# CAL-MAINE FOODS INC (CALM) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from CAL-MAINE FOODS INC's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/16160/000156276223000287/calm-20230603_10K.htm
Accession: 0001562762-23-000287
Filing date: 2023-07-25
Report date: 2023-06-03
Extracted from a substantive MD&A body after the formal Item 7 span was a TOC or reference stub.
Confidence: high

Company profile: /company/CALM/
All MD&A years: /company/CALM/mda/
Previous year: /company/CALM/mda/fy2022/ (FY 2022)
Next year: /company/CALM/mda/fy2024/ (FY 2024)

OVERVIEW

Cal-Maine Foods, Inc. is primarily engaged in the production, grading, packaging, marketing and distribution of
 
fresh shell eggs.

Our
 
fiscal
 
year
 
end
 
is
 
the
 
Saturday
 
closest
 
to
 
May 31.
 
The
 
fiscal
 
year
 
2023
 
and
 
2022
 
included
 
53
 
weeks
 
and
 
52
 
weeks,

respectively.
 
The Company,
 
which
 
is headquartered
 
in Ridgeland,
 
Mississippi, is
 
the largest
 
producer and
 
distributor
 
of fresh

shell eggs in the United States
 
(“U.S”). In fiscal 2023, we sold approximately 1,147.4 million dozen shell
 
eggs, which we believe

represented
 
approximately
 
21% of
 
domestic shell
 
egg consumptio
 
n. Our
 
total flock
 
as of
 
June 3,
 
2023
 
of approximately
 
41.2

million layers and 10.8 million pullets and breeders is the largest in the
 
U.S. We sell most of
 
our shell eggs to a diverse group of

customers, including
 
national and
 
regional grocery
 
store chains,
 
club stores,
 
companies servicing
 
independent supermarkets
 
in

the U.S., food
 
service distributors, and
 
egg product consumers
 
in states across
 
the southwestern, southeastern,
 
mid-western and

mid-Atlantic regions of the U.S.

The Company has one reportable
 
operating segment, which is the production,
 
grading, packaging, marketing and distribution
 
of

shell eggs. Many of our customers rely on us to provide most of their shell egg needs, including specialty and conventional eggs.

Specialty
 
eggs
 
represent
 
a
 
broad
 
range
 
of
 
products. We
 
classify
 
cage-free,
 
organic,
 
brown,
 
free-range,
 
pasture-raised
 
and

nutritionally enhanced
 
as specialty eggs for
 
accounting and reporting
 
purposes. We
 
classify all other
 
shell eggs as conventional

eggs.
 
While
 
we
 
report
 
separate
 
sales
 
information
 
for
 
these
 
types
 
of
 
eggs,
 
there
 
are
 
a
 
number
 
of
 
cost
 
factors
 
which
 
are
 
not

specifically
 
available
 
for
 
conventional
 
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. For further
 
description

of our business, refer to

Part I. Item I. Business

.

HPAI

Since the first detection in
 
a U.S. commercial flock in
 
February 2022, outbreaks of highly
 
pathogenic avian influenza
 
(“HPAI”)

continued
 
to occur
 
in U.S.
 
poultry flocks
 
throughout calendar
 
year 2022
 
and, less
 
frequently,
 
in calendar
 
year 2023,
 
which is

more than twice the length of time
 
of the last HPAI outbreak in 2014-2015. HPAI affected more than 58 million birds in 47 states

and
 
resulted
 
in
 
the
 
depopulation
 
of
 
43.3
 
million
 
commercial
 
layer
 
hens
 
and
 
1.0
 
million
 
pullets
 
leading
 
to
 
higher
 
prices
 
for

conventional
 
shell eggs
 
beginning in
 
the fourth
 
quarter of
 
fiscal 2022
 
and continuing
 
through the
 
third quarter
 
of fiscal
 
2023.

Though the virus is still present, due to seasonal migratory patterns of wild birds (which serve as carriers for the disease) the rate

of outbreaks has substantially
 
decreased and the last
 
occurrence in a commercial
 
egg laying flock was in
 
December 2022.
 
The

USDA
 
attributes
 
this,
 
in
 
large
 
part,
 
to
 
improved
 
biosecurity
 
measures
 
by
 
the
 
commercial
 
poultry
 
industry.
 
The
 
industry
 
and

USDA have devoted
 
significant resources to
 
attempt to prevent
 
future outbreaks. With
 
the spring wild
 
bird migration complete

in the U.S., focus is on the fall migration season.

We
 
believe the
 
HPAI
 
outbreak will
 
continue to
 
impact the overall
 
supply of
 
eggs until the
 
layer hen
 
flock is
 
fully replenished.

The egg industry typically experiences lower sales during the
 
summer. The layer hen flock five-year average from 2020-2022 for

the month of June is 321.5 million hens. According to the USDA the U.S.
 
flock consisted of 317.4 million layers producing table

or
 
market
 
type
 
eggs as
 
of
 
July
 
1,
 
2023,
 
which
 
is 0.9%
 
below
 
the
 
five-year
 
average
 
and
 
reflects
 
efforts
 
by
 
U.S.
 
producers
 
to

repopulate their flocks. As the layer flock began to recover in the fourth quarter of fiscal 2023, prices for conventional shell eggs

decreased
 
from
 
previous
 
highs.
 
There
 
have
 
been
 
no
 
positive
 
tests
 
for
 
HPAI
 
at
 
any
 
Cal-Maine
 
Foods’
 
owned
 
or
 
contracted

production facility as of July
 
25, 2023. While no farm
 
is immune from HPAI,
 
we believe we have implemented
 
and continue to

maintain robust biosecurity programs across our locations. We
 
are also working closely with federal, state and local government

officials
 
and focused
 
industry groups
 
to mitigate
 
the risk
 
of this
 
and future
 
outbreaks and
 
effectively
 
manage our
 
response, if

needed.

24

Executive Overview of Results – Fiscal Years
 
Ended June 3, 2023, May 28, 2022 and May 29, 2021

Fiscal Years
 
Ended

June 3, 2023

May 28, 2022

May 29, 2021

Net sales (in thousands)

$

3,146,217

$

1,777,159

$

1,348,987

Gross profit (in thousands)

$

1,196,457

$

337,059

$

160,661

Net income attributable to Cal-Maine Foods, Inc.

$

758,024

$

132,650

$

2,060

Net income per share attributable to Cal-Maine Foods, Inc.

Basic

$

15.58

$

2.73

$

0.04

Diluted

$

15.52

$

2.72

$

0.04

Net average shell egg price

(a)

$

2.622

$

1.579

$

1.217

Average UB Southeast
 
Region - Shell Eggs - White Large

$

3.115

$

1.712

$

1.155

Feed costs per dozen produced

$

0.676

$

0.571

$

0.446

(a) The net average
 
shell egg selling price
 
is the blended price
 
for all sizes and
 
grades of shell eggs,
 
including non-graded

shell egg sales, breaking stock and undergrades.

For fiscal
 
2022, net
 
sales increased
 
to $1.8
 
billion, gross
 
profit to
 
$337.1 million
 
and net income
 
to $132.7
 
million from
 
fiscal

2021 net sales of
 
$1.3 billion, gross profit
 
of $160.7 million and
 
net income of $2.1
 
million. The increases resulted primarily
 
from

higher selling prices for
 
conventional eggs as well as an
 
increased volume of specialty
 
eggs sold, partially offset
 
by a decline in

the
 
volume
 
of
 
conventional
 
eggs
 
sold.
 
Gross
 
profit
 
and
 
net
 
income
 
increases
 
were
 
partially
 
offset
 
by
 
increased
 
cost
 
of
 
feed

ingredients and increased processing
 
costs. Consumer demand maintained
 
a steady growth throughout our
 
first three quarters of

fiscal
 
2021
 
but
 
began
 
trending
 
down
 
during
 
our
 
fourth
 
quarter
 
of
 
fiscal
 
2021
 
as
 
consumers
 
started
 
to
 
resume
 
pre-pandemic

activities.
 
We
 
believe
 
the
 
decreased
 
demand
 
in
 
foodservice
 
seen
 
throughout
 
the
 
first
 
three
 
quarters
 
of
 
fiscal
 
2021
 
due
 
to
 
the

pandemic contributed to the depressed price of shell
 
eggs for fiscal 2021 in the retail market due to the extra
 
supply entering the

retail channel from the foodservice channel.

For
 
fiscal
 
2022,
 
we
 
believe
 
prices
 
for
 
conventional
 
eggs
 
were
 
positively
 
impacted
 
by
 
a
 
better
 
alignment
 
of
 
the
 
size
 
of
 
the

conventional
 
production
 
layer
 
hen
 
flock
 
and
 
customer
 
and
 
consumer
 
demand
 
through
 
the
 
first
 
three
 
fiscal
 
quarters
 
of
 
2022.

Conventional egg
 
prices further
 
increased in
 
the fourth
 
quarter of
 
fiscal 2022
 
primarily due
 
to decreased
 
supply caused
 
by the

HPAI
 
outbreak
 
compounded
 
with
 
good
 
customer
 
demand.
 
Throughout
 
fiscal
 
2022
 
the
 
hen
 
numbers
 
reported
 
by
 
the
 
USDA

remained below the five-year average.

For fiscal
 
2023, net
 
sales increased
 
to $3.1
 
billion, gross
 
profit to
 
$1.2 billion
 
and net
 
income to
 
$758.0 million.
 
The increases

primarily resulted
 
from significantly
 
higher average
 
egg selling
 
prices, primarily
 
due to
 
the reduction
 
in egg
 
supply caused
 
by

HPAI
 
and
 
higher
 
grain
 
and
 
other
 
input
 
costs,
 
as
 
some
 
of
 
our
 
egg
 
sales
 
prices
 
are
 
based
 
on
 
formulas
 
related
 
to
 
our
 
costs
 
of

production. Gross
 
profit and
 
net income
 
increases were
 
partially offset
 
by the
 
increased cost
 
of feed
 
ingredients and
 
increased

processing, packaging
 
and warehouse costs.
 
The impact of
 
HPAI
 
continued throughout
 
the first three
 
quarters of fiscal
 
2023 as

prices continued to increase. For the
 
first three quarters of fiscal
 
2023, the average UB southeastern large index
 
price was 138.8%

higher
 
than
 
the
 
average
 
price
 
of
 
the
 
first
 
three
 
quarters
 
in
 
fiscal
 
2022.
 
For
 
the
 
fourth
 
quarter
 
of
 
fiscal
 
2023
 
the
 
average
 
UB

southeastern large index price decreased 13.8% to $2.163
 
from the same period in the
 
prior year as the egg supply
 
improved from

the effects
 
of HPAI.
 
Conventional egg
 
selling prices
 
declined significantly
 
during the
 
latter part
 
of the
 
fourth quarter
 
of fiscal

2023.

Our dozens sold
 
increased by 5.9%
 
for fiscal 2023
 
compared to fiscal
 
2022, primarily due
 
to an increase
 
in specialty egg
 
sales.

According to
 
Information Resources,
 
Inc. (“IRI”),
 
for the
 
52 weeks
 
ended June
 
4, 2023,
 
which approximately
 
aligns with
 
our

fiscal year 2023, conventional egg dozens sold in the U.S. at multi-retail outlets decreased 9.3%, while specialty egg dozens sold

increased 9.9%
 
versus the
 
prior-year comparable
 
period. Our
 
conventional eggs
 
dozens sold
 
increased 0.2%
 
and specialty
 
egg

dozens sold increased 18.6% as compared to fiscal 2022, with most of the increase
 
due to an increase in cage-free eggs sold.

Our feed costs
 
per dozen produced
 
increased to $0.676
 
in fiscal 2023,
 
compared to $0.571
 
in fiscal 2022.
 
For fiscal year
 
2023,

the average Chicago
 
Board of Trade
 
(“CBOT”) daily market
 
price was $6.57
 
per bushel for
 
corn and $450
 
per ton for
 
soybean

meal,
 
representing
 
increases
 
of
 
4.1%
 
and
 
14.7%,
 
respectively,
 
compared
 
to
 
the
 
daily
 
average
 
CBOT
 
prices
 
for
 
fiscal
 
2022.

Supplies
 
of corn and soybean meal remained tight
 
relative to demand in throughout fiscal 2023,
 
as evidenced by a low stock-to-

use ratio
 
for corn,
 
as a
 
result of
 
weather-related
 
shortfalls in
 
production
 
and yields,
 
ongoing supply
 
chain disruptions
 
and
 
the

Russia-Ukraine War
 
and its
 
impact on
 
the export
 
markets. Basis
 
levels for
 
corn and
 
soybean meal,
 
which impact
 
our costs for

25

these feed ingredients, ran significantly higher in fiscal 2023 in our areas of operation compared to our prior year fiscal year as a

result of higher transportation and storage costs, adding to our expense.

RESULTS
 
OF OPERATIONS

The following table sets forth, for the
 
fiscal years indicated, certain items from our Consolidated
 
Statements of Income expressed

as a percentage of net sales.

Fiscal Year
 
Ended

June 3, 2023

May 28, 2022

Net sales

100.0

%

100.0

%

Cost of sales

62.0

%

81.0

%

Gross profit

38.0

%

19.0

%

Selling, general and administrative

7.4

%

11.2

%

Gain on insurance recoveries

(0.1)

%

(0.3)

%

(Gain) loss on disposal of fixed assets

—

%

—

%

Operating income

30.7

%

8.1

%

Total other income

1.0

%

1.3

%

Income before income taxes

31.7

%

9.4

%

Income tax expense

7.7

%

1.9

%

Net income

24.0

%

7.5

%

Less:
 
Net loss attributable to noncontrolling interest

—

%

—

%

Net income attributable to Cal-Maine Foods, Inc.

24.0

%

7.5

%

26

Fiscal Year
 
Ended June 3, 2023 Compared to Fiscal Year
 
Ended May 28, 2022

NET SALES

Total net sales for fiscal
 
2023
 
were $3.1 billion compared to $1.8 billion for fiscal 2022.

Net shell egg sales represented 96.1% and 96.6% of total net
 
sales for the fiscal year 2023
 
and 2022, respectively. Shell egg sales

classified as “Other” represent sales of miscellaneous byproducts and resale products included with our shell
 
egg operations. The

table below presents an analysis of our conventional and specialty shell egg
 
sales (in thousands, except percentage data):

June 03, 2023

May 28, 2022

Total net sales

$

3,146,217

$

1,777,159

Conventional

$

2,051,961

67.9

%

$

1,061,995

61.8

%

Specialty

956,993

31.6

%

648,838

37.8

%

Egg sales, net

3,008,954

99.5

%

1,710,833

99.6

%

Other

14,993

0.5

%

6,322

0.4

%

Net shell egg sales

$

3,023,947

100.0

%

$

1,717,155

100.0

%

Dozens sold:

Conventional

749,076

65.3

%

747,914

69.0

%

Specialty

398,297

34.7

%

335,875

31.0

%

Total dozens sold

1,147,373

100.0

%

1,083,789

100.0

%

Net average selling price per dozen:

Conventional

$

2.739

$

1.420

Specialty

$

2.403

$

1.932

All shell eggs

$

2.622

$

1.579

Egg products sales:

Egg products net sales

$

122,270

$

60,004

Pounds sold

70,035

63,968

Net average selling price per pound

$

1.746

$

0.938

Shell egg net sales

-

For
 
fiscal
 
2023,
 
shell
 
egg
 
net
 
sales
 
increased
 
$1.3
 
billion,
 
primarily
 
due
 
to
 
higher
 
net
 
average
 
selling
 
prices
 
for

conventional eggs, and to a lesser extent specialty eggs.

-

For fiscal 202
 
3, conventional
 
egg sales increased
 
$990.0 million,
 
or 93.2%, compared
 
to fiscal 2022,
 
primarily due
 
to

the increase in
 
conventional egg
 
prices. Changes
 
in price resulted
 
in a $988.0
 
million increase and
 
changes
 
in volume

resulted in a $1.7 million increase in net sales.

-

Conventional egg prices increased in the first three quarters
 
of fiscal 2023 primarily due to decreased supply
 
caused by

the HPAI outbreak, discussed above. Conventional egg prices decreased
 
substantially in the fourth
 
quarter of fiscal 2023

compared to average
 
fiscal 2023 levels, due
 
to an increased supply
 
of conventional eggs
 
caused by the repopulating
 
of

layer
 
flocks
 
in
 
response
 
to
 
the
 
impact
 
of
 
HPAI
 
and
 
typical
 
seasonal
 
decreases
 
in
 
demand.
 
Conventional
 
egg
 
prices

exceeded
 
specialty
 
egg
 
prices
 
during
 
fiscal
 
2022
 
and
 
for
 
the
 
first
 
three
 
quarters
 
of
 
fiscal
 
2023,
 
which
 
is
 
atypical

historically. Conventional
 
egg prices generally respond more quickly to market conditions because we sell the majority

of
 
our
 
conventional
 
shell
 
eggs
 
based
 
on
 
formulas
 
that
 
adjust
 
periodically
 
and
 
take
 
into
 
account,
 
in
 
varying
 
ways,

independently quoted regional wholesale market prices for shell
 
eggs or formulas related to our
 
costs of production. The

majority of our specialty eggs are typically sold at prices and terms negotiated
 
directly with customers and therefore do

not fluctuate as much as conventional pricing.

-

Specialty egg sales
 
increased $308.2 million, or
 
47.5%, for fiscal
 
2023
 
compared to fiscal
 
2022, primarily due
 
to a 24.4%

increase in specialty egg
 
prices and a 18.6% increase
 
in the volume of
 
specialty dozens sold. Changes
 
in price resulted

in a $187.6
 
million increase and
 
change in volume
 
resulted in a
 
$120.6 million increase
 
in net sales,
 
respectively.
 
Our

27

specialty egg sales also benefitted from our additional
 
cage-free production capacity.
 
Cage-free revenue for fiscal 2023

was 20.2% of total revenue, compared to 22.3% for fiscal 2022.

-

Net average selling
 
prices of specialty eggs
 
increased by agreements with
 
our customers in response
 
to rising feed and

other input costs as well as lower supply availability due to HPAI.

-

Demand for specialty
 
eggs increased during
 
the first three
 
quarters of fiscal
 
2023 as conventional
 
egg prices rose.
 
Our

sales volume benefited versus the prior-year period, through use of
 
our higher cage-free production capacity.

Egg products net sales

-

Egg products net sales increased $62.3 million or 103.8%, primarily due to an 86.1% selling price increase compared to

fiscal 2022, which had a $56.6 million positive impact on net sales.

-

Our egg products net average selling
 
price increased in fiscal 2023, compared
 
to fiscal 2022 as the supply of shell
 
eggs

used to produce egg products decreased due to the HPAI
 
outbreak that started in February 2022.

COST OF SALES

Cost of sales for fiscal 2023
 
were $1.9 billion compared to $1.4 billion for fiscal 2022.

Cost of
 
sales consists
 
of
 
costs directly
 
related
 
to producing,
 
processing
 
and
 
packing
 
shell eggs,
 
purchases
 
of
 
shell
 
eggs from

outside sources,
 
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 our cost of
 
sales (in thousands,
 
except cost per dozen data):

Fiscal Year
 
Ended

June 03, 2023

May 28, 2022

% Change

Cost of Sales:

Farm production

$

1,118,741

$

927,806

20.6

%

Processing, packaging, and warehouse

342,836

289,056

18.6

Egg purchases and other (including change in inventory)

379,777

172,034

120.8

Total shell eggs

1,841,354

1,388,896

32.6

Egg products

108,406

51,204

111.7

Total

$

1,949,760

$

1,440,100

35.4

%

Farm production costs (per dozen produced)

Feed

$

0.676

$

0.571

18.4

%

Other

$

0.396

$

0.352

12.5

%

Total

$

1.072

$

0.923

16.1

%

Outside egg purchases (average cost per dozen)

$

3.02

$

1.72

75.6

%

Dozens produced

1,058,540

1,022,327

3.5

%

Percent produced to sold

92.3%

94.3%

(2.1)

%

Farm Production

-

Feed costs
 
per dozen
 
produced increased
 
18.4% in
 
fiscal 2023
 
compared to
 
fiscal 2022,
 
primarily due
 
to higher
 
feed

ingredient prices. Basis levels for corn and soybean meal
 
ran significantly higher in our areas of operation
 
compared to

our prior fiscal year due to higher transportation and storage costs, adding
 
to our expense.

-

For fiscal 2023, the average daily CBOT market price was $6.57 per bushel for corn and $450 per ton of soybean meal,

representing increases of 4.1% and 14.7%, respectively,
 
as compared to the average daily CBOT prices for fiscal 2022.

28

-

Other farm production
 
costs increased due
 
to higher
 
facility and
 
flock amortization.
 
Facility costs
 
increased due primarily

to increased labor costs. Labor costs increased 29.6%
 
due to increased use of contract labor and increased wages
 
raised

in response to labor shortages.

-

Flock amortization increased
 
primarily from higher
 
capitalized feed costs
 
as well as higher
 
amortization costs from
 
an

increase in our cage-free production.

Supplies of corn and soybean remained tight relative to demand throughout fiscal 2023, as evidenced by a low stock-to-use
 
ratio

for
 
corn,
 
as
 
a
 
result
 
of
 
weather-related
 
shortfalls
 
in
 
production
 
and
 
yields,
 
ongoing
 
supply
 
chain
 
disruptions
 
and
 
the
 
Russia-

Ukraine
 
War
 
and
 
its
 
impact
 
on
 
the
 
export
 
markets.
 
For
 
fiscal
 
2024,
 
we
 
expect
 
continued
 
corn
 
and
 
soybean
 
upward
 
pricing

pressures and further market volatility to affect feed costs.

Processing, packaging, and warehouse

-

Cost of packaging materials increased 18.6% compared to
 
fiscal 2022
 
as costs increased due to rising
 
inflation and labor

costs.

-

Labor costs increased 13.6% due to wage increases instituted in response
 
to labor shortages and rising inflation.

-

Dozens processed increased 3.6% compared to fiscal 2022, which
 
resulted in an $11.2 million increase in costs.

Egg purchases and other (including change in inventory)

-

Costs in this category increased
 
120.8% compared to fiscal 2022
 
primarily due to the
 
increase in egg prices. The
 
average

price
 
of outside
 
egg
 
purchases
 
increased
 
75.6%
 
per
 
dozen compared
 
to
 
fiscal
 
2022.
 
Additionally,
 
our
 
percentage
 
of

produced to
 
sold decreased
 
to 92.3%
 
in fiscal
 
2023 from
 
94.3% in
 
fiscal 2022
 
as we
 
increased our
 
volume of
 
outside

egg purchases in order to meet customer demand.

GROSS PROFIT

Gross profit,
 
as a percentage
 
of net sales,
 
was 38.0%
 
for fiscal 2023
 
,
 
compared to 19.0%
 
for fiscal 2022.
 
The increase resulted

primarily from higher selling prices for conventional eggs as well as the increased volume
 
of specialty eggs sold, partially offset

by the increased cost of feed ingredients and processing, packaging
 
and warehouse costs.

SELLING, GENERAL, AND ADMINISTRATIVE
 
EXPENSES

Selling,
 
general,
 
and
 
administrative
 
(“SGA”)
 
expenses
 
include
 
costs
 
of
 
marketing,
 
distribution,
 
accounting,
 
and
 
corporate

overhead. SG&A expenses increased
 
$33.6 million to $232.2
 
million in fiscal 2023.
 
The following table presents
 
an analysis of

our SGA expenses (in thousands):

Fiscal Year
 
Ended

June 03, 2023

May 28, 2022

$ Change

% Change

Specialty egg expense

$

57,758

$

59,830

$

(2,072)

(3.5)

%

Delivery expense

77,548

62,677

14,871

23.7

%

Payroll, taxes and benefits

57,830

43,954

13,876

31.6

%

Stock compensation expense

4,205

4,063

142

3.5

%

Other expenses

34,866

28,107

6,759

24.0

%

Total

$

232,207

$

198,631

$

33,576

16.9

%

Specialty egg expense

-

Specialty egg
 
expense, which
 
includes franchise
 
fees, advertising
 
and promotion
 
costs generally
 
tracks with
 
specialty

egg
 
volumes,
 
which
 
were
 
up
 
18.6%
 
for
 
fiscal
 
2023
 
compared
 
to
 
fiscal
 
2022.
 
However,
 
our
 
specialty
 
egg
 
expense

decreased 3.5%,
 
primarily due
 
to a
 
significant reduction
 
in advertising
 
costs. The
 
higher prices
 
for conventional
 
eggs

and
 
the
 
comparatively
 
lower prices
 
for
 
specialty eggs
 
diminished
 
the need
 
to promote
 
specialty eggs
 
in fiscal
 
2023.

However, we anticipate that the need to promote specialty eggs will increase
 
in fiscal 2024 as the market recovers from

the effects of HPAI.

29

Delivery expense

-

The increased
 
delivery expense
 
is primarily
 
due to
 
the increase
 
in fuel
 
and labor
 
costs for
 
both our
 
fleet and
 
contract

trucking. Compared to fiscal
 
2022, contract trucking and
 
labor expenses increased
 
approximately $10.2 million for
 
fiscal

2023.

Payroll, taxes and benefits expense

-

The
 
increase
 
in
 
payroll,
 
taxes
 
and
 
benefits
 
expense
 
is
 
primarily
 
due
 
to
 
an
 
increase
 
in
 
the
 
accrual
 
for
 
anticipated

performance-based bonuses.

Other expenses

-

The increase in other
 
expenses is due to
 
increased legal expenses of
 
approximately $3.6 million
 
as well as inflationary

pressure increasing costs.

OPERATING
 
INCOME (LOSS)

As a result of the above, our operating income was $967.7 million for fiscal 2023
 
,
 
compared to $143.5 million for fiscal 2022.

OTHER INCOME (EXPENSE)

Total
 
other
 
income
 
(expense)
 
consists
 
of
 
items
 
not
 
directly
 
charged
 
to,
 
or
 
related
 
to,
 
operations
 
such
 
as
 
interest
 
income
 
and

expense, equity in income or loss of unconsolidated entities, and patronage dividends,
 
among other items.

The Company recorded interest income of $18.6 million in fiscal 2023,
 
compared to $988 thousand in fiscal 2022, primarily due

to significantly
 
higher cash
 
and cash
 
equivalents and
 
investment securities
 
available-for-sale balances
 
and yields.
 
We
 
recorded

interest expense of $583 thousand and $403 thousand
 
in fiscal 2023 and 2022, respectively, primarily related to commitment fees

on our Credit Facility described below.

Equity in income from unconsolidated entities for fiscal 2023 was $746
 
thousand compared to $1.9 million for fiscal 2022.

Other, net
 
for fiscal 2023
 
was income of
 
$1.9 million compared
 
to $9.8 million for
 
fiscal 2022.
 
The majority of
 
the decrease is

due
 
to
 
our
 
acquisition
 
in
 
fiscal
 
2022
 
of
 
the
 
remaining
 
50% membership
 
interest
 
in
 
Red
 
River
 
Valley
 
Egg
 
Farm,
 
LLC
 
(“Red

River”) as we recognized a $4.5 million gain in fiscal 2022 due to the remeasurement of our equity investment.
 
We also received

$1.4 million in fiscal 2022 related
 
to our review and adjustment
 
of our various marketing agreements. Additionally, the Company

recorded a $2 million impairment of an investment in an unconsolidated entity
 
in fiscal 2023.

INCOME TAXES

For
 
the
 
fiscal
 
year
 
ended
 
June
 
3,
 
2023,
 
our
 
pre-tax
 
income
 
was
 
$998.6
 
million,
 
compared
 
to
 
$166.0
 
million
 
for
 
fiscal
 
2022.

Income tax expense of $241.8 million
 
was recorded for fiscal 2023 with an effective
 
tax rate of 24.2%.
 
For fiscal 2022, income

tax expense was $33.6 million with an effective tax rate
 
of 20.2%. Included in fiscal 2022 income tax expense is the discrete tax

benefit of
 
$8.3 million
 
discussed in

Note 2 – Acquisition

of Part
 
II. Item
 
8. Notes
 
to Consolidated
 
Financial Statements
 
in this

Annual Report.
 
Excluding the discrete
 
tax benefit,
 
income tax expense
 
was $41.9
 
million with an
 
adjusted effective
 
tax rate of

25.2%.

At June 3, 2023, the Company had
 
an income tax receivable of $67.0 million compared to
 
$42.1 million at May 28, 2022. During

fiscal 2022,
 
the Company
 
filed federal
 
carryback tax
 
returns for
 
fiscal 2020
 
and 2021
 
taxable net
 
operating losses
 
to recover
 
a

portion of
 
taxes paid
 
in fiscal 2015
 
and fiscal
 
2016. Subsequent
 
to fiscal
 
2023, we
 
received $31.8
 
million of
 
the $34.9
 
million

fiscal 2021 refund and believe we will receive the remaining amount of the fiscal 2020 and 2021 refunds, totaling
 
$11.7 million,

during our second fiscal quarter of 2024.
 
An additional $23.5 million income tax receivable was recorded as of June 3, 2023 for

fiscal 2023 federal overpayments in excess of federal tax liability.

Items causing
 
our effective
 
tax rate
 
to differ
 
from the
 
federal statutory
 
income tax
 
rate of
 
21% are
 
state income
 
taxes, certain

federal tax
 
credits and
 
certain items included
 
in income or
 
loss for financial
 
reporting purposes that
 
are not included
 
in taxable

income or
 
loss for income
 
tax purposes, including
 
tax exempt interest
 
income, certain
 
nondeductible expenses,
 
and net income

or loss attributable to noncontrolling interest.

30

NET LOSS ATTRIBUTABLE
 
TO NONCONTROLLING INTEREST

Net loss attributable
 
to noncontrolling
 
interest was $1.3
 
million for fiscal
 
2023
 
compared to a
 
$209 thousand
 
net loss for
 
fiscal

2022.

NET INCOME ATTRIBUTABLE
 
TO CAL-MAINE FOODS, INC.

As a result of the above, net income attributable to Cal-Maine Foods, Inc. for fiscal
 
2023 was $758.0 million, or $15.58 per basic

and $15.52 per diluted share, compared to $132.7 million, or $2.73 per basic
 
and $2.72 per diluted share for fiscal 2022.

Fiscal Year
 
Ended May 28, 2022 Compared to Fiscal Year
 
Ended May 29, 2021

The discussion
 
of our
 
results of
 
operations for
 
the fiscal
 
year ended
 
May 28,
 
2022 compared
 
to the
 
fiscal year
 
ended May
 
29,

2021 can be found in Part II. Item 7. Management's Discussion and Analysis of Financial Condition and Results
 
of Operations in

the Company’s fiscal 2022
 
Annual Report on Form 10-K.

LIQUIDITY AND CAPITAL
 
RESOURCES

Working
 
Capital and Current Ratio

Our working capital at
 
June 3, 2023 was
 
$942.2 million, compared to $476.8 million at
 
May 28, 2022.
 
The calculation of working

capital is defined as current assets less current liabilities. Our current ratio was 6.16 at June 3, 2023 compared to 3.58 at May 28,

2022.
 
The current
 
ratio is
 
calculated
 
by dividing
 
current assets
 
by current
 
liabilities. The
 
increase
 
in our
 
working
 
capital and

current ratio
 
is primarily due
 
to the increase
 
in total current
 
assets, which increased
 
by $463.4 million
 
to $1.1 billion
 
at June 3,

2023,
 
due
 
to significant
 
increases in
 
cash and
 
cash equivalents
 
and
 
investment
 
securities available
 
-for-sale.
 
Due to
 
seasonal

factors described in

Part I. Item I. Business – Seasonality

, we generally expect
 
our need for working
 
capital to be highest in
 
the

fourth and first fiscal quarters ending in May/June and August/September,
 
respectively.

Cash Flows from Operating Activities

Net cash provided
 
by operating activities
 
was $863.0
 
million for fiscal
 
year 2023
 
compared with $126.2
 
million for fiscal
 
year

2022.
 
The increase in cash flow from operations
 
resulted primarily from higher selling prices for conventional eggs
 
as well as the

increased volume of specialty eggs
 
sold, partially offset by the increased
 
cost of feed ingredients and processing,
 
packaging and

warehouse costs.

Cash Flows from Investing Activities

We
 
continue
 
to
 
invest
 
in
 
our
 
facilities,
 
with
 
$136.6
 
million
 
used
 
to
 
purchase
 
property,
 
plant
 
and
 
equipment
 
for
 
fiscal
 
2023,

compared to $72.4
 
million in fiscal 2022.
 
These investments were primarily
 
made to expand our
 
cage-free production capacity.

We
 
have for many years
 
invested substantial amounts
 
to expand our cage-free
 
production capacity and
 
expect to continue to
 
do

so.
 
Purchases
 
of
 
investments
 
were
 
$530.8
 
million
 
in
 
fiscal
 
2023,
 
compared
 
to
 
$98.2
 
million
 
in
 
fiscal
 
2022.
 
The
 
increase
 
in

purchases of
 
investment securities
 
is primarily
 
due to
 
the utilization
 
of increased
 
liquidity resulting
 
from increased
 
cash flows

provided by operating
 
activities noted above.
 
Sales and maturities
 
of investment securities
 
were $291.8
 
million for fiscal
 
2023,

compared to $92.7 million
 
for fiscal 2022. During fiscal
 
2022, we also acquired the
 
remaining 50% membership interest
 
in Red

River for $44.8 million, net of cash acquired.

Cash Flows from Financing Activities

We paid dividends
 
totaling $252.3 million and $6.1 million in fiscal 2023
 
and 2022, respectively.

As of
 
June 3,
 
2023, cash
 
increased
 
$233.7 million
 
since May
 
28, 2022,
 
compared to
 
an increase
 
of $1.7
 
million during
 
fiscal

2022.

Credit Facility

We had no
 
long-term debt outstanding at the end of fiscal 2023
 
and 2022. On November 15, 2021, we entered
 
into an Amended

and Restated Credit Agreement (as amended the “Credit
 
Agreement”) with a five-year term. The Credit Agreement provides for

a senior
 
secured revolving
 
credit facility
 
(the “Credit
 
Facility”), in
 
an initial
 
aggregate principal
 
amount of
 
up to
 
$250 million.

As of June 3, 2023, no amounts were borrowed under
 
the Credit Facility. We
 
have $4.3
 
million in outstanding standby letters of

credit, which were issued under our Credit Facility for the
 
benefit of certain insurance companies. In May 2023,
 
we entered into

31

an amendment to
 
the Credit Agreement
 
to replace the
 
London Interbank Offered
 
Rate interest rate
 
benchmark. Refer
 
to Part II.