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
28, 2022
(the “2022 Annual Report”), and the accompanying financial statements and
notes included in Part II Item 8 of the 2022 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 2022
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 that
was first
detected in
commercial
flocks in
the U.S.
in February
2022, (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, which
generally have been
exacerbated by Russia’s
invasion of Ukraine
starting February 2022,
(vii) our ability
to retain
existing
customers,
acquire
new
customers
and
grow
our
product
mix
and
(viii)
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
41.1 million
layers
and
11.4
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.
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.
We
routinely
fill
our
storage
bins
during
harvest
season
when
prices
for
feed
ingredients
are
generally
lower.
To
ensure
continued
availability of
feed ingredients,
we may
enter into
contracts for
future purchases
of corn
and soybean
meal, and
as
part of these contracts,
we may lock-in
the basis portion of
our grain purchases
several months in
advance. Furthermore, due
to
the
more
limited
supply
for
organic
ingredients,
we
may
commit
to
purchase
organic
ingredients
in
advance
to
help
ensure
supply.
Ordinarily,
we do not enter
into long-term contracts
beyond a year
to purchase corn and
soybean meal or hedge
against
Index
17
increases
in
the
prices
of
corn
and
soybean
meal.
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
and most recently the Russia-Ukraine war.
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.
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.
HPAI
We
are
closely
monitoring
the
current
outbreak
of
highly
pathogenic
avian
influenza
(“HPAI”),
that
was
first
detected
in
commercial
flocks
in
the
U.S.
in
February
2022
and
which
was
most
recently
detected
in
commercial
flocks
in
the
U.S.
in
September
2022.
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 as
of September
27, 2022.
The USDA
division
of Animal
and Plant
Health Inspection
Service (“APHIS”)
reported
that approximately
35.6 million
commercial
layer hens
and 1.0
million
pullets have
been
depopulated
due
to HPAI.
According
to
APHIS,
the
most
recently
reported
outbreaks
of
HPAI
affecting
commercial
layer
hens
and
pullets
occurred
September
21,
2022
and
June
9,
2022,
respectively.
We
believe
the
HPAI
outbreak
will
continue
to
have
an
impact
on
the
overall
supply of
eggs through
the balance
of this
calendar year
and possibly
beyond. According
to LEAP
Market Analytics,
layer hen inventory is not projected to exceed the 320 million mark until October
of 2023.
While no
farm is
immune from
HPAI,
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.
CAGE-FREE EGGS
Ten
states
have
passed
legislation
or
regulations
mandating
minimum
space
or
cage-free
requirements
for
egg
production
or
mandated
the
sale
of
only
cage-free
eggs
and
egg
products
in
their
states,
with
implementation
of
these
laws
ranging
from
January
2022
to
January
2026.
These
states
represent
approximately
27%
of
the
U.S.
total
population
according
to
the 2020
U.S. Census.
In California
and Massachusetts,
which
collectively represent
14% of
the total
U.S. population
according to
the
2020 U.S. Census,
cage-free legislation went
into effect January
1, 2022. However,
these laws are subject
to judicial challenge,
and the
Supreme Court
of the U.S.
recently announced
that in
October 2022
it will
review a
case challenging
California’s
law
that requires the sale of only
cage-free eggs in that state. These laws
have already affected and,
if upheld, will continue to affect
sourcing,
production
and
pricing
of
eggs (conventional
as well
as specialty)
as the
national
demand
for
cage-free
production
could
be greater
than the
current supply,
which
would increase
the price
of cage-free
eggs, unless
more
cage-free production
capacity
is constructed.
Likewise, the
national supply
for eggs
from conventional
production
could exceed
consumer demand
which would decrease the price of conventional eggs.
A significant number
of our customers
have previously announced
goals to offer
cage-free eggs exclusively
on or before
2026,
subject in
most cases
to availability
of supply,
affordability and
customer demand,
among other
contingencies. Some
of these
customers have
recently changed
those goals
to offer
70% cage-free
eggs by
the end
of 2030.
Our customers
typically do
not
commit to long-term
purchases of specific quantities
or types of eggs
with us, and as
a result, it is difficult
to accurately predict
customer
requirements
for
cage-free
eggs.
We
are,
however,
engaging
with
our
customers
in
an
effort
to
achieve
a
smooth
transition
in meeting
their announced
goals and
needs.
Sales of
cage-free
eggs represented
approximately
19.4% of
our shell
egg revenues
for the
first quarter
of fiscal
2023.
We
have invested
significant capital
in recent
years to
acquire and
construct
cage-free facilities, and
we expect our focus
for future expansion will
continue to include cage-free
facilities. At the same
time,
Index
18
we
understand
the
importance
of
our
continued
ability
to provide
more
affordable
conventional
eggs
in
order
to
provide
our
customers with a variety of egg choices and to address hunger in our
communities.
For
additional
information,
see
the
2022
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.”
EXECUTIVE OVERVIEW
For the first quarter of fiscal
2023, we recorded a gross profit of
$217.5 million compared to $6.6 million
for the same period of
fiscal
2022,
with
the
increase
due
primarily
to
higher
shell
egg
prices
and
increased
volume
of
specialty
eggs
sold,
partially
offset by the increased
cost of feed ingredients
and processing, packaging
and warehouse costs. Our
total dozens sold increased
8.1% to 275.3
million dozen shell
eggs for the
first quarter of
fiscal 2023 compared
to 254.6 million
dozen for the
same period
of fiscal 2022. For the first
quarter of fiscal 2023, conventional
dozens sold decreased 2.3% and specialty
dozens sold increased
35.1% as
compared to
the same
quarter in
fiscal 2022.
Demand for
specialty eggs
increased in
the first
quarter of
fiscal 2023
compared to
the same prior
year period due
primarily to the
higher prices for
conventional eggs.
Further,
demand for specialty
eggs continued
to increase
as retailers
continued
to shift
to selling
cage-free
products
and
cage-free
legislation
went into
full
effect
in
California
and
Massachusetts
on
January
1,
2022.
We
benefited
from
the
strong
demand
for
specialty
eggs
as
we
placed more of our cage-free facilities into production and better utilized
our existing cage-free production capacity.
Conventional
egg
prices
increased
in
the
first
quarter
of
fiscal
2023
primarily
due
to
decreased
supply
caused
by
the
HPAI
outbreak
compounded
with
good
customer
demand.
See
the
discussion
under
the
heading
“HPAI”
above.
The
daily
average
price for
the UB
southeast large
index for
the first
quarter of
fiscal 2023
increased 133.8%
from the
comparable period
in the
prior
year.
Our net
average
selling price
per dozen
for
the first
quarter
of fiscal
2023
was $2.275
compared
to $1.235
in
the
prior-year period. Layer
hen numbers reported
by the USDA
as of September
21, 2022, were
305.3 million, which
represents a
decrease of
4.6% compared
with the
layer hen
inventory a
year ago.
The USDA
also reported
that the
hatch from
April 2022
through
August
2022
decreased
0.5%
as
compared
with
the
prior-year
period.
As
of
September
1,
2022,
however,
eggs
in
incubators were up 9.0% year-over-year,
indicating that layer flocks may increase in the future.
Our farm
production costs
per dozen
produced for
the first
quarter of
fiscal 2023
increased 16.5%,
or $0.148,
compared to
the
first quarter of fiscal 2022
.
This increase was primarily
due to increased prices for
feed ingredients and a higher
basis in corn in
most of
our production
areas.
For the
first quarter
of fiscal
2023, the
average Chicago
Board of
Trade (“CBOT”)
daily market
price
was
$6.65
per
bushel
for
corn
and
$456
per
ton
for
soybean
meal,
representing
increases
of
11.5%
and
25.4%,
respectively, compared
to the average daily CBOT prices for the comparable period in the prior
year.
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
August 27, 2022
August 28, 2021
Net sales
100.0
%
100.0
%
Cost of sales
67.0
%
98.0
%
Gross profit
33.0
%
2.0
%
Selling, general and administrative
8.1
%
14.3
%
(Gain) loss on disposal of fixed assets
—
%
(0.1)
%
Operating income (loss)
24.9
%
(12.2)
%
Total other income, net
0.2
%
1.8
%
Income (loss) before income taxes
25.1
%
(10.4)
%
Income tax expense (benefit)
6.1
%
(4.9)
%
Net income (loss)
19.0
%
(5.5)
%
NET SALES
Total
net sales for
the first quarter
of fiscal 2023
were a record
$658.3 million
compared to $325.0
million for the
same period
of fiscal 2022.
Index
19
Net shell
egg sales
represented 95.8%
and 97.1%
of total
net sales
for the
first quarters
of fiscal
2023 and
2022, respectively.
Shell egg sales classified
as “Other” represent
sales of hard-cooked
eggs and other
miscellaneous byproducts included
with our
shell egg operations.
The table below presents an analysis of our conventional and specialty shell egg
sales (in thousands, except percentage data):
Thirteen Weeks
Ended
August 27, 2022
August 28, 2021
Total net sales
$
658,344
$
324,986
Conventional
$
425,589
67.5
%
$
182,030
57.6
%
Specialty
200,820
31.8
%
132,458
42.0
%
Egg sales, net
626,409
99.3
%
314,488
99.6
%
Other
4,295
0.7
%
1,132
0.4
%
Net shell egg sales
$
630,704
100.0
%
$
315,620
100.0
%
Net shell egg sales as a percent of total net sales
95.8
%
97.1
%
Dozens sold:
Conventional
179,712
65.3
%
183,872
72.2
%
Specialty
95,605
34.7
%
70,750
27.8
%
Total dozens sold
275,317
100.0
%
254,622
100.0
%
Net average selling price per dozen:
Conventional
$
2.368
$
0.990
Specialty
$
2.101
$
1.872
All shell eggs
$
2.275
$
1.235
Egg products sales:
Egg products net sales
27,640
9,366
Pounds sold
16,502
15,269
Net average selling price per pound
1.675
0.613
Shell egg net sales
First Quarter – Fiscal 2023
vs. Fiscal 2022
-
In the
first quarter
of fiscal
2023,
conventional
egg sales
increased
$243.6 million,
or 133.8%,
compared to
the first
quarter of
fiscal 2022,
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
$247.6 million
increase and the
change in volume
resulted in a $4.1 million decrease in net sales, respectively.
-
We believe
prices for conventional eggs
were positively impacted by
a better alignment of the
size of the conventional
production layer
hen flock
and customer
and consumer
demand. Conventional
egg prices further
increased in
the first
quarter of fiscal 2023 primarily due to decreased supply caused by the HPAI
outbreak, discussed above.
-
Conventional
egg
prices
generally
respond
more
quickly
to
market
conditions
as
we
sell
the
majority
of
our
conventional
shell
eggs
based
on
formulas
that
adjust
periodically
and
take
into
account,
in
varying
ways,
independently
quoted regional
wholesale
market
prices for
shell eggs
or formulas
related to
our
costs of
production.
The
majority
of
our
specialty
eggs
are
typically
sold
at
prices
and
terms
negotiated
directly
with
customers
and
therefore do
not fluctuate
as much
as conventional
pricing. As
a result
of these
independently
quoted
whole markets
for
conventional
eggs
reaching
near
historical
highs,
the
average
selling
price
for
conventional
eggs
exceeded
the
average selling price for specialty eggs in the first quarter of fiscal 2023.
-
Specialty egg sales increased $68.4 million, or
51.6%, in the first quarter of fiscal 2023
compared to the first quarter of
fiscal 2022,
primarily due
to a
35.1% increase
in the
volume of
specialty eggs
sold, which
resulted in
a $46.5
million
increase in net sales.
-
According
to
Information
Resources,
Inc.,
Total
US
–
Multi
Outlet
for
the
latest
13
weeks
ended
August
27,
2022,
cage-free
eggs
dozens
sold
(including
free-range,
pasture-raised
and
organic)
increased
34.9%.
We
believe
this
increase in
demand was
positively impacted
by the
higher conventional
egg prices
as compared
to the
same period
in
Index
20
the
prior
year.
Demand
for
specialty
eggs
was
further
positively
affected
by
California’s
and
Massachusetts’s
cage-
free mandates going into effect January 1, 2022, as well as more
retailers shifting to selling more cage-free products.
-
Our
specialty
egg
sales
in
the
first
quarter
of
fiscal
2023
versus
the
prior-year
period
benefitted
from
the
strong
demand
for
specialty
eggs
as
we
placed
more
of
our
cage-free
facilities
into
production,
and
we
better
utilized
our
existing cage-free production capacity.
Cage-free egg sales for the first
quarter of fiscal 2023 represented 19.4%
of our
total net shell egg
sales versus 22.1%
for the same prior
year period due
the higher conventional
egg prices. Cage-free
dozens sold increased 58% in the first of quarter of fiscal 2023 as compared
to the first quarter of fiscal 2022.
Egg products net sales
First Quarter – Fiscal 2023
vs. Fiscal 2022
-
Egg
products
net
sales
increased
$18.3
million
or
195.1%
for
the
first
quarter
of
fiscal
2023
compared
to
the
same
period of
fiscal 2022,
primarily due
to a
173.2% selling
price increase,
which had
a $17.5
million positive
impact on
net sales.
-
Our egg products
net average selling
price increased in
the first quarter
of fiscal 2023,
compared to the
first quarter of
fiscal 2022 as the supply decreased due to the HPAI
outbreak that started in February 2022. We
believe 13.4 million of
the
33.7
million
layers
culled
as
a
result
of
the
HPAI
outbreak
were
located
at
facilities
dedicated
to
support
inline
breaking facilities in Iowa and Ohio.
COST OF SALES
Costs of
sales for
the first
quarter of
fiscal 2023
were $440.9
million compared
to $318.3
million for
the same
period of
fiscal
2022.
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
August 27, 2022
August 28, 2021
%
Change
Cost of Sales:
Farm production
$
266,651
$
207,495
28.5
%
Processing, packaging, and warehouse
81,417
65,059
25.1
Egg purchases and other (including change in inventory)
68,298
37,973
79.9
Total shell eggs
416,366
310,527
34.1
Egg products
24,488
7,814
213.4
Total
$
440,854
$
318,341
38.5
%
Farm production costs (per dozen produced)
Feed
$
0.667
$
0.545
22.4
%
Other
$
0.379
$
0.353
7.4
%
Total
$
1.046
$
0.898
16.5
%
Outside egg purchases (average cost per dozen)
$
2.57
$
1.35
90.4
%
Dozens produced
257,654
236,458
9.0
%
Percent produced to sold
93.6%
92.9%
0.8
%
Farm Production
First Quarter – Fiscal 2023
vs. Fiscal 2022
-
Feed costs per dozen produced
increased 22.4% in the first quarter
of fiscal 2023
compared to the first quarter of fiscal
2022. This increase was primarily due to increased prices for corn, our primary
feed ingredient.
Index
21
-
For the
first quarter
of fiscal
2023, the
average daily
Chicago Board
of Trade
(“CBOT”) market
price was
$6.65 per
bushel
for
corn
and
$456
per
ton
of
soybean
meal
representing
increases
of
11.5%
and
25.4%,
respectively,
as
compared to the average daily CBOT prices for the first quarter of fiscal 202
2.
Supplies of
corn and soybean
remained tight
relative to demand
in the first
quarter of
fiscal 2023 as
evidenced by a
low stock-
to-use
ratio
for
corn,
as
a
result
of
weather-related
shortfalls
in
production
and
yields,
ongoing
disruptions
related
to
the
COVID-19
global
pandemic
and
the
Russia-Ukraine
war
and
its
impact
on
the
export
markets.
Basis
levels
for
corn
ran
significantly
higher
in
our
area
of
operations
compared
to
our
prior
year
first
fiscal
quarter.
For
fiscal
2023,
we
expect
continued corn and soybean upward pricing pressures and further market
volatility to affect feed costs.
Processing, packaging, and warehouse
First Quarter – Fiscal 2023
vs. Fiscal 2022
-
Cost of packaging materials increased 16.1% compared to the first quarter of
fiscal 2022 due to rising inflation.
-
Labor costs increased 24.4%
due to wage increases and increased use of contract labor in response to labor shortages
.
-
Dozens processed increased 8.6% compared to the first quarter of fiscal 2022,
which resulted in a $2.2 million increase
in costs.
Egg purchases and other (including change in inventory)
First Quarter – Fiscal 2023
vs. Fiscal 2022
-
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 93.6% from 92.9%.
GROSS PROFIT
Gross profit for
the first quarter
of fiscal 2023
was $217.5 million
compared to $6.6
million for the
same period of
fiscal 2022.
The increase
of $210.9
million was
primarily due
to higher
egg prices
as well
as the
increased volume
of specialty
eggs sold,
partially offset by the increased cost of feed ingredients
and processing,
packaging and warehouse 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
August 27, 2022
August 28, 2021
$ Change
% Change
Specialty egg expense
$
13,067
$
13,715
$
(648)
(4.7)
%
Delivery expense
19,916
13,936
5,980
42.9
%
Payroll, taxes and benefits
10,987
9,939
1,048
10.5
%
Stock compensation expense
1,025
1,001
24
2.4
%
Other expenses
8,612
7,934
678
8.5
%
Total
$
53,607
$
46,525
$
7,082
15.2
%
First Quarter – Fiscal 2023
vs. Fiscal 2022
Specialty egg expense
-
Specialty egg
expense, which includes
franchise fees, advertising
and promotion
costs, generally
aligns with specialty
egg
volumes,
which
were
up
35.1%
for
the
first
quarter
of fiscal
2023
compared
to
the
same
period
of
fiscal
2022.
However,
our specialty egg
expense decreased by
4.7%, primarily due
to increased sales
to other
Eggland’s Best,
Inc.
(“EB”)
franchisees,
including
unconsolidated
affiliates,
Specialty
Eggs,
LLC
and
Southwest
Specialty
Eggs,
LLC.
These franchisees
that were
responsible for
the franchise
fees, advertising
and promotion
costs associated
with those
sales, which resulted in reduced costs for us. Also, the higher prices for
conventional eggs and the comparatively lower
prices for specialty eggs diminished
the need to promote specialty eggs;
as a result, EB temporarily reduced
the related
franchise fees for certain specialty egg products to encourage continued production
of these products.
Index
22
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 expense
is primarily
due
to increased
wages for
all employees
due
to the
inflationary market.
OPERATING
INCOME (LOSS)
For the first quarter of fiscal 2023,
we recorded operating income of $163.9 million
compared to operating loss of $39.7 million
for the same period of fiscal 2022.
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 first quarter of fiscal
2023, we earned $1.1 million of interest
income compared to $290 thousand for
the same period of
fiscal
2022.
The
increase
resulted
from
significantly
higher
investment
balances.
The
Company
recorded
interest
expense
of
$148 thousand and $58 thousand for the first quarters
ended August 27, 2022 and August 28, 2021, respectively.
Other,
net for
the first
quarter ended
August 27,
2022, was
income of
$155 thousand
compared to
income of
$5.2 million
for
the same
period of
fiscal 2022.
The decrease
is primarily
due to
our acquisition
of the
remaining 50%
membership interest
in
Red
River
in
the
first
quarter
of
fiscal
2022
as
we
recognized
a
$4.5
million
gain
due
to
the
remeasurement
of
our
equity
investment.
INCOME TAXES
For the
first quarter
of fiscal
2023, pre-tax
income was
$165.5 million
compared to
pre-tax loss
of $33.9
million for
the same
period of
fiscal 2022.
We
recorded income
tax expense
of $40.3
million for
the first
quarter of
fiscal 2023,
which reflects
an
effective
tax
rate
of
24.4%,
compared
to
an
income
tax
benefit
of
$15.8
million
in
the
prior
year
period,
which
reflects
an
effective tax
rate of 46.8%.
Excluding the
impact of discrete
items related to
a $8.3
million net
tax benefit
recorded in the
first
quarter of
fiscal 2022
in connection
with the
Red River
Valley
Egg Farm,
LLC (“Red
River”) acquisition,
income tax
benefit
for the comparable period of fiscal 2022 was $7.6 million, which reflects an
adjusted effective tax rate of 22.4%.
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
noncontrolling interest.
NET INCOME ATTRIBUTABLE
TO CAL-MAINE FOODS, INC.
Net income
attributable to Cal-Maine
Foods, Inc. for
the first quarter
ended August 27,
2022, was $125.3
million, or $2.58
per
basic and $2.57 per diluted
common share, compared to net
loss attributable to Cal-Maine
Foods, Inc. of $18.0 million
or $0.37
per basic and diluted common share for the same period of fiscal 2022.
LIQUIDITY AND CAPITAL
RESOURCES
Working
Capital and Current Ratio
Our working
capital at
August 27,
2022 was $548.5
million, compared
to $476.8
million at
May 28,
2022. The
calculation of
working capital is
defined as current
assets less current liabilities.
Our current ratio
was 3.4 at August
27, 2022, compared with
3.6 at May 28, 2022. The current ratio is calculated by dividing current
assets by current liabilities.
Cash Flows from Operating Activities
For
the thirteen
weeks
ended August
27, 2022,
$172.8
million
in net
cash
was
provided by
operating
activities,
compared
to
$24.1
million used
by operating
activities for
the comparable
period in
fiscal 2022.
The increase
in cash
flow from
operating
Index
23
activities
resulted
primarily
from
higher
selling
prices
for
conventional
and
specialty
eggs
as
well
as
increased
volume
of
specialty
egg
sales,
partially
offset
by
increased
costs
of
feed
ingredients
compared
to
the
prior-year
period.
The
increase
in
Other adjustments, net is primarily due to a $67.4 million balance for
income taxes payable as of August 27, 2022.
Cash Flows from Investing Activities
We continue
to invest in our facilities, with $27.7
million used to purchase property,
plant and equipment for the thirteen
weeks
ended
August
27,
2022,
compared
to
$11.2
million
in
the
same
period
of
fiscal
2022. In
the
first
quarter
of
fiscal
2022,
we
acquired the
remaining 50%
membership interest
in Red
River Valley
Egg Farm,
LLC for
$44.8 million,
net of
cash acquired.
Purchases
of investments
were $51.8
million
in
the first
quarter
of fiscal
2023,
compared to
$1.4
million
in fiscal
2022.
The
increase in
purchases of
investments is
primarily due
to the
increased cash
provided by
operating activities
noted above.
Sales
and
maturities of
investment
securities were
$20.3
million
for
the thirteen
weeks ended
August
27,
2022,
compared
to $39.4
million for the comparable period in fiscal 2022.
Cash Flows from Financing Activities
We paid dividends
of $36.7 million in the first quarter of fiscal 2023.
As of
August 27,
2022,
cash increased
$76.9 million
since May
28, 2022,
compared to
a decrease
of $40.7
million during
the
same period of fiscal 2022.
Credit Facility
We
had no
long-term debt
outstanding at
August 27,
2022 or
May 28,
2022. On
November 15,
2021, we
entered into
a credit
agreement
that
provides
for
a
senior
secured
revolving
credit facility
(the
“Credit
Facility”),
in
an
initial
aggregate
principal
amount
of
up
to
$250
million
with
a
five-year
term.
As
of
August
27,
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. Refer
to Part II Item
8. Notes to the
Financial Statements, Note
10 – Credit
Facility included
in our 2022
Annual Report for further information regarding our long-term debt.
Material Cash Requirements
We
continue
to
monitor
the
increasing
demand
for
cage-free
eggs
and
to
engage
with
our
customers
in
efforts
to
achieve
a
smooth transition toward
their announced commitment
timeline for cage-free
egg sales. As previously
reported, during the
first
quarter of
fiscal 2023, our
Board of Directors
approved another
capital project
to expand our
cage-free production
capabilities.
The
project
at
Chase,
Kansas
will
convert
existing
conventional
layer
capacity
to
cage-free
capacity
for
approximately
1.5
million cage-free hens and include remodels of all remaining pullet facilities. Project
completion is expected by year-end 2025.
The following table presents material construction projects approved
as of August 27, 2022 (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of August
27, 2022
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses/Processing
Facility
Fiscal 2023
$
132,161
115,343
16,818
Cage-Free Layer & Pullet Houses
Fiscal 2023
24,923
19,548
5,375
Cage-Free Layer & Pullet Houses
Fiscal 2024
42,591
383
42,208
Cage-Free Layer & Pullet Houses
Fiscal 2025
94,183
7,729
86,454
$
293,858
$
143,003
$
150,855
We believe our
current cash balances, investments, cash flows from operations, and Credit Facility will be sufficient
to fund our
current capital needs for at least the next 12 months.
IMPACT OF
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.
Index
24
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
2022 Annual Report.
ITEM 3. QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our exposure to market risk during
the thirteen weeks ended August 27, 2022 from the
information provided in Item 7A. Quantitative and Qualitative Disclosures
About Market Risk in our 2022 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.