CAL-MAINE FOODS INC (CALM) FY 2024 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.
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
June 1, 2024
June 3, 2023
Net sales
100.0
%
100.0
%
Cost of sales
76.7
%
62.0
%
Gross profit
23.3
%
38.0
%
Selling, general and administrative
10.9
%
7.4
%
Gain on involuntary conversions
(1.0)
%
(0.1)
%
(Gain) loss on disposal of fixed assets
—
%
—
%
Operating income
13.4
%
30.7
%
Total other income
2.0
%
1.0
%
Income before income taxes
15.4
%
31.7
%
Income tax expense
3.6
%
7.7
%
Net income
11.8
%
24.0
%
Less:
Net loss attributable to noncontrolling interest
(0.1)
%
—
%
Net income attributable to Cal-Maine Foods, Inc.
11.9
%
24.0
%
29
Fiscal Year
Ended June 1, 2024 Compared to Fiscal Year
Ended June 3, 2023
NET SALES
Net revenue is primarily generated
through sales of shell
eggs and egg products. Net
shell egg sales represented 96.2%
and 96.1%
of total
net sales
in fiscal
2024 and
2023, respectively.
The Company’s
shell egg
offerings include
specialty and
conventional
shell
eggs.
Specialty
shell
eggs
include
cage-free,
organic,
brown,
free-range,
pasture-raised
and
nutritionally
enhanced.
Conventional
shell
eggs sales
represent
all other
shell
egg sales
not
sold
as specialty
shell
eggs.
Shell
egg
sales classified
as
“Other” represent sales of miscellaneous byproducts and resale products included
with our shell egg operations.
The Company’s egg products
offering include liquid and frozen egg products and hard
-cooked eggs.
The table below presents an analysis of our conventional and specialty shell egg
sales (in thousands, except percentage data):
June 1, 2024
June 3, 2023
Total net sales
$
2,326,443
$
3,146,217
Conventional
$
1,291,743
57.7
%
$
2,051,961
67.9
%
Specialty
925,665
41.4
%
956,993
31.6
%
Egg sales, net
2,217,408
99.1
%
3,008,954
99.5
%
Other
20,026
0.9
%
14,993
0.5
%
Net shell egg sales
$
2,237,434
100.0
%
$
3,023,947
100.0
%
Dozens sold:
Conventional
746,687
65.1
%
749,076
65.3
%
Specialty
400,946
34.9
%
398,297
34.7
%
Total dozens sold
1,147,633
100.0
%
1,147,373
100.0
%
Net average selling price per dozen:
Conventional
$
1.730
$
2.739
Specialty
$
2.309
$
2.403
All shell eggs
$
1.932
$
2.622
Egg products sales:
Egg products net sales
$
89,009
$
122,270
Pounds sold
74,849
70,035
Net average selling price per pound
$
1.189
$
1.746
Shell egg net sales
-
For fiscal 2024,
shell egg net
sales decreased $786.5
million compared to
fiscal 2023,
primarily due to
the decrease in
net average selling prices
for conventional eggs, and
to a lesser extent the decrease
in the net average
selling prices for
specialty eggs.
-
For fiscal 2024,
conventional egg sales
decreased $760.2 million,
or 37.0%, compared
to fiscal 2023,
primarily due to
the decrease in conventional egg prices. Changes in price resulted in a $753.4 million
decrease in net sales and changes
in volume resulted in a $6.5 million decrease in net sales.
-
Conventional egg
prices reached
record highs
in fiscal
2023 due
to HPAI
outbreaks experienced
throughout calendar
year 2022 as
well seasonal demand during
the winter holidays.
Prices were lower
in the first
half of fiscal
2024 compared
to the
same period of
fiscal 2023
as the
U.S. egg supply
started to
recover from
outbreaks of
HPAI.
There has
been a
resurgence of
HPAI
starting in November
2023, and continuing
through the remainder
of fiscal 2024, which
increased
prices due to supply constraints. However, prices
in fiscal 2024 remained lower on average than fiscal 2023.
-
Specialty egg sales
decreased $31.3 million,
or 3.3%, for fiscal
2024
compared to fiscal 2023,
primarily due to
a 3.9%
decrease in specialty
egg prices partially
offset by
a 0.7% increase
in the volume
of specialty dozens
sold. Changes in
price resulted
in a $37.7
million decrease in
net sales and
changes in volume
resulted in a
$6.4 million
increase in net
sales.
30
-
Our
dozens
sold for
fiscal
2024 remained
relatively
flat
compared
to fiscal
2023.
We
had
an
increase
in production
capacity with the acquisition of the commercial shell egg production and processing business of Fassio Egg Farms, Inc.
during fiscal 2024, which was
offset by the temporary decrease
in production due to the
HPAI outbreaks at our facilities.
Egg products net sales
-
Egg products net sales decreased
$33.3 million, or 27.2%, primarily
due to a 31.9% selling price
decrease compared to
fiscal 2023, which had a $41.7 million negative impact on net sales.
-
Our egg products net average selling price decreased in fiscal 2024, compared to fiscal 2023 as the supply of shell
eggs
used to produce egg products increased.
COST OF SALES
Cost of
sales consists
of
costs directly
related
to producing,
processing
and
packing
shell eggs,
purchases
of
shell
eggs from
outside sources,
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 (including
labor), 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
June 1, 2024
June 3, 2023
% Change
Cost of Sales:
Farm production
$
987,861
$
1,118,741
(11.7)
%
Processing, packaging, and warehouse
335,949
342,836
(2.0)
Egg purchases and other (including change in inventory)
380,200
379,777
0.1
Total shell eggs
1,704,010
1,841,354
(7.5)
Egg products
80,862
108,406
(25.4)
Total
$
1,784,872
$
1,949,760
(8.5)
%
Farm production costs (per dozen produced)
Feed
$
0.550
$
0.676
(18.6)
%
Other
$
0.433
$
0.396
9.3
%
Total
$
0.983
$
1.072
(8.3)
%
Outside egg purchases (average cost per dozen)
$
2.16
$
3.02
(28.5)
%
Dozens produced
1,018,835
1,058,540
(3.8)
%
Percent produced to sold
88.8%
92.3%
(3.8)
%
Farm Production
-
Feed costs
per dozen
produced decreased
18.6% in
fiscal 2024
compared to
fiscal 2023,
primarily
due to
lower feed
ingredient prices.
Basis levels
for corn
and soybean
meal were
lower in
our areas
of operation
compared to
our prior
fiscal year.
-
For fiscal 2024, the average daily CBOT market price was $4.76 per bushel for corn and $390 per ton of soybean meal,
representing decreases of 27.6% and
13.4%, respectively, as compared to the average
daily CBOT prices for
fiscal 2023.
-
Other farm production costs increased
due to higher flock amortization
and increased
facility costs. Flock amortization
increased primarily due
to the increased
capitalized value of
our flocks. This
is primarily due
to the higher
feeds costs
in earlier periods incurred during the growing phase of the flocks.
31
-
Facility
costs
increased
due
primarily
to
increased
contract
labor
in
response
to
labor
shortages
as
well
as
higher
depreciation expense primarily due to the completion of several large
construction projects during fiscal 2024.
Current
indications
for
corn
project
an
overall
better
stocks-to-use
ratio
implying
potentially
lower
prices
in
the
near
term;
however, as long
as outside factors remain uncertain
(including weather patterns and
global supply chain disruptions), volatility
could remain.
Processing, packaging, and warehouse
-
Processing, packaging,
and warehouse
costs decreased
primarily due
to a
3.5% reduction
in the
volume of
processed
dozens,
partially offset by higher processing costs.
Egg purchases and other (including change in inventory)
-
Costs in this category remained relatively flat as the average cost per dozen of outside
egg purchases decreased 28.5%
compared to fiscal 2023, offset by an increase of 29.2% in dozens purchased
due to the loss of production primarily
caused by HPAI
outbreaks
at our facilities.
GROSS PROFIT
Gross profit, as
a percentage of
net sales, was
23.3%
for fiscal 2024,
compared to 38.0%
for fiscal 2023.
The decrease resulted
primarily from lower selling prices for conventional eggs,
partially offset by the lower feed ingredients prices.
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES
Selling, general, and administrative (“SGA”) expenses include costs of delivery, marketing, and other general and administrative
expenses. Delivery expense includes contract trucking expense and all costs to maintain and operate our fleet of trucks to deliver
products to
customers including
the related
payroll expenses.
Marketing
expense includes
franchise fees
that are
submitted to
Eggland’s
Best, Inc.
to support
the EB
brand, brokerage
and commission
fees, and
other general
marketing
expenses such
as
payroll
expenses
for
our
in-house
sales
team.
Other
general
and
administrative
expenses
include
corporate
payroll
related
expenses
and
other
general
corporate
overhead
costs.
The
following
table
presents
an
analysis
of
our
SGA
expenses
(in
thousands):
Fiscal Year
Ended
June 1, 2024
June 3, 2023
$ Change
% Change
Delivery expense
$
72,742
$
77,548
$
(4,806)
(6.2)
%
Marketing expense
52,285
57,198
(4,913)
(8.6)
%
Litigation loss contingency accrual
19,648
-
19,648
N.M.
%
Other general and administrative expenses
107,950
97,461
10,489
10.8
%
Total
$
252,625
$
232,207
$
20,418
8.8
%
N.M. - Not Meaningful
Delivery expense
-
The decreased delivery expense is primarily due to a decrease in contract
trucking expense and fuel costs.
Marketing expense
-
The decrease in marketing expense is primarily due to a decrease in franchise
fees.
Litigation loss contingency accrual
-
The litigation loss contingency accrual in fiscal 2024 is discussed in
Note 16 – Commitments and Contingencies
of Part
II. Item 8. Notes to Consolidated Financial Statements in this Annual Report.
32
Other general and administrative expenses
-
The increase in other general and administrative expenses
is primarily due to an increase of
$5.5 million in the fair value
of the contingent consideration associated with the Fassio asset acquisition, and increased legal costs, partially offset by
a decrease in accrued bonuses compared to the prior year.
GAIN ON INVOLUNTARY
CONVERSIONS
For fiscal 2024 and 2023,
we recorded a gain of $23.5 million and
$3.3 million, respectively,
due to recoveries under indemnity
and insurance programs that exceeded the amortized book value of
the covered assets and our direct costs.
OPERATING
INCOME
As a result of the above, our operating income was $312.5 million for fiscal 2024
,
compared to $967.7 million for fiscal 2023.
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. Patronage
dividends
are paid to us from our membership in the EB cooperative.
The Company recorded
interest income of $32.3
million in fiscal 2024,
compared to $18.6 million
in fiscal 2023, primarily
due
to significantly
higher cash
and cash
equivalents and
investment securities
available-for-sale balances
and yields.
We
recorded
interest expense of $549 thousand and $583 thousand
in fiscal 2024 and 2023, respectively, primarily related to commitment fees
on our Credit Facility described below.
INCOME TAXES
For
the
fiscal
year
ended
June
1,
2024,
our
pre-tax
income
was
$360.0
million,
compared
to
$998.6
million
for
fiscal
2023.
Income tax expense
of $83.7 million
was recorded for
fiscal 2024 with
an effective
tax rate of 23.
2%.
For fiscal 2023,
income
tax expense was $241.8 million with an effective tax rate of 24.2%.
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 $1.6 million
for fiscal 2024 compared
to a $1.3 million
net loss for fiscal
2023.
NET INCOME ATTRIBUTABLE
TO CAL-MAINE FOODS, INC.
As a result of the above, net
income attributable to Cal-Maine Foods, Inc.
for fiscal 2024 was $277.9 million, or $5.70
per basic
and $5.69 per diluted share, compared to $758.0 million, or $15.58
per basic and $15.52 per diluted share for fiscal 2023.
Fiscal Year
Ended June 3, 2023 Compared to Fiscal Year
Ended May 28, 2022
The discussion of our results of operations for the fiscal
year ended June 3, 2023 compared to the fiscal
year ended May 28, 2022
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 2023 Annual Report
on Form 10-K.
33
LIQUIDITY AND CAPITAL
RESOURCES
We aim to maintain a
strong balance sheet and
liquidity, particularly given the cyclical nature
of our business.
We believe a strong
balance sheet supports our growth opportunities and stockholder returns. Our priorities for the use of cash in recent periods have
included the payment of dividends pursuant to our variable dividend policy, inorganic growth through acquisitions of businesses,
organic
growth
including
construction
and
conversion
of
cage-free
facilities
and
investment
in
value-added
products,
and
maintenance capital expenditures.
Working
Capital and Current Ratio
Our working
capital at
June 1,
2024 was
$1.0 billion, compared
to $942.2 million
at June
3, 2023.
The calculation
of working
capital is
defined as
current assets
less current
liabilities. Our current
ratio was
5.5 at
June 1,
2024 compared
to 6.2
at June
3,
2023.
The current ratio is calculated by dividing current assets by current liabilities. The decrease
in our current ratio is primarily
due to the increase in total current liabilities,
which increased by $45.0 million to $227.7 million at
June 1, 2024, due to increases
in
income
tax
payable
and
accrued
expenses
and
other
liabilities
primarily
resulting
from
the
$19.6
million
litigation
loss
contingency
accrual
recorded in
fiscal 2024
.
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
$451.4 million for
fiscal 2024 compared with
$863.0 million for fiscal
2023. The
decrease in cash
flow from operations
resulted primarily from
lower selling prices
for conventional eggs,
partially offset by
the
lower cost of feed ingredients.
Cash Flows from Investing Activities
For
fiscal
2024,
$412.6
million
was
used
in
investing
activities,
primarily
due
to
the
purchases
of
investment
securities,
the
acquisition of the assets
of Fassio Egg Farms,
Inc., and purchases of
property,
plant and equipment compared
to $375.1 million
used in investing activities in the same
period of fiscal 2023. Purchases of investment securities were
573.6 million in fiscal 2024
compared
to
530.8
million
in
fiscal
2023.
Sales
and
maturities
of
investment
securities
were
$358.9
million
in
fiscal
2024,
compared to $291.8 million for fiscal 2023. Purchases of property,
plant and equipment were $147.1 million and $136.6 million
in fiscal 2024 and 2023, respectively,
primarily reflecting progress on our construction projects.
Cash Flows from Financing Activities
We paid dividends
totaling $91.9 million and $252.3 million in fiscal 2024
and 2023, respectively.
As of June 1, 2024, cash decreased
$54.9 million since June 3, 2023.
Acquisition of ISE America, Inc. Assets
Subsequent to our
fiscal 2024 year-end,
we acquired substantially
all the assets of
ISE America, Inc.
and certain of its
affiliates
related to
their commercial
shell egg
production and
processing facilities.
The purchase
price was
approximately $112
million
and
was
funded
with
available
cash
on
hand.
For
additional
information,
refer
to
Part
II.