Cal-Maine Foods, Inc.

Good morning, everyone, and welcome to the CalMaine Foods, Inc. fourth quarter and fiscal year 2026 earnings call and webcast. Joining us on today's call are Sherman Miller, President and CEO, Max Bowman, VP and CFO, Keira Lombardo, Chief Strategy Officer, and John Zoeller, CFO, Prepared Foods. 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 this call is being recorded. I will now turn the call over to Sherman. Please go ahead.

Sherman Miller Good morning. Thank you for joining us today. I want to remind everyone that today's remarks may include forward-looking statements. These are based on management's current expectations and are subject to risk and uncertainties described in our SEC filings. I'd like to begin by highlighting the strategic progress we have made over the course of fiscal 2026. Throughout the fiscal year, we remain focused on diversifying our sales mix, an important initiative that we believe will strengthen the durability and predictability of our earnings over time. We completed several strategic acquisitions that advance our long-term objectives. We acquired certain assets of Creighton Brothers LLC and its affiliates that are expected to further enhance our vertically integrated operating model and strengthen connectivity across our value chain. Building on our successful acquisition of Echo Lake Foods in 2025, we further diversified our earnings profile and expanded into higher value consumer facing markets through our more recent Vans Food brand acquisition. and subsequent to fiscal year end, we increased our distribution footprint by acquiring additional Eggland's Best franchise territory in the Northeast, expanding our specialty egg category penetration in one of the nation's largest and highest income consumer markets. We're also capitalizing on the increasing consumer demand for our products by advancing our long-term growth strategy with a new $54 million investment to further expand our prepared foods production capacity. This investment is expected to add approximately 30% incremental production capacity to our prepared foods segment beginning in the first half of fiscal 2028. Together with our previously announced 30% organic capacity growth and 6% vans acquisition driven capacity growth, we believe our prepared foods production capacity will increase over 60% from the end of fiscal 2026 through the first half of fiscal 2028. I'd like to highlight several key developments from the fourth quarter in fiscal year 2026 that demonstrate the continued progress that we're making in executing our strategy. In the fourth quarter of fiscal 2026, prepared foods accounted for 10.9% of consolidated net sales. Combined specialty eggs and prepared foods grew to 53% of net sales. In fiscal 2026, prepared foods accounted for 8.4% of net sales. Specialty Eggs and Prepared Foods increased to 44.4% of net sales. For the quarter, we are reporting under a new operating segment structure. This new reporting framework better aligns with how management reviews operating results and makes decisions about resource allocation and strategic initiatives. As the nation's largest producer and distributor of shell eggs, With the most vertically integrated operating model in the industry, CalMaine is uniquely positioned to navigate market cycles by investing in long-term growth. Our scale, operational capabilities, and financial strength led by our strong balance sheet provide competitive advantages that are particularly valuable in challenging environments like the one we experienced this quarter. During the fourth quarter, industry oversupply drove conventional shell egg prices to historically low inflation-adjusted levels. Importantly, this is a supply-driven environment, not a demand-driven one. We continue to see favorable long-term demand fundamentals across our end markets. According to third-party market commentary from the American Egg Board in Urnaberry, supply conditions remain elevated. although early indicators suggest the market is beginning to rebalance. American Egg Board estimates the U.S. laying flock at 340 to 347 million hens based on producer assessment data collected across the commercial egg industry, materially above USDA's published estimate and indicative of abundant egg supplies, while the American Egg Board estimate reflects May assessment data which may overstate today's flock if producers have accelerated flock rotations this summer is reported. It appears production continues to be supported by strong hen productivity and exports that remain below historical norms. However, the American Egg Board and Erna Bay also cite slowing breeder activity, increased chick cancellations, softer hatchery demand, and more aggressive flock rotations as evidence that flock growth is moderating. If accurate, These developments are likely to tighten supply in the near term and suggest supply may continue to moderate over the coming quarters. Turning to demand, we continue to see very healthy underlying fundamentals. Household penetration remains exceptionally high at above 97% with purchasing households buying eggs approximately 19 times per year, while retail volume is up nearly 6% year-to-date as prices have retreated. We believe eggs remain well-positioned to benefit from long-term consumer demand for protein, nutrition, convenience, and value. We're also encouraged by the continued growth in GLP-1 adoption, with approximately 22% of U.S. households now including a GLP-1 user, reinforcing demand for protein-dense foods like eggs. Food service demand remains robust. Specialty eggs continue to outperform conventional product growth USDA projects per capita consumption to increase in both 2026 and 2027. And export demand has increased from South Korea as it imports U.S. shell eggs to offset IPATH-AI-related supply shortages there. The strategic actions we've taken to evolve our portfolio, optimize operations, and allocate capital with discipline helped provide resilience during one of the most difficult conventional leg pricing environments we've experienced. While we are positioned today to emerge as a stronger, higher quality business, we recognize that we're still in the early stages of this transformation. This sustained trough pricing environment in the quarter provides a valuable stress case reference point, demonstrating the resilience built through our strategic actions to date while highlighting the meaningful upside opportunity as our initiatives continue to mature. As our business continues to diversify and grow and our operational initiatives mature, we expect a greater portion of our earnings to come from differentiated, less cyclical businesses, improving resilience regardless of where we are in the commodity cycle. Taken together, we believe these initiatives will continue to enhance the consistency and resilience of our normalized earnings power by reinforcing our long-term competitive advantage. 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. Earlier this morning, we issued our quarterly earnings release and filed our Form 10-K for fiscal year 2026. We also posted a supplemental fourth quarter earnings presentation to our website that provides additional details on our performance. We previously managed our business as one operating and one reportable segment. Effective in the fourth quarter of fiscal 2026, as our business has evolved, we revised our internal reporting to more closely reflect the manner in which we manage our business, which focuses on enhancing operations and measuring results based on our product categories rather than on a consolidated basis. As a result, we identified three reportable segments, conventional shell eggs, Specialty Shell Eggs, and Prepared Foods. Our remaining operations, which include Copax shell eggs, egg products, hard-cooked eggs, and other business activities, are not reportable segments as defined by the applicable accounting standard. The conventional shell egg segment, which generated $1.348 billion of net sales and $217 million of operating profit in fiscal 2026, consists primarily of the production, Grading, packaging, marketing, and distribution of shell eggs sold as conventional shell eggs, which includes our brand Sunups and Sunny Meadow. The specialty shell egg segment, which generated $1.07 billion of net sales and $182 million of operating profit in fiscal 2026, consists primarily of the production, grading, packaging, marketing, and distribution of shell eggs sold as cage-free Neutrally Enhanced, Organic, Brown, Pasture Raised, and Free Range Eggs. This segment includes our brands Farmhouse Eggs and Four Grain, as well as branded products from our membership of the Eggman's Best, Inc. Cooperative, which includes Eggman's Best and Land of Lakes. The prepared food segment, which generated $245 million in net sales and $34 million of operating profit in fiscal 2026, consists primarily of the production, packaging, marketing, and distribution of prepared foods, product offerings such as precooked egg patties, omelets, folded and scrambled egg formats, pancakes, waffles, and specialty wraps. This segment includes our brands Vans and Crepini. All prior year periods have been recast to reflect the new reportable segments. I'll begin with a review of our fourth quarter results before discussing our full year performance segment results, balance sheet, and cash flow. For the fourth quarter, consolidated revenue was $552.6 million, down 49.9% compared with the prior year period. Consolidated gross profit was $34.1 million, resulting in a gross margin of 6.2%. Consolidated operating loss was $58.8 million, and operating margin was negative 10.6%. Net loss attributable to CalMaine Foods for the quarter was $35.9 million, or diluted loss per share of $0.76. Conventional shell eggs generated revenue of $210.8 million, down 70% year-over-year. Segment operating loss was $40.6 million, with an operating margin of negative 19.3%. Specialty shell eggs reported revenues of $239.7 million, That's down 21.4% from the prior year. Segment operating income totaled $17.5 million and operating margin was 7.3%. Prepared foods revenue was $60.4 million. Segment operating income was $8.8 million with an operating margin of 14.6%. Turning to our full year results, consolidated revenue was $2.912 billion. down 31.7% versus the prior year. Consolidated gross profit was 672 million and gross margin was 23.1%. Consolidated operating income was 350.2 million with an operating margin of 12%. Net income attributable to CalMaine Foods for the year was 316.7 million resulting in diluted earnings per share of 6.63. Full year revenue for the conventional shell eggs was $1.348 billion, down 51.1% versus the prior year. Segment operating income was $216.6 million, with an operating margin of 16.1%. Full year revenue for specialty shell eggs for the year totaled $1.070 billion, down 7.3%. Segment operating income was $181.5 million and operating margin was 17%. Prepared Foods full-year revenue was $244.8 million. Segment operating income was $33.9 million with an operating margin of 13.8%. Now let me briefly discuss the performance of each segment. In our conventional shell egg segment, both fourth quarter and full-year results reflected a pricing environment that steadily decreased throughout fiscal 2026, reaching historically low inflation-adjusted levels during the fourth quarter. These conditions were driven by abundant industry supply rather than weakening demand. Supply levels increased significantly compared to the severe shortages experienced in the prior year period, and our fourth and first fiscal quarters were already typically our seasonally lowest pricing periods. volumes increased 3.1% during the quarter and were approximately flat for the full year, demonstrating that industry-wide pricing, not demand, was a primary driver of financial performance. While conventional egg pricing is inherently cyclical and largely market-determined, we are not passive participants in this environment. We continue to actively manage our cost structure through flock optimization, feed efficiency initiatives, and operational discipline across our production network. Our structured pricing arrangements with key customers provide a degree of downside protection relative to pure spot market exposure. And as the largest and most vertically integrated producer in the U.S., our scale advantages in procurement, logistics and our customer service become even more valuable during periods of industry stress, allowing us to maintain our competitive position and be well prepared to capture margin as pricing recovers. In our specialty shell egg segment, fourth quarter volumes return to more typical seasonal patterns. The year over year comparison reflects an unusually strong prior year period that benefited from temporary demand acceleration created by atypical pricing relationships with conventional eggs as elevated pricing in conventional eggs drove consumer demand into specialty eggs. As those conditions normalized, fourth quarter 2026 specialty volumes moderated as expected. Importantly for the full year, specialty shell egg volumes increased 2.4% despite more normalized pricing dynamics, which we believe reflects resilient consumer demand and strong commercial execution. Margins moderated from the elevated levels achieved during the prior year, which benefited from atypical pricing dynamics that temporarily widened the conventional to specialty spread. We view the current margin profile as more representative of normalized conditions for this segment in the near term, though still below our long-term target as we continue to grow our higher margin subcategories, including cage-free, organic, and pasture-raised. The expansion of our Eglin's Best Franchise territory in the Northeast, which we announced subsequent to quarter-end, is a good example of how we're actively building toward a richer specialty mix over time. In our prepared food segment, performance continued to accelerate as we executed our network optimization and production capacity expansion initiatives. As production capacity expansion progressed on schedule, facility utilization improved, fixed cost absorption increased, and operating performance strengthened. Both sales prices and sales volumes improved sequentially from the third quarter of fiscal 2026. Integration of our Vans Foods acquisition is progressing according to plan with encouraging early results, while our competing joint venture continues to demonstrate strong growth momentum. SG&A for the quarter was 93.6 million, down 1.4%, and 329.2 million for the year, up 4.7%. Net cash flow from operations for the quarter was 2.8 million, down 99.3%. We ended the quarter with cash and temporary cash investments of $924.1 million and remain virtually debt free. We repurchased 396,083 shares of our common stock under our current share repurchase authorization during the quarter for a total of $30.1 million. Repurchase program permits us to repurchase up to $500 million, of which $320.7 million remain available. Pursuant to our variable dividend policy, We will not pay a cash dividend for the fourth quarter or for any subsequent profitable quarter until we are profitable on a cumulative basis computed from the date of the most recent quarter for which a dividend was paid. As of May 30, 2026, the total cumulative loss to be recovered before payment of a dividend was $35.9 million. With that, I'll turn the call back to Sherman for closing remarks before we begin the Q&A session.