CAL-MAINE FOODS INC (CALM) FY 2022 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
OVERVIEW
Cal-Maine Foods, Inc. is primarily engaged in the production, grading, packaging, marketing and distribution of
fresh shell eggs.
Our fiscal
year end
is the
Saturday closest
to May 31.
The Company,
which is
headquartered in
Ridgeland, Mississippi,
is the
largest
producer
and
distributor
of
fresh
shell
eggs
in
the
United
States
(“U.S”).
In
fiscal
2022,
we
sold
approximately
1,083.8 million dozen shell eggs, which we believe
represented approximately 20% of domestic shell egg consumption.
Our total
flock as of May 28, 2022 of approximately 42.2 million layers and 11.5 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.
The
Company
has
one
operating
segment,
which
is
the
production,
grading,
packaging,
marketing
and
distribution
of
shell
eggs. Many
of our
customers
rely
on
us
to
provide
most
of their
shell
egg
needs,
including
specialty
and
conventional
eggs.
Specialty eggs
represent a
broad range
of products. We
classify nutritionally
enhanced, cage-free,
organic,
free-range, pasture-
raised and brown
eggs as specialty eggs
for accounting and reporting
purposes. We
classify all other shell
eggs as conventional
eggs.
While
we
report
separate
sales
information
for
these
types
of
eggs,
there
are
a
number
of
cost
factors
which
are
not
specifically
available
for
conventional
or
specialty
eggs due
to
the
nature
of egg
production.
We
manage
our
operations
and
allocate resources to these
types of eggs on a consolidated
basis based on the demands
of our customers. For further description
of our business, refer to
Part I. Item I. Business
.
HPAI
We
are
closely
monitoring
the outbreaks
of
highly
pathogenic
avian
influenza
(“HPAI”)
,
the
latest of
which
was
detected
in
commercial
flocks
in
the
U.S.
in
February
2022.
According
to
the
U.S.
Centers
for
Disease
Control
and
Prevention,
these
detections
do not
present
an immediate
public
health
concern.
There
have
been
no positive
tests for
HPAI
at
any
Cal-Maine
Foods’ owned or
contracted production facility
as of July 19,
2022. The USDA division
of Animal and
Plant Health Inspection
Service (“APHIS”), reported that approximately 30.7 million commercial layer hens have
been depopulated due to HPAI. Pullets
impacted
comprise
approximately
1.0
million.
According
to
APHIS,
the
most
recently
reported
outbreaks
of
HPAI
affecting
commercial
layer hens
and pullets
occurred
June 7,
2022 and
June 9,
2022,
respectively.
We
believe
the HPAI
outbreak
will
continue to impact the overall supply of eggs until the layer hen flock is fully replenished. 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.
COVID-19
Since early
2020, the
coronavirus (“COVID-19”)
outbreak, characterized
as a
pandemic by
the World
Health Organization
on
March
11,
2020,
has
caused
significant
disruptions
in
international
and
U.S.
economies
and
markets.
We
understand
the
challenges and difficult economic
environment facing families
in the communities
where we live
and work, and
we are committed
to helping where we can. We have provided food assistance to
those in need by donating approximately 829 thousand
dozen eggs
in
fiscal
2022.
We
believe
we
are
taking
all
reasonable
precautions
in
the
management
of
our
operations
in
response
to
the
COVID-19 pandemic.
Our top priority
is the health
and safety
of our
employees, who
work hard
each day
to produce eggs
for
our customers. As part of the nation’s food supply, we work in a critical infrastructure industry, and we believe we have a special
responsibility to
maintain our
normal work
schedule. As
such, we
are in
regular communication
with our
managers across
our
operations
and continue
to closely
monitor the
situation in
our facilities
and in
the communities
where we
live and
work.
We
have implemented
procedures designed
to protect
our employees,
taking into
account guidelines
published
by the
Centers for
Disease Control and other government health agencies, and we have strict sanitation protocols and biosecurity measures in place
Table of Contents
24
throughout our operations
with restricted access
to visitors. There
are no known
indications that COVID-19
affects chickens
or
can be transferred through the food supply.
We
continue to
proactively monitor
and manage
operations during
the COVID-19 pandemic,
including additional
related costs
that we incurred or
may incur in the
future. The pandemic had
a negative impact on
our business through disruptions in
the supply
chain such as
increased costs and
limited availability of
packaging supplies, increased
labor costs, increased
medical costs and,
more recently, inflation.
In fiscal
2022 and
2021, we
spent $2.2
million and
$2.3 million
(excluding medical
insurance claims)
related to
the pandemic
and
its
effects,
respectively.
The
majority
of
these
expenses
resulted
from
additional
labor
and
increased
cost
of
packaging
materials, which are
primarily reflected in cost
of sales. Medical insurance
claims related to COVID-19
paid during fiscal 2022
and 2021 were an additional $2.4 million and $1.4 million, respectively.
Executive Overview of Results – Fiscal Years
Ended May 28, 2022, May 29, 2021 and May 30, 2020
Fiscal Years
Ended
May 28, 2022
May 29, 2021
May 30, 2020
Net sales (in thousands)
$
1,777,159
$
1,348,987
$
1,351,609
Gross profit (in thousands)
$
337,059
$
160,661
$
179,588
Net average shell egg price
(a)
$
1.579
$
1.217
$
1.231
Average UB Southeast
Region - Shell Eggs - White Large
$
1.712
$
1.155
$
1.220
Feed costs per dozen produced
$
0.571
$
0.446
$
0.409
(a) The net average
shell egg selling price
is the blended price
for all sizes and
grades of shell eggs,
including non-graded
shell egg sales, breaking stock and undergrades.
Throughout the
first three quarters
of our
fiscal year 2020,
an oversupply
of eggs negatively
affected the
price of
conventional
eggs and demand
for specialty eggs
was negatively impacted
by the low
conventional egg prices.
For the first
three quarters of
fiscal 2020,
the average UB
southeastern large
index price was
down 21.9%
compared with the
prior-year period.
However, in
the fourth quarter of fiscal 2020, the average UB southeastern large index price was 62.4% higher than the average price through
the first three quarters in fiscal 2020 due to increased demand related to the onset of
the pandemic, as consumers purchased more
eggs in anticipation of preparing more meals at home.
Consumer demand maintained a steady growth throughout our first three quarters of fiscal 2021 but began trending down during
our fourth quarter of fiscal 2021
as consumers started to resume pre-pandemic
activities. Our net sales for fiscal 2021 decreased
$2.6 million compared to fiscal 2020,
primarily due to the decrease
in the selling price and
volume of conventional eggs, partially
offset by the increased volume of specialty
eggs sold. We
believe the decreased demand in foodservice
seen throughout the first
three
quarters of
fiscal 2021
due
to the
pandemic
contributed to
the depressed
price
of shell
eggs for
fiscal 2021
in the
retail
market due to the extra supply entering the retail channel from the foodservice
channel.
For
fiscal
2022,
we
believe
prices
for
conventional
eggs
were
positively
impacted
by
a
better
alignment
of
the
size
of
the
conventional
production
layer
hen
flock
and
customer
and
consumer
demand
through
the
first
three
fiscal
quarters
of
2022.
Conventional egg
prices further
increased in
the fourth
quarter of
fiscal 2022
primarily due
to decreased
supply caused
by the
HPAI
outbreak
compounded
with
good
customer
demand.
Throughout
fiscal
2022
the
hen
numbers
reported
by
the
USDA
remained below
the five-year
average. As
of July 17,
2022, APHIS
reported that
approximately 30.7
million commercial
table
egg layer
hens, or
approximately 9.5%
of the
table egg
layer flock
based on
February 2022
reported layer
numbers, have
been
depopulated due
to HPAI.
Hen numbers
reported by
the USDA
as of
June 1,
2022, were
297.5 million,
which represents
18.3
million fewer hens than a year ago.
According to
Information Resources,
Inc. (“IRI”),
for the
52 weeks
ended June
5, 2022,
which approximately
aligns with
our
fiscal year
2022, conventional
egg dozens
sold in
the U.S.
at multi-retail
outlets decreased
14.3%, while
specialty egg
dozens
sold increased 13.2% versus the prior-year comparable period.
Our conventional eggs dozens sold decreased 3.4% and specialty
egg dozens sold increased 12.5% as compared to fiscal 2021.
Gross profit increased $176.4 million to $337.1 million in fiscal 2022. The increase resulted primarily from higher
selling prices
for
conventional
eggs
as
well
as
the
increased
volume
of
specialty
eggs
sold,
partially
offset
by
the
increased
cost
of
feed
ingredients, increased processing costs and the decline in the volume of conventional eggs
sold. For fiscal year 2022, the average
Chicago
Board
of Trade
(“CBOT”)
daily
market
price
was $6.31
per bushel
for
corn and
$392.06
per ton
for
soybean meal,
Table of Contents
25
representing increases of
38.3% and 6.1%, respectively,
compared to the daily
average CBOT prices for fiscal
2021. Feed costs
started trending
higher midway
through the
second quarter
of fiscal
2021 and
then again
near the
end of
the second
quarter of
fiscal
2022.
Beginning
in
August
2020,
the
grain
markets,
particularly
corn,
have
been
negatively
affected
by
many
factors,
including weather-related production and yield shortfalls, increased export demand and ongoing disruptions from the COVID-19
global pandemic.
These factors continued into our fiscal 2022 and
as other factors such as the
Russia-Ukraine war, increased fuel
costs, transportation and fertilizers prices
and strong export demand and restrictions
further compounded the existing issues that
contributed
to
near-historical
low
stocks-to-use
ratios
for
corn
worldwide
and
overall
higher
feed
ingredient
cost
and
price
volatility.
We continue
to execute our growth strategy of remaining a low-cost provider
of shell eggs and growth of our specialty eggs and
egg
products
through
additional
investments
in
cage-free
facilities and
selective
acquisitions.
In
fiscal
2022,
we
acquired
the
remaining 50%
membership interest
in Red
River Valley
Egg Farm,
LLC (“Red
River”), which
owns and
operates a
specialty
shell
egg
production
complex
with
approximately
1.7
million
cage-free
laying
hens,
cage-free
pullet
capacity,
a
feed
mill,
processing plant, related offices and outbuildings and related equipment located on approximately 400 acres near Bogata, Texa
s.
We
also
announced
new
capital
projects
with
estimated
costs of
$105
million
that
will
expand
our
cage-free
production
and
capacity by 2.2 million cage-free hens. For additional information,
see
Part I. Item 2. Properties.
RESULTS
OF OPERATIONS
The following table sets forth, for the fiscal years indicated, certain items from our consolidated
statements of income expressed
as a percentage of net sales.
Fiscal Year
Ended
May 28, 2022
May 29, 2021
Net sales
100.0
%
100.0
%
Cost of sales
81.0
%
88.1
%
Gross profit
19.0
%
11.9
%
Selling, general and administrative
11.2
%
13.6
%
(Gain) loss on disposal of fixed assets
(0.3)
%
0.2
%
Operating income (loss)
8.1
%
(1.9)
%
Total other income
1.3
%
1.2
%
Income (loss) before income taxes
9.4
%
(0.7)
%
Income tax expense (benefit)
1.9
%
(0.9)
%
Net income
7.5
%
0.2
%
Less:
Net loss attributable to noncontrolling interest
—
%
—
%
Net income attributable to Cal-Maine Foods, Inc.
7.5
%
0.2
%
Table of Contents
26
Fiscal Year
Ended May 28, 2022 Compared to Fiscal Year
Ended May 29, 2021
NET SALES
Total net sales for fiscal
2022 were $1,777.2 million compared to $1,349.0 million for fiscal 2021.
Net shell egg sales represented 96.6% and 97.3% of total net sales
for the fiscal year 2022
and 2021, respectively. Shell egg sales
classified as
“Other”
represent sales
of hard
-cooked
eggs, hatching
eggs, and
other miscellaneous
products
included with
our
shell egg operations. The table below presents an analysis of our conventional and specialty shell egg sales (in thousands, except
percentage data):
May 28, 2022
May 29, 2021
Total net sales
$
1,777,159
$
1,348,987
Conventional
$
1,061,995
61.8
%
$
766,284
58.4
%
Specialty
648,838
37.8
%
539,780
41.1
%
Egg sales, net
1,710,833
99.6
%
1,306,064
99.5
%
Other
6,322
0.4
%
6,190
0.5
%
Net shell egg sales
$
1,717,155
100.0
%
$
1,312,254
100.0
%
Dozens sold:
Conventional
747,914
69.0
%
785,446
73.2
%
Specialty
335,875
31.0
%
287,765
26.8
%
Total dozens sold
1,083,789
100.0
%
1,073,211
100.0
%
Net average selling price per dozen:
Conventional
$
1.420
$
0.976
Specialty
$
1.932
$
1.876
All shell eggs
$
1.579
$
1.217
Egg products sales:
Egg products net sales
$
60,004
$
36,733
Pounds sold
63,968
63,627
Net average selling price per pound
$
0.938
$
0.577
Shell egg net sales
-
For fiscal 2022,
conventional egg
sales increased $295.7
million, or 38.6%,
compared to
fiscal 2021, primarily
due to
the increase
in conventional
egg prices,
partially offset
by a
4.8% decrease
in the
volume of
conventional
eggs sold.
Changes in price resulted in a $332.1
million increase and change in volume resulted
in a $36.6 million decrease in net
sales, respectively.
-
We believe
prices for conventional eggs
were positively impacted by
a better alignment of the
size of the conventional
production
layer
hen
flock
and
customer
and
consumer
demand
throughout
the
first
three
quarters
of
fiscal
2022.
Conventional egg prices further
increased in the fourth quarter
of fiscal 2022 primarily due
to decreased supply caused
by the HPAI
outbreak,
discussed above.
-
We believe lower
conventional egg prices in the prior-year period were primarily
tied to a surplus of conventional eggs
entering the retail channel from the foodservice channel exceeding
retail demand during this phase of the pandemic.
-
The decrease
in volume of
conventional eggs
sold was primarily
due to elevated
retail demand
during the
first half
of
fiscal 2021 given consumers’ preferences
to purchase eggs for in-home meal
preparation due to the pandemic.
We saw
these consumer preferences begin to shift
in the fourth quarter of
fiscal 2021 as consumers began
to resume out-of-home
dining and prepared fewer meals at home.
-
Specialty egg sales
increased $109.1 million, or
20.2%, for fiscal
2022 compared to
fiscal 2021, primarily
due to a
16.7%
increase in the volume of specialty dozens sold and a 3.0% increase in specialty egg prices. Changes in price resulted in
a $18.8 million
increase and change
in volume
resulted in a
$90.3 million increase
in net
sales, respectively. Our specialty
egg sales
also benefitted
from our
additional cage-free
production capacity.
Cage-free egg
sales for
fiscal 2022
were
22.1% of our total net shell egg sales.
Table of Contents
27
Egg products net sales
-
Egg products
net sales increased
$23.3 million
or 63.4%, primarily
due to a
62.6% selling
price increase
compared to
fiscal 2021, which had a $23.1 million positive impact on net sales.
-
Our
egg products
net average
selling
price
increased
in fiscal
2022,
compared
to fiscal
2021
as foodservice
channel
demand has
begun to
shift more
towards pre-pandemic
levels. This
coincided
with the
HPAI
outbreak
that started
in
February 2022, in which
we believe 10.4 of
the 30.7 million culled birds
were located at facilities dedicated
to support
inline breaking facilities in Iowa.
-
Selling prices for
egg products in fiscal
2021 were negatively
impacted by a
decline in foodservice
demand during the
more restrictive phases of governmental and business shutdowns due to the pandemic.
COST OF SALES
Cost of sales for fiscal 2022 were $1,440.1 million compared to $1,188.3
million for fiscal 2021.
Cost of
sales consi
sts of
costs directly
related
to producing,
processing
and
packing
shell eggs,
purchases
of
shell
eggs from
outside producers, processing and packing of liquid
and frozen egg products and other non-egg costs. Farm
production costs are
those costs
incurred at
the egg
production facility,
including feed,
facility,
hen amortization
and other
related farm
production
costs.
The following table presents the key variables affecting our cost of
sales (in thousands,
except cost per dozen data):
Fiscal Year
Ended
May 28, 2022
May 29, 2021
% Change
Cost of Sales:
Farm production
$
927,806
$
730,902
26.9
%
Processing, packaging, and warehouse
289,056
250,058
15.6
Egg purchases and other (including change in inventory)
172,034
177,634
(3.2)
Total shell eggs
1,388,896
1,158,594
19.9
Egg products
51,204
29,536
73.4
Other
—
196
(100.0)
Total
$
1,440,100
$
1,188,326
21.2
%
Farm production costs (per dozen produced)
Feed
$
0.571
$
0.446
28.0
%
Other
$
0.352
$
0.320
10.0
%
Total
$
0.923
$
0.766
20.5
%
Outside egg purchases (average cost per dozen)
$
1.72
$
1.22
41.0
%
Dozens produced
1,022,327
970,837
5.3
%
Percent produced to sold
94.3%
90.5%
4.2
%
Farm Production
-
Feed costs
per dozen
produced increased
28.0% in
fiscal 2022
compared to
fiscal 2021,
primarily due
to higher
feed
ingredient prices,
discussed above.
-
Other
farm
production
costs increased
due
to higher
flock amortization,
primarily
from an
increase
in
our
cage-free
production, which has higher capitalized costs. Also, higher feed costs, which began to rise in our third quarter of fiscal
2021, are capitalized in our flocks during pullet production and increased our
amortization expense.
-
We had higher
facility expense as more cage-free facilities came into production.
Processing, packaging, and warehouse
-
Cost of packaging materials increased 11.9% compared to fiscal 2021 as supply chain constraints initially caused by the
pandemic
increased
costs
for
packaging
products
and
manufacturers
implemented
pandemic
surcharges.
Costs
also
increased due to rising inflation.
-
Labor costs increased 14.4% due to wage increases in response to
labor shortages, primarily due to the pandemic and its
effects.
-
Dozens processed increased 5.0% compared to fiscal 2021, which resulted
in an $11.4 million increase in costs.
Table of Contents
28
Egg purchases and other (including change in inventory)
-
Costs in this category decreased primarily due to the decrease in the volume of
outside egg purchases, as our percentage
of produced to sold increased to 94.3% in fiscal 2022 from 90.5% in fiscal 2021,
partially offset by higher egg prices.
Looking
forward
to
fiscal
2023,
market
indications
point
to
higher
corn
and
soybean
prices and
greater
volatility
tied
to
the
Russia-Ukraine war and higher export demand.
GROSS PROFIT
Gross profit,
as a percentage
of net sales,
was 19.0% for
fiscal 2022,
compared to 11.9%
for fiscal 2021.
The increase resulted
primarily from higher selling prices for conventional eggs as well as the increased volume of
specialty eggs sold, partially offset
by the increased cost of feed ingredients,
increased processing costs and the decline in the volume of conventional eggs sold.
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES
Selling,
general,
and
administrative
expenses
("SGA")
include
costs
of
marketing,
distribution,
accounting,
and
corporate
overhead. SG&A increased $14.7
million to $198.6 million
in fiscal 2022. The following
table presents an analysis of
our SGA
expenses (in thousands):
Fiscal Year
Ended
May 28, 2022
May 29, 2021
$ Change
% Change
Specialty egg expense
$
59,830
$
59,294
$
536
0.9
%
Delivery expense
62,677
52,670
10,007
19.0
%
Payroll, taxes and benefits
43,954
43,327
627
1.4
%
Stock compensation expense
4,063
3,778
285
7.5
%
Other expenses
28,107
24,874
3,233
13.0
%
Total
$
198,631
$
183,943
$
14,688
8.0
%
Specialty egg expense
-
Specialty egg
expense which
includes franchise
fees, advertising
and promotion
costs generally
tracks with
specialty
egg
volumes,
which
were
up
16.7%
for
fiscal
2022
compared
to
fiscal
2021.
However,
our
specialty
egg
expense
increased
only
0.9%,
primarily
due
to
increased
sales
to
other
Eggland’s
Best,
Inc.
(“EB”)
franchisees,
including
unconsolidated
affiliates,
Specialty
Eggs,
LLC
and
Southwest
Specialty
Eggs,
LLC,
that
were
responsible
for
the
franchise fees,
advertising and
promotion costs
associated with
those sales
resulting in
reduced costs
for us.
Also, the
strong conventional market diminished
the need to promote specialty eggs;
and 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.
Other expenses
-
The increase
in other expenses
is primarily due
to property losses
incurred that
were not covered
by insurance
as well
as increased
premiums
for
property
and casualty
insurance programs.
We
also
accrued an
additional
$1.1 million
in
property taxes due to the Red River acquisition.
OPERATING
INCOME (LOSS)
As a result
of the above,
our operating
income was $143.5 million
for fiscal 2022,
compared to operating
loss of $26.3 million
for fiscal 2021.
OTHER INCOME (EXPENSE)
Total
other
income
(expense)
consists
of
items
not
directly
charged
to,
or
related
to,
operations
such
as
interest
income
and
expense, equity in income or loss of unconsolidated entities, and patronage dividends,
among other items.
Table of Contents
29
The Company
recorded interest income
of $988 thousand
in fiscal 2022,
compared to $2.8
million in
fiscal 2021. We
recorded
interest expense of $403 thousand and $213 thousand
in fiscal 2022 and 2021, respectively, primarily related to commitment fees
on our Credit Facility described below.
Patronage
dividends,
which
represent
distributions
from
our
membership
in
EB,
increased
$1.1
million
or
12.5%.
Patronage
dividends are paid once a year based on EB’s
profits and its available cash.
Equity in income
from unconsolidated entities
for fiscal 2022 was
$1.9 million compared
to $622 thousand for
fiscal 2021, due
to increased specialty
egg prices
as well
as increased sales
volume resulting from
our additional investment
in Southwest
Specialty
to expand its operations.
Other,
net for fiscal
2022 was
income of
$9.8 million compared
to $4.1 million
for fiscal 2021.
The majority of
the increase is
due to our
acquisition of the
remaining 50% membership
interest in Red
River as we
recognized a
$4.5 million
gain due to
the
remeasurement of
our equity investment,
along with the
$1.6 million payments
related to review
and adjustment of
our various
marketing agreements.
INCOME TAXES
For the
fiscal year
ended May
28, 2022,
our pre-tax
income was
$166.0 million,
compared to
pre-tax loss
of $9.9
million for
fiscal 2021. Income
tax expense of
$33.6 million was
recorded for fiscal
2022 with an
effective tax rate
of 20.2%.
Included in
fiscal 2022
income tax
expense is
the discrete
tax benefit
of $8.3
million discussed
in
Note 2 – Acquisition
of Part
II. Item
8.
Notes to
Condensed
Consolidated
Financial
Statements in
this Annual
Report.
Excluding the
discrete tax
benefit,
income tax
expense was $41.9
million with an
adjusted effective
tax rate of
25.2%. For
fiscal 2021, income
tax benefit was
$12.0 million.
Excluding the impact
of discrete items
related to a
$12.4 million net
tax benefit recorded
during fiscal 2021
in connection with
the Coronavirus Aid,
Relief, and Economic Security
Act (the “CARES Act”),
our income tax benefit
for the comparable period
of fiscal 2021 was $2.2 million, which reflects an adjusted effective
tax rate of 22.7%.
At May 28, 2022, the
Company had an income tax
receivable of $42.1 million compared
to $42.5 million at May 29,
2021. The
income tax receivable is related
to the Company’s
decision to carryback fiscal 2020
and fiscal 2021 taxable net operating
losses
to recover a
portion of taxes paid
in fiscal 2015
and fiscal 2016.
During fiscal 2022,
the Company filed
both federal carryback
tax returns,
and we believe we will receive the refunds during our third fiscal quarter of 2023.
Items causing
our effective
tax rate
to differ
from the
federal statutory
income tax
rate of
21% are
state income
taxes, certain
federal tax
credits and
certain items included
in income or
loss for financial
reporting purposes that
are not included
in taxable
income or
loss for income
tax purposes, including
tax exempt interest
income, certain
nondeductible expenses,
and net income
or loss attributable to noncontrolling interest.
NET LOSS ATTRIBUTABLE
TO NONCONTROLLING INTEREST
Net loss attributable
to noncontrolling interest was
$209 thousand for fiscal
2022 compared to
no such income or
loss for fiscal
2021.
NET INCOME ATTRIBUTABLE
TO CAL-MAINE FOODS, INC.
As a result of the above, net
income attributable to Cal-Maine Foods, Inc.
for fiscal 2022 was $132.7 million, or $2.73
per basic
and $2.72 per diluted share, compared to $2.1 million, or $0.04
per basic and diluted share for fiscal 2021.
Fiscal Year
Ended May 29, 2021 Compared to Fiscal Year
Ended May 30, 2020
The discussion
of our
results of
operations for
the fiscal
year ended
May 29,
2021 compared
to the
fiscal year
ended May
30,
2020 can be found in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations in
the Company's fiscal 2021 Annual Report on Form 10-K.
LIQUIDITY AND CAPITAL
RESOURCES
Working
Capital and Current Ratio
Our
working
capital
at
May
28,
2022
was
$476.8 million,
compared
to
$429.8 million
at
May
29,
2021.
The
calculation
of
working capital is defined
as current assets less current
liabilities. Our current ratio was
3.58 at May 28, 2022
compared to 5.77
Table of Contents
30
at May 29, 2021. The current ratio is
calculated by dividing current assets by current liabilities. Due to seasonal factors described
in
Part I. Item I. Business – Seasonality
, we
generally expect
our need
for working
capital to
be highest
in the
fourth and
first
fiscal quarters ending in May/June and August/September,
respectively.
Cash Flows from Operating Activities
Net cash
provided by
operating activities
was $126.2
million for
fiscal year
2022 compared
with $26.1 million
for fiscal
year
2021.
The increase in cash flow from operations
resulted primarily from higher selling prices for conventional eggs
as well as the
increased volume of
specialty eggs, partially
offset by
the increased cost
of feed ingredients
and processing costs.
The increase
in accounts payables,
accrued expenses and
other liabilities is
primarily due
to $62.3 million
balance for dividends
and income
tax payables as of May 28, 2022.
Cash Flows from Investing Activities
We
continue
to
invest
in
our
facilities,
with
$72.4
million
used
to
purchase
property,
plant
and
equipment
for
fiscal
2022,
compared to
$95.1 million
in fiscal
2021. Proceeds from
the sale
of property,
plant and
equipment was
$8.3 million
for fiscal
2022, compared to $3.4 million for in fiscal 2021. We also acquired the remaining 50% membership interest in Red River during
our first quarter of fiscal
2022 for $44.8 million, net
of cash acquired. Purchases of
investments were $98.2 million in fiscal
2022,
compared
to
$88.3
million
in
fiscal
2021.
Sales
and
maturities
of
investment
securities
were
$92.7
million
for
fiscal
2022,
compared to $129.1 million for fiscal
2021. We received $400 thousand in distributions from unconsolidated entity in
fiscal 2022
compared to $6.7 million for fiscal 2021.
Cash Flows from Financing Activities
We
paid dividends
totaling $6.1 million
and $1.7 million
in fiscal 2022
and 2021, respectively.
Purchases of common
stock by
treasury of $1.1
million and $871
thousand were made
to satisfy tax
withholding obligations
for employees
in connection with
the vesting of restricted common stock. Cash payments of $215 thousand
and $205 thousand were made on our finance lease.
As of May 28, 2022,
cash increased $1.7 million since
May 29, 2021, compared to a
decrease of $20.8 million during fiscal
2021.
Credit Facility
We had no
long-term debt outstanding at the end of fiscal 2022
and 2021. On November 15, 2021, we entered
into an Amended
and Restated Credit Agreement (the “Credit Agreement”) with a five-year term. The Credit Agreement amended and restated the
Company’s
previously
existing credit
agreement dated
July 10,
2018. The
Credit Agreement
provides for
an increased
senior
secured revolving credit facility (the “Credit Facility”), in an initial aggregate principal amount of up to $250 million. As of May
28, 2022,
no amounts
were borrowed
under the
Credit Facility.
We
have $4.1
million in
outstanding standby
letters of
credit,
which were 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
for further information regarding our long-term debt.
Table of Contents
31
Material Cash Requirements
Material cash requirements for
operating activities consist of
feed ingredients, employee related
costs, and other general
operating
expenses, which we expect to be paid from our cash from operations.
We
continue
to monitor
the increasing
demand for
cage-free eggs
and to
engage with
our customers
in an
effort
to achieve
a
smooth transition
to meet
their announced
commitment timeline
for cage-free
egg sales. As
of May
28, 2022,
we had
invested
approximately $516 million
in facilities, equipment
and related operations
to expand our
cage-free production starting
with our
first facility in 2008. The following table
presents current material construction projects approved as of
May 28, 2022, along with
our $55.3
million capital
project approved
subsequent to
the end
of the
fourth quarter
2022 to
convert existing
capacity at
our
Chase, Kansas production facility to house approximately
1.5 million cage-free hens and include
remodels of all remaining pullet
facilities (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of
May 28, 2022
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses/Processing
Facility
Fiscal 2023
$
131,974
$
113,386
$
18,588
Cage-Free Layer & Pullet Houses
Fiscal 2023
24,171
14,201
9,970
Cage-Free Layer & Pullet Houses
Fiscal 2024
42,591
107
42,484
Cage-Free Layer & Pullet Houses
Fiscal 2025
94,183
144
94,039
$
292,919
$
127,838
$
165,081
For additional information, see
Part I. Item 2. Properties.
The following table summarizes by fiscal year the
future estimated cash
payments,
in
thousands,
to
be
made
under
existing
contractual
obligations
as
of
May
28,
2022.
Further
information
on
debt
obligations is contained in
Note 10 – Credit Facility
, and on lease obligations in
Note 15 – Leases
, each in Part II. Item 8.
Notes
to the Consolidated Financial Statements. As of May 28, 2022,
we had no outstanding long-term debt.
Payments due by period
Total
Less than
1 year
1-3
years
3-5
years
More than
5 years
Finance leases
$
457
$
239
$
218
$
—
$
—
Operating leases
1,080
539
536
5
—
Purchase obligations:
Feed ingredients
(a)
172,132
172,132
—
—
—
Construction contracts and other equipment
27,568
19,281
8,287
—
—
Total
$
201,237
$
192,191
$
9,041
$
5
$
—
(a)
Actual purchase obligations may change based on the contractual terms and
agreements
We believe our
current cash balances, investments, cash flows from operations, and
Credit Facility will be sufficient to fund our
capital needs for at least the next 12 months.
IMPACT OF
RECENTLY
ISSUED ACCOUNTING STANDARDS
For information on changes in accounting
principles and new accounting principles,
see “
New Accounting Pronouncements
and
Policies
” in Part II. Item 8. Notes to Consolidated Financial Statements,
Note 1 - Summary of Significant Accounting Policies
.
CRITICAL ACCOUNTING ESTIMATES
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates
and assumptions
that affect the
reported amounts of
assets and liabilities
at the date
of the financial
statements and the
reported amounts of
revenues
and expenses during the reporting period. Actual results could
differ from these estimates. Critical accounting estimates are
those
estimates made in
accordance with GAAP
that involve a
significant level of estimation
uncertainty and have had
or are reasonably
likely to have a material impact
on the financial condition or results
of operations. Our critical accounting estimates are described
below.
Table of Contents
32
BUSINESS COMBINATION
S
The Company applies the acquisition
method of accounting, which
requires that once control is
obtained, all the assets acquired
and liabilities assumed,
including amounts
attributable to noncontrolling
interests, are recorded
at their respective
fair values at
the
date
of acquisition.
The
excess
of
the
purchase
price
over
fair
values
of
identifiable
assets
and
liabilities
is
recorded
as
goodwill.
We
typically
use the
income method
approach for
intangible assets
acquired
in a
business combination.
Significant
judgment
exists in valuing certain
intangible assets. and the
most significant assumptions requiring judgment
involve estimating the
amount
and timing of
future cash flows,
growth rates,
discount rates selected
to measure
the risks inherent
in the future
cash flows and
the asset’s expected useful lives.
The fair values of
identifiable assets and liabilities
is determined internally and requires
estimates and the use
of various valuation
techniques. When a market value
is not readily available, our internal
valuation methodology considers the
remaining estimated
life of the assets acquired and significant judgment is required as management
determines the fair market value for those assets.
Due
to
inherent
industry
uncertainties
including
volatile
egg
prices
and
feed
costs,
unanticipated
market
changes,
events,
or
circumstances may occur that could affect the estimates and assumptions
used, which could result in subsequent impairments.
INVENTORIES
Inventories of eggs, feed,
supplies and flocks
are valued principally
at the lower
of cost (first-in,
first-out method) or net
realizable
value. If
market
prices
for
eggs and
feed
grains
move
substantially
lower,
we
record
adjustments
to
write
down
the
carrying
values of eggs
and feed inventories
to fair market
value. The cost
associated with flock inventories,
consisting principally of chick
purchases, feed, labor, contractor payments and
overhead costs, are accumulated during the growing period of approximately 22
weeks. Capitalized flock costs are then amortized over the flock’s productive
life, generally one to two years. Judgment exists in
determining
the flock’s
productive life
including
factors such
as laying
rate and
egg size,
molt cycles,
and customer
demand.
Furthermore, other factors such as
hen type or weather conditions could affect
the productive life. These factors could
make our
estimates of productive life differ from actual results. Flock mortality is charged to cost of sales as incurred. High mortality from
disease or extreme temperatures will
result in abnormal write-downs to
flock inventories. Management continually monitors each
flock and attempts to take appropriate actions to minimize the risk of mortality
loss.
GOODWILL
As a
result of
acquiring
businesses, the
Company
has $44.0
million
of goodwill
on May
28, 2022.
Goodwill is
evaluated
for
impairment
annually
by
first
performing
a
qualitative
assessment
to
determine
whether
a
quantitative
goodwill
test
is
necessary. After
assessing the totality of events or
circumstances, if we determine it
is more likely than not that the
fair value of
a reporting unit is less than its carrying
amount, then we perform additional quantitative tests to
determine the magnitude of any
impairment.
The
Company
has
determined
that
all
of
our
locations
share
similar
economic
characteristics
and
support
each
other
in
the
production of eggs and customer support. Therefore, we aggregate all our locations as a single reporting unit for testing goodwill
for
impairment.
When
the
Company
acquires
a
new
location,
we
determine
whether
it
should
be
integrated
into
our
single
reporting unit or
treated as a
separate reporting unit. Historically, we
have concluded that
acquired operations should be
integrated
into our single reporting unit due to the operational changes, redistribution of customers, and significant changes in management
that occur when we acquire businesses, which result in the acquired operations sharing
similar economic characteristics with the
rest of our locations. Once goodwill associated with acquired operations becomes part of goodwill of our single reporting unit, it
no longer represents the particular
acquired operations that gave rise to the
goodwill. We
may conclude that a business acquired
in the future should be treated as a separate reporting unit, in which case it would be tested separately
for goodwill
impairment.
At May 28, 2022, goodwill represented 3.1% of total assets and 2.9% of
stockholders’ equity.
Judgment exists in management’s evaluation
of the qualitative factors which include macroeconomic conditions, the current egg
industry environment,
cost inputs such as
feed ingredients and overall financial performance. Furthermore, judgment
exists in the
evaluation
of the
threshold of
whether it
is more
likely than
not that
the fair
value of
a reporting
unit is
less than
its carrying
amount. Uncertainty exists due to uncontrollable events that could occur
that could negatively affect our operating conditions.
During our
annual impairment
test in fiscal
2022, we
determined that
goodwill passed
the qualitative
assessment and
therefore
no quantitative analysis of goodwill impairment was necessary.
Table of Contents
33
REVENUE RECOGNITION
Revenue recognition is completed upon satisfaction of the performance obligation to the customer, which typically occurs within
days of the Company and customer
agreeing upon the order.
See
Note 14 – Revenue Recognition
in Part II. Item 8. Notes to the
Consolidated Financial Statements for further discussion of the policy.
The Company believes
the performance obligation
is met upon delivery
and acceptance of
the product by
our customers. Costs
to deliver
product to
customers are
included in selling,
general and
administrative expenses
in the
accompanying Consolidated
Statements
of
Income. Sales
revenue
reported
in
the
accompanying
Consolidated
Statements
of
Income
is
reduced
to
reflect
estimated returns
and allowances. The
Company records
an estimated
sales allowance
for returns
and discounts
at the
time of
sale using historical trends based on actual sales returns and sales.
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 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.’’
As the
estimates noted
above are
based on
historical information,
we do
not believe
that there
will be
a material
change in
the
estimates and assumptions used
to recognize revenue. However,
if actual results varied significantly
from our estimates it could
expose us to material gains or losses.
LOSS CONTINGENCIES
The Company evaluates
whether a loss contingency
exists, and if the
assessment of a contingency
indicates it is probable
that a
material loss has
been incurred and
the amount of
the loss can
be reasonably estimated,
the estimated loss
would be accrued
in
the Company’s financial statements.
The Company expenses the costs of litigation as they are incurred.
There
were
no
loss
contingency
reserves
for
the
past
three
fiscal
years.
Our
evaluation
of
whether
loss
contingencies
exist
primarily relates to
litigation matters. The
outcome of litigation
is uncertain due
to, among other
things, uncertainties regarding
the facts will be established
during the proceedings, uncertainties
regarding how the law will
be applied to the facts
established,
and uncertainties
regarding the
calculation of
any potential
damages or
the costs
of any
potential injunctive
relief. If
the facts
discovered or the Company’s
assumptions change, future reserves for
loss contingencies may be required.
Results of operations
may be materially affected by losses or a loss contingency reserve
resulting from adverse legal proceedings.
INCOME TAXES
We
determine our
effective tax
rate by estimating
our permanent differences
resulting from differing
treatment of items
for tax
and accounting purposes. Judgment and uncertainty exist with management’s application of tax regulations
and evaluation of the
more-likely-than-not recognition and measurement thresholds. We
are periodically audited by taxing authorities. An adverse tax
settlement could have a negative impact on our effective tax rate
and our results of operations.
Table of Contents
34