CAL-MAINE FOODS INC
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
DC
20549
FORM
For the quarterly period ended
or
For the transition period from ____________ to ____________
Commission File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S Employer Identification No.)
,
,
,
(Address of principal executive offices)
(Zip Code)
(
)
(Registrant’s telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
The
Indicate
by
check
mark
whether
the
registrant:
(1)
has
filed
all
reports
required
to
be
filed
by
Section
13
or
15(d)
of
the
Securities Exchange
Act of 1934
during the preceding
12 months (or
for such
shorter period that
the registrant was
required to
file such reports), and (2) has been subject to such filing requirements for the past
90 days.
☑
☐
Indicate by check
mark whether the
registrant has submitted
electronically every
Interactive Data File
required to be
submitted
pursuant to
Rule 405
of Regulation
S-T (§232.405
of this
chapter) during
the preceding
12 months
(or for
such shorter
period
that the registrant was required to submit such files).
☑
☐
Indicate by
check mark
whether the registrant
is a large
accelerated filer,
an accelerated
filer, a
non-accelerated filer,
a smaller
reporting
company,
or
an
emerging
growth
company.
See
the
definitions
of
“large
accelerated
filer,”
“accelerated
filer”,
“smaller reporting company”, and “emerging growth
company” in Rule 12b-2 of the Exchange Act.
☑
Accelerated filer
☐
Non – Accelerated filer
☐
Smaller reporting company
Emerging growth company
If
an
emerging
growth
company,
indicate
by
check
mark
if
the
registrant
has
elected
not
to
use
the
extended
transition
period
for
complying
with
any
new
or
revised
financial
accounting
standards
provided
pursuant
to
Section 13(a) of the Exchange Act
☐
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes
☐
☑
There were
value, outstanding as of December 28, 2022.
2
INDEX
Page
Number
Part I.
Financial Information
Item 1.
Item 2.
Item 3.
Item 4.
Part
II.
Other Information
Item 1.
Item 1A.
Item 2.
Item 6.
3
PART
I.
FINANCIAL
INFORMATION
ITEM 1.
FINANCIAL STATEMENTS
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except for par value amounts)
(Unaudited)
November 26, 2022
May 28, 2022
Assets
Current assets:
Cash and cash equivalents
$
$
Investment securities available-for-sale
Trade and other receivables, net
Income tax receivable
Inventories
Prepaid expenses and other current assets
Total current
assets
Property, plant &
equipment, net
Investments in unconsolidated entities
Goodwill
Intangible assets, net
Other long-term assets
Total Assets
$
$
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued expenses
$
$
Accrued income taxes payable
Dividends payable
Total current
liabilities
Other noncurrent liabilities
Deferred income taxes, net
Total liabilities
Commitments and contingencies - see Note 9
—
—
Stockholders’ equity:
Common stock ($
Common stock - authorized
Class A convertible common stock - authorized and issued
Paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax
(
3,087
)
(
1,596
)
Common stock in treasury at cost –
shares at May 28, 2022
(
28,496
)
(
28,447
)
Total Cal-Maine Foods,
Inc. stockholders’ equity
Noncontrolling interest in consolidated entity
(
652
)
(
206
)
Total stockholders’
equity
Total Liabilities and Stockholders’
Equity
$
$
See Notes to Condensed Consolidated Financial Statements.
4
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Thirteen Weeks
Ended
Twenty-six Weeks
Ended
November 26, 2022
November 27, 2021
November 26, 2022
November 27, 2021
Net sales
$
$
$
$
Cost of sales
Gross profit
Selling, general and administrative
(Gain) loss on disposal of fixed assets
(
1,968
)
(
2,181
)
Operating income (loss)
(
2,065
)
(
41,732
)
Other income (expense):
Interest income, net
Royalty income
Equity income (loss) of unconsolidated
entities
(
987
)
(
843
)
Other, net
Total other income, net
Income (loss) before income taxes
(
33,396
)
Income tax expense (benefit)
(
677
)
(
16,515
)
Net income (loss)
(
16,881
)
Less: Loss attributable to noncontrolling
interest
(
293
)
(
28
)
(
446
)
(
28
)
Net income (loss) attributable to Cal-Maine
Foods, Inc.
$
$
$
$
(
16,853
)
Net income (loss) per common share:
Basic
$
$
$
$
(
0.34
)
Diluted
$
$
$
$
(
0.34
)
Weighted average
shares outstanding:
Basic
Diluted
See Notes to Condensed Consolidated Financial Statements.
5
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of
Comprehensive Income (Loss)
(In thousands)
(Unaudited)
Thirteen Weeks
Ended
Twenty-six Weeks
Ended
November 26, 2022
November 27, 2021
November 26, 2022
November 27, 2021
Net income (loss)
$
(
16,881
)
Other comprehensive income (loss), before
tax:
Unrealized holding loss on available-for-
sale securities, net of reclassification
adjustments
(
974
)
(
355
)
(
1,971
)
(
579
)
Income tax benefit related to items of other
comprehensive income
Other comprehensive loss, net of tax
(
737
)
(
268
)
(
1,491
)
(
438
)
Comprehensive income (loss)
(
17,319
)
Less: Comprehensive loss attributable to the
noncontrolling interest
(
293
)
(
28
)
(
446
)
(
28
)
Comprehensive income (loss) attributable to
Cal-Maine Foods, Inc.
$
$
$
$
(
17,291
)
See Notes to Condensed Consolidated Financial Statements.
6
Cal-Maine Foods, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
Twenty-six Weeks
Ended
November 26, 2022
November 27, 2021
Cash flows from operating activities:
Net income (loss)
$
$
(
16,881
)
Depreciation and amortization
Deferred income taxes
(
540
)
(
15,995
)
Other adjustments, net
(
12,830
)
(
16,585
)
Net cash provided by (used in) operations
(
15,492
)
Cash flows from investing activities:
Purchases of investment securities
(
152,365
)
(
26,387
)
Sales and maturities of investment securities
Distributions from unconsolidated entities
Acquisition of business, net of cash acquired
(
44,823
)
Purchases of property,
plant and equipment
(
59,709
)
(
28,647
)
Net proceeds from disposal of property,
plant and equipment
Net cash used in investing activities
(
146,703
)
(
26,255
)
Cash flows from financing activities:
Payments of dividends
(
78,394
)
Purchase of common stock by treasury
(
45
)
(
18
)
Principal payments on finance lease
(
94
)
(
106
)
Contributions
Net cash used in financing activities
(
78,533
)
(
121
)
Net change in cash and cash equivalents
(
41,868
)
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
$
See Notes to Condensed Consolidated Financial Statements.
7
Cal-Maine Foods, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The
unaudited
condensed
consolidated
financial
statements
of
Cal-Maine
Foods,
Inc.
and
its
subsidiaries
(the
“Company,”
“we,” “us,” “our”)
have been prepared
in accordance with
the instructions to
Form 10-Q and
Article 10 of
Regulation S-X and
in
accordance
with generally
accepted
accounting
principles in
the
United
States of
America
(“GAAP”)
for
interim
financial
reporting and should
be read in conjunction
with our Annual Report
on Form 10-K
for the fiscal year
ended May 28,
2022 (the
“2022
Annual
Report”).
These
statements
reflect
all
adjustments
that
are,
in
the
opinion
of
management,
necessary
to
a
fair
statement of the results for
the interim periods presented
and, in the opinion of
management, consist of adjustments
of a normal
recurring nature.
Operating results for
the interim periods
are not necessarily
indicative of operating
results for the
entire fiscal
year.
Fiscal Year
The Company’s
fiscal year
ends on
the Saturday
closest to
May 31.
Each of
the three-month
periods and
year-to-date periods
ended on November 26, 2022 and November 27, 2021 included
13 weeks
26 weeks
, respectively.
Use of Estimates
The preparation of the
consolidated financial statements in
conformity with GAAP requires management
to make estimates and
assumptions
that affect
the amounts
reported in
the consolidated
financial statements
and accompanying
notes. Actual
results
could differ from those estimates.
Investment Securities
Our investment
securities are
accounted
for in
accordance with
ASC 320,
“Investments -
Debt and
Equity Securities”
(“ASC
320”).
The
Company
considers
all
its
debt
securities
for
which
there
is
a
determinable
fair
market
value,
and
there
are
no
restrictions
on
the
Company’s
ability
to
sell
within
the
next
12
months,
as
available-for-sale.
We
classify
these
securities
as
current, because the
amounts invested are available
for current operations.
Available-for-sale
securities are carried at
fair value,
with
unrealized
gains
and
losses
reported
in
other
comprehensive
income
until
realized.
The
total
of
other
comprehensive
income for the period is presented as a component of stockholders' equity
separately from retained earnings and additional paid-
in
capital.
The
Company
regularly
evaluates
changes
to
the
rating
of
its
debt
securities
by
credit
agencies
and
economic
conditions to assess and record any expected credit
losses through the allowance for credit losses, limited to the amount
that fair
value
was
less
than
the
amortized
cost
basis.
The
cost
basis
for
realized
gains
and
losses
on
available-for-sale
securities
is
determined by
the specific
identification method.
Gains and
losses are
recognized in
other income
(expenses) as
Other,
net in
the Company’s
Condensed Consolidated
Statements of
Operations.
Investments in
mutual funds
are classified
as “Other
long-
term assets” in the Company’s Condensed
Consolidated Balance Sheets.
Trade Receivables
Trade
receivables
are stated
at their
carrying values,
which include
a reserve
for credit
losses. As
of November
26, 2022
and
May 28,
2022, reserves
for credit
losses were
$
customers based on
an evaluation of
each customer's financial
condition and credit
history.
Collateral is generally
not required.
The
Company
minimizes
exposure
to
counter
party
credit
risk
through
credit
analysis
and
approvals,
credit
limits,
and
monitoring
procedures.
In
determining
our
reserve
for
credit
losses,
receivables
are
assigned
an
expected
loss
based
on
historical loss information adjusted as needed for economic and
other forward-looking factors.
Dividends Payable
We
accrue dividends at
the end of
each quarter according
to the Company’s
dividend policy adopted
by its Board
of Directors.
The Company
pays a dividend
to shareholders
of its Common
Stock and
Class A Common
Stock on
a quarterly basis
for each
quarter for
which the
Company reports
net income
attributable to
Cal-Maine Foods,
Inc. computed
in accordance
with GAAP
in an amount
equal to one-third
(
1/3
) of such
quarterly income. Dividends
are paid to
shareholders of record
as of the 60th
day
following the
last day
of such quarter,
except for
the fourth fiscal
quarter.
For the
fourth quarter,
the Company
pays dividends
8
to shareholders of record on the 65th day after the
quarter end. Dividends are payable on the 15th day
following the record date.
Following a quarter for which the Company does not report net income
attributable to Cal-Maine Foods, Inc., the Company will
not pay a dividend
for a subsequent profitable
quarter until the Company
is profitable on a
cumulative basis computed
from the
date of the most recent quarter for which a dividend was paid.
Immaterial Error Correction
Effective
on
May
30,
2021,
the
Company
acquired
the
remaining
%
membership
interest
in
Red
River
Valley
Egg
Farm,
LLC (“Red
River”),
including
certain
liabilities. During
the Company’s
third
quarter of
fiscal 2022,
management
determined
that
it
had
not
properly
eliminated
select
intercompany
sales
and
cost
of
sales
transactions
between
Red
River
and
the
corresponding
other wholly
-owned subsidiaries
of the
Company
in its
first and
second quarter
2022 Condensed
Consolidated
Statements
of
Operations.
The
errors
resulted
in
an
overstatement
of
Net
Sales and
Cost of
Sales
of
$
quarter of fiscal 2022
and $
(loss) or Net income (loss) per share.
We
evaluated
the
errors
quantitatively
and
qualitatively
in
accordance
with
Staff
Accounting
Bulletin
("SAB") No. 99 Materiality,
and
SAB No. 108 Considering
the
Effects
of
Prior
Year
Misstatements
when
Quantifying
Misstatements
in
the
Current
Year
Financial
Statements, and
determined
that
the
related
impact
was not material
to
our
condensed
consolidated
financial statements
for
the first
or second
quarters
of fiscal
2022,
but that
correcting
the cumulative
impact
of
the
errors
would
be
relevant
to
our
Condensed
Consolidated
Statements
of
Operations
for
the third
quarter
ended February 26, 2022.
Accordingly,
we have reflected
the correction of
the immaterial error
in fiscal 2022
as a reduction
of
Net Sales and Cost of Sales in the accompanying Condensed Consolidated
Statements of Operations.
New Accounting Pronouncements and Policies
No new accounting pronouncement issued or effective
during the fiscal year had or is expected to have a material impact on
our
Consolidated Financial Statements.
Note 2 - Investment
Securities
The following represents the Company’s
investment securities as of November 26, 2022 and May 28, 2022
(in thousands):
November 26, 2022
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
US government and agency obligations
Asset backed securities
Treasury bills
Total current
investment securities
$
$
$
$
Mutual funds
$
$
$
$
Total noncurrent
investment securities
$
$
$
$
9
May 28, 2022
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
US government and agency obligations
Asset backed securities
Total current
investment securities
$
$
$
$
Mutual funds
$
$
$
$
Total noncurrent
investment securities
$
$
$
$
Available-for-sale
Proceeds from
sales and
maturities of
investment securities
available-for-sale
were $
twenty-six
weeks
ended November
26,
2022
and
November
27,
2021,
respectively.
Gross
realized
gains
for
the
twenty-six
weeks ended
November 26,
2022 and
November 27,
2021 were
$
losses
for
the
twenty-six
weeks
ended
November
26,
2022
and
November
27,
2021
were
$
respectively. There were
Actual maturities
may differ
from contractual
maturities as some
borrowers have
the right to
call or prepay
obligations with
or
without penalties. Contractual maturities of current investments at November
26, 2022 are as follows (in thousands):
Estimated Fair Value
Within one year
$
1-5 years
Total
$
Noncurrent
There were
sales and maturities
of noncurrent
investment securities
were $
2021.
Gross
realized
gains
for
the
twenty-six
weeks
ended November
27,
2021
were
$
losses for the twenty-six weeks ended November 27, 2021.
Note 3 - Fair Value
Measurements
The Company
is required
to categorize
both financial
and nonfinancial
assets and
liabilities based
on the
following fair
value
hierarchy. The
fair value
of an
asset is
the price
at which
the asset
could be
sold in
an orderly
transaction between
unrelated,
knowledgeable, and willing
parties able to engage in
the transaction. A liability’s
fair value is defined
as the amount that would
be
paid
to
transfer
the
liability
to
a
new
obligor
in
a
transaction
between
such
parties,
not
the
amount
that
would
be paid
to
settle the liability with the creditor.
•
Level 1
•
Level 2
directly or indirectly,
including:
◦
Quoted prices for similar assets or liabilities in active markets
◦
Quoted prices for identical or similar assets in non-active markets
◦
Inputs other than quoted prices that are observable for the asset or liability
◦
Inputs derived principally from or corroborated by other observable market
data
•
Level 3
significant to the fair value of the assets or liabilities
10
The disclosures of fair value of certain financial assets and liabilities that are recorded
at cost are as follows:
Cash and cash equivalents, accounts receivable,
and accounts payable:
short maturity of these instruments.
Lease obligations:
Assets and Liabilities Measured at Fair
Value
on a Recurring Basis
In
accordance
with
the
fair
value
hierarchy
described
above,
the
following
table
shows
the
fair
value
of
financial
assets and
liabilities measured at fair value on a recurring basis as of November 26, 2022 and May
28, 2022 (in thousands):
November 26, 2022
Level 1
Level 2
Level 3
Balance
Assets
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
US government and agency obligations
Asset backed securities
Treasury bills
Mutual funds
Total assets measured at fair
value
$
$
$
$
May 28, 2022
Level 1
Level 2
Level 3
Balance
Assets
Municipal bonds
$
$
$
$
Commercial paper
Corporate bonds
Certificates of deposits
US government and agency obligations
Asset backed securities
Mutual funds
Total assets measured at fair
value
$
$
$
$
Investment
securities
–
available-for-sale
classified
as Level
2
consist
of
securities
with maturities
of
three
months
or longer
when purchased. We
classified these securities as
current because amounts
invested are readily available
for current operations.
Observable inputs for these securities are yields, credit risks, default rates, and volatility.
Note 4 - Inventories
Inventories consisted of the following as of November 26, 2022
and May 28, 2022 (in thousands):
November 26, 2022
May 28, 2022
Flocks, net of amortization
$
$
Eggs and egg products
Feed and supplies
$
$
We
grow
and
maintain
flocks
of
layers
(mature
female
chickens),
pullets
(female
chickens,
under
18
weeks
of
age),
and
breeders
(male
and
female
chickens
used
to
produce
fertile
eggs
to
hatch
for
egg
production
flocks).
Our
total
flock
at
November 26,
2022 and
May 28,
2022 consisted
of approximately
million and
11
Note 5 - Equity
The following reflects
equity activity for
the thirteen and
twenty-six weeks ended
November 26, 2022
and November 27,
2021
(in thousands):
Thirteen Weeks
Ended November 26, 2022
Cal-Maine Foods, Inc. Stockholders
Common Stock
Class A
Treasury
Paid In
Accum. Other
Retained
Noncontrolling
Amount
Amount
Amount
Capital
Comp. Loss
Earnings
Interest
Total
Balance at August
27, 2022
$
$
$
(
28,495
)
$
$
(
2,350
)
$
$
(
359
)
$
Other comprehensive
loss, net of tax
—
—
—
—
(
737
)
—
—
(
737
)
Stock compensation
plan transactions
—
—
(
1
)
—
—
—
Dividends ($
per share)
Common
—
—
—
—
—
(
59,708
)
—
(
59,708
)
Class A common
—
—
—
—
—
(
6,494
)
—
(
6,494
)
Net income (loss)
—
—
—
—
—
(
293
)
Balance at November
26, 2022
$
$
$
(
28,496
)
$
$
(
3,087
)
$
$
(
652
)
$
Thirteen Weeks
Ended November 27, 2021
Cal-Maine Foods, Inc. Stockholders
Common Stock
Class A
Treasury
Paid In
Accum. Other
Retained
Noncontrolling
Amount
Amount
Amount
Capital
Comp. Loss
Earnings
Interest
Total
Balance at August
28, 2021
$
$
$
(
27,451
)
$
$
(
728
)
$
$
$
Other comprehensive
loss, net of tax
—
—
—
—
(
268
)
—
—
(
268
)
Stock compensation
plan transactions
—
—
—
—
—
Contributions
—
—
—
—
—
—
Net income (loss)
—
—
—
—
—
(
28
)
Balance at
November 27, 2021
$
$
$
(
27,450
)
$
$
(
996
)
$
$
(
25
)
$
12
Twenty-six Weeks
Ended November 26, 2022
Cal-Maine Foods, Inc. Stockholders
Common Stock
Class A
Treasury
Paid In
Accum. Other
Retained
Noncontrolling
Amount
Amount
Amount
Capital
Comp. Loss
Earnings
Interest
Total
Balance at May 28,
2022
$
$
$
(
28,447
)
$
$
(
1,596
)
$
$
(
206
)
$
Other comprehensive
loss, net of tax
—
—
—
—
(
1,491
)
—
—
(
1,491
)
Stock compensation
plan transactions
—
—
(
49
)
—
—
—
Dividends ($
per share)
Common
—
—
—
—
—
(
97,355
)
—
(
97,355
)
Class A common
—
—
—
—
—
(
10,589
)
—
(
10,589
)
Net income (loss)
—
—
—
—
—
(
446
)
Balance at
November 26, 2022
$
$
$
(
28,496
)
$
$
(
3,087
)
$
$
(
652
)
$
Twenty-six Weeks
Ended November 27, 2021
Cal-Maine Foods, Inc. Stockholders
Common Stock
Class A
Treasury
Paid In
Accum. Other
Retained
Noncontrolling
Amount
Amount
Amount
Capital
Comp. Loss
Earnings
Interest
Total
Balance at May 29,
2021
$
$
$
(
27,433
)
$
$
(
558
)
$
$
$
Other comprehensive
loss, net of tax
—
—
—
—
(
438
)
—
—
(
438
)
Stock compensation
plan transactions
—
—
(
17
)
—
—
—
Contributions
—
—
—
—
—
—
Net loss
—
—
—
—
—
(
16,853
)
(
28
)
(
16,881
)
Balance at November
27, 2021
$
$
$
(
27,450
)
$
$
(
996
)
$
(
25
)
$
Note 6 - Net Income (Loss) per Common Share
Basic net
income (loss)
per share
is based
on the
weighted average
Common Stock
and Class
A Common
Stock outstanding.
Diluted net income
per share
is based on
weighted-average common
shares outstanding
during the
relevant period
adjusted for
the
dilutive
effect
of share-based
awards.
Restricted
shares
of
twenty-six weeks of fiscal 2022. These shares were not included in the diluted net
loss per share calculation.
13
The
following
table
provides
a
reconciliation
of
the
numerators
and
denominators
used
to
determine
basic
and
diluted
net
income (loss) per common share (amounts in thousands, except per share data):
Thirteen Weeks
Ended
Twenty-six Weeks
Ended
November 26,
2022
November 27,
2021
November 26,
2022
November 27,
2021
Numerator
Net income (loss)
$
$
$
$
(
16,881
)
Less: Loss attributable to noncontrolling
interest
(
293
)
(
28
)
(
446
)
(
28
)
Net income (loss) attributable to Cal-
Maine Foods, Inc.
$
$
$
$
(
16,853
)
Denominator
Weighted-average
common shares
outstanding, basic
Effect of dilutive restricted shares
Weighted-average
common shares
outstanding, diluted
Net income (loss) per common share
attributable to Cal-Maine Foods, Inc.
Basic
$
$
$
$
(
0.34
)
Diluted
$
$
$
$
(
0.34
)
Note 7 – Revenue from Contracts with Customers
Satisfaction of Performance Obligation
The vast majority of the Company’s
revenue is derived from agreements with customers based on the customer
placing an order
for products. Pricing
for the most part
is determined when
the Company and
the customer agree
upon the specific
order, which
establishes the contract for that order.
Revenues are
recognized in
an amount
that reflects
the net
consideration we
expect to
receive in
exchange for
the goods.
Our
shell
eggs
are
sold
at
prices
related
to
independently
quoted
wholesale
market
prices
or
formulas
related
to
our
costs
of
production.
The
Company’s
sales
predominantly
contain
a
single
performance
obligation.
We
recognize
revenue
upon
satisfaction
of
the
performance
obligation
with
the
customer
which
typically
occurs
within
days
of
the
Company
and
the
customer agreeing upon the order.
Returns and Refunds
Some of our contracts
include a guaranteed sale
clause, pursuant to which
we credit the customer’s
account for product
that the
customer
is
unable
to
sell
before
expiration.
The
Company
records
an
allowance
for
returns
and
refunds
by
using
historical
return
data
and
comparing
to current
period
sales and
accounts receivable.
The allowance
is recorded
as a
reduction
in sales
with a corresponding reduction in trade accounts receivable.
Sales Incentives Provided to Customers
The
Company
periodically
provides
incentive
offers
to
its
customers
to
encourage
purchases.
Such
offers
include
current
discount offers
(e.g., percentage
discounts off
current purchases), inducement
offers (e.g.,
offers for
future discounts subject
to
a minimum
current purchase),
and other
similar offers.
Current discount
offers,
when accepted
by customers,
are treated
as a
reduction
to
the sales
price
of the
related
transaction,
while inducement
offers,
when
accepted
by customers,
are
treated
as
a
reduction
to the
sales price
based on
estimated future
redemption rates.
Redemption
rates are
estimated using
the Company’s
historical
experience
for
similar
inducement
offers.
Current discount
and
inducement
offers
are
presented
as a
net amount
in
‘‘Net sales.’’
14
Disaggregation of Revenue
The following table provides revenue disaggregated by product category
(in thousands):
Thirteen Weeks
Ended
Twenty-six Weeks
Ended
November 26, 2022
November 27, 2021
November 26, 2022
November 27, 2021
Conventional shell egg sales
$
$
$
$
Specialty shell egg sales
Egg products
Other
$
$
$
$
Contract Costs
The Company can incur costs to
obtain or fulfill a contract with a
customer. If the
amortization period of these costs is less
than
one year,
they are
expensed as
incurred. When
the amortization
period is
greater than
one year,
a contract
asset is
recognized
and is amortized
over the contract
life as a
reduction in net
sales. As of
November 26, 2022
and May 28,
2022, the balance
for
contract assets was immaterial.
Contract Balances
The Company receives payment from customers based on specified terms that are
generally less than 30 days from delivery.
There are rarely contract assets or liabilities related to performance under
the contract.
Note 8 - Stock Based Compensation
Total
stock-based compensation
expense was
$
27, 2021.
Unrecognized
compensation
expense
as a
result
of non
-vested
shares
of
restricted
stock outstanding
under
the
Amended
and
Restated
2012
Omnibus
Long-Term
Incentive
Plan
at
November
26,
2022
of
$
average period of
16: Stock Compensation Plans in our 2022 Annual Report for further information
on our stock compensation plans.
The Company’s restricted share activity
for the twenty-six weeks ended November 26, 2022 follows:
Number of
Shares
Weighted
Average Grant
Date Fair Value
Outstanding, May 28, 2022
$
Vested
(
3,240
)
Forfeited
(
4,200
)
Outstanding, November 26, 2022
$
Note 9 - Commitments and Contingencies
Financial Instruments
The
Company
maintained
standby
letters
of credit
(“LOCs”)
totaling
$
under
the
Company's
senior
secured
revolving
credit
facility.
The
outstanding
LOCs
are
for
the
benefit
of
certain
insurance
companies and are not recorded as a liability on the consolidated balance sheets.
15
LEGAL PROCEEDINGS
State of Texas
v. Cal-Maine Foods, Inc. d/b/a Wharton;
and Wharton County Foods, LLC
On April
23, 2020,
the Company
and its subsidiary
Wharton County
Foods, LLC (“WCF”)
were named
as defendants in
State
of
Texas
v.
Cal-Maine
Foods,
Inc.
d/b/a
Wharton;
and
Wharton
County
Foods,
LLC,
Cause
No.
2020-25427,
in
the
District
Court of
Harris County,
Texas.
The State
of Texas
(the “State”)
asserted claims
based on
the Company’s
and WCF’s
alleged
violation
of
the
Texas
Deceptive
Trade
Practices—Consumer
Protection
Act,
Tex.
Bus.
&
Com.
Code
§§
17.41-17.63
(“DTPA”).
The
State
claimed
that
the
Company
and
WCF
offered
shell
eggs
at
excessive
or
exorbitant
prices
during
the
COVID-19
state
of
emergency
and
made
misleading
statements
about
shell
egg
prices.
The
State
sought
temporary
and
permanent
injunctions
against
the
Company
and
WCF
to
prevent
further
alleged
violations
of
the
DTPA,
along
with
over
$
prejudice. On September
11, 2020,
the State filed a
notice of appeal,
which was assigned to
the Texas
Court of Appeals
for the
First
District.
On
August
16,
2022,
the
appeals
court
reversed
and
remanded
the
case
back
to
the
trial
court
for
further
proceedings. On October
31, 2022, the Company
and WCF filed a
petition for review to
the Supreme Court of
Texas
appealing
the
First District
court’s
decision.
On November
30,
2022, the
State of
Texas
waived
its response
to defendant’s
petition
for
review. The court
has not issued a ruling. Management believes the risk of material loss related to this matter
to be remote.
Bell et al. v. Cal-Maine Foods et al.
On
April
30, 2020,
the Company
was named
as one
of several
defendants
in
Bell et
al. v.
Cal-Maine
Foods et
al.,
Case No.
1:20-cv-461,
in
the
Western
District
of
Texas,
Austin
Division.
The
defendants
include
numerous
grocery
stores,
retailers,
producers, and farms. Plaintiffs assert that defendants
violated the DTPA
by allegedly demanding exorbitant or
excessive prices
for
eggs during
the
COVID-19
state of
emergency.
Plaintiffs
request
certification
of a
class of
all consumers
who purchased
eggs
in
Texas
sold,
distributed,
produced,
or
handled
by
any
of
the
defendants
during
the
COVID-19
state
of
emergency.
Plaintiffs seek to enjoin
the Company and other
defendants from selling eggs
at a price more than
10% greater than the price
of
eggs prior
to the
declaration
of the
state of
emergency
and damages
in the
amount
of $
each violation
impacting anyone
over 65
years old.
On December
1, 2020,
the Company
and
certain other
defendants filed
a
motion to
dismiss the
plaintiffs’
amended
class action
complaint. The
plaintiffs
subsequently filed
a motion
to strike,
and the
motion to
dismiss and
related proceedings
were referred
to a
United States
magistrate judge.
On July
14, 2021,
the magistrate
judge
issued
a
report
and
recommendation
to
the
court
that
the
defendants’
motion
to
dismiss
be
granted
and
the
case
be
dismissed without prejudice for lack of subject matter jurisdiction. On
September 20, 2021, the court dismissed the case without
prejudice.
On
July
13,
2022,
the
court
denied
the
plaintiffs’
motion
to
set
aside
or
amend
the
judgment
to
amend
their
complaint.
On March 15, 2022,
plaintiffs filed a
second suit against the
Company and several
defendants in Bell et
al. v.
Cal-Maine Foods
et al.,
Case No.
1:22-cv-246, in
the Western
District of
Texas,
Austin Division
alleging the
same assertions
as laid
out in
the
first
complaint.
On
August
12,
2022,
the
Company
and
other
defendants
in
the
case
filed
a
motion
to
dismiss
the
plaintiffs’
class action
complaint. On
September 6,
2022, the
plaintiffs’ filed
their opposition
to the
motion to
dismiss and
the Company
and other
defendants filed
their reply
on September
13, 2022.
On December
7, 2022,
the magistrate
judge issued
a report
and
recommendation to
the court that
the defendants’ motion
to dismiss be
granted and the
case be dismissed
without prejudice for
lack
of
subject
matter
jurisdiction.
On
December
21,
2022,
the
plaintiffs
filed
Objections
to
the
Magistrate’s
Report
and
Recommendation, but the
court has not issued a
ruling. Management believes
the risk of material loss
related to both matters
to
be remote.
Kraft Foods Global, Inc. et al. v.
United Egg Producers, Inc. et al.
As previously
reported, on
September 25,
2008, the
Company
was named
as one
of several
defendants
in numerous
antitrust
cases involving
the United
States shell
egg
industry.
The Company
settled all
of these
cases, except
for
the claims
of certain
plaintiffs who sought substantial
damages allegedly arising from
the purchase of egg products (as
opposed to shell eggs). These
remaining plaintiffs
are Kraft
Food Global,
Inc., General
Mills, Inc.,
and Nestle
USA, Inc.
(the “Egg
Products Plaintiffs”)
and
The Kellogg Company.
On September
13, 2019,
the case
with the
Egg Products
Plaintiffs was
remanded from
a multi-district
litigation proceeding
in
the
United
States
District
Court
for
the
Eastern
District
of
Pennsylvania,
In
re
Processed
Egg
Products
Antitrust
Litigation,
MDL No. 2002, to
the United States District Court
for the Northern District
of Illinois, Kraft Foods Global,
Inc. et al. v.
United
Egg
Producers,
Inc.
et
al.,
Case
No.
1:11-cv-8808,
for
trial.
The
Egg
Products
Plaintiffs
allege
that
the
Company
and
other
defendants
violated
Section
1
of
the
Sherman
Act,
15.
U.S.C.
§
1,
by
agreeing
to
limit
the
production
of
eggs
and
thereby
illegally to raise the prices that plaintiffs
paid for processed egg products. In particular,
the Egg Products Plaintiffs are
attacking
certain features of
the United Egg
Producers animal-welfare guidelines
and program used by
the Company and
many other egg
producers. The
Egg Products
Plaintiffs seek
to enjoin
the Company
and other
defendants from
engaging in
antitrust violations
16
and seek treble money damages.
On May 2, 2022,
the court set trial for October
24, 2022, but on September
20, 2022, the court
cancelled the
trial date
due to
COVID-19 protocols
and converted
the trial
date to
a status
hearing to
reschedule the
jury trial.
On
December
8,
2022,
the
court
held
a
status
hearing.
The
parties
subsequently
submitted
an
updated
proposed
pre-trial
schedule and the Court has set the trial for October 16, 2023.
In addition,
on October
24, 2019,
the Company
entered into
a confidential
settlement agreement
with The
Kellogg Company
dismissing
all
claims
against
the
Company
for
an
amount
that
did
not
have
a
material
impact
on
the
Company’s
financial
condition or results of operations. On November 11,
2019, a stipulation for dismissal was filed with the court,
and on March 28,
2022, the court dismissed the Company with prejudice.
The Company intends to
continue to defend the remaining
case with the Egg Products Plaintiffs
as vigorously as possible
based
on
defenses
which
the
Company
believes
are
meritorious
and
provable.
Adjustments,
if
any,
which
might
result
from
the
resolution of
this remaining
matter with
the Egg
Products Plaintiffs
have not
been reflected
in the
financial statements.
While
management
believes
that
there
is
still
a
reasonable
possibility
of
a
material
adverse
outcome
from
the
case
with
the
Egg
Products Plaintiffs,
at the
present time,
it is not
possible to
estimate the
amount of
monetary exposure,
if any,
to the
Company
due
to
a
range
of
factors,
including
the
following,
among
others:
two
earlier
trials
based
on
substantially
the
same
facts
and
legal arguments
resulted
in findings
of no
conspiracy
and/or damages;
this trial
will be
before
a different
judge and
jury
in a
different
court
than
prior related
cases; there
are significant
factual
issues to
be
resolved; and
there
are requests
for damages
other than compensatory damages (i.e., injunction and treble money damages).
State of Oklahoma Watershed Pollution
Litigation
On June 18,
2005, the
State of
Oklahoma filed
suit, in
the United
States District
Court for
the Northern
District of
Oklahoma,
against Cal-Maine Foods, Inc. and
Tyson Foods,
Inc. and affiliates, Cobb-Vantress,
Inc., Cargill, Inc. and its
affiliate, George’s,
Inc. and
its affiliate,
Peterson Farms, Inc.
and Simmons Foods,
Inc. The
State of Oklahoma
claims that through
the disposal of
chicken
litter the
defendants have
polluted the
Illinois River
Watershed.
This watershed
provides
water to
eastern Oklahoma.
The complaint
seeks injunctive
relief and
monetary damages,
but the
claim for
monetary damages
has been
dismissed by
the
court.
Cal-Maine
Foods,
Inc.
discontinued
operations
in
the
watershed.
Accordingly,
we
do
not
anticipate
that
Cal-Maine
Foods,
Inc.
will
be
materially
affected
by
the
request
for
injunctive
relief
unless
the
court
orders
substantial
affirmative
remediation. Since
the litigation
began, Cal-Maine
Foods, Inc.
purchased
% of the
membership interests
of Benton
County
Foods, LLC,
which is
an ongoing
commercial shell
egg operation
within the
Illinois River
Watershed.
Benton County
Foods,
LLC is not a defendant in the litigation.
The trial in the case
began in September 2009 and
concluded in February 2010. The
case was tried without a jury,
and the court
has not yet issued its ruling. Management believes the risk of material loss related
to this matter to be remote.
Other Matters
In addition to
the above, the Company
is involved in
various other claims
and litigation incidental
to its business.
Although the
outcome of
these matters
cannot be
determined with
certainty,
management, upon
the advice
of counsel,
is of
the opinion
that
the final outcome should not have a material effect on the Company’s
consolidated results of operations or financial position.
17
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
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 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
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 U.S.
Our
total
flock
of
approximately
43.7
million
layers and
10.4
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.
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
18
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 its 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 for
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.
Due
to
delays
caused
by
supply
chain
issues and
plans
for
expansion,
MeadowCreek
is
now
expected
to be
fully
operational by or before March 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 our fiscal year 2023.
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
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 December
2022. The
current HPAI
epidemic has
surpassed the
prior 2014-2015
outbreak in
terms of
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 December 28, 2022. The
USDA division
of Animal
and Plant
Health Inspection
Service (“APHIS”)
reported on
December 27,
2022 that
approximately
43.3 million commercial
layer hens and 1.0
million pullets have been
depopulated due to HPAI
this year.
We believe
the HPAI
outbreak will
continue to exert
downward pressure
on the overall
supply of eggs,
and the duration
of those effects
will depend
19
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 December
8, 2022, the layer hen inventory
is not projected to exceed this 328 million
mark again
until
December
of
2023.
Layer
hen
numbers
reported
by
the
USDA
as
of
December
1,
2022
were
308.3
million,
which
represents a
decrease of
5.8% compared
with the
layer hen
inventory a
year ago.
However,
the USDA
reported that
the hatch
from July 2022 through November 2022 increased 5.8% as compared
with the prior-year period.
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 Supreme Court of the U.S. 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
next year.
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 announce
d
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
second
quarter
of
fiscal
2023,
we
recorded
a
gross
profit
of
$317.8
million
compared
to
$43.7
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 processing, packaging and warehouse costs.
Our net
average selling
price per
dozen for
the second
quarter of
fiscal 2023
was $2.709
compared to
$1.365 in
the prior-year
period. Conventional
egg prices
per dozen
were $2.883
compared to
$1.151 for
the prior-year
period, and
specialty egg
prices
per dozen were $2.370 compared to $1.898 for
the prior-year period. Conventional egg prices increased in
the second quarter of
fiscal
2023
primarily
due
to decreased
supply
caused
by
the
HPAI
outbreak
combined
with
good
customer
demand.
See
the
discussion under the
heading “HPAI”
above. The daily
average price for the
UB southeast large
index for the second
quarter of
fiscal 2023 increased 154.8% from the comparable period
in the prior year, reaching near-record
highs. Conventional egg prices
exceeding
specialty
egg
prices
has
occurred
for
the
past
three
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.
Our total dozens
sold increased 5.4% to
284.1 million dozen shell
eggs for the second
quarter of fiscal 2023
compared to 269.6
million
dozen
for
the
same
period
of
fiscal
2022.
For
the second
quarter
of
fiscal
2023,
conventional
dozens
sold
decreased
20
2.2%
and
specialty
dozens
sold
increased
24.1%
as compared
to
the
same
quarter
in
fiscal
2022.
Demand
for
specialty
eggs
increased
in
the
second
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.
Our farm
production costs
per dozen
produced for
the second
quarter of
fiscal 2023
increased 22.0%,
or $0.193,
compared to
the second 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,
which added
to our
expense. For
the second
quarter of
fiscal 2023,
the average
Chicago
Board of
Trade
(“CBOT”) daily
market price
was $6.78
per bushel
for corn
and $423
per ton
for soybean
meal, representing
increases
of 24.8% and
25.5%, 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
Operations expressed as a percentage of net sales.
Thirteen Weeks
Ended
Twenty-six Weeks
Ended
November 26,
2022
November 27,
2021
November 26,
2022
November 27,
2021
Net sales
100.0
%
100.0
%
100.0
%
100.0
%
Cost of sales
60.4
%
88.5
%
63.3
%
92.9
%
Gross profit
39.6
%
11.5
%
36.7
%
7.1
%
Selling, general and administrative
7.2
%
12.5
%
7.6
%
13.3
%
(Gain) loss on disposal of fixed assets
—
%
(0.5)
%
—
%
(0.3)
%
Operating income (loss)
32.4
%
(0.5)
%
29.1
%
(5.9)
%
Total other income, net
0.3
%
0.7
%
0.3
%
1.2
%
Income (loss) before income taxes
32.7
%
0.2
%
29.4
%
(4.7)
%
Income tax expense (benefit)
8.0
%
(0.2)
%
7.1
%
(2.3)
%
Net income (loss)
24.7
%
0.4
%
22.3
%
(2.4)
%
NET SALES
Total
net
sales
for
the
second
quarter
of
fiscal
2023
were
a
record
$801.7
million
compared
to
$381.7
million
for
the
same
period of fiscal 2022.
Net shell egg sales represented
96.5% and 97.0% of total net sales
for the second 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.
Total
net
sales
for
the
twenty-six
weeks
ended
November
26,
2022
were
$1.46
billion,
compared
to
$706.7
million
for
the
comparable period of fiscal 2022.
Net
shell
egg
sales
represented
96.2%
and
97.1%
of
total
net
sales
for
the
twenty-six
weeks
ended
November
26,
2022
and
November 27, 2021, respectively.
21
The table below presents an analysis of our conventional and specialty shell egg
sales (in thousands, except percentage data):
Thirteen Weeks
Ended
Twenty-six Weeks
Ended
November 26, 2022
November 27, 2021
November 26, 2022
November 27, 2021
Total net sales
$
801,700
$
381,723
$
1,460,044
$
706,709
Conventional
$
541,917
70.1
%
$
221,142
59.7
%
$
967,506
69.0
%
$
403,172
58.8
%
Specialty
227,778
29.4
%
146,917
39.7
%
428,598
30.5
%
279,375
40.7
%
Egg sales, net
769,695
99.5
%
368,059
99.4
%
1,396,104
99.5
%
682,547
99.5
%
Other
3,953
0.5
%
2,263
0.6
%
8,248
0.6
%
3,395
0.5
%
Net shell egg sales
$
773,648
100.0
%
$
370,322
100.0
%
$
1,404,352
100.1
%
$
685,942
100.0
%
Net shell egg sales as a
percent of total net sales
96.5
%
97.0
%
96.2
%
97.1
%
Dozens sold:
Conventional
187,976
66.2
%
192,135
71.3
%
367,688
65.7
%
376,003
71.7
%
Specialty
96,110
33.8
%
77,420
28.7
%
191,715
34.3
%
148,171
28.3
%
Total dozens sold
284,086
100.0
%
269,555
100.0
%
559,403
100.0
%
524,174
100.0
%
Net average selling price
per dozen:
Conventional
$
2.883
$
1.151
$
2.631
$
1.072
Specialty
$
2.370
$
1.898
$
2.236
$
1.885
All shell eggs
$
2.709
$
1.365
$
2.496
$
1.302
Egg products sales:
Egg products net sales
28,052
11,401
55,692
20,767
Pounds sold
15,702
16,009
32,204
31,278
Net average selling price
per pound
1.787
0.712
1.729
0.664
Shell egg net sales
Second Quarter – Fiscal 2023
vs. Fiscal 2022
-
In
the
second
quarter
of
fiscal
2023,
conventional
egg
sales
increased
$320.8
million,
or
145.0%,
compared
to
the
second quarter
of fiscal 2022,
primarily due
to the increase
in the price
s
for conventional shell
eggs, slightly
offset by
a decrease
in volume
of conventional
shell eggs
sold. Changes
in prices
resulted in
a $325.6
million increase
and the
change in volume resulted in a $4.8 million decrease in net sales, respectively.
-
Conventional egg prices increased in the second
quarter of fiscal 2023
primarily due to decreased supply caused by
the
HPAI
outbreak,
discussed
above,
while
we
experienced
continued
good
customer
demand
(and
typical
seasonal
consumer demand).
-
As a result of
the independently quoted
wholesale market prices
for conventional
eggs reaching near-record
highs, the
average selling
price for conventional
eggs exceeded
the average selling
price for specialty
eggs in the
second quarter
of
fiscal
2023,
which
has
occurred
for
the
past
three
quarters
but
is
atypical
historically.
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.
-
Specialty
egg
sales
increased
$80.9
million,
or
55.0%,
in
the
second
quarter
of
fiscal
2023
compared
to
the
second
quarter
of
fiscal
2022,
primarily
due
to
a
24.9%
increase
in
the
prices
for
specialty
eggs,
which
resulted
in
a
$45.4
million
increase
in
net
sales
and
a
24.1%
increase
in
the
volume
of
specialty
eggs
sold,
which
resulted
in
a
$35.5
million increase in net sales.
22
-
Net average
selling price 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 produced 11%
more specialty
eggs in
the second
quarter of
fiscal 2023
versus the
prior-year period,
through use
of our
higher cage-
free production capacity
and better utilization of that capacity.
-
Cage-free
egg
sales
for
the
second
quarter
of
fiscal
2023
represented
18.2%
of
our
total
net
shell
egg
sales
versus
22.4%
for
the
same
prior
year
period
due
to
the
higher
conventional
egg
prices.
Cage-free
dozens
sold
increased
47.4% in the second quarter of fiscal 2023 as compared to the second
quarter of fiscal 2022.
Twenty-six weeks –
Fiscal 2023 vs. Fiscal 2022
-
For
the
twenty-six
weeks
ended
November
26,
2022,
conventional
egg
sales
increased
$564.3
million
or
140.0%
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
$573.2 million
increase and the change in volume resulted in a $9.0 million decrease in net
sales, respectively.
-
Specialty egg sales
increased $149.2 million,
or 53.4%, for the
twenty-six weeks ended
November 26, 2022 compared
to
the
same
period
of
fiscal
2022,
primarily
due
to
a
29.4%
increase
in
the
volume
of
specialty
dozens
sold.
The
volume
of
specialty
dozens
sold
increased
mainly
due
to
the
higher
conventional
egg
prices.
Change
in
volume
resulted in a
$82.1 million increase
and changes in
specialty egg price resulted
in a $67.3 million
increase in net sales,
respectively.
Egg products net sales
Second Quarter – Fiscal 2023
vs. Fiscal 2022
-
Egg products
net sales
increased $16.7
million or
146.0% for
the second
quarter of
fiscal 2023
compared to
the same
period of
fiscal 2022,
primarily due
to a
151.0% selling
price increase,
which had
a $16.9
million positive
impact on
net sales.
-
Our
egg
products
net
average
selling
price
increased
in
the
second
quarter
of
fiscal
2023,
compared
to
the
second
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.
Twenty-six weeks –
Fiscal 2023 vs. Fiscal 2022
-
Egg products
net sales
increased $34.9
million or
168.2%, primarily
due to
a 160.4%
selling price
increase compared
to the first twenty-six weeks of fiscal 2022, which had a $34.3 million
positive impact on net sales.
-
Our egg
products net average
selling price increased
in the twenty-six
weeks ended
November 26,
2022, 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
second
quarter
of
fiscal
2023
were
$483.9
million
compared
to
$338.0
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.
23
The following table presents the key variables affecting our cost of
sales (in thousands, except cost per dozen data):
Thirteen Weeks
Ended
Twenty-six Weeks
Ended
November 26,
2022
November 27,
2021
%
Change
November 26,
2022
November 27,
2021
%
Change
Cost of Sales:
Farm production
$
276,008
$
221,971
24.3
%
$
542,659
$
429,466
26.4
%
Processing, packaging,
and warehouse
83,639
69,474
20.4
165,056
134,533
22.7
Egg purchases and other
(including change in
inventory)
97,973
36,859
165.8
166,271
74,832
122.2
Total shell eggs
457,620
328,304
39.4
873,986
638,831
36.8
Egg products
26,231
9,672
171.2
50,719
17,486
190.1
Total
$
483,851
$
337,976
43.2
%
$
924,705
$
656,317
40.9
%
Farm production costs
(per dozen produced)
Feed
$
0.685
$
0.529
29.5
%
$
0.676
$
0.537
25.9
%
Other
$
0.386
$
0.349
10.6
%
$
0.383
$
0.351
9.1
%
Total
$
1.071
$
0.878
22.0
%
$
1.059
$
0.888
19.3
%
Outside egg purchases
(average cost per dozen)
$
3.14
$
1.56
101.3
%
$
2.88
$
1.45
98.6
%
Dozens produced
261,358
256,786
1.8
%
519,012
493,244
5.2
%
Percent produced to sold
92.0%
95.3%
(3.5)
%
92.8%
94.1%
(1.4)
%
Farm Production
Second Quarter – Fiscal 2023
vs. Fiscal 2022
-
Feed costs per dozen
produced increased 29.5% in
the second quarter of fiscal
2023 compared to the
second quarter of
fiscal 2022. This increase was primarily due to increased prices for corn, our primary
feed ingredient.
-
For the
second quarter
of fiscal
2023, the
average daily
CBOT market
price was
$6.78 per
bushel for
corn and
$423
per
ton of
soybean
meal representing
increases
of 24.8%
and
25.5%, respectively,
as compared
to
the average
daily
CBOT prices for the second quarter of fiscal 2022.
-
Other farm
production costs
increased due
to higher
facility and
flock amortization,
primarily from
higher feed
costs,
which
began to
rise in
our third
quarter of
fiscal 2021
due to
increased
prices discussed
above,
and which
remained
high
in
the
second
quarter
of
fiscal
2023.
Feed
costs
are
capitalized
in
our
flocks
during
pullet
production
and
increased our amortization expense.
Twenty-six weeks –
Fiscal 2023 vs. Fiscal 2022
-
Feed costs
per dozen
produced increased
25.9% in
the twenty-six
weeks ended
November 26,
2022 compared
to the
same period of fiscal 2021, primarily due to higher feed ingredient prices.
-
Other farm
production costs
increased due
to higher
facility and
flock amortization,
primarily from
higher feed
costs,
which
began to
rise in
our third
quarter of
fiscal 2021
due to
increased
prices discussed
above,
and which
remained
high
in
the
second
quarter
of
fiscal
2023.
Feed
costs
are
capitalized
in
our
flocks
during
pullet
production
and
increased our amortization expense.
Supplies
of
corn
and
soybean
remained
tight
relative
to
demand
in
the
second
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
.
Additionally,
basis
levels
for
corn ran
significantly higher
in our area
of operations
compared to
our prior
year second
fiscal quarter,
adding to
our expense.
24
For
fiscal
2023,
we
expect
continued
corn
and
soybean
upward
pricing
pressures
and
further
market
volatility
to
affect
feed
costs.
Processing, packaging, and warehouse
Second Quarter – Fiscal 2023
vs. Fiscal 2022
-
Cost of packaging
materials increased 38.3
%
compared to the
second quarter of
fiscal 2022
due to rising
inflation and
labor costs.
-
Labor costs increased 49.2%
due to wage increases and increased use of contract labor in response to labor shortages
.
-
Dozens
processed
increased
5.4%
compared
to
the
second
quarter
of
fiscal
2022,
which
resulted
in
a
$4.0
million
increase in costs.
Twenty-six weeks –
Fiscal 2023 vs. Fiscal 2022
-
Cost
of
packaging
materials
increased
26.7%
compared
to
the
twenty-six
weeks
ended
November
27,
2021
due
to
rising inflation and labor costs.
-
Labor costs
increased 30.3%
due to
wage increases
in response
to labor
shortages, primarily
due to
the pandemic
and
its effects.
-
Dozens processed
increased 7.0%
compared
to the
twenty-six weeks
ended November
27, 2021,
which resulted
in a
$9.9 million increase in costs.
Egg purchases and other (including change in inventory)
Second 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 92.0% from
95.3%.
Twenty-six 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 92.8% from 94.1%.
GROSS PROFIT
Gross profit
for the
second quarter
of fiscal
2023 was
$317.8 million
compared to
$43.7 million
for the
same period
of fiscal
2022.
The increase
of $274.1
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.
Gross profit
for the
twenty-six weeks
ended November
26, 2022
was $535.3
million compared
to $50.4
million for
the same
period of fiscal
2022. The increase
of $484.9 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
November 26, 2022
November 27, 2021
$ Change
% Change
Specialty egg expense
$
14,673
$
14,262
$
411
2.9
%
Delivery expense
18,175
14,395
3,780
26.3
%
Payroll, taxes and benefits
13,827
11,303
2,524
22.3
%
Stock compensation expense
987
975
12
1.2
%
Other expenses
10,290
6,845
3,445
50.3
%
Total
$
57,952
$
47,780
$
10,172
21.3
%
25
Second 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 24.1% for
the second
quarter of
fiscal 2023
compared to
the same
period of fiscal
2022.
However, our
specialty egg expense
only increased by
2.9%, 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 were
responsible for the
franchise fees, advertising
and promotion costs associated
with those sales,
which resulted in reduced costs for us.
Delivery expense
-
The increased delivery expense is primarily due to the increase in contract trucking.
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 increased legal expenses
of approximately $2.6 million
in the second
quarter of fiscal 2023 compared to the second quarter of fiscal 2022.
Twenty-six Weeks
Ended
November 26, 2022
November 27, 2021
$ Change
% Change
Specialty egg expense
$
27,740
$
27,977
$
(237)
(0.8)
%
Delivery expense
38,091
28,331
9,760
34.4
%
Payroll, taxes and benefits
24,814
21,242
3,572
16.8
%
Stock compensation expense
2,012
1,976
36
1.8
%
Other expenses
18,902
14,779
4,123
27.9
%
Total
$
111,559
$
94,305
$
17,254
18.3
%
Twenty-six weeks –
Fiscal 2022 vs. Fiscal 2021
Specialty egg expense
-
Specialty egg
expense, which includes
franchise fees, advertising
and promotion
costs, generally
aligns with specialty
egg
volumes,
which
were
up
29.4%
for
fiscal
2023
compared
to
fiscal
2022.
However,
our
specialty
egg
expense
decreased
by
0.8%,
primarily
due
to
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.
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
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 $3.5 million.
OPERATING
INCOME (LOSS)
For
the
second
quarter
of
fiscal
2023,
we
recorded
operating
income
of
$259.9
million
compared
to
operating
loss
of
$2.1
million for the same period of fiscal 2022.
26
For
the
twenty-six
weeks
ended
November
26,
2022,
we
recorded
an
operating
income
of
$423.7
million
compared
to
an
operating loss of $41.7 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 second quarter of fiscal 2023,
we earned $2.1 million of interest income compared to $207 thousand
for the same period
of fiscal 2022.
The increase resulted
from significantly
higher investment balances.
The Company recorded
interest expense of
$143 thousand and $78 thousand for the second quarters ended November
26, 2022 and November 27, 2021, respectively.
For the
twenty-six weeks
ended November
26, 2022,
we earned
$3.1 million
of interest
income compared
to $497
million for
the
same
period
of
fiscal
2022.
The
increase
resulted
from
significantly
higher
investment
balances.
The
Company
recorded
interest expense
of $291
thousand and
$136 thousand
for the
twenty-six weeks
ended November
26, 2022
and November
27,
2021, respectively.
Other,
net for
the second
quarter ended
November 26,
2022, was
income
of $1.1
million compared
to income
of $1.9
million
for the same period of fiscal 2022.
Other, net for
the twenty-six weeks ended November
26, 2022, was income of $1.3
million compared to income of $7.0
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.
INCOME TAXES
For the
second quarter
of fiscal
2023,
pre-tax income
was $262.2
million
compared to
$468 thousand
for the
same period
of
fiscal 2022.
We
recorded income
tax expense
of $64
million for
the second
quarter of
fiscal 2023,
which reflects
an effective
tax
rate
of
24.4%.
We
recorded
an
income
tax
benefit
of
$677
thousand
in
the
prior
year
period
which
includes
a
$520
thousand
discrete
tax
benefit
related
to
the
Internal
Revenue
Service
(IRS)
adjustments
associated
with
the
Company’s
previously recognized research and development tax benefits.
For the
twenty-six
weeks ended
November 26,
2022, pre-tax
income was
$427.7 million
compared to
a pre-tax
loss of
$33.4
million for
the same
period of
fiscal 2022.
We
recorded income
tax expense
of $104.3
million which
reflects an
effective tax
rate
of
24.4%.
We
recorded an
income
tax benefit
of $16.5
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 benefit for
the comparable period of fiscal 2022 was $8.2 million with an adjusted
effective tax rate of 24.6%.
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
second
quarter
ended
November
26,
2022,
was
$198.6
million,
or
$4.08
per
basic
and
$4.07
per
diluted
common
share,
compared
to
net
income
attributable
to
Cal-Maine
Foods,
Inc.
of
$1.2
million or $0.02 per basic and diluted common share for the same period of
fiscal 2022.
Net income
attributable to
Cal-Maine Foods,
Inc. for
the twenty-six
weeks ended
November 26,
2022, was
$323.9 million,
or
$6.66 per
basic and
$6.63 per
diluted share,
compared to
net loss
of $16.9
million or
$0.34 per
basic and
diluted share
for the
same period of fiscal 2022.
27
LIQUIDITY AND CAPITAL
RESOURCES
Working
Capital and Current Ratio
Our working
capital at
November 26,
2022 was $667.5
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 3.2 at November
26, 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 twenty-six weeks
ended November 26, 2022,
$344.8 million in net cash
was provided by operating
activities, compared
to $15.5 million
used 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
$59.7
million used
to purchase
property,
plant
and
equipment
for
the
twenty-six
weeks ended November
26, 2022, compared
to $28.6 million in
the same period of
fiscal 2022.
Purchases of investments were
$152.4
million
in
the
second
quarter
of
fiscal
2023,
compared
to
$26.4
million
in
fiscal
2022.
The
increase
in
purchases
of
investments is primarily due to the increased cash provided by operating
activities noted above.
Cash Flows from Financing Activities
We
paid dividends of
$78.4 million for the
twenty-six weeks ended
November 26, 2022 compared
to no dividends for
the prior
year period.
As of
November 26,
2022, cash
increased $119.6
million since
May 28,
2022, compared
to a decrease
of $41.9
million during
the same period of fiscal 2022.
Credit Facility
We
had
no
long-term
debt
outstanding
at
November
26,
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
November 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. 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 timelines
for cage-free
egg sales.
The following
table presents
material construction
projects approved as of November 26, 2022 (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of November
26, 2022
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses/Processing
Facility
Fiscal 2023
$
131,932
117,056
14,876
Cage-Free Layer & Pullet Houses
Fiscal 2023
24,640
23,325
1,315
Cage-Free Layer & Pullet Houses
Fiscal 2024
42,591
2,057
40,534
Cage-Free Layer & Pullet Houses
Fiscal 2025
95,806
22,526
73,280
$
294,969
$
164,964
$
130,005
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.
28
IMPACT OF
RECENTLY
ISSUED/ADOPTED ACCOUNTING STANDARDS
For
information
on
changes
in
accounting
principles
and
new
accounting
policies,
see
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
twenty-six weeks ended November 26, 2022
from the information provided in Part II Item 7A Quantitative and Qualitative
Disclosures About Market Risk in our 2022
Annual Report.
ITEM 4.
CONTROLS
AND
PROCEDURES
Disclosure Controls and Procedures
Our disclosure
controls and
procedures are
designed to
provide reasonable
assurance that
information required
to be
disclosed
by us in the reports
we file or submit
under the Exchange Act
is recorded, processed, summarized
and reported, within the
time
periods
specified
in
the
Securities and
Exchange
Commission’s
rules
and
forms. Disclosure
controls
and
procedures
include,
without limitation, controls and
procedures designed to ensure that
information required to be disclosed
by us in the reports that
we file or
submit under the
Exchange Act is accumulated
and communicated to
management, including our
principal executive
and
principal
financial
officers,
or
persons
performing
similar
functions,
as
appropriate
to
allow
timely
decisions
regarding
required disclosure. Based on an evaluation of our disclosure
controls and procedures conducted by our Chief Executive Officer
and
Chief
Financial
Officer,
together
with
other
financial
officers,
such
officers
concluded
that
our
disclosure
controls
and
procedures were effective as of November 26, 2022 at the reasonable
assurance level.
Changes in Internal Control Over Financial Reporting
There was no change
in our internal control
over financial reporting
that occurred during the
quarter ended November
26, 2022
that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.
29
PART
II. OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
Refer
to
the
discussion
of
certain
legal
proceedings
involving
the
Company
and/or
its
subsidiaries
in
(i)
our
2022
Annual
Report,
Part
I
Item
3
Legal
Proceedings,
and
Part
II
Item 8,
Notes
to
Consolidated
Financial
Statements
and
Supplementary
Data, Note
18: Commitments
and Contingencies,
and (ii)
in this Quarterly
Report in
of the Notes to Condensed Consolidated Financial Statements, which discussions are incorporated
herein by reference.
ITEM 1A.
RISK
FACTORS
There have been no material changes in the risk factors previously disclosed in the
Company’s 2022 Annual
Report.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
There were
no purchases
of our
Common Stock
made by
or on
behalf of
our Company
or any
affiliated
purchaser during
the
second quarter of fiscal 2023.
ITEM 6. EXHIBITS
Exhibits
No.
Description
3.1
3.2
31.1*
31.2*
32**
101.SCH*+
Inline XBRL Taxonomy
Extension Schema Document
101.CAL*+
Inline XBRL Taxonomy
Extension Calculation Linkbase Document
101.DEF*+
Inline XBRL Taxonomy
Extension Definition Linkbase Document
101.LAB*+
Inline XBRL Taxonomy
Extension Label Linkbase Document
101.PRE*+
Inline XBRL Taxonomy
Extension Presentation Linkbase Document
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained
in Exhibit 101)
*
Filed herewith as an Exhibit.
**
Furnished herewith as an Exhibit.
+
Submitted electronically with this Quarterly Report.
30
SIGNATURES
Pursuant to
the requirements
of the
Securities Exchange
Act of 1934,
the registrant has
duly caused
this report
to be signed
on
its behalf by the undersigned, thereunto duly authorized.
CAL-MAINE FOODS, INC.
(Registrant)
Date:
December 28, 2022
/s/ Max P.
Bowman
Max P.
Bowman
Vice President, Chief Financial
Officer
(Principal Financial Officer)
Date:
December 28, 2022
/s/ Matthew S. Glover
Matthew S. Glover
Vice President – Accounting
(Principal Accounting Officer)
TABLE OF CONTENTS
Part I. FinancialItem 1. Financial StatementsNote 1 - Summary Of Significant Accounting PoliciesNote 2 - InvestmentNote 3 - Fair Value MeasurementsNote 4 - Inventories Inventories Consisted Of The Following As Of November 26, 2022 and May 28, 2022 (in Thousands):Note 4 - InventoriesNote 5 - EquityNote 6 - Net Income (loss) Per Common ShareNote 7 Revenue From Contracts with CustomersNote 8 - Stock Based CompensationNote 9 - Commitments and ContingenciesItem 2. Management SItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. ControlsPart II. Other InformationItem 1. Legal ProceedingsItem 1A. RiskItem 2. Unregistered Sales Of Equity Securities and Use Of ProceedsItem 6. Exhibits