Cal-Maine Foods(CALM) - 2020 Q2 - Quarterly Report

Part I. Financial Information Item 1. Condensed Consolidated Financial Statements (Unaudited) The unaudited statements show a decreased financial position, a shift to a net loss, and significant cash used in operations Condensed Consolidated Balance Sheets The balance sheet shows decreased total assets and stockholders' equity, driven by a reduction in cash and a net loss Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Nov 30, 2019 | June 1, 2019 | | :--- | :--- | :--- | | Total Current Assets | $448,838 | $567,753 | | Cash and cash equivalents | $11,248 | $69,247 | | Investment securities | $123,275 | $250,181 | | Total Assets | $1,111,280 | $1,156,278 | | Total Current Liabilities | $102,848 | $74,907 | | Total Liabilities | $176,987 | $166,472 | | Total Stockholders' Equity | $934,293 | $989,806 | Condensed Consolidated Statements of Operations The company reported a significant net loss compared to a net income in the prior-year period, driven by lower sales and gross profit Statement of Operations Summary (in thousands, except per share data) | Metric | 13 Weeks Ended Nov 30, 2019 | 13 Weeks Ended Dec 1, 2018 | | :--- | :--- | :--- | | Net Sales | $311,522 | $356,040 | | Gross Profit | $29,375 | $70,535 | | Operating Income (Loss) | $(16,565) | $25,334 | | Net Income (Loss) | $(10,186) | $22,006 | | Diluted EPS | $(0.21) | $0.45 | Condensed Consolidated Statements of Cash Flows Net cash used in operations increased significantly, contributing to an overall decrease in cash and cash equivalents Cash Flow Summary - 26 Weeks Ended (in thousands) | Activity | Nov 30, 2019 | Dec 1, 2018 | | :--- | :--- | :--- | | Net cash provided by (used in) operations | $(74,272) | $27,688 | | Net cash provided by (used in) investing activities | $18,646 | $(6,513) | | Net cash used in financing activities | $(2,373) | $(23,401) | | Net change in cash and cash equivalents | $(57,999) | $(2,226) | Notes to Condensed Consolidated Financial Statements The notes detail a recent acquisition, adoption of a new lease standard, dividend policy restrictions, and ongoing antitrust litigation - Effective October 20, 2019, the Company acquired certain assets of Mahard Egg Farm for $45.5 million, which included facilities with a current capacity for approximately 3.9 million laying hens[38] - The company adopted the new lease standard ASU 2016-02 on June 2, 2019, using a modified retrospective transition approach, which did not have a material effect on the financial statements[32][33][36] - Due to cumulative losses, the company must recover $75.6 million before it can resume paying dividends under its established policy[61] - The company is a defendant in an ongoing egg antitrust litigation case, with remaining plaintiffs including Kraft, General Mills, and Nestle; while a material adverse outcome is reasonably possible, the amount of monetary exposure cannot be estimated[89][90] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the decline in performance to lower egg prices from oversupply, while continuing investment in cage-free capacity Overview Operating results are highly dependent on volatile egg prices, which are currently depressed due to market oversupply - The average UB southeastern large index price was down 12.7% in Q2 compared to the prior-year period, while the company's net average selling price for all shell eggs was down 11.5%[101] - An oversupply of eggs, with 340.5 million hens reported by the USDA (4.6 million more than a year ago), has negatively affected non-specialty egg prices[101] - The company is responding to increased demand for cage-free eggs, driven by customer goals and new state laws in California, Washington, Oregon, and others, by expanding its cage-free capacity[102][103][104] Results of Operations Financial results deteriorated significantly with a 12.5% drop in net sales and a shift to a net loss from a net income year-over-year Q2 FY2020 vs Q2 FY2019 Performance (in millions) | Metric | Q2 FY2020 | Q2 FY2019 | | :--- | :--- | :--- | | Net Sales | $311.5 | $356.0 | | Gross Profit | $29.4 | $70.5 | | Operating Income (Loss) | $(16.6) | $25.3 | | Net Income (Loss) | $(10.1) | $21.8 | Shell Egg Sales Analysis (13 Weeks Ended) | Category | Net Avg. Selling Price (per dozen) | Dozens Sold (thousands) | | :--- | :--- | :--- | | Non-specialty | | | | Nov 30, 2019 | $0.937 | 199,566 | | Dec 1, 2018 | $1.097 | 197,163 | | Specialty | | | | Nov 30, 2019 | $1.878 | 58,216 | | Dec 1, 2018 | $1.958 | 61,717 | - Farm production cost per dozen produced increased by 2.3% to $0.741, driven by a 5.2% increase in non-feed costs such as accelerated amortization and higher labor costs[143] Capital Resources and Liquidity Working capital decreased, all long-term debt was retired, and significant capital projects for cage-free expansion are underway - Working capital stood at $346.0 million at November 30, 2019, down from $492.8 million at June 1, 2019[176] - The company retired all outstanding long-term debt in Q2 and had no amounts borrowed under its $100.0 million Revolving Credit Facility as of November 30, 2019[177] Approved Construction Projects (in thousands) | Project Type | Projected Cost | Cost to Date | Remaining Cost | | :--- | :--- | :--- | :--- | | Convertible/Cage-Free Houses & Facilities | $154,721 | $51,355 | $103,366 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is commodity price volatility for its products (eggs) and key inputs (corn and soybean meal) - The company's main market risk exposure stems from price fluctuations in eggs, corn, and soybean meal[194] Impact of Feed Ingredient Price Changes | Feed Ingredient | Price Change | Approx. Impact on Feed Cost per Dozen | Approx. Annual Dollar Impact | | :--- | :--- | :--- | :--- | | Corn | $0.28 per bushel | $0.01 | $8,767,050 | | Soybean Meal | $27 per ton | $0.01 | $8,767,050 | Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of November 30, 2019[197] - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[198] Part II. Other Information Item 1. Legal Proceedings The company refers to previous disclosures regarding ongoing legal matters, particularly the egg antitrust litigation - The company directs readers to Note 12 of the financial statements for details on legal matters, most notably the ongoing egg antitrust litigation[89][200] Item 1A. Risk Factors Key risks include pressure for cage-free production, uncertainty in forecasting demand, and challenges related to its acquisition strategy - Pressure from animal rights groups and new state laws (e.g., California's Proposition 12) are accelerating the demand for cage-free eggs, increasing capital and operating costs for the company[202][207] - The company faces uncertainty in predicting future customer demand for cage-free versus conventional eggs, which could lead to over- or under-investment in new capacity[208] - The growth strategy through acquisitions presents risks including diversion of management attention, assumption of unknown liabilities, and challenges in successfully integrating acquired businesses[209][210] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased a small number of shares to satisfy employee tax withholding obligations on vested restricted stock - In the second quarter, 223 shares were repurchased at an average price of $44.09 to satisfy employee tax withholding obligations on vested restricted stock[216] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL data files