1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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DOCUMENTS INCORPORATED BY REFERENCE
The information called for by Part III of this Form 10-K is incorporated herein by reference from the registrant’s Definitive Proxy Statement
for its 2023 annual meeting of stockholders which will be filed pursuant to Regulation 14A not later than 120 days after the end of the fiscal
year covered by this report.
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TABLE OF CONTENTS
Item
Page
Number
1.
1A.
1B.
2.
3.
4.
5.
6.
7.
7A.
8.
9.
9A.
9B.
9C.
10.
11.
12.
13.
14.
15.
16.
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PART I.
FORWARD -LOOKING STATEMENTS
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 inflation
and rising interest rates, 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 Item 1A Risk Factors and elsewhere in this report as well as those included
in other reports we file from time to time with the Securities and Exchange Commission (the “SEC”) (including our Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K), (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 increased costs, rising inflation and rising interest rates,
which began in response to market conditions caused in part by the COVID-19 pandemic and which generally have been
exacerbated by the Russia-Ukraine War that began in 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.
ITEM 1. BUSINESS
Our Business
We are the largest producer and distributor of shell eggs in the United States. Our mission is to be the most sustainable producer
and reliable supplier of consistent, high quality fresh shell eggs and egg products in the country, demonstrating a "Culture of
Sustainability" in everything we do, and creating value for our shareholders, customers, team members and communities. We sell
most of our shell eggs in the southwestern, southeastern, mid-western and mid-Atlantic regions of the U.S. and aim to maintain
efficient, state-of-the-art operations located close to our customers. We were founded in 1957 by the late Fred R. Adams, Jr. and
are headquartered in Ridgeland, Mississippi.
The Company has one reportable operating segment, which is the production, grading, packaging, marketing and distribution of
shell eggs. Our integrated operations consist of hatching chicks, growing and maintaining flocks of pullets, layers and breeders,
manufacturing feed, and producing, processing, packaging, and distributing shell eggs. Layers are mature female chickens, pullets
are female chickens usually less than 18 weeks of age, and breeders are male and female chickens used to produce fertile eggs to
be hatched for egg production flocks. Our total flock as of June 3, 2023 consisted of approximately 41.2 million layers and 10.8
million pullets and breeders.
Many of our customers rely on us to provide most of their shell egg needs, including specialty and conventional eggs. Specialty
eggs encompass a broad range of products. We classify cage-free, organic, brown, free-range, pasture-raised and nutritionally
enhanced as specialty eggs for accounting and reporting purposes. We classify all other shell eggs as conventional products.
While we report separate sales information for these egg types, there are many cost factors that 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.
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We believe that 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.
Throughout the Company’s history, we have acquired other companies in our industry. Since 1989 through our fiscal year ended
June 3, 2023, we have completed 23 acquisitions ranging in size from 160 thousand layers to 7.5 million layers. Most recently,
effective on May 30, 2021, the Company 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 that includes 1.7 million cage-free hens. For a
further description of this transaction, refer to Part II. Item 8. Notes to the Consolidated Financial Statements,
. We are also focused on additional ways to enhance our product mix and support new opportunities in the restaurant,
institutional and commercial food preparation area. Beginning in fiscal 2022, we have invested approximately $32.3 million in
Meadowcreek Foods, LLC (“Meadowcreek”), an egg products operation focused on offering hard-cooked eggs. In addition to
growth through acquisitions, we have also grown by making substantial investments in our business, primarily to increase our
cage-free production capacity.
When we use “we,” “us,” “our,” or the “Company” in this report, we mean Cal-Maine Foods, Inc. and our consolidated
subsidiaries, unless otherwise indicated or the context otherwise requires. The Company’s fiscal year-end is on the Saturday
closest to May 31. Our fiscal year 2023 and fourth quarter ended June 3, 2023, included 53 weeks and 14 weeks, respectively.
The first three fiscal quarters of fiscal 2023 ended August 27, 2022, November 26, 2022, and February 25, 2023, all included 13
weeks. All references herein to a fiscal year means our fiscal year and all references to a year mean a calendar year.
Industry Background
According to the U.S. Department of Agriculture (“USDA”) Agricultural Marketing Service, in 2022 approximately 71% of table
eggs produced in the U.S. were sold as shell eggs, with 56.6% sold through food at home outlets such as grocery and convenience
stores, 12.4% sold to food-away-from home channels such as restaurants and 1.7% exported. The USDA estimated that in 2022
approximately 29.6% of eggs produced in the U.S. were sold as egg products (shell eggs broken and sold in liquid, frozen, or
dried form) to institutions (e.g. companies producing baked goods). For information about egg producers in the U.S., see
“Competition” below.
Our industry has been greatly impacted by the outbreaks of highly pathogenic avian influenza (“HPAI”), first detected in
commercial flocks in the U.S. in February 2022 and continuing during our fiscal 2023. For additional information regarding HPAI
and its impact on our industry and business, see
Given historical consumption trends, we believe that general demand for eggs in the U.S. increases basically in line with the
overall U.S. population growth; however, specific events can impact egg supply and consumption in a particular period, as
occurred with the 2015 HPAI outbreak, the COVID-19 pandemic (particularly during 2020), and the most recent HPAI outbreak
starting in early 2022. According to the USDA’s Economic Research Service, estimated annual per capita consumption in the
United States between 2018 and 2022 varied, ranging from 279 to 292 eggs. In calendar year 2022, per capita U.S. consumption
was estimated to be 279 eggs, or approximately 5.4 eggs per person per week. According to the USDA, the decline in consumption
was primarily due to limited availability caused by the outbreak of HPAI. As of July 18, 2023, the USDA projects that the per
capita consumption will increase in calendar year 2023 and 2024 to 282.6 and 292.7, respectively. The USDA calculates per
capita consumption by dividing total shell egg disappearance in the U.S. by the U.S. population.
Prices for Shell Eggs
Wholesale shell egg sales prices are a critical component of revenue for the Company. Wholesale shell egg prices are volatile,
cyclical, and impacted by a number of factors, including consumer demand, seasonal fluctuations, the number and productivity
of laying hens in the U.S. and outbreaks of agricultural diseases such as HPAI. While we use several different pricing mechanisms
in pricing agreements with our customers, we believe the majority of conventional shell eggs sold in the U.S. in the retail and
foodservice channels are sold at prices that take into account, in varying ways, independently quoted wholesale market prices,
such as those published by Urner Barry Publications, Inc. (“UB”) for shell eggs, however, grain-based and cost plus arrangements
are being utilized in the food service channel and some western markets. We sell the majority of our conventional shell eggs
based on formulas that take into account, in varying ways, independently quoted regional wholesale market prices for shell eggs
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or formulas related to our costs of production, which include the cost of corn and soybean meal. We do not sell eggs directly to
consumers or set the prices at which eggs are sold to consumers.
The weekly average price for the southeast region for large white conventional shell eggs as quoted by UB is shown below for
the past three fiscal years along with the five-year average price. As further discussed in
, conventional shell egg prices rose during the fourth quarter of fiscal 2022 and first three
quarters of fiscal 2023, due to the reduced supply related to the HPAI outbreak first detected in commercial flocks in February
2022, steady shell egg demand and higher production costs. Conventional shell egg prices continued to rise into the fourth quarter
of fiscal 2023 followed by a substantial decline, as demand for shell eggs began to decrease in line with typical seasonal variance
and as supply increased due to the repopulating of HPAI -affected layer flocks. The actual prices that we realize on any given
transaction will not necessarily equal quoted market prices because of the individualized terms that we negotiate with individual
customers which are influenced by many factors. Depending on market conditions, input costs and individualized contract terms,
the price we receive per dozen eggs in any given transaction may be more than or less than our farm production and other costs
per dozen.
Specialty eggs are typically sold at prices and terms negotiated directly with customers. Historically, prices for specialty eggs
have experienced less volatility than prices for conventional shell eggs and have generally been higher due to customer and
consumer willingness to pay more for specialty eggs. However, throughout most of fiscal 2023 conventional egg prices exceeded
specialty egg prices. 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. Because the majority of our
specialty eggs are typically sold at prices and terms negotiated directly with customers, specialty egg prices do not fluctuate as
much as conventional pricing.
Feed Costs for Shell Egg Production
Feed is a primary cost component in the production of shell eggs and represented 63.1% of our fiscal 2023 farm production costs.
We routinely fill our storage bins during harvest season when prices for feed ingredients, primarily corn and to a lesser extent
soybean meal, 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
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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 date. Furthermore, due to the more limited supply for organic ingredients, we may commit to
purchase organic ingredients in advance to help assure 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. As the quality and
composition of feed is a critical factor in the nutritional value of shell eggs and health of our chickens, we formulate and produce
the vast majority of our own feed at our feed mills located near our production plants. Our annual feed requirements for fiscal
2023 were 2.0 million tons of finished feed, of which we manufactured 1.9 million tons. We currently have the capacity to store
182 thousand tons of corn and soybean meal, and we replenish these stores as needed throughout the year.
Our primary feed ingredients, corn and soybean meal, are commodities subject to volatile price changes due to weather, various
supply and demand factors, transportation and storage costs, speculators and agricultural, energy and trade policies in the U.S.
and internationally and most recently the Russia-Ukraine War. While we do not import corn or soy directly from the region, the
Russia-Ukraine War has had a negative impact on the worldwide supply of grain, including corn, putting upward pressure on
prices. We purchase the vast majority of our corn and soybean meal from U.S sources but may be forced to purchase
internationally when U.S. supplies are not readily available. Feed grains are currently available from an adequate number of
sources in the U.S. As a point of reference, a multi-year comparison of the average of daily closing prices per Chicago Board of
Trade for each period in our fiscal calendar are shown below for corn and soybean meal:
Shell Egg Production
Our percentage of dozens produced to sold was 92.3% of our total shell eggs sold in fiscal 2023, with 91.8% of such production
coming from company-owned facilities, and 8.2% from contract producers. Under a typical arrangement with a contract producer,
we own the flock, furnish all feed and critical supplies, own the shell eggs produced and assume market risks. The contract
producers own and operate their facilities and are paid a fee based on production with incentives for performance.
The commercial production of shell eggs requires a source of baby chicks for laying flock replacement. We hatch the majority of
our chicks in our own breeder farms and hatcheries in a computer-controlled environment and obtain the balance from commercial
sources. The chicks are grown in our own pullet farms and are placed into the laying flock once they reach maturity.
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After eggs are produced, they are cleaned, graded and packaged. Substantially all our farms have modern “in-line” facilities which
mechanically gather, clean, grade and package the eggs at the location where they are laid. The in-line facilities generate
significant efficiencies and cost savings compared to the cost of eggs produced from non-in-line facilities, which process eggs
that have been laid at another location and transported to the processing facility. The in-line facilities also produce a higher
percentage of USDA Grade A eggs, which sell at higher prices. Eggs produced on farms owned by contractors are brought to our
processing plants to be graded and packaged. Because shell eggs are perishable, we do not maintain large egg inventories. Our
egg inventory averaged six days of sales during fiscal 2023. We believe our constant focus on production efficiencies and
automation throughout the supply chain enable us to be a low-cost supplier in our markets.
We are proud to have created and upheld what we believe is a leading poultry Animal Welfare Program (“AWP”). We have
aligned our AWP with regulatory, veterinary and our third-party certifying bodies’ guidance to govern welfare of animals in our
direct care, our contract farmers’ care and our farmer-suppliers’ care. We continually review our program to monitor and evolve
standards that guide how we hatch chicks, rear pullets and nurture breeder and layer hens. At each stage of our animals’ lives, we
are dedicated to providing welfare conditions aligned to our commitment to the principles of the internationally recognized
Five
Freedoms of Animal Welfare
. Our standards apply to our enterprise and are tailored for our owned and contract grower operations
with oversights and approvals from senior members of our compliance team.
We do not use artificial hormones in the production of our eggs. Hormone use in the poultry and egg production industry has
been effectively banned in the U.S. since the 1950s. We have an extensive written protocol that allows the use of medically
important antibiotics only when animal health is at risk, consistent with guidance from the United States Food and Drug
Administration (“FDA”) and the Guidance for Judicious Therapeutic Use of Antimicrobials in Poultry, developed by the
American Association of Avian Pathologists. When antibiotics are medically necessary, a licensed veterinary doctor will approve
and administer approved doses for a restricted period. Our programs are designed to ensure antibiotics are ordered and used only
when necessary and records of their usage – when and where – are maintained to monitor compliance with our protocols. We do
not use antibiotics for growth promotion or performance enhancement.
Specialty Eggs
We are one of the largest producers and marketers of value-added specialty shell eggs in the U.S., which continues to be a
significant and growing segment of the market. We classify cage-free, organic, brown, free-range, pasture-raised and nutritionally
enhanced as specialty eggs for accounting and reporting purposes. Specialty eggs are intended to meet the demands of consumers
sensitive to environmental, health and/or animal welfare issues and to comply with state requirements for cage-free eggs.
As defined by the USDA, eggs packed in USDA grade marked consumer packages labeled as cage-free are laid by hens that are
able to roam vertically and horizontally in indoor houses and have access to fresh food and water. Cage-free systems must allow
hens to exhibit natural behaviors and include enrichments such as scratch areas, perches and nests. Hens must have access to
litter, protection from predators and be able to move in a barn in a manner that promotes bird welfare.
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.
California, Massachusetts, and Colorado, which collectively represent approximately 16% of the total estimated U.S. population
have cage-free legislation in effect currently. In May 2023, the U.S. Supreme Court upheld as constitutional California’s law that
requires the sale of only cage-free eggs in that state and regardless of the state in which the eggs are produced. Although we do
not sell the majority of our eggs in these ten states, these state laws have impacted egg production practices nationally.
A significant number of our customers previously announced goals to offer cage-free eggs exclusively on or before 2026, subject
in most cases to availability of supply, affordability and consumer 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 focused on adjusting our cage-free production capacity with a goal of meeting the future
needs of our customers in light of changing state requirements and our customer’s goals. As always, we strive to offer a product
mix that aligns with current and anticipated customer purchase decisions. We are engaging with our customers to help them meet
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. Our volume of cage-free egg sales has
continued to increase and account for a larger share of our product mix. Cage-free sales represented approximately 20.1% of our
total net shell sales for fiscal year 2023. 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.
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We are a member of the Eggland’s Best, Inc. cooperative (“EB”) and produce, market, distribute and sell
Egg-Land’s Best®
Land O’ Lakes®
Land O’ Lakes®
produced by hens that are fed a whole-grain vegetarian diet. Our
Farmhouse Eggs
® brand eggs are produced at our facilities by
cage-free hens that are provided with a vegetarian diet. We market organic, vegetarian and omega-3 eggs under our
4-Grain®
brand, which consists of conventional and cage-free eggs. We also produce, market and distribute private label specialty shell
eggs to several customers.
Egg Products
Egg products are shell eggs broken and sold in liquid, frozen, or dried form. We sell liquid and frozen egg products primarily to
the institutional, foodservice and food manufacturing sectors in the U.S. Our egg products are primarily sold through our wholly
owned subsidiaries American Egg Products, LLC located in Georgia and Texas Egg Products, LLC located in Texas.
During March 2023, MeadowCreek Food, LLC (“Meadowcreek”), a majority-owned subsidiary, began operations with a focus
on being a leading provider of hard-cooked eggs. We serve as the preferred provider to supply specialty and conventional eggs
that MeadowCreek needs to manufacture egg products. MeadowCreek’s marketing plan is designed to extend our reach in the
foodservice and retail marketplace and bring new opportunities in the restaurant, institutional and industrial food products arenas.
Summary of Conventional and Specialty Shell Egg and Egg Product Sales
The following table sets forth the contribution as a percentage of revenue and volumes of dozens sold of conventional and
specialty shell egg and egg product sales for the following fiscal years:
2023
2022
2021
Revenue
Volume
Revenue
Volume
Revenue
Volume
Conventional Eggs
65.2
%
65.3
%
59.8
%
69.0
%
56.8
%
73.2
%
Specialty Eggs
Egg-Land’s Best®
14.7
%
16.6
%
19.2
%
15.9
%
20.9
%
13.5
%
Other Specialty Eggs
15.7
%
18.1
%
17.3
%
15.1
%
19.1
%
13.3
%
Total Specialty Eggs
30.4
%
34.7
%
36.5
%
31.0
%
40.0
%
26.8
%
Egg Products
3.9
%
3.4
%
2.7
%
Marketing and Distribution
In fiscal 2023, we sold our shell eggs in 38 states through the southwestern, southeastern, mid-western and mid-Atlantic regions
of the U.S. through our extensive distribution network to a diverse group of customers, including national and regional grocery
store chains, club stores, companies servicing independent supermarkets in the U.S., foodservice distributors and egg product
consumers. Some of our sales are completed through co-pack agreements – a common practice in the industry whereby production
and processing of certain products are outsourced to another producer. Although we face intense competition from numerous
other companies, we believe that we have the largest market share for the sale of shell eggs in the grocery segment, including
large U.S. food retailers.
The majority of eggs sold are based on the daily or short-term needs of our customers. Most sales to established accounts are on
payment terms ranging from seven to 30 days. Although we have established long-term relationships with many of our customers,
most of them are free to acquire shell eggs from other sources.
The shell eggs we sell are either delivered to our customers’ warehouse or retail stores, by our own fleet or contracted refrigerated
delivery trucks, or are picked up by our customers at our processing facilities.
We are a member of the Eggland’s Best, Inc. cooperative and produce, market, distribute and sell
Egg-Land’s Best®
Land
O’ Lakes®
exclusive license agreements in Alabama, Arizona, Florida, Georgia, Louisiana, Mississippi and Texas, and in portions of
Arkansas, California, Nevada, North Carolina, Oklahoma and South Carolina. We also have an exclusive license in New York
City in addition to exclusivity in select New York metropolitan areas, including areas within New Jersey and Pennsylvania. As
discussed above under “Specialty Eggs,” we also sell our own Farmhouse Eggs® and 4Grain® branded eggs.
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During 2022, the Company 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.
The Company’s top priority in joining as a member of ProEgg is serving our valued customers in this important market region.
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. We expect
that starting January 1, 2024, each producer member will sell through ProEgg the shell eggs it produces for sale in the western
states covered by the cooperative. Customers will have a single point of contact for their shell egg purchases, as ProEgg will have
a dedicated team to market and sell the members’ combined egg production in the region.
Customers
Our top three customers accounted for an aggregate of 50.1%, 45.9% and 48.6% of net sales dollars for fiscal 2023 , 2022, and
2021, respectively. Our largest customer, Walmart Inc. (including Sam's Club), accounted for 34.2%, 29.5% and 29.8% of net
sales dollars for fiscal 2023, 2022 and 2021, respectively.
In fiscal 2023, approximately 85.3% of our revenue related to sales to retail customers, 10.8% to sales to foodservice providers
and 3.9% to egg products sales. Retail customers include primarily national and regional grocery store chains, club stores, and
companies servicing independent supermarkets in the U.S. Foodservice customers include primarily companies that sell food
products and related items to restaurants, healthcare and education facilities and hotels.
Competition
The production, processing, and distribution of shell eggs is an intensely competitive business, which has traditionally attracted
large numbers of producers in the United States. Shell egg competition is generally based on price, service and product quality.
The shell egg production industry remains highly fragmented. According to
Egg Industry Magazine
, the ten largest producers
owned approximately 53% of industry table egg layer hens at year-end 2022 and 2021. We believe industry consolidation may
continue, and we plan to capitalize on opportunities as they arise. We believe further concentration could result in reduced
cyclicality of shell egg prices, but no assurance can be given in that regard.
Seasonality
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. Accordingly, we generally expect our need for working capital
to be highest during those quarters.
Growth Strategy
Our growth strategy is focused on remaining a low-cost provider of shell eggs located near our customers, offering our customers
choices that meet their requirements for eggs and egg products and continuing to grow our focus on specialty eggs and egg
products. For example, our recent investment in MeadowCreek, discussed under the heading “Egg Products” above, is intended
to extend our reach in the foodservice and retail marketplace and bring new opportunities in the restaurant, institutional and
industrial food products arenas.
In light of the growing customer demand and increased legal requirements for cage-free eggs, we intend to continue to closely
evaluate the need to expand through selective acquisitions, with a priority on those that will facilitate our ability to expand our
cage-free shell egg production capabilities in key locations and markets. We will also continue to closely evaluate the need to
continue to expand and convert our own facilities to increase production of cage-free eggs based on a timeline designed to meet
the anticipated needs of our customers and comply with evolving legal requirements. As the ongoing production of cage-free
eggs is more costly than the production of conventional eggs, aligning our cage-free production capabilities with changing
demand for cage-free eggs is important to the success of our business.
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Trademarks and License Agreements
We own the trademarks
Farmhouse Eggs®
,
Sunups®
,
Sunny Meadow®
4Grain®
. We produce and market
Egg-Land's Best
®
and
Land O’ Lakes
® branded eggs under license agreements with EB. We believe these trademarks and license agreements are
important to our business.
Government Regulation
Our facilities and operations are subject to regulation by various federal, state, and local agencies, including, but not limited to,
the FDA, USDA, Environmental Protection Agency (“EPA ”), Occupational Safety and Health Administration ("OSHA") and
corresponding state agencies or laws. The applicable regulations relate to grading, quality control, labeling, sanitary control and
reuse or disposal of waste. Our shell egg facilities are subject to periodic USDA, FDA, EPA and OSHA inspections. Our feed
production facilities are subject to FDA, EPA and OSHA regulation and inspections. We maintain our own inspection program
to monitor compliance with our own standards and customer specifications. It is possible that we will be required to incur
significant costs for compliance with such statutes and regulations. In the future, additional rules could be proposed that, if
adopted, could increase our costs.
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.
California, Massachusetts, and Colorado, which collectively represent approximately 16% of the total estimated U.S. population
have cage-free legislation in effect currently. In May 2023, the U.S. Supreme Court upheld as constitutional California’s law that
requires the sale of only cage-free eggs in that state and regardless of the state in which the eggs are produced.
Environmental Regulation
Our operations and facilities are subject to various federal, state, and local environmental, health and safety laws and regulations
governing, among other things, the generation, storage, handling, use, transportation, disposal, and remediation of hazardous
materials. Under these laws and regulations, we must obtain permits from governmental authorities, including, but not limited to,
wastewater discharge permits. We have made, and will continue to make, capital and other expenditures relating to compliance
with existing environmental, health and safety laws and regulations and permits. We are not currently aware of any major capital
expenditures necessary to comply with such laws and regulations; however, as environmental, health and safety laws and
regulations are becoming increasingly more stringent, including those relating to animal wastes and wastewater discharges, it is
possible that we will have to incur significant costs for compliance with such laws and regulations in the future.
Human Capital Resources
As of June 3, 2023, we had 2,976 employees, of whom 2,305 worked in egg production, processing, and marketing, 207 worked
in feed mill operations and 464, including our executive officers, were administrative employees. Approximately 5.4% of our
personnel are part-time, and we utilize temporary employment agencies and independent contractors to augment our
staffing needs when necessary. For fiscal 2023, the average monthly full-time equivalent for contingent workers was 1,349. None
of our employees are covered by a collective bargaining agreement. We consider our relations with employees to be good.
Culture and Values
We are proud to be contributing corporate citizens where we live and work and to help create healthy, prosperous
communities. Our colleagues help us continue to enhance our community contributions, which are driven by
our longstanding culture that strives to promote an environment that upholds integrity and respect and provides opportunities for
each colleague to realize full potential. These commitments are encapsulated in the
Cal-Maine Foods Code of Ethics and Business
Conduct
Human Rights Statement
.
Health and Safety
Our top priority is the health and safety of our employees, who continue to produce high-quality, affordable egg choices for our
customers and contribute to a stable food supply. Our enterprise safety committee comprises two corporate safety managers, eight
area compliance managers (three specifically for worker health and safety), 55 local site compliance managers, feed mill managers
and general managers. The committee that oversees health and safety regularly reviews our written policies and changes to OSHA
regulation standards and shares information as it relates to outcomes from incidents in order to improve future performance. The
11
committee’s goals include working to help ensure that our engagements with our consumers, customers, and regulators
evidence our strong commitment to our workers’ health and safety.
Our commitment to our colleagues’ health includes a strong commitment to on-site worker safety, including a focus on accident
prevention and life safety. Our Safety and Health Program is designed to promote best practices that help prevent and minimize
workplace accidents and illnesses. The scope of our Safety and Health Program applies to all enterprise colleagues. Additionally,
to help protect the health and well-being of our colleagues and people in our value chain, we require that any contractors or
vendors acknowledge and agree to comply with the guidelines governed by our Safety and Health Program. At each of our
locations, our general managers are expected to uphold and implement our Safety and Health Program in alignment with OSHA
requirements. We believe that this program, which is reviewed annually by our senior management team, contributes to strong
safety outcomes. As part of our Safety and Health Program, we conduct multi-lingual training that covers topics such as slip-and-
fall avoidance, respiratory protection, prevention of hazardous communication of chemicals, the proper use of personal protective
equipment, hearing conservation, emergency response, lockout and tagout of equipment and forklift safety, among others. We
have also installed dry hydrogen peroxide biodefense systems in our processing facilities to help protect our colleagues’
respiratory health. To help drive our focus on colleague safety, we developed safety committees at each of our sites with employee
representation from each department.
We review the success of our safety programs on a monthly basis to monitor their effectiveness and the development of any
trends that need to be addressed. During fiscal year 2023 our recordable incident rates decreased by 29% compared to fiscal 2022.
Diversity, Equity and Inclusion
Our culture seeks to embrace the diversity and inclusion of all our team members. This culture is driven by our board and
executive management team. Our board comprises seven members, four of whom are independent. Women comprise 29% of our
board and 14% of our board members identify as a racial or ethnic minority. As of June 3, 2023, our total workforce comprised
29% women and 53% of colleagues who identify as racial or ethnic minorities. Our Policy against Harassment, Discrimination,
Unlawful or Unethical Conduct and Retaliation; Reporting Procedure affirms our commitment to supporting our employees
regardless of race, color, religion, sex, national origin or any other basis protected by applicable law.
Cal-Maine Foods strives to ensure that our colleagues are treated equitably. We are an Equal Opportunity Employer that prohibits,
by policy and practice, any violation of applicable federal, state, or local law regarding employment. Discrimination because of
race, color, religion, sex, pregnancy, age, national origin, citizenship status, veteran status, physical or mental disability, genetic
information, or any other basis protected by applicable law is prohibited. We value diversity in our workplaces or in work-related
situations. We maintain strong protocols to help our colleagues perform their jobs free from harassment and discrimination. Our
focus on equitable treatment extends to recruitment, employment applications, hiring, placement, job assignments, career
development, training, remuneration, benefits, discharge and other matters tied to terms and conditions of employment. We are
committed to offering our colleagues opportunities commensurate with our operational needs, their experiences, goals and
contributions.
Recruitment, Development and Retention
We believe in compensating our colleagues with fair and competitive wages, in addition to offering
competitive benefits. Approximately 76% of our employees are paid at hourly rates, which are all paid at rates above the federal
minimum wage requirement. We offer our full-time eligible employees a range of benefits, including company-paid life
insurance. The Company provides a comprehensive self-insured health plan and pays approximately 84% of the costs of the plan
for participating employees and their families as of December 31, 2022. Recent benchmarking of our health plan
indicates comparable benefits, at lower employee contributions, when compared to an applicable Agriculture and
Food Manufacturing sector grouping, as well as peer group data. In addition, we offer employees the opportunity to purchase an
extensive range of other group plan benefits, such as dental, vision, accident, critical illness, disability and voluntary life. After
one year of employment, full-time employees who meet eligibility requirements may elect to participate in our
KSOP retirement plan, which offers a range of investment alternatives and includes many positive features, such as
automatic enrollment with scheduled automatic contribution increases and loan provisions. Regardless of the
employees’ elections to contribute to the KSOP, the Company contributes shares of Company stock or cash equivalent to 3%
of participants’ eligible compensation for each pay period that hours are worked.
We
provide extensive training and development related to safety, regulatory compliance, and task training.
We
invest in
developing our future leaders through our Management Intern, Management Trainee and informal mentoring programs.
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Sustainability
We understand that climate, and the potential consequences of climate change, freshwater availability and preservation of global
biodiversity, in addition to responsible management of our flocks, are vital to the production of high-quality eggs and egg products
and to the success of our Company. We have engaged in agricultural production for more than 60 years. Our agricultural practices
continue to evolve as we continue to strive to meet the need for nutritious, affordable foods to feed a growing population even as
we exercise responsible natural resource stewardship. We plan to publish our most recent sustainability report on or around early
August 2023, which will be available on our website. Information contained on our website is not a part of this report on Form
10-K.
Our Corporate Information
We maintain a website at www.calmainefoods.com where general information about our business and corporate governance
matters is available. The information contained in our website is not a part of this report. Our Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and all amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available, free of charge, through our website as soon as
reasonably practicable after we file them with, or furnish them to, the SEC. In addition, the SEC maintains a website at
www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file
electronically with the SEC. Cal-Maine Foods, Inc. is a Delaware corporation, incorporated in 1969.
ITEM 1A. RISK FACTORS
Our business and results of operations are subject to numerous risks and uncertainties, many of which are beyond our
control. The following is a description of the known factors that may materially affect our business, financial condition or results
of operations. They should be considered carefully, in addition to the information set forth elsewhere in this Annual Report on
Form 10-K, including under Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations, in making any investment decisions with respect to our securities. Additional risks or uncertainties that are not
currently known to us, or that we are aware of but currently deem to be immaterial or that could apply to any company could
also materially adversely affect our business, financial condition or results of operations.
INDUSTRY RISK FACTORS
Market prices of wholesale shell eggs are volatile, and decreases in these prices can adversely impact our revenues and
profits.
Our operating results are significantly affected by wholesale shell egg market prices, which fluctuate widely and are outside our
control. As a result, our prior performance should not be presumed to be an accurate indication of future performance. Under
certain circumstances, small increases in production, or small decreases in demand, within the industry might have a large adverse
effect on shell egg prices. Low shell egg prices adversely affect our revenues and profits.
Market prices for wholesale shell eggs have been volatile and cyclical. Shell egg prices have risen in the past during periods of
high demand such as the initial outbreak of the COVID-19 pandemic and periods when high protein diets are popular. Shell egg
prices have also risen during periods of constrained supply, such as the latest highly pathogenic avian influenza (“HPAI”)
outbreak that was first detected in domestic commercial flocks in February 2022. During times when prices are high, the egg
industry has typically geared up to produce more eggs, primarily by increasing the number of layers, which historically has
ultimately resulted in an oversupply of eggs, leading to a period of lower prices.
As discussed above in
, seasonal fluctuations impact shell egg prices. Therefore, comparisons
of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful
comparisons.
A decline in consumer demand for shell eggs can negatively impact our business.
We believe the increase in meals prepared at home due to concerns and restrictions during the initial outbreak of the COVID-19
pandemic, high-protein diet trends, industry advertising campaigns and the improved nutritional reputation of eggs have all
contributed at one time or another to increased shell egg demand. However, it is possible that the demand for shell eggs will
decline in the future. Adverse publicity relating to health or safety concerns and changes in the perception of the nutritional value
of shell eggs, changes in consumer views regarding consumption of animal-based products, as well as movement away from high
protein diets, could adversely affect demand for shell eggs, which would have a material adverse effect on our future results of
operations and financial condition.
13
Feed costs are volatile and increases in these costs can adversely impact our results of operations.
Feed costs are the largest element of our shell egg (farm) production cost, ranging from 55% to 63% of total farm production cost
in the last five fiscal years.
Although feed ingredients, primarily corn and soybean meal, are available from a number of sources, we do not have control over
the prices of the ingredients we purchase, which are affected by weather, various global and U.S. supply and demand factors,
transportation and storage costs, speculators, and agricultural, energy and trade policies in the U.S. and internationally. More
recently, the Russia-Ukraine War has had a negative impact on the worldwide supply of grain, including corn, putting upward
pressure on prices. We saw increasing prices for corn and soybean meal for fiscal years 2022 and 2023 as a result of weather-
related shortfalls in production and yields, ongoing supply chain disruptions and the Russia-Ukraine War and its impact on the
export markets. Our costs for corn and soybean meal are also affected by local basis prices. Factors that can affect basis levels
include transportation and storage costs. We saw basis levels increase in our areas of operation during fiscal 2023 as a result of
higher transportation and storage costs, resulting in higher farm production costs during the year.
Increases in feed costs unaccompanied by increases in the selling price of eggs can have a material adverse effect on the results
of our operations and cash flow. Alternatively, low feed costs can encourage industry overproduction, possibly resulting in lower
egg prices and lower revenue.
Agricultural risks, including outbreaks of avian disease, could harm our business.
Our shell egg production activities are subject to a variety of agricultural risks. Unusual or extreme weather conditions, disease
and pests can materially and adversely affect the quality and quantity of shell eggs we produce and distribute. Outbreaks of avian
influenza among poultry occur periodically worldwide and have occurred sporadically in the U.S. Most recently, an outbreak of
HPAI, which was first detected in February 2022, has impacted the industry. Prior to 2022, there was another significant HPAI
outbreak in the U.S. impacting poultry during 2015. There have been no positive tests for HPAI at any Cal-Maine Foods’ owned
or contracted facility as of July 25, 2023. The Company maintains controls and procedures designed to reduce the risk of exposing
our flocks to harmful diseases; however, despite these efforts, outbreaks of avian disease can and do still occur and may adversely
impact the health of our flocks. An outbreak of avian disease could have a material adverse impact on our financial results by
increasing government restrictions on the sale and distribution of our products and requiring us to euthanize the affected
layers. Negative publicity from an outbreak within our industry can negatively impact customer perception, even if the outbreak
does not directly impact our flocks. If a substantial portion of our layers or production facilities are affected by any of these
factors in any given quarter or year, our business, financial condition, and results of operations could be materially and adversely
affected.
Shell eggs and shell egg products are susceptible to microbial contamination, and we may be required to, or we may
voluntarily, recall contaminated products.
Shell eggs and shell egg products are vulnerable to contamination by pathogens such as Salmonella. The Company maintains
policies and procedures designed to comply with the complex rules and regulations governing egg production, such as The Final
Egg Rule issued by the FDA “Prevention of Salmonella Enteritidis in Shell Eggs During Production, Storage, and
Transportation,” and the FDA’s Food Safety Modernization Act. Shipment of contaminated products, even if inadvertent, could
result in a violation of law and lead to increased risk of exposure to product liability claims, product recalls and scrutiny by federal
and state regulatory agencies. We have little, if any, control over proper handling once the product has been shipped or
delivered. In addition, products purchased from other producers could contain contaminants that might be inadvertently
redistributed by us. As such, we might decide or be required to recall a product if we, our customers or regulators believe it poses
a potential health risk. Any product recall could result in a loss of consumer confidence in our products, adversely affect our
reputation with existing and potential customers and have a material adverse effect on our business, results of operations and
financial condition. We currently maintain insurance with respect to certain of these risks, including product liability insurance,
business interruption insurance and general liability insurance, but in many cases such insurance is expensive, difficult to obtain
and no assurance can be given that such insurance can be maintained in the future on acceptable terms, or in sufficient amounts
to protect us against losses due to any such events, or at all.
Our profitability may be adversely impacted by increases in other input costs such as packaging materials and delivery
expenses, including as a result of inflation.
In addition to feed ingredient costs, other significant input costs include costs of packaging materials and delivery expenses. Our
costs of packing materials increased during fiscal 2023 and 2022 due to rising inflation and labor costs, and during 2022 also as
a result of supply chain constraints initially caused by the pandemic, and these costs may continue to increase. We also
14
experienced increases in delivery expenses during fiscal 2023 and 2022 due to increases in fuel and labor costs for both our fleet
and contract trucking, and these costs may continue to increase. Increases in these costs are largely outside of our control and
have an adverse effect on our profitability and cash flow.
BUSINESS AND OPERATIONAL RISK FACTORS
Global or regional health crises including pandemics or epidemics could have an adverse impact on our business and
operations.
The effects of global or regional pandemics or epidemics can significantly impact our operations. Although demand for our
products could increase as a result of restrictions such as travel bans and restrictions, quarantines, shelter-in-place orders, and
business and government shutdowns, which can prompt more consumers to eat at home, these restrictions could also significantly
increase our cost of doing business due to labor shortages, supply-chain disruptions, increased costs and decreased availability of
packaging supplies, and increased medical and other costs. We experienced these impacts as a result of the COVID-19 pandemic,
primarily during our fiscal years 2020 and 2021. The pandemic recovery also contributed to increasing inflation and interest rates,
which persist and may continue to persist. The impacts of health crises are difficult to predict and depend on numerous factors
including the severity, length and geographic scope of the outbreak, resurgences of the disease and variants, availability and
acceptance of vaccines, and governmental, business and individuals’ responses. A resurgence of COVID-19 and/or variants, or
any future major public health crisis, would disrupt our business and could have a material adverse effect on our financial results.
Our acquisition growth strategy subjects us to various risks.
As discussed in
, we plan to pursue a growth strategy that includes selective acquisitions
of other companies engaged in the production and sale of shell eggs, with a priority on those that will facilitate our ability to
expand our cage-free shell egg production capabilities in key locations and markets. We may over-estimate or under-estimate the
demand for cage-free eggs, which could cause our acquisition strategy to be less-than-optimal for our future growth and
profitability. The number of existing companies with cage-free capacity that we may be able to purchase is limited, as most
production of shell eggs by other companies in our markets currently does not meet customer demands or legal requirements to
be designated as cage-free. Conversely, if we acquire cage-free production capacity, which is more expensive to purchase and
operate, and customer demands or legal requirements for cage-free eggs were to change, the resulting lack of demand for cage-
free eggs may result in higher costs and lower profitability.
Acquisitions require capital resources and can divert management’s attention from our existing business. Acquisitions also entail
an inherent risk that we could become subject to contingent or other liabilities, including liabilities arising from events or conduct
prior to our acquisition of a business that were unknown to us at the time of acquisition. We could incur significantly greater
expenditures in integrating an acquired business than we anticipated at the time of its purchase.
We cannot assure you that we:
●
will identify suitable acquisition candidates;
●
can consummate acquisitions on acceptable terms;
●
can successfully integrate an acquired business into our operations; or
●
can successfully manage the operations of an acquired business.
No assurance can be given that companies we acquire in the future will contribute positively to our results of operations or
financial condition. In addition, federal antitrust laws require regulatory approval of acquisitions that exceed certain threshold
levels of significance, and we cannot guarantee that such approvals would be obtained.
The consideration we pay in connection with any acquisition affects our financial results. If we pay cash, we could be required
to use a portion of our available cash or credit facility to consummate the acquisition. To the extent we issue shares of our
Common Stock, existing stockholders may be diluted. In addition, acquisitions may result in additional debt. Our ability to access
any additional capital that may be needed for an acquisition may be adversely impacted by higher interest rates and economic
uncertainty.
Our largest customers have accounted for a significant portion of our net sales volume. Accordingly, our business may be
adversely affected by the loss of, or reduced purchases by, one or more of our large customers.
Our customers, such as supermarkets, warehouse clubs and food distributors, have continued to consolidate and consolidation is
expected to continue. These consolidations have produced larger customers and potential customers with increased buying power
who are more capable of operating with reduced inventories, opposing price increases, and demanding lower pricing, increased
15
promotional programs and specifically tailored products. Because of these trends, our volume growth could slow or we may need
to lower prices or increase promotional spending for our products, any of which could adversely affect our financial results.
Our top three customers accounted for an aggregate of 50.1%, 45.9% and 48.6% of net sales dollars for fiscal 202 3, 2022, and
2021, respectively. Our largest customer, Walmart Inc. (including Sam's Club), accounted for 34.2%, 29.5% and 29.8% of net
sales dollars for fiscal 2023, 2022, and 2021, respectively. Although we have established long-term relationships with most of
our customers who continue to purchase from us based on our ability to service their needs, they are generally free to acquire
shell eggs from other sources. If, for any reason, one or more of our large customers were to purchase significantly less of our
shell eggs in the future or terminate their purchases from us, and we were not able to sell our shell eggs to new customers at
comparable levels, it would have a material adverse effect on our business, financial condition, and results of operations.
Our business is highly competitive.
The production and sale of fresh shell eggs, which accounted for virtually all of our net sales in recent years, is intensely
competitive. We compete with a large number of competitors that may prove to be more successful than we are in producing,
marketing and selling shell eggs. We cannot provide assurance that we will be able to compete successfully with any or all of
these companies. Increased competition could result in price reductions, greater cyclicality, reduced margins and loss of market
share, which would negatively affect our business, results of operations, and financial condition.
We are dependent on our management team, and the loss of any key member of this team may adversely affect the
implementation of our business plan in a timely manner.
Our success depends largely upon the continued service of our senior management team. The loss or interruption of service of
one or more of our key executive officers could adversely affect our ability to manage our operations effectively and/or pursue
our growth strategy. We have not entered into any employment or non-compete agreements with any of our executive officers.
Competition could cause us to lose talented employees, and unplanned turnover could deplete institutional knowledge and result
in increased costs due to increased competition for employees.
Our business is dependent on our information technology systems and software, and failure to protect against or
effectively respond to cyber-attacks, security breaches, or other incidents involving those systems, could adversely affect
day-to-day operations and decision making processes and have an adverse effect on our performance and reputation.
The efficient operation of our business depends on our information technology systems, which we rely on to effectively manage
our business data, communications, logistics, accounting, regulatory and other business processes. If we do not allocate and
effectively manage the resources necessary to build and sustain an appropriate technology environment, our business,
reputation, or financial results could be negatively impacted. In addition, our information technology systems may be
vulnerable to damage or interruption from circumstances beyond our control, including systems failures, natural disasters,
terrorist attacks, viruses, ransomware, security breaches or cyber incidents. Cyber-attacks are becoming more sophisticated and
are increasing in the number of attempts and frequency by groups and individuals with a wide range of motives. We have
experienced and expect to continue to experience attempted cyber-attacks of our information technology systems or networks.
A security breach of sensitive information could result in damage to our reputation and our relations with our customers or
employees. Any such damage or interruption could have a material adverse effect on our business.
Technology and business and regulatory requirements continue to change rapidly. Failure to update or replace legacy systems to
address these changes could result in increased costs, including remediation costs, system downtime, third party litigation,
regulatory actions or cyber security vulnerabilities which could have a material adverse effect on our business.
Labor shortages or increases in labor costs could adversely impact our business and results of operations.
Labor is a primary component of our farm production costs. Our success is dependent upon recruiting, motivating, and retaining
staff to operate our farms. Approximately 76% of our employees are paid at hourly rates, often in entry-level positions. While all
our employees are paid at rates above the federal minimum wage requirements, any significant increase in local, state or federal
minimum wage requirements could increase our labor costs. In addition, any regulatory changes requiring us to provide additional
employee benefits or mandating increases in other employee-related costs, such as unemployment insurance or workers
compensation, would increase our costs. A shortage in the labor pool, which may be caused by competition from other employers,
the remote locations of many of our farms, decreased labor participation rates or changes in government-provided support or
immigration laws, particularly in times of lower unemployment, could adversely affect our business and results of operations.
A
shortage of labor available to us could cause our farms to operate with reduced staff, which could negatively impact our production
capacity and efficiencies. In fiscal 2021 and 2022, our labor costs increased primarily due to the pandemic and its effects, which
16
caused us to increase wages in response to labor shortages. In fiscal 2023, labor wages continued to rise due to increasing inflation
and low unemployment. Accordingly, any significant labor shortages or increases in our labor costs could have a material adverse
effect on our results of operations.
We are controlled by the family of our late founder, Fred R. Adams, Jr., and Adolphus B. Baker, Chairman of our Board
of Directors, controls the vote of 100% of our outstanding Class A Common Stock.
Fred R. Adams, Jr., our Founder and Chairman Emeritus died on March 29, 2020. Mr. Adams’ son-in-law, Adolphus B. Baker,
Chairman of our board of directors, Mr. Baker’s spouse and her three sisters (Mr. Adams’ four daughters) (collectively, the
“Family”) beneficially own, directly or indirectly through related entities, 100% of our outstanding Class A Common Stock
(which has 10 votes per share), controlling approximately 52.1% of our total voting power. Such persons also have additional
voting power due to beneficial ownership of our Common Stock (which has one vote per share), directly or indirectly through
related entities, resulting in family voting control of approximately 53.8% of our total voting power. Mr. Baker controls the vote
of 100% of our outstanding Class A Common Stock.
We understand that the Family intends to retain ownership of a sufficient amount of our Common Stock and our Class A Common
Stock to assure continued ownership of more than 50% of the voting power of our outstanding shares of capital stock. As a result
of this ownership, the Family has the ability to exert substantial influence over matters requiring action by our stockholders,
including amendments to our certificate of incorporation and by-laws, the election and removal of directors, and any merger,
consolidation, or sale of all or substantially all of our assets, or other corporate transactions. Delaware law provides that the
holders of a majority of the voting power of shares entitled to vote must approve certain fundamental corporate transactions such
as a merger, consolidation and sale of all or substantially all of a corporation’s assets; accordingly, such a transaction involving
us and requiring stockholder approval cannot be effected without the approval of the Family. Such ownership will make an
unsolicited acquisition of our Company more difficult and discourage certain types of transactions involving a change of control
of our Company, including transactions in which the holders of our Common Stock might otherwise receive a premium for their
shares over then current market prices. The Family’s controlling ownership of our capital stock may adversely affect the market
price of our Common Stock.
The price of our Common Stock may be affected by the availability of shares for sale in the market, and you may
experience significant dilution as a result of future issuances of our securities, which could materially and adversely affect
the market price of our Common Stock.
The sale or availability for sale of substantial amounts of our Common Stock could adversely impact its price. The Family holds
approximately 1.4 million shares of Common Stock (the “Subject Shares”) that are subject to an Agreement Regarding Common
Stock (the “Agreement”) filed as an exhibit to this report. The Subject Shares remain subject to potential sale under the
Agreement. The Agreement generally provides that if a holder of Subject Shares intends to sell any of the Subject Shares, such
party must give the Company a right of first refusal to purchase all or any of such shares. The price payable by the Company to
purchase shares pursuant to the exercise of the right of first refusal will reflect a 6% discount to the then-current market price
based on the 20 business-day volume-weighted average price. If the Company does not exercise its right of first refusal and
purchase the shares offered, such party will, subject to the approval of a special committee of independent directors of the Board
of Directors, be permitted to sell the shares not purchased by the Company pursuant to a Company registration statement, Rule
144 under the Securities Act of 1933, or another manner of sale agreed to by the Company. Although pursuant to the Agreement
the Company will have a right of first refusal to purchase all or any of those shares, the Company may elect not to exercise its
rights of first refusal, and if so such shares would be eligible for sale pursuant to the registration rights in the Agreement or
pursuant to Rule 144 under the Securities Act of 1933. Sales, or the availability for sale, of a large number of shares of our
Common Stock could result in a decline in the market price of our Common Stock.
In addition, our articles of incorporation authorize us to issue 120,000,000 shares of our Common Stock. As of June 3, 2023,
there were 44,184,048 shares of our Common Stock outstanding. Accordingly, a substantial number of shares of our Common
Stock are outstanding and are, or could become, available for sale in the market. In addition, we may be obligated to issue
additional shares of our Common Stock in connection with employee benefit plans (including equity incentive plans).
In the future, we may decide to raise capital through offerings of our Common Stock, additional securities convertible into or
exchangeable for Common Stock, or rights to acquire these securities or our Common Stock. The issuance of additional shares
of our Common Stock or additional securities convertible into or exchangeable for our Common Stock could result in dilution of
existing stockholders’ equity interests in us. Issuances of substantial amounts of our Common Stock, or the perception that such
issuances could occur, may adversely affect prevailing market prices for our Common Stock, and we cannot predict the effect
this dilution may have on the price of our Common Stock.
17
LEGAL AND REGULATORY RISK FACTORS
Pressure from animal rights groups regarding the treatment of animals may subject us to additional costs to conform our
practices to comply with developing standards or subject us to marketing costs to defend challenges to our current
practices and protect our image with our customers. In particular, changes in customer preferences and new legislation
have accelerated an increase in demand for cage-free eggs, which increases uncertainty in our business and increases our
costs.
We and many of our customers face pressure from animal rights groups, such as People for the Ethical Treatment of Animals and
the Humane Society of the United States, to require companies that supply food products to operate their business in a manner
that treats animals in conformity with certain standards developed or approved by these groups. In general, we may incur
additional costs to conform our practices to address these standards or to defend our existing practices and protect our image with
our customers. The standards promoted by these groups change over time, but typically require minimum cage space for hens,
among other requirements, and some of these groups have led successful legislative efforts to ban any form of caged housing in
various states.
As discussed in
, ten states have passed minimum space and/or cage-free
requirements for hens, and other states are considering such requirements. In addition, in recent years, many large restaurant
chains, foodservice companies and grocery chains, including our largest customers, announced goals to transition to an
exclusively cage-free egg supply chain by specified future dates. A significant number of our customers previously announced
goals to offer cage-free eggs exclusively on or before 2026, in most cases subject to available supply, affordability and consumer
demand, among other contingencies. Some of these customers have recently changed those goals to offer 70% cage-free eggs by
the end of 2030. While we anticipate that our retail and foodservice customers will continue to transition to selling cage-free eggs
given public commitments, there is no assurance that this transition will take place or take place according to the timeline of
current cage-free commitments. For example, customers may accelerate their transition to stocking cage-free eggs, which may
challenge our ability to meet the cage-free volume needs of those customers and result in a loss of shell egg sales. Similarly,
customers who commit to stock greater proportional quantities of cage-free eggs are under no obligation to continue to do so,
which may result in an oversupply of cage-free eggs and result in lower specialty egg prices, which could reduce the return on
our capital investment in cage-free production.
Changing our infrastructure and operating procedures to conform to consumer preferences, customer demands and new laws has
resulted and will continue to result in additional costs, including capital and operating cost increases. The USDA reported that
the estimated U.S. cage-free flock was 121.6 million hens as of June 30, 2023, which is approximately 38.3% of the total U.S.
table egg layer hen population. According to the USDA Agricultural Marketing Service, as of May 2023 approximately 221
million hens, or about 70.5% of the U.S. non-organic laying flock would have to be in cage-free production by 2026 to meet
projected demand from the retailers, foodservice providers and food manufacturers that have made goals to transition to cage-
free eggs.
In response to our customers’ announced goals and increased legal requirements for cage-free eggs, we have increased capital
expenditures to increase our cage-free production capacity. We are also enhancing our focus on cage-free capacity when
considering acquisition opportunities. Our customers typically do not commit to long-term purchases of specific quantities or
type of eggs with us, and as a result, we cannot predict with any certainty which types of eggs they will require us to supply in
future periods. The production of cage-free eggs is more costly than the production of conventional eggs, and these higher
production costs contribute to the prices of cage-free eggs, which historically have typically been higher than conventional egg
prices. Many consumers prefer to buy less expensive conventional shell eggs. These consumer preferences may in turn influence
our customers’ future needs for cage-free and conventional eggs. Due to these uncertainties, we may over-estimate future demand
for cage-free eggs, which could increase our costs unnecessarily, or we may under-estimate future demand for cage-free eggs,
which could harm us competitively. If our competitors obtain non-cancelable long-term contracts to provide cage-free eggs to
our existing or potential customers, then there may be decreased demand for our cage-free eggs due to these lost potential sales.
If we and our competitors increase cage-free egg production and there is no commensurate increase in demand for cage-free eggs,
this overproduction could lead to an oversupply of cage-free eggs, reducing the sales price for specialty eggs and our return on
capital investments in cage-free production.
Failure to comply with applicable governmental regulations, including environmental regulations, could harm our
operating results, financial condition, and reputation. Further, we may incur significant costs to comply with any such
regulations.
We are subject to federal, state and local regulations relating to grading, quality control, labeling, sanitary control, waste disposal,
and other areas of our business. As a fully-integrated shell egg producer, our shell egg facilities are subject to regulation and
inspection by the USDA, OSHA, EPA and FDA, as well as state and local health and agricultural agencies, among others. All of
18
our shell egg production and feed mill facilities are subject to FDA, EPA and OSHA regulation and inspections. In addition, rules
are often proposed that, if adopted as proposed, could increase our costs.
Our operations and facilities are subject to various federal, state and local environmental, health, and safety laws and regulations
governing, among other things, the generation, storage, handling, use, transportation, disposal, and remediation of hazardous
materials. Under these laws and regulations, we are required to obtain permits from governmental authorities, including, but not
limited to wastewater discharge permits and manure and litter land applications.
If we fail to comply with applicable laws or regulations, or fail to obtain necessary permits, we could be subject to significant
fines and penalties or other sanctions, our reputation could be harmed, and our operating results and financial condition could be
materially adversely affected. In addition, because these laws and regulations are becoming increasingly more stringent, it is
possible that we will be required to incur significant costs for compliance with such laws and regulations in the future.
Climate change and legal or regulatory responses may have an adverse impact on our business and results of operations.
Extreme weather events, such as derechos, wildfires, drought, tornadoes, hurricanes, storms, floods or other natural disasters
could materially and adversely affect our operating results and financial condition. In fact, derechos, fires, floods, tornadoes and
hurricanes have affected our facilities or the facilities of other egg producers in the past. Increased global temperatures and more
frequent occurrences of extreme weather events, which may be exacerbated by climate change, may cause crop and livestock
areas to become unsuitable, including due to water scarcity or high or unpredictable temperatures, which may result in much
greater stress on food systems and more pronounced food insecurity globally. Lower global crop production, including corn and
soybean meal, which are the primary feed ingredients that support the health of our animals, may result in significantly higher
prices for these commodity inputs, impact our ability to source the commodities we use to feed our flocks, and negatively impact
our ability to maintain or grow our operations. Climate change may increasingly expose workers and animals to high heat and
humidity stressors that adversely impact poultry production. Increased greenhouse gas emissions may also negatively impact air
quality, soil quality and water quality, which may hamper our ability to support our operations, particularly in higher water- and
soil-stressed regions.
Increasing frequency of severe weather events, whether tied to climate change or any other cause, may negatively impact our
ability to raise poultry and produce eggs profitably or to operate our transportation and logistics supply chains. Regulatory controls
and market pricing may continue to drive the costs of fossil -based fuels higher, which could negatively impact our ability to
source commodities necessary to operate our farms or plants and our current fleet of vehicles. These changes may cause us to
change, significantly, our day-to-day business operations and our strategy. Climate change and extreme weather events may also
impact demand for our products given evolution of consumer food preferences. Even if we take measures to position our business
in anticipation of such changes, future compliance with legal or regulatory requirements may require significant management
time, oversight and enterprise expense. We may also incur significant expense tied to regulatory fines if laws and regulations are
interpreted and applied in a manner that is inconsistent with our business practices. We can make no assurances that our efforts
to prepare for these adverse events will be in line with future market and regulatory expectations and our access to capital to
support our business may also be adversely impacted.
Current and future litigation could expose us to significant liabilities and adversely affect our business reputation.
We and certain of our subsidiaries are involved in various legal proceedings. Litigation is inherently unpredictable, and although
we believe we have meaningful defenses in these matters, we may incur liabilities due to adverse judgments or enter into
settlements of claims that could have a material adverse effect on our results of operations, cash flow and financial condition. For
a discussion of our ongoing legal proceedings see
Consolidated Financial Statements,
management’s attention, and may result in significant adverse judgments or settlements. Legal proceedings may expose us to
negative publicity, which could adversely affect our business reputation and customer preference for our products and brands.
FINANCIAL AND ECONOMIC RISK FACTORS
Weak or unstable economic conditions, including continued higher inflation and rising interest rates, could negatively
impact our business.
Weak or unstable economic conditions, including continued higher inflation and rising interest rates, may adversely affect our
business by:
●
Limiting our access to capital markets or increasing the cost of capital we may need to grow our business;
●
Changing consumer spending and habits and demand for eggs, particularly higher-priced eggs;
19
●
Restricting the supply of energy sources or increasing our cost to procure energy; or
●
Reducing the availability of feed ingredients, packaging material, and other raw materials, or increasing the cost of these
items.
Deterioration of economic conditions could also negatively impact:
●
The financial condition of our suppliers, which may make it more difficult for them to supply raw materials;
●
The financial condition of our customers, which may decrease demand for eggs or increase our bad debt expense; or
●
The financial condition of our insurers, which could increase our cost to obtain insurance, and/or make it difficult for or
insurers to meet their obligations in the event we experience a loss due to an insured peril.
According to the U.S. Bureau of Labor Statistics, from May 2021 to May 2022, the Consumer Price Index for All Urban
Consumers (“CPI-U”) increased 8.5 percent, the largest 12-month increase since the period ending December 1981. The CPI-U
increased 4.1% from May 2022 to May 2023. Inflationary costs have increased our input costs, and if we are unable to pass these
costs through to the customer it could have an adverse effect on our business.
We hold significant cash balances in deposit accounts with deposits in excess of the amounts insured by the Federal Deposit
Insurance Corporation (“FDIC”). In the event of a bank failure at an institution where we maintain deposits in excess of the FDIC-
insured amount, we may lose such excess deposits.
The loss of any registered trademark or other intellectual property could enable other companies to compete more
effectively with us.
We utilize intellectual property in our business. For example, we own the trademarks
Farmhouse Eggs®
,
4Grain®, Sunups®
,
and
Sunny Meadow®
. We produce and market
Egg-Land’s Best®
Land O’ Lakes
® under license agreements with EB. We
have invested a significant amount of money in establishing and promoting our trademarked brands. The loss or expiration of any
intellectual property could enable our competitors to compete more effectively with us by allowing them to make and sell products
substantially similar to those we offer. This could negatively impact our ability to produce and sell those products, thereby
adversely affecting our operations.
Impairment in the carrying value of goodwill or other assets could negatively affect our results of operations or net worth.
Goodwill represents the excess of the cost of business acquisitions over the fair value of the identifiable net assets
acquired. Goodwill is reviewed at least annually for impairment by assessing qualitative factors to determine whether the
existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit
is less than its carrying amount. As of June 3, 2023, we had $44.0 million of goodwill. While we believe the current carrying
value of this goodwill is not impaired, future goodwill impairment charges could adversely affect our results of operations in any
particular period and our net worth.
Events beyond our control such as extreme weather and natural disasters could negatively impact our business.
Fire, bioterrorism, pandemics, extreme weather or natural disasters, including droughts, floods, excessive cold or heat, water
rights restrictions, hurricanes or other storms, could impair the health or growth of our flocks, decrease production or availability
of feed ingredients, or interfere with our operations due to power outages, fuel shortages, discharges from overtopped or breached
wastewater treatment lagoons, damage to our production and processing facilities, labor shortages or disruption of transportation
channels, among other things. Any of these factors could have a material adverse effect on our financial results.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
20
ITEM 2. PROPERTIES
The table below provides summary information about the primary operational facilities we use in our business as of June 3, 2023.
Type
Quantity
Owned
Leased
Production Capacity
Location
Breeding Facilities
3
3
—
House up to 255,000 hens
GA, MS
Distribution Centers
6
6
—
NA
FL, GA, NC, TX
Feed Mills
25
24
1
Production capacity of 859 tons
of feed per hour
AL, AR, FL, GA, KS, KY, LA,
MS, OH, OK, SC, TN, TX, UT
Hatcheries
2
1
1
Hatch up to 407,600 chicks per
week
FL, MS
Processing and
Packaging
43
43
—
Approximately 587,700 dozen
shell eggs per hour
AL, AR, FL, GA, KS, KY, LA,
MS, OH, OK, SC, TX, UT
Pullet Facilities
29
29
—
Grow 27.1 million pullets
annually
AR, FL, GA, KS, KY, MS, SC,
TX, UT
Shell Egg Production
42
42
—
House up to 46.6 million layers
AL, AR, FL, GA, KS, KY, LA,
MS, OH, OK, SC, TX, UT
Egg Products Processing
Facilities
3
3
—
Production capacity of 43,140
lbs. per hour
GA, TX, MO
(a)
Does not include idled facilities.
We also have ongoing construction projects to further expand the Company’s cage-free egg production capabilities. These
projects include expanding our cage-free egg production at existing farms or converting conventional housing with cage-free
production. These projects will phase into production through fiscal 2027. For additional information, see
As of June 3, 2023, we owned approximately 28.0 thousand acres of land. There are no material mortgages or liens on our
properties.
ITEM 3. LEGAL PROCEEDINGS
Refer to the description of certain legal proceedings pending against us under Part II. Item 8. Notes to the Consolidated Financial
Statements,
, which discussion is incorporated herein by reference.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
We have two classes of capital stock, Common Stock and Class A Common Stock. Our Common Stock trades on the NASDAQ
Global Select Market under the symbol “CALM”. There is no public trading market for the Class A Common Stock.
All outstanding Class A shares are owned by a limited liability company of which Adolphus Baker, our Chairman, is the sole
managing member and will be voted at the direction of Mr. Baker. At July 14, 2023, there were approximately 319 record holders
of our Common Stock and approximately 73,626 beneficial owners whose shares were held by nominees or broker dealers. For
additional information about our capital structure, see
Statements.
Dividends
Cal-Maine has a variable dividend policy adopted by its Board of Directors. Pursuant to the policy, Cal-Maine 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
21
(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 will pay dividends 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 last quarter for
which a dividend was paid. Under the Company's Credit Facility, dividends are restricted to the amount permitted under the
Company’s current dividend policy, and may not be paid if a default exists or will arise after giving effect to the dividend or if
the sum of cash and cash equivalents of the Company and its subsidiaries plus availability under the Credit Facility equals less
than $50 million.
Stock Performance Graph
The Company utilized the (i) Russell 2000 Total Return, and (ii) S&P Composite 1500 Food Products Industry Index to
benchmark the Company’s total shareholder return. The Company is a member of each of these indexes and believes the other
companies included in these indexes provide products and services similar to Cal-Maine Foods. The graph presents total
shareholder return and assumes $100 was invested on June 1, 2018 in the stock or index and dividends were reinvested.
June 1, 2018
May 31, 2019
May 29, 2020
May 28, 2021
May 27, 2022
June 3, 2023
Cal-Maine Foods, Inc.
$
100.00
$
80.69
$
97.12
$
76.16
$
105.31
$
114.38
Russell 2000 Total Return
100.00
90.16
87.06
143.27
120.53
118.75
S&P Composite 1500 Food
Products Industry Index
100.00
105.74
116.41
144.80
155.14
163.85
22
Issuer Purchases of Equity Securities
The following table is a summary of our fourth quarter 2023 share repurchases:
Issuer Purchases of Equity Securities
Total Number of
Maximum Number
Shares Purchased
of Shares that
Total Number
Average
as Part of Publicly
May Yet Be
of Shares
Price Paid
Announced Plans
Purchased Under the
Period
Purchased (1)
per Share
Or Programs
Plans or Programs
2/26/23 to 3/25/23
—
$
—
—
—
3/26/23 to 4/22/23
10,551
48.62
—
—
4/23/23 to 6/03/23
—
—
—
—
10,551
$
48.62
—
—
(1)
As permitted under our Amended and Restated 2012 Omnibus Long-Term Incentive Plan, these shares were withheld
by us to satisfy tax withholding obligations for employees in connection with the vesting of restricted common stock.
Recent Sales of Unregistered Securities
No sales of securities without registration under the Securities Act of 1933 occurred during our fiscal year ended June 3, 2023.
Securities Authorized for Issuance under Equity Compensation Plans
Equity Compensation Plan Information
(a)
(b)
(c)
Number of
securities to be
issued upon exercise
of outstanding
options, warrants
and rights
Weighted average
exercise price of
outstanding
options, warrants
and rights
Number of securities
remaining available for future
issuance under equity
compensation plans (excluding
securities reflected in column
(a))
Equity compensation plans
approved by shareholders
—
$
—
294,140
Equity compensation plans not
approved by shareholders
—
—
—
Total
—
$
—
294,140
(a) There were no outstanding options, warrants or rights as of June 3, 2023. There were 941,593 shares of restricted
stock outstanding under our Amended and Restated 2012 Omnibus Long-Term Incentive Plan as of June 3, 2023.
(b) There were no outstanding options, warrants or rights as of June 3, 202 3.
(c) Reflects shares available for future issuance as of June 3, 2023 under our Amended and Restated 2012 Omnibus
Long-Term Incentive Plan.
For additional information, see
Statements.
ITEM 6. RESERVED
23
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RISK FACTORS; FORWARD -LOOKING STATEMENTS
For information relating to important risks and uncertainties that could materially adversely affect our business, securities,
financial condition, operating results, or cash flow, reference is made to the disclosure set forth under
. In addition, because the following discussion includes numerous forward -looking statements relating to our business,
securities, financial condition, operating results and cash flow, reference is made to the disclosure set forth under
“
.”
COMPANY 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 fiscal year 2023 and 2022 included 53 weeks and 52 weeks,
respectively. 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 2023, we sold approximately 1,147.4 million dozen shell eggs, which we believe
represented approximately 21% of domestic shell egg consumptio n. Our total flock as of June 3, 2023 of approximately 41.2
million layers and 10.8 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 reportable 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 cage-free, organic, brown, free-range, pasture-raised and
nutritionally enhanced 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
HPAI
Since the first detection in a U.S. commercial flock in February 2022, outbreaks of highly pathogenic avian influenza (“HPAI”)
continued to occur in U.S. poultry flocks throughout calendar year 2022 and, less frequently, in calendar year 2023, which is
more than twice the length of time of the last HPAI outbreak in 2014-2015. HPAI affected more than 58 million birds in 47 states
and resulted in the depopulation of 43.3 million commercial layer hens and 1.0 million pullets leading to higher prices for
conventional shell eggs beginning in the fourth quarter of fiscal 2022 and continuing through the third quarter of fiscal 2023.
Though the virus is still present, due to seasonal migratory patterns of wild birds (which serve as carriers for the disease) the rate
of outbreaks has substantially decreased and the last occurrence in a commercial egg laying flock was in December 2022. The
USDA attributes this, in large part, to improved biosecurity measures by the commercial poultry industry. The industry and
USDA have devoted significant resources to attempt to prevent future outbreaks. With the spring wild bird migration complete
in the U.S., focus is on the fall migration season.
We believe the HPAI outbreak will continue to impact the overall supply of eggs until the layer hen flock is fully replenished.
The egg industry typically experiences lower sales during the summer. The layer hen flock five-year average from 2020-2022 for
the month of June is 321.5 million hens. According to the USDA the U.S. flock consisted of 317.4 million layers producing table
or market type eggs as of July 1, 2023, which is 0.9% below the five-year average and reflects efforts by U.S. producers to
repopulate their flocks. As the layer flock began to recover in the fourth quarter of fiscal 2023, prices for conventional shell eggs
decreased from previous highs. There have been no positive tests for HPAI at any Cal-Maine Foods’ owned or contracted
production facility as of July 25, 2023. 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.
24
Executive Overview of Results – Fiscal Years Ended June 3, 2023, May 28, 2022 and May 29, 2021
Fiscal Years Ended
June 3, 2023
May 28, 2022
May 29, 2021
Net sales (in thousands)
$
3,146,217
$
1,777,159
$
1,348,987
Gross profit (in thousands)
$
1,196,457
$
337,059
$
160,661
Net income attributable to Cal-Maine Foods, Inc.
$
758,024
$
132,650
$
2,060
Net income per share attributable to Cal-Maine Foods, Inc.
Basic
$
15.58
$
2.73
$
0.04
Diluted
$
15.52
$
2.72
$
0.04
Net average shell egg price
(a)
$
2.622
$
1.579
$
1.217
Average UB Southeast Region - Shell Eggs - White Large
$
3.115
$
1.712
$
1.155
Feed costs per dozen produced
$
0.676
$
0.571
$
0.446
(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.
For fiscal 2022, net sales increased to $1.8 billion, gross profit to $337.1 million and net income to $132.7 million from fiscal
2021 net sales of $1.3 billion, gross profit of $160.7 million and net income of $2.1 million. The increases resulted primarily from
higher selling prices for conventional eggs as well as an increased volume of specialty eggs sold, partially offset by a decline in
the volume of conventional eggs sold. Gross profit and net income increases were partially offset by increased cost of feed
ingredients and increased processing costs. 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. 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.
For fiscal 2023, net sales increased to $3.1 billion, gross profit to $1.2 billion and net income to $758.0 million. The increases
primarily resulted from significantly higher average egg selling prices, primarily due to the reduction in egg supply caused by
HPAI and higher grain and other input costs, as some of our egg sales prices are based on formulas related to our costs of
production. Gross profit and net income increases were partially offset by the increased cost of feed ingredients and increased
processing, packaging and warehouse costs. The impact of HPAI continued throughout the first three quarters of fiscal 2023 as
prices continued to increase. For the first three quarters of fiscal 2023, the average UB southeastern large index price was 138.8%
higher than the average price of the first three quarters in fiscal 2022. For the fourth quarter of fiscal 2023 the average UB
southeastern large index price decreased 13.8% to $2.163 from the same period in the prior year as the egg supply improved from
the effects of HPAI. Conventional egg selling prices declined significantly during the latter part of the fourth quarter of fiscal
2023.
Our dozens sold increased by 5.9% for fiscal 2023 compared to fiscal 2022, primarily due to an increase in specialty egg sales.
According to Information Resources, Inc. (“IRI”), for the 52 weeks ended June 4, 2023, which approximately aligns with our
fiscal year 2023, conventional egg dozens sold in the U.S. at multi-retail outlets decreased 9.3%, while specialty egg dozens sold
increased 9.9% versus the prior-year comparable period. Our conventional eggs dozens sold increased 0.2% and specialty egg
dozens sold increased 18.6% as compared to fiscal 2022, with most of the increase due to an increase in cage-free eggs sold.
Our feed costs per dozen produced increased to $0.676 in fiscal 2023, compared to $0.571 in fiscal 2022. For fiscal year 2023,
the average Chicago Board of Trade (“CBOT”) daily market price was $6.57 per bushel for corn and $450 per ton for soybean
meal, representing increases of 4.1% and 14.7%, respectively, compared to the daily average CBOT prices for fiscal 2022.
Supplies of corn and soybean meal remained tight relative to demand in throughout 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 supply chain disruptions and the
Russia-Ukraine War and its impact on the export markets. Basis levels for corn and soybean meal, which impact our costs for
25
these feed ingredients, ran significantly higher in fiscal 2023 in our areas of operation compared to our prior year fiscal year as a
result of higher transportation and storage costs, adding to our expense.
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 3, 2023
May 28, 2022
Net sales
100.0
%
100.0
%
Cost of sales
62.0
%
81.0
%
Gross profit
38.0
%
19.0
%
Selling, general and administrative
7.4
%
11.2
%
Gain on insurance recoveries
(0.1)
%
(0.3)
%
(Gain) loss on disposal of fixed assets
—
%
—
%
Operating income
30.7
%
8.1
%
Total other income
1.0
%
1.3
%
Income before income taxes
31.7
%
9.4
%
Income tax expense
7.7
%
1.9
%
Net income
24.0
%
7.5
%
Less: Net loss attributable to noncontrolling interest
—
%
—
%
Net income attributable to Cal-Maine Foods, Inc.
24.0
%
7.5
%
26
Fiscal Year Ended June 3, 2023 Compared to Fiscal Year Ended May 28, 2022
NET SALES
Total net sales for fiscal 2023 were $3.1 billion compared to $1.8 billion for fiscal 2022.
Net shell egg sales represented 96.1% and 96.6% of total net sales for the fiscal year 2023 and 2022, respectively. Shell egg sales
classified as “Other” represent sales of miscellaneous byproducts and resale 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):
June 03, 2023
May 28, 2022
Total net sales
$
3,146,217
$
1,777,159
Conventional
$
2,051,961
67.9
%
$
1,061,995
61.8
%
Specialty
956,993
31.6
%
648,838
37.8
%
Egg sales, net
3,008,954
99.5
%
1,710,833
99.6
%
Other
14,993
0.5
%
6,322
0.4
%
Net shell egg sales
$
3,023,947
100.0
%
$
1,717,155
100.0
%
Dozens sold:
Conventional
749,076
65.3
%
747,914
69.0
%
Specialty
398,297
34.7
%
335,875
31.0
%
Total dozens sold
1,147,373
100.0
%
1,083,789
100.0
%
Net average selling price per dozen:
Conventional
$
2.739
$
1.420
Specialty
$
2.403
$
1.932
All shell eggs
$
2.622
$
1.579
Egg products sales:
Egg products net sales
$
122,270
$
60,004
Pounds sold
70,035
63,968
Net average selling price per pound
$
1.746
$
0.938
Shell egg net sales
-
For fiscal 2023, shell egg net sales increased $1.3 billion, primarily due to higher net average selling prices for
conventional eggs, and to a lesser extent specialty eggs.
-
For fiscal 202 3, conventional egg sales increased $990.0 million, or 93.2%, compared to fiscal 2022, primarily due to
the increase in conventional egg prices. Changes in price resulted in a $988.0 million increase and changes in volume
resulted in a $1.7 million increase in net sales.
-
Conventional egg prices increased in the first three quarters of fiscal 2023 primarily due to decreased supply caused by
the HPAI outbreak, discussed above. Conventional egg prices decreased substantially in the fourth quarter of fiscal 2023
compared to average fiscal 2023 levels, due to an increased supply of conventional eggs caused by the repopulating of
layer flocks in response to the impact of HPAI and typical seasonal decreases in demand. Conventional egg prices
exceeded specialty egg prices during fiscal 2022 and for the first three quarters of fiscal 2023, which 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.
-
Specialty egg sales increased $308.2 million, or 47.5%, for fiscal 2023 compared to fiscal 2022, primarily due to a 24.4%
increase in specialty egg prices and a 18.6% increase in the volume of specialty dozens sold. Changes in price resulted
in a $187.6 million increase and change in volume resulted in a $120.6 million increase in net sales, respectively. Our
27
specialty egg sales also benefitted from our additional cage-free production capacity. Cage-free revenue for fiscal 2023
was 20.2% of total revenue, compared to 22.3% for fiscal 2022.
-
Net average selling prices of specialty eggs increased by agreements with our customers in response to rising feed and
other input costs as well as lower supply availability due to HPAI.
-
Demand for specialty eggs increased during the first three quarters of fiscal 2023 as conventional egg prices rose. Our
sales volume benefited versus the prior-year period, through use of our higher cage-free production capacity.
Egg products net sales
-
Egg products net sales increased $62.3 million or 103.8%, primarily due to an 86.1% selling price increase compared to
fiscal 2022, which had a $56.6 million positive impact on net sales.
-
Our egg products net average selling price increased in fiscal 2023, compared to 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
Cost of sales for fiscal 2023 were $1.9 billion compared to $1.4 billion for fiscal 2022.
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, 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 03, 2023
May 28, 2022
% Change
Cost of Sales:
Farm production
$
1,118,741
$
927,806
20.6
%
Processing, packaging, and warehouse
342,836
289,056
18.6
Egg purchases and other (including change in inventory)
379,777
172,034
120.8
Total shell eggs
1,841,354
1,388,896
32.6
Egg products
108,406
51,204
111.7
Total
$
1,949,760
$
1,440,100
35.4
%
Farm production costs (per dozen produced)
Feed
$
0.676
$
0.571
18.4
%
Other
$
0.396
$
0.352
12.5
%
Total
$
1.072
$
0.923
16.1
%
Outside egg purchases (average cost per dozen)
$
3.02
$
1.72
75.6
%
Dozens produced
1,058,540
1,022,327
3.5
%
Percent produced to sold
92.3%
94.3%
(2.1)
%
Farm Production
-
Feed costs per dozen produced increased 18.4% in fiscal 2023 compared to fiscal 2022, primarily due to higher feed
ingredient prices. Basis levels for corn and soybean meal ran significantly higher in our areas of operation compared to
our prior fiscal year due to higher transportation and storage costs, adding to our expense.
-
For fiscal 2023, the average daily CBOT market price was $6.57 per bushel for corn and $450 per ton of soybean meal,
representing increases of 4.1% and 14.7%, respectively, as compared to the average daily CBOT prices for fiscal 2022.
28
-
Other farm production costs increased due to higher facility and flock amortization. Facility costs increased due primarily
to increased labor costs. Labor costs increased 29.6% due to increased use of contract labor and increased wages raised
in response to labor shortages.
-
Flock amortization increased primarily from higher capitalized feed costs as well as higher amortization costs from an
increase in our cage-free production.
Supplies of corn and soybean remained tight relative to demand throughout 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 supply chain disruptions and the Russia-
Ukraine War and its impact on the export markets. For fiscal 2024, we expect continued corn and soybean upward pricing
pressures and further market volatility to affect feed costs.
Processing, packaging, and warehouse
-
Cost of packaging materials increased 18.6% compared to fiscal 2022 as costs increased due to rising inflation and labor
costs.
-
Labor costs increased 13.6% due to wage increases instituted in response to labor shortages and rising inflation.
-
Dozens processed increased 3.6% compared to fiscal 2022, which resulted in an $11.2 million increase in costs.
Egg purchases and other (including change in inventory)
-
Costs in this category increased 120.8% compared to fiscal 2022 primarily due to the increase in egg prices. The average
price of outside egg purchases increased 75.6% per dozen compared to fiscal 2022. Additionally, our percentage of
produced to sold decreased to 92.3% in fiscal 2023 from 94.3% in fiscal 2022 as we increased our volume of outside
egg purchases in order to meet customer demand.
GROSS PROFIT
Gross profit, as a percentage of net sales, was 38.0% for fiscal 2023 , compared to 19.0% for 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 and processing, packaging and warehouse costs.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative (“SGA”) expenses include costs of marketing, distribution, accounting, and corporate
overhead. SG&A expenses increased $33.6 million to $232.2 million in fiscal 2023. The following table presents an analysis of
our SGA expenses (in thousands):
Fiscal Year Ended
June 03, 2023
May 28, 2022
$ Change
% Change
Specialty egg expense
$
57,758
$
59,830
$
(2,072)
(3.5)
%
Delivery expense
77,548
62,677
14,871
23.7
%
Payroll, taxes and benefits
57,830
43,954
13,876
31.6
%
Stock compensation expense
4,205
4,063
142
3.5
%
Other expenses
34,866
28,107
6,759
24.0
%
Total
$
232,207
$
198,631
$
33,576
16.9
%
Specialty egg expense
-
Specialty egg expense, which includes franchise fees, advertising and promotion costs generally tracks with specialty
egg volumes, which were up 18.6% for fiscal 2023 compared to fiscal 2022. However, our specialty egg expense
decreased 3.5%, primarily due to a significant reduction in advertising costs. The higher prices for conventional eggs
and the comparatively lower prices for specialty eggs diminished the need to promote specialty eggs in fiscal 2023.
However, we anticipate that the need to promote specialty eggs will increase in fiscal 2024 as the market recovers from
the effects of HPAI.
29
Delivery expense
-
The increased delivery expense is primarily due to the increase in fuel and labor costs for both our fleet and contract
trucking. Compared to fiscal 2022, contract trucking and labor expenses increased approximately $10.2 million for fiscal
2023.
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.
Other expenses
-
The increase in other expenses is due to increased legal expenses of approximately $3.6 million as well as inflationary
pressure increasing costs.
OPERATING INCOME (LOSS)
As a result of the above, our operating income was $967.7 million for fiscal 2023 , compared to $143.5 million for fiscal 2022.
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.
The Company recorded interest income of $18.6 million in fiscal 2023, compared to $988 thousand in fiscal 2022, primarily due
to significantly higher cash and cash equivalents and investment securities available-for-sale balances and yields. We recorded
interest expense of $583 thousand and $403 thousand in fiscal 2023 and 2022, respectively, primarily related to commitment fees
on our Credit Facility described below.
Equity in income from unconsolidated entities for fiscal 2023 was $746 thousand compared to $1.9 million for fiscal 2022.
Other, net for fiscal 2023 was income of $1.9 million compared to $9.8 million for 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 in fiscal 2022 due to the remeasurement of our equity investment. We also received
$1.4 million in fiscal 2022 related to our review and adjustment of our various marketing agreements. Additionally, the Company
recorded a $2 million impairment of an investment in an unconsolidated entity in fiscal 2023.
INCOME TAXES
For the fiscal year ended June 3, 2023, our pre-tax income was $998.6 million, compared to $166.0 million for fiscal 2022.
Income tax expense of $241.8 million was recorded for fiscal 2023 with an effective tax rate of 24.2%. For fiscal 2022, income
tax expense was $33.6 million 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
Annual Report. Excluding the discrete tax benefit, income tax expense was $41.9 million with an adjusted effective tax rate of
25.2%.
At June 3, 2023, the Company had an income tax receivable of $67.0 million compared to $42.1 million at May 28, 2022. During
fiscal 2022, the Company filed federal carryback tax returns for fiscal 2020 and 2021 taxable net operating losses to recover a
portion of taxes paid in fiscal 2015 and fiscal 2016. Subsequent to fiscal 2023, we received $31.8 million of the $34.9 million
fiscal 2021 refund and believe we will receive the remaining amount of the fiscal 2020 and 2021 refunds, totaling $11.7 million,
during our second fiscal quarter of 2024. An additional $23.5 million income tax receivable was recorded as of June 3, 2023 for
fiscal 2023 federal overpayments in excess of federal tax liability.
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.
30
NET LOSS ATTRIBUTABLE TO NONCONTROLLING INTEREST
Net loss attributable to noncontrolling interest was $1.3 million for fiscal 2023 compared to a $209 thousand net loss for fiscal
2022.
NET INCOME ATTRIBUTABLE TO CAL-MAINE FOODS, INC.
As a result of the above, net income attributable to Cal-Maine Foods, Inc. for fiscal 2023 was $758.0 million, or $15.58 per basic
and $15.52 per diluted share, compared to $132.7 million, or $2.73 per basic and $2.72 per diluted share for fiscal 2022.
Fiscal Year Ended May 28, 2022 Compared to Fiscal Year Ended May 29, 2021
The discussion of our results of operations for the fiscal year ended May 28, 2022 compared to the fiscal year ended May 29,
2021 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 2022 Annual Report on Form 10-K.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital and Current Ratio
Our working capital at June 3, 2023 was $942.2 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 6.16 at June 3, 2023 compared to 3.58 at May 28,
2022. The current ratio is calculated by dividing current assets by current liabilities. The increase in our working capital and
current ratio is primarily due to the increase in total current assets, which increased by $463.4 million to $1.1 billion at June 3,
2023, due to significant increases in cash and cash equivalents and investment securities available -for-sale. Due to seasonal
factors described in
, 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 $863.0 million for fiscal year 2023 compared with $126.2 million for fiscal year
2022. 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 sold, partially offset by the increased cost of feed ingredients and processing, packaging and
warehouse costs.
Cash Flows from Investing Activities
We continue to invest in our facilities, with $136.6 million used to purchase property, plant and equipment for fiscal 2023,
compared to $72.4 million in fiscal 2022. These investments were primarily made to expand our cage-free production capacity.
We have for many years invested substantial amounts to expand our cage-free production capacity and expect to continue to do
so. Purchases of investments were $530.8 million in fiscal 2023, compared to $98.2 million in fiscal 2022. The increase in
purchases of investment securities is primarily due to the utilization of increased liquidity resulting from increased cash flows
provided by operating activities noted above. Sales and maturities of investment securities were $291.8 million for fiscal 2023,
compared to $92.7 million for fiscal 2022. During fiscal 2022, we also acquired the remaining 50% membership interest in Red
River for $44.8 million, net of cash acquired.
Cash Flows from Financing Activities
We paid dividends totaling $252.3 million and $6.1 million in fiscal 2023 and 2022, respectively.
As of June 3, 2023, cash increased $233.7 million since May 28, 2022, compared to an increase of $1.7 million during fiscal
2022.
Credit Facility
We had no long-term debt outstanding at the end of fiscal 2023 and 2022. 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 June 3, 2023, no amounts were borrowed under the Credit Facility. We have $4.3 million in outstanding standby letters of
credit, which were issued under our Credit Facility for the benefit of certain insurance companies. In May 2023, we entered into
31
an amendment to the Credit Agreement to replace the London Interbank Offered Rate interest rate benchmark. Refer to Part II.
Item 8. Notes to the Financial Statements,
Material Cash Requirements
Material cash requirements for operating activities primarily consist of feed ingredients, processing, packaging and warehouse
costs, employee related costs, and other general operating expenses, which we expect to be paid from our cash from operations
and cash and investment securities on hand for at least the next 12 months. While volatile egg prices and feed ingredient costs,
among other things, make long-term predictions difficult, we have substantial liquid assets and availability under our Credit
Facility to fund future operating requirements.
Our material cash requirements for capital expenditures consist primarily of our projects to increase our cage-free production
capacity. We continue to monitor the increasing demand for cage-free eggs and to engage with our customers in efforts to help
them achieve their announced timelines for cage-free egg sales. The following table presents material construction projects
approved as of June 3, 2023 (in thousands):
Project(s) Type
Projected
Completion
Projected Cost
Spent as of
June 3, 2023
Remaining
Projected Cost
Cage-Free Layer & Pullet Houses
Fiscal 2024
$
54,702
$
18,900
$
35,802
Cage-Free Layer & Pullet Houses
Fiscal 2025
40,099
27,152
12,947
Cage-Free Layer & Pullet Houses
Fiscal 2026
38,883
19,218
19,665
Cage-Free Layer & Pullet Houses
Fiscal 2027
56,923
20,472
36,451
$
190,607
$
85,742
$
104,865
The following table summarizes by fiscal year the future estimated cash payments, in thousands, to be made under existing
contractual obligations as of June 3, 2023. Further information on debt obligations is contained in
Part II. Item 8. Notes to the Consolidated Financial Statements. As of June 3, 2023, 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
Lease obligations
$
1,714
$
796
$
914
$
4
$
—
Purchase obligations:
Feed ingredients and fuel
(a)
123,321
123,321
—
—
—
Construction contracts and other equipment
105,414
61,108
44,306
—
—
Total
$
230,449
$
185,225
$
45,220
$
4
$
—
(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 and to fund our capital commitments currently in place thereafter.
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,
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.
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 are 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 June 3, 2023. 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 June 3, 2023, goodwill represented 2.3% of total assets and 2.7% 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 the fourth quarter of 2023, we elected to change the date of our annual impairment assessment from year-end to the first
day of the fourth quarter. The change was made to more closely align the impairment assessment date with our annual planning
33
and forecasting process. The change in impairment assessment date did not have any impact on goodwill or the impairment of
goodwill. The change has been applied prospectively and will not have an impact on a retrospective basis. During our annual
impairment test in fiscal 2023, we determined that goodwill passed the qualitative assessment and therefore no quantitative
analysis of goodwill impairment was necessary.
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
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