Cal-Maine Foods, Inc.

Good morning, everyone, and welcome to the Cal Maine Foods second quarter fiscal 2026 earnings conference call. All participants are in a listen-only mode. After today's prepared remarks, there will be a question-and-answer session. At that time, I will provide instructions for those wishing to ask a question. Please note that this call is being recorded. I will now turn the call over to Sherman Miller, President and Chief Executive Officer of Cal Maine Foods. Please go ahead, sir.

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. Looking at our performance in the second quarter and first half of the year, the story is clear. We built real momentum. We delivered solid results even against a tough comparison to last year, which is marked by supply-demand imbalances and historically high prices. With lower egg prices, our increasingly diversified business model combined with effective execution has proven to be a source of resilience. And that positions us uniquely today, a rare combination of both value and growth with the potential to strengthen even further over time. Our specialty egg business maintains strong prices and volumes despite challenging comparisons and delivered growth in the first half of the fiscal year. At the same time, Our recently announced expansions are positioning our prepared foods business to deliver sustained double-digit volume growth. Another key trend we're seeing is the ongoing shift in our sales mix across the portfolio. This shift was visible throughout the second quarter and first half of the fiscal year, and we expect it will steadily enhance the durability and predictability of our earnings. It's a direct reflection of the deliberate execution of our long-term strategy. and we believe our results continue to reinforce just how effective that approach will be in pursuit of operational and financial excellence. Let me share a few strategic highlights from the second quarter and first half of the year that show how we're driving continued sale diversification and favorable mixed yields. In the second quarter of fiscal 2026, shell egg sales represented 84.4% of total net sales compared to 94.7%. Specialty eggs drove a greater portion of shell egg sales, accounting for 44% of total shell egg sales compared to 31.7%. And specialty eggs and prepared foods combined accounted for 46.4% of net sales compared to 31.2%. In the first half of fiscal 2026, shell egg sales represented 85% of total net sales compared to 94.5% in the first half of fiscal 2025. Specialty eggs drove a greater portion of shell egg sales accounting for 39.6% of total shell egg sales compared to 33%. And specialty eggs and prepared foods combined accounted for 42.8% net sales compared to 32.4%. None of this happens without our people. I want to sincerely thank our teams across the organization whose disciplined focus and commitment to excellence drive the operational and financial performance that underpins everything we do. Their hard work and dedication continue to set us apart, and these results are a direct reflection of their efforts. Before Max walks you through our results in detail and provides additional color on our financial performance, I'd like to take a few minutes to focus on the long-term strategic direction of the company, how we're positioning ourselves for sustainable growth, and where we see the most compelling opportunities ahead. CalMain enters this moment from a position of strength. Our core Shell Egg platform is durable, proven, and built through decades of effective execution. That foundation gives us something rare in today's market, structural integrity at the base of our business paired with powerful avenues for growth. What makes this platform particularly compelling is how the category and consumer behavior are evolving. Across the U.S., eggs remain an affordable protein source. Consumers are seeking complete, high-quality proteins. GLP-1 users are gravitating towards satisfying nutrient-dense foods. Younger consumers and families are treating eggs as an everyday staple. And across the board, convenience is a major tailwind with rising interest in ready-to-eat and ready-to-heat formats. We see consumers trading up. specialty and premium segments are showing stronger repeat usage and alignment with the attributes people care about, wellness, taste, simplicity, and clean labels. Put simply, eggs are leading on health, convenience, and quality, and that combination is reshaping category growth in a way that we believe plays directly to our strengths. This is why we're intentionally evolving CalMaine into a more resilient, strategically diversified portfolio, growing specialty eggs, and accelerating value-added prepared foods. It's not a pivot, it's a progression. We're taking a well-established business and expanding it into multiple growth engines that we believe will deliver higher quality earnings, deeper customer partnerships, and a stronger alignment with the long-term consumer trends. A major part of that progression is our prepared foods platform. Building on the acquisition of Echo Lake Foods, we're investing to meaningfully expand our prepared foods capabilities. We've launched a $15 million network optimization and capacity expansion project that is expected to add 17 million pounds of annual scrambled egg production by mid-fiscal 2027. This project consolidates all scrambled egg manufacturing into a single modernized facility, eliminating redundancy across sites, streamlining workflows, and strengthening supply reliability. It also adds a new production line and upgraded automation that will improve yields, reduce labor requirements, and increase throughput. In short, we believe it positions Echo Lake Foods to support both near-term customer demand and long-term organic growth with greater efficiency and precision. This builds on our previously announced $14.8 million high-speed pancake lines. which is expected to add another 12 million pounds of capacity through early fiscal 2027. As these projects ramp, Echo Lake Foods has and will experience temporary lower volumes and higher costs, which begin late in the second quarter of fiscal 2026 and are expected to continue through the remainder of the fiscal year. We believe the short-term impact will be outweighed by the long-term benefits, higher output, improved efficiency, and a more agile, modernized platform. We're also scaling our joint venture, Capini Foods, which is investing $7 million through the fiscal 2028 to add 18 million pounds of capacity, expanding production more than sevenfold. When you combine Echo Lake and Capini, we expect total prepared foods capacity to increase more than 30% over the next 18 to 24 months. We believe this will position us to meet accelerating demand for high protein, ready to eat, convenience-forward formats, that are aligned with changing consumer preferences. In addition to accelerating value-added prepared foods, we're growing specialty eggs. In the second quarter, we acquired certain production assets, Clean Egg LLC in Texas, which expands our specialty cage-free and free-range egg capacity and supports local sourcing, captures accelerating market growth, and optimizes our supply chain. These investments are expected to help strengthen our mid-cycle earnings profile and build a more resilient business over time. They also reinforce what makes CalMain unique among agricultural producers. We're a pure play leader in one essential category, selling roughly one out of every six eggs consumed in the U.S. with full vertical integration from feed and flock to processing, distribution, and customer delivery. And we're using that scale strategically. designing solutions that make egg consumption easier, more valuable, and more accessible across all channels. This is a long term investment story, not a short term trade. The egg industry has always been cyclical, supply driven and headline sensitive. The object has never been to avoid cycles is to manage through them effectively. And that is where we have consistently differentiated ourselves. We have been in environments like this many times before. Periods of supply disruption and price volatility are not new to this industry, and each time we have navigated them, we have emerged stronger. Importantly, the supply challenges related to high-path AI are not behind us. The current epi curve closely resembles prior years, including 2022. Global outbreaks continue, and recovery remains uneven and unpredictable rather than linear. This is not a short-term dislocation. It's a structural reality that reinforces the importance of scale and operational execution. Looking long-term, one of the most compelling opportunities in eggs is increasing USAID consumption, and that growth does not occur without reliable supply. Reliability builds trust with retailers, food service partners, and consumers. Increasing HIN numbers over time is not a negative. It's a prerequisite for sustainable growth. Customers consistently value consistency over spot pricing, and in an environment where volatility is the norm, reliability becomes a durable competitive advantage. Our strategy is intentionally designed to perform across cycles. We maintain a strong balance sheet to preserve flexibility in all environments, pursue accretive growth, with disciplined capital allocation and continue expanding our portfolio across egg types and adjacent categories. We remain relentlessly focused on cost drivers and efficiency to protect margins through cycles by earning trust by doing the right thing with customers, employees, and partners. This is not a strategy for a single cycle. It's a strategy built for durability. Demand in this category is real, but it is also complex. What is often labeled as demand reflects a wide range of dynamic variables, including the timing and geography of bird gains or losses, shifts in where consumers shop, media-driven panic buying, weather patterns, wholesale market movements, promotional activity, and holiday timing. Navigating that complexity effectively is a core operational capability. Finally, this is a fundamentally different company than the last time we experienced similar market conditions. Today, we have a stronger balance sheet, meaningful growth both organically and through acquisitions, greater diversification into specialty eggs and prepared foods, deeper bench strength across the organization, and reduced exposure to pure commodity pricing through specialty mix, hybrid pricing models, and value-added products. We are more diversified, more resilient, and better positioned to compound value over the long term. With that, let me turn the call over to Max to drill down into our financial results and discuss our capital allocation framework. Max?

Thanks, Sherman, and good morning, everyone. As a reminder, we published our earnings release in 10Q this morning. Additionally, we published a brief earnings presentation on our website. These documents contain detailed information on our financial results. I'll touch on the highlights for the second quarter and first half of fiscal 2026. Unless otherwise indicated, all comparisons are to the comparable period of fiscal 2025. For the second quarter of fiscal 2026, net sales were $769.5 million compared to $954.7 million, down 19.4%. Total shell egg sales were $649.6 million compared to $903.9 million, down 28.1%, with 26.5% lower selling prices and 2.2% lower sales volumes. Conventional egg sales were $363.9 million compared to $616.9 million, down 41%, with 38.8% lower selling prices and 3.6% lower sales volumes. Specialty egg sales were $285.7 million compared to $287 million, down 0.4% with relatively flat sales volume and selling prices. Breeder flocks grew 12.7%. Total chicks hatch rose 65.1%, and the average number of layer hens expanded 2.6%. Prepared food sales were $71.7 million, compared to 10.4 million in the second quarter of fiscal 2025 of 586.4%, and compared to 83.9 million in the first quarter of fiscal 2026, down 14.5%. Echo Lake Foods contributed 56.6 million of the sales in the second quarter of fiscal 2026, compared to 70.5 million in sales in the first quarter of fiscal 2026. As Sherman mentioned, the announced expansion initiatives had an impact on second quarter fiscal 2026. Gross profit was $207.4 million compared to $356 million down 41.8%, primarily driven by 26.5% lower shell egg selling prices and 2.2% lower shell egg sales volumes, partially offset by lower egg prices for outside purchases and a 3% increase in percent to sole as well as contributions from prepared foods. Operating income was $123.9 million compared to $278.1 million, down 55.5%, with an operating income margin of 16.1%. Net income attributable to Cal Maine Foods was $102.8 million compared to $219.1 million, down 53.1%. Diluted earnings per share were $2.13 compared to $4.47, down 52.3%. Cost of sales decreased 6.1%. Lower cost associated with egg purchases and egg products more than offset the increase in prepared food costs due to the acquisition of Echo Lake Foods, as well as the increase in our farm production and processing, packaging, and warehousing costs. SGA expenses increased 6.8% due to the addition of Echo Lake Foods and increased professional and legal fees. This was partially offset by reduced charge in the change in earn-out liability recorded in the prior year period and lower employee-related costs. Net cash flows from operation was $94.8 million compared to $122.7 million down 22.8%. We ended the quarter with cash and temporary cash investments of $1.1 billion, down 18.2%. We remain virtually debt-free. We purchased 846,037 shares of our common stock during the quarter for a total of $74.8 million. These transactions were completed under our current share repurchase authorization, which permits the repurchase of up to $500 million of which $375.2 million remains available. For the second quarter of fiscal 2026, we will pay a cash dividend of approximately $0.72 per share to holders of our common stock pursuant to our variable dividend policy. The dividend is payable on February 12, 2026 to holders of record on January 28, 2026. The final amount paid per share will be based on the number of outstanding shares on the record day. Our capital allocation strategy is designed to balance disciplined stewardship with long-term value creation. We maintain a strong cash position and an unlevered balance sheet, giving us the flexibility to execute targeted and accretive acquisitions, reinvest through CapEx, and return capital to shareholders. Recent operating cash flows have funded strong dividends under our long-standing policy of paying one-third of net income and have also supported share repurchases to further enhance returns. At the same time, reinvestment is focused on expanding specialty eggs and prepared foods, where mixed-shift scale efficiencies and vertical integration drive margin enhancement and higher quality earnings. Together, these actions are expected to create total shareholder return in which dividends, buybacks, earnings per share growth, improved mix, and long-term multiple expansion all work together to compound value over time. Turning to the first half of fiscal 2026, net sales were $1.7 billion, down 2.8%, or $48.4 million. Total shell egg sales were $1.4 billion, compared to $1.6 billion, down 12.5%, with 12.6% lower selling prices as volumes remained relatively flat. Conventional egg sales were $869.8 million compared to $1.1 billion, down 21% with 19.4% lower selling prices and 2% lower sales volumes. Specialty egg sales were $569.2 million compared to $543.7 million, up 4.7% with 3.8% higher sales volumes and 0.8% higher selling prices. Breeder flocks grew 21.6%, total ticks hatch rose 71%, and the average number of layer hens expanded 6%. Prepared food sales were $155.6 million, compared to $19.4 million, up 702.9%. Echo Lake Foods contributed to $127.1 million in sales. Gross profit was $518.7 million, compared to $603.3 million, down 14%, primarily driven by 12.6% lower shell egg selling prices and partially offset by a decrease in the price and volume of outside egg purchases, as dozens produced increased 3.1%, as well as contributions from prepared foods. Operating income was $373.1 million, compared to $465 million, down 19.8%, with an operating income margin of 22.1%. Net income attributable to Cal Maine Foods was $302.1 million compared to $369 million down 18.1%. Diluted earnings per share was $6.26 compared to $7.54 down 17%. Cost of sales increased 3.2% as our dozens produced increased 3.1% and our farm production cost per dozen increased 2.1%. Our prepared foods cost increased due to the acquisition of Echo Lake Foods. These costs were partially offset by lower costs associated with outside egg purchases and egg products. SG&A expenses increased 9.2% due to the addition of Echo Lake Foods and increased professional and legal fees. This was partially offset by a reduced charge in the change in earn-out liability recorded in the prior year period. Net cash flow from operations was $373.4 million compared to $240.2 million, up 55.5%. That concludes my review of the financial results. I will now turn the call back over to Sherman.