Cal-Maine Foods Inc: Form 10-Q for the period ended Dec 2, 2023

DISCUSSION

AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

The following should be read in conjunction with Management’s Discussion and Analysis of Financial Condition and Results

of Operations included in Part II Item 7 of the Company’s Annual Report on Form 10-K for its fiscal year ended June 3, 2023

(the “2023 Annual Report”), and the accompanying financial statements and notes included in Part II Item 8 of the 2023 Annual

Report and in

Part I Item 1

of this Quarterly Report on Form 10-Q (“Quarterly Report”).

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

and egg products 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 the recent resurgence in United States (“U.S.”) commercial table egg layer flocks of the highly

pathogenic avian influenza (“HPAI”) outbreak, potential future impact on our business of inflation and rising interest rates,

potential future impact on our business of new legislation, rules or policies, potential outcomes of legal proceedings , including

loss contingency accruals and factors that may result in changes in the amounts recorded, 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 Part I Item 1A of the 2023 Annual Report, the risk factors (if any) set forth in Part II Item 1A Risk

Factors and elsewhere in this report as well as those included in other reports we file from time to time with the Securities and

Exchange Commission (the “SEC”) (including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K), (ii) the

risks and hazards inherent in the shell egg business (including disease, pests, weather conditions, and potential for product

recall), including but not limited to the current outbreak of HPAI affecting poultry in the U.S., Canada and other countries that

was first detected in commercial flocks in the U.S. in February 2022 and that first impacted our flock in December 2023, (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, (vi) risks relating

to increased costs and higher and potentially further increases in, inflation and interest rates, (vii) our ability to retain existing

customers, acquire new customers and grow our product mix, (viii) adverse results in pending litigation matters, (ix) global

instability, including as a result of the wars in Ukraine and Israel and attacks on shipping in the Red Sea, and (x) any potential

resurgence of COVID-19. 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.

GENERAL

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 operations are fully integrated and we have one operating and reportable

segment. We are the largest producer and distributor of fresh shell eggs in the U.S. Our total flock of approximately 43.3

million layers and 10.6 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 located primarily in states across the southwestern,

southeastern, mid-western and mid-Atlantic regions of the U.S.

Our operating results are materially impacted by market prices for eggs and feed grains (corn and soybean meal), which are

highly volatile, independent of each other, and out of our control. Generally, higher market prices for eggs have a positive

impact on our financial results while higher market prices for feed grains have a negative impact on our financial results.

Although we use a variety of pricing mechanisms in pricing agreements with our customers, we sell most of our conventional

shell eggs based on formulas that consider, in varying ways, independently quoted regional wholesale market prices for shell

eggs or formulas related to our costs of production which include the cost of corn and soybean meal. We do not sell eggs

directly to consumers or set the prices at which eggs are sold to consumers.

Retail sales of shell eggs historically have been highest during the fall and winter months and lowest during the summer

months. Prices for shell eggs fluctuate in response to seasonal demand factors and a natural increase in egg production during

the spring and early summer. Historically, shell egg prices tend to increase with the start of the school year and tend to be

highest prior to holiday periods, particularly Thanksgiving, Christmas and Easter. Consequently, and all other things being

equal, we would expect to experience lower selling prices, sales volumes and net income (and may incur net losses) in our first

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

We routinely fill our storage bins during harvest season when prices for feed ingredients are generally lower. To ensure

continued availability of feed ingredients, we may enter into contracts for future purchases of corn and soybean meal, and as

part of these contracts, we may lock-in the basis portion of our grain purchases several months in advance. Basis is the

difference between the local cash price for grain and the applicable futures price. A basis contract is a common transaction in

the grain market that allows us to lock-in a basis level for a specific delivery period and wait to set the futures price at a later

date. Furthermore, due to the more limited supply for organic ingredients, we may commit to purchase organic ingredients in

advance to help ensure supply. Ordinarily, we do not enter into long-term contracts beyond a year to purchase corn and soybean

meal or hedge against increases in the prices of corn and soybean meal. Corn and soybean meal are commodities and are

subject to volatile price changes due to weather, various supply and demand factors, transportation and storage costs,

speculators, agricultural, energy and trade policies in the U.S. and internationally , and global instability that could disrupt the

supply chain.

An important competitive advantage for Cal-Maine Foods is our ability to meet our customers’ evolving needs with a favorable

product mix of conventional and specialty eggs, including cage-free, organic and other specialty offerings, as well as egg

products. We have also enhanced our efforts to provide free-range and pasture-raised eggs that meet consumers’ evolving

choice preferences. While a small part of our current business, the free-range and pasture-raised eggs we produce and sell

represent attractive offerings to a subset of consumers, and therefore our customers, and help us continue to serve as the trusted

provider of quality food choices.

CAGE-FREE EGGS

Ten states have passed legislation or regulations mandating minimum space or cage-free requirements for egg production or

mandated the sale of only cage-free eggs and egg products in their states, with implementation of these laws ranging from

January 2022 to January 2026. These states represent approximately 27% of the U.S. total population according to the 2020

U.S. Census. California, Massachusetts, and Colorado, which collectively represent approximately 16% of the total estimated

U.S. population, have cage-free legislation currently in effect. Oregon, Washington and Nevada have cage-free legislation

going into effect starting January 1, 2024, which represents an additional 5% of the total estimated U.S. population. Although

we do not sell the majority of our eggs in these ten states, these state laws have impacted egg production practices nationally.

A significant number of our customers have announced goals to either exclusively offer cage-free eggs or significantly increase

the volume of cage-free egg sales in the future, subject in most cases to availability of supply, affordability and consumer

demand, among other contingencies. Our customers typically do not commit to long-term purchases of specific quantities or

types of eggs with us, and as a result, it is difficult to accurately predict customer requirements for cage-free eggs. We are

focused on adjusting our cage-free production capacity with a goal of meeting the future needs of our customers in light of

changing state requirements and our customer’s goals. As always, we strive to offer a product mix that aligns with current and

anticipated customer purchase decisions. We are engaging with our customers to help them meet their announced goals and

needs. We have invested significant capital in recent years to acquire and construct cage-free facilities, and we expect our focus

for future expansion will continue to include cage-free facilities. Our volume of cage-free egg sales has continued to increase

and account for a larger share of our product mix. Cage-free egg revenue represented approximately 30.4% of our total net shell

egg revenue for the second quarter of fiscal year 2024. At the same time, we understand the importance of our continued ability

to provide conventional eggs in order to provide our customers with a variety of egg choices and to address hunger in our

communities.

For additional information, see the 2023 Annual Report, Part I Item 1, “Business – Specialty Eggs,” “Business – Growth

Strategy” and “Business – Government Regulation,” and the first risk factor in Part I Item 1A, “Risk Factors” under the sub-

heading “Legal and Regulatory Risk Factors.”

ACQUISITIONS

During the second quarter of fiscal 2024, we acquired the assets of Fassio Egg Farms, Inc. (“Fassio”) related to its commercial

shell egg production and processing business. The assets acquired included commercial shell egg production and processing

facilities with a current capacity of approximately 1.2 million laying hens, primarily cage-free, a feed mill, pullets, a fertilizer

production and composting operation and land located in Erda, Utah, outside Salt Lake City. See further discussion in

Note 2 –

Acquisition

of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.

Following the end of the second quarter, we announced a definitive agreement to acquire from Tyson Foods, Inc. a recently

closed broiler processing plant, hatchery and feed mill located in Dexter, Missouri. We expect to complete the acquisition in

our third fiscal quarter and to repurpose the assets for use in egg and egg products production.

HPAI

Outbreaks of HPAI continue to occur in U.S. poultry flocks. Prior to November 2023, there were no reported significant

outbreaks of HPAI in commercial table egg layer flocks since December 2022. On January 3, 2024, the USDA division of

Animal and Plant Health Inspection Service (“APHIS”) reported that approximately 12.9 million commercial table egg layers

and 1.5 million commercial table egg pullets have been depopulated as a result of HPAI outbreaks since the beginning of

November 2023.

Cal-Maine Foods experienced HPAI outbreaks within our facilities in Kansas, resulting in depopulation of approximately 1.5

million layers and 240 thousand pullets, or approximately 3.3% of our total flock as of December 2, 2023, subsequent to

period-end. Cal-Maine Foods believes that we can mitigate the loss of production through flock rotations. Cal-Maine Foods

remains dedicated to robust biosecurity programs across our locations; however, no farm is immune from HPAI. HPAI is still

present in the wild bird population and the extent of possible future outbreaks, particularly during the migration seasons, cannot

be predicted. According to the U.S. Centers for Disease Control and Prevention, these detections do not present an immediate

public health concern. For additional information, see the 2023 Annual Report, Part II Item 7 “Management’s Discussion and

Analysis of Financial Condition and Results of Operations – HPAI.”

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

The layer hen flock five-year average for the month of December from 2018 through 2022 is 330.1 million hens. According to

the USDA, the U.S. flock consisted of 321.6 million layers producing table or market type eggs as of December 1, 2023, which

is 2.6% below the five-year average.

EXECUTIVE OVERVIEW

For the second quarter and first two quarters of fiscal 2024, we recorded a gross profit of $91.1 million and $136.6 million,

respectively, compared to $317.8 million and $535.3 million, respectively, for the same periods of fiscal 2023, with the

decreases due primarily to lower conventional shell egg prices. The decrease in gross profit was partially offset by lower feed

ingredient prices in the second quarter and first two quarters of fiscal 2024 compared to the same periods of fiscal 2023. Our

operating income and net income for the second quarter of fiscal 2024 were impacted by a $19.6 million litigation loss

contingency accrual for pending anti-trust litigation, reflected in selling, general and administrative expenses in the Company’s

Condensed Consolidated Statements of Income and classified as accrued expenses and other liabilities in the Company’s

Condensed Consolidated Balance Sheets.

Our net average selling price per dozen for the second quarter of fiscal 2024 was $1.730 compared to $2.709 in the prior-year

period. Conventional egg prices per dozen were $1.458 compared to $2.883 for the prior-year period, and specialty egg prices

per dozen were $2.277 compared to $2.370 for the prior-year period. Conventional egg prices were lower in the second quarter

of fiscal 2024 compared to the prior-year period as the U.S. egg supply started to recover from outbreaks of HPAI. There has

been a resurgence of HPAI starting in November 2023, and although prices rose in November 2023 they remained lower than

comparable 2022 prices. Our net average selling price per dozen for the first two quarters of fiscal 2024 was $1.661 compared

to $2.469 in the prior-year period. Conventional egg prices per dozen were $1.353 compared to $2.631 for the prior-year

period, and specialty egg prices per dozen were $2.277 compared to $2.236 for the prior-year period. The daily average price

for the Urner Barry southeast large index for the second quarter of fiscal 2024 and first two quarters of fiscal 2024 decreased

49.6% and 49.2%, respectively, from the comparable periods in the prior year. For information about historical shell egg prices,

see Part I Item I of our 2023 Annual Report.

Our total dozens sold increased 1.4% to 288.2 million dozen shell eggs for the second quarter of fiscal 2024 compared to 284.1

million dozen for the same period of fiscal 2023. For the year-to-date period, total dozens sold increased slightly from 559.4

million dozen to 561.3 million dozen. For the second quarter of fiscal 2024, conventional dozens sold increased 2.4% and specialty dozens sold decreased 0.4% as compared to the same quarter in fiscal 2023. Demand for specialty eggs decreased in the second quarter of fiscal 2024 compared to the same prior year period due primarily to the large decrease in prices for conventional eggs compared to the same prior year period. For the year-to-date period, conventional dozens sold increased

1.7% and specialty dozens sold decreased 2.3% compared to the prior year period.

Our farm production costs per dozen produced for the second quarter and first two quarters of fiscal 2024 decreased 8.0%, or

$0.86, and 4.6%, or $0.05, respectively, compared to the prior year periods, primarily due to lower feed costs. Feed costs per

dozen produced decreased 19.1%, or $0.13, compared to the second quarter of fiscal 2023 primarily due to reduced corn prices,

our primary feed ingredient. For information about historical corn and soybean meal prices, see Part I Item I of our 2023

Annual Report.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, certain items from our Condensed Consolidated Statements of Income

expressed as a percentage of net sales.

Thirteen Weeks Ended

Twenty-six Weeks Ended

December 2, 2023

November 26, 2022

December 2, 2023

November 26, 2022

Net sales

100.0

100.0

100.0

100.0

Cost of sales

82.6

60.4

86.1

63.3

Gross profit

17.4

39.6

13.9

36.7

Selling, general and administrative

14.5

7.2

13.1

7.6

Loss on disposal of fixed assets

0.1

Operating income

2.8

32.4

0.8

29.1

Total other income, net

1.5

0.3

1.6

0.3

Income before income taxes

4.3

32.7

2.4

29.4

Income tax expense

1.1

8.0

0.6

7.1

Net income

3.2

24.7

1.8

22.3

Less: Loss attributable to noncontrolling

interest

(0.1)

(0.1)

Net income attributable to Cal-Maine

Foods, Inc.

3.3

24.7

1.9

22.3

NET SALES

Total net sales for the second quarter of fiscal 2024 were $523.2 million compared to $801.7 million for the same period of

fiscal 2023.

Net shell egg sales represented 96.2% and 96.5% of total net sales for the second quarters of fiscal 2024 and 2023, respectively.

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

egg operations.

Total net sales for the twenty-six weeks ended December 2, 2023 were $982.6 million, compared to $1.46 billion for the

comparable period of fiscal 2023.

Net shell egg sales represented 95.7% and 96.2% of total net sales for the twenty-six weeks ended December 2, 2023 and

November 26, 2022, respectively.

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

Thirteen Weeks Ended

Twenty-six Weeks Ended

December 2, 2023

November 26, 2022

December 2, 2023

November 26, 2022

Total net sales

523,234

801,700

982,578

1,460,044

Conventional

280,599

55.8

541,917

70.1

505,879

53.8

967,506

68.9

Specialty

217,905

43.3

227,778

29.4

426,586

45.4

428,598

30.5

Egg sales, net

498,504

99.1

769,695

99.5

932,465

99.2

1,396,104

99.4

Other

4,718

0.9

3,953

0.5

7,878

0.8

8,248

0.6

Net shell egg sales

503,222

100.0

773,648

100.0

940,343

100.0

1,404,352

100.0

Net shell egg sales as a

percent of total net sales

96.2

96.5

95.7

96.2

Dozens sold:

Conventional

192,462

66.8

187,976

66.2

373,992

66.6

367,688

65.7

Specialty

95,711

33.2

96,110

33.8

187,307

33.4

191,715

34.3

Total dozens sold

288,173

100.0

284,086

100.0

561,299

100.0

559,403

100.0

Net average selling price

per dozen:

Conventional

1.458

2.883

1.353

2.631

Specialty

2.277

2.370

2.277

2.236

All shell eggs

1.730

2.709

1.661

2.496

Egg products sales:

Egg products net sales

20,012

28,052

42,235

55,692

Pounds sold

16,998

15,702

36,351

32,204

Net average selling price

per pound

1.177

1.787

1.162

1.729

Shell egg net sales

Second Quarter – Fiscal 2024 vs. Fiscal 2023

In the second quarter of fiscal 2024, conventional egg sales decreased $261.3 million, or 48.2%, compared to the

second quarter of fiscal 2023, primarily due to a 49.4% decrease in the prices for conventional eggs, which resulted in

a $274.3 million decrease in net sales, partially offset by a 2.4% increase in the volume of conventional eggs sold,

which resulted in a $12.9 million increase in net sales.

Conventional egg prices were lower in the second quarter of fiscal 2024 compared to the second quarter of fiscal 2023

as the U.S. egg supply started to recover from outbreaks of HPAI. There has been a resurgence of HPAI starting in

November 2023, and although prices rose in November 2023, they remained lower than comparable 2022 prices.

Specialty egg sales decreased $9.9 million, or 4.3%, in the second quarter of fiscal 2024 compared to the second

quarter of fiscal 2023, primarily due to a 3.9% decrease in the prices for specialty eggs, which resulted in a $9.3

million decrease in net sales.

Cage-free egg revenue for the second quarter of fiscal 2024 represented 30.4% of our total net shell egg revenue

versus 18.2% for the same prior year period due to the lower conventional egg prices causing conventional egg

revenue to represent a smaller proportion of our total sales.

Twenty-six weeks – Fiscal 2024 vs. Fiscal 2023

For the twenty-six weeks ended December 2, 2023, conventional egg sales decreased $461.6 million, or 47.7%,

compared to the same period of fiscal 2023, primarily due to the decrease in the prices for conventional shell eggs.

Changes in prices resulted in a $478.0 million decrease in net sales, partially offset by a 1.7% increase in the volume

of conventional eggs sold, which resulted in a $16.6 million increase in net sales.

Egg products net sales

Second Quarter – Fiscal 2024 vs. Fiscal 2023

Egg products net sales decreased $8.0 million, or 28.7%, for the second quarter of fiscal 2024 compared to the same

period of fiscal 2023, primarily due to a 34.1% selling price decrease, which had a $10.4 million negative impact on

net sales.

Our egg products net average selling price decreased in the second quarter of fiscal 2024, compared to the second

quarter of fiscal 2023 as the supply of shell eggs used to produce egg products increased.

Twenty-six weeks – Fiscal 2024 vs. Fiscal 2023

Egg products net sales decreased $13.5 million, or 24.2%, primarily due to a 32.8% selling price decrease compared to

the first twenty-six weeks of fiscal 2023, which had a $20.6 million negative impact on net sales.

COST OF SALES

Costs of sales for the second quarter of fiscal 2024 were $432.1 million compared to $483.9 million for the same period of

fiscal 2023. Costs of sales for the year-to-date period were $846.0 million compared to $924.7 million for the prior year period.

The following table presents the key variables affecting our cost of sales (in thousands, except cost per dozen data):

Thirteen Weeks Ended

Twenty-six Weeks Ended

December 2,

2023

November 26,

2022

Change

December 2,

2023

November 26,

2022

Change

Cost of Sales:

Farm production

258,367

276,008

(6.4)

511,874

542,659

(5.7)

Processing, packaging, and

warehouse

84,767

83,639

1.3

166,673

165,056

1.0

Egg purchases and other

(including change in

inventory)

71,654

97,973

(26.9)

132,451

166,271

(20.3)

Total shell eggs

414,788

457,620

(9.4)

810,998

873,986

(7.2)

Egg products

17,316

26,231

(34.0)

35,017

50,719

(31.0)

Total

432,104

483,851

(10.7)

846,015

924,705

(8.5)

Farm production costs (per

dozen produced)

Feed

0.554

0.685

(19.1)

0.575

0.676

(14.9)

Other

0.431

0.386

11.7

0.435

0.383

13.6

Total

0.985

1.071

(8.0)

1.010

1.059

(4.6)

Outside egg purchases

(average cost per dozen)

2.03

3.14

(35.4)

1.84

2.88

(36.1)

Dozens produced

265,101

261,358

1.4

515,457

519,012

(0.7)

Percent produced to sold

92.0%

92.0%

91.8%

92.8%

(1.1)

Farm Production

Second Quarter – Fiscal 2024 vs. Fiscal 2023

Feed costs per dozen produced decreased 19.1 % in the second quarter of fiscal 2024 compared to the second quarter of

fiscal 2023. This decrease was primarily due to lower prices for corn, our primary feed ingredient. Basis levels for

corn and soybean meal were lower in our areas of operations compared to our prior year second fiscal quarter. The

decrease in feed cost per dozen resulted in a decrease in cost of sales of $34.7 million for the second quarter of fiscal

2024 compared to the prior period quarter.

For the second quarter of fiscal 2024, the average Chiago Board of Trade (“CBOT”) daily market price was $4.79 per

bushel for corn and $417 per ton of soybean meal, representing decreases of 29.3% and 1.6%, respectively, as

compared to the average CBOT daily market prices for the second quarter of fiscal 2023.

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

increased primarily due to the increased capitalized value of our flocks. This is primarily due to the higher feed costs

incurred during the growing phase of the flocks.

Facility costs increased due primarily to increased labor costs. Labor costs increased 12.5% compared to the second

quarter of fiscal 2023 primarily due to an increase in contract labor in response to labor shortages.

Twenty-six weeks – Fiscal 2024 vs. Fiscal 2023

Feed costs per dozen produced decreased 14.9% in the twenty-six weeks ended December 2, 2023 compared to the

same period of fiscal 2023, primarily due to lower feed ingredient prices. The decrease in feed cost per dozen resulted

in a decrease in cost of sales of $52.1 million compared to the prior year period.

For the year-to-date period , the average CBOT daily market price was $5.05 per bushel for corn and $420 per ton for

soybean meal, representing decreases of 24.8% and 4.6%, respectively, compared to the average CBOT daily market

prices for the comparable period in the prior year.

Other farm production costs increased due to higher facility costs and flock amortization, for the reasons described

above.

Current indications for corn project an overall better stocks-to-use ratio implying potentially lower prices in the near term;

however, as long as outside factors remain uncertain (including weather patterns and global supply chain disruptions), volatility

could remain. Soybean meal supply has remained tight relative to demand in the first two quarters of fiscal 2024.

Processing, packaging, and warehouse

Second Quarter – Fiscal 2024 vs. Fiscal 2023

Processing, packaging, and warehouse costs increased 1.3% compared to the second quarter of fiscal 2023, primarily

due to an increase in dozens processed in the second quarter of fiscal 2024 compared to the second quarter of fiscal

Twenty-six weeks – Fiscal 2024 vs. Fiscal 2023

Processing, packaging, and warehouse costs increased 1.0% compared to the first two quarters of fiscal 2023,

primarily due an increase in labor costs of 4.2% due to wage increases in response to labor shortages, partially offset

by decrease in dozens processed.

Egg purchases and other (including change in inventory)

Second Quarter – Fiscal 2024 vs. Fiscal 2023

Costs in this category decreased primarily due to lower shell egg prices as the average cost per dozen of outside egg

purchases decreased 35.4% compared to second quarter of fiscal 2023 .

Twenty-six weeks – Fiscal 2024 vs. Fiscal 2023

Costs in this category decreased primarily due to lower shell egg prices as the average cost per dozen of outside egg

purchases decreased 36.1% compared to fiscal 2023, partially offset by an increase of 13.0% in dozens purchased.

GROSS PROFIT

Gross profit for the second quarter of fiscal 2024 was $91.1 million compared to $317.8 million for the same period of fiscal

2023. Gross profit for the twenty-six weeks ended December 2, 2023 was $136.6 million compared to $535.3 million for the

same period of 2023. The decrease for both periods was primarily due to lower conventional egg prices, partially offset by

lower feed ingredient prices.

SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES

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

overhead. The following table presents an analysis of our SGA expenses (in thousands):

Thirteen Weeks Ended

December 2, 2023

November 26, 2022

$ Change

% Change

Specialty egg expense

15,924

14,673

1,251

8.5

Delivery expense

17,706

18,175

(469)

(2.6)

Payroll, taxes and benefits

11,076

13,827

(2,751)

(19.9)

Stock compensation expense

1,061

987

74

7.5

Litigation loss contingency accrual

19,648

19,648

N.M

Other expenses

11,163

10,290

873

8.5

Total

76,578

57,952

18,626

32.1

N.M. – Not Meaningful

Second Quarter – Fiscal 2024 vs. Fiscal 2023

Specialty egg expense

During the second part of fiscal year 2023, the higher prices for conventional eggs and the comparatively lower prices

for specialty eggs diminished the need to promote specialty eggs . During the second quarter of fiscal year 2024, we

significantly increased promotional programs, resulting in higher advertising fees. This was partially offset by a

decrease in a reduction in franchise fees to Eggland’s Best, Inc.

Delivery expense

The decreased delivery expense is primarily due to a decrease in fuel and contract trucking expenses in the second

quarter of fiscal 2024 compared to the second quarter of fiscal 2023.

Payroll, taxes and benefits expense

The decrease in payroll, taxes and benefits expense is due to a decrease in accrued bonuses compared to the second

quarter of fiscal year 2023.

Litigation loss contingency accrual

The litigation loss contingency accrual of $19.6 million relates to a jury decision returned on December 1, 2023 in

pending anti-trust litigation. See further discussion in

Note 10 – Commitments and Contingencies

of the Notes to

Condensed Consolidated Financial Statements included in this Quarterly Report.

Other expense

The increase in other expense is primarily due to increased legal costs incurred compared to the second quarter of

fiscal 2023.

Twenty-six Weeks Ended

December 2, 2023

November 26, 2022

$ Change

% Change

Specialty egg expense

27,929

27,740

189

0.7

Delivery expense

35,397

38,091

(2,694)

(7.1)

Payroll, taxes and benefits

23,142

24,814

(1,672)

(6.7)

Stock compensation expense

2,101

2,012

89

4.4

Litigation loss contingency accrual

19,648

19,648

N.M.

Other expenses

20,607

18,902

1,705

9.0

Total

128,824

111,559

17,265

15.5

N.M. - Not Meaningful

Twenty-six weeks – Fiscal 2024 vs. Fiscal 2023

Specialty egg expense

Specialty egg expense increased by 0.7%, as advertising expense increased in fiscal 2024 as discussed above and was

offset by the reduction in franchise fees to Eggland’s Best, Inc.

Delivery expense

The decreased delivery expense is primarily due to a decrease in fuel and contract trucking expenses in fiscal 2024.

Payroll, taxes and benefits expense

The decrease in payroll, taxes and benefits expense is primarily due to a decrease in accrued bonuses in the first two

quarters of fiscal 2024 compared to the prior year period.

Litigation loss contingency accrual

The increase relates to the litigation loss contingency accrual discussed above.

Other expenses

The increase in other expense is primarily due to increased legal costs incurred in the year-to-date period.

OPERATING INCOME (LOSS)

For the second quarter of fiscal 2024, we recorded operating income of $14.2 million compared to operating income of $259.9

million for the same period of fiscal 2023.

For the twenty-six weeks ended December 2, 2023, we recorded an operating income of $7.5 million compared to an operating

income of $423.7 million for the same period of fiscal 2023.

OTHER INCOME (EXPENSE)

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

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

For the second quarter of fiscal 2024, we earned $7.1 million of interest income compared to $2.1 million for the same period

of fiscal 2023. The increase resulted from significantly higher investment balances and higher interest rates. The Company

recorded interest expense of $134 thousand and $143 thousand for the second quarters ended December 2, 2023 and November

26, 2022, respectively.

For the twenty-six weeks ended December 2, 2023, we earned $14.6 million of interest income compared to $3.1 million for the

same period of fiscal 2023. The increase resulted from significantly higher investment balances and higher interest rates. The

Company recorded interest expense of $276 thousand and $291 thousand for the twenty-six weeks ended December 2, 2023

and November 26, 2022, respectively.

INCOME TAXES

For the second quarter of fiscal 2024, pre-tax income was $22.1 million compared to $262.2 million for the same period of

fiscal 2023. We recorded income tax expense of $5.5 million for the second quarter of fiscal 2024, which reflects an effective

tax rate of 25.0%. Income tax expense was $64.0 million for the comparable period of fiscal 2023, which reflects an effective

tax rate of 24.4%.

Our effective tax rate differs from the federal statutory income tax rate due to state income taxes, certain federal tax credits 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, certain nondeductible expenses and net income or loss attributable to our

noncontrolling interest.

NET INCOME ATTRIBUTABLE TO CAL-MAINE FOODS, INC.

Net income attributable to Cal-Maine Foods, Inc. for the second quarter ended December 2, 2023, was $17.0 million, or $0.35

per basic and diluted common share, compared to net income attributable to Cal-Maine Foods, Inc. of $198.6 million, or $4.08

per basic and $4.07 per diluted common share for the same period of fiscal 2023.

Net income attributable to Cal-Maine Foods, Inc. for the twenty-six weeks ended December 2, 2023, was $17.9 million, or $.37

per basic and diluted common share, compared to net income attributable to Cal-Maine Foods, Inc. of $323.9 million or $6.66

per basic and $6.63 per diluted common share, for the same period of fiscal 2023.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital and Current Ratio

Our working capital at December 2, 2023 was $910.1 million, compared to $942.2 million at June 3, 2023. The calculation of

working capital is defined as current assets less current liabilities. Our current ratio was 6.9 at December 2, 2023, compared

with 6.2 at June 3, 2023. The current ratio is calculated by dividing current assets by current liabilities.

Cash Flows from Operating Activities

For the twenty-six weeks ended December 2, 2023, $74.0 million in net cash was provided by operating activities, compared to

$344.8 million provided by operating activities for the comparable period in fiscal 2023. The decrease in cash flow from

operating activities resulted primarily from lower selling prices for conventional eggs compared to the prior-year period.

Cash Flows from Investing Activities

For the twenty-six weeks ended December 2, 2023, $32.4 million was provided by investing activities, primarily due to the

sales and maturities of investment securities, partially offset by the acquisition of assets of Fassio Egg Farms, Inc. This

compares to $146.7 million used in investing activities in the same period of fiscal 2023, primarily due to purchases of

investment securities. Sales and maturities of investment securities were $196.1 million in first two quarters of fiscal 2024,

compared to $65.3 million in the first two quarters fiscal 2023. The increase in sales and maturities of investment securities is

primarily due to the maturities of short-term investments during the period. Purchases of property, plant and equipment were

$66.2 million and $59.7 million in the first two quarters of fiscal 2024 and 2023, respectively, primarily reflecting progress on

our construction projects.

Cash Flows from Financing Activities

We paid dividends of $37.3 million for the twenty-six weeks ended December 2, 2023 compared to $78.4 million in the same

prior-year period.

As of December 2, 2023, cash increased $69.0 million since June 3, 2023, compared to an increase of $119.6 million during the

same period of fiscal 2023.

Credit Facility

We had no long-term debt outstanding at December 2, 2023 or June 3, 2023. On November 15, 2021, we entered into a credit

agreement that provides for a senior secured revolving credit facility (the “Credit Facility”), in an initial aggregate principal

amount of up to $250 million with a five-year term. As of December 2, 2023, no amounts were borrowed under the Credit

Facility. We have $4.3 million in outstanding standby letters of credit issued under our Credit Facility for the benefit of certain

insurance companies. Refer to Part II Item 8, Notes to Consolidated Financial Statements and Supplementary Data, Note 10 -

Credit Facility included in our 2023 Annual Report for further information regarding our long-term debt.

Dividends

In accordance with our variable dividend policy, we will pay a cash dividend totaling approximately $5.7 million, or

approximately $0.116 per share to holders of our common and Class A common stock with respect to our second fiscal quarter

of 2024. The amount paid per share will vary based on the number of outstanding shares on the record date. The dividend is

payable on February 15, 2024 to holders of record on January 31, 2024.

Material Cash Requirements

We continue to monitor the increasing demand for cage-free eggs and to engage with our customers in efforts to achieve a

smooth transition toward their announced timelines for cage-free egg sales. The following table presents material construction

projects approved as of December 2, 2023 (in thousands):

Project(s) Type

Projected

Completion

Projected Cost

Spent as of

December 2, 2023

Remaining

Projected Cost

Cage-Free Layer & Pullet Houses

Fiscal 2025

54,702

36,370

18,332

Feed Mill

Fiscal 2025

10,486

2,486

8,000

Cage-Free Layer & Pullet Houses

Fiscal 2026

78,982

59,000

19,982

Cage-Free Layer & Pullet Houses

Fiscal 2027

56,732

29,334

27,398

200,902

127,190

73,712

We believe our current cash balances, investments, cash flows from operations, and Credit Facility will be sufficient to fund our

current cash needs for at least the next 12 months.

IMPACT OF RECENTLY ISSUED/ADOPTED ACCOUNTING STANDARDS

For information on changes in accounting principles and new accounting policies, see

Note 1 - Summary of Significant

Accounting Policies

of the Notes to Condensed Consolidated Financial Statements included in this Quarterly Report.

CRITICAL ACCOUNTING ESTIMATES

Critical accounting estimates are those estimates made in accordance with U.S. generally accepted accounting principles that

involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on our

financial condition or results of operations. There have been no changes to our critical accounting estimates identified in our

2023 Annual Report.

There have been no material changes in our exposure to market risk during the thirteen weeks ended December 2, 2023 from

the information provided in Part II Item 7A, Quantitative and Qualitative Disclosures About Market Risk in our 2023 Annual

Report.

AND

PROCEDURES

Disclosure Controls and Procedures

Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed

by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time

periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include,

without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that

we file or submit under the Exchange Act is accumulated and communicated to management, including our principal executive

and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding

required disclosure. Based on an evaluation of our disclosure controls and procedures conducted by our Chief Executive Officer

and Chief Financial Officer, together with other financial officers, such officers concluded that our disclosure controls and

procedures were effective as of December 2, 2023 at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the quarter ended December 2, 2023

that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

FACTORS

There have been no material changes in the risk factors previously disclosed in the Company’s 2023 Annual Report, except as

reported herein in Part I Item 2 under the heading “HPAI.”