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
inflation
and
rising
interest
rates,
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
United
States
(“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 increased costs,
rising inflation and rising
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,
(viii) adverse
results in
pending litigation
matters and
(ix) risks
relating to
the evolving
COVID-19 pandemic. 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
reportable
segment.
We
are
the
largest
producer
and
distributor
of
fresh
shell
eggs
in
the
U.S.
Our
total
flock
of
approximately
43.3
million
layers
and
9.9
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 customers
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
do
not
sell
eggs
directly to consumers or set the prices at which eggs are sold to consumers.
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
Index
18
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.
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.
Basis
is
the
difference
between the
local cash
price for
grain and
the applicable
futures price.
A basis
contract is
a common
transaction in
the grain
market that
allows us
to lock-in
a basis
level for
a specific
delivery period
and wait
to set
the futures
price at
a later
date. 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
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,
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.
We
are
also
focused
on
additional
ways
to
enhance
our
product
mix
and
support
new
opportunities
in
the
restaurant,
institutional
and
industrial
food
products
arena.
On
October
4,
2021,
Cal-Maine
Foods
announced
a
strategic
investment
of
$18.5
million
in
debt
and
equity
in
Meadow
Creek
Foods,
LLC
(“MeadowCreek”),
an
egg
products
operation
located
in
Neosho,
Missouri,
focused
on offering
hard-cooked
eggs.
Cal-Maine
Foods
serves
as
the
preferred
provider
of
specialty and
conventional
eggs
used
by
MeadowCreek
to
manufacture
egg
products.
On
December
13,
2022,
our
Board
of
Directors
approved
an additional
$13.8 million
investment to
expand the
Company’s
controlling interest
and fund
additional equipment
and
working
capital
needs
to support
growth
opportunities
for
MeadowCreek.
As demand
for
hard-cooked
eggs
continues to
grow,
the
funds
will
be
used
for
additional
refrigerated
storage
space
and
expanded
capacity
for
cooking
and
packaging
to
better serve MeadowCreek’s
customers. MeadowCreek began operations during the third quarter of fiscal 2023.
The
Company
has
joined
in
the
formation
of
a
new
egg
farmer
cooperative
in
the
western
United
States.
ProEgg,
Inc.
(“ProEgg”)
is
comprised
of
leading
egg
production
companies,
including
Cal-Maine
Foods,
servicing
retail
and
foodservice
shell egg customers in 13 western states. ProEgg is a producer-owned
cooperative organized under the Capper-Volstead
Act.
Our
membership
in
ProEgg
is
expected
to
provide
benefits
for
its
customers,
including
supply
chain
stability
and
enhanced
reliability.
Initially,
Cal-Maine Foods’
customer relationships
and customer
support are
expected to
remain the
same. At some
point in the future, it is anticipated
that each producer member will sell
through ProEgg the shell eggs
it produces for sale in the
western
states
covered
by
the
cooperative.
Customers
would
have
a
single
point
of
contact
for
their
shell
egg
purchases,
as
ProEgg would have a dedicated team to market and sell the members’ combined
egg production in the region.
The Company’s
top priority in joining
as a member of
ProEgg is serving
our valued customers in
this important market
region.
During
this
initial
phase,
we
will
continue
our
work
to
confirm
that
our
participation
in
this
new
cooperative
is
in
the
best
interest of
our customers
and aligns
with our
long-term interests.
This consideration
will take
place before
moving to
the next
phase of membership, and we expect this process to be completed on
or before the end of calendar year 2023.
HPAI
We
are closely
monitoring
the current
outbreak of
HPAI
that was
first detected
in commercial
flocks in
the U.S.
in February
2022.
Outbreaks in
commercial flocks
in the
U.S. have
most recently
occurred
during
each month
from September
to March
2023.
The
current
HPAI
epidemic
has
surpassed
the
prior
2014-2015
outbreak
in
terms
of
its
duration
and
the
number
of
affected
hens
in
the
U.S.,
and
HPAI
continues
to
circulate
throughout
the
wild
bird
population
in
the
U.S.
and
abroad.
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
March 28,
2023. The
USDA division
of Animal
and Plant
Health Inspection
Service (“APHIS”)
reported
on March
27, 2023
that
approximately
43.3
million
commercial
layer
hens
and
1.0
million
pullets
have
been
depopulated
due
to
HPAI
since
February 2022. We
believe the HPAI
outbreak will continue
to exert downward
pressure on the
overall supply of
eggs, and the
Index
19
duration of those
effects will depend
in part on the
timing of replenishment
of the U.S.
layer hen flock.
Prior to the outbreak
of
HPAI
in February
2022,
the layer
hen flock
five-year
average from
2017 through
2021 was
comprised
of approximately
328
million hens.
According to
a LEAP Market
Analytics report
dated March
21, 2023,
the layer
hen inventory
is not
projected to
exceed this 328
million mark again until
January of 2024.
Layer hen numbers reported
by the USDA as
of March 1, 2023
were
312.9
million,
which
represents
a
decrease
of
3.8%
compared
with
the
layer
hen
inventory
a
year
ago.
However,
the
USDA
reported
that
the
hatch
from
October
2022
through
February
2023
increased
4.5%
as
compared
with
the
prior-year
period,
indicating that layer flocks may increase in the future.
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 in October
2022 the U.S.
Supreme Court
heard oral arguments
in a case
challenging California’s
law that requires
the sale
of only cage-free eggs in
that state. A decision in that case
is expected in the summer of 2023.
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 prices
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
prices
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.
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,
we
understand
the
importance
of
our
continued
ability
to
provide
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 third quarter
of fiscal 2023,
we recorded a gross
profit of $463.0 million
compared to $91.6 million
for the same period
of
fiscal
2022,
with
the
increase
due
primarily
to
higher
shell
egg
prices,
partially
offset
by
the
increased
cost
of
feed
ingredients and other farm production costs as well as increased processing
,
packaging and warehouse costs.
Our
net
average selling
price per
dozen for
the
third quarter
of fiscal
2023
was $3.298
compared
to $1.
612
in
the prior-year
period. Conventional
egg prices
per dozen
were $3.678
compared to
$1.458 for
the prior-year
period, and
specialty egg
prices
per dozen
were $2.616
compared to
$1.923 for
the prior-year
period. Conventional
egg prices
increased in
the third
quarter of
fiscal 2023 primarily due to decreased supply caused by the HPAI
outbreak combined with robust customer demand,
which was
bolstered by
the peak
winter holiday
season. See
the discussion
under the
heading “HPAI”
above. The
daily average
price for
the Urner
Barry southeast
large index
for the
third quarter
of fiscal
2023 increased
129.8% from
the comparable
period in
the
prior
year.
Conventional
egg
prices
exceeding
specialty
egg
prices
has
occurred
for
the
past
four
quarters
but
is
atypical
historically.
Conventional egg
prices generally
respond more
quickly to
market conditions
because 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. For information about historical shell egg prices,
see Part I Item I of our 2022 Annual Report.
Index
20
Our total
dozens sold
increased 1.3%
to 291.4
million dozen
shell eggs
for the
third quarter
of fiscal
2023 compared
to 287.7
million dozen for
the same period
of fiscal 2022.
For the third quarter
of fiscal 2023,
conventional dozens sold
decreased 2.7%
and specialty
dozens sold increased
9.4% as compared
to the same
quarter in fiscal
2022. Demand
for specialty eggs
increased
in the
third 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.
Our farm production
costs per dozen
produced for the
third quarter of
fiscal 2023 increased
18.2%, or $0.166,
compared to the
third quarter of fiscal 2022.
This increase was primarily due
to increased feed ingredient
costs as well as increased facility
costs
and higher amortization
of our flocks.
For the third quarter of
fiscal 2023, the average
Chicago Board of Trade
(“CBOT”) daily
market
price
was
$6.67
per
bushel
for
corn
and
$473
per
ton
for
soybean
meal,
representing
increases
of
8.8%
and
14.8%,
respectively,
compared
to
the average
daily
CBOT prices
for
the
comparable
period
in
the prior
year.
For
information
about
historical corn and soybean meal prices, see Part I Item I of our 2022 Annual
Report.
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 25, 2023
February 26, 2022
February 25, 2023
February 26, 2022
Net sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of sales
53.6
%
80.8
%
59.4
%
88.0
%
Gross profit
46.4
%
19.2
%
40.6
%
12.0
%
Selling, general and administrative
5.9
%
11.0
%
6.9
%
12.4
%
Gain on insurance recoveries
(0.3)
%
(0.2)
%
(0.1)
%
(0.3)
%
(Gain) loss on disposal of fixed assets
—
%
0.1
%
—
%
—
%
Operating income (loss)
40.8
%
8.3
%
33.8
%
(0.1)
%
Total other income, net
1.7
%
2.8
%
0.9
%
1.8
%
Income before income taxes
42.5
%
11.1
%
34.7
%
1.7
%
Income tax expense (benefit)
10.2
%
2.8
%
8.4
%
(0.2)
%
Net income
32.3
%
8.3
%
26.3
%
1.9
%
NET SALES
Total
net sales for the
third quarter of fiscal
2023 were $997.5 million
compared to $477.5 million
for the same period
of fiscal
2022.
Net shell
egg sales
represented 96.
7% and
97.3% of
total net
sales for
the third
quarters
of fiscal
2023 and
2022, respectively.
Shell
egg
sales classified
as “Other”
represent
sales
of
miscellaneous
byproducts
and
resale products
included
with our
shell
egg operations.
Total
net
sales
for
the
thirty-nine
weeks
ended
February
25,
2023
were
$2.46
billion,
compared
to
$1.18
billion
for
the
comparable period of fiscal 2022.
Net
shell
egg
sales
represented
96.4%
and
97.2%
of
total
net
sales
for
the
thirty-nine
weeks
ended
February
25,
2023
and
February 26, 2022, respectively.
Index
21
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 25, 2023
February 26, 2022
February 25, 2023
February 26, 2022
Total net sales
$
997,493
$
477,485
$
2,457,537
$
1,184,195
Conventional
$
689,022
71.4
%
$
280,633
60.4
%
$
1,656,528
69.9
%
$
683,805
59.4
%
Specialty
272,205
28.2
%
182,945
39.4
%
700,803
29.6
%
462,320
40.2
%
Egg sales, net
961,227
99.6
%
463,578
99.8
%
2,357,331
99.5
%
1,146,125
99.6
%
Other
3,684
0.4
%
1,158
0.2
%
11,932
0.5
%
4,554
0.4
%
Net shell egg sales
$
964,911
100.0
%
$
464,736
100.0
%
$
2,369,263
100.0
%
$
1,150,679
100.0
%
Net shell egg sales as a
percent of total net sales
96.7
%
97.3
%
96.4
%
97.2
%
Dozens sold:
Conventional
187,357
64.3
%
192,511
66.9
%
555,045
65.2
%
568,511
70.0
%
Specialty
104,059
35.7
%
95,140
33.1
%
295,774
34.8
%
243,310
30.0
%
Total dozens sold
291,416
100.0
%
287,651
100.0
%
850,819
100.0
%
811,821
100.0
%
Net average selling price
per dozen:
Conventional
$
3.678
$
1.458
$
2.984
$
1.203
Specialty
$
2.616
$
1.923
$
2.369
$
1.900
All shell eggs
$
3.298
$
1.612
$
2.771
$
1.412
Egg products sales:
Egg products net sales
32,582
12,749
88,274
33,516
Pounds sold
16,796
15,947
49,000
47,225
Net average selling price
per pound
1.940
0.799
1.802
0.710
Shell egg net sales
Third Quarter – Fiscal 2023
vs. Fiscal 2022
-
In the
third quarter
of fiscal
2023,
conventional egg
sales increased
$408.4 million,
or 145.5%,
compared to
the third
quarter
of
fiscal
2022,
primarily
due
to
the
increase
in
the
prices
for
conventional
shell
eggs,
slightly
offset
by
a
decrease
in
volume
of
conventional
shell
eggs
sold.
Changes
in
prices
resulted
in
a
$415.9
million
increase
and
the
change in volume resulted in a $7.5 million decrease in net sales, respectively.
-
Conventional egg
prices increased
in the
third quarter
of fiscal
2023
primarily due
to decreased
supply caused
by the
HPAI
outbreak,
discussed
above,
while
customer
demand,
bolstered
by
the
peak
winter
holiday
season,
remained
robust.
-
Specialty egg
sales increased $89.3
million, or 48.8%,
in the third
quarter of fiscal
2023 compared to
the third quarter
of
fiscal
2022,
primarily
due
to
a
36.0%
increase
in
the
prices
for
specialty
eggs,
which
resulted
in
a
$72.1
million
increase
in
net
sales,
and
a
9.4%
increase
in
the
volume
of
specialty
eggs
sold,
which
resulted
in
a
$17.2
million
increase in net sales.
-
Net average selling prices
of specialty eggs increased
in response to rising feed
and other input costs as well
as current
market conditions due to HPAI.
-
Demand
for
specialty
eggs
increased
as
conventional
egg
prices
rose.
Our
sales
volume
benefited
as
we
sold
9.4%
more
specialty
eggs
by
volume
in
the
third
quarter
of
fiscal
2023
versus
the
prior-year
period,
through
use
of
our
higher cage-free production capacity.
-
Cage-free egg sales
for the third quarter
of fiscal 2023 represented
17.8%
of our total net
shell egg sales versus
24.0%
for the
same prior year
period due
to the higher
conventional egg
prices causing
conventional egg
sales to represent
a
Index
22
higher
proportion
of
our
total
sales.
Cage-free
dozens
sold
increased
14.9%
in
the
third
quarter
of
fiscal
2023
as
compared to the third quarter
of fiscal 2022 as the
higher conventional egg prices drove
demand for specialty eggs
and
we utilized our expanded cage-free production capacity.
Thirty-nine weeks – Fiscal 2023 vs. Fiscal 2022
-
For
the
thirty-nine
weeks
ended
February
25,
2023,
conventional
egg
sales
increased
$972.7
million,
or
142.3%,
compared
to
the
same
period
of
fiscal
2022,
primarily
due
to
the
increase
in
the
prices
for
conventional
shell
eggs,
slightly offset
by the decrease
in the volume
of conventional eggs
sold. Changes in
prices
resulted in a
$988.5 million
increase and the change in volume resulted in a $16.2 million decrease in net
sales, respectively.
-
Specialty egg
sales increased
$238.5 million,
or 51.6%,
for the
thirty-nine weeks
ended February
25, 2023
compared
to the
same period of
fiscal 2022,
primarily due
to a 24.7%
increase in
the prices
for specialty
eggs.
Additionally,
the
volume
of specialty
dozens
sold
increased
21.6%
compared
to
the
same
prior
year
period,
mainly
due
to
the higher
conventional egg prices.
Changes in specialty
egg prices resulted
in a $138.7 million
increase in net sales
and changes
in volume resulted in a $99.7 million increase,
respectively.
Egg products net sales
Third Quarter – Fiscal 2023
vs. Fiscal 2022
-
Egg products
net sales
increased $19.8
million, or
155.6%, for
the third
quarter of
fiscal 2023
compared to
the same
period of
fiscal 2022,
primarily due
to a
142.8% selling
price increase,
which had
a $19.2
million positive
impact on
net sales.
-
Our egg products net average selling price increased in the third quarter
of fiscal 2023, compared to the third quarter of
fiscal 2022 as the supply of shell eggs
used to produce egg products decreased
due to the HPAI
outbreak that started in
February 2022.
Thirty-nine weeks – Fiscal 2023 vs. Fiscal 2022
-
Egg products
net sales
increased $54.8
million or
163.4%, primarily
due to
a 153.8%
selling price
increase compared
to the first thirty-nine weeks of fiscal 2022, which had a $53.5 million
positive impact on net sales.
-
Our egg products net average selling price increased
in the thirty-nine weeks ended February 25, 2023
compared to the
same
period
in
fiscal
2022
as
the
supply
of
shell
eggs
used
to
produce
egg
products
decreased
due
to
the
HPAI
outbreak that started in February 2022.
COST OF SALES
Costs of sales
for the
third quarter of
fiscal 2023
were $534.5 million
compared to $385.9
million for the
same period of
fiscal
2022. Cost of
sales for the
thirty-nine weeks
ended February 25,
2023 were $1,459.2
million compared
to $1,042.2 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.
Index
23
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 25, 2023
February 26, 2022
%
Change
February 25, 2023
February 26, 2022
%
Change
Cost of Sales:
Farm production
$
280,384
$
239,389
17.1
%
$
823,043
$
668,855
23.1
%
Processing, packaging,
and warehouse
87,037
77,116
12.9
252,093
211,649
19.1
Egg purchases and other
(including change in
inventory)
135,003
59,135
128.3
301,274
133,968
124.9
Total shell eggs
502,424
375,640
33.8
1,376,410
1,014,472
35.7
Egg products
32,043
10,263
212.2
82,762
27,749
198.3
Total
$
534,467
$
385,903
38.5
%
$
1,459,172
$
1,042,221
40.0
%
Farm production costs
(per dozen produced)
Feed
$
0.679
$
0.562
20.8
%
$
0.677
$
0.546
24.0
%
Other
$
0.399
$
0.350
14.0
%
$
0.388
$
0.350
10.9
%
Total
$
1.078
$
0.912
18.2
%
$
1.065
$
0.896
18.9
%
Outside egg purchases
(average cost per dozen)
$
3.72
$
1.75
112.6
%
$
3.20
$
1.57
103.8
%
Dozens produced
263,174
264,433
(0.5)
%
782,186
757,677
3.2
%
Percent produced to sold
90.3%
91.9%
(1.7)
%
91.9%
93.3%
(1.5)
%
Farm Production
Third Quarter – Fiscal 2023
vs. Fiscal 2022
-
Feed
costs
per
dozen
produced
increased
20.8%
in
the
third
quarter
of
fiscal
2023
compared
to
the
third
quarter
of
fiscal 2022.
This increase was
primarily due
to increased
prices for corn,
our primary feed
ingredient.
Basis levels for
corn and soybean meal ran significantly higher in our area of operations
compared to our prior year third fiscal quarter,
adding to our expense.
-
For the third
quarter of fiscal
2023, the average
daily CBOT
market price was
$6.67 per bushel
for corn and
$473 per
ton of soybean
meal, representing increases
of 8.8% and
14.8%, respectively,
as compared to the
average daily CBOT
prices for the third quarter of fiscal 2022.
-
Other
farm
production
costs
increased
due
to
higher
facility
and
flock
amortization.
Facility
costs
increased
due
primarily
to
increased
labor
costs.
Labor
costs
increased
36%
due
to
increased
use
of
contract
labor
and
increased
wages raised in response to labor shortages.
-
Flock amortization
increased primarily
from higher
feed costs,
which began
to rise
in our
third quarter
of fiscal
2021
due to
increased feed
ingredient prices
discussed above,
and which
remained high
in the
third quarter
of fiscal
2023.
Feed
costs
are
capitalized
in
our
flocks
during
pullet
production
and
increased
our
amortization
expense.
We
also
experienced higher amortization costs from an increase in our cage-free
production, which has higher capitalized costs.
Thirty-nine weeks – Fiscal 2023 vs. Fiscal 2022
-
Feed
costs
per
dozen
produced
increased
24.0%
in
the
thirty-nine
weeks
ended
February
25,
2023
compared
to
the
same period
of fiscal
2022, primarily
due to higher
feed ingredient prices
.
Basis levels for
corn and soybean
meal ran
significantly higher in our area of operations compared to our prior year third
fiscal quarter, adding to our expense.
-
Other
farm
production
costs
increased
due
to
higher
facility
and
flock
amortization.
Facility
costs
increased
due
primarily
to
increased
labor
costs.
Labor
costs
increased
28%
due
to
increased
use
of
contract
labor
and
increased
wages raised in response to labor shortages.
Index
24
-
Flock amortization increa
sed primarily from
higher capitalized feed
costs as well as
higher amortization
costs from an
increase in our cage-free production.
Supplies of corn and
soybean remained tight relative to
demand in the third 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
supply chain disruptions and
the
Russia-Ukraine
war
and
its
impact
on
the
export
markets.
For
fiscal
2023,
we
expect
continued
corn
and
soybean
upward
pricing pressures and further market volatility to affect
feed costs.
Processing, packaging, and warehouse
Third Quarter – Fiscal 2023
vs. Fiscal 2022
-
Cost of
packaging materials
increased 10.9%
compared to
the third
quarter of
fiscal 2022
due to
rising inflation
and
labor costs.
-
Labor costs increased 14.2%
due to wage increases and increased use of contract labor in response to labor shortages
.
Thirty-nine weeks – Fiscal 2023 vs. Fiscal 2022
-
Cost of packaging materials
increased 15.5%
compared to the thirty-nine
weeks ended February 26, 2022
due to rising
inflation and labor costs.
-
Labor costs
increased 13.7%
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
26,
2022,
which
resulted
in
a
$7.3 million increase in costs.
Egg purchases and other (including change in inventory)
Third Quarter – Fiscal 2023
vs. Fiscal 2022
-
Costs in this
category increased
primarily due to
higher egg prices
as well as
an increase in
the volume of
outside egg
purchases, causing the percentage of produced to sold to decrease to 90.3%
from 91.9%.
Thirty-nine weeks – Fiscal 2023 vs. Fiscal 2022
-
Costs in this
category increased
primarily due to
higher egg prices
as well as
an increase in
the volume of
outside egg
purchases, as our percentage of produced to sold decreased to 91.9% from 93.3%.
GROSS PROFIT
Gross
profit
for
the
third
quarter
of
fiscal
2023
was
$463.0
million
compared
to
$91.6
million
for
the
same
period
of
fiscal
2022.
The increase
of $371.4
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
and the decreased
volume of conventional egg sales.
Gross profit
for
the thirty-nine
weeks ended
February
25, 2023
was $998.4
million
compared
to $142.0
million
for the
same
period of fiscal
2022. The increase
of $856.4 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 and
the decreased volume of conventional egg sales.
Index
25
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES
Selling,
general,
and
administrative
("SGA")
expenses
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 25, 2023
February 26, 2022
$ Change
% Change
Specialty egg expense
$
15,689
$
17,318
$
(1,629)
(9.4)
%
Delivery expense
19,453
16,440
3,013
18.3
%
Payroll, taxes and benefits
14,325
11,398
2,927
25.7
%
Stock compensation expense
1,059
1,007
52
5.2
%
Other expenses
7,963
6,523
1,440
22.1
%
Total
$
58,489
$
52,686
$
5,803
11.0
%
Third Quarter – Fiscal 2023
vs. Fiscal 2022
Specialty egg expense
-
Specialty
egg
expense
decreased
primarily
due
to
a
significant
reduction
in
advertising
costs.
The
higher
prices
for
conventional eggs and the comparatively lower prices for specialty
eggs diminished the need to promote specialty eggs
in the third quarter of fiscal 2023.
Delivery expense
-
The
increased
delivery
expense
is
primarily
due
to
an
increase
in
contract
trucking
expenses
of
approximately
$2.0
million in the third quarter of fiscal 2023 compared to the third quarter of fiscal 2022.
Payroll, taxes and benefits expense
-
The
increase
in payroll,
taxes and
benefits
expense
is due
to
an
increase
in
the accrual
for
anticipated
performance-
based bonuses.
Other expense
-
The increase in other expense is primarily due to inflationary pressure increasing
costs.
Thirty-nine Weeks Ended
February 25, 2023
February 26, 2022
$ Change
% Change
Specialty egg expense
$
43,429
$
45,295
$
(1,866)
(4.1)
%
Delivery expense
57,544
44,771
12,773
28.5
%
Payroll, taxes and benefits
39,139
32,640
6,499
19.9
%
Stock compensation expense
3,071
2,983
88
3.0
%
Other expenses
26,865
21,302
5,563
26.1
%
Total
$
170,048
$
146,991
$
23,057
15.7
%
Thirty-nine weeks – 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
21.6%
for
fiscal
2023
compared
to
fiscal
2022.
However,
our
specialty
egg
expense
decreased by
4.1%, primarily
due to
a significant
reduction in
advertising expense
as well
as increased
sales to
other
Eggland’s
Best,
Inc.
(“EB”)
franchisees,
including
unconsolidated
affiliates,
Specialty
Eggs,
LLC
and
Southwest
Specialty
Eggs,
LLC.
Additionally,
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
26
Delivery expense
-
The increased
delivery expense
is primarily
due to
an increase
in fuel
and labor
costs for
both our
fleet and
contract
trucking.
Compared
to
fiscal
2022,
contract
trucking
and
labor
expenses
increased
approximately
$9.2
million
for
fiscal 2023.
Payroll, taxes and benefits expense
-
The
increase
in
payroll,
taxes
and
benefits
expense
is
primarily
due
to
an
increase
in
the
accrual
for
anticipated
performance-based bonuses and increased wages for all employees
due to the inflationary market.
Other expenses
-
The increase in other expense is primarily due to increased
legal expenses of approximately $3.6 million.
OPERATING
INCOME (LOSS)
For the
third quarter
of fiscal
2023, we
recorded operating
income of
$407.8 million
compared to
$39.6 million
for the
same
period of fiscal 2022.
For the thirty-nine
weeks ended February
25, 2023, we
recorded operating
income of $831.5
million compared
to an operating
loss of $2.2 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
third quarter
of fiscal
2023,
we earned
$6.3 million
of interest
income compared
to $205
thousand for
the same
period
of
fiscal
2022.
The
increase
resulted
from
significantly
higher
investment
balances
and
higher
interest
rates.
The
Company
recorded interest expense of
$143 thousand and
$126 thousand for the
third quarters ended February
25, 2023 and February
26,
2022,
respectively.
For the
thirty-nine weeks
ended February
25, 2023,
we earned
$9.4 million
of interest
income compared
to $702
thousand for
the
same
period of
fiscal
2022.
The
increase
resulted
from significantly
higher
investment
balances
and higher
interest rates.
The
Company
recorded
interest
expense
of
$433
thousand
and
$262
thousand
for
the
thirty-nine
weeks
ended
February
25,
2023 and February 26, 2022, respectively.
Other, net for the
third quarter ended February 25, 2023
was an expense of $1.5 million
compared to income of $1.1 million
for
the
same
period
of
fiscal
2022.
The
majority
of
the
decrease
is
due
to
a
$2
million
impairment
of
an
investment
in
an
unconsolidated entity in the third quarter of fiscal 2023.
Other,
net for
the thirty-nine
weeks ended
February
25, 2023
was an
expense
of $205
thousand
compared
to income
of $8.2
million for the same
period of fiscal 2022. The majority
of the decrease is due
to our acquisition in fiscal 2022
of the remaining
50% membership
interest in
Red River
Valley
Egg Farm,
LLC (“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
received
in
fiscal
2022
related
to
review
and
adjustment
of
our
various
marketing
agreements.
Additionally,
the
Company
recorded
a
$2
million
impairment
of
an
investment in an unconsolidated entity in the third quarter of fiscal 2023.
INCOME TAXES
For the third
quarter of fiscal
2023, pre-tax income
was $424.9 million
compared to $53.0
million for the
same period of
fiscal
2022. We
recorded income tax expense of $102.1
million for the third quarter of fiscal
2023, which reflects an effective
tax rate
of 24.0%.
Income tax
expense was $13.6
million for
the comparable
period of fiscal
2022, which
reflects an effective
tax rate
of 25.6%.
For the thirty-nine
weeks ended February
25, 2023, pre-tax income
was $852.6 million
compared to $19.7 million
for the same
period of
fiscal 2022.
We
recorded income
tax expense
of $206.4
million, which
reflects an
effective
tax rate
of 24.2%.
We
recorded an income tax benefit of $2.9 million
in the prior year period, which includes the discrete
tax benefit of $8.3 million in
connection with the Red River
acquisition.
Excluding the discrete tax benefit, income
tax expense for the comparable period
of
fiscal 2022 was $5.3 million with an adjusted effective tax
rate of 27.3%.
Index
27
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 INCOME ATTRIBUTABLE
TO CAL-MAINE FOODS, INC.
Net income
attributable to
Cal-Maine Foods,
Inc. for
the third
quarter ended
February 25,
2023,
was $323.2
million, or
$6.64
per basic
and $6.62
per diluted
common share,
compared to
net income
attributable to
Cal-Maine Foods,
Inc. of
$39.5 million
or $0.81 per basic and diluted common share for the same period of fiscal
2022.
Net
income
attributable
to
Cal-Maine
Foods,
Inc.
for
the thirty-nine
weeks
ended February
25,
2023,
was $647.1
million,
or
$13.31 per basic and $13.25 per diluted share, compared
to net income attributable to Cal-Maine Foods, Inc.
of $22.6 million or
$0.46 per basic and diluted share for the same period of fiscal 2022.
LIQUIDITY AND CAPITAL
RESOURCES
Working
Capital and Current Ratio
Our working capital
at February 25,
2023 was $880.3 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 3.8
at February
25, 2023,
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
thirty-nine weeks
ended February
25, 2023,
$706.5 million
in net
cash was
provided by
operating activities,
compared
to
$20.8
million
provided
by
operating
activities
for
the
comparable
period
in
fiscal
2022.
The
increase
in
cash
flow
from
operating
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
and processing,
packaging and
warehouse
costs compared to the prior-year period.
Cash Flows from Investing Activities
We
continue
to invest
in our
facilities,
with
$86.2
million used
to purchase
property,
plant and
equipment
for
the
thirty-nine
weeks
ended
February
25,
2023,
compared
to
$49.2
million
in
the
same
period
of
fiscal
2022.
Purchases
of
investment
securities
were
$442.6
million
in
the
third
quarter
of
fiscal
2023,
compared
to
$47.1
million
in
fiscal
2022.
The
increase
in
purchases of
investment securities
is primarily
due to
the utilization
of increased
liquidity resulting
from increased
cash flows
provided by operating activities noted above.
During the thirty-nine weeks ended February 26,
2022, we acquired the remaining
50% membership interest in Red River for $48.5 million.
Cash Flows from Financing Activities
We paid dividends
of $144.6 million for the thirty-nine weeks ended February 25, 2023.
As of February 25, 2023, cash increased $162.5 million since May 28,
2022, compared to a decrease of $41.8 million during the
same period of fiscal 2022.
Credit Facility
We
had no long-term
debt outstanding at
February 25, 2023
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
February
25,
2023,
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.
Index
28
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 timelines
for cage-free
egg sales.
The following
table presents
material construction
projects approved as of February 25, 2023 (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of February
25, 2023
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses
Fiscal 2024
42,591
4,830
37,761
Cage-Free Layer & Pullet Houses
Fiscal 2025
40,099
26,350
13,749
Cage-Free Layer & Pullet Houses
Fiscal 2026
38,883
15,894
22,989
Cage-Free Layer & Pullet Houses
Fiscal 2027
56,923
13,617
43,306
$
178,496
$
60,691
$
117,805
We believe our
current cash balances, investments, cash flows from operations, and Credit Facility will be sufficient
to fund our
current cash 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.
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
thirty-nine weeks ended February 25, 2023 from
the information provided in Part II 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.