# CAL-MAINE FOODS INC (CALM) FY 2025 MD&A Verbatim Item 7 Management's Discussion and Analysis from CAL-MAINE FOODS INC's 10-K for fiscal year 2025. SEC filing source: https://www.sec.gov/Archives/edgar/data/16160/000156276225000170/calm2025053110K.htm Accession: 0001562762-25-000170 Filing date: 2025-07-22 Report date: 2025-05-31 Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub. Confidence: high Company profile: /company/CALM/ All MD&A years: /company/CALM/mda/ Previous year: /company/CALM/mda/fy2024/ (FY 2024) 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 31, 2025 June 1, 2024 Net sales 100.0 % 100.0 % Cost of sales 56.6 % 76.7 % Gross profit 43.4 % 23.3 % Selling, general and administrative 7.4 % 10.9 % Gain on involuntary conversions — % (1.0) % Operating income 36.0 % 13.4 % Total other income 1.6 % 2.0 % Income before income taxes 37.6 % 15.4 % Income tax expense 9.0 % 3.6 % Net income 28.6 % 11.8 % Less:   Net loss attributable to noncontrolling interest — % (0.1) % Net income attributable to Cal-Maine Foods, Inc. 28.6 % 11.9 % Fiscal Year   Ended May 31, 2025 Compared to Fiscal Year Ended June 1, 2024 NET SALES Total net sales for fiscal 2025 were $4.3 billion compared to $2.3 billion for the prior fiscal year. Shell egg sales represented   94.3% and 95.3% of   total net sales in   fiscal 2025 and 2024,   respectively. The   Company’s shell   egg offerings, for both branded and   private-label products, include specialty   and conventional shell eggs.   Specialty shell eggs include cage-free,   organic,   brown,   free-range,   pasture-raised   and   nutritionally   enhanced   shell   eggs.   Conventional   shell   eggs   sales represent all   other shell   egg sales   not sold   as specialty   shell eggs.   The Company’s   egg products   and prepared   foods offerings include liquid and   frozen egg products   and prepared foods   such as hard-cooked   eggs, egg wraps,   protein pancakes, crepes   and wrap-ups. Other sales represent feed sales, miscellaneous byproducts and resale products. The table below presents net sales in key categories (in thousands, except percentage data): Fiscal Year Ended May 31, 2025 June 1, 2024 % Change Shell Eggs $ 4,019,910 $ 2,217,408 81.3 % Egg products and prepared foods 198,833 89,009 123.4 Other 43,142 20,026 115.4 Total net sales $ 4,261,885 $ 2,326,443 83.2 % 31 The table below presents an analysis of our shell egg sales (in thousands, except percentage data): May 31, 2025 June 1, 2024 Shell egg sales Conventional $ 2,835,423 70.5 % $ 1,291,743 58.3 % Specialty 1,184,487 29.5 % 925,665 41.7 % Total shell egg sales 4,019,910 100.0 % 2,217,408 100.0 % Dozens sold Conventional 812,396 63.3 % 746,687 65.1 % Specialty 470,215 36.7 % 400,946 34.9 % Total dozens sold 1,282,611 100.0 % 1,147,633 100.0 % Net average selling price per dozen Conventional $ 3.490 $ 1.730 Specialty $ 2.519 $ 2.309 All shell eggs $ 3.134 $ 1.932 Shell egg sales - For   fiscal   2025,   shell   egg   sales   increased   $1.8   billion   compared   to   fiscal   2024,   primarily   due   to   the   increase   in   net average selling prices for conventional eggs, and to a lesser extent the increase in dozens sold. - For fiscal 2025, conventional egg sales increased $1.5 billion, or 119.5%, compared to fiscal 2024, primarily due to the increase   in   conventional   egg   prices.   Changes in   price resulted   in   a $1.4   billion   increase in   net   sales and   changes   in volume resulted   in a   $114   million increase   in net   sales. Conventional   egg prices   increased significantly   during fiscal 2025 due to a resurgence of HPAI outbreaks, which decreased the supply. - Specialty egg   sales increased   $258.8 million,   or 28.0%,   for fiscal   2025 compared   to fiscal   2024, primarily   due to a   17.3% increase in   the volume   of specialty   dozens sold,   and to   a lesser   extent a   9.1% increase   in price.   Changes in   volume resulted in a $159.9 million increase in net sales and changes in price resulted in a $98.7 million increase in net sales. - Our dozens sold   for fiscal 2025   increased 11.8%   compared to fiscal   2024. We   had an   increase in production   capacity with the acquisition   of the commercial   shell egg production   and processing business   of ISE during   the first quarter   of fiscal 2025 as well as the resumption of full operations at our facilities in Chase, KS, and Farwell, TX, which were shut down in the third and fourth quarters of fiscal 2024 due to HPAI outbreaks. Egg products and prepared foods sales - Egg products and prepared foods sales increased $109.8 million, or 123.4% compared to fiscal 2024, primarily due to a 138.7% increase in sales of liquid eggs, which had a $54.9   million positive impact on net sales, and a 41.4% increase in volume of liquid egg products sold.   The increase in volume, which had a   $23.3 million positive impact on net   sales, is primarily related to the acquisition of ISE, which included a breaking facility. - Our egg products net average selling price increased in fiscal 2025, compared to fiscal 2024 as the supply of shell eggs used to produce egg products decreased due to the resurgence of HPAI outbreaks. - Sales from hard-cooked eggs increased   $22.7 million or 137.3% to 39.1   million in fiscal 2025, compared to   fiscal 2024, as more processing capabilities came online throughout fiscal 2025 from our investments in MeadowCreek. Other - Other sales increased compared to   the prior year period primarily   due to higher feed sales   related to our ISE acquisition. 32 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 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 May 31, 2025 June 1, 2024 % Change Cost of Sales Farm production $ 1,035,638 $ 987,861 4.8 % Processing, packaging, and warehouse 396,116 335,949 17.9 Egg purchases and other cost of sales 819,619 380,200 115.6 Egg products and prepared foods 159,627 80,862 97.4 Total cost of sales $ 2,411,000 $ 1,784,872 35.1 % Farm production costs (per dozen produced) Feed $ 0.490 $ 0.550 (10.9) % Other $ 0.428 $ 0.433 (1.2) % Total farm production cost $ 0.918 $ 0.983 (6.6) % Outside egg purchases (average cost per dozen) $ 3.67 $ 2.16 69.9 % Dozens produced 1,135,955 1,018,835 11.5 % Percent produced to sold 88.6% 88.8% (0.2) % Farm Production - Feed costs   per dozen   produced decreased   10.9% in   fiscal 2025   compared to   fiscal 2024,   primarily due   to lower   feed ingredient prices. The decrease in feed cost per dozen   resulted in a decrease in cost of sales of   $68.2 million compared to the prior year. - For fiscal 2025, the average daily CBOT market price was $4.38 per bushel for corn and $311 per ton of soybean meal, representing decreases of 8.1% and 20.1%, respectively, as compared to the average daily CBOT prices for fiscal 2024. - Other farm production costs per dozen produced decreased primarily due to lower flock amortization. Feed costs reached their peak in the second quarter of fiscal 2023 and have since trended downward. Lower costs resulted in lower capitalized values of the flocks during the grow out phase, which reduced amortization cost over time. Current indications for corn   and soybean project   a neutral stocks-to-use ratio   in the near term   compared with the levels   prevailing today; 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 increased   primarily due to   an 11.7%   increase in the   volume of processed dozens as well as an increase in costs of packaging materials. Egg purchases and other cost of sales - Costs in   this category   increased primarily due   to higher   shell egg   prices as   the average   cost per   dozen of   outside egg purchases increased 69.9%   compared to fiscal   2024, as well   as due to an   increase of 27.6%   in dozens purchased.   Dozens purchased increased due   to purchasing more   eggs to supply   our customers while   the nation experienced   lower supply due to HPAI. 33 GROSS PROFIT Gross   profit,   as   a   percentage   of   net   sales,   was   43.4%   for   fiscal   2025,   compared   to   23.3%   for   fiscal   2024.   The   increase   was primarily due to higher net average selling   prices, particularly for conventional eggs, and higher volumes,   as well as lower feed ingredient prices, partially offset by the increase in volume and price of outside egg purchases. 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. (“EB”) 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 May 31, 2025 June 1, 2024 $ Change % Change Delivery expense $ 93,460 $ 72,742 $ 20,718 28.5 % Marketing expense 53,861 52,285 1,576 3.0 % Litigation loss contingency accrual — 19,648 (19,648) N.M. % Other general and administrative expenses 167,128 107,950 59,178 54.8 % Total $ 314,449 $ 252,625 $ 61,824 24.5 % N.M. - Not Meaningful Delivery expense - The increased delivery expense is primarily due to an increase   in our sales volumes of egg and egg products   compared to fiscal 2024.   Contract trucking   expenses increased   in connection   with our   acquisition of   ISE and our   facilities in   Chase, KS and Farwell, TX being fully operational in fiscal year 2025. Marketing expense - Marketing expense increased   slightly in fiscal   2025 compared to   fiscal 2024 primarily   due to an   increase in franchise fees as specialty sales increased. Litigation loss contingency accrual - In the second quarter of fiscal 2024, we accrued a $19.6 million loss contingency relating to a jury decision returned in pending anti-trust   litigation. See   further discussion   in Note 16 – Commitments and Contingencies of Part   II. Item   8. Notes to Consolidated Financial Statements. Other general and administrative expenses - The increase   in other   general and   administrative expense   is primarily   due both   to an   increase in   the accrual   for anticipated employee bonuses   and to   a $15   million increased   adjustment to   the fair   value of   contingent consideration   associated with the   Fassio acquisition.   See further   discussion in Note 4 – Fair Value Measurements of Part   II. Item   8. Notes   to Consolidated Financial Statements. (GAIN) LOSS ON INVOLUNTARY   CONVERSIONS For fiscal 2025   and 2024, we   recorded a loss   of $156 thousand   and gain of   $23.5 million, respectively. The gain   recorded in fiscal 2024 was due   to recoveries   under indemnity   and insurance   programs that exceeded   the amortized   book value   of the covered   assets and our direct costs, primarily related to the HPAI outbreaks   at our Kansas and Texas facilities. 34 OPERATING   INCOME As a result of the above, our operating income was $1.5 billion for fiscal 2025, compared to $312.5 million for fiscal 2024. 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 $48.7 million   in fiscal 2025, compared to $32.3 million in   fiscal 2024, primarily due to significantly higher   cash and cash   equivalents and investment   securities available-for-sale balances   and yields. We   recorded interest expense of $612   thousand and $549 thousand   in fiscal 2025 and   2024, respectively, primarily related to commitment   fees on our Credit Facility described below. INCOME TAXES For the fiscal year ended   May 31, 2025, our pre-tax   income was $1.6 billion, compared   to $360.0 million for fiscal   2024. Income tax expense   of $384.9   million was   recorded for   fiscal 2025   with an   effective tax   rate of   24.0%.   For fiscal   2024, income   tax expense was $83.7 million with an effective tax rate of 23.2%. 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 $1.8 million   for fiscal 2025   compared to a   $1.6 million net   loss for fiscal   2024. NET INCOME ATTRIBUTABLE   TO CAL-MAINE FOODS, INC. As a result   of the above,   net income attributable   to Cal-Maine Foods,   Inc. for fiscal   2025 was $1.2   billion, or $25.04   per basic and $24.95 per diluted share, compared to $277.9 million, or $5.70 per basic and $5.69 per diluted share for fiscal 2024. Fiscal Year   Ended June 1, 2024 Compared to Fiscal Year Ended June 3, 2023 The discussion of our results of operations for the fiscal year ended June 1, 2024 compared to the fiscal year ended June 3, 2023 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 2024 Annual Report on Form 10-K. 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   May 31,   2025 was   $1.7 billion, compared   to $1.0   billion at   June 1,   2024. The   calculation of   working capital is defined as   current assets less current   liabilities. Our current ratio was   6.4 at May 31,   2025 compared to 5.5   at June 1, 2024. The current ratio is calculated by dividing   current assets by current liabilities. The increase   in our current ratio is primarily due to the increase in total current assets, which increased by $726.3 million to $2.0 billion at May 31, 2025, due to increases in cash   and   cash   equivalents   and   investment   securities   available-for-sale.   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. 35 Cash Flows from Operating Activities Net cash   provided by   operating activities   was $1.2   billion for   fiscal 2025,   compared to   $451.4 million for   fiscal 2024.   The increase in   cash   flow   from   operating   activities   resulted   primarily   from   higher   net   average   selling   prices   per   dozen,   particularly   for conventional eggs, increased volume of sales and   a decrease in feed ingredient costs compared   to the prior year,   partially offset by the increase in volume and price of outside egg purchases. Cash Flows from Investing Activities For fiscal 2025, $575.5 million was   used in investing activities, primarily due   to purchases of investment securities,   purchases of property, plant and equipment   and the acquisition   of assets of   ISE compared to   $412.6 million used   in investing activities   in fiscal 2024, primarily due to purchases   of investment securities, purchases of   property, plant and equipment and the Fassio acquisition. Purchases of investment   securities were $1.2   billion in fiscal   2025 compared to   $573.6 million in   fiscal 2024. Sales   and maturities of investment securities were   $907.6 million in fiscal   2025, compared to $358.9 million   for fiscal 2024. The increase   in sales and maturities of investment securities is primarily due to the maturities of   short-term investments during fiscal 2025. Cash paid for business acquisitions was $116.2 million in   fiscal 2025, primarily related to   the ISE acquisition, and   $53.7 million in fiscal 2024, related to   the Fassio   acquisition. Purchases   of property,   plant and   equipment were   $161.3 million   and $147.1   million in   fiscal 2025 and 2024, respectively, primarily reflecting progress on our construction projects. Cash Flows from Financing Activities We   paid   dividends   totaling   $330.3   million   and   $91.9   million   in   fiscal   2025   and   2024,   respectively.   During   fiscal   2025,   we repurchased $54.0 million   in shares of   Common Stock, primarily   under our share   repurchase program. See   “Share Repurchase Program,” below. Increase (decrease) in Cash and Cash Equivalents As of May 31, 2025, cash increased $261.5 million since June 1, 2024, compared to a $54.9 million decrease   during fiscal 2024. The increase is primarily due to the increase in net sales during fiscal 2025. Acquisition of Echo Lake Foods Subsequent to our fiscal 2025 year-end, we acquired Echo Lake Foods. The purchase price was approximately $258 million and was funded with available cash on hand. For additional information, refer to Part II. Item 8. Notes to the Consolidated Financial Statements, Note 17 – Subsequent Events . Credit Facility On November 15,   2021, we entered   into an Amended   and Restated Credit   Agreement (as amended,   the “Credit Agreement”)   with a five-year term. The Credit Agreement provides   for a senior secured revolving credit facility   (the “Credit Facility”), in an initial aggregate principal amount of up to $250 million. As of May 31, 2025, no amounts were borrowed under the Credit Facility. As of May 31, 2025, we   had $4.7 million in outstanding   standby letters of credit, which   were issued under our Credit   Facility for the benefit of   certain insurance   companies. On   March 25,   2025, we   entered into   the Second   Amendment to   the Credit   Facility to amend the definition   of Change of   Control to exclude   the conversion of   all outstanding shares   of Class A   Common Stock into Common Stock.   Refer to   Part II.