Cal-Maine Foods' Q2 2026: Contradictions Emerge on Specialty Eggs, Cost-Plus Pricing, and Share Repurchase Strategy

Date of Call: None provided

Financials Results

• Revenue: $769.5M, down 19.4% YOY (vs $954.7M)
• EPS: $2.13 per diluted share, down 52.3% YOY (vs $4.47)
• Gross Margin: 27.0%, down ~10.3 percentage points YOY (gross profit $207.4M vs $356.0M, down 41.8%)
• Operating Margin: 16.1%, operating income $123.9M vs $278.1M, down 55.5% YOY

Guidance:

• Prepared foods: temporary lower volumes and higher costs through remainder of fiscal year while executing $36M-$36.0M CapEx program; targeting ~19% EBITDA for Echo Lake and ~30% capacity growth over 18–24 months.
• Combined Echo Lake + Crepini expected to increase prepared foods capacity >30% in next 18–24 months.
• Specialty eggs: targeting continued double‑digit growth and long‑term share >50% of shell egg sales.
• No company-wide numeric guidance; maintain strong balance sheet, continued dividends (~$0.72/share) and active buyback capacity.

Business Commentary:

* Diversification and Growth in Specialty Eggs and Prepared Foods: - Cal-Maine Foods saw specialty eggs account for 44% of total shell egg sales in Q2, up from 31.7% in the previous year, and prepared foods contributed to 46.4% of net sales, a significant increase. - This growth was driven by a strategic focus on expanding specialty eggs and prepared foods, which offer higher margins and lower market volatility.

• Impact of Lower Egg Prices on Financial Performance:
• Net sales for Q2 decreased to $769.5 million, down 19.4% from the previous year, with total shell egg sales down 28.1% due to a 26.5% decrease in selling prices.

• The decline in sales was mainly due to lower egg prices, which affected earnings, although specialty and prepared foods provided some offset.

• Expansion of Prepared Foods Capabilities:

• Cal-Maine announced a $15 million network optimization and capacity expansion for prepared foods, expected to add $17 million in annual scrambled egg production by mid-fiscal 2027.

• This investment is aimed at enhancing efficiency and meeting long-term organic growth, despite current temporary lower volumes and higher costs.

• Impact of High-Path Avian Influenza on Industry Dynamics:

• The company acknowledged the ongoing presence of High-Path Avian Influenza (AI), with global outbreaks and a significant impact on layer numbers.
• The continued presence of AI is expected to affect supply and demand dynamics in the egg industry, emphasizing the importance of reliable supply and scalability.

Sentiment Analysis:

Overall Tone: Positive

• Management emphasized 'we built real momentum' and called the company 'more diversified, more resilient, and better positioned to compound value over the long term.' They highlighted specific growth targets (prepared foods +30% capacity, 19% EBITDA) and strategic wins (Clean Egg acquisition, Echo Lake expansion), framing near-term headwinds as temporary and outweighed by long-term benefits.

Q&A:

• Question from Heather Jones (Heather Jones Research): Given current spot egg prices, how do portfolio changes (prepared foods, cost-plus/hybrid models, specialty mix) affect earnings power in depressed markets? Can Cal‑Maine weather down markets without generating EPS losses?
  Response: Diversification into specialty and prepared foods, hybrid pricing, and a stronger balance sheet materially improve mid‑cycle resilience—management believes the company is far better positioned than in prior downturns to avoid prior loss outcomes (no specific guidance given).

• Question from Poonam Sharma (Stephens): For prepared foods, is the ~19% EBITDA margin target still appropriate for the year despite current slippage? And will your expansions limit M&A opportunities given depressed egg markets?
  Response: Yes—management still targets ~19% EBITDA for Echo Lake for the year despite near‑term slippage and expects Q3 to be softer; expansions do not preclude M&A—the pipeline remains broad and will be pursued with disciplined criteria.

• Question from Leah Jordan (Goldman Sachs): How are you thinking about specialty egg capacity growth over time (organic vs M&A) and cadence of mix shift? Also, update on prepared foods optimization progress, near‑term cost impact, and growth cadence as investments come online.
  Response: Management expects double‑digit CAGR in specialty, with specialty potentially >50% of shell egg sales long‑term (Clean Egg acquisition added 677k specialty layers); prepared foods CapEx (~$36M) targets 30% growth in 18–24 months with short‑term volume/efficiency drag but eventual 19% EBITDA and sustained growth.

• Question from Ben Klieve (The Benchmark Company): Specialty volumes were flat in Q2—what drove that outcome? And how receptive are retailers to hybrid/cost‑plus pricing given current normalized egg pricing?
  Response: Flat specialty volumes reflect a tough YoY comp (last year was unusually strong); management views flat as a positive with double‑digit growth in free‑range/pasture, and says hybrid pricing is tailored to retailer strategies, providing upside protection and benefits in lower markets.

• Question from Heather Jones (Heather Jones Research): How large a step‑down should we expect in prepared foods revenue in H2 2026 (Q3/Q4 cadence)? And how should we model SG&A going forward given acquisition contingencies and higher professional fees?
  Response: Prepared foods will see a further Q3 pullback due to capacity optimization then begin recovering in Q4 and ramp into the following 12 months; SG&A will run somewhat elevated near term from acquisition‑related professional/legal fees and increased promotional spend tied to specialty growth.

• Question from Ben Theurer (BMO Capital Markets): Have outside egg purchase volumes declined as your production recovers and should we expect continued cost benefits from lower outside purchases? Also, any insight on the apparent rapid decrease in bird flu cases?
  Response: Percent produced has returned to ~90% and is expected to rise toward ~93–95%, reducing outside purchases, though such purchases remain opportunistic to fill market disruptions; on HPAI management warns incidence remains globally widespread and the risk is still elevated—uncertainty persists.

Contradiction Point 1

Specialty Eggs Volume Trends

It involves differing outlooks on the trends and performance of specialty eggs, which are a key growth area for the company and impact overall revenue and market positioning.

What caused specialty egg volumes to remain flat this quarter despite overall upward trends? - Ben Klieve(The Benchmark Company)

2026Q2: Flat volumes were a win given tough market conditions, with demand shifts influenced by price movements between conventional and specialty eggs. - Sherman Miller(CEO)

Can you detail specialty eggs trends and capacity growth plans? - Leah Jordan(Goldman Sachs)

2026Q1: Pasture-raised and cage-free eggs show double-digit growth. We invest broadly to meet customer demands. Specialty eggs are a long-term focus, with capacity growth around 10%. - Sherman Miller(CEO)

Contradiction Point 2

Impact of Cost-Plus Pricing Model on Retailers

It involves differing views on the reception and impact of the cost-plus pricing model on retailer relationships, which can affect the company's pricing strategy and market competitiveness.

How have retailers responded to the shift from market-based to cost-plus pricing contracts? - Ben Klieve(The Benchmark Company)

2026Q2: Different retailer priorities, including high-low or everyday low pricing strategies, drive different pricing structures, benefiting both parties in diverse market conditions. - Sherman Miller(CEO)

Could you provide quantitative or qualitative details regarding the shift in your pricing mix between cost-plus and market-based models? - Heather Jones(Heather Jones Research LLC)

2026Q1: The shift is towards balanced upside and mid-cycle downside protection. Some customers prefer market-based pricing for long-term arrangements, reducing volatility. The majority of conventional eggs are still priced off of the market framework. - Sherman Miller(CEO)

Contradiction Point 4

Share Repurchase Strategy

It involves a shift in the company's position on share repurchases, which affects the allocation of cash for financial management and potential investor returns.

Can you discuss any potential M&A opportunities or existing pipelines? - Heather Jones(Heather Jones Research)

2026Q2: Share repurchases are a solid tool in our strategy. We're exercising an opportunistic approach, keeping options open. - Sherman Miller(CEO)

Will stock buybacks play a larger role in capital allocation strategy? What is the objective of the stock buyback program? - Benjamin Mayhew(BMO Capital Markets Equity Research)

2026Q1: Share repurchases are a solid tool in our strategy. We're exercising an opportunistic approach, keeping options open. - Sherman Miller(CEO)