
second
quarter
of
fiscal
2022
were
$347.2
million
compared
to
$288.9
million
for
the
same
period
of
fiscal
2021.
For
the
twenty-six
weeks
ended
November
27,
2021
and
November
28,
2020,
total
cost
of
sales
were
$672.2
million and $564.9 million, respectively.
Cost of
sales consists
of
costs directly
related
to producing,
processing
and
packing
shell eggs,
purchases
of
shell
eggs from
outside producers, processing and packing of liquid
and frozen egg products and other non-egg costs. Farm
production costs are
those costs
incurred at
the egg production
facility,
including feed,
facility,
hen amortization,
and other
related farm
production
costs.
Index
26
The following table presents the key variables affecting our cost of
sales (in thousands, except cost per dozen data):
Thirteen Weeks
Ended
Twenty-six Weeks
Ended
November 27,
2021
November 28,
2020
% Change
November 27,
2021
November 28,
2020
% Change
Cost of Sales:
Farm production
$
221,971
$
179,131
23.9
%
$
429,466
$
340,994
25.9
%
Processing, packaging, and
warehouse
69,474
63,505
9.4
134,533
123,374
9.0
Egg purchases and other (including
change in inventory)
46,039
37,625
22.4
90,730
86,558
4.8
Total shell eggs
337,484
280,261
20.4
654,729
550,926
18.8
Egg products
9,672
8,616
12.3
17,486
13,968
25.2
Total
$
347,156
$
288,877
20.2
%
$
672,215
$
564,894
19.0
%
Farm production costs (per dozen
produced)
Feed
$
0.529
$
0.410
29.0
%
$
0.537
$
0.399
34.6
%
Other
$
0.349
$
0.312
11.9
%
$
0.351
$
0.320
9.7
%
Total
$
0.878
$
0.722
21.6
%
$
0.888
$
0.719
23.5
%
Outside egg purchases (average
cost per dozen)
$
1.56
$
1.24
25.8
%
$
1.45
$
1.13
28.3
%
Dozens produced
256,786
251,914
1.9
%
493,244
483,075
2.1
%
Percent produced to sold
93.0%
92.1%
1.0
%
92.1%
89.9%
2.4
%
Farm Production
Second Quarter – Fiscal 2022 vs. Fiscal 2021
-
Feed costs per dozen
produced increased 29.0% in
the second quarter of fiscal
2022 compared to the
second quarter of
fiscal 2021.
This increase was
primarily due
to increased prices
for corn,
our primary feed
ingredient. Feed
ingredient
costs started trending
higher midway
through the
second quarter
of fiscal 2021
and have remained
elevated compared
to historical costs. Though these feed costs began trending
higher in fiscal 2021, we initially benefitted from
filling our
storage
bins
at
harvest
and
locking
in
the
basis
portion
of
our
grain
purchases
several
months
in
advance,
which
reduced our
feed costs
in fiscal
2021. As
feed costs
have remained
elevated entering
into our
second quarter
of fiscal
2022, we
did not
experience the
same benefits,
which increased
our feed
costs compared
to the
same period
of fiscal
2021.
-
Other
farm
production
costs increased
due
to higher
flock amortization
,
primarily
from an
increase
in
our
cage-free
production, which
has higher capitalized
costs. Also, our
higher feed
costs, which began
to rise in
our third
quarter of
fiscal 2021, are capitalized in our flocks during pullet production and
increased our amortization expense.
-
We had higher
facility expense as more cage-free facilities came into production.
Twenty-six weeks – Fiscal 2022
vs. Fiscal 2021
-
Feed costs
per dozen
produced increased
34.6% in
the twenty-six
weeks ended
November 27,
2021 compared
to the
same period
of fiscal
2021, primarily
due to
higher feed
ingredient prices
resulting from
increased export
demand, as
well
as
weather-related
shortfalls
in
production
and
yields,
which
have
placed
additional
pressure
on
domestic
supplies.
-
Other
farm
production
costs increased
due
to higher
flock amortization,
primarily
from an
increase
in
our
cage-free
production,
which
has
higher
capitalized
costs.
Also,
higher
feed
costs,
which
began
to
rise
in
our
third
quarter
of
fiscal 2021, are capitalized in our flocks during pullet production and
increased our amortization expense.
-
We had higher
facility expense as more cage-free facilities came into production.
Index
27
Processing, packaging, and warehouse
Second Quarter – Fiscal 2022 vs. Fiscal 2021
-
Cost of packaging
materials increased
5.3% compared
to the second
quarter of fiscal
2021 as supply
chain constraints
caused by the pandemic increased costs for packaging products and manufacturer
s
implemented pandemic surcharges.
-
Labor costs
increased 18.4%
due to
wage increases
in response
to labor
shortages, primarily
due to
the pandemic
and
its effects.
Twenty-six weeks – Fiscal 2022
vs. Fiscal 2021
-
Cost of
packaging
materials increased
7.0%
compared
to the
twenty-six
weeks ended
November 27,
2021 as
supply
chain
constraints
caused
by
the
pandemic
increased
costs
for
packaging
products
and
manufacturers
implemented
pandemic surcharges.
-
Labor costs
increased 14.8%
due to
wage increases
in response
to labor
shortages, primarily
due to
the pandemic
and
its effects.
Egg purchases and other (including change in inventory)
Second Quarter – Fiscal 2022 vs. Fiscal 2021
-
Costs
in
this category
increased
primarily
due
to
higher
egg
prices,
offset
slightly
by
the
decrease
in
the
volume
of
outside egg purchases, as our percentage of produced to sold increased
to 93.0%.
Twenty-six weeks – Fiscal 2022
vs. Fiscal 2021
-
Costs
in
this category
increased
primarily
due
to
higher
egg
prices,
offset
slightly
by
the
decrease
in
the
volume
of
outside egg purchases, as our percentage of produced to sold increased
to 92.1%.
Looking
forward
throughout
the
rest
of
fiscal
2022,
corn
and
soybean
supplies
remained
tight
relative
to
demand,
primarily
related
to
lower
carry-out
stock.
We
expect
market
prices
to
remain
volatile
given
the
ongoing
disruptions
related
to
the
COVID-19 global pandemic, weather fluctuations and geopolitical
issues.
GROSS PROFIT
Gross
profit
for
the second
quarter
of fiscal
2022 was
$43.7
million
compared
to $58.5
million
for
the same
period of
fiscal
2021.
The decrease of $14.7 million was primarily due to the increased cost of feed
ingredients and processing costs.
Gross
profit
for
the
twenty-six
weeks
ended
November
27,
2021
was
$50.4
million
compared
to
$75.2
million
for
the
same
period of fiscal
2021. The decrease
of $24.8 million
was primarily due
to the increased
cost of feed
ingredients and
processing
costs.
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES
Selling,
general,
and
administrative
expenses
("SGA")
include
costs
of
marketing,
distribution,
accounting,
and
corporate
overhead. The following table presents an analysis of our SGA expenses (in
thousands):
Thirteen Weeks
Ended
November 27, 2021
November 28, 2020
$ Change
% Change
Specialty egg expense
$
14,262
$
14,039
$
223
1.6
%
Delivery expense
14,395
13,052
1,343
10.3
%
Payroll, taxes and benefits
11,303
10,030
1,273
12.7
%
Stock compensation expense
975
931
44
4.7
%
Other expenses
6,845
5,821
1,024
17.6
%
Total
$
47,780
$
43,873
$
3,907
8.9
%
Second Quarter – Fiscal 2022 vs. Fiscal 2021
Specialty egg expense
-
Advertising and
franchise fees
increased in
the second
quarter of
fiscal 2022
compared to
the second
quarter of
fiscal
2021,
due to increased
advertising expense.
Index
28
Delivery expense
-
The increased
delivery expense
is primarily
due to
the increase
in fuel
and labor
costs for
both our
fleet and
contract
trucking.
Payroll, taxes and benefits expense
-
The increase in payroll, taxes and benefits is primarily due to an increase
in employee health insurance costs.
Other expenses
-
The
increase
in
other
expenses
is
primarily
due
to
increased
premiums
for
property
and
casualty
insurance
due
to
insurance market conditions.
Twenty-six Weeks
Ended
November 27, 2021
November 28, 2020
$ Change
% Change
Specialty egg expense
$
27,977
$
26,736
$
1,241
4.6
%
Delivery expense
28,331
25,546
2,785
10.9
%
Payroll, taxes and benefits
21,242
21,331
(89)
(0.4)
%
Stock compensation expense
1,976
1,824
152
8.3
%
Other expenses
14,779
12,401
2,378
19.2
%
Total
$
94,305
$
87,838
$
6,467
7.4
%
Twenty-six weeks –
Fiscal 2022 vs. Fiscal 2021
Specialty egg expense
-
Advertising
and
franchise
fees
increased
in
the
twenty-six
weeks
ended
November
27,
2021
compared
to
the
same
period of fiscal 2021 due to increased
advertising expense.
Delivery expense
-
The increased
delivery expense
is primarily
due to
the increase
in fuel
and labor
costs for
both our
fleet and
contract
trucking.
Other expenses
-
The increase
in other expenses
is primarily due
to property losses
incurred that
were not covered
by insurance
as well
as increased premiums for property and casualty insurance market
conditions.
OPERATING
INCOME (LOSS)
For
the
second
quarter
of fiscal
2022,
we
recorded
an operating
loss of
$2.1 million
compared
to operating
income of
$14.5
million for the same period of fiscal 2021.
For the twenty-six
weeks ended
November 27,
2021, we recorded
an operating loss
of $41.7
million compared
to an operating
loss of $12.7 million for the same period of fiscal 2021.
OTHER INCOME (EXPENSE)
Total
other
income
(expense)
consists
of
items
not
directly
charged
or
related
to
operations,
such
as
interest
income
and
expense, royalty income, equity income or loss of unconsolidated
entities, and patronage income, among other items.
For
the
second
quarter
of fiscal
2022,
we
earned
$207 thousand
of interest
income
compared
to $727
thousand
for
the same
period
of
fiscal
2021.
The
decrease
resulted
from
significantly
lower
investment
balances.
The
Company
recorded
interest
expense
of
$78
thousand
and
$64
thousand
for
the
second
quarters
ended
November
27,
2021
and
November
28,
2020,
respectively.
For the twenty-six
weeks ended November 27,
2021, we earned $497
thousand of interest income
compared to $1.7 million
for
the
same
period
of
fiscal
2021.
The
decrease
resulted
from
significantly
lower
investment
balances.
The
Company
recorded
interest expense
of $136
thousand and
$135 thousand
for the
twenty-six weeks
ended November
27, 2021
and November
28,
2020, respectively.
Index
29
For the second quarter of fiscal 2022, equity
income of unconsolidated entities was $264 thousand
compared to $58 thousand in
the prior-year period.
For the twenty-six
weeks ended November
27, 2021, equity
income of unconsolidated
entities was $399
thousand compared
to
$14 thousand in the prior-year period.
Other, net
for the second quarter
ended November 27, 2021,
was income of $1.9
million compared to income
of $436 thousand
for
the same
period of
fiscal 2021,
which is
primarily
due to
a $1.4
million payment
related to
review
and adjustment
of our
various marketing agreements.
Other,
net
for
the
twenty-six
weeks
ended
November
27,
2021,
was
income
of
$7.0
million
compared
to
income
of
$948
thousand
for
the
same
period
of
fiscal
2021.
The
majority
of
the
increase
is
due
to
our
acquisition
of
the
remaining
50%
membership
interest
in
Red
River
as
we
recognized
a
$4.5
million
gain
due
to
the
remeasurement
of
our
equity
investment,
along with the $1.4 million payment related to review and adjustment of our
various marketing agreements.
INCOME TAXES
As of November 27, 2021, we remain under
audit by the Internal Revenue Service (IRS) for the fiscal years
2013 through 2015.
The IRS
has proposed
adjustments related
to the
Company’s
research and
development credits
claimed during
the years
under
audit. Management is continuing to evaluate those proposed adjustments
and does not anticipate the adjustments would result in
a
material
change
to
its
consolidated
financial
statements.
Using
the
facts,
circumstances
and
information
known
at
the
reporting date, the Company believes
it is reasonably possible an
adjustment to the previously recognized
tax benefits related to
the research
and development
credits is
necessary.
As such,
we recorded
a tax
benefit of
approximately $520
thousand during
the second quarter of fiscal 2022.
For
the
second
quarter
of
fiscal
2022,
pre-tax
income
was
$468
thousand
compared
to
$15.9
million
for
the
same
period
of
fiscal
2021.
We
recorded
an
income
tax
benefit
of
$677
thousand
for
the
second
quarter
of
fiscal
2022,
which
includes
the
discrete tax
benefit described
above. Excluding
the discrete
tax benefit,
income tax
benefit was
$157 thousand
for the
second
quarter
of fiscal
2022
with an
adjusted
effective
tax rate
of
33.5%.
Income
tax expense
was $3.8
million
for
the comparable
period of fiscal 2021, which reflects an effective tax rate of 23.6%.
For
the
twenty-six
weeks
ended
November
27,
2021,
pre-tax
loss
was
$33.4
million
compared
to
$9.6
million
for
the
same
period
of
fiscal
2021.
We
recorded
an
income
tax
benefit
of
$16.5
million,
which
includes
the
discrete
tax
benefit
of
$8.3
million
as discussed
in Note
2 –
Acquisitions
of the
Notes to
Condensed Consolidated
Financial
Statements in
this Quarterly
Report.
Excluding
the discrete
tax
benefit,
income
tax benefit
was $8.2
million
with
an adjusted
effective
tax rate
of 24.6%,
compared to $2.4 million for the comparable period of fiscal 2021,
which reflects an effective tax rate of 24.6%.
At November
27, 2021
and May
29, 2021,
trade and
other receivables
included income
taxes receivables
of $42.8
million and
$42.5 million, respectively.
Our effective tax
rate differs from
the federal statutory income
tax rate due to
state income taxes, certain
federal tax credits and
certain
items
included
in
income
for
financial
reporting
purposes
that
are
not
included
in
taxable
income
for
income
tax
purposes,
including
tax
exempt
interest
income,
certain
nondeductible
expenses
and
net
income
or
loss
attributable
to
our
noncontrolling interest.
NET LOSS
Net income for
the second quarter ended
November 27, 2021, was
$1.2 million, or $0.02
per basic and diluted
share, compared
to net income of $12.2 million or $0.25 per basic and diluted share for the same
period of fiscal 2021.
Net loss for the twenty-six
weeks ended November 27, 2021, was
$16.9 million, or $0.34 per
basic and diluted share, compared
to net loss of $7.2 million or $0.15 per basic and diluted share for the same period of fiscal 2021.
CAPITAL RESOURCES
AND LIQUIDITY
Our working
capital at
November 27,
2021 was $364.7
million, compared
to $429.8
million at
May 29,
2021. The
calculation
of
working
capital
is
defined
as
current
assets
less
current
liabilities.
Our
current
ratio
was
4.13
at
November
27,
2021,
compared with 5.77 at May 29, 2021.
Index
30
We
had
no long
-term
debt
outstanding
at
November
27,
2021
or May
29,
2021.
On November
15, 2021,
we
entered
into an
Amended and Restated
Credit Agreement (the
“Credit Agreement”) with
a five-year term.
The Credit Agreement
amended and
restated
the
Company’s
previously
existing
credit
agreement
dated
July
10,
2018.
The
Credit
Agreement
provides
for
an
increased senior
secured revolving
credit facility
(the “Credit Facility”),
in an
initial aggregate
principal amount
of up
to $250
million. As
of November
27, 2021,
no amounts
were borrowed
under the
Credit Facility.
We
have $4.1
million in
outstanding
standby
letters
of
credit,
issued
under
our
Credit
Facility
for
the
benefit
of
certain
insurance
companies.
For
additional
information,
see
Note
7
–
Credit
Facility
of
the
Notes
to
Condensed
Consolidated
Financial
Statements
included
in
this
Quarterly Report.
For the
twenty-six
weeks ended
November
27,
2021, $15.5
million
in net
cash was
used
in operating
activities, compared
to
$10.7 million
used in
operating activities
for the
comparable period
in fiscal
2021.
This is
primarily due
to the
increased costs
of feed ingredients compared to the prior-year period.
We
continue
to invest
in our
facilities,
with
$28.6
million used
to purchase
property,
plant and
equipment
for
the
twenty-six
weeks ended November 27,
2021, compared to $52.4 million
in the same period of fiscal
2021.
We also
acquired the remaining
50%
membership
interest
in
Red
River
during
our
first
quarter
of
fiscal
2022
for
$48.5
million.
Sales
and
maturities
of
investment
securities, net
of purchases,
were $41.5
million for
the twenty-six
weeks ended
November 27,
2021, compared
to
$29.4
million
for
the
comparable
period
in
fiscal
2021.
We
received
$400
thousand
in
distributions
from
an
unconsolidated
entity in the first two quarters of fiscal 2022 compared to $2.70 million for
the same period fiscal of 2021.
As of
November 27,
2021, cash
decreased $41.9
million since
May 29,
2021, compared
to a
decrease of
$30.8 million
during
the same period of fiscal 2021.
We
continue
to monitor
the increasing
demand for
cage-free eggs
and to
engage with
our customers
in an
effort
to achieve
a
smooth transition to
meet their announced
commitment timeline for
cage-free egg sales.
We
have invested approximately
$488
million in facilities, equipment
and related operations to
expand our cage-free production
starting with our first facility
in 2008.
During
October
2021,
we
announced
a
new
$23.0
million
capital
project
to
expand
our
cage-free
egg
production
at
our
Okeechobee,
Florida,
production
facility,
and
a
new
planned
$18.5
million
strategic
investment
that
will
specialize
in
high
value
commercial
product
solutions
targeting
specific
needs
in
the
food
industry.
See
“
Executive Overview
”
for
additional
information. The following table presents material construction
projects approved as of November 27, 2021 (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of
November 27, 2021
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses/Processing
Facility
Fiscal 2022
132,443
104,477
27,966
Cage-Free Layer & Pullet Houses
Fiscal 2023
23,771
11
23,760
$
156,214
$
104,488
$
51,726
We believe our
current cash balances, investments, cash flows from operations, and Credit Facility will be sufficient
to fund our
current capital needs.
RECENTLY
ISSUED/ADOPTED ACCOUNTING STANDARDS
For
information
on
changes
in
accounting
principles
and
new
accounting
policies,
see
Note 1 - Summary of Significant
Accounting Policies
of the Notes to Condensed Consolidated Financial Statements included in this Quarterly
Report.
CRITICAL ACCOUNTING ESTIMATES
Critical accounting
estimates
are those
estimates
made
in accordance
with U.S.
generally
accepted
accounting
principles that
involve
a
significant
level
of
estimation
uncertainty
and
have
had
or
are
reasonably
likely
to
have
a
material
impact
on
our
financial
condition
or results
of operations.
There
have been
no changes
to our
critical accounting
estimates identified
in our
2021 Annual Report.
Index
31
ITEM 3. QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk during the
twenty-six weeks ended November 27, 2021
from the information provided in Item 7A. Quantitative and Qualitative
Disclosures About Market Risk in our 2021 Annual
Report.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.