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),
including
but
not
limited
to
the
current
outbreak
of
highly
pathogenic
avian
influenza
(HPAI)
affecting poultry
in the
U.S., Canada
and other
countries (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 rising
inflation and interest
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
42.7 million
layers
and
9.4
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 three quarters of fiscal year 2022 ranged from a low of $1.00 in June 2021 to a high of
$2.06 in February 2022.
Index
22
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
went 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
679
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 third
quarters of
fiscal 2022
and 2021,
we spent
approximately $534
thousand and
$397 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,
primarily
reflected
in
cost
of
sales.
Medical
insurance
claims
related
to
COVID-19 paid during the third quarter of
fiscal 2022 were an additional $424 thousand as
compared to $322 thousand paid in
the comparable quarter in fiscal 2021.
Index
23
For
the
thirty-nine
weeks
ended
2022
and
2021,
we
spent
approximately
$1.8
million
(excluding
medical
insurance
claims)
related to
the pandemic
and its
effects. 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, primarily reflected in cost of sales. Medical insurance claims related to COVID-19 paid during the thirty-
nine
weeks
ended 2022
were
an
additional $1.6
million
as compared
to $1.1
million paid
in
the comparable
period
in
fiscal
2021.
EXECUTIVE OVERVIEW
For the third
quarter of fiscal
2022, we recorded
a gross profit
of $91.6 million
compared to $47.5
million for the
same period
of
fiscal
2021,
with
the
increase
due
primarily
to
higher
shell
egg
prices
and
increased
volume
of
specialty
eggs.
Our
total
dozens sold
increased 2.8%
to 287.7
million dozen
shell eggs
for
the third
quarter of
fiscal 2022
compared to
279.7
million
dozen for
the same
period of
fiscal
2021. For
the third
quarter of
fiscal 2022,
conventional dozens
sold decreased
5.2%
and
specialty dozens sold increased 24.1%
as compared to the same
quarter in fiscal 2021. Specialty
dozens sold increased as more
cage-free facilities came into production, retailers continue shift to selling cage-free products and cage-free legislation went into
full effect in California on January 1, 2022.
The
daily
average
price
for
the
UB
southeast
large
index
for
the
third
quarter
of
fiscal
2022
increased
46.8%
from
the
comparable period
in
the
prior year.
Our
net
average
selling price
per
dozen
for
the
third
quarter
of
fiscal
2022
was
$1.612
compared
to $1.246
in the
prior-year
period.
Hen numbers
reported by
the USDA
as of
March 1,
2022, were
322.7 million,
which is
approximately 5.4
million less
hens than
the comparable
period of
the prior
year.
The USDA
also reported
that the
hatch
from
October
2021
through
February
2022
decreased
5.5%
compared
to
the
prior-year
period.
As
of
March
1,
2022,
table-type eggs in incubators totaled 55.4 million, a decrease of 7.6% versus the prior-year period.
We
are
closely
monitoring the
recently reported
outbreaks of
highly pathogenic
avian influenza
(“HPAI”).
According
to
the
U.S.
Centers for
Disease Control
and Prevention,
these detections
do not present an immediate public health concern
.
There
have been no positive tests for HPAI
at any Cal-Maine Foods’ owned or contracted production facility to date. As
of March 28,
2022, the USDA
division of Animal
and Plant Health
Inspection Service (“APHIS”),
reported that approximately
11.5 million
commercial layer
hens or
about 3.6%
of the
table egg
layer flock
based on
February 2022
reported layer
numbers, have
been
depopulated due to
HPAI.
Pullets impacted comprise
approximately 830,000, or
about 0.7 percent
of the February
2022 pullet
inventory. We
believe we have implemented and continue to maintain robust biosecurity programs across our
locations. We are
also working
closely with
federal, state
and local
government officials
and focused
industry groups to
mitigate the
risk of
this
and future outbreaks and effectively manage our response, if needed.
Our farm production costs
per dozen produced for
the third quarter of
fiscal 2022 increased 16.9%,
or $0.132, compared to
the
third quarter
of fiscal
2021. This
increase was
primarily due
to increased
prices for
feed ingredients.
For the
third quarter
of
fiscal 2022, the average
Chicago Board of Trade
(“CBOT”) daily market price
was $6.13 per
bushel for corn and
$412 per ton
for soybean meal, representing an increase of 23.5% and a decrease of 2.5%, respectively, compared to the average daily CBOT
prices for
the comparable
period in
the prior
year.
Other farm
production
costs for
the third
quarter of
fiscal 2022
increased
11.8% 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
Index
24
house planned to be finished by October 1, 2022, with 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. This strategic investment
is proving to
be incrementally
accretive as additional
cases
of
specialty
and
cage-free
eggs
began
distribution
through
the
warehouse
in
early
December
as
customers
prepared
for
the
California’s January 1, 2022 cage-free mandate.
RESULTS OF OPERATIONS
The following table sets
forth, for the periods
indicated, certain items from
our Condensed Consolidated Statements
of Income
expressed as a percentage of net sales.
Thirteen Weeks Ended
Thirty-nine Weeks Ended
February 26, 2022
February 27, 2021
February 26, 2022
February 27, 2021
Net sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of sales
80.8
%
86.8
%
88.0
%
87.7
%
Gross profit
19.2
%
13.2
%
12.0
%
12.3
%
Selling, general and administrative
11.0
%
13.3
%
12.4
%
13.6
%
(Gain) loss on disposal of fixed assets
(0.1)
%
0.1
%
(0.2)
%
—
%
Operating income (loss)
8.3
%
(0.2)
%
(0.2)
%
(1.3)
%
Total other income, net
2.8
%
3.4
%
1.8
%
1.5
%
Income before income taxes
11.1
%
3.2
%
1.6
%
0.2
%
Income tax expense (benefit)
2.8
%
(0.5)
%
(0.2)
%
(0.4)
%
Net income
8.3
%
3.7
%
1.8
%
0.6
%
NET SALES
Total net
sales for the third quarter of
fiscal 2022 were $477.5 million compared
to $359.1 million for the same
period of fiscal
2021.
Net shell egg
sales represented 97.3%
and 97.5% of
total net sales
for the
third quarters of
fiscal 2022 and
2021, respectively.
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
thirty-nine weeks
ended February
26, 2022
were $1,184.2
million, compared
to $999.2
million for
the
comparable period of fiscal 2021.
Net
shell
egg
sales
represented
97.2%
and
97.4%
of
total
net
sales
for
the
thirty-nine
weeks
ended
February
26,
2022
and
February 27, 2021, respectively.
Total
conventional
dozens
sold
for
the
first,
second
and
third
quarters
were
183.9
million,
192.1
million
and
192.5
million,
respectively.
Total
specialty
dozens
sold
for
the
first,
second
and
third
quarters
were
70.8
million,
77.4
million
and
95.1
million, respectively.
Index
25
The table below presents an analysis of our conventional and specialty shell egg sales (in thousands, except percentage data):
Thirteen Weeks Ended
Thirty-nine Weeks Ended
February 26, 2022
February 27, 2021
February 26, 2022
February 27, 2021
Total net sales
$
477,485
$
359,080
$
1,184,195
$
999,189
Conventional
$
280,633
60.4
%
$
203,189
58.0
%
$
685,678
59.6
%
$
560,297
57.5
%
Specialty
182,945
39.4
%
145,210
41.5
%
462,319
40.2
%
408,537
42.0
%
Egg sales, net
463,578
99.8
%
348,399
99.5
%
1,147,997
99.8
%
968,834
99.5
%
Other
1,158
0.2
%
1,583
0.5
%
2,682
0.2
%
4,619
0.5
%
Net shell egg sales
$
464,736
100.0
%
$
349,982
100.0
%
$
1,150,679
100.0
%
$
973,453
100.0
%
Net shell egg sales as a
percent of total net sales
97.3
%
97.5
%
97.2
%
97.4
%
Dozens sold:
Conventional
192,511
66.9
%
203,070
72.6
%
568,511
70.0
%
599,625
73.4
%
Specialty
95,140
33.1
%
76,645
27.4
%
243,310
30.0
%
217,735
26.6
%
Total dozens sold
287,651
100.0
%
279,715
100.0
%
811,821
100.0
%
817,360
100.0
%
Net average selling price per
dozen:
Conventional
$
1.458
$
1.001
$
1.206
$
0.934
Specialty
$
1.923
$
1.895
$
1.900
$
1.876
All shell eggs
$
1.612
$
1.246
$
1.414
$
1.185
Egg products sales:
Egg products net sales
12,749
9,098
33,516
25,736
Pounds sold
15,947
15,569
47,225
46,565
Net average selling price per
pound
0.799
0.584
0.710
0.553
Shell egg net sales
Third Quarter – Fiscal 2022 vs. Fiscal 2021
-
In
the
third
quarter of
fiscal 2022,
conventional
egg
sales
increased
$77.4
million,
or
38.1%,
compared
to
the
third
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
$88.0 million
increase and
the change
in volume
resulted in a $10.6 million decrease in net sales, respectively.
-
We believe prices for conventional eggs were positively impacted by a better alignment of the conventional production
layer
hen
flock
and
customer
and
consumer
demand.
According
to
reports
from
the
USDA,
the
average
number
of
hens producing
white and
brown conventional
eggs for
February 2022
decreased 31.7
million, or
13.1%, versus
the
prior-year
comparable period.
USDA Agriculture
Marketing
Service reported
shell
eggs
broken for
foodservice and
further processing
increased 7.9% compared
to the
comparable prior-year
period. We
believe 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 exceeding demand during this phase of the pandemic.
-
Conventional
egg
volume
sales
decreased
5.2%.
We
believe
many
consumers
have
evolved
their
preferences
to
purchase higher-priced specialty eggs for at-home meal preparation due to the perceived health and
welfare benefits of
specialty eggs, various state laws
mandating the sale of cage-free
and the public commitments by
most retailers to sell
more cage-free
products. Per
Information Resources,
Inc. (“IRI”),
Total
US –
Multi Outlet,
conventional white
shell
egg
dozens
sales
decreased
13.7%
during
the
latest
13
weeks
ended
February
27,
2022
versus
the
prior-year
comparable period.
-
Specialty egg sales increased
$37.7 million, or 26.0%,
in the third quarter
of fiscal 2022 compared
to the third quarter
of
fiscal
2021,
primarily
due
to
a
24.1%
increase
in
the
volume
of
specialty
eggs
sold,
which
resulted
in
a
$35.0
million increase in
net sales. Per
IRI, Total
US – Multi
Outlet for the
latest 13 weeks
ended February 27,
2022, cage-
free eggs
dozens sold
(including free-range,
pasture-raised and
organic) increased
21.3%. We
believe this
increase in
Index
26
demand is due
to California’s
cage-free mandate going
into-effect January
1, 2022,
as well
as more retailers’
shifting
to selling more cage-free products.
-
Our specialty egg
sales in
the third 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
sales. Our
cage-free
sales
also
benefitted
from
our
continued
investment
in
expanded
cage-free
capabilities
as
additional
cage-free
production capacity came online during the quarter. Cage-free egg sales for the first, second and third quarters of fiscal
2022 were 22.3%, 22.4% and 24.1% of our total net shell egg sales, respectively.
Thirty-nine weeks – Fiscal 2022 vs. Fiscal 2021
-
For
the
thirty-nine
weeks
ended
February
26,
2022,
conventional
egg
sales
increased
$125.4
million
or
22.4%
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
$154.6
million
increase
and
change
in
volume
resulted in a $29.1 million decrease in net sales, respectively.
-
We believe prices for conventional eggs were positively impacted by a better alignment of the conventional production
layer hen flock and customer and consumer demand.
USDA Agriculture Marketing Service reported shell eggs broken
for
foodservice
and
further
processing
increased
10.2%
compared
to
the
comparable
prior-year
period.
We
believe
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 exceeding demand during this phase of 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.
Per
Information
Resources,
Inc.
(“IRI”),
Total
US
–
Multi
Outlet,
conventional white shell egg dozens sales decreased 12.6% during the latest 39
weeks ended February 27, 2022 versus
the prior-year comparable period.
-
Specialty egg sales increased $53.8
million, or 13.2%, for the
thirty-nine weeks ended February 26, 2022
compared to
the same period of
fiscal 2021, primarily due
to an 11.7%
increase in the volume
of specialty dozens sold
and a slight
increase in specialty egg prices. Changes in price resulted in a $5.8 million increase and change in volume resulted in a
$48.0 million increase in net sales,
respectively. We
also benefitted from our additional cage-free
production capacity.
Cage-free egg sales for the thirty-nine weeks ended February 26, 2022 were 23.0% of our total net shell egg sales.
Egg products net sales
Third Quarter – Fiscal 2022 vs. Fiscal 2021
-
Egg
products
net
sales
increased
$3.7
million
or
40.1%
for
the
third
quarter
of
fiscal
2022
compared
to
the
same
period of fiscal 2021,
primarily due to a
36.8% selling price increase,
which had a $3.4
million positive impact on
net
sales.
-
Selling prices for egg products in
the third 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 third
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.
Thirty-nine weeks – Fiscal 2022 vs. Fiscal 2021
-
Egg products
net sales
increased $7.8
million or
30.2%, primarily
due to
a 28.4%
selling price
increase compared
to
the first thirty-nine weeks of fiscal 2021, which had a $7.4 million positive impact on net sales.
-
Our egg products
net average selling
price increased in
the thirty-nine weeks
end February 26,
2022, 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
thirty-nine
weeks
ended
February
27,
2021
were
negatively
impacted
by
a
decline in foodservice
demand during the
more restrictive phases
of governmental and
business shutdowns due
to the
pandemic.
Index
27
COST OF SALES
Costs of sales for
the third quarter of
fiscal 2022 were $385.9
million compared to $311.6
million for the same
period of fiscal
2021. For the
thirty-nine weeks ended
February 26, 2022
and February 27,
2021, total cost
of sales were
$1,042.2 million and
$876.5 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.
The following table presents the key variables affecting our cost of sales (in thousands, except cost per dozen data):
Thirteen Weeks Ended
Thirty-nine Weeks Ended
February 26,
2022
February 27,
2021
%
Change
February 26,
2022
February 27,
2021
%
Change
Cost of Sales:
Farm production
$
239,389
$
190,883
25.4
%
$
668,855
$
531,877
25.8
%
Processing, packaging, and warehouse
77,116
63,640
21.2
211,649
187,014
13.2
Egg purchases and other (including
change in inventory)
59,135
50,443
17.2
133,968
137,001
(2.2)
Total shell eggs
375,640
304,966
23.2
1,014,472
855,892
18.5
Egg products
10,263
6,597
55.6
27,749
20,565
34.9
Total
$
385,903
$
311,563
23.9
%
$
1,042,221
$
876,457
18.9
%
Farm production costs (per dozen
produced)
Feed
$
0.562
$
0.467
20.3
%
$
0.546
$
0.422
29.4
%
Other
$
0.350
$
0.313
11.8
%
$
0.350
$
0.318
10.1
%
Total
$
0.912
$
0.780
16.9
%
$
0.896
$
0.740
21.1
%
Outside egg purchases (average cost per
dozen)
$
1.75
$
1.26
38.9
%
$
1.57
$
1.23
27.6
%
Dozens produced
264,433
248,130
6.6
%
757,677
731,205
3.6
%
Percent produced to sold
91.9%
88.7%
3.6
%
93.3%
89.5%
4.2
%
Farm Production
Third Quarter – Fiscal 2022 vs. Fiscal 2021
-
Feed
costs per
dozen
produced
increased 20.3%
in
the
third
quarter
of
fiscal
2022
compared
to
the third
quarter of
fiscal 2021.
This increase
was primarily
due
to
increased prices
for
corn, our
primary feed
ingredient. For
the
third
quarter
of
fiscal 2022,
the
average
daily
Chicago
Board
of
Trade
(“CBOT”) market
price
was
$6.13 per
bushel
for
corn representing an increase of 23.5 percent compared to the average
daily CBOT prices for the third quarter 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.
Thirty-nine weeks – Fiscal 2022 vs. Fiscal 2021
-
Feed
costs per
dozen
produced
increased
29.4%
in
the
thirty-nine weeks
ended
February 26,
2022
compared
to
the
same period
of fiscal
2021, primarily
due to
higher feed
ingredient prices
resulting from
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.
Index
28
-
We had higher facility expense as more cage-free facilities came into production.
Processing, packaging, and warehouse
Third Quarter – Fiscal 2022 vs. Fiscal 2021
-
Cost of
packaging materials
increased 17.7%
compared to
the third
quarter of
fiscal 2021
as supply
chain constraints
initially
caused
by
the
pandemic
increased
costs
for
packaging
products
and
manufacturers
implemented
pandemic
surcharges.
Costs also increased due to rising inflation.
-
Labor costs increased
16.3% due to
wage increases in
response to labor
shortages, primarily due
to the pandemic
and
its effects.
-
Dozens
processed
increased
6.6%
compared
to
the
third
quarter
of
fiscal
2021,
which
resulted
in
a
$4.5
million
increase in costs.
Thirty-nine weeks – Fiscal 2022 vs. Fiscal 2021
-
Cost of
packaging materials
increased 10.8%
compared to
the thirty-nine
weeks ended
February 27,
2021 as
supply
chain
constraints
initially
caused
by
the
pandemic
increased
costs
for
packaging
products
and
manufacturers
implemented pandemic surcharges.
Costs also increased due to rising inflation.
-
Labor costs increased
15.3% due to
wage increases in
response to labor
shortages, primarily due
to the pandemic
and
its effects.
-
Dozens processed increased 3.2%
compared to the thirty-nine
weeks ended February 27,
2021, which resulted in
$6.1
million increase in costs.
Egg purchases and other (including change in inventory)
Third Quarter – Fiscal 2022 vs. Fiscal 2021
-
Costs in
this category
increased primarily
due to
higher egg
prices, partially
offset
by the
decrease in
the volume
of
outside egg purchases, as our percentage of produced to sold increased to 91.9% from 88.7%.
Thirty-nine weeks – Fiscal 2022 vs. Fiscal 2021
-
Costs
in
this
category
decreased
primarily
due
to
the
decrease
in
the
volume
of
outside
egg
purchases,
as
our
percentage of produced to sold increased to 93.3% from 89.5%, partially offset by higher egg prices.
Looking
forward
throughout
the
rest
of
fiscal
2022,
market
indications
point
to
higher
corn
and
soybean
prices
and
higher
volatility tied to the Russia-Ukraine war and higher export demand.
GROSS PROFIT
Gross profit for the third quarter of fiscal 2022
was $91.6 million compared to $47.5 million for the
same period of fiscal 2021.
The increase of $44.1 million was primarily due to higher egg prices as well as the increased volume of specialty eggs, partially
offset by the increased cost of feed ingredients and processing costs.
Gross profit
for the
thirty-nine weeks
ended February
26, 2022
was $142.0
million compared
to $122.7
million for
the same
period of fiscal
2021. The increase
of $19.3 million
was primarily due
to higher egg
prices as well
as the increased
volume of
specialty eggs, partially offset by the increased cost of feed ingredients and processing costs.
Index
29
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
February 26, 2022
February 27, 2021
$ Change
% Change
Specialty egg expense
$
17,318
$
16,162
$
1,156
7.2
%
Delivery expense
16,440
13,359
3,081
23.1
%
Payroll, taxes and benefits
11,398
10,195
1,203
11.8
%
Stock compensation expense
1,007
964
43
4.5
%
Other expenses
6,523
6,976
(453)
(6.5)
%
Total
$
52,686
$
47,656
$
5,030
10.6
%
Third Quarter – Fiscal 2022 vs. Fiscal 2021
Specialty egg expense
-
Specialty egg
expense which
includes franchise
fees, advertising
and promotion
costs generally
tracks with
specialty
egg volumes
which were
up 24.1%
for the
third quarter
of fiscal
2022 compared
to the
same period
of fiscal
2021.
Specialty dozens
sold to
outside distributors
including unconsolidated
affiliates, Specialty
Eggs, LLC
and Southwest
Specialty Eggs, LLC, increased which reduced related costs that we generally incur for specialty egg sales to retailers.
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 increased wages for standard annual
raises as well as the
addition of Red River. The accrual for anticipated performance-based bonuses also increased.
Thirty-nine Weeks Ended
February 26, 2022
February 27, 2021
$ Change
% Change
Specialty egg expense
$
45,295
$
42,898
$
2,397
5.6
%
Delivery expense
44,771
38,905
5,866
15.1
%
Payroll, taxes and benefits
32,640
31,526
1,114
3.5
%
Stock compensation expense
2,983
2,789
194
7.0
%
Other expenses
21,302
19,376
1,926
9.9
%
Total
$
146,991
$
135,494
$
11,497
8.5
%
Thirty-nine weeks – Fiscal 2022 vs. Fiscal 2021
Specialty egg expense
-
Specialty egg
expense which
includes franchise
fees, advertising
and promotion
costs generally
tracks with
specialty
egg volumes
which were
up 11.7%
for the
thirty-nine weeks end
February 26,
2022, compared
to the
same period
of
fiscal 2021.
Specialty dozens sold to outside distributors including unconsolidated affiliates,
Specialty Eggs, LLC and
Southwest Specialty Eggs,
LLC, increased which
reduced related costs
that we generally
incur for specialty
egg sales
to retailers.
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 programs.
Index
30
OPERATING
INCOME (LOSS)
For
the
third
quarter
of
fiscal
2022,
we
recorded
operating
income
of
$39.6
million
compared
to
operating
loss
of
$493
thousand for the same period of fiscal 2021.
For the thirty-nine weeks ended February 26, 2022, we recorded an operating loss of $2.2 million compared to an operating loss
of $13.2 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
third
quarter
of
fiscal
2022,
we
earned
$205
thousand
of
interest
income
compared
to
$661
thousand
for
the
same
period
of
fiscal
2021.
The
decrease
resulted
from
significantly
lower
investment
balances.
The
Company
recorded
interest
expense
of
$126
thousand
and
$70
thousand
for
the
third
quarters
ended
February
26,
2022
and
February
27,
2021,
respectively.
For the
thirty-nine weeks ended
February 26, 2022,
we earned
$702 thousand
of interest
income compared to
$2.4 million
for
the
same
period
of
fiscal
2021.
The
decrease
resulted
from
significantly lower
investment balances.
The
Company
recorded
interest
expense
of
$262
thousand
and
$205
thousand
for
the
thirty-nine
weeks
ended
February
26,
2022
and
February
27,
2021, respectively.
Patronage dividends, which represent distributions from our membership in Eggland’s Best, Inc. were $10.1 million and $9.0
million for the thirteen and thirty-nine weeks ended February 26, 2022 and February 27, 2021, respectively. Patronage
dividends are paid once a year based on the profits of Eggland’s Best as well as its available cash.
For the third
quarter of fiscal
2022, equity income
of unconsolidated entities
was $1.8 million
compared to $1.9
million in the
prior-year period.
For the thirty-nine weeks ended February 26, 2022, equity income of unconsolidated entities was $2.2 million compared to $1.9
million in the prior-year period.
Other, net for
the third quarter ended February 26, 2022,
was income of $1.1 million compared
to income of $537 thousand for
the same period of fiscal 2021.
Other, net
for the thirty-nine
weeks ended February
26, 2022, was
income of $8.2
million compared to
income of $1.5
million
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
For the
third quarter of
fiscal 2022,
pre-tax income was
$53.0 million compared
to $11.8
million for the
same period of
fiscal
2021. We
recorded income tax expense
of $13.6 million for
the third quarter of
fiscal 2022, which reflects
an effective tax
rate
of 25.6%.
Excluding the impact of discrete
items related to a
$5.0 million net tax
benefit recorded in the
third quarter of fiscal
2021 in connection
with the Coronavirus
Aid, Relief, and
Economic Security Act
(the “CARES Act”),
income tax expense
for
the comparable period of fiscal 2021 was $3.3 million, which reflects an adjusted effective tax rate of 27.9%.
For the
thirty-nine weeks
ended February
26, 2022,
pre-tax income
was $19.7
million compared
to $2.2
million for
the same
period of fiscal 2021. We
recorded an income tax benefit of $2.9 million, which includes the discrete tax benefit of $8.3 million
as discussed
in
Note 2 – Acquisition
of the
Notes to
Condensed Consolidated
Financial Statements
in this
Quarterly Report.
Excluding the discrete tax benefit, income tax
expense was $5.3 million with an
adjusted effective tax rate of 27.3%,
compared
to income tax expense
of $934 thousand for the
comparable period of fiscal 2021,
which reflects an effective
tax rate of 41.8%
excluding the impact of the $5.0 million discrete net tax benefit recorded in connection with the CARES Act.
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
Index
31
purposes,
including
tax
exempt
interest
income,
certain
nondeductible
expenses
and
net
income
or
loss
attributable
to
our
noncontrolling interest.
NET INCOME ATTRIBUTABLE
TO CAL-MAINE FOODS, INC.
Net income attributable to Cal-Maine Foods, Inc. for the third quarter ended February 26, 2022, was $39.5 million, or $0.81 per
basic and
diluted common
share, compared
to net
income attributable
to Cal-Maine
Foods, Inc.
of $13.5
million or
$0.28 per
basic and diluted common share for the same period of fiscal 2021.
Net
income
attributable
to
Cal-Maine
Foods,
Inc.
for
the
thirty-nine
weeks
ended
February
26,
2022,
was
$22.7
million,
or
$0.46 per
basic and
diluted common
share, compared
to net
income attributable
to Cal-Maine
Foods, Inc.
of $6.3
million or
$0.13 per basic and diluted common share for the same period of fiscal 2021.
CAPITAL RESOURCES AND LIQUIDITY
Our working capital at February
26, 2022 was $401.3 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
4.31 at
February 26,
2022, compared
with 5.77 at May 29, 2021.
We
had
no
long-term
debt
outstanding
at
February
26,
2022
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 February
26, 2022,
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 thirty-nine weeks ended February 26, 2022,
$20.8 million in net cash was provided by
operating activities, compared to
$14.7 million provided
by operating activities
for the comparable
period in fiscal
2021. This is
primarily due to
the higher egg
prices partially offset by increased costs of feed ingredients compared to the prior-year period.
We
continue to
invest in
our facilities,
with $49.2
million used
to purchase
property,
plant and
equipment for
the thirty-nine
weeks ended February
26, 2022, compared
to $73.8 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
$29.2
million
for
the
thirty-nine
weeks
ended
February
26,
2022,
compared
to
$25.8
million
for
the
comparable period
in
fiscal
2021.
We
received
$400
thousand
in
distributions
from
an
unconsolidated
entity in the first three quarters of fiscal 2022 compared to $5.8 million for the same period fiscal of 2021.
As of February 26, 2022, cash decreased $41.8 million
since May 29, 2021, compared to a decrease of
$25.2 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 $502
million in facilities, equipment and related operations to expand our cage-free production
starting with our first facility in 2008.
The following table presents material construction projects approved as of February 26, 2022 (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of February
26, 2022
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses/Processing
Facility
Fiscal 2022
$
130,918
108,579
22,339
Cage-Free Layer & Pullet Houses
Fiscal 2023
24,752
6,262
18,490
$
155,670
$
114,841
$
40,829
We believe our current cash balances, investments, cash flows from operations, and Credit Facility will be sufficient to fund our
current capital needs.
Index
32
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
33
ITEM 3. QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk during the thirty-six weeks ended February 26, 2022 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.