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

Hello, everyone, and good morning. We appreciate you being with us. Before I go further, please note that what we say today could contain statements about the future. Those reflect what management currently anticipates, and they carry risks and uncertainties that we describe in our SEC filings. If we look at how we performed during the second quarter and the first half of the year, one message comes through clearly. We generated genuine momentum. Our results were solid despite a difficult comparison with last year, a period defined by imbalances between supply and demand along with record-high prices; now that egg prices are lower, our business model — increasingly diversified — along with strong execution, has shown itself to be a source of resilience. That gives us a distinctive position right now: an uncommon blend of value and growth, with room to get even stronger as time goes on. Within our specialty egg business, prices and volumes held up well even against tough comparisons, and it produced growth during the first half of the fiscal year. Meanwhile, the expansions we announced recently are setting up our prepared foods business to achieve lasting double-digit volume growth. One more important trend stands out: our sales mix keeps shifting across the portfolio. That shift showed up during both the second quarter and the first half of the fiscal year, and we anticipate it will gradually make our earnings more durable and more predictable. It directly mirrors how deliberately we are carrying out our long-term strategy, and we think our results keep confirming how powerful that approach will prove to be as we pursue operational and financial excellence. Let me walk through a handful of strategic highlights from the second quarter and the first half of the year that illustrate how we are achieving continued sale diversification and favorable mix shifts; during the second quarter of fiscal 2026, shell egg sales made up 84.4% of total net sales, down from 94.7%. Specialty eggs contributed a larger share of shell egg sales, representing 44% of total shell egg sales versus 31.7%. And taken together, specialty eggs and prepared foods represented 46.4% of net sales versus 31.2%. During the first half of fiscal 2026, shell egg sales made up 85% of total net sales, compared with 94.5% in the first half of fiscal 2025. Specialty eggs contributed a larger share of shell egg sales, representing 39.6% of total shell egg sales versus 33%. And taken together, specialty eggs and prepared foods represented 42.8% of net sales versus 32.4%. None of this would be possible without our people. I want to offer my sincere thanks to our teams throughout the organization, whose discipline, focus, and dedication to excellence fuel the operational and financial performance behind everything we do. Their hard work and commitment keep setting us apart, and these results directly reflect what they have done. Before Max takes you through the numbers in depth and gives you more context around how we performed financially, I want to spend a few minutes on where the company is headed strategically over the long term, how we are setting ourselves up to grow sustainably, and where the most attractive opportunities lie going forward. Cal-Maine comes into this point in time from strength. Our foundational shell egg business is resilient, battle-tested, and has been built over many decades of solid execution; that base provides something uncommon in the current market: structural soundness at the foundation of what we do, combined with strong pathways for expansion. What makes this business especially attractive is the way the category and shopper habits are shifting. Throughout the United States, eggs continue to be an inexpensive source of protein. Shoppers want complete, high-quality proteins. People using GLP-1 medications are moving toward filling, nutrient-rich foods. Younger buyers and households are viewing eggs as a daily essential, and broadly speaking, convenience represents a significant favorable force, with growing appetite for ready-to-eat and ready-to-heat options. We observe shoppers upgrading their choices. Premium and specialty categories are demonstrating better repeat purchase behavior and a match with the qualities consumers prioritize: wellness, taste, ease, and clean labels. To put it plainly, eggs are out in front on health, convenience, and quality, and that mix is transforming category growth in a manner we think aligns squarely with our advantages. That is why we are deliberately transforming Cal-Maine into a portfolio that is more resilient and strategically diversified, expanding specialty eggs and speeding up value-added prepared foods. This is not a pivot. It is a progression; we are taking a long-standing business and moving into several growth engines that we expect will generate higher quality earnings, deeper customer partnerships, and tighter alignment with long-term consumer trends. A significant piece of that progression is our prepared foods platform. Building on the Echo Lake Foods acquisition, we are putting money to work to substantially grow our prepared foods capabilities. We have kicked off a $15 million network optimization and capacity expansion project that should contribute $17 million of annual scrambled egg production by mid-fiscal 2027; this project brings all scrambled egg manufacturing together into one modernized facility, removing redundancy between sites, simplifying workflows, and boosting supply reliability; it also introduces a new production line, plus upgraded automation that will enhance yields, lower labor needs, and raise throughput. In short, we think it puts Echo Lake Foods in position to serve both near-term customer demand and long-term organic growth with better efficiency and precision; this follows our previously announced $14.8 million high-speed pancake line, which should add another $12 million in capacity through early fiscal 2027. As these projects ramp, Echo Lake Foods has and will go through temporarily lower volumes and higher costs, which started late in the second quarter of fiscal 2026 and are anticipated to persist through the rest of the fiscal year. We think the near-term effect will be more than offset by the long-term gains: greater output, better efficiency, and a more nimble, modernized platform. We are likewise expanding our joint venture, Crepini, and that business is putting $7 million in through the fiscal 2028 period in order to bring on $18 million of added capacity, which takes production up by over seven-fold. If you put Echo Lake together with Crepini, our expectation is that overall prepared foods capacity will rise by over 30% across the coming 18 to 24 months. Our view is that this sets us up to serve surging demand for high-protein, ready-to-eat formats built around convenience, which line up with shifting consumer preferences. Beyond moving faster on value-added prepared foods, we are also building out specialty eggs. During the second quarter, we picked up certain production assets, Clean Egg LLC in Texas, and that move widens our specialty cage-free and free-range egg capacity while backing local sourcing, seizes accelerating market growth, and fine-tunes our supply chain; over time, these investments should help bolster our mid-cycle earnings profile and create a business that is more resilient. They additionally underscore the things that set Cal-Maine apart from other agriculture producers. We are a pure-play leader in a single essential category, selling about one out of every six eggs eaten in the U.S., with complete vertical integration spanning feed and flock through processing, distribution, and delivery to customers, and we deploy that scale with strategy, crafting solutions that render egg consumption simpler, more valuable, and more accessible across every channel; this is a long-term investment story, not a short-term trade. The egg industry has forever been cyclical, supply-driven, and headline-sensitive. Avoiding cycles was never the aim. The aim is to steer through them well, and that is precisely where we have repeatedly set ourselves apart. We have faced conditions like these on many prior occasions.

This sector has seen disruptions to supply and swings in price before, and on every occasion we've worked through them, we've come out in a better position. It's important to note that the supply issues tied to High-path AI haven't gone away. The EPI curve right now looks a lot like what we saw in earlier years, 2022 included. Outbreaks are still happening around the world, and the recovery is uneven and hard to predict rather than moving in a straight line; this isn't a temporary dislocation. It's a structural fact that underscores how much scale and operational execution matter. Over the long run, one of the best opportunities in eggs is getting Americans to eat more of them, and that kind of growth can't happen without dependable supply. Dependability earns trust from retailers, food service partners, and consumers. Growing head numbers over time isn't a bad thing. It's a requirement for growth that lasts. Customers always prize consistency more than spot pricing, and when volatility is normal, dependability turns into a lasting competitive edge. Our approach is deliberately built to deliver through cycles. We keep a strong balance sheet so we retain flexibility in any environment, chase accretive growth with disciplined capital allocation, and keep broadening our portfolio across egg types and adjacent categories. We stay relentlessly focused on cost drivers and efficiency so we can shield margins through cycles, while earning trust by doing right by customers, employees, and partners. This isn't an approach for one cycle. It's an approach designed for durability. Demand in this category is genuine, but it's also intricate. What people often call demand actually mirrors a broad set of dynamic variables, such as when and where birds are gained or lost, changes in where consumers shop, panic buying driven by media, weather patterns, wholesale market movements, promotional activity, and holiday timing. Handling that intricacy well is a core operational skill. Lastly, this company is fundamentally different from the last time we faced similar market conditions. Right now, we have a stronger balance sheet, meaningful growth both organically and through acquisitions, greater diversification into specialty eggs and prepared foods, deeper bench strength across the organization, and less exposure to pure commodity pricing through specialty mix, hybrid pricing models, and value-added products. We are more diversified, more resilient, and better positioned to compound value over the long term; with that, let me hand the call to Max to drill down into our financial results and discuss our capital allocation framework. Max?

Thank you, Sherman, and good morning to all of you. Just a quick note that our earnings release and 10-Q came out this morning. We also posted a short earnings presentation on our website; you'll find detailed information about our financial results in those documents. I'll go over the highlights for the second quarter and the first half of Fiscal 2026. Except where noted otherwise, every comparison is against the same period in Fiscal 2025; in the second quarter of fiscal 2026, net sales came in at $769.5 million versus $954.7 million, a decline of 19.4%. Total shell egg sales reached $649.6 million versus $903.9 million, a drop of 28.1%, reflecting selling prices that were 26.5% lower and sales volumes that were 2.2% lower. Conventional egg sales totaled $363.9 million versus $616.9 million, a decrease of 41%, reflecting selling prices that were 38.8% lower and sales volumes that were 3.6% lower. Specialty egg sales came to $285.7 million versus $287 million, a decline of 0.4%, with sales volume and selling prices both essentially flat. Breeder flocks were up 12.7%. Total chicks hatch increased 65.1%, and the average number of layer hens was up 2.6%. Prepared food sales reached $71.7 million versus $10.4 million in the second quarter of fiscal 2025, an increase of 586.4%, and versus $83.9 million in the first quarter of fiscal 2026, a decrease of 14.5%. Echo Lake Foods accounted for $56.6 million of sales in the second quarter of fiscal 2026 versus $70.5 million of sales in the first quarter of fiscal 2026. As Sherman noted, the expansion initiatives we announced affected the second quarter of fiscal 2026. Gross profit came to $207.4 million versus $356 million, a decrease of 41.8%, driven mainly by shell egg selling prices that were 26.5% lower and shell egg sales volumes that were 2.2% lower, partly offset by lower egg prices for outside purchases and a 3% rise in percent to sold, along with contributions from prepared foods. Operating income was $123.9 million versus $278.1 million, a decrease of 55.5%, with an operating income margin of 16.1%. Net income attributable to Cal-Maine Foods was $102.8 million versus $219.1 million, a decrease of 53.1%. Diluted earnings per share came in at $2.13 versus $4.47, a decrease of 52.3%. Cost of sales was down 6.1%. Lower costs tied to egg purchases and egg products more than offset higher prepared food costs from the Echo Lake Foods acquisition, along with increases in our farm production and processing, packaging, and warehousing costs. SG&A expenses rose 6.8% because of the addition of Echo Lake Foods and higher professional and legal fees. That was partly offset by a reduced charge in the change in earn-out liability recorded in the prior year period and lower employee-related costs. Net cash flows from operation was $94.8 million versus $122.7 million, a decrease of 22.8%. We closed the quarter with cash and temporary cash investments of $1.1 billion, down 18.2%. We stayed virtually debt-free. During the quarter, we bought 846,037 shares of our common stock for a total of $74.8 million. Those buybacks happened through the share repurchase program we currently have in place, and that program allows us to buy back as much as $500 million; of that, $375.2 million is still open. When it comes to the second quarter of fiscal 2026, we're going to hand out a cash dividend of roughly $0.72 for each share to people who own our common stock, and that's in line with the variable dividend policy we follow. Shareholders will receive that payment on February 12, 2026, and you have to be on the books as of January 28, 2026 to get it. Whatever gets paid per share in the end depends on how many shares are outstanding when the record date arrives. The way we allocate capital is built to strike a balance between careful stewardship and building value over the long haul. Our cash position is solid and our balance sheet carries no leverage, so we have room to go after focused, accretive acquisitions, put money back into the business through CapEx, and give capital back to shareholders. Lately, the cash we've generated from operations has covered robust dividends under our long-established practice of distributing one-third of net income, and it has also backed buybacks of shares that boost returns even further. Meanwhile, our reinvestment efforts target growth in specialty eggs and prepared foods, since scale efficiencies from mixed shifts along with vertical integration push margins higher and produce better quality earnings. Taken as a whole, we expect these moves to generate total shareholder return in which dividends, buybacks, growth in earnings per share, an improved mix, and multiple expansion over the long term all combine to compound value as time passes. Shifting to the first half of fiscal 2026, net sales came in at $1.7 billion, a drop of 2.8%, or $48.4 million. Sales of total shell eggs reached $1.4 billion, versus $1.6 billion, a decline of 12.5%, as selling prices fell 12.6% while volumes stayed about level. Conventional egg sales totaled $869.8 million, compared with $1.1 billion, a 21% decrease, reflecting selling prices that were 19.4% lower and sales volumes that were 2% lower. Specialty egg sales hit $569.2 million, versus $543.7 million, an increase of 4.7%, helped by sales volumes up 3.8% and selling prices up 0.8%. Breeder flocks climbed 21.6%. Total chicks hatched jumped 71%, and the average count of layer hens grew 6%. Prepared food sales came to $155.6 million, compared with $19.4 million, a rise of 702.9%. Echo Lake Foods added $127.1 million in sales. Gross profit stood at $518.7 million, versus $603.3 million, a 14% decline, mostly because shell egg selling prices were 12.6% lower, partly offset by a drop in both the price and volume of eggs bought from outside suppliers as dozens produced rose 3.1%, plus the contributions from prepared foods. Operating income was $373.1 million, compared with $465 million, down 19.8%, and operating income margin was 22.1%. Net income attributable to Cal-Maine Foods came to $302.1 million, versus $369 million, a decrease of 18.1%. Diluted earnings per share was $6.26, compared with $7.54, down 17%. Cost of sales rose 3.2% as dozens produced by our operations went up 3.1%, and our farm production costs for each dozen were 2.1% higher. Our prepared foods cost went up because we acquired Echo Lake Foods. Lower costs tied to outside egg purchases and egg products partly offset those costs. Selling, general, and administrative costs rose 9.2%, driven by bringing Echo Lake Foods into the fold plus higher professional and legal fees, though that was partly countered by a smaller charge for the change in earn-out liability than what was recorded in the same period a year earlier. Cash flow from operations, net, came to $373.4 million, versus $240.2 million, a gain of 55.5%; that wraps up my walkthrough of the financial results. At this point I'll hand the call back to Sherman.

Thanks, Max. If we look forward, what matters most to us is still getting things done. As we grow our specialty egg and prepared food operations, we're bringing new assets into the fold, extending newly developed capabilities, and keeping our attention on the quality and consistency that buyers count on; we're also chasing innovation along with chosen acquisitions that should widen what consumers can pick from, reinforce our reach across channels, and create a steadier growth trajectory. In the end, what we have in front of us is a chance to show where Cal-Maine is headed, rather than merely where it has come from; what we're constructing is a company with solid foundational returns and several engines for growth, one that accumulates value across time by serving shoppers whatever their preference, at each level of the egg value ladder. That's the Cal-Maine we're bringing into being: resilient, varied, and ready to guide the category through its coming 10 years of expansion; having said that, I'll hand the call back to the operator so we can start the Q&A part of today's call.

Morning, and nice work on a strong quarter. Sorry about how I sound — I've got a terrible cold, so my apologies. I'd like to ask something: with egg spot prices sitting where they are right now, in earlier times that would have meant Cal-Maine posting losses on the EPS line. I was just mentioning the adjustments you all have made to the portfolio across the last few years — moving further into prepared foods, plus the bigger share coming from cost-plus style arrangements. Could you take us through how you view the earnings power, or the path of earnings, when egg markets are depressed the way they are now?

Morning, Heather. Sherman here — thanks for asking that. As you're aware, we don't provide specific guidance, though I'll address each item. Specialty is something we've worked on for quite a while, we've seen double-digit growth, and we expect that to keep going. Prepared foods has us excited, and it's delivering. We've already committed to 30% growth within the next 18 to 24 months, and we're enthusiastic about further growth beyond that, whether through organic means or M&A down the road; and regarding hybrid pricing, we discussed it last quarter — there are trade-offs on the higher side, yet the genuine upside shows up in weaker markets. So the point you raised is correct. What really matters there is that we back our customers' go-to-market strategy and serve as a trusted supplier over the long term. And we think each of these will keep enhancing our mid-cycle performance. Max, anything you'd like to add? Sherman, I believe you covered it, but what you mentioned in your remarks — that we're a different company than we were when the market last sat at these levels — and you pointed to those factors: just the growth we've achieved, an even stronger balance sheet, greater diversification, the expansion of prepared foods, the ongoing rise of specialty. All of that, in my view, makes us a stronger, more durable company going forward.

All right, and to build on that point — obviously there's always tail risk, things can go wrong — but with these changes in place, do you believe Cal-Maine is a position that could get through down markets of this kind without producing losses, given those changes?

Again, Heather, guidance isn't something we provide, but Max just mentioned the genuine strengths that set us apart entirely from where we stood the last time these market conditions appeared. Our balance sheet is definitely in a stronger place than at any point before. As for the growth we've achieved, we've been quite strategic in directing that growth toward specialty eggs as well as prepared foods, both of which hold considerable importance when market conditions are lower. Beyond that, the hybrid pricing approach should, in our view, be quite advantageous for us — so we're in a far better spot than ever before, Heather. And those prepared foods, Heather, as we've mentioned previously, tend to run somewhat countercyclically. A lower egg market is going to work in their favor. That's simply one more strength, I believe, that we lacked previously.

All right. Appreciate it.

Morning, and thank you for taking the question. I'd like to begin with the prepared foods segment. From what I gather, you're tweaking a few things there — softer volumes, perhaps somewhat elevated costs through the remainder of the year. Gross margins in that segment declined by about 3%, landing near 19.6%. Should we view that as a reasonable baseline for the balance of this year? Or could you shed some light on what to expect for prepared foods gross margin?

Morning, Pooran, and I appreciate the question. On prepared foods, when we first issued guidance alongside Echo Lake, we indicated an EBITDA margin of 19%, and our view remains that this figure is accurate. This quarter did see some erosion, for the reasons you cited — our efforts to set up for a stronger future. We'll likely see a bit more erosion in the coming quarter, yet across the full year, we continue to feel confident in that 19% EBITDA margin. Again, this is very much worth our while — stepping back and getting ready for what lies ahead. That 30% growth across the coming 18 to 24 months genuinely excites us. Max, anything you'd like to add? Seems you've said it all.

Alright, alright. So I suppose what I'd ask next is — you folks have mentioned the M&A pipeline before, and maybe it opens up when egg markets are weak; but with your wider push into prepared foods, would that shrink what you can go after or your M&A pipeline? Because my thinking is that for these kinds of businesses, a cheaper egg market would translate into greater earnings potential and possibly a richer valuation. So I just wanted to hear your view on the bigger M&A pipeline opportunity, with egg markets depressed and with your business having changed.

Randy, when it comes to that prepared foods operation, the appeal there relates to predictability rather than the boom-and-bust pattern you just described. So our view is that this factor probably won't carry much weight. From where we sit, the expansion opportunities are wider than at any point before — everything still centers on eggs as our foundation, yet today we can also grow through conventional specialty prepared foods, through possible ingredients that supply prepared foods, and even through prepared foods brands themselves; each of those represents a viable path forward. As a result, we'll keep applying a highly disciplined approach when assessing acquisitions and will proceed at an appropriate tempo. Max?

Again, you covered it well, Sherman. I'll leave it there.

Thanks for taking the call.

Hello, good morning. Leah Jordan here, calling in from Goldman. The move toward specialty eggs and prepared foods truly is the central piece of your narrative moving forward, and it came across very well in today's quarter. That said, how are you viewing capacity expansion for specialty eggs as time goes on? Also, considering the Clean Egg acquisition from this quarter, how do you weigh M&A against organic growth when it comes to sustaining that capacity build-out? And finally, could you offer any perspective on how we ought to model the pacing of your sales mix tilting toward specialty over the longer horizon?

Morning, Leah. Like you mentioned, our specialty eggs and prepared foods is an exciting area, representing 46% of net sales this quarter. We've witnessed double-digit CAGR-type expansion in specialty eggs; we're eager to keep pursuing those same kinds of growth metrics. Over the longer term, we can certainly envision specialty eggs accounting for more than 50% of our overall shell egg net sales. So combining that with the 30% growth we're aiming for in prepared foods, we believe it sets us up well for far more stable earnings down the road. Yes. And Leah, you mentioned the Clean Egg acquisition. For us, that was a modest yet highly timely and significant deal. I mean, based on the description we provided, it consists of 677,000 brown cage-free and free-range layers and pullets. Every bit of it is specialty. We have market growth mapped out and happening right now, and securing those eggs at this moment, and for what we expect ahead, was extremely important and vital to keeping that specialty business growing.

Thank you. That is quite useful. To build on what we discussed regarding prepared foods, with the investments currently being made, could you share additional specifics on how the optimization and expansion work has gone so far, plus further insight into the associated elevated expenses we ought to factor in for the latter half of this year compared with what showed up in this quarter? Also, once those investments begin contributing over the coming 12 to 18 months, what should we expect regarding the pace of the growth trajectory in that area?

You highlighted the key element. This is a project spanning 18 to 24 months, and we disclosed the CapEx portion at $36 million to support that 30% growth. In the meantime, while we pull back certain lines so we can install all of our automation and get our various lines positioned, we do incur some volume efficiency penalties. Yet over the long run, growth will definitely be solid; and simultaneously, we still believe we will achieve that 19% EBITDA margin we originally referenced. We are also confident that we can keep growing that business over the long term at what we cited when we bought Echo Lake, that 9%-10% CAGR. So once more, during the first quarter we discussed essentially allowing it to operate freely. Let us observe its performance. After that we evaluated. And at this point we are implementing the adjustments we believe best position us for the long term and for long-term growth and success in prepared foods.

That's quite useful. I appreciate it.