Business Overview and History
Cal-Maine Foods, Inc. (NASDAQ:CALM) is the undisputed leader in the US egg industry, commanding an impressive market share and boasting a diverse portfolio of both conventional and specialty egg products. As the largest producer and distributor of fresh shell eggs in the country, the company has navigated a tumultuous landscape marked by volatile egg prices, supply chain disruptions, and the ongoing threat of avian influenza outbreaks.
Cal-Maine Foods was founded in 1969 and has grown to become the largest producer and distributor of fresh shell eggs in the United States. The company's operations are fully integrated, with facilities for production, grading, packaging, marketing, and distribution of fresh shell eggs and value-added specialty egg products. In its early years, Cal-Maine Foods primarily focused on producing and distributing conventional shell eggs through retail, foodservice, and other distribution channels. Over time, the company expanded its product offerings to include specialty eggs such as cage-free, organic, brown, free-range, pasture-raised, and nutritionally enhanced eggs, allowing it to meet the evolving needs of its customers.
Throughout its history, Cal-Maine has faced various challenges. In the mid-2000s, the company was involved in litigation with the State of Oklahoma related to the disposal of chicken litter and the pollution of the Illinois River Watershed. While Cal-Maine discontinued operations in the watershed around that time, it later acquired a commercial shell egg operation within the watershed. The company has remained focused on executing its strategy of providing a favorable mix of branded and private-label products to its diverse customer base, making strategic investments and acquisitions to expand its production capacity and geographic reach.
Today, the company's total flock of approximately 48.10 million layers and 12.00 million pullets and breeders is the largest in the US. Cal-Maine's diverse product portfolio includes conventional shell eggs as well as a growing range of specialty eggs, such as cage-free, organic, brown, free-range, pasture-raised, and nutritionally enhanced varieties. The company's extensive distribution network allows it to serve a diverse customer base, including national and regional grocery store chains, club stores, foodservice distributors, and egg product customers across the majority of the United States.
Financial Performance and Ratios
Cal-Maine's financial performance has been marked by both periods of strong growth and volatility, reflecting the cyclical nature of the egg industry. In the fiscal year ended May 31, 2024, the company reported net sales of $2.33 billion, a 26.0% increase from the prior year's $1.78 billion. Net income for the same period was $277.89 million, up from $132.65 million in the previous year.
The company's profitability is closely tied to the market prices for eggs and feed grains, which are beyond its control. Cal-Maine's gross profit margin in fiscal 2024 was 23.2%, up from 18.9% in the prior year, as higher egg prices more than offset increased feed costs. The company's operating margin also improved, reaching 13.4% compared to 8.1% in fiscal 2023.
In the second quarter of fiscal 2025, Cal-Maine reported a remarkable 82.5% year-over-year increase in net sales, reaching $954.67 million. This surge was driven by an 81.3% increase in shell egg revenues and a 103.1% jump in egg products sales. The company's net average selling price per dozen of shell eggs increased 58.4% to $2.74, reflecting the tight supply conditions in the market. Net income for the quarter soared to $219.06 million, showcasing the company's ability to capitalize on favorable market conditions.
Financials
Cal-Maine's balance sheet remains strong, with a current ratio of 5.5 as of May 31, 2024, indicating ample liquidity to meet short-term obligations. The company's debt-to-equity ratio is 0.0, reflecting its conservative approach to leverage and a commitment to maintaining a solid financial position.
For the fiscal year 2024, Cal-Maine generated operating cash flow of $451.40 million and free cash flow of $304.28 million, demonstrating its ability to convert earnings into cash. As of November 30, 2024, the company held $140.30 million in cash and cash equivalents, providing a substantial buffer against market volatility.
Liquidity
Cal-Maine's strong financial position is further evidenced by its robust liquidity. The company maintains a $250 million senior secured revolving credit facility, which remained undrawn as of November 30, 2024, with only $4.7 million in outstanding standby letters of credit issued under the facility. This conservative financial management approach provides Cal-Maine with significant flexibility to pursue strategic opportunities and weather potential market downturns.
The company's quick ratio of 4.32 further underscores its strong liquidity position, indicating that Cal-Maine can easily meet its short-term obligations without relying on the sale of inventory.
Operational Challenges and Responses
The egg industry has faced significant headwinds in recent years, including the ongoing threat of highly pathogenic avian influenza (HPAI) outbreaks, which have decimated poultry flocks across the United States. In 2024 alone, 38.4 million commercial layer hens and 1.8 million pullets were depopulated due to HPAI outbreaks, according to the U.S. Department of Agriculture (USDA).
Cal-Maine has responded to these challenges by investing in robust biosecurity measures across its facilities and working closely with regulatory authorities to mitigate the impact of HPAI outbreaks. The company has also been proactive in expanding its cage-free production capacity to meet the growing demand from customers and comply with new state-level regulations mandating the sale of cage-free eggs.
Product Segments and Performance
Cal-Maine Foods operates in one primary segment: shell egg production and distribution. However, the company's product portfolio can be divided into two main categories: shell eggs and egg products.
Shell egg sales represent the majority of Cal-Maine's revenue, accounting for 94.6% of total net sales in the second quarter of fiscal 2025. The company offers both specialty and conventional shell eggs. Specialty eggs, including cage-free, organic, brown, free-range, pasture-raised, and nutritionally enhanced varieties, represented 31.7% of total shell egg sales in the second quarter of fiscal 2025. Demand for specialty eggs has continued to increase, with specialty dozens sold representing 36.5% of total shell egg dozens sold in the same quarter, up from 33.2% in the prior year period.
Conventional shell egg sales made up 68.3% of total shell egg sales in the second quarter of fiscal 2025. The net average selling price per dozen for conventional eggs reached $2.94 in this quarter, a significant 101.4% increase from $1.46 in the prior year period, primarily due to lower supply resulting from HPAI outbreaks.
Egg products, including liquid and frozen eggs as well as ready-to-eat products, represented 4.3% of total net sales in the second quarter of fiscal 2025. Sales in this category increased by 103.1% compared to the prior year, driven by a 63.5% increase in liquid egg pounds sold and a 25.2% increase in the net average selling price per pound of liquid eggs.
The combination of increased sales volumes and higher prices across both specialty and conventional eggs led to a substantial improvement in Cal-Maine's gross profit, which surged from $91.1 million in the second quarter of fiscal 2024 to $356.0 million in the second quarter of fiscal 2025.
Legal Proceedings
Cal-Maine is currently involved in two ongoing legal proceedings that could potentially impact its operations and financial performance:
1. State of Texas v. Cal-Maine Foods, Inc. dba Wharton and Wharton County Foods, LLC: The State of Texas has filed a lawsuit alleging that Cal-Maine violated the Texas Deceptive Trade Practices-Consumer Protection Act by offering shell eggs at excessive prices during the COVID-19 pandemic. While the trial court initially dismissed the case, it was later reversed on appeal and remanded back to the trial court for further proceedings.
2. Kraft Foods Global, Inc. et al. v. United Egg Producers, Inc. et al.: Cal-Maine is a defendant in this antitrust lawsuit filed by certain egg product purchasers. In December 2023, the court entered a final judgment against Cal-Maine and other defendants for $43.6 million in treble damages. The company is currently appealing this decision.
Outlook and Industry Trends
Despite the ongoing challenges facing the industry, Cal-Maine remains cautiously optimistic about its future prospects. The company expects the supply and demand dynamics in the egg market to remain volatile in the near term, as the impact of HPAI outbreaks and other factors continue to disrupt production.
The U.S. commercial table egg layer flock is expected to face continued pressure due to HPAI outbreaks, which have resulted in the depopulation of millions of hens. This supply shortage has led to record-high egg prices, a trend that may persist in the short to medium term.
Cal-Maine's recent acquisition of ISE America, which included an egg products breaking facility, has contributed to the growth in egg products sales and positions the company to capitalize on opportunities in this segment.
Conclusion
Cal-Maine Foods has proven its resilience and adaptability in the face of significant industry-wide challenges. As the undisputed leader in the US egg market, the company's diversified product portfolio, strong financial position, and strategic investments have enabled it to navigate the volatile landscape and capitalize on the surge in egg prices.
Looking ahead, Cal-Maine's ability to effectively manage the impact of HPAI outbreaks, adapt to changing consumer preferences, and execute on its growth initiatives will be crucial to its continued success. The company's focus on expanding its specialty egg offerings, particularly in the cage-free segment, aligns well with evolving consumer trends and regulatory requirements.
While Cal-Maine faces some legal challenges, its strong financial position, with no debt and ample liquidity, provides a solid foundation for navigating these issues. The company's continued investment in biosecurity measures and production capacity expansion demonstrates its commitment to long-term growth and market leadership.
Investors drawn to Cal-Maine's dominant market position and strong financial fundamentals will likely keep a close eye on the company's ability to navigate the uncertain conditions, manage legal risks, and maintain its industry-leading position in the dynamic and evolving egg market.