Cal-Maine Foods, Inc. (CALM) Earnings Call Transcript & Summary

Hello everyone, and thanks for being here this morning. We're glad you're interested in Cal-Maine Foods and that you've taken the time to hear about our results and what lies ahead. This marks a significant moment for our company, since it's the very first earnings call we've ever held. It reflects our push for a stronger Investor Relations approach, one designed to raise our profile among institutional investors and give stakeholders a clearer window into how we operate. Before diving in, please keep in mind that what we say today could contain forward-looking statements. Those rest on what management currently anticipates and carry risks and uncertainties that we've laid out in our SEC filings. Let me open by expressing how humble and thankful I feel. Every morning I'm reminded of the commitment and resilience of the Cal-Maine family, and I count myself lucky to speak on behalf of every single one of them here today. I want to acknowledge several individuals who played a major role in creating the Cal-Maine Foundation, the base from which we run things now. People have always been the heart of Cal-Maine. That means our workforce of more than 4,000, along with our customers, the communities we serve, and our shareholders. Day in and day out, our team shows the discipline, accountability, and thriftiness that have shaped this business since day one. We owe our standing to our founder, Fred Adams, and to leaders such as Dolph Baker, who continues to serve as an invaluable guide in his role as board chair. Beyond that, a lengthy list of people have guided both me and our entire management team. Let me mention just a handful: Steve Storm, Bob Scott, Jack Self, David Jenkins, Mark Ashby, each a former vice president of operations; Bobby Raines and Tim Dawson, former CFOs; Jeff Hardin and Kim Farris, both former vice presidents of sales; Ken Looper, a former president; Joe White, a former vice president of feed mills; and Charlie Collins and Mike Castleberry, both former controllers. So many others deserve thanks, but given the time, I'll simply offer a sincere, humble thank you to every employee, past and present. All of them helped lay the strong groundwork that supports us now. The pillars of that groundwork are straightforward. We enjoy broad scale, and that brings us meaningful advantages. Because we're vertically integrated, we control each stage of production, which holds costs down, makes supply dependable, protects quality and food safety, and lets us adjust output as needed. That also amounts to a real edge over competitors. Our culture — what we call the Cal-Maine way — centers on operational excellence, and by that we mean a relentless commitment to the basics. In practice, that involves putting money into modernization, building biosecurity into everything, and applying the Cal-Maine way of accountability throughout our operations. On the biosecurity front, we've put over $80 million into equipment, procedures, and training since 2015 to protect flock health and lower the danger posed by highly pathogenic avian influenza. Sadly, High-Path AI is still something this industry has to deal with. On the financial side, we're coming from a place of strength, with a solid balance sheet and sufficient cash on hand to seize acquisition opportunities as they arise and to advance our strategy. And lastly, as I noted earlier, our team is outstanding, with real depth and a wealth of experience. On the subject of our team, I want to extend a welcome to Melanie Boulden and Kira Lombardo as they join Cal-Maine. Melanie, who is joining our board of directors, brings extensive knowledge of the food and beverage sector along with close to 30 years of worldwide business management, brand building, and experience at organizations such as Coca-Cola, Kraft, and, most recently, Tyson. Kira was just named the company's first-ever Chief Strategy Officer. Much like Melanie, Kira brings considerable experience working with consumer-facing businesses. She'll partner with our senior leadership team to help speed up and shape enterprise priorities, extending Cal-Maine Foods' leadership position in a marketplace that's changing fast. Thanks to our foundation and robust business momentum, we were able to post the best first quarter in our company's history, which also speaks to the advantages of diversification, the strength of how we operate, and the headway we've made in getting Cal-Maine positioned for what's ahead. More precisely, our results came from robust growth in specialty eggs along with the expansion of our prepared foods platform, backed by solid performance in conventional eggs. Combined, specialty eggs and prepared foods made up close to 40% of net sales, highlighting how central they are to Cal-Maine's strategy and its long-term financial performance. What these results demonstrate is Cal-Maine moving forward as a diversified, consumer-driven food company. Stability and scale keep coming from our conventional egg business, while specialty eggs and prepared foods play a growing role in defining our portfolio's future. Specialty eggs and prepared foods serve as growth engines, moving our mix toward higher value categories; and through all of it, our vertical integration and financial strength mean we can execute with discipline and resilience; with that, I'll hand the call to our Chief Financial Officer, Max Bowman, so he can dig into our results for the quarter and talk through our capital allocation framework. Max?

Thanks, Sherman, and good morning, everyone. We're glad you could be with us today for our very first live earnings call. This is a new approach for us, and it shows we're more committed than ever to being open with everyone who has a stake in our company. As a quick note, our earnings release and 10-Q came out this morning. There's also a brief earnings presentation up on our website. Those documents contain all the details on our financial results. Now let me take you through the first quarter of fiscal 2026 highlights. We recorded net sales of $922.6 million, an increase of 17.4% from $785.9 million in the same period last year. This increase was driven by stronger sales of shell eggs, along with what our newly acquired prepared food businesses added. Sales of shell eggs came to $789.4 million, a 6.5% improvement, supported by a 3.9% increase in the net average selling price for shell eggs and a 7.5% gain in specialty egg sales volume. Of total net sales, 85.6% came from shell eggs. Compared with a year ago, that share dropped 880 basis points, reflecting how our portfolio has shifted toward prepared foods. Specialty eggs generated $283.5 million in sales, rising 10%, with cage-free and pasture-raised both growing by double digits. More than 30% of net sales now come from specialty eggs. Conventional egg sales were $505.9 million, an increase of 4%. On the prepared foods side, sales reached $83.9 million — that's up more than 800% — and Echo Lake Foods chipped in $70.5 million of that. So prepared foods made up over 9% of net sales for the quarter. What this mix shift tells us is that specialty eggs and prepared foods are steering our portfolio toward categories with better margins. Turning to gross profit: we landed at $311.3 million, which works out to 33.7% of net sales, versus $247.2 million, or 31.5% of net sales, a year ago. That gain of almost 26% in gross profit was driven primarily by stronger shell egg selling prices, more volume in specialty egg sales, reduced feed costs, and what prepared foods brought to the table. We posted operating income of $249.2 million, which works out to 27% of net sales. A year earlier it stood at $187 million, equal to 23.8%, so that's an improvement of 320 basis points. Net income came to $199.3 million, translating to $4.12 per diluted share, against $150 million, or $3.06 per diluted share, in the prior year. Higher average selling prices on shell eggs, along with added contributions from prepared foods, drove these gains. Moving on to costs and expenses, feed costs proved helpful to us this quarter. Measured per dozen, they dropped roughly 4% compared with a year ago, largely due to cheaper soybean mill prices. Those lower prices yielded about $6 million in savings within cost of sales. On the selling, general and administrative side, we saw a small increase — roughly 12% versus a year ago. Most of that came from moving more product and from folding Echo Lake Foods into the business, which pushed up delivery costs and other overhead. Marketing spending barely moved. The key point is that these extra SG&A dollars were behind the expansion we saw in both shell eggs and prepared foods. In fact, measured against sales, SG&A came in a touch lower than last year. On the production side, our growth is also being helped by bringing on more capacity and recovering from HPAI. Breeder flocks were up 46%. Chicks hatched increased 77%, and the number of layer hens in a typical operation rose 10%. Our dozens sold grew 2.5% compared with a year earlier, and specialty dozens were 7.5% higher. Pricing isn't the sole source of our growth — genuine volume gains, backed by investments made over the long haul in our capacity, are contributing too. Benefits we can actually see keep coming from our modernization programs and inline facilities. Yields get better thanks to these investments, our productivity improves, and our low-cost position gets stronger. The Cal-Maine way — building in best practices along with process innovation — stays at the heart of how we operate efficiently. At $278.6 million, operating cash flow was quite robust, over twice the $117.5 million recorded a year ago. At the close of the quarter, our cash and equivalents came to $252 million, while investments were $1 billion, and our debt position was basically zero. The way we deploy capital puts total shareholder return first, and we evaluate it across five areas. Dividends are the first of those. Consistent with the dividend policy we've set, shareholders will receive $1.37 per share, payable November 13th to those on record as of October 29th. Buybacks are the second area. We intend to pursue repurchases when opportunities arise, guided by our broader commitment to deploying capital with discipline. Depending on market conditions, we may execute buybacks in a variety of ways, such as accelerated programs, open market purchases, or prearranged trading plans. Number three is earnings per share growth. That's supported by reinvesting in the business with discipline, particularly when it comes to modernization, initiatives for expanding margins, and efficiency programs. Number four is M&A. We're focused on adjacent spaces, expanding geographically, and chances that clear strict financial return hurdles while strengthening where we sit on supply. Prepared foods is a good example — in that area, putting money into ourselves is the wisest move, along with the fast-growing subcategories we're building out. And last, multiple expansion. As our mix changes over time and we turn in higher-quality earnings that are more predictable, our view is that Cal-Maine Foods will be set up for a valuation that reflects that progress. Put briefly, the strong cash we generate lets us fund growth, sustain our dividend, act opportunistically on repurchases, and pursue M&A with discipline. Those moves, in turn, generate still more cash flow for deployment ahead. That wraps up my review of the financial results. I'll hand it back to Sherman now for further commentary on our strategic direction.

Thank you, Max. Before we wrap up, I want to underscore a handful of points. Cal-Maine holds the top spot among egg producers across the U.S., and our considerable scale plus vertical integration yields efficiency, reduced costs, and dependable supply. Yet size by itself won't carry us. Shoppers want additional options, greater ease, and foods with more protein. Our goal is to satisfy that need through a varied portfolio spanning conventional eggs, specialty eggs, and increasingly prepared foods. Specialty eggs along with prepared foods aren't pledges about some future date; they're paying off right now. As time goes on, we anticipate they'll keep lifting the caliber of our earnings and drive margin expansion; we're carrying out a plan aimed at building a sturdier, more forecastable Cal-Maine. Naturally, that plan includes a significant M&A element, backed by a solid pipeline of disciplined, accretive possibilities. Echo Lake illustrates well how we're putting this into practice. Utilization climbed rapidly following the June acquisition, and we're positioned to surpass each financial and operational target established when we made the deal. We've already given the green light to a fresh $14.8 million outlay for a high-speed pancake production line at our Burlington, Wisconsin site, which will boost capacity, introduce automation, and enhance packaging to seize growing customer demand. Efforts such as this will lift efficiency and scale, and they showcase how we make disciplined bets on extensions and subcategories offering appealing returns buoyed by robust consumer demand; we're turning into a house of brands spanning Eggland's Best, Land O' Lakes, Farmhouse Eggs, 4Grain, Sunups, Sunny Meadow, MeadowCreek Foods, and Crepini, connecting with consumers through national, regional, and private label programs; we represent about half of all Eggland's Best sales, which stays the top specialty egg brand in the United States. Our scale, vertical integration, and financial discipline form a solid base, while specialty eggs and prepared foods serve as demonstrated growth engines generating better quality, steadier earnings. Combined, these advantages position Cal-Maine as an appealing mix of value and growth within today's food industry. Meanwhile, our purpose is unmistakable. We deliver one of the most nutrient-dense, budget-friendly protein sources out there; that's more important now than it ever has been. 97% of U.S. households buy eggs, and they remain among the least expensive sources of high-quality protein. People are consuming more protein generally, with high-protein diets being the most popular eating pattern for a third straight year. Eggs align perfectly with that shift since they're fresh, adaptable, and economical. Specialty formats and ready-to-eat items broaden that value proposition, offering folks additional ways to work eggs into what they eat; this isn't merely about following trends. It concerns fulfilling essential needs around nutrition, affordability, and value in how Americans eat. Going ahead, our strategy is straightforward. First, we'll grow specialty and prepared foods. Second, we'll use vertical integration and operational excellence to stay a low-cost, dependable supplier. Third, we'll keep pursuing M&A with discipline so we can drive mix uplift, grow our geographic footprint, and build long-term value for stockholders. Cal-Maine brings together scale, vertical integration, and financial strength, along with a track record of growth from specialty and prepared foods. Conventional eggs give us a solid base, and with consumers wanting protein plus eggs remaining relatively affordable, we have strong tailwinds. Our disciplined approach to capital allocation and our operational excellence strengthen that edge; we're confident the initiatives we're carrying out now will deliver durable growth, stronger margins, and higher returns for shareholders. To wrap up, I'd like to thank everyone on the Cal-Maine team for their commitment, our customers for trusting us, and our stockholders for their ongoing support. With that, I'll hand the call back to the Operator so we can start the Q&A portion of today's call.

Morning, everyone. First off, I want to say that I'm grateful you've begun holding these calls. They really do help. So I suppose my opening question concerns pricing. I'm just curious whether, during this quarter, the prices you realized compared with what the industry considers standard came in significantly below what they've typically been, and so I was hoping you might offer either figures or a general description of how your mix has moved when it comes to cost-plus arrangements versus those tied to the market, purely so we can aim for greater precision in the forecasts we build from here on.

Hey, Heather. Morning. Sherman here, and I appreciate you raising that. I'll kick things off, and then I'll hand it over to Max to wrap things up. Still, I'd like to open this discussion by emphasizing how much our customers matter to us and how essential it is that we hold onto their confidence and their backing. That means always keeping the long view in mind; moreover, every single customer follows a distinct approach to going to market, and there are undoubtedly many kinds of pricing arrangements in existence. However, what I believe you're pointing to, Heather, is some erosion on the high end. What we'd suggest you do is weigh that against the flip side — the uplift that arrives during the middle portion of the cycle. Also, as time passes, market realization genuinely strengthens over the long haul, volatility diminishes, and of course the extended agreements that accompany that. Thus, in our view, this transition holds considerable attraction. Of course, it isn't finished, since our 10-Q shows that most of our conventional eggs continue to be priced according to a market-based system. As a result, plenty of legacy remains within our pricing contracts, though it's clear that particular customers hold differing views regarding how they go to market. And again, the potential on the upside is offset by protection on the downside in this case. And as always, we aim for genuine partnerships, so that we can be the kind of partner they can count on, not just for supply but to satisfy their other requirements too. So Max, over to you if there's anything further you'd like to say.

Sherman, I believe you've addressed that fully; the key thing here is simply staying aligned with customers and putting ourselves in the strongest possible position over the long run, across the entire cycle.

Thanks. My next question concerns Echo Lake. Performance there beat our expectations on every metric—both revenue and profitability—so, first, should we anticipate meaningful quarter-over-quarter top-line expansion from that unit? Second, did anything involving expenses, scheduling, or similar factors influence profitability, or is this a solid gross margin level to assume moving forward?

Heather, that's yet another excellent question, and it's difficult to convey how thrilled we are when you bring up not just Echo Lake but prepared foods too, along with the expansion potential before us, our emphasis on greater value, superior quality, improved consistency, and ultimately widening margins. This creates numerous avenues for us regarding further organic growth and M&A. We genuinely feel optimistic. What we noted in our queue is our firm belief that they are hitting and surpassing every one of the original targets we established for them; and Echo Lake is performing well. We invest considerable effort in due diligence, examining not merely the operation but also the personnel; and the personnel is what I truly enjoy praising. Simply an exceptionally robust group that possesses a drive for growth, a drive for excellence, and accomplishing objectives; so I'm quite enthusiastic about that. Max, let's see whether you have anything to add.

Yes, Heather, my sense is that we are either matching or surpassing a number of the targets that were laid out during the original investor presentation for Echo Lake, as Sherman mentioned, and as he also noted, there is no buyer's remorse. We feel terrific about Echo Lake and are optimistic regarding how it is situated going forward; we highlighted the synergies at an early stage, and we had indicated $15 million. My belief is that we are on course to realize those, and perhaps even more, and at Echo Lake we are already engaged in reinvestment through an announced further investment there.

Right, and that's a big deal, Max. Their yearly volume is up nearly 10%, which shows you just how much confidence we have in it, Heather.

All right, thank you.

Good morning, and I appreciate you taking the question. First off, congratulations on the quarter and on hosting your first earnings call. For my first question, I was hoping to get a better handle on the supply picture. Over the past couple of months, it seems we've seen a fairly solid sequential buildback in the layer flock. In previous discussions, we've covered the timeline needed to return to roughly 325 million hens. My understanding is that industry forecasts projected somewhere around 305 to 315 by year-end; however, we've been hearing that some expansion among smaller contract farmers might not be fully reflected in the latest USDA figures, which show about 300 million hens. So I'd just like your perspective on how we should think about supplies across the next few quarters.

Pooran, good morning, and I appreciate that question; the USDA hen numbers released September 1st showed 101.4 million, or 301.4 million. That figure is definitely well below the five-year average, but I'd encourage you to consider a broader frame. A common rule of thumb holds that you need one chicken for every person in the U.S. With the U.S. population sitting at roughly 340 million, that tells us we're far below what the market could potentially absorb. There are also plenty of factors on the demand side. But regrettably, some early signals suggest that high-path avian influenza is definitely still with us. This issue extends far beyond the U.S. It's a worldwide problem. And global signals point to the same conclusion — that many difficulties are waiting right at our door because of high-path avian influenza. Sadly, roughly 3.1 million hens have already been removed from that 301.4 million, and many turkey flocks have been depopulated as well. The migration is really ramping up in volume right now as we speak. There are numerous worrying aspects regarding the migration and regarding how this autumn might unfold. We don't have precise signals about what that will look like, but certainly, simply watching and hearing the experts, there are many worries regarding future high-path avian influenza. You combine supply with demand. Of course, seasonality always has a role to play. Recent years have been a roller coaster. Typical seasonality has been upended by bird losses during those periods, which has somewhat clouded the picture. Supply stabilization is merely one of the crucial elements to consider whenever marketing programs function most effectively. That happens when they're able to rely on supply. And the tailwinds existing for the demand side are incredibly positive, and we're enthusiastic about them. The FDA now permits us to place the word healthy on an egg carton. The American Heart Association is recommending eggs as part of a heart-healthy diet. The American Academy of Pediatrics is suggesting eggs be given from conception up until age 2, and the reason is choline. These GLP-1 medications are definitely acting as a catalyst. With consumers seeking out clean, unprocessed foods, eggs have really come into the spotlight, since 97% of households purchase eggs; and naturally, the United Nations continues to promote eggs; but when you get right down to it, eggs align extremely well with the healthy trends, the convenient trends, and they remain affordable as a protein serving; and they also benefit from some of the other attention on foods containing sodium, sugar, and saturated fat, which were either low or zero. So we believe there are tremendous tailwinds that pair with this supply. And sadly, across the last 3 years, it has been one step forward, two steps back; and all of us are hoping for a far better fall than what the early indicators suggest. Max?

I believe you already addressed that, Sherman.

Thanks. I appreciate that detail. I was hoping we could focus a bit more on HPAI. There was that case of 3.1 million in Wisconsin. And from what I understand, up in the northern states, you've been hearing reports of some turkey flocks affected by the virus. It appears to be somewhat ahead of schedule, during the early part of the migration period, as you described it. Do you believe the industry has improved its readiness compared with a year ago? I know you mentioned your own biosecurity steps, your own spending on biosecurity. But looking at it from an industry-wide standpoint, do you think they are more prepared now than they were previously? And do you think there's a chance we might see something of a similar scale, considering where the industry currently stands?

Predicting the scale isn't something I can do, but what gives me confidence is that substantial effort has gone into biosecurity and stopping the lateral spread. The major unknown continues to be those point-source introductions, and that connects not just to migrating birds but also to the many domestic species present near farms, plus the tremendous need for solid epidemiology to understand how this virus is getting onto farms and into chicken houses, and there is definitely work underway on that, yet the definitive answer of, "This is the issue. This is how to fix it," has yet to be found. We have to discover it, and without question, biosecurity remains the highest priority. More than $80 million has been invested by us. This is something we have taken very seriously since 2015 and even before then. So regrettably, I cannot offer you a forecast of how things will unfold, but the early signs suggest the birds are indeed carrying it during migration. And it is definitely a virulent strain that remains quite capable of infecting chickens and turkeys.

Pooran, I believe Sherman made the point that none of us can claim to represent the whole industry, and we wouldn't try to. Still, it seems clear that every player in this space treats this matter with real seriousness. Our approach is simply to keep zeroing in on the things within our power, and we recognize and have faith that the size and breadth of what we run work in our favor. At the same time, though, we understand we have to deliver results and stay vigilant day in and day out. Ultimately, your weakest moment defines you, which means steadiness matters enormously in how we operate. I think that at each of our sites, people bring it up practically every single day and keep their attention on it, and that's the foundation we'll rely on moving forward.

Great. Appreciate the color.

Thanks. Morning, Sherman and Max. I appreciate you putting this together. All the information is really helpful. My question is about specialty eggs. You mentioned that cage-free and pasture-raised both grew by double digits. Could you share more about what you're seeing in specialty, and what's your thinking on adding capacity for that segment down the road? And where do you ultimately want the split between conventional and specialty to settle over the longer term?

Morning, Leah. Thanks. That's a great question. Like you said, pasture-raised saw double-digit increases year over year in both dollars and volumes. Leah, one area we keep our attention on is selecting the right items to make; our goal is to create whatever the consumer or customer is looking to buy. Because we serve such a wide range, we can be certain every customer gets what they need. Another subject we enjoy highlighting is how strong Eggland's Best is — the top-selling branded specialty egg, and we handle more than half of the dozens produced for Eggland's Best. Those are enormous, enormous tailwinds behind us. Still, our thinking is that we should match our customer's pace over the long term. Short-term moves aren't something we make. This industry has been our home for many years, and we plan far ahead regarding how various categories will develop. This brings us back to the idea of options. Our approach is to put money in across the board and ensure we're set up for the future. Still, we clearly observe expansion taking place in branded products, private label, pasture-raised, and of course cage-free too. Our attention stays firmly on building long-term enterprise value and growing it as time goes on. That means we'll keep putting resources into cage-free, and we'll do the same for pasture-raised along with the other categories. How quickly and how widely we do this will be determined by what the customer wants.