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

Hello, everyone, and thanks for being here this morning. Before we go further, please note that what we say today could contain forward-looking statements. Such statements reflect what management currently anticipates and carry risks and uncertainties that we've outlined in our SEC filings. Let me start by calling attention to the strategic strides achieved during fiscal 2026. Across that fiscal year, our attention stayed on broadening the mix of where our sales come from — a key effort we expect to make our earnings more durable and more predictable down the road. A number of strategic acquisitions were closed that move our long-term goals forward; we picked up certain assets belonging to Graton Brothers LLC and its affiliates, which should sharpen our vertically integrated operating model even more and reinforce links throughout our value chain. After the successful purchase of Echo Lake Foods in 2025, we went on to diversify our earnings profile further and moved into higher-value consumer-facing markets via the more recent acquisition of the Vans Food brand; then, after the fiscal year closed, we grew our distribution reach by picking up additional Eggland's Best franchise territory in the Northeast, deepening our penetration of the specialty egg category in one of the country's biggest and most affluent consumer markets. We're also seizing on rising consumer appetite for what we sell by pushing our long-term growth strategy ahead with a fresh $54 million investment aimed at expanding Prepared Foods production capacity further. That investment should deliver roughly 30% more production capacity for our Prepared Foods segment, starting in the first half of fiscal 2028. Along with the 30% organic capacity growth announced earlier and the 6% capacity growth tied to the Vans acquisition, we expect Prepared Foods production capacity to rise by more than 60% between the close of fiscal 2026 and the first half of fiscal 2028. Let me point out a few important developments from the fourth quarter and from fiscal year 2026 that show the ongoing progress we're making in carrying out our strategy. Prepared Foods represented 10.9% of consolidated net sales in the fourth quarter of fiscal 2026. Taken together, Specialty eggs and Prepared Foods climbed to 53% of net sales. For fiscal 2026, Prepared Foods made up 8.4% of net sales. Combined, Specialty eggs and Prepared Foods rose to 44.4% of net sales. For the quarter, our reporting reflects a new operating segment structure; this fresh reporting framework lines up better with the way management examines operating results and decides on resource allocation and strategic initiatives. Cal-Maine is the largest shell egg producer and distributor in the nation, and we run the most vertically integrated operation in the industry. That gives us a rare ability to navigate market cycles and still keep putting money into long-term growth. Our size, our operational skills, and our financial strength — supported by a solid balance sheet — create competitive advantages that really count when conditions get tough, like they did this quarter. During the fourth quarter, an oversupply across the industry drove conventional shell egg prices to inflation-adjusted lows that had never been seen before. What matters most is that supply, not demand, is what's driving this situation; in every end market we serve, we continue to observe healthy long-term demand fundamentals. Citing outside market analysis from the American Egg Board and Urner Barry, we continue to see supply levels that are high, although early indicators suggest the market is beginning to find its footing again. According to the American Egg Board, the number of hens in U.S. laying operations sits between 340 million and 347 million, based on producer evaluation information collected across the commercial egg sector — considerably higher than what the USDA has published, which tells us egg availability remains plentiful. Keep in mind that the American Egg Board's number comes from May assessment data, so it might paint a bigger picture of the flock than what exists today if, as has been reported, producers moved more quickly on flock rotations during the summer. Even so, strong output per hen and export volumes that remain below where they've historically been appear to be keeping production well supported. Even so, according to both the American Egg Board and Urner Barry, there are indicators that expansion of flocks is slowing down — things like reduced breeder operations, a jump in canceled chicks, softer hatchery orders, and more forceful turnover of flocks. Should that hold true, those trends ought to reduce available supply soon and hint that supply could continue to level off across the next several quarters. Turning now to the demand side: the basic fundamentals still appear quite strong in our view. The share of households buying eggs remains remarkably elevated at more than 97%, and those households are buying eggs about 19 times annually. Retail volume for us has climbed almost 6% so far this year, helped by lower prices. In our view, eggs are still in a strong spot to gain from consumers' lasting appetite for protein, nutrition, convenience, and value. We're also upbeat about the steady rise in GLP-1 use—roughly 22% of American households now have someone taking a GLP-1—which strengthens the case for protein-rich foods such as eggs. Demand from foodservice is holding up well. Specialty eggs keep growing faster than conventional ones. The USDA expects per capita egg consumption to rise in 2026 and again in 2027, and exports have picked up from South Korea, which is bringing in U.S. shell eggs to make up for supply shortfalls there tied to < >. The steps we've taken strategically to reshape what we offer, run our business more efficiently, and deploy capital carefully are helping us stay steady through one of the toughest stretches for conventional egg pricing that we've seen. We're set up now to come out of this as a better, stronger company, but we know this transformation is still in its early days. The pricing conditions that persisted during the quarter give us a useful stress-test benchmark — it shows the durability we've created so far through these strategic moves, and at the same time it points to the significant potential gains ahead as our efforts keep developing. With further diversification and expansion across our operations, plus our operational programs reaching maturity, we anticipate that a larger share of earnings will be generated by differentiated businesses that are less tied to cycles—making us more resilient no matter the stage of the commodity cycle. Considered as a whole, these efforts should keep strengthening both the steadiness and durability of our normalized earnings power, while also bolstering our competitive edge over the long run. On that note, I'll hand things over to Max, who will dig into the financial results and walk through how we approach capital allocation. Max?

Thanks, Sherman, and hello everyone. This morning we issued our quarterly earnings release, and our Form 10-K for fiscal year 2026 has been filed as well. A supplemental presentation covering the fourth quarter is now up on our website, offering additional insight into our results. Previously, we treated the business as a single operating segment and a single reportable segment. Beginning in the fourth quarter of fiscal 2026, given how our business has developed, we revised our internal reporting to more accurately capture the way we really run things — with a focus on enhancing operations and evaluating performance by product category rather than on a consolidated basis. As a result, we ended up with three reportable segments: conventional shale eggs, specialty shale eggs, and prepared foods. Everything left over—co-pack shale eggs, egg products, hard cooked eggs, and other business activities—doesn't qualify as a reportable segment under the accounting standard we follow. Turning to the conventional shale egg segment: in fiscal 2026 it generated $1.348 billion in net sales and $217 million in operating profit, and its core focus is producing, grading, packaging, marketing, and distributing shale eggs that are sold as conventional shale legs, which takes in our Sun Ups and Sunny Meadow brands. Our specialty Shale Egg business brought in $1.07 billion in net sales and $182 million in operating profit during fiscal 2026. Its core activities involve producing, grading, packaging, marketing, and distributing shell eggs, offered in cage-free, neutrally enhanced, organic, brown, paster raised, and free-range varieties. Within this segment you'll find our Farmhouse eggs and Ford grain brands, along with branded items tied to our membership in the Eglen's Best Inc. cooperative, such as Eglin's best and land of likes. Prepared Foods brought in $245 million in net sales and $34 million in operating profit during fiscal 2026. This segment is primarily focused on making, packaging, marketing, and distributing prepared food items — things like precooked egg patties, omelettes, < > and scramble egg formats, pancakes, waffles, and specialty rolls. Vans and Kapuni are the brands that fall under this segment. Every prior year period has been recast so the new reportable segments are reflected. Before I get into our full year performance, segment results, balance sheet, and cash flow, I'll begin by reviewing how we did in the fourth quarter. Consolidated revenue for Q4 came to $552.6 million, a decline of 49.9% versus the same period a year earlier. On a consolidated basis, gross profit came in at $34.1 million, which produced a gross margin of 6.2%. The consolidated operating loss stood at $58.8 million, with an operating margin of negative 10.6%. For the quarter, net loss attributable to Cal-Maine Foods reached $35.9 million, equal to a diluted loss per share of $0.76. Revenue from Conventional shell eggs was $210.8 million, a decline of 70% compared with the prior year. That segment posted an operating loss of $40.6 million, giving an operating margin of negative 19.3%. Specialty Shale Eggs brought in revenues of $239.7 million, which represents a 21.4% drop from the previous year. Segment operating income for that business totaled $17.5 million, with an operating margin of 7.3%. Prepared Foods generated revenue of $60.4 million. Its segment operating income was $8.8 million, translating to an operating margin of 14.6%. Turning now to how we performed across the entire year. Our consolidated revenue came in at $2.912 billion, which represents a 31.7% drop versus the previous year. On the gross profit side, consolidated figures hit $672 million, and gross margin landed at 23.1%. Consolidated operating income came to $350.2 million, which works out to an operating margin of 12%. When it comes to net income attributable to Cal-Maine Foods for the year, that figure was $316.7 million, resulting in diluted earnings per share of $6.63. Looking at conventional shale eggs, revenue for the full year totaled $1.348 billion, a decrease of 51.1% from the prior year. Operating income for that segment was $216.6 million, with an operating margin of 16.1%. As for specialty shale eggs, they brought in full year revenue of $1.070 billion, which is a decline of 7.3%. Segment operating income came in at $181.5 million, with an operating margin of 17%. For Prepared Foods, full year revenue reached $244.8 million. That segment's operating income totaled $33.9 million, reflecting an operating margin of 13.8%. I'd like to spend a few moments now walking through how each segment did. In our conventional Shale Egg segment, the fourth quarter and the full year alike reflected a pricing environment that fell steadily throughout fiscal 2026, reaching lows on an inflation adjusted basis that we haven't seen historically in the fourth quarter. What drove these conditions was abundant industry supply, not any softening of demand. We saw inventories climb a lot compared with the serious shortfalls experienced a year earlier, and our fourth and first fiscal quarters are normally when prices are at their seasonal weakest anyway. Unit sales increased 3.1% in the quarter and were about level across the entire year, demonstrating that what mainly shaped financial results was pricing across the industry, not demand. Pricing for conventional eggs naturally moves in cycles and is mostly set by the market, yet we don't simply sit back and accept conditions as they are. We continue to aggressively control what we spend by optimizing blocks—whether that means efficiency programs or maintaining operational rigor throughout our production network. When it comes to our key customers, we've set up structured pricing deals that shield us somewhat from the full swings you'd get by selling only on the spot market. Also, since we're the biggest producer in the U.S. and the most vertically integrated one, the benefits we get from our size in buying, shipping, and taking care of customers matter even more when the industry is under pressure — that lets us hold onto our competitive standing and puts us in a strong spot to pick up margin once prices bounce back. In our Specialty Shale Egg segment, volumes during the fourth quarter went back to the seasonal norm. When we look at this against last year, keep in mind that the earlier period was exceptionally strong. Back then, an unusual pricing gap versus conventional eggs gave demand a short-term boost — conventional eggs got so expensive that shoppers shifted toward specialty eggs. Now that things have settled back to normal, specialty volumes in the fourth quarter of 2026 came down just as we had anticipated. The key point is that for the entire year, specialty shell egg volumes rose 2.4% even with pricing behaving more typically, and we see that as evidence of durable consumer demand and solid commercial execution. Margins came down from the high levels we saw a year ago, when those atypical pricing dynamics briefly stretched the conventional-to-specialty spread wider. For this segment, we see the present margin level as a better reflection of what normalized conditions look like in the near term, even though it remains under our long-range goal as we keep expanding higher-margin subcategories such as cage-free, organic and paster raised. Our Eglin's Best franchise territory enlargement in the Northeast, announced after the quarter closed, illustrates well how we are steadily working toward a richer specialty mix over time. Within our Prepared Foods segment, results kept gaining speed as we carried out our network optimization and production capacity expansion efforts. With production capacity expansion moving forward on schedule, facility utilization got better, fixed cost absorption rose and operating performance became stronger. Compared with the third quarter of fiscal 2026, we saw gains in both the prices we charged and the amounts we sold. Work to bring our < > Foods acquisition into the fold is moving forward on schedule, and the initial signs are positive, while the joint venture we compete with continues to post robust growth. For the quarter, SG&A totaled $93.6 million, down 1.4%, and for the full year it was $329.2 million, up 4.7%. Operating cash flow came in at $2.8 million for the quarter, a 99.3% decrease; when the quarter closed, our cash and temporary cash investments stood at $924.1 million, and we remain virtually free of debt. Under our current share repurchase authorization, we bought back 396,083 shares of our common stock < > during the quarter, spending $30.1 million in total. The repurchase program allows up to $500 million in buybacks, with $320.7 million still available. In line with our variable dividend policy, no cash dividend will be paid for the fourth quarter, nor for any profitable quarter after that, until profitability on a cumulative basis is achieved, measured from the date of the most recent quarter in which a dividend was paid. The cumulative loss that must be recovered before any dividend can be paid stood at $35.9 million as of May 30, 2026. Sherman, I'll now pass things over to you for your closing comments before we open it up to questions.

Thanks, Max. Looking ahead, we believe our standing continues to strengthen as the market improves, particularly after we move beyond the first quarter of fiscal 2027. Even so, during the first 5 weeks of that quarter, market prices averaged just $0.72, about 54% below the same period in the fourth quarter of fiscal 2026, reflecting the usual seasonal low that tends to mark our June through July window. More recently, pricing has strengthened, climbing more than 90% within only a few weeks. Initial indicators point to an improved supply-demand balance supporting a more favorable egg pricing backdrop as we move toward autumn, which has traditionally been a seasonally stronger period. Improved market conditions, together with the operational steps we've taken, should place us on firmer footing once the first quarter is behind us. Beyond the current market backdrop, our attention stays fixed on making Cal-Maine Foods a tougher, better-positioned business. Our strategy continues to be carried out with the aim of expanding avenues for growth, spreading our earnings across a wider base, and boosting our sustainable earnings capacity as time goes on. When it comes to Specialty shale eggs, we're expanding what we offer so we can ride beneficial consumer trends over the long haul, while also increasing the share of items that carry inherently stronger margins and demand that's more steady. Over in Prepared Foods, what we're building is a growth platform that complements the rest, broadening the market we can reach, spreading our earnings across more sources, and putting us in a position to participate in appealing categories that go beyond traditional shale eggs. The thing that makes this strategy so compelling, in our view, is just how tightly linked these businesses are. Because we're vertically integrated, and thanks to our breaker network, we enjoy significant edges in supply, cost, quality and reliability that very few rivals can replicate. With those capabilities, we're able to meet customer needs more fully, all while driving operational efficiencies across the whole enterprise. Additionally, we're advancing a wider portfolio strategy that brings together both branded and private label items spanning shale leagues and prepared foods. This enables us to serve customers across various categories, eating occasions, and price points, all while deepening our strategic partnerships for the long haul. Innovation remains a key part of our approach. Prepared Foods is not just about introducing new products—it's about using our egg expertise to move into additional day parts, formats, and consumption occasions that can significantly expand our long-term growth potential. Our purchase of the < > Foods brand is still going smoothly. We're folding the business into the Cal-Maine operating model, harmonizing processes, and linking the brand with our wider Prepared Foods capabilities. We still feel good about the chances we have to use our size, our business partnerships, and our know-how in operations to speed up growth as time goes on. Egg markets are going to keep swinging up and down, but our plan for the long haul doesn't hinge on what any one market does. What we do instead is stay committed to allocating capital carefully, running operations at a high level, evolving our portfolio, and executing consistently. We believe these steps position Cal-Maine to create value that lasts for shareholders over the long term, and they also make our operations more resilient and higher in quality across shifting market conditions; so having said all that, I'll turn it back to the operator so we can begin the Q&A portion of this call.

Heather, I figured I'd begin with conventional pricing. From what I understand, across the past 12 to 18 months, you folks shifted toward building greater stability into those prices. When I attempt to derive this quarter's average conventional price, I need to plug in roughly 30% for cost plus, I suppose. Then a fairly weak realization rate on the market-based side, since the market was declining. That runs counter to what I'd previously understood. It also diverges from how your price performance has stacked up against my projections in recent quarters. So I'm curious whether you could explain what might have shifted in Q4, or what we could be overlooking?

Sherman here — thanks for asking, Heather. Regarding our mix, truly nothing has shifted. Let me walk through it once more: pricing arrangements come in 3 varieties — market, grain-based, or hybrid, the last being a blend of market and grain-based. As for how these arrangements break down across our businesses, roughly 50% is market, while 50% consists of grain-based plus hybrid. For the sake of safeguarding particular customer agreements, we haven't disclosed additional specifics. That said, as this quarter demonstrated, hybrid carries a substantial market element alongside grain-based elements, given that our market realization came in at 102% of the < > market. It behaved exactly as we designed. We simply encountered an all-time low inflation-adjusted < > market. During Q1's first 5 weeks, our average < > market was merely $0.72, versus Q4's Earnaberry average of $1.08. Keep in mind there's typically a 10- to 14-day lag before market shifts get realized, and we think Q1 might see a modest gain over Q4 in conventional egg pricing, though it still wouldn't qualify as either normal or mid-cycle. Q1's tale ought to appear far stronger than the first half. What matters is that we've navigated such cycles repeatedly, and this is precisely when we run our company the way we do. Our balance sheet is essential and remains in excellent condition. Another reminder: high path AI has brought extreme volatility across the last 4 years. Sadly, it's evident this hasn't disappeared, given the recent layer outbreaks in the U.S., the continued presence in the U.S. dairy herd, plus outbreaks in Australia and South Korea. We shouldn't treat this as a problem belonging to the past. On the positive side: exports, back-to-school demand looming, continued GLP-1 adoption, and an attractive cost per gram of protein for eggs, which truly shines a spotlight on our protein. Plus likely flock adjustments, as < > noted, which I'd expect to steer us toward a more normalized fall, or Q2 for us. This business was designed to handle downturns like the one we're in, and I want to stress once more that this is a trough — it shouldn't be treated as the norm, just like the elevated prices of a year ago weren't normal either. We're extremely confident that what's happening in the market only confirms that our approach of keeping up investment and expansion in both specialty eggs and prepared foods is the right one, and that's precisely what we're doing. That said, we recognize conventional legs will play a big part once that normalization takes hold. And finally, Heather, our belief in this company remains strong, as shown by the $30 million allocated during the quarter toward buying back shares.

All right. Then I have one more question about something you said, Max. I want to confirm I got it right — I believe you mentioned specialty margin came in at about 7% for this quarter. Were you telling us that this better reflects what you all expect going forward?

Yes, that's right. That figure was what we saw for the quarter. Like Sherman mentioned, we don't view what happened in Q4 as the same situation we had in Q1 — it isn't typical or mid-cycle in any way, just as we never treated last year's strong ag markets as typical. So you have the percentage correct, but I would not describe that as normal mid-cycle earnings. No.

So, what was it you meant to convey? I don’t currently have that remark sitting in front of me, but it concerned something like — in our view, the present margin profile better reflects normalized conditions for this segment over the near term. So, when you put it that way, is that how we should be thinking about the coming few quarters? Or what’s the right way for us to frame it?

It represents a shift back toward a market that’s more normalized. You’ve still got — because of that hybrid pricing and because of our segments, including our specialty segment, there’s a market component in there, especially the California market component, which we pointed to previously, but it stayed at a really low price throughout the fourth quarter and has remained like that for the bulk of the first quarter, so far.

Also, just to remind you, Heather, a small double-digit share of specialty pricing is connected to the egg market, and during Q4 the California market was incredibly, incredibly weak.

I'd like to build on what Heather asked most recently, since specialty profit seems to have shrunk far more sharply than any of us anticipated — considerably worse than the previous quarter, even though pricing declined year-over-year by roughly the same amount. Could you give us additional detail on the favorable and unfavorable factors, what weighed on specialty profit during the quarter, and perhaps how that shifted relative to the earlier quarter? Then, more broadly, how ought we to view swings in this segment over a longer horizon? It sounds like there may be some near-term compression, followed by a return to normal. And I recognize the market-based component is still growing at a double-digit percentage — I had assumed 10%, so feel free to set me straight if that's incorrect. My sense is that investors generally believed this specialty business would be somewhat more steady. So perhaps walk us through the longer-term variability for this segment, and the route back to that steadiness.

Thanks for asking, Leah; the place to begin is seasonality. For the past several years, that simply hasn't been present, given how severe the shortage of supply was, with eggs on the shelf, and specialty eggs stayed very strong during that Q4 and this Q1-style stretch, since eggs were scarce. This year's hand numbers climbed, and it was decidedly more like an ordinary June, July stretch, and even past that, purely the seasonal impact — nothing we hadn't encountered on numerous occasions previously. Still, it does reveal a bit of variability, yet over the long run, directionally, specialty eggs remain well positioned. They keep beating conventional lakes. Max, is there anything you would like to add?

Okay, so volume played a significant role in that, which is what introduced the seasonality you brought up. And when we look back at Q4 of last year, we feel good, because specialty eggs were being sold cheaper than conventional legs. So in this quarter, with the usual seasonal pattern after Easter — our Q1, so Q4 and Q1 — a softer specialty price isn't out of the ordinary. But Leah, just remember, there's still a clearly differentiated price between specialty and conventional. The specialty side does include the market component. Sherman pointed to that California piece, and your figures were pretty much on target. We referenced low double digits, 10% to 12%. However, that California market has been sitting at a genuinely low price. We highlighted that the entire egg market had reached an inflation-adjusted historic low. And obviously, that's impacting specialty prices too. But looking ahead, we anticipate specialty pricing will stay more stable. Should the market give us some lift and move higher, then you wouldn't see the same degree of fluctuation that showed up this quarter.

One more point to mention, Max: the prior year proved exceptionally robust. During many stretches of that period, ordinary eggs carried higher price tags than specialty ones, and that alone pushed a great deal of volume.

All right, that's a lot of useful detail. Let's move to Prepared for a moment. I realize this is one more piece of the story about earnings quality getting better. Today brought announcements of additional acquisitions and expansions. Perhaps you can help us establish a baseline for what comes next. My impression has consistently been that a trough ought to arrive in the fourth quarter. From what you're saying, the expansion plans currently underway remain on schedule as we leave this quarter. So as we move toward the ramp into '28, maybe you could share how you view top line growth and margin evolution right now?

We'll have < > address that.

Leah, I appreciate that question. Let me take you back to last December, when we made 2 announcements. The first concerned optimizing our existing plants and the way we manufacture product at certain facilities; that work got started during the second quarter. We noted at the time that the third quarter would represent something of a low point while we optimized production across those plants. Then, also in December, we announced a capacity expansion of 30% across pancakes and scrambled eggs — so that covers the pancake line as well as Carpini. On pancakes, that's roughly 12 million pounds of added capacity, and installation is nearly finished here as we close out the first quarter. We ought to begin seeing the benefit early in the second quarter. On scrambled eggs, it comes to approximately 17 million pounds of added capacity, and that should begin showing up around the middle of the second quarter. Carpini, meanwhile, accounted for about 18 million pounds, and we expect to see that come on gradually across 2027 and into 2028. Then there's what we announced just this morning — the $54 million investment — which we'll start to see later, around the middle of 2028. So that project is only now getting moving here during the first and second quarters; and then, clearly, we brought band into the mix. All told, that adds up to roughly a 60% gain in production capacity relative to where we finished 2026.

All right, that's useful. To build on that, though, perhaps in relative terms, how ought we to consider the revenue outlook compared with the double-digit normalized rate you've mentioned previously? And regarding margin recovery, does what was announced today push back any of the earlier expectations? Are we reaching that normalized margin rate you've referenced before more quickly?

Nothing is delayed by what we announced today. On the top line, we ought to begin seeing it rise starting around the second quarter, once the roughly 30% capacity expansion previously announced kicks in; that gets underway in the second quarter and then advances through 2027 into 2028. Then during 2028, the top line will improve relative to what we announced this morning, around mid-2028.