In a press release dated September 27th Cal-Maine Foods (CALM) announced results for the 1st Quarter of FY 2023 ending August 27th 2022. The Company exceeded the topline consensus estimate of $617 million and the projection of an EPS of $2.55. This report summarizes data provided in addition to the Q-10 Report

Cal-Maine serves as a bellwether for the shell egg sector as the only public-quoted pure-play company in the industry. The following table summarizes the results for the period compared with the values for the corresponding quarter of the previous fiscal year (Values expressed as $ x 1,000 except EPS)

Notes: $1.6 million ‘other income,’ Q1 2023 compared to $5.8 million in Q1 FY2022:

$33 million gain on disposal of assets, Q1 2023 compared to $213 million loss in Q1 2022.

$ 0.43 million Royalty Income, Q1 2023 compared to $0.27 million Q1 2022

$0.15 million from equity investment, Q1 FY 2023 compared to $0.14 million Q1 2022

$0.90 million interest income, Q1 FY 2023 compared to $).23 million Q1 2022

No acquisitions in Q1 2023

Trailing P/E 22.2

52-Week Range in Share Price: $34.29 to $61.83 50-day Moving average $54.89

Market Close, Tuesday, July 27th pre-release: $60.53.

After hours trading post-release: $60.40 (down 0.2 percent)

In reviewing the CALM quarterly report the following calculated values represent key data for the most recent Quarter. (Q1 Fiscal 2022 and percent difference in parentheses):-

• Shell egg sales attained $626,085 million in Q1 2023 based on this category representing 95.1 percent of total revenue. ($314,586 million in Q1 2022, based on 96.8 percent of revenue. Value up by 99.0 percent)

• Dozen shell eggs sold (thousands): 275,317 (254,622; +8.1%)
• Average selling price of all shell eggs calculated from data released: $2.27 per dozen; ($1.24 per dozen; +83.1%).
• Average selling price of specialty eggs (excluding co-pack) calculated from data released: $2.08 cents per dozen; ($1.87 per dozen; +11.2%).
• Average selling price of generic eggs calculated from data released: $2.38 cents per dozen; ($0.99 cents per dozen; +140.4%).
• Differential between generic and specialty eggs: -$0.30 cents per dozen; ($0.88 per dozen; -134.1%)
• Specialty eggs as a proportion of volume sold: 34.7%; (27.8%; +24.8%)
• Specialty eggs as a proportion of sales value: 31.8%; (42.0 %; -24.3%)
• Proportion of eggs sold that were produced by Cal-Maine and contract flocks: 93.6% (92.9% +0.8%;).
• Feed cost: 66.7 cents per dozen, (54.5 cents per dozen, +22.5%)

The following observations relate to the comparison of Q1 2023 with the corresponding quarter in 2022:-

• Cal-Maine Foods was not affected by the 2022 avian influenza epornitic as of the release.
• Q1 of FY 2023 represented a more favorable marketing comparison to Q1 2022 based on higher prices for shell eggs, as influenced by depopulation of 32.7 million hens prior to and during Q1, coupled with high demand. Restrictions due to COVID on institutional and consumer segments were in large measure removed during Q1 of FY 2023
• Gross profit was impacted positively by higher unit revenue for generic eggs but offset by significantly higher production costs including feed (66.7 cents per dozen) and obviously by inflation in labor, fuel and packaging (37.9 cents per dozen).
• In a market characterized by high unit prices, the relative contribution of specialty eggs is less important to net earnings in contrast to a down market as in Q1 of FY 2022. Enigmatically generic eggs generated a higher unit price and margin compared to specialty eggs.
• Responding to the shortage of available eggs and their cost in Q1 2023 (average price $2.57 per dozen), Cal-Maine reduced the purchase of nest-run eggs for packing and sale to 6.4 percent of sales volume compared to 7.1 percent during the corresponding 1st quarter of FY 2022.
• Apart from the Family-trust and other insider shareholding of 14.5 percent, institutions hold 92.7 percent of equity. Shares short on August 31st attained 9.3 percent of float.
• Cal-Maine Foods declared a dividend of $0.85 per share.

In commenting on results for the 1st Quarter of FY 2023, Dolph Baker, Chairman and CEO of Cal-Maine Foods, commented, “We are pleased to begin fiscal 2023 with record quarterly sales for Cal-Maine Foods. We benefitted from higher average selling prices and record specialty egg sales volumes leading to historic Company record revenue for both conventional and specialty shell eggs. We continue to focus on offering consumers a choice with a favorable product mix in line with changing demand trends. We believe this strategy has created momentum across retail channels and delivered a performance that has outpaced the industry.

Baker added “Our operations ran well during the quarter, and we are pleased with our ability to manage the business despite significant inflationary pressures contributing to rising costs for feed, labor, packaging, and distribution, among other costs. We remain focused on the aspects of the business we can control with a shared commitment across Cal-Maine Foods’ operations to be the most efficient and sustainable producer of fresh shell eggs and egg products in the United States.”

Max Bowman, CFO of Cal-Maine Foods, added, “Our financial performance over the quarter reflects our ability to execute our operating strategy in dynamic conditions, while continuing to meet the expanding needs of our customers. The significant increase in pricing and favorable volume trends in specialty egg sales, along with efficient expense management, led to improved profitability with a gross profit margin of 33.0% for the first quarter of fiscal 2023”.

The earnings release included information on future conversion to cage-free production: “Cal-Maine Foods continues to offer a differentiated product mix to meet the needs of our customers. The Company maintains its specialty egg business focus as a key driver of growth. In line with expanding consumer demand and state requirements for cage-free eggs, the Company has continued to make significant investments in production capacity to position Cal-Maine Foods as an industry leader to supply the growing demand for specialty egg offerings, including cage-free eggs. Cage-free egg sales comprised 20.3% of total net shell egg sales in fourth quarter 2022 and represented 22.1% of total net shell egg sales in fiscal 2022”.

The release addressed the issue of conversion to cage-free housing noting “Providing customers with a favorable product mix is an important differentiator for Cal-Maine Foods. Specialty eggs are an integral part of the Company’s growth strategy and remain a primary focus for fiscal 2023. Cal-Maine Foods continues to make significant investments in production capacity to meet the demand for specialty eggs, including cage-free eggs, as customer demand has evolved in line with state requirements”.

“A significant number of Cal-Maine Foods’ customers have previously announced goals to offer cage-free eggs exclusively on or before 2026, subject in most cases to availability of supply, affordability and customer demand, among other contingencies. Some of these customers have recently changed those goals to offer 70 percent cage-free eggs by the end of 2030. The Company’s customers typically do not commit to long-term purchases of specific quantities or types of eggs, and as a result, it is difficult to accurately predict customer requirements for cage-free eggs. The Company continues to engage with its customers in efforts to achieve a smooth transition toward meeting their announced goals and needs. Sales of cage-free eggs represented approximately 19.4 percent of shell egg revenues for the first quarter of fiscal 2023. Cage-free dozens sold increased 58% in the first quarter of fiscal 2023 as compared to the first quarter of fiscal 2022”.

“Cal-Maine Foods has invested significant capital in recent years to acquire and construct cage-free facilities and remains focused on future expansion projects that will include cage-free facilities. At the same time, the Company understands the importance of continuing to provide more affordable conventional eggs in order to provide its customers with a variety of egg choices and to address hunger in more communities”.

The Q-10 Report documented an approved capital investment of $293.9 million for cage-free conversions and upgrades to processing for FY 2023 through 2025. Of this total $143.0 million has been commited with $130.9 to be assigned in FY 2024 and 2025.

On the topic of HPAI the report commented, “Cal-Maine Foods continues to monitor the current outbreak of highly pathogenic avian influenza (“HPAI”), that was first detected in commercial flocks in the U.S. in February 2022 and, which was most recently detected in commercial flocks in the U.S. in September 2022. There have been no positive tests for HPAI at any Cal-Maine Foods’ owned or contracted production facility as of September 27, 2022. The USDA division of Animal and Plant Health Inspection Service (“APHIS”) reported that approximately 35.6 million commercial layer hens and 1.0 million pullets have been depopulated due to HPAI. The Company believes that HPAI outbreak will continue to have an impact on the overall supply of eggs through the balance of this calendar year and possibly beyond. According to LEAP Market Analytics, layer hen inventory is not projected to exceed the 320 million mark until October of 2023”.

“While no farm is immune from HPAI, Cal-Maine Foods believes it has implemented and continues to maintain robust biosecurity programs across all its locations. The Company is 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 a response, if needed”.