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

Hello everyone, and thank you for joining us this morning. A quick note before we start: today's comments may include forward-looking statements. Those are based on management's current expectations and involve risks and uncertainties, which are detailed in our SEC filings. First, I want to express genuine appreciation to our teams across the entire organization — their execution, focus, and dedication to excellence are what fuel the operational and financial results that support everything we do. Their hard work and commitment continue to set us apart, and these results are a direct reflection of that effort. In February, we shared the sad news that Jim Poole, a longtime member of our Board, had passed away. For over 20 years, Jim left a permanent mark on this organization, and we offer our deepest sympathies to his relatives and those close to him. We shared news today that Dudley Wooley will join the Board, stepping into the seat that became open after Jim's passing. Dudley offers extensive knowledge in governance and risk management, plus a proven history of guiding expansion-focused companies and improving operational results; we are eager for the insight he will contribute as we keep reinforcing our business, improving clarity around earnings and concentrating on building value over the long term. Before Max takes you through the details of our results and adds more context on how we performed financially, I want to use a few minutes to talk about how we view where this business is headed over the long term and how the strategy we're carrying out is built to generate value that lasts. When people look at Cal-Maine as investors, what they tend to zero in on is how reliably we execute. That standing wasn't earned in any one quarter — it was built gradually. It comes from the accountability, operational excellence and continuous improvement that are part of how the whole organization works. Here at Cal-Maine, what we're after is simple: to grow intrinsic value per share over time by evolving our portfolio thoughtfully, running operations efficiently and allocating capital prudently. Earnings in the near term are bound to rise and fall—that's just how a cyclical sector behaves—but what we're really trying to do is build up the company's ability to generate profits and withstand pressure over the long haul. Practically speaking, that approach comes down to a handful of key areas. To start, we keep growing the proportion of specialty eggs within our overall product range, since these eggs bring in structurally better margins, demand that holds up more consistently, and stronger returns on the capital we invest. Next, we're refining how we set prices. As time goes on, a bigger slice of our operations is moving toward structured pricing arrangements, and we think this makes the prices we actually get more stable and easier to forecast throughout the cycle. And third, we're growing our Prepared Foods platform. Our move into Prepared Foods widens the set of customers we can serve, makes use of the shell eggs we produce ourselves through our integrated supply chain, and gives us a second avenue for sustained growth that fits neatly beside the shell egg operation we already run. Alongside that, we keep sharpening the areas of operational excellence that have always been part of who we are. Putting money into biosecurity, into boosting productivity, and into owning more of our supply chain makes our low-cost position even stronger and helps us deliver dependable results no matter where we are in the cycle. Our view is that when you add all of this up, it should steadily improve how durable and how high-quality our earnings are in a normal environment, while also making us a tougher competitor down the road. So with that background in mind, I'd like to take you through a number of key things that happened in the third quarter and across the opening three quarters of our fiscal year, which illustrate how this strategy is translating into real execution. Unless we note otherwise, all comparisons are to the equivalent period in fiscal 2025. In Q3 of fiscal 2026, specialty eggs accounted for a bigger portion of shell egg sales, reaching 50.5% of total shell egg sales, compared with 24.4%. Prepared Foods came in at 9.5% of net sales, compared with 0.8%. Combined, specialty eggs and Prepared Foods represented 52.9% of net sales, compared with 24%. Over fiscal 2026's first three quarters, specialty eggs accounted for an increased portion of shell egg sales — 42.7% of the total, compared with 29.2%. Prepared Foods came in at 9.3% of net sales, up from 1%. Combined, specialty eggs plus Prepared Foods reached 45.7% of net sales, against 28.6%. One key thing to note: during fiscal 2026's third quarter, the egg market provided a real-world trial of this approach. Periods of soft pricing may cloud how near-term results look, but they also give us a chance to demonstrate that our output isn't simply a function of spot market swings. Instead, what we post reflects our ability to manage mix, pricing arrangements, costs and capital across the cycle. Here's how that comes across in a more conversational, lightly edited form: The market is still dealing with the effects of high Path AI, though it's nowhere near as severe as what we saw a year ago. The disruption remains a real factor — that part hasn't changed — but it's no longer producing the same kind of supply shock or the panic buying we saw before. As supply has gotten better, retailers and food service operators have stopped racing to stock up, and that's been pushing wholesale prices lower, while retail prices are catching up more slowly. You can see this clearly in the numbers for December through February. The average layer in flock rose roughly 2.2% compared with the same period a year earlier, and depopulations fell 70.6% year-over-year. Even though highly pathogenic avian influenza hasn't gone away, the level of turmoil it's causing has come down quite a bit, and you can see that reflected in prices. Turning to demand, consumption is holding steady or getting better, though a handful of timing-related factors are shaping how things look in the near term. Retail volumes have risen roughly 3% so far this year. The key point is that this market strength is widespread, with gains appearing in the value tier as well as the premium tier. Over in foodservice, demand is starting to bounce back as traffic picks up and egg servings rise, especially within quick service. Zooming out, eggs keep enjoying powerful structural tailwinds. Those items line up with diets that emphasize protein and wellness, they work nicely in formats built for convenience and eating on the go, and once a shopper has entered the channel, they stay a non-optional purchase. Taking a step back, demand continues to look solid, and the patterns we observe in the marketplace right now relate far more to supply coming back and shifts in timing than to any underlying shift in how much people consume. You can see our strategic framework at work in the transaction we announced during this quarter, which covers the shell egg, egg products, and prepared foods assets of Creighton Brothers and Crystal Lake. That deal widens the geography our shell egg platform serves, and we acquire liquid egg capacity located nearby, which supports the way we source internally for ingredients derived from eggs. We believe that increasingly integrating shell egg output, egg-based ingredients, and ready-to-eat offerings into what we do will strengthen the reliability of our supply, boost how efficiently we run things, and improve the financial performance of our Prepared Foods business. With that said, I'll pass it to Max, who will examine our financial outcomes and explain how we approach capital allocation. Max?

Thank you, Sherman, and hello everybody. Just to remind you, our third-quarter results release along with the 10-Q came out this morning. We also posted a short earnings presentation on our site. You'll find thorough details about our financial performance in those materials. I'll walk through the key points for the third quarter of fiscal 2026. Except where noted, everything is measured against the same quarter in fiscal 2025. Net sales for Q3 fiscal 2026 came in at $667 million versus $1.4 billion, a decline of 53%. Conventional egg sales totaled $283.2 million versus $1 billion, off 72.1%, reflecting selling prices that were 70.1% lower and sales volumes that were 6.7% lower. Revenue from specialty eggs came in at $289.1 million, compared with $328.9 million — a decline of 12.1% — as selling prices fell 16.9% while sales volume rose 5.8%. The average size of breeder flocks increased 13%. Total chicks hatched was up 41.7%, and the average number of layers has risen to 2%. Prepared Foods posted $63.6 million in sales, against $11.8 million, which works out to a 441.2% year-over-year gain, and against $71.7 million, which represents an 11.2% sequential decline. Crepini Foods, the subsidiary in which we hold a majority stake, delivered strong momentum, with sales climbing 283% and a positive contribution to the overall Prepared Foods portfolio. For Prepared Foods, Q3 represents a trough stemming from the timing of the planned network optimization and expansion activities we announced previously. Most of the immediate squeeze on margins comes down to how much we're producing — there's some temporary downtime, and fixed costs aren't being spread across enough volume. On top of that, we've got a bit of a mix drag as the network evolves and we lean more heavily on cost-based pricing structures, which do give us better steadiness. When that capacity comes back online, we see things improving step by step beginning in the fourth quarter, and margins should drift back to where they normally sit over fiscal 2027 and 2028 as we pick up scale and network efficiencies. For Prepared Foods, we're looking at capacity expanding by over 30% within the next 18 to 24 months. The important thing is that demand hasn't gone anywhere. What we're seeing is a matter of timing in how we execute, not a structural problem, and once these investments are in place, Prepared Foods becomes a sturdier, higher-margin growth engine. Taking everything into account, gross profit came in at $119.3 million, down from $716.1 million — an 83.3% drop. The main driver was a 56.5% decline in shell egg selling prices, which was partially offset by lower pricing and volume on outside egg purchases, since our produced-to-sold percentage climbed 3.1 percentage points to 91.5%. Operating income landed at $35.9 million compared with $635.7 million, a 94.3% decrease, giving us an operating income margin of 5.4%. Net income attributable to Cal-Maine totaled $50.5 million, versus $508.5 million, down 90.1%. Diluted earnings per share reached $1.06 compared with $10.38, an 89.8% decline. Cost of sales was down 21.9%. Savings on eggs and egg-based inputs were greater than the added expense of prepared foods stemming from the Echo Lakes Foods deal, as well as our higher outlays for farm production and processing, packaging, and warehousing. SG&A costs climbed 4.2%, which reflected the inclusion of Echo Lake Foods plus increased fees for professional and legal services. Those gains were partially canceled out by reduced spending on employees. Operating cash flow came to $103.6 million, down 81.9% from $571.6 million. Cash and temporary cash investments totaled $1.152 billion when the quarter ended, marking a 17.3% drop. We have essentially no debt. In the course of the quarter, we repurchased 329,830 shares of common stock through our existing share repurchase authorization, and the total amount we spent was $24.3 million. Purchases of up to $500 million are permitted under that program, and $350.8 million is still available; through our variable dividend policy, for the third quarter of fiscal 2026 we will pay holders of our common stock a cash dividend of approximately $0.36 per share. The payment date is May 14, 2026, and it goes to holders of record on April 29, 2026. How many shares are outstanding on the record date will determine whatever final amount is paid. From a financial standpoint, we remain focused on strengthening how durable and predictable Cal-Maine's earnings are, while maintaining a capital structure that is both disciplined and adaptable. The way we allocate capital is designed to drive long-term value creation on a per share basis and, at the same time, safeguard the financial resilience we need to operate in a cyclical industry. Our first priority is putting money into organic growth opportunities that offer high returns. This includes investments aimed at growing specialty egg capacity, boosting productivity and operational efficiency, and furthering the ongoing development of our egg products and prepared food capabilities. On that note, our Prepared Foods expansion initiatives remain on schedule and are tracking with the plans we shared previously. Echo Lake Foods has its network optimization and capacity expansion project moving forward. Once complete, that effort should bring roughly 17 million pounds of additional scrambled egg output each year during fiscal 2027. On top of that, the high-speed pancake line we told you about earlier — a 14.8 million unit — is still progressing on schedule, and it should deliver another 12 million pounds across fiscal 2027. In a separate matter, our joint venture Crepini Foods is putting $7 million to work between now and the end of fiscal 2028, aiming to grow capacity by about 18 million pounds by bringing in new equipment and production lines. All together, those efforts are still moving forward as planned, and once the projects wrap up and ramp up on schedule, they should boost Cal-Maine's capacity for prepared food production by over 30% across the coming 18 to 24 months. Next, we go after chosen acquisitions that bolster the company's strategic position and satisfy demanding return thresholds. A solid illustration of that strategy is our purchase of selected assets belonging to Creighton Brothers and Crystal Lake. By completing this deal, we widen the geographic reach of our shell egg platform and simultaneously gain liquid egg capacity close by, which we expect will reinforce our integrated value chain. Finally, we give back surplus capital to shareholders via our variable dividend framework and, when conditions warrant, through opportunistic share buybacks. Running through all of this is our dedication to keeping the balance sheet solid. Because our liquidity is in such good shape, we can put money to work no matter where we are in the cycle, seize strategic openings, and ride out swings in the industry. That disciplined method lets us weigh expansion, durability, and returns to shareholders against one another, all while holding onto the long-range optionality that matters so much in our sector. Looking ahead, we anticipate that this combination — a portfolio that keeps changing, disciplined allocation of capital, and a healthy balance sheet — will continue to raise normalized earnings power per share and support durable value creation for our shareholders. That concludes my walkthrough of the financial results. I'll now turn things back to Sherman.

Thanks, Max. As we look forward, we feel Cal-Maine sits in a strong spot to gain from lasting changes that are reshaping the egg category. By strengthening what is already solid in our main shell egg platform and simultaneously growing in specialty eggs, egg products and prepared foods, we think the durability and quality of our business get better as time goes on. This forward movement should assist in making our earnings profile more dependable and put Cal-Maine in position to achieve sustainable growth along with long-term value creation. With that said, I'll hand the call back to the operator so we can start the Q&A portion of today's call.

Nice work on the quarter. I'd like to begin with specialty pricing, I suppose. That's where a lot of the beat versus what we had modeled came from for the period. And the California price moved up quite a bit across a few weeks, though it has lately started to come down, yet it's still above the Q3 lows. So I'm just curious whether you'd anticipate specialty price in Q4 looking like Q3, or if there's another factor we should be thinking about?

Heather, thanks for asking. Specialty eggs remain incredibly thrilling for us. And going into Q4 and after, we view that as a major element of what sets us apart and lets us diversify and — regarding the specialty price, like we've said previously, a smaller portion of that category is linked to the market. And when that market rises and falls, some fluctuation occurs. But generally speaking, those prices are far more steady. And Max, perhaps you could add a bit more detail on that.

Correct, Heather. Like Sherman mentioned, there isn't a lot of movement in what we charge for specialty. Most of that pricing, as we've pointed out, comes from either grain-based agreements or cost-plus fixed price arrangements. So once more, it remains fairly steady. As you noted, one piece of it is connected to the cage-free California market. That piece shifts quarter-to-quarter, though I'd put it at roughly 12%, around there. How that price moves this quarter and in the quarters ahead will be the main thing behind a good deal of that change. Still, we anticipate specialty pricing holding fairly stable.

All right. My next question concerns the Prepared Foods segment. I may have missed a few minutes at the start, so I apologize if I'm repeating something, but I believe I heard you say the margin there should move back toward baseline across '27 and into '28. I just want to confirm that. Does that mean you don't see it returning all the way until '28? Also, on the word baseline — a few quarters had it above 20%, yet I think your baseline sits at 19%, so is returning to the level from a few quarters back probably not going to happen? And how ought we to frame our updated view of what baseline means?

Sure, Heather, that one's mine. In our view, Q3 is what I'd describe as the bottom quarter. What you're observing reflects expected effects from certain network expansion and capacity initiations we've discussed. During the quarter, volumes came in lower as we proceeded and margins came under pressure while we moved through these reconfigurations. Once volumes drop, the initial consequence is under absorption of fixed cost, and that stood as a significant headwind for the quarter. Yet moving into Q4 '26, we anticipate part of that rebound starting to come back online; sales mix connected to the close of the school year will dampen it somewhat and partly counter that margin recovery; that's simply a typical seasonal pattern; no execution problem exists there. At present, owing to these reconfigurations, our product mix is slightly less desirable, which weighs on margins while we reconfigure; but once more, that will get better in time as well. Every one of these items is transitional and doesn't reflect underlying demand, which we continue to view as strong; we'll keep moving — we continue shifting away from market-based pricing and toward grain-based and longer-term pricing arrangements. That at times reduces near-term pricing upside; but once more, we focus on the long-term durability and stability of our business, and we believe it strengthens that; we — once this recovery begins in Q4 '26, we'll have greater capacity and improved utilization of it. Then that margin recovery will genuinely begin appearing near the end of '27 and, as you noted, into '28. That's the point when the volumes we've discussed from the extra investment we've made in — or are making, rather, in Echo Lake and Crepini will be entirely online and coming back. Alright, so regarding that 19% to 20% margin you mentioned — that figure is what we had identified at Echo Lake, and with Crepini's now in the mix, plus the other pieces of our Prepared Foods segment, we're still putting in the work on those too. But here's the thing — we believe we're absorbing what you might describe as near-term pain at this point in exchange for stronger positioning over the long haul and gains down the road. That said, we're optimistic — I actually feel increasingly optimistic as we head into '27 and the early part of '28 that we'll genuinely start to see the payoff from all of this, alongside that 30% growth we referenced that should come from these investments.

Thanks, Max. What I’d add to that, Heather, is simply making sure the fundamentals are positioned correctly for performance and growth over the long term, with operations made more efficient and the 4 Echo facilities placed in a truly strategic way so that our flower products are handled at the North 2 facilities, while the egg type products are handled at the southern 2 facilities, which are located very near Creighton Brothers, a source that can provide eggs over the long term; so there’s been quite a bit of solid progress there.

Nice work on this quarter. My main interest is pricing, specifically for conventional eggs. It landed somewhat above what our models had projected. You've mentioned previously that the new hybrid pricing approach provides a somewhat stronger floor, and what I'm examining is the ratio of your conventional egg prices versus the USDA figures we monitor. We haven't observed it at this level in more than 10 years. I was hoping you might assist us and the investment community in grasping how to approach your production costs for conventional eggs, drawing on certain disclosures included in your filings. Then perhaps combine that with the sort of high-level return rate you typically anticipate from assets of this kind?

Thanks for asking. I'll begin, then hand it over to Max. I believe you captured it quite accurately. What you're observing is lower volatility. As we said regarding hybrid pricing, certain trade-offs exist. On the upside, there's a chance. On the downside, there's one too, which is what shows up this quarter, and market realization definitely gains from that, plus — as we noted earlier — having arrangements that extend longer-term, so any slippage on the topside gets offset by uplift on the downside. That naturally hinges greatly on which customer type is involved, and the genuine victory here is our collaboration with customers benefiting not just the egg category you mentioned, but specialty eggs and prepared foods too, which we hold in high regard. Regarding costs, plenty is happening geopolitically across the globe. Grain is definitely among the topics that has appeared in headlines recently, especially linked to fertilizer, and our consultants have told us that likely 90% of inputs are already secured. So fertilizer expenses for this planting season ought not to create excessive trouble; yet fuel for transporting grains and everything else is definitely newsworthy and genuine. What's comforting about it is that we've encountered this scenario numerous times in the past. We handle it not just through our scale, but also through our warehousing and inventory and steering through circumstances such as these. Max, anything to add?

Okay, Pooran, so regarding what you referred to as hybrid pricing — that mainly concerns our standard eggs. Since we currently only report a single segment, we don't provide full margin details or returns comparing conventional with specialty. That said, hybrid pricing accomplishes precisely what you described and what we've mentioned previously. What we're aiming to achieve through it is profit that's steadier, more resilient, and more continuous. I'm not claiming it'll be profitable every single time, but we are definitely sacrificing some portion of very high returns from conventional in exchange for earnings that are more stable over the longer term. Then, as we expand, that becomes one component of the overall picture. The areas where we seek truly strong growth and even superior returns are our specialty and Prepared Foods operations. So we tend to view conventional as our foundation. Given its size and scale, it matters that this business stays robust, runs at a profit, and does so consistently — and that's precisely what hybrid pricing delivers. Meanwhile, we keep putting investment into Prepared Foods and specialty, where we anticipate greater returns. Once again, we don't reveal returns separately for conventional and specialty right now, but we have previously stated that our return on invested capital sits in double digits, considerably above our cost of capital. So as of today, we're pleased with those returns — not just from conventional, but also the possibilities within Specialty and Prepared Foods.

Thanks. That detail is helpful, Sherman and Max. I just want to get a sense on the capital allocation side — your balance sheet is still quite solid. And in conversations we've had lately, you mentioned liquids as perhaps one area of focus. So when you scan the M&A landscape, is that still somewhere you'd like to keep expanding? Or are you instead viewing it more opportunistically, based on what's available in conventional specialty or more prepared foods assets?

Let me begin with a comment on Creighton Brothers. As we noted, liquid egg capacity exists there, and it sits very near our Prepared Foods operations that will ultimately be producing egg products in the Southern 2 plants. And our capital allocation hierarchy remains unchanged: pursue selective accretive M&A where returns are compelling. And we think we have more avenues for growth than at any prior point — conventional eggs, specialty eggs, prepared foods, the ingredients you brought up, and also brands connected to prepared foods. On the ingredient side, over time we want to bring our needs within Echo Lake into close alignment; and as we said earlier, there are some arrangements we inherited that we're still working through. But we view Creighton Brothers as a very strategic move to make now that it has come to pass. Max?

Right, so what I'd mention is that in the documents we've put out, there's an investor deck containing a handful of slides, and it goes over how we deployed capital across the 12 months that wrapped up at the close of our third quarter. There's a great deal of equilibrium in it, I'd say, and it demonstrates in many respects that we back up our words with action. What it covers is roughly $1 billion in capital that got allocated. Dividends to our shareholders accounted for around 38%, or $384 million. Acquisitions took about $299 million, or 30% — deals such as Echo Lake, < >, and Creighton Brothers, which we announced recently. Keep in mind, we've been operating in a period when acquisitions are at times viewed as somewhat harder, given how strong the markets have been, yet we've still managed to direct capital toward these deals that we feel genuinely push forward our long-term objectives. On the CapEx front, we put in approximately $117 million, which is 17%, and that figure includes roughly $35 million of maintenance CapEx. Then share repurchases, or stock buybacks, came to about 15%, which is over $150 million. So once more, I believe that provides a solid picture of where our money is going. And like Sherman says, our emphasis there is genuinely on long-term shareholder value. We evaluate opportunities as they come, and we aim to pursue the moves we believe clearly strengthen our earnings quality along with portfolio growth and resiliency.

I'd like to ask about demand. You mentioned it held up well during the quarter. Could you give us additional detail on what you're seeing in the branded portfolio in particular? And what growth chances do you still see there, including possibly winning additional contracts or exclusivity down the road?

Appreciate that question. I will definitely address branded, but first at a broader level, retail egg volumes are up roughly 3% year-to-date, and that goes through late February; and what's truly remarkable is that this spans segments, from conventional cage-free, free range, pasture raised, and food services is also displaying early recovery signals, with January marking a distinct inflection point, rising approximately 1% year-over-year while dollars climbed around 4%. So at a high level we're observing positive developments — and eggs remain well positioned given the long-term consumer move toward high-protein diets, backed by their robust nutritional profile, and affordability is a major advantage for us as a tailwind at present. And on the branded side, we keep expanding it in numerous ways. One is building production to support it. And as Max has said, these case-free projects launching now and over the coming months position us to keep growing that. We've seen growth, naturally, this quarter and are planning future growth too. Max, anything you'd like to add?