Cal-Maine Foods (CALM) Q1 2027 earnings call transcript

Good morning. Thank you for joining us today. I want to remind everyone that today's remarks may include forward-looking statements. These are based on management's current expectations and are subject to risk and uncertainties described in our SEC filings. I'd like to begin with a question we believe is most important as we look at CAL-MAINE from this point in the cycle. How does the earnings power of the company evolve from here? There are really two timing There are some questions underneath that. The first is when the conventional shell egg market begins to rebalance. The second is when the investments we are making in prepared foods translate into greater earnings contribution. Starting with conventional eggs, the market remains oversupplied, which continues to put downward pressure on wholesale prices.

The key question is the timing of rebalancing. There are some early indicators worth watching. According to the American Egg Board's September In the fall of the summer's supply commentary based on assessments collected through June, AEB estimates the U. S. layer flock at approximately 336 million to 343 million birds, roughly 4 million below its previous estimate. AEB also reports that August hatch numbers are down approximately 12% year-over-year, and the cancellations are becoming more common. From a production standpoint, AEB estimates an average of approximately 19.9 million cases per month over the last three months, a slight reduction from its prior report. These indicators did not establish that the market will turn, but they provide important context on the potential direction of supply.

HyPath AI could also affect the timing of when supply rebalances with demand. As shown on slide 9 of our earnings presentation, activity has historically increased with fall wild bird migration, although timing and severity vary by year. We are approaching the period when the historical curve is typically turned upward. While a meaningful layer outbreak could tighten supply and support egg prices because relatively small changes in supply can have an outsized market impact, The healthier, more sustainable outcome is for normal industry economics to work. Our focus remains on rigorous biosecurity to protect our plots and reduce exposure. Importantly, we do not see structural weakness in egg demand. The data remains constructive across retail, food service, and exports.

According to Nielsen IQ, calendar year-to-date through August, measured retail egg volume increased approximately 4%. More recently, in the four weeks ended August 29, 2026, national retail dozens remained slightly positive year-over-year, even as the average price per dozen declined approximately 27%. Portability and greater promotional activity should provide additional support to consumption as we move into the seasonally stronger fall, baking, and holiday periods. The demand trends within specialty shell eggs are particularly constructive. Nielsen IQ data show that calendar year-to-date combined US cage-free, organic, free-range, and pasture-raised dozens sold at The QSR-Eggs in the U. S. Egg export volume, the U. S. Egg export volume, the U. S. Egg export The GOODS INCREASED APPROXIMATE 29% YEAR TO DATE, WITH JULY REPRESENTING THE HIGHEST MONTHLY EXPORT VOLUME SINCE MAY 2023.

MORE FUNDAMENTALLY, EGGS REMAIN EXCEPTIONALLY WELL POSITIONED AGAINST DURABLE CONSUMER TRENDS AROUND PROTEIN, NUTRITION, CONVENIENCE, SIMPLE INGREDIENTS, AND VALUE. Working together, this gives us confidence in the long-term demand foundation, even as supply and demand work back toward balance. That brings us to the more important point for CAL-MAINE. The current cycle needs to be viewed in the context of how much the company has already changed. The transformation is not perspective. It's already visible in our mix. What comes Next is scaling the earnings contribution. During the first quarter, specialty shell eggs and prepared foods represented approximately 54% of net sales, including approximately 12% for prepared foods. Conventional shell eggs remain foundational to CAL-MAINE. Our scale, vertically integrated operating model, customer relationships, and national distribution capabilities are significant competitive advantages, and the business has demonstrated We have a substantial cash generating capacity through the cycle in the past.

Specialty Shell eggs broaden that foundation. Our ability to serve consumers across conventional, cage-free, nutritionally enhanced, organic, brown, pasture-raised, and free-range eggs is an important competitive advantage. It allows us to participate across price points and consumer preferences rather than relying We are not relying on any single segment of the category. Specialty shell eggs and our cost plus and hybrid pricing structures also create a more diversified economic profile. They do not eliminate commodity exposure, but we believe they reduce the extent to which daily conventional wholesale egg prices alone impact CAL-MAINE's earnings potential. Prepared Foods takes that diversification further and brings us to the second major timing question. When will the investments we are making translate into greater earnings contribution?

This is a multi-year capacity and commercialization bill. Investment, commissioning, and startup costs necessarily precede full utilization and earnings contribution. The question is not simply when capacity comes online, it's how quickly we convert that capacity into customer demand, utilization, fixed cost absorption, and profitable growth. We expect prepared foods production capacity to increase by more than 60% by the first half of fiscal 2028 compared to the end of fiscal 2026. Our high-speed pancake line is expected to add approximately 12 million pounds of annual production capacity through early fiscal 2027.

Our network optimization and expansion project is expected to add approximately 17 million pounds of annual scrambled egg production capacity through fiscal 2027. At Crepini, our investment is expected to add approximately 18 million pounds of additional production capacity progressively through fiscal 2028. Those projects are complemented by the additional $54 million of prepared foods capacity investments we announced last quarter. The Echolate, Crepini, Creighton Brothers, and Vans acquisitions have broadened our capabilities, customer base, and routes to market. The next phase is increasingly about scaling those platforms and converting the increased production capacity we're building into profitable growth. Importantly, the addressable opportunity extends well beyond breakfast. The measured prepared breakfast category alone represents approximately $8.4 billion in annual U. S. retail sales, but our broader opportunity is egg-based prepared foods across multiple mill occasions and day parts.

Including breakfast, on-the-go, snacking, after-school, and convenient meals. Our strategy is to leverage our capabilities in eggs and protein across a larger set of products, customers, channels, and consumer occasions. Capacity comes first, commercialization and customer demand follow, earnings contribution builds as volume scales, utilization increases, fixed costs are absorbed, and operations mature. That progression is important to understanding both where our earnings are today and the earnings spiral we are building.

With that, I will turn the call over to Max to review our first quarter financial results.

Thanks, Sherman, and good morning, everyone. Earlier this morning, we issued our quarterly earnings release and filed our Form 10-Q for the first quarter of fiscal 2027. We also posted a supplemental first quarter earnings presentation to our website that provides additional details on our performance. For the first quarter, consolidated net sales were $539.6 million, down 41.5% compared with the prior year period. Gross profit was $403,000 compared with $311.3 million in the prior year period. Operating loss was $82.2 million compared to operating income of $249.2 million in the prior year period, and operating margin was negative 15.2%. Net loss attributable to CAL-MAINE was $58.6 million compared to net income attributable to CAL-MAINE of $199.3 million in the prior year period, resulting in diluted loss per share of $1.26 compared to diluted earnings per share of $4.12.

Turning to our segment results, for conventional and specialty shell eggs combined, our percent produced to sole was 98.2%. Conventional shell eggs generated net sales of 201.7 million, down 59.5% compared with the prior year period. Segment operating loss was 71 million, with an operating margin of negative 35.2%. Price realization for external customers, which we define as our average conventional shell egg selling price relative to the daily average Erna Berry Southeast market price, was 99% in FY27 quarter 1 compared with 101% in FY26 quarter 4. The primary driver of the change was market timing. Much of our conventional business is priced back of the market, and And our selling prices moved with a lag. In Q4, the Ernerberry market declined rapidly, which benefited realization as our selling prices lagged the market down.

Towards the end of Q1, the market rose rapidly in late August, creating the opposite effect as our selling prices lagged the market. Our pricing approach has not changed. The direction and timing of the market did. Customer pricing arrangements including cost plus and hybrid structures remain intact and realization remains historically strong Sales mix and egg donations during the quarter also contributed to the slight sequential decline in price realization. Despite the slight sequential decline, price realization remained above the historical levels achieved before the pricing structure changes, demonstrating that our strategy continues to work as intended. HLAA generated net sales of $236.9 million, down 14% compared with the prior year period. Segment operating income was $14.9 million, with an operating margin of 6.3%.

The year-over-year decline reflects an unusually strong prior year period when we strategically stepped in to supply customers during industry-wide shortages. The decision reinforced our position as a reliable supplier of choice and kept our brands on shelf when supply was constrained. As the comparison normalizes, we expect growth to more closely align with a broader market. Prepared foods generated net sales of $63 million, down 13% compared with the prior year period. Segment operating income was $7.8 million, with an operating margin of 12.4%. SG&A expense for the quarter was $81.7 million, compared with $69.5 million in the prior year period. Interest income netted expenses was $8 million, compared with $12.9 million in the prior year period. Our effective tax rate for the quarter was 24.2%, compared with 24.4% in the prior year period.

Turning to cash flow in the balance sheet, net cash used in operating activities during the quarter was $101.4 million, compared to net cash provided by operating activities of $278.6 million in the prior year period. Capital expenditures were $26.6 million, and we acquired additional EB franchise territory in the northeast U. S. for $25 million during the quarter. We ended the quarter with cash and temporary cash investments of $767.6 million and remained virtually debt-free. During the quarter, we repurchased 66,601 shares of our common stock under our share repurchase program for approximately $5 million. Under our current $500 million repurchase This authorization approximately $315.7 million remained available at quarter in. Subsequent to the end of the first quarter, CAL-MAINE FOODS repurchased 204,888 shares under the purchase program for $14.9 million.

Pursuant to our variable dividend policy, we will not pay a cash dividend until we are profitable on a cumulative basis. The cumulative loss to be recovered at the end of the first quarter is $94.5 million.

With that, I will turn the call back to Sherman for closing remarks before we begin the Q&A session.

Thanks, Max. As we look ahead, I want to come back to those two timing questions because they are central to understanding both our near-term results and the longer-term opportunity. The first is the shell egg cycle. As outlined in slide 8, near-term results will continue to reflect low conventional wholesale egg prices, higher input costs, and the current supply imbalance. Market timing also affects how changes in conventional pricing flow through our results. Much of our conventional business is priced back of the market, meaning changes in the daily average earnerberry market price flow through our realized selling prices with a lag. When the market falls rapidly, I realize prices can temporarily remain above the current market. When the market rises rapidly, I realize prices can temporarily lag the market.

Our pricing approach has not changed the direction and timing of the market have. We are not attempting to call the precise bottom in the conventional egg cycle. What we do see are early supply indicators I will now turn the call over to management. The Q&A remains greater than even that healthy demand can absorb. That distinction is important. The second time in question is different because it is much more directly connected to our own execution. In prepared foods, we have considerably greater visibility in the investments we are making, the capacity being added, and the commercial opportunities we are pursuing. Our focus now Now, it is increasingly on commercialization, customer demand, utilization, and converting that additional capacity into profitable growth.

That means current earnings reflect two things happening simultaneously. A difficult point in the conventional egg cycle, an investment ahead of the full earnings contribution from prepared foods. Neither, viewed in isolation, fully describes the longer-term earnings power we are building. That is why the strength of Part of our balance sheet is particularly important at this point in the cycle. We ended the quarter with cash and temporary cash investments of approximately $768 million and remained virtually debt-free. That financial strength allows us to continue investing organically, execute our prepared foods capacity roadmap, and pursue strategically aligned M&A without depending on near-term recovery and conventional egg prices. Rather than retrenching when we're When commodity economics are weak, we have the financial capacity to invest through the cycle.

That gives us the opportunity to emerge from this part of the cycle with greater capacity, a broader portfolio, and more diversified earnings model. There is also an important point about how CAL-MAINE's earnings power should be evaluated at this stage in the cycle. When conventional economics were exceptionally strong and our earnings were near the high end of the cycle, Our results were normalized. Peak commodity earnings were not assumed to represent the permanent earnings level of the business. We believe the same three-cycle framework is relevant today. Conventional egg economics are now at the other end of the cycle. At the same time, we're investing ahead of growth in prepared foods, and a majority of the capacity we're building has not yet reached its full utilization of our earnings potential.

Just as peak cycle earnings were not viewed as normalized earnings power, we do not believe trough cycle earnings should be viewed that way either, particularly while we are simultaneously investing to expand the future earnings capacity of the business. The more relevant question is what CAL-MAINE's three-cycle earnings profile can become as these two dynamics evolve. On one side, we have a foundational shell egg business positioned to participate as supply and demand normalized. On the other, we are building specialty and prepared foods businesses designed to contribute a greater share of earnings through the cycle. And our balance sheet allows us to invest through the period between those two. Current results therefore reflect both commodity pressure and investment ahead of growth.

They do not yet fully reflect The first is normalization in the shell egg cycle. We cannot precisely predict when that occurs. The second is earnings contribution from the investment we are making in specialty shell eggs and prepared foods. We have considerably greater visibility and control over that progression. Our strategy is designed to be a We are designed so that over time, the second increasingly matters more than the first. We cannot control high-path AI, industry flock size, or daily commodity egg prices. We can control how we allocate capital, execute our prepared foods expansion, commercialize the capacity we're building, drive utilization, grow specialty shell eggs, serve our customers, and pursue strategically aligned opportunities. And our balance sheet gives us the ability to do those things through the cycle.

That is the opportunity at this point in the cycle. We have a foundational shell egg business positioned to participate when market conditions normalize, significant specialty and prepared foods growth underway, and the financial capacity to continue investing through the trough rather than managing around it. Our objective is not to eliminate the egg cycle. It is to build a CAL-MAINE whose earnings become progressively more diversified and durable through that cycle.

With that operator, we're ready to take questions.

Sure. I wanted to ask first on corporate expense. It was corporate expense and other, they were the biggest drivers of the disparity with our estimate. And I think corporate was like $8 or $9 million higher than last year. And I want to say in the queue, you talked about insurance and professional fees. So how should we be thinking about that line item for the rest of 27?

Good morning, Heather. Thank you for that question.

Max, you want to lead off with that? Yeah, thanks Heather. If you're talking about our unallocated corporate G&A, it was up about $8.5 million over the previous period. In the previous period, you mentioned we had a couple of things. We had some insurance expenses in the previous period that were a credit that lowered the cost. And then we did have the higher cost that you mentioned in legal and professional fees that brought it up. It was also a little bit of an offset from the contingent consideration fee for the Fazio acquisition, which will settle out in this next quarter. In terms of a run rate, I think the number that you're looking at there, given the give and take in it for the quarter, as our business begins to grow and scale, is about where I expect us to be.

The other things were additions of we had Creighton that came on and Clean Egg that also came on in the year so our operations were growing and more expense Volume was down but delivery expense was up quite a bit across all of our segments over 16 That would be one thing that might go the other way, depending on when things settle down in the Middle East, and we see hopefully a normalization of prices.

Another great question. Feed cost for us during the quarter was up 4.3% versus Q1 of 2026. The Hague Industry Center using USDA data, they projected it could be up as high as 8% with corn carrying about 16% heavier weight. So it's definitely a factor, and as we continue to watch grain, we use all the tools that we traditionally have, basis locks, farm storage important to fill up at harvest, hedging, but it's a very small piece for us, and you mentioned the Grain-Based Agreement Act as a natural hedge. Overall, the crop harvest is kind of on track, but there's a lot of weather happening in the Midwest right now that could put some pressure and delay that.

We are hearing rumblings that soybeans are tight. Six states either have slowed or idle, crushers, waiting on beans. So we'll continue to watch that, and then corn, the stocks to use there. We're somewhere between 9.5% and 10.5%, depending on USDA versus consultant opinions on that. So there is definitely some tightness going on there. We'll continue to evaluate it. Of course, the Iran war, the Russia-Ukraine war, all causing global disruption, and then China waiting to see exactly how their commitments play out. So we do expect that feed will continue to be up, but we continue to manage with our hard work that happens in the chicken houses every day to make sure that we're getting the best of feed costs.

Chairman, if I could add one thing to that. Heather, your question about how that kind of unfolds through the year, as you probably remember from prior years, Our strategy generally is to fill our bins in facilities where we have extra storage at harvest. So, you know, we've been doing that this year, and that cost will, you know, kind of follow through. It takes somewhere, depending on the facility, you know, probably as little as a month to consume that to as much as almost six months. So it will have some impact as we go through the bounce of the year.

Some of it has already showed up, Heather, and will continue to do so. But generally, within two weeks a month, most updates happen. There are a few that stretch out to a quarter type look back. But at harvest, we try to have empty bins so that we can capture that new crop grain that Max is talking about. So the effect is happening now.

Good morning, great question. It all starts with a really tough comp compared to last year. We outperformed the overall market last year and did the best job we possibly could making sure our customers had eggs on the shelf. We expect as time goes on we will trend more with what the market is doing, but it is just a really tough comp. Speaking of eggs themselves, eggs continue to be a tremendous value in the shopping cart between $60 and $90 a basket difference if eggs are in there or not. We do believe that there's extremely positive trends behind eggs overall. Strong household penetration still at 97 percent. Eggs are extremely hard to replace and carry a huge advantage on a cost per serving basis.

We do expect for that to look a lot more like the overall trends, but it's a really tough quarter to come.

Great question again. The piece of our specialty that's tied to the market that is low double-digit type percentage is seeing the influence here, but compared to last quarter, very stable pricing, and the California market still sits at 97 cents a day. So it's that piece of it that continues to put pressure on it. Longer term, those type prices are just not sustainable, so there will have to be adjustments. We can't predict the timing of that, but there definitely will be. Max, what would you add?

I mean, I think that's kind of it, Sherman. Specialty pricing is always influenced, and we've never ran away from that, is always influenced by conventional pricing. And as Sherman was mentioning those comps, not only the volumes that we shipped last year, and specialty, a lot of that was because specialty had that lower price point or near price point to conventional. As that recovers, you are going to see some pressure on specialty volumes, and that goes across industry-wide, I believe. That is the only other thing I would add there.

Good morning, Buran, and thank you for that question. You know, the American Egg Board is calling the flock between $336 million to $343 million for June, and that's down $4 million versus May. And also mentioning a USDA number that hatches down 12% in August, which is significant. So that is telling us something. And also, I think this week, the inventory that came out on Monday is down 128,000 cases, or about 7% less than last year. I think that is also telling us something. Then also that chart that we have in our deck that shows the price movement within the quarter, that bell curve was the exports mostly to South Korea. And if you look at the overall magnitude of that export, if the U. S. had got all of the 750 loads they were looking for, it's relatively small and had a substantial impact.

So it could be indicating more tightness than what the Erneberry market today is showing us.

Yeah, I mean to answer the last part of your question, Fran, or attempt to, you know, what impact feed costs have on the market. I mean, you know, again, we can only speak for CAL-MAINE, and we can observe history, but historically speaking, you know, When you see margin compression like we're seeing now, sort of from both ends, we've got a lower price point on sales price, and we've got higher input costs, particularly with feed and delivery and some of the things that we've already called out. And historically, that does, as Sherman said earlier about the specialty pricing, the price is not sustainable. The product is still in demand, so we would expect that there would be adjustment in that going forward.

But it's just really difficult to put a timeline on when that happens. But I think all of it does work together to, you know, people have to understand their cost and feed cost is a certain important part of that.

And then one follow Perrin is just about high AI Impossible to predict timing or magnitude of impact but if you look at the indicators just the epi curve that we have on slide nine that shows the seasonal pattern The fall generally comes under pressure that time of the year and then other early indicators are just the number of states that have some type of poultry mostly turkeys That number is seven now, with Indiana being added this week in commercial ducks, and also up north in Canada, Manitoba, and Alberta. Both are indicating that there is poultry affected. To our knowledge, there's not any layers in that, but it's just showing the overall presence Thank you.

Good morning, Ben. Great question. As you know, our plot planning happens two years out at all times. We are planning well in advance, and our goal is to supply 100% of our customer needs. That's how our flocks play out. No question, over the last few years, it's been very difficult to stay in normal flock rotations, but thankfully, we've had an opportunity to catch up on some of those. So we continue to plan the absolute best we possibly can to make sure 100% of our customer orders are filled. We cannot speak for the industry. Max, anything to add there?

No, I think you're going to.

John, you...

Good morning, Ben. Thanks for the question. As Sherman mentioned in his remarks, the first wave of this capital expansion that we've previously announced is being put in right now, the pancake line that he mentioned as well as the scrambled egg line, and then the gradual over the course of this year and next year, the incremental capacity for a Karpini pancake brand. From the top line, we'll start to see that in the second half of this year. As that comes online and we commercialize it, obviously that lags our operating costs to commission and to get the lines installed and up and running. So from an earnings perspective, not providing any guidance on where to think about in terms of margins for the full year, but as we get If we get this in and start commercializing it and reach full capacity, that will provide some uplift to our margin profile as we absorb a fixed cost base.

I think that's what you can expect for the rest of this year.

Good morning, Ben. Thank you for that question. First, out of the gate, always be confident that our goal is to remain egg-centric. When talking about M&A bolt-on, tuck-in type, M&A is what we look for. As you mentioned, a few of them, but we have more ways to grow than ever before from conventional eggs, specialty eggs, prepared foods, ingredients, and brands. We have more opportunity than ever. We continue to evaluate opportunities, relying heavily upon our model to tell us if it's the right opportunity or not, but also considering the organic opportunities like the ones that John mentioned a few minutes ago is also a tremendous way of growing.

Yeah, Ben, what I would add to that is that we have meaningful opportunity through both organic investment and M&A, and that pacing is very strategically important. We are building the foundation of a prepared foods platform that we expect to support growth for many years to come, and that foundation needs to be very well fortified, and that's commercially, operationally, and organizationally as well. And we have added capabilities, as you know, through Echo Lake and Kropini and Creighton and Vans, and at the same time we are investing organically in significant new capacity as both Sherman and John outlined. So the priority now is really to integrate those capabilities to commercialize the capacity and to build the customer pipeline and prove that the platform can execute consistently.

That does not mean that we stop looking at M&A, right? It means that we evaluate every opportunity against what the organization can absorb and execute really well. We need to digest and build at a pace that supports long-term success, not maximize the number of transactions or the speed of expansion in the near term. So if M&A can accelerate the strategy without compromising execution, we have the capacity to act, but organic growth, integration, and commercialization are equally important parts of creating value.

Thanks, Sherman. Thanks for taking my questions. Best of luck here going into the seasonally strong period here. I'll get back in queue.

Yeah, Heather, thanks for the follow-up. This is John. Look, in Q2, we're going to have some upfront costs for the capacity that we're bringing online this quarter. And so we saw that in the first quarter from the initial capacity we brought online late in the first quarter. And you can expect to see that in Q2. And that should kind of moderate a little bit in the back half of this year while getting the top line growth from Q2. We're commercializing those pounds that we bring online. So I think that's kind of the sequence you can think about.

That's a great question. The share repurchases are a great addition to our capital allocation that we added a little over a year ago. As we noticed, the subsequent events that you mentioned, it shows that we see big value at these levels of stock. The overhang right now is the things that we've mentioned today, but the assurance is that we've been here before, and it's why we manage the company the way that we do from our balance sheet forward. And the current situation is just not mid-cycle, normal, or sustainable. So you pointed out the right metrics. The stock value is very low compared to historical, and we see a lot of value there.

All right. Well, thank you for the thoughtful questions today and for your continued interest in CAL-MAINE FOODS. Operator, we're ready to conclude the call.