Cal-Maine Foods, Inc. (CALM) Earnings

Management highlights

### Strategic Portfolio Transformation - Completed multiple strategic acquisitions to advance diversification: acquired Creighton Brothers LLC assets to strengthen vertical integration; acquired the Vans Food brand to expand into higher-value consumer-facing markets, following the 2025 Echo Lake Foods acquisition; post-fiscal year end, acquired additional Eggland's Best franchise territory in the Northeast to boost specialty egg penetration in a large, high-income market. - Adopted a new three-segment reporting structure aligned with how management now reviews results and allocates resources, reflecting the business's evolution from a single consolidated operating model. ### Market Fundamentals - The Q4 conventional egg price downturn was supply-driven, not demand-driven: industry oversupply pushed conventional prices to historically low inflation-adjusted levels, but underlying demand remains healthy. Third-party data indicates slowing breeder activity, increased chick cancellations and moderating flock growth, signaling market rebalancing is underway. - Long-term demand fundamentals are favorable: egg household penetration exceeds 97%, annual purchase frequency averages 19 times per household, retail volume is up nearly 6% YoY; growing GLP-1 adoption (22% of U.S. households have a GLP-1 user) supports demand for protein-dense eggs; food service demand is robust; specialty egg consumption is projected to grow in 2026 and 2027; increased exports to South Korea are offsetting domestic oversupply. ### Capital Allocation and Balance Sheet - Ended Q4 with $924.1 million in cash and cash equivalents and is virtually debt-free, maintaining a strong balance sheet to weather industry cycles. - Repurchased $30.1 million of common stock in Q4, leaving $320.7 million available under the current $500 million repurchase authorization; per the variable dividend policy, no dividend will be paid until cumulative profitability of $35.9 million (current cumulative Q4 loss) is recovered. ### Prepared Foods Capacity Expansion - Committed to an additional $54 million investment to expand prepared foods production capacity, which will add 30% incremental capacity by H1 FY2028. Combined with previously announced organic growth and Vans acquisition capacity gains, total prepared foods capacity will grow over 60% from Q4 FY2026 to H1 FY2028. Vans Foods integration is progressing on plan with encouraging early results.

Guidance

- Management expects conventional egg prices to remain low in the early part of Q1 FY2027 (the typical seasonal trough for June-July), with recent pricing already strengthening over 90% from the five-week average of 72 cents. Early indicators point to an improving supply-demand balance, with a more constructive pricing environment expected in the fall (historically a stronger seasonal period), and a more robust performance trajectory after Q1 FY2027. - The 7.3% Q4 FY2026 specialty segment margin is viewed as a more representative normalized near-term margin profile, after adjusting for the atypical prior year period where elevated conventional prices pulled extra demand into specialty; the segment is still expected to improve long-term as higher-margin subcategories grow. Q1 FY2027 specialty margins will remain pressured by ongoing low conventional market prices, but are expected to improve as the overall market rebalances. - Previously announced 30% prepared foods capacity expansion is on track: pancake capacity will come online in early Q2 FY2027, scrambled egg capacity in mid-Q2 FY2027, and Crepini capacity will be added gradually through 2027-2028. The new $54 million expansion will come online in mid-2028, with most of the capital spending for this project occurring in FY2027. Top-line growth for prepared foods is expected to accelerate starting in Q2 FY2027 as new capacity comes online, with no delays to prior expansion targets.

Segment performance

Effective Q4 FY2026, CalMaine reorganized into three reportable segments, with full-year and fourth-quarter (Q4) results as follows: 1. **Conventional Shell Eggs**: - Full-year FY2026: $1.348 billion net sales (46.3% of consolidated net sales), $216.6 million operating income, 16.1% operating margin; net sales down 51.1% year-over-year (YoY). - Q4 FY2026: $210.8 million net sales (38.1% of consolidated net revenue), $40.6 million operating loss, negative 19.3% operating margin; net sales down 70% YoY. 2. **Specialty Shell Eggs**: - Full-year FY2026: $1.070 billion net sales (36.7% of consolidated net sales), $181.5 million operating income, 17% operating margin; net sales down 7.3% YoY. - Q4 FY2026: $239.7 million net sales (43.4% of consolidated net revenue), $17.5 million operating income, 7.3% operating margin; net sales down 21.4% YoY. 3. **Prepared Foods**: - Full-year FY2026: $244.8 million net sales (8.4% of consolidated net sales), $33.9 million operating income, 13.8% operating margin. - Q4 FY2026: $60.4 million net sales (10.9% of consolidated net revenue), $8.8 million operating income, 14.6% operating margin. For full FY2026, consolidated net sales was $2.912 billion, operating income of $350.2 million, diluted EPS of 6.63. For Q4 FY2026, consolidated net revenue was $552.6 million, operating loss of $58.8 million, diluted loss per share of $0.76. Combined Specialty Eggs and Prepared Foods accounted for 44.4% of full-year FY2026 net sales and 53% of Q4 FY2026 net sales.

Risks & headwinds

- Highly cyclical conventional egg pricing: The industry experienced a historically low inflation-adjusted price trough in Q4 FY2026, driven by material oversupply that is only gradually moderating, leading to a large operating loss for the conventional segment in the quarter. - Ongoing High Path Avian Influenza (AI) threat: AI has caused extreme industry volatility over the past four years, and outbreaks continue in the U.S. and globally, creating unpredictable supply disruption risk that cannot be forecasted. - Segment margin variability: The specialty segment still has a 10-12% low double-digit exposure to conventional market prices (particularly the California wholesale market), so it continues to experience near-term margin pressure from the current oversupply environment, which was larger than investor expectations in Q4. - M&A execution and discipline: While management sees increased M&A opportunities in the current down cycle, transaction availability is unpredictable, and there is risk that potential acquisitions may fail to meet the company's strategic and financial return criteria.

Analyst Q&A

• Q: The analyst asked how conventional pricing arrangements performed in Q4 FY2026, whether anything had changed in the mix of market/grain/hybrid pricing, and what to expect for near-term pricing. /

  A: Management confirmed the 50% market / 50% grain-based/hybrid pricing mix has not changed. The structure performed as intended, with realization hitting 102% of the Urnaby market, but the quarter faced an all-time low inflation-adjusted market price. Q1 FY2027 will still be below normal levels, but the company's strong balance sheet is built for cycles, and indicators point to normalized pricing by Q2 FY2027, driven by moderating flock growth, seasonal demand and export increases. Management's confidence in the diversification strategy is validated by this stress test, and continued share repurchases reflect confidence.

• Q: The analyst asked what drove larger-than-expected specialty margin compression in Q4, and how to think about long-term variability for the segment which investors expected to be more stable. /

  A: Management explained that the compression stemmed from a return to normal seasonality after several years of supply shortages that eliminated typical Q4/Q1 pricing weakness. Q4 FY2025 was also unusually strong, when elevated conventional prices pushed extra demand into specialty. A 10-12% portion of specialty pricing is still tied to the conventional market, including low California market prices that pressured results this quarter. Long term, specialty remains on track for more stable performance and higher margins as the mix of higher-value subcategories expands.

• Q: The analyst asked for an update on prepared foods expansion timeline, top-line growth expectations, and whether the new $54 million investment delays prior margin targets. /

  A: Management confirmed the previously announced 30% capacity expansion remains on schedule, with capacity coming online incrementally from Q2 FY2027 through 2028. The new $54 million expansion will not delay prior plans, with most spending occurring in FY2027 and new capacity coming online in mid-2028. Top-line growth will accelerate starting in Q2 FY2027 as previously announced capacity comes online, with the new investment adding further growth from 2028 onward.

• Q: The analyst asked how M&A opportunities have changed in the current down cycle, and what prepared foods product areas the company prioritizes for growth. /

  A: Management stated the company sees more M&A opportunities than ever across conventional, specialty, prepared foods and related ingredients, but remains focused on disciplined, egg-centric bolt-on and tuck-in acquisitions that meet strict strategic and financial criteria. Prioritized prepared foods areas include pure egg-based products (patties, omelets, scrambles) and products using eggs as a key ingredient, with a diversified portfolio across ready-to-heat/ready-to-eat formats creating a $9-10 billion total addressable market with substantial long-term growth runway.