CAL-MAINE FOODS, INC. This report contains numerous forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") relating to our shell egg business, including estimated future production data, expected construction schedules, projected construction costs, potential future supply of and demand for our products, potential future corn and soybean price trends, potential future impact on our business of new legislation, rules or policies, potential outcomes of legal proceedings, and other projected operating data, including anticipated results of operations and financial condition. Such forward-looking statements are identified by the use of words such as "believes," "intends," "expects," "hopes," "may," "should," "plans," "projected," "contemplates," "anticipates," or similar words. Actual outcomes or results could differ materially from those projected in the forward-looking statements. The forward-looking statements are based on management's current intent, belief, expectations, estimates, and projections regarding the Company and its industry. These statements are not guarantees of future performance and involve risks, uncertainties, assumptions, and other factors that are difficult to predict and may be beyond our control. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include, among others, (i) the risk factors set forth in Item 1A of our Annual Report on Form 10-K for fiscal year 2019, as updated by our subsequent Quarterly Reports on Form 10-Q, (ii) the risks and hazards inherent in the shell egg business (including disease, pests, weather conditions, and potential for product recall), (iii) changes in the demand for and market prices of shell eggs and feed costs, (iv) our ability to predict and meet demand for cage-free and other specialty eggs, (v) risks, changes, or obligations that could result from our future acquisition of new flocks or businesses and risks or changes that may cause conditions to completing a pending acquisition not to be met, and (vi) adverse results in pending litigation matters. Readers are cautioned not to place undue reliance on forward-looking statements because, while we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. Further, forward-looking statements included herein are only made as of the respective dates thereof, or if no date is stated, as of the date hereof. Except as otherwise required by law, we disclaim any intent or obligation to update publicly these forward-looking statements, whether because of new information, future events, or otherwise.
OVERVIEW
Cal-Maine Foods, Inc. (the "Company," "we," "us," "our") is primarily engaged in the production, grading, packaging, marketing, and distribution of fresh shell eggs. Our fiscal year end is the Saturday closest toMay 31 . Our operations are fully integrated. At our facilities we hatch chicks, grow and maintain flocks of pullets (young female chickens, under 18 weeks of age), layers (mature female chickens) and breeders (male and female birds used to produce fertile eggs to hatch for egg production flocks), manufacture feed, and produce, process, and distribute shell eggs. We are the largest producer and marketer of shell eggs inthe United States ("U.S."). We market the majority of our shell eggs in the southwestern, southeastern, mid-western, and mid-Atlantic regions of theU.S. We market shell eggs through an extensive distribution network to a diverse group of customers, including national and regional grocery store chains, club stores, foodservice distributors, and egg product consumers. The Company has one operating segment, which is the production, grading, packaging, marketing and distribution of shell eggs. The majority of our customers rely on us to provide most of their shell egg needs, including specialty and non-specialty eggs. Specialty eggs represent a broad range of products. We classify nutritionally enhanced, cage free, organic and brown eggs as specialty products for accounting and reporting purposes. We classify all other shell eggs as non-specialty products. While we report separate sales information for these types of eggs, there are a number of cost factors which are not specifically available for non-specialty or specialty eggs due to the nature of egg production. We manage our operations and allocate resources to these types of eggs on a consolidated basis based on the demands of our customers. 19 -------------------------------------------------------------------------------- Index Our operating results are directly tied to egg prices, which are highly volatile and subject to wide fluctuations, and are outside of our control. For example, the Urner-Barry Southeastern Regional Large Egg Market Price per dozen eggs ("UB southeastern large index") for our fiscal years 2016-2019 ranged from a low of$0.58 in fiscal year 2016 to a high of$3.00 in fiscal year 2018. The shell egg industry has traditionally been subject to periods of high profitability followed by periods of significant loss. In the past, during periods of high profitability, shell egg producers tended to increase the number of layers in production with a resulting increase in the supply of shell eggs, which generally caused a drop in shell egg prices until supply and demand returned to balance. As a result, our financial results from year to year may vary significantly. Shorter term, retail sales of shell eggs historically have been greatest during the fall and winter months and lowest during the summer months. Prices for shell eggs fluctuate in response to seasonal factors and a natural increase in shell egg production in the spring and early summer. Historically, shell egg prices have increased with the start of the school year and are highest prior to holiday periods, particularlyThanksgiving , Christmas, and Easter. Consequently, we generally experience lower sales and net income in our first and fourth fiscal quarters. Because of the seasonal and quarterly fluctuations, comparisons of our sales and operating results between different quarters within a single fiscal year are not necessarily meaningful comparisons. For the second quarter, the average UB southeastern large index price was down 12.7% compared with the prior-year period. At the same time our net average selling price for all shell eggs for the thirteen weeks endedNovember 30, 2019 was down 11.5% to$1.160 compared with$1.311 for the corresponding period of fiscal 2019. According to market research firm IRI as ofDecember 15, 2019 , non-specialty egg dozens are up 2.9% while specialty egg dozens are down 2.5% through the calendar year. An oversupply of eggs has negatively affected the price of non-specialty eggs and demand for specialty eggs was negatively impacted by the low non-specialty egg prices. Hen numbers as reported by the USDA Chickens and Eggs report as ofDecember 23, 2019 are 340.5 million, which is 4.6 more million hens than a year ago, and continues to contribute to an oversupply of eggs. These hen numbers continue to trend upwards, which could continue to negatively affect average market prices for future periods. We are one of the largest producers and marketers of value-added specialty shell eggs in theU.S. Specialty shell eggs have been a significant and growing portion of the market. In recent years, a significant number of large restaurant chains, food service companies and grocery chains, including our largest customers, announced goals to transition to a cage-free egg supply chain by specified future dates. We are working with our customers to achieve smooth progress in meeting their goals. Additionally, several states have now passed or proposed minimum space and/or cage-free requirements. Specifically,California passed Proposition 12 inNovember 2018 , which provides for minimum space requirements per hen beginning in 2020 and mandates all eggs or egg products sold inCalifornia must be cage-free by 2022. Subsequently,Washington andOregon have passed laws requiring cage-free hen housing by 2024, andMassachusetts ,Rhode Island andMichigan have similar laws defining space requirements or other restrictions on cages. While our direct sales into these states have not been material, these laws will affect sourcing, production and pricing of eggs (conventional as well as specialty) not only within these states, but also in other areas of the country. Our growth strategy is focused on remaining a low-cost provider of shell eggs located near our customers. In light of the increased demand for cage-free eggs, we intend to continue to closely evaluate the need to expand through selective acquisitions that will expand our shell egg production capabilities in key locations and markets, as well as focused expansion and conversion of our existing farms, based on a timeline to meet our customers' needs. OnMarch 29, 2019 , our Board of Directors approved a major expansion of the cage-free capacity at the Company'sDelta, Utah facility. This expansion includes new facilities for 2.0 million cage-free hens, pullets and a processing plant, as well as renovation of existing capacity for cage-free hens. Final completion of these additions and renovations is expected by early 2022 and will add approximately 3.4 million cage-free hens.
We continue to invest in cage-free production with our approved expansion projects across our portfolio. See the table under " Capital Resources and Liquidity " later in this section for further information on projects in-progress.
20
--------------------------------------------------------------------------------
Index
For the thirteen weeks ended and November 30, 2019 and December 1, 2018 , we
produced approximately 89% and 85% of the total number of shell eggs we sold,
respectively. For the thirteen weeks ended November 30, 2019 and December 1,
2018 , approximately 9% of such production was provided by contract producers who
utilize their facilities in the production of shell eggs by layers owned by us.
We own the shell eggs produced under these arrangements.
Our cost of production is materially affected by feed costs. Feed costs
averaged 56.1% and 57.3% of our total farm egg production cost for the thirteen
weeks ended November 30, 2019 and December 1, 2018 , respectively. Changes in
market prices for corn and soybean meal, the primary ingredients in the feed we
use, result in changes in our cost of goods sold. The cost of feed ingredients,
which are commodities, are subject to factors over which we have little or no
control such as volatile price changes caused by weather, size of harvest,
transportation, storage costs, demand, and the agricultural and energy policies
of the U.S. and foreign governments. Based on the USDA's current yield and
harvest estimates for corn and soybean crops, we expect to have an adequate
supply of both grains in fiscal 2020. However, ongoing uncertainties and
geopolitical issues surrounding trade agreements and international tariffs could
create more price volatility in the coming year.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from
our Condensed Consolidated Statements of Operations expressed as a percentage of
net sales.
13 Weeks Ended 26 Weeks Ended
November 30,
2019 December 1, 2018 November 30, 2019 December 1, 2018
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales 90.6 % 80.2 % 98.5 % 81.7 %
Gross profit 9.4 % 19.8 % 1.5 % 18.3 %
Selling, general and administrative 14.7 % 12.7 % 16.0 % 12.8 %
(Gain) loss on disposal of fixed assets 0.1 % - % - % - %
Operating income (loss) (5.4) % 7.1 % (14.5) % 5.5 %
Total other income, net 0.5 % 1.0 % 0.8 % 1.0 %
Income (loss) before income taxes and
noncontrolling interest (4.9) % 8.1 % (13.7) % 6.5 %
Income tax (benefit) expense (1.6) % 1.9 % (3.6) % 1.5 %
Net income (loss) before noncontrolling
interest (3.3) % 6.2 % (10.1) % 5.0 %
Less: Income (loss) attributable to
noncontrolling interest - % 0.1 % - % 0.1 %
Net income (loss) attributable to Cal-Maine
Foods, Inc. (3.3) % 6.1 % (10.1) % 4.9 %
NET SALES
Net sales for the thirteen weeks ended November 30, 2019 were $311.5 million , a
decrease of $44.5 million , or 12.5%, compared to net sales of $356.0 million for
the thirteen weeks ended December 1, 2018 . The decrease was primarily due to an
11.5% decrease in egg selling prices.
Net shell egg sales of $303.7 million and $345.0 million made up approximately
97.5% and 96.9% of net sales for the thirteen weeks ended November 30, 2019 and
December 1, 2018 , respectively. Dozens sold for the thirteen weeks ended
November 30, 2019 were 261.0 million, a 0.5% decrease from 262.3 million dozen
for the same period of fiscal 2019. The total volume decrease for the thirteen
weeks ended November 30, 2019 accounted for a $1.4 million decrease in net
sales.
21
--------------------------------------------------------------------------------
Index
During the second quarter of fiscal 2020, we lost a portion of our sales of
non-specialty eggs to a major customer in the Southeast region, representing 4.6
percent of total shell egg dozens and 6.1 percent of non-specialty egg dozens
for fiscal 2019. This did not materially affect sales during the second quarter
of fiscal 2020. However, we expect our new capacity additions and our previously
disclosed plans to decommission some older, less efficient facilities will help
optimize our operations, improve our sales mix, and better align our production
and sales within the region.
We expect our recent acquisition of Mahard effective October 20, 2019 will have
a positive impact on our non-specialty shell egg volumes and continue growth of
our customer base. Furthermore, the acquisition has opened up opportunities for
streamlining aspects of our operations which will reduce costs and create
efficiencies as we integrate Mahard into our operations.
The net average selling price per dozen of shell eggs was
Egg products accounted for 2.5% and 3.1% of net sales for the thirteen weeks endedNovember 30, 2019 andDecember 1, 2018 , respectively. These revenues were$7.8 million for the thirteen weeks endedNovember 30, 2019 , compared to$11.1 million for the thirteen weeks endedDecember 1, 2018 , primarily due to lower prices. Net sales for the twenty-six weeks endedNovember 30, 2019 were$552.7 million , a decrease of$143.9 million , or 20.7%, compared to net sales of$696.6 million for the twenty-six weeks endedDecember 1, 2018 . The decrease was primarily due to a 20.6% decrease in egg selling prices. Net shell egg sales of$537.7 million and$673.5 million made up approximately 97.3% and 96.7% of net sales for the twenty-six weeks endedNovember 30, 2019 andDecember 1, 2018 , respectively. Dozens sold for the twenty-six weeks endedNovember 30, 2019 were 515.5 million, a 0.6% increase from 512.3 million dozen for the same period of fiscal 2019. The volume increase accounted for a$3.2 million increase in net sales.
The net average selling price per dozen of shell eggs was
Egg products accounted for 2.7% and 3.3% of net sales for the twenty-six weeks endedNovember 30, 2019 andDecember 1, 2018 , respectively. These revenues were$15.0 million for the twenty-six weeks endedNovember 30, 2019 , compared to$23.1 million for the twenty-six weeks endedDecember 1, 2018 , primarily due to lower prices. 22
--------------------------------------------------------------------------------
IndexThe table below represents an analysis of our non-specialty and specialty shell egg sales (in thousands, except percentage data). Following the table is a discussion of the information presented in the table.
13 Weeks Ended 26 Weeks Ended
November 30, 2019 December 1, 2018 November 30, 2019 December 1, 2018
Total net sales $ 311,522 $ 356,040 $ 552,688 $ 696,623
Non-specialty $ 186,960 61.6 % $ 216,324 62.7 % $ 308,569 57.4 % $ 424,486 63.0 %
Specialty 109,351 36.0 % 120,839 35.0 % 214,420 39.9 % 233,102 34.6 %
Co-pack specialty 6,540 2.2 % 6,636 2.0 % 12,679 2.4 % 13,003 1.9 %
Egg sales, net 302,851 99.8 % 343,799 99.7 % 535,668 99.7 % 670,591 99.5 %
Other 874 0.2 % 1,159 0.3 % 2,022 0.3 % 2,897 0.5 %
Net shell egg sales $ 303,725 100.0 % $ 344,958 100.0 % $ 537,690 100.0 % $ 673,488 100.0 %
Net shell egg sales as
a percent of total net
sales 97.5 % 96.9 % 97.3 % 96.7 %
Dozens sold:
Non-specialty 199,566 76.5 % 197,163 75.2 % 394,481 76.5 % 384,562 75.1 %
Specialty 58,216 22.3 % 61,717 23.5 % 114,627 22.2 % 121,131 23.6 %
Co-pack specialty 3,244 1.2 % 3,383 1.3 % 6,342 1.3 % 6,630 1.3 %
Total dozens sold 261,026 100.0 % 262,263 100.0 % 515,450 100.0 % 512,323 100.0 %
Net average selling
price per dozen:
Non-specialty $ 0.937 $ 1.097 $ 0.782 $ 1.104
Specialty $ 1.878 $ 1.958 $ 1.871 $ 1.924
All shell eggs $ 1.160 $ 1.311 $ 1.039 $ 1.309
Non-specialty shell eggs include all shell egg sales not specifically identified
as specialty or co-pack specialty shell egg sales. This market is characterized
generally by an inelasticity of demand. Small increases or decreases in
production or demand can have a large positive or adverse effect on selling
prices. Comparing thirteen weeks ended November 30, 2019 and December 1, 2018 ,
non-specialty egg dozens sold increased 1.2% and the average selling price
decreased 14.6% to $0.937 from $1.097 . Comparing the twenty-six weeks ended
November 30, 2019 and December 1, 2018 , non-specialty shell egg dozens sold
increased 2.6% and the the average selling price decreased 29.2% to $0.782 from
$1.104 .
Specialty shell eggs, which include nutritionally enhanced, cage-free, organic,
and brown eggs continue to make up a large portion of our total shell egg
revenue and dozens sold. Specialty egg retail prices are less cyclical than
non-specialty shell egg prices and are generally higher due to consumer
willingness to pay for the perceived benefits from these products. For the
thirteen weeks ended November 30, 2019 and December 1, 2018 , specialty shell egg
dozens sold decreased 5.7%, and the average selling price decreased 4.1% to
$1.878 from $1.958 . Specialty egg volumes were affected by the significant price
differential between non-specialty and specialty eggs. For the twenty-six weeks
ended November 30, 2019 , specialty shell egg dozens sold decreased 5.4% and the
average selling price decreased 2.8% to $1.871 from $1.924 compared to the same
period of fiscal 2019.
Co-pack specialty shell eggs are sold primarily through co-pack arrangements, a
common practice in the industry whereby production and processing of certain
products is outsourced to another producer. Co-pack specialty shell eggs sold
during the thirteen weeks ended November 30, 2019 and December 1, 2018 were 3.2
million and 3.4
23
--------------------------------------------------------------------------------
Index
million dozen, respectively, which represented 1.2% and 1.3% of total dozens
sold for those periods. Co-pack specialty shell eggs sold during the twenty-six
weeks ended November 30, 2019 and December 1, 2018 were 6.3 million and 6.6
million dozen, respectively, which represented 1.3% and 1.3% of total dozens
sold for those periods.
The shell egg sales classified as "Other" represent sales of hard cooked eggs,
hatching eggs, and other miscellaneous products, which are included with our
shell egg operations.
Egg products are shell eggs that are broken and sold in liquid, frozen, or dried
form. Our egg products are sold through our wholly-owned subsidiary American Egg
Products, LLC ("AEP") and our majority owned subsidiary Texas Egg Products, LLC
("TEP").
For the second quarter of fiscal 2020, egg product sales were $7.8 million , a
decrease of $3.3 million , or 29.6%, compared to $11.1 million for the same
period of fiscal 2019. Pounds sold for the thirteen weeks ended November 30,
2019 were 16.2 million, an increase of 1.2 million, or 7.8%, compared to the
same period of fiscal 2019. The selling price per pound for the thirteen weeks
ended November 30, 2019 was $0.480 compared to $0.740 for the same period of
fiscal 2019, a decrease of $0.260 or 35.1%.
For the twenty-six weeks ended November 30, 2019 , egg product sales were $15.0
million , a decrease of $8.1 million , or 35.2%, compared to $23.1 million for the
same period of fiscal 2019. Pounds sold for the twenty-six weeks ended November
30, 2019 were 33.6 million, an increase of 3.0 million, or 9.9%, compared to the
same period of fiscal 2019. The selling price per pound for the twenty-six weeks
ended November 30, 2019 was $0.447 compared to $0.761 for the same period of
fiscal 2019, a decrease of $0.314 or 41.3%.
24
--------------------------------------------------------------------------------
IndexCOST OF SALES
Cost of sales consists of costs directly related to production, processing and
packing of shell eggs, purchases of shell eggs from outside producers,
processing and packing of liquid and frozen egg products, and other non-egg
costs. Farm production costs are those costs incurred at the egg production
facility, including feed, facility, hen amortization, and other related farm
production costs.
The following table presents the key variables affecting cost of sales (in
thousands, except cost per dozen data).
?
?
?
?
13 Weeks Ended 26 Weeks Ended
November 30, November 30, Percent
2019 December 1, 2018 Percent Change 2019 December 1, 2018 Change
Cost of Sales:
Farm production $ 169,735 $ 160,241 5.9 % $ 327,315 $ 311,060 5.2 %
Processing, packaging, and
warehouse 56,890 55,381 2.7 % 110,812 110,055 0.7 %
Egg purchases and other
(including change in inventory) 48,055 61,581 (22.0) % 90,575 130,801 (30.8) %
Total shell eggs 274,680 277,203 (0.9) % 528,702 551,916 (4.2) %
Egg products 7,467 8,140 (8.3) % 12,817 16,438 (22.0) %
Other - 162 (100.0) % 2,919 606 381.7 %
Total $ 282,147 $ 285,505 (1.2) % $ 544,438 $ 568,960 (4.3) %
Farm production cost (per dozen
produced)
Feed $ 0.416 $ 0.415 0.2 % $ 0.413 $ 0.414 (0.2) %
Other $ 0.325 $ 0.309 5.2 % $ 0.332 $ 0.313 6.1 %
Total $ 0.741 $ 0.724 2.3 % $ 0.745 $ 0.727 2.5 %
Outside egg purchases (average
cost per dozen) $ 1.28 $ 1.30 (1.5) % $ 1.06 $ 1.32 (19.7) %
Dozen produced 231,467 222,955 3.8 % 445,765 432,168 3.1 %
Dozen sold 261,026 262,263 (0.5) % 515,450 512,323 0.6 %
Cost of sales for the second quarter of fiscal 2020 was $282.1 million , a
decrease of $3.4 million , or 1.2%, from $285.5 million for the same period of
fiscal 2019. This decrease was primarily driven by the decrease in the volume of
outside egg purchases as well as a slight decrease in the cost of these
purchases. Farm production costs for the thirteen weeks ended November 30, 2019
was $169.7 million , compared to $160.2 million for the comparable period of
fiscal 2019, an increase of $9.5 million , which is primarily due to an increase
in production volume and in production costs other than feed costs. Dozens
produced increased by 3.8% compared to the same period of fiscal 2019. Feed cost
per dozen for the thirteen weeks ended November 30, 2019 , was $0.416 , compared
to $0.415 per dozen for the comparable period of fiscal 2019, an increase of
0.2%. Other farm production cost per dozen produced increased 5.2% to $0.325 for
the thirteen weeks ended November 30, 2019 , compared to $0.309 for the same
period of last year. The majority of the increase was accelerated amortization
expense associated with selling flocks early due to market conditions, and
higher labor costs.
25
--------------------------------------------------------------------------------
Index
Cost of sales for the twenty-six weeks ended November 30, 2019 was $544.4
million , a decrease of $24.5 million , or 4.3%, from $569.0 million for the same
period of fiscal 2019. This decrease was primarily driven by the decrease in
both volume and cost of outside egg purchases. Farm production costs for the
twenty-six weeks ended November 30, 2019 was $327.3 million , compared to $311.1
million for the comparable period of fiscal 2019, an increase of $16.3 million ,
which is primarily due to increased production volume and in production costs
other than feed costs. Dozens produced increased by 3.1% compared to the same
period of fiscal 2019. Feed cost per dozen for the twenty-six weeks ended
November 30, 2019 , was $0.413 , compared to $0.414 per dozen for the comparable
period of fiscal 2019, a decrease of 0.2%. Other farm production cost per dozen
produced increased 6.1% to $0.332 for the twenty-six weeks ended November 30,
2019 , compared to $0.313 for the same period of last year. The majority of the
increase was accelerated amortization expense associated with selling flocks
early due to market conditions, and higher labor costs.
Included in cost of sales for the twenty-six weeks ended November 30, 2019 is a
non-cash impairment loss on fixed assets of $2.9 million related to
decommissioning some of our older, less efficient production facilities as we
continue to invest in new facilities to meet the increasing demand for specialty
eggs and reduce production costs.
Gross profit for the second quarter of fiscal 2020 was $29.4 million compared to
$70.5 million for the same period of fiscal 2019. For the twenty-six weeks ended
November 30, 2019 , gross profit decreased to $8.3 million gross profit from
$127.7 million for the same period of fiscal 2019. This decrease for both
periods, was primarily due to the significant drop in market prices, which we
believe reflects the current unfavorable supply and demand balance.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses include costs of marketing,
distribution, accounting, and corporate overhead. The following table presents
an analysis of our selling, general, and administrative expenses (in
thousands).
13 Weeks Ended
November 30, 2019 December 1, 2018 $ Change % Change
Specialty egg expense $ 11,939 $ 13,545 $ (1,606) (11.9) %
Delivery expense 13,524 13,460 64 0.5 %
Payroll, taxes and benefits 10,257 9,371 886 9.5 %
Stock compensation expense 903 851 52 6.1 %
Other expenses 9,105 8,004 1,101 13.8 %
Total $ 45,728 $ 45,231 $ 497 1.1 %
For the thirteen weeks ended November 30, 2019 , selling, general, and
administrative expense was $45.7 million compared to $45.2 million for the
thirteen weeks ended December 1, 2018 . Specialty egg expense decreased $1.6
million , or 11.9%, compared to the same period of the prior year. Specialty egg
expense typically fluctuates with specialty egg dozens sold, which decreased
5.7% for the thirteen weeks ended November 30, 2019 .
Payroll, taxes and benefits increased $886 thousand , or 9.5%, compared to the
same period of the prior year, primarily due to improved performance of the
index fund utilized for the deferred compensation plan, as the participants are
credited with investment earnings of the fund. This increased expense is offset
by the unrealized gain on the investment in the fund recorded in other income.
Increased employee medical insurance expense also contributed to the increase.
26
--------------------------------------------------------------------------------
Index
Other expenses increased $1.1 million or 13.8% compared to same period in fiscal
2019. This increase is primarily due to an increase in non-legal professional
fees.
26 Weeks Ended
November 30, 2019 December 1, 2018 $ Change % Change
Specialty egg expense $ 23,414 $ 26,755 $ (3,341) (12.5) %
Delivery expense 26,032 26,703 (671) (2.5) %
Payroll, taxes and benefits 20,752 21,021 (269) (1.3) %
Stock compensation expense 1,794 1,754 40 2.3 %
Other expenses 16,211 13,508 2,703 20.0 %
Total $ 88,203 $ 89,741 $ (1,538) (1.7) %
For the twenty-six weeks ended November 30, 2019 , selling, general, and
administrative expense was $88.2 million compared to $89.7 million for the
twenty-six weeks ended December 1, 2018 . Specialty egg expense decreased $3.3
million , or 12.5%, compared to the same period of the prior year. Specialty egg
expense typically fluctuates with specialty egg dozens sold, which decreased
5.4% for the twenty-six weeks ended November 30, 2019 . Advertising expense,
which is a component of specialty egg expense, also contributed to the decrease
in specialty egg expense for the twenty-six weeks ended November 30, 2019 .
Payroll and overhead expense decreased $269 thousand , or 1.3%, compared to the
same period of the prior year, primarily due to a decrease in bonus accruals.
Other expenses increased $2.7 million or 20.0% compared to same period in fiscal
2019. This increase is primarily due to increased insurance premiums and an
increase in non-legal professional fees.
OPERATING INCOME (LOSS)
For the thirteen weeks endedNovember 30, 2019 , we recorded an operating loss of$16.6 million compared to operating income of$25.3 million for the same period of fiscal 2019.
For the twenty-six weeks ended
OTHER INCOME (EXPENSE)
Total other income (expense) consists of items not directly charged to, or related to, operations such as interest income and expense, royalty income, equity in income or loss of affiliates, and patronage income, among other items.
For the thirteen weeks endedNovember 30, 2019 , we earned$1.2 million of interest income compared to$1.8 million for the same period of fiscal 2019. The decrease resulted from by significantly lower investment balances, partially offset by higher interest rates. The Company recorded interest expense of$91 thousand and$130 thousand for the thirteen weeks endedNovember 30, 2019 andDecember 1, 2018 , respectively. For the twenty-six weeks endedNovember 30, 2019 , we earned$3.0 million of interest income compared to$3.7 million for the same period of fiscal 2019. The decrease resulted from by significantly lower investment balances, partially offset by higher interest rates. The Company recorded interest expense of$181 thousand and$243 thousand for the twenty-six weeks endedNovember 30, 2019 andDecember 1, 2018 , respectively. 27 -------------------------------------------------------------------------------- Index Equity in income (loss) of affiliates for the thirteen weeks endedNovember 30, 2019 was a loss of$454 thousand compared to income of$909 thousand for the same period of fiscal 2019. The decrease of$1.4 million is primarily due to the decrease in egg selling prices. Equity in income (loss) of affiliates for the twenty-six weeks endedNovember 30, 2019 was a loss of$908 thousand compared to income of$2.3 million for the same period of fiscal 2019. The decrease of$3.2 million is primarily due to the decrease in egg selling prices. Other, net for the thirteen weeks endedNovember 30, 2019 , was income of$482 thousand compared to$124 thousand for the same period of fiscal 2019, primarily driven by realized and unrealized gains in equity securities. Other, net for the twenty-six weeks endedNovember 30, 2019 , was income of$1.8 million compared to$225 thousand for the same period of fiscal 2019, primarily driven by realized and unrealized gains in equity securities.
INCOME TAXES
For the thirteen weeks endedNovember 30, 2019 , pre-tax loss was$15.0 million compared to$28.8 million pre-tax income for the same period of fiscal 2019. For thirteen weeks endedNovember 30, 2019 , income tax benefit of$4.9 million was recorded which included a$1.5 million state income tax benefit recorded for a claim of refund, with an effective tax rate of 32.3%, compared to income tax expense of$6.8 million for the comparable period of fiscal 2019, which reflects an effective tax rate of 23.5%. For the twenty-six weeks endedNovember 30, 2019 , pre-tax loss was$75.5 million compared to$45.3 million pre-tax income for the same period of fiscal 2019. For twenty-six weeks endedNovember 30, 2019 , income tax benefit of$19.6 million was recorded, with an effective tax rate of 26.0%, compared to income tax expense of$10.5 million for the comparable period of fiscal 2019, which reflects an effective tax rate of 23.2%.
At
Our effective rate differs from the federal statutory income tax rate due to state income taxes and certain items included in income for financial reporting purposes that are not included in taxable income for income tax purposes, including tax exempt interest income and net income or loss attributable to noncontrolling interest. Results for the thirteen weeks endedNovember 30, 2019 were favorably impacted by a$1.5 million state income tax benefit recorded for a claim of refund filed during the period.
NET INCOME (LOSS) ATTRIBUTABLE TO NONCONTROLLING INTEREST
For the thirteen weeks ended
For the twenty-six weeks ended
NET INCOME (LOSS) ATTRIBUTABLE TO CAL-
Net loss for the thirteen weeks endedNovember 30, 2019 was$10.1 million , or$0.21 per basic and diluted share, compared to net income of$21.8 million , or$0.45 per basic and diluted share for the same period of last fiscal year. Net loss for the twenty-six weeks endedNovember 30, 2019 was$55.8 million , or$1.15 per basic and diluted share, compared to net income of$34.2 million , or$0.71 per basic and diluted share for the same period of last fiscal year. 28 -------------------------------------------------------------------------------- Index
CAPITAL RESOURCES AND LIQUIDITY
Our working capital atNovember 30, 2019 was$346.0 million , compared to$492.8 million atJune 1, 2019 . The calculation of working capital is defined as current assets less current liabilities. Our current ratio was 4.36 atNovember 30, 2019 , compared with 7.58 atJune 1, 2019 . During the second quarter of fiscal 2020, we retired all outstanding long-term debt. As such there is no long-term debt atNovember 30, 2019 , including current maturities, compared to$1.3 million atJune 1, 2019 . OnJuly 10, 2018 , we entered into a$100.0 million Senior Secured Revolving Credit Facility ("the Revolving Credit Facility"). As ofNovember 30, 2019 , no amounts were borrowed under the Revolving Credit Facility. We have$4.2 million in outstanding standby letters of credit, which were issued under our Revolving Credit Facility for the benefit of certain insurance companies. Refer to Note 8 of ourJune 1, 2019 audited financial statements for further information regarding our long-term debt. For the twenty-six weeks endedNovember 30, 2019 ,$74.3 million in net cash was used in operating activities, compared to$27.7 million provided by operating activities for the comparable period in fiscal 2019. A decrease in egg selling prices which resulted in a net loss contributed to our decrease in cash flow from operations. Other adjustments, net decreased primarily due to increases in accounts receivables and inventories. For the twenty-six weeks endedNovember 30, 2019 ,$137.2 million was provided from the sale and maturity of investment securities compared to$108.3 million for the twenty-six weeks endedDecember 1, 2018 . We used$10.1 million and$78.6 million for purchases of investment securities for the twenty-six weeks endedNovember 30, 2019 andDecember 1, 2018 , respectively. We did not invest additional resources in our unconsolidated entities during the twenty-six weeks endedNovember 30, 2019 compared to$4.3 million for the same period fiscal 2019. We continue to invest in our facilities as$68.1 million was used to purchase property, plant and equipment compared to$19.0 million in the twenty-six weeks endedDecember 1, 2018 . We used$44.5 million for the previously disclosed acquisition of Mahard in the second quarter of fiscal 2020 and$17.9 million for the acquisition ofFeatherland Egg Farm, Inc. in the second quarter of fiscal 2019. We received$2.4 million in distributions from unconsolidated entities during the twenty-six weeks endedNovember 30, 2019 compared to$4.5 million for the same period fiscal 2019. We used$1.6 million for principal payments on long-term debt and finance leases compared to$2.2 million for the same period of fiscal 2019. We did not pay any dividends during twenty-six weeks endedNovember 30, 2019 compared to$21.2 million for the same period of last fiscal year.
As of
The Revolving Credit Facility is guaranteed by all the current and future wholly-owned direct and indirect domestic subsidiaries of the Company, and is secured by a first-priority perfected security interest in substantially all of the Company's and the guarantors' accounts receivable, payment intangibles, instruments (including promissory notes), chattel paper, inventory (including farm products) and deposit accounts maintained with the administrative agent. The credit agreement governing our Revolving Credit Facility contains customary covenants including restrictions on the incurrence of liens, incurrence of additional debt, sales of assets and other fundamental corporate changes and investments. The credit agreement requires maintenance of two financial covenants (i) a minimum working capital ratio of 2.0 to 1.0 and (ii) an annual limit on capital expenditures of$100.0 million . Additionally, the credit agreement requires thatFred R. Adams Jr ., his spouse, natural children, sons-in-law or grandchildren, or any trust, guardianship, conservatorship or custodianship for the primary benefit of any of the foregoing, or any family limited partnership, similar limited liability company or other entity that 100% of the voting control of such entity is held by any of the foregoing, shall maintain at least 50% of the outstanding voting power of the Company. Failure to satisfy any of these covenants will constitute a default under the terms of the credit agreement. In addition, under the terms of the credit agreement, dividends are restricted to the Company's current dividend policy of one-third of the 29 -------------------------------------------------------------------------------- Index Company's net income computed in accordance with GAAP. The Company is allowed to repurchase up to$75.0 million of its capital stock in any year provided there is no default under the credit agreement and the borrower has availability of at least$20.0 million under the Revolving Credit Facility. We continue to monitor the increasing demand for cage-free, organic and other specialty eggs in order to meet our customer's needs. We have invested over$314 million in facilities, equipment and related operations to expand our cage-free production. The following table represents current material construction projects approved as ofNovember 30, 2019 (in thousands): Spent as of November Remaining Project(s) Type Projected Completion Projected Cost 30, 2019 Projected Cost Convertible/Cage-Free Layer Houses Fiscal 2020$ 17,694 $ 12,132$ 5,562 Cage-Free Pullet Houses Fiscal 2020 6,332 841 5,491 Convertible/Cage-Free Layer Houses & Pullet Houses Fiscal 2021 43,491 27,221 16,270 Cage-Free Layer & Pullet Houses/Processing Facility Fiscal 2022 87,204 11,161 76,043$ 154,721 $ 51,355$ 103,366
We believe our current cash balances, investments, cash flows from operations, and Revolving Credit Facility will be sufficient to fund our current and projected capital needs for at least the next twelve months.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
InJune 2016 , the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which modifies the measurement of expected credit losses of certain financial instruments and changes the loss impairment methodology. The guidance is effective for annual reporting periods and interim periods within those annual reporting periods beginning afterDecember 15, 2019 , our fiscal 2021. Early adoption is permitted for annual reporting periods and interim periods within those annual reporting periods beginning afterDecember 15, 2018 , our fiscal 2020. The application of the guidance requires various transition methods depending on the specific amendment. We do not expect the adoption of this guidance will have a material impact on our consolidated financial statements. InJanuary 2017 , the FASB issued ASU 2017-04, Intangibles -Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, which removes step 2 from the goodwill impairment test. As a result, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units' fair value. The guidance is effective for annual or interim goodwill impairment tests in fiscal years beginning afterDecember 15, 2019 , our fiscal 2021. Early adoption is permitted for annual or interim goodwill impairment tests performed on testing dates afterJanuary 1, 2017 , and the prospective transition method should be applied. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. InAugust 2018 , the FASB issued ASU 2018-15, Intangibles -Goodwill and Other -Internal-Use Software (Subtopic 350-40) Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement that is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. This standard will be effective for interim and annual reporting periods beginning afterDecember 15, 2019 , our fiscal 2021. Early adoption is permitted. The application of the guidance requires various transition methods depending on the specific amendment and the prospective transition method should be applied. We do not expect the adoption of this guidance to have a material impact on our consolidated financial statements. 30 -------------------------------------------------------------------------------- Index InAugust 2018 , the FASB issued ASU 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20) Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans, which modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement benefit plans. The guidance removes disclosures that are no longer considered cost beneficial and adds new, as well as clarifies certain other, disclosure requirements. This standard will be effective in fiscal years afterDecember 15, 2020 , our fiscal 2021, with the option to early adopt at any time prior to the effective date, and it will require adoption on a retrospective basis. We are currently evaluating the impact of this standard on the consolidated financial statements.
CRITICAL ACCOUNTING POLICIES
We suggest our Summary of Significant Accounting Policies, as described in Note 1 of the Notes to Consolidated Financial Statements included our Annual Report on Form 10-K for the fiscal year endedJune 1, 2019 ("2019 Annual Report"), and as described in Note 1 of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q, be read in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations included in such 2019 Annual Report and this Quarterly Report. Except for the adoption of ASU 2016-02, Leases, there have been no changes to our significant accounting policies described in our 2019 Annual report. In addition, there have been no changes to our critical accounting policies identified in our 2019 Annual Report.
© Edgar Online, source
