Q3 2026 Cal Maine Foods Inc Earnings Call

April 1, 2026

Operator: Good morning, everyone, and welcome to the Cal-Maine Foods Q3 fiscal 2026 earnings conference call. All participants are in a listen-only mode. After today's prepared remarks, there'll be a question-and-answer session. At that time, I'll 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 Miller, President and Chief Executive Officer of Cal-Maine Foods. Please go ahead.

Speaker #1: At this time, I'll 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 Miller, President and Chief Executive Officer of Cal-Maine Foods.

Speaker #1: Please go ahead.

Speaker #2: 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 risks and uncertainties described in our SEC filings.

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 risks and uncertainties described in our SEC filings. Let me start by sincerely thanking our teams across the organization whose execution, 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. In February, we shared the sad news of the passing of longtime board member Jim Poole. Over more than two decades, Jim made a lasting impact on the company. We extend our heartfelt condolences to his family and loved ones. Today, we announce the appointment of Dudley Wooley to the board to fill the vacancy left by Jim.

Speaker #2: Let me start by sincerely thanking our teams across the organization, whose execution, focus, and commitment to excellence drive the operational and financial performance that underpins everything we do.

Speaker #2: The hard work and dedication continued to set us apart, and these results are a direct reflection of their efforts. In February, we shared the sad news of the passing of longtime board member Jim Pool.

Speaker #2: Over more than two decades, Jim made a lasting impact on the company. We extend our heartfelt condolences to his family and loved ones.

Speaker #2: Today, we announce the appointment of Dudley Woolley to the board to fill the vacancy left by Jim. Dudley brings deep expertise in risk management and governance, along with a strong track record of leading growth-oriented organizations and driving operational performance.

Sherman Miller: Dudley brings deep expertise in risk management and governance, along with a strong track record of leading growth-oriented organizations and driving operational performance. We look forward to the perspective he will add as we continue to strengthen our business, enhance earnings visibility, and focus on long-term value creation. Before Max walks you through our results in detail and provides additional color on our financial performance, I'd like to spend a few minutes discussing how we think about the long-term direction of the business and how the strategy we're executing is designed to create durable value over time. When investors evaluate Cal-Maine, they often focus on the consistency of our execution. That reputation has been built over time, not in any single quarter. It reflects the accountability, operational excellence, and continuous improvement embedded across the organization.

Speaker #2: We look forward to the perspective he will add as we continue to strengthen our business, enhance earnings visibility, and focus on long-term value creation.

Speaker #2: Before Max walks you through our results in detail and provides additional color on our financial performance, I'd like to spend a few minutes discussing how we think about the long-term direction of the business and how the strategy we're executing is designed to create durable value over time.

Speaker #2: When investors evaluate Cal-Maine, they often focus on the consistency of our execution. That reputation has been built over time, not in any single quarter.

Speaker #2: It reflects the accountability, operational excellence, and continuous improvement embedded across the organization. At Cal-Maine, our objective is straightforward: to compound intrinsic value per share over time through thoughtful portfolio evolution, efficient operations, and prudent capital allocation.

Sherman Miller: At Cal-Maine, our objective is straightforward: to compound intrinsic value per share over time through thoughtful portfolio evolution, efficient operations, and prudent capital allocation. While short-term earnings will naturally fluctuate in a cyclical industry, our focus remains on strengthening the long-term earnings power and resilience of the business. In practical terms, that strategy centers on several priorities. First, we continue to expand our specialty egg mix. As specialty eggs represent a larger portion of our portfolio, they support structurally stronger margins, more stable demand characteristics, and improved returns on invested capital. Second, we're continuing to evolve our pricing structures. Over time, we're increasing the share of our business that operates under structured pricing arrangements, which we believe helps improve the stability and predictability of realized pricing across the cycle. Third, we're expanding our prepared foods platform.

Speaker #2: While short-term earnings will naturally fluctuate in a cyclical industry, our focus remains on strengthening the long-term earnings power and resilience of the business. In practical terms, that strategy centers on several priorities.

Speaker #2: First, we continue to expand our specialty egg mix, as specialty eggs represent a larger portion of our portfolio that supports structurally stronger margins, more stable demand characteristics, and improved returns on invested capital.

Speaker #2: Second, we are continuing to evolve our pricing structures. Over time, we are increasing the share of our business that operates under structured pricing arrangements, which we believe helps improve the stability and predictability of realized pricing across the cycle.

Speaker #2: Third, we're expanding our prepared foods platform. Prepared foods broadens our addressable market, leverages our vertically integrated shell egg inputs, and establishes a complementary long-term growth platform alongside our core shell egg business.

Sherman Miller: Prepared foods broadens our addressable market, leverages our vertically integrated shell egg inputs, and establishes a complementary long-term growth platform alongside our core shell egg business. At the same time, we continue to reinforce the operational strengths that have long defined the company. Investments in biosecurity, productivity, and vertical integration strengthen our cost leadership and support reliable operating performance across cycles. Together, we believe these actions will steadily improve the quality and durability of our normalized earnings power while strengthening the company's long-term competitive position. Against that backdrop, let me highlight a few key developments from Q3 and the first three quarters of our fiscal year that reflect how this strategy is translating into execution. Unless otherwise indicated, all comparisons are to the comparable period of fiscal 2025.

Speaker #2: At the same time, we continue to reinforce the operational strengths that have long defined the company. Investments in biosecurity, productivity, and vertical integration strengthen our cost leadership and support reliable operating performance across cycles.

Speaker #2: Together, we believe these actions will steadily improve the quality and durability of our normalized earnings power while strengthening the company's long-term competitive position. Against that backdrop, let me highlight a few key developments from the third quarter and the first three quarters of our fiscal year that reflect how this strategy is translating into execution.

Speaker #2: Unless otherwise indicated, all comparisons are to the comparable period of fiscal 2025. In the third quarter of fiscal 2026, specialty eggs drove a greater portion of shell egg sales, accounting for 50.5% of total shell egg sales, compared to 24.4%.

Sherman Miller: In Q3 of fiscal 2026, specialty eggs drove a greater portion of shell egg sales, accounting for 50.5% of total shell egg sales compared to 24.4%. Prepared foods accounted for 9.5% of net sales compared to 0.8%. Specialty eggs and prepared foods combined accounted for 52.9% of net sales compared to 24%. In the first three quarters of fiscal 2026, specialty eggs drove a greater portion of shell egg sales, accounting for 42.7% of total shell egg sales compared to 29.2%. Prepared foods accounted for 9.3% of net sales compared to 1%. Specialty eggs and prepared foods combined accounted for 45.7% of net sales compared to 28.6%.

Speaker #2: Prepared foods accounted for 9.5% of net sales, compared to 0.8%. Specialty eggs and prepared foods combined accounted for 52.9% of net sales, compared to 24%.

Speaker #2: In the first three quarters of fiscal 2026, specialty eggs drove a greater portion of shell egg sales, accounting for 42.7% of total shell egg sales, compared to 29.2%.

Speaker #2: Prepared foods accounted for 9.3% of net sales, compared to 1%. Specialty eggs and prepared foods combined accounted for 45.7% of net sales, compared to 28.6%.

Sherman Miller: Importantly, the egg market in Q3 of fiscal 2026 provided a real-time test of our strategy. Periods of price softness can create noise around near-term performance, but they also provide an opportunity to demonstrate that our results are not simply a function of spot market conditions. Instead, our performance reflects how effectively we manage mix, pricing structures, cost, and capital across the cycle. What we're really seeing is a market that's still being impacted by HPAI, but to a much lesser extent than last year. The disruption hasn't gone away. It's still a reality, but it's not driving the same level of supply shock or panic-driven purchasing. Supply has improved, and retailers and food service operators aren't rushing to build inventory, which has put downward pressure on wholesale prices, with retail adjusting more gradually. The key data points for December to February make that clear.

Speaker #2: Importantly, the egg market in the third quarter of fiscal 2026 provided a real-time test of our strategy. Periods of price softness can create noise around near-term performance, but they also provide an opportunity to demonstrate that our results are not simply a function of spot market conditions.

Speaker #2: Instead, our performance reflects how effectively we manage mix, pricing structures, cost, and capital across the cycle. What we're really seeing is a market that's still being impacted by high-path AI, but to a much lesser extent than last year.

Speaker #2: The disruption hasn't gone away. It's still a reality. But it's not driving the same level of supply shock or panic-driven purchasing. Supplies improved, and retailers and food service operators aren't rushing to build inventory, which has put downward pressure on wholesale prices.

Speaker #2: With retail adjusting more gradually, the key data points for December to February make that clear. The average layer hen flock is up about 2.2% year over year, and depopulations are down 70.6% year over year.

Sherman Miller: The average layer hen flock is up about 2.2% year over year, and depopulations are down 70.6% year over year. While HPAI is still present, the magnitude of disruption is meaningfully lower, and that's what's showing up in pricing. On the demand side, consumption remains stable to improving, with a few timing dynamics influencing near-term trends. In retail, volumes are up about 3% year to date. What's important is that our market is broad-based. Growth is showing up across both value and premium segments. In food service, demand is beginning to recover, with increased traffic and egg servings increasing, particularly in quick service. More broadly, eggs continue to benefit from strong structural tailwinds. They align with high-protein and health-focused diets, fit well with convenience and portable meal formats, and remain a non-discretionary item once a consumer is in the channel.

Speaker #2: So while high-path AI is still present, the magnitude of disruption is meaningfully lower, and that's what's showing up in pricing. On the demand side, consumption remains stable to improving, with a few timing dynamics influencing near-term trends.

Speaker #2: In retail, volumes are up about 3% year to date. What's important is that our market is broad-based—growth is showing up across both value and premium segments—and food service demand is beginning to recover, with increased traffic and egg servings increasing, particularly in quick service.

Speaker #2: More broadly, eggs continue to benefit from strong structural tailwinds. They align with high-protein and health-focused diets, fit well with convenience and portable meal formats, and remain a nondiscretionary item once a consumer is in the channel.

Speaker #2: So overall, demand is holding up well, and what we're seeing in the market today is much more about supply recovery and timing shifts than any fundamental change in consumption.

Sherman Miller: Overall, demand is holding up well, and what we're seeing in the market to date is much more about supply recovery and timing shifts than any fundamental change in consumption. You can see our strategic framework reflected in the acquisition of the shell egg products, and prepared foods assets of Creighton Brothers and Crystal Lake that we announced during the quarter. This transaction expands the geographic scale of our shell egg platform and adds nearby liquid egg capacity that supports our internal sourcing strategy for egg-based ingredients. We believe that over time, integrating shell egg production, egg products, and prepared foods more tightly within our value chain will help strengthen supply security, improve operational efficiency, and reinforce the economics of our prepared foods platform. With that, let me turn the call over to Max to drill down into our financial results and discuss our capital allocation framework. Max?

Speaker #2: You can see our strategic framework reflected in the acquisition of the shell egg, egg products, and prepared foods assets of Creighton Brothers and Crystal Lake that we announced during the quarter.

Speaker #2: This transaction expands the geographic scale of our shell egg platform and adds nearby liquid egg capacity that supports our internal sourcing strategy for egg-based ingredients.

Speaker #2: We believe that, over time, integrating shell egg production and egg products and prepared foods more tightly within our value chain will help strengthen supply security, improve operational efficiency, and reinforce the economics of our prepared foods platform.

Speaker #2: With that, let me turn the call over to Max to drill down into our financial results and discuss our capital allocation framework. Max?

Speaker #3: Thanks, Sherman. And good morning, everyone. As a reminder, we published our third-quarter earnings release and the 10-Q this morning. Additionally, we published a brief earnings presentation on our website.

Max Bowman: Thanks, Sherman, and good morning, everyone. As a reminder, we published our Q3 earnings release and the 10-Q 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 Q3 of fiscal 2026. Unless otherwise indicated, all comparisons are to the comparable period of fiscal 2025. For the Q3 of fiscal 2026, net sales were $667 million compared to $1.4 billion, down 53%. Conventional egg sales were $283.2 million compared to $1 billion, down 72.1%, with 70.1% lower selling prices and 6.7% lower sales volumes.

Speaker #3: These documents contain detailed information on our financial results. I'll touch on the highlights for the third quarter of fiscal 2026. Unless otherwise indicated, all comparisons are to the comparable period of fiscal 2025.

Speaker #3: For the third quarter of fiscal 2026, net sales were $667.0 million compared to $1.4 billion, down 53%. Conventional egg sales were $283.2 million, compared to $1.0 billion, down 72.1%, with 70.1% lower selling prices and 6.7% lower sales volumes.

Max Bowman: Specialty egg sales were $289.1 million compared to $328.9 million, down 12.1%, with 16.9% lower selling prices and 5.8% higher sales volume. Our average breeder flocks grew 13%, total chicks hatched rose 41.7%, and the average number of layer hens expanded 2%. Prepared food sales were $63.6 million compared to $11.8 million, up 441.2% year over year and compared to $71.7 million, down 11.2% quarter over quarter. Our majority-owned subsidiary, Crepini Foods, delivered strong momentum, with sales increasing by 283%, contributing positively to the overall prepared foods portfolio.

Speaker #3: Specialty egg sales were $289.1 million, compared to $328.9 million, down 12.1%, with 16.9% lower selling prices and 5.8% higher sales volume. Our average breeder flock grew 13%.

Speaker #3: Total chicks hatched rose 41.7%, and the average number of layer hens expanded 2%. Prepared food sales were $63.6 million, compared to $11.8 million, up 441.2% year over year, and compared to $71.7 million, down 11.2% quarter over quarter.

Speaker #3: Our majority-owned subsidiary, Carpini Foods, delivered strong momentum with sales increasing by 283%, contributing positively to the overall prepared foods portfolio. In prepared foods, Q3 represents a trough driven by the timing of previously announced, planned network optimization and expansion activities.

Max Bowman: In prepared foods, Q3 represents a trough driven by the timing of previously announced planned network optimization and expansion activities. The near-term margin pressure is largely volume driven, reflecting temporary downtime and under absorption of fixed costs, along with some mixed headwinds as the network transitions and we increase the use of cost-type pricing arrangements that enhance stability. As capacity comes back online, we expect a progressive recovery beginning in Q4, with margins trending back towards baseline through fiscal 2027 and 2028 as scale and network efficiencies are realized. We expect prepared foods capacity to increase more than 30% over the next 18 to 24 months. Importantly, demand remains intact. This is a function of execution timing, not structural weakness, and these investments position prepared foods as a more durable, high-margin growth platform.

Speaker #3: The near-term margin pressure is largely volume-driven, reflecting temporary downtime and the underabsorption of fixed costs, along with some mix headwinds as the network transitions and we increase the use of cost-type pricing arrangements that enhance stability.

Speaker #3: As capacity comes back online, we expect a progressive recovery beginning in Q4, with margins trending back towards baseline through fiscal 2027 and 2028 as scale and network efficiencies are realized.

Speaker #3: We expect prepared foods capacity to increase more than 30% over the next 18 to 24 months. Importantly, demand remains intact. This is a function of execution timing, not structural weakness, and these investments position prepared foods as a more durable, high-margin growth platform.

Speaker #3: Overall, gross profit was $119.3 million, compared to $716.1 million, down 83.3%. This was primarily driven by 56.5% lower shell egg selling prices, partially offset by a decrease in the price and volume of outside egg purchases.

Max Bowman: Overall, gross profit was $119.3 million compared to $716.1 million, down 83.3%, primarily driven by 56.5% lower shell egg selling prices, partially offset by decrease in the price and volume of outside egg purchases as our percentage produced to sold increased 3.1 percentage points to 91.5%. Operating income was $35.9 million compared to $635.7 million, down 94.3% with an operating income margin of 5.4%. Net income attributable to Cal-Maine was $50.5 million compared to $508.5 million, down 90.1%. Diluted earnings per share were $1.06 compared to $10.38, down 89.8%.

Speaker #3: As our percentage produced to sold increased 3.1 percentage points to 91.5%. Operating income was $635.7 million, down 94.3%, with an operating income margin of 5.4%.

Speaker #3: Net income attributable to Cal-Maine was $50.5 million, compared to $508.5 million, down 90.1%. Diluted earnings per share were $1.06, compared to $10.38, down 89.8%.

Max Bowman: Cost of sales decreased 21.9%. Lower costs 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 warehouse costs. SG&A expenses increased 4.2% due to the addition of Echo Lake Foods and increased professional and legal fees. This was partially offset by lower employee-related costs. Net cash flow from operations was $103.6 million compared to $571.6 million, down 81.9%. We ended the quarter with cash and temporary cash investments of $1.152 billion, down 17.3%. We remain virtually debt-free.

Speaker #3: Cost of sales decreased 21.9%. Lower costs 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, processing, packaging, and warehouse costs.

Speaker #3: SG&A expenses increased 4.2% due to the addition of Echo Lake Foods and increased professional and legal fees. This was partially offset by lower employee-related costs.

Speaker #3: Net cash flow from operations was $103.6 million, compared to $571.6 million, down 81.9%. We ended the quarter with cash and temporary cash investments of $1.152 billion, down 17.3%.

Speaker #3: We remained virtually debt-free. We repurchased 329,830 shares of common stock under our current share repurchase authorization during the quarter, for a total of $24.3 million.

Max Bowman: We repurchased 329,800 shares of common stock under our current share repurchase authorization during the quarter for a total of $24.3 million. The repurchase program permits us to purchase up to $500 million, of which $350.8 million remains available. For Q3 of fiscal 2026, we will pay a cash dividend of approximately $0.36 per share to holders of our common stock pursuant to our variable dividend policy. The dividend is payable on 14 May 2026, to holders of record on 29 April 2026. The final amount paid will be based on the number of outstanding shares on the record date. From a financial perspective, our priorities remain centered on strengthening the durability and predictability of Cal-Maine's earnings profile while maintaining a structured and flexible capital structure.

Speaker #3: The repurchase program permits us to purchase up to $500 million, of which $350.8 million remains available. For the third quarter of fiscal 2026, we will pay a cash dividend of approximately $36 per share to holders of our Common Stock, pursuant to our variable dividend policy.

Speaker #3: The dividend is payable on May 14, 2026, to holders of record on April 29, 2026. The final amount paid will be based on the number of outstanding shares on the record date.

Speaker #3: From a financial perspective, our priorities remain centered on strengthening the durability and predictability of Cal-Maine's earnings profile, while maintaining a structured and flexible capital structure.

Speaker #3: Our capital allocation framework is designed to support long-term per-share value creation while preserving the financial resilience necessary to navigate a cyclical industry. First, we will prioritize investment in high-return organic growth opportunities.

Max Bowman: Our capital allocation framework is designed to support long-term per share value creation while preserving the financial resilience necessary to navigate a cyclical industry. First, we will prioritize investment in high return organic growth opportunities. This includes investments that expand specialty egg capacity, improve productivity and operational efficiency, and support the continued development of our egg products and prepared food capabilities. To that end, our prepared foods expansion initiatives are progressing on schedule and in line with plans previously communicated. At Echo Lake Foods, the network optimization and capacity expansion project is underway and expected to add approximately 17 million pounds of annual scrambled egg production capacity throughout fiscal 2027. In addition, the previously announced 14.8 million high-speed pancake line continues to advance as planned and is expected to contribute an additional 12 million pounds over the course of fiscal 2027.

Speaker #3: This includes investments that expand specialty egg capacity, improve productivity and operational efficiency, and support the continued development of our egg products and prepared food capabilities.

Speaker #3: To that end, our prepared foods expansion initiatives are progressing on schedule and in line with plans previously communicated. At Echo Lake Foods, the network optimization and capacity expansion project is underway and expected to add approximately 17 million pounds of annual scrambled egg production capacity throughout fiscal 2027.

Speaker #3: In addition, the previously announced $14.8 million high-speed pancake line continues to advance this plan and is expected to contribute an additional $12 million over the course of fiscal 2027.

Speaker #3: Separately, our joint venture, Carpini Foods, is investing $7 million through fiscal 2028 to expand production capacity by approximately 18 million pounds through the installation of new equipment and production lines.

Max Bowman: Separately, our joint venture, Crepini Foods, is investing $7 million through fiscal 2028 to expand production capacity by approximately 18 million pounds through the installation of new equipment and production lines. Collectively, these initiatives remain on track and are expected to increase Cal-Maine's prepared food production capacity by more than 30% over the next 18 to 24 months as the projects are completed and ramp up as planned. Second, we pursue selective acquisitions that strengthen the company's strategic positioning and meet stringent return thresholds. Our acquisition of certain assets of Creighton Brothers and Crystal Lake is a good example of this approach. The transaction expands the geographic scale of our shell egg platform while also adding nearby liquid egg capacity that we believe will strengthen our integrated value chain. Third, we return excess capital to shareholders through our variable dividend framework, and when appropriate, opportunistic share repurchases.

Speaker #3: Collectively, these initiatives remain on track and are expected to increase Cal-Maine's prepared food production capacity by more than 30% over the next 18 to 24 months, as the projects are completed and ramp up as planned.

Speaker #3: Second, we pursue selective acquisitions that strengthen the company's strategic positioning and meet stringent return thresholds. Our acquisition of certain assets of Creighton Brothers and Crystal Lake is a good example of this approach.

Speaker #3: The transaction expands the geographic scale of our shell egg platform, while also adding nearby liquid egg capacity that we believe will strengthen our integrated value chain.

Speaker #3: Third, we return excess capital to shareholders through our variable dividend framework and, when appropriate, opportunistic share repurchases. Underlying this entire framework is a commitment to maintaining balance sheet strength. A strong liquidity position provides us flexibility to invest across the cycle, respond to strategic opportunities, and navigate industry volatility.

Max Bowman: Underlying this entire framework is a commitment to maintaining balance sheet strength. A strong liquidity position provides the flexibility to invest across the cycle, respond to strategic opportunities, and navigate industry volatility. This systematic approach allows us to balance growth, resilience, and shareholder returns while preserving the long-term optionality that is critical in our industry. Over time, we believe the combination of portfolio evolution, disciplined capital allocation, and balance sheet strength will continue to enhance the company's normalized earnings power per share and support durable value creation for shareholders. That concludes my review of the financial results. I will now turn the call back to Sherman.

Speaker #3: This systematic approach allows us to balance growth, resilience, and shareholder returns while preserving the long-term optionality that is critical in our industry. Over time, we believe the combination of portfolio evolution, discipline, capital allocation, and balance sheet strength will continue to enhance the company's normalized earnings power per share and support durable value creation for shareholders.

Speaker #3: That concludes my review of the financial results. I will now turn the call back to Sherman.

Speaker #1: Thanks, Max. Looking ahead, we believe Cal-Maine is well-positioned to benefit from durable shifts shaping the egg category. By building on the structural strength of our core shell egg platform, while expanding across specialty eggs, egg products, and prepared foods, we believe we are strengthening the resilience and quality of our business over time.

Sherman Miller: Thanks, Max. Looking ahead, we believe Cal-Maine's well-positioned to benefit from durable shifts shaping the egg category. By building on the structural strength of our core shell egg platform while expanding across specialty eggs, egg products, and prepared foods, we believe we are strengthening the resilience and quality of our business over time. This progression is expected to help enhance the durability of our earnings profile and position Cal-Maine to deliver sustainable growth and long-term value creation. With that, I'll turn the call back over to the operator to begin the Q&A portion of today's call.

Speaker #1: This progression is expected to help enhance the durability of our earnings profile and position Cal-Maine to deliver sustainable growth and long-term value creation. With that, I'll turn the call back over to the operator to begin the Q&A portion of today's call.

Speaker #3: We will now begin the question-and-answer session. To ask a question, you'll need to press star one one (*) 1 1 on your telephone. You will then hear an automated message advising your hand is raised.

Operator: We will now begin the question-and-answer session. To ask a question, you'll need to press star one one on your telephone. You'll then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. We ask that each participant limit themselves to one question and one follow-up. Once your question has been answered, please reenter the queue if you would like to ask additional questions. We will pause for a moment while we compile our Q&A roster. Our first question comes from Heather Jones with Heather Jones Research, LLC. Your line is open.

Speaker #3: To withdraw your question, please press star 11 again. We ask that each participant limit themselves to one question and one follow-up. Once your question has been answered, please re-enter the queue.

Speaker #3: If you would like to ask additional questions, we will pause for a moment while we compile our Q&A roster. Our first question comes from Heather Jones with Heather Jones Research LLC.

Speaker #3: Your line is open.

Heather Jones: Good morning. Thanks for the question. Congratulations on the quarter. I guess I want to start with specialty pricing. That was where much of the upside was relative to our estimate for the quarter. The California price had rallied nicely over the course of a few weeks, but it's recently begun to pull back, but still not back to the Q3 lows. Just wondering if you would expect Q4 specialty price to be similar to Q3, or is there some other dynamic that we need to consider there?

Speaker #4: Good morning. Thanks for the question, and congratulations on the quarter. I guess I want to start with specialty pricing—that was where much of the upside was relative to our estimate for the quarter.

Speaker #4: And the California price had rallied nicely over the course of a few weeks, but recently begun to pull back, but still not back to the Q3 lows.

Speaker #4: So, just wondering if you would expect Q4 specialty price to be similar to Q3, or is there some other dynamic that we need to consider there?

Speaker #5: Good morning, Heather. Thank you for the question. Specialty eggs are continuing to be extremely exciting for us, and as we move into Q4 and beyond, we see that as a huge part of our differentiation and us being able to diversify in the specialty prices.

Sherman Miller: Good morning, Heather. Thank you for the question. You know, specialty eggs are continuing to be extremely exciting for us and as we move into Q4 and beyond, we see that as a huge part of our differentiation and us being able to diversify. The specialty prices we've mentioned before, there is a smaller piece of that category that is tied to the market. As that market moves up and down, there is some fluctuation. But for the most part, those prices are a lot more stable. Max, you might wanna give a little bit more color on that.

Speaker #5: As we've mentioned before, there is a smaller piece of that category that is tied to the market, and it's that the market moves up and down.

Speaker #5: There is some fluctuation, but for the most part, those prices are a lot more stable. Max, you might want to give a little bit more color on that.

Speaker #1: Yes. As Sherman said, Heather, and you know, our specialty pricing doesn't fluctuate that much. We call out that the vast majority of our specialty pricing is either grain-based or a fixed price type arrangement—cost plus.

Max Bowman: Yes, as Sherman said, Heather, and you know our specialty pricing doesn't fluctuate that much. We call out, you know, the vast majority of our specialty pricing is either grain-based or a fixed price type arrangement of cost-plus. Again, stays pretty flat. There is a component of that as you call out, it ties to the cage-free California market. You know, it varies from quarter to quarter, but roughly I'd say about 12% or in that range. You know, depending on how that price reacts, this quarter and coming quarters, you know, will largely drive a lot of that movement. You know, we expect that specialty price to stay pretty consistent.

Speaker #1: So, again, it stays pretty flat. There is a component of that, as you call out, that ties to the cage-free California market. It varies from quarter to quarter, but roughly, I'd say about 12%, or in that range.

Speaker #1: And depending on how that price reacts this quarter and coming quarters, we'll largely drive a lot of that movement. But we expect that specialty price to stay pretty consistent.

Speaker #4: Okay, thank you for that. And then on my follow-up, it's just on the prepared foods business. I think—I joined the call a few minutes late—but I think I caught y'all saying that you expect the margin for that business to trend back to baseline through '27 into '28.

Heather Jones: Okay, thank you for that. On my follow-up, it's just on the prepared foods business. I think I joined the call a few minutes late, but I think I caught y'all saying that you expect the margin for that business to trend back to baseline through 2027 into 2028. Just wanting to clarify that. Are you not expecting it to fully get back there until 2028? When you say baseline, there were some quarters where it was north of 20%, but I believe your baseline is 19%. Is it unlikely to get back to where it was a few quarters ago? Just updated thinking on how we should be thinking about baseline.

Speaker #4: So just wanting to clarify that—are you not expecting it to fully get back there until '28? And then, when you say baseline, there were some quarters where it was north of 20%, but I believe your baseline is 19%.

Speaker #4: So, is it unlikely to get back to where it was a few quarters ago, and just how should we update our thinking on how we should be thinking about baseline?

Max Bowman: Yeah, I'll take that one. You know, we think Q3 represents, I'd call it a trough quarter. You know, what you're seeing is anticipated impacts of some of the network expansion and capacity initiations that we've mentioned. In the quarter, we saw some lower volumes and margin pressure as we go through these reconfigurations. You know, when you have lower volumes, you know, the first thing that happens to you is under absorption of fixed cost. You know, that was one of the major headwinds for the quarter. As we roll into Q4 2026 even, we expect to see some of that rebound begin to come back online.

Speaker #5: Yeah, Heather. I'll take that one. We think Q3 represents, I'd call it, a trough quarter. What you're seeing is anticipated impacts of some of the network expansion and capacity initiations that we've mentioned.

Speaker #5: In the quarter, we saw some lower volumes as we go, and margin pressure as we go through these reconfigurations. When you have lower volumes, the first thing that happens to you is underabsorption of fixed cost.

Speaker #5: And that was one of the major headwinds for the quarter. But as we roll into Q4 '26, even we expect to see some of that rebound begin to come back online.

Max Bowman: It will be tempered a little bit, as sales mix tied to the end of the school year, partially will offset some of that margin recovery. That's just a normal seasonal dynamic. It's not an execution issue there. We're currently, because of these reconfigurations, you know, having a slightly less desirable product mix, that's impacting our margins as we reconfigure. But again, that will improve over time too. All these things are transitional and, you know, not reflecting of underlying demand, which we still believe to be strong. We'll continue to migrate from market-based pricing towards grain-based and longer-term pricing arrangements. This moderates sometimes near-term pricing upside. But again, we're looking at the long-term durability and stability of our business, and we think it enhances that.

Speaker #5: It will be tempered a little bit, as sales mix tied to the end of the school year partially will offset some of that margin recovery.

Speaker #5: And that's just a normal seasonal dynamic; it's not an execution issue there. We're currently, because of these reconfigurations, having a slightly less desirable product mix.

Speaker #5: That's impacting our margins as we reconfigure, but again, that will improve over time too. All these things are transitional and not reflective of underlying demand, which we still believe to be strong.

Speaker #5: We'll continue as we migrate from market-based pricing towards grain-based and longer-term pricing arrangements. This moderates, sometimes, near-term pricing upside, but again, we're looking at the long-term durability and stability of our business, and we think it enhances that.

Speaker #5: As we begin to see this recovery in Q4 '26, we'll see higher capacity and better utilization of that capacity. And then that margin recovery will really start showing up towards the end of '27.

Max Bowman: As we begin to see this recovery in Q4 2026, we'll see higher capacity and better utilization of that capacity. Then that margin recovery will really start showing up towards the end of 2027, and as you said, into 2028. That's when the volumes we've talked about through the, you know, the additional investment that we've made and, or are making, I should say, in Echo Lake as well as Crepini will be fully online and returning. When you speak of the 19% to 20% margin, you know, that was the margin we'd called out at Echo Lake. You know, Crepini's coming along and the other elements of our prepared foods, we continue to work on as well.

Speaker #5: And as you said, into ’28. And that's when the volumes we've talked about, through the additional investment that we've made and are making—I should say—in Echo Lake as well as Carpini, will be fully online and returning.

Speaker #5: So, when you speak of the 19% to 20% margin, that was the margin we had called out at Echo Lake. And Carpini's coming along, and the other elements of our prepared foods, we continue to work on as well.

Max Bowman: It's, you know, we think we're taking some, if you wanna call it short-term pain now for better long-term positioning and gain in the future, but are positive, feel more positive as we go into 2027 and early 2028 that we'll really see the fruits of that along with that 30% growth that we had talked about from these investments.

Speaker #5: But we think we're taking some, if you want to call it, short-term pain now for better long-term positioning and gain in the future. I feel more positive as we go into '27 and early '28 that we'll really see the fruits of that, along with that 30% growth that we had talked about from these investments.

Sherman Miller: Thank you, Max. Only thing I'll add, Heather, is just getting the nuts and bolts in the right place for long-term performance and growth and having streamlined operations and really strategically placing the 4 Echo facilities in the right manner to have our flour products to the north 2 facilities, egg type products in the southern 2 facilities, which happen to be very close to Creighton Brothers, which can supply the eggs long term. A lot of good progress there.

Speaker #5: Thank you, Max. And the only thing I'll add, Heather, is just getting the nuts and bolts in the right place for long-term performance and growth.

Speaker #5: And having streamlined operations and really strategically placing the four Echo facilities in the right manner to have our flower products in the north two facilities, the egg-type products in the southern two facilities, which happen to be very close to Creighton Brothers, which can supply the eggs long-term.

Speaker #5: So, a lot of good progress there.

Heather Jones: Okay. Thank you so much.

Speaker #4: Okay. Thank you so much.

Operator: One moment for our next question. Our next question comes from Pooran Sharma with Stephens Inc. Line is open.

Speaker #6: One moment before our next question. Our next question comes from Peran Sharma, with Stephen Zinkel on his open.

Pooran Sharma: Thank you and congrats on the quarter here. Wanted to focus on pricing here maybe for the conventional eggs. It did come in a little bit higher than we were modeling. You have stated in the past that your new hybrid pricing model gives you a little bit better floor. I'm just looking at the price ratio between your conventional egg pricing and what we track with the USDA, and we just haven't seen it this high since it's over a decade.

Speaker #1: Thank you, and congrats on the order here. I wanted to focus on pricing, maybe for the conventional eggs. It did come in a little bit higher than we were modeling, and you have stated in the past that your new hybrid pricing model gives you a little bit better floor. I'm just looking at the price ratio between your conventional egg pricing and what we track with the USDA.

Speaker #1: And we just haven't seen it this high in over a decade. I was wondering if maybe you could help us—and the investment community—just understand how to think about your cost of production for your conventional eggs, just based on some of the disclosures you have in your filings.

Pooran Sharma: I was wondering if maybe you could help us and the investment community just understand how to think about your cost of production for your conventional eggs, just kind of based on some of the disclosures you have in your filings. Then maybe just marry that with what kind of, at a high level, rate of return do you all kind of generally expect from these type of assets?

Speaker #1: And then maybe just marry that with what kind of, at a high level, rate of return do you all kind of generally expect from these type of assets?

Sherman Miller: Well, good morning, and thank you for the question. I'll start off and then pass it to Max. I think you pegged it very well. You are seeing reduced volatility and, as we mentioned with hybrid pricing, there's some trade-offs. On the top side, there's an opportunity, but on the bottom side there is as well, and that's what you're seeing in this quarter. Market realization certainly benefits from this as well as we've mentioned before, having longer term arrangements. Any top side slippage is certainly balanced with downside uplift, and that, of course, it depends heavily upon the type of customer.

Speaker #5: Well, good morning, and thank you for the question. I'll start off and then pass it to Max. And I think you pegged it very well.

Speaker #5: You are seeing reduced volatility, and as we mentioned with hybrid pricing, there are some trade-offs. On the top side, there's an opportunity, but on the bottom side, there is as well.

Speaker #5: And that's what you're seeing in this quarter. And market realization certainly benefits from this, as well, as we mentioned before—having longer-term arrangements—so any topside slippage is certainly balanced with downside uplift. And that, of course, depends heavily upon the type of customer. The real win here is us working with customers, not only to benefit the type of eggs you're talking about, but also specialty eggs and prepared foods that we also value very highly.

Sherman Miller: The real win here is us working with customers not to only benefit the type of eggs you're talking about, but also specialty eggs and prepared foods that we also value very highly. On the cost side, there's certainly a lot going on geopolitically around the world. Grain certainly is one of the things that's come up in the news over the last few weeks, particularly tied to fertilizer. Our consultants have assured us that probably 90% of the inputs have already been locked, so fertilizer costs for this planting season shouldn't cause too much disruption. Certainly, fuel transporting not only grains, but everything else is certainly in the news and is real.

Speaker #5: On the cost side, there's certainly a lot going on geopolitically around the world. Grain certainly is one of the things that's come up in the news over the last few weeks, particularly tied to fertilizer, and our consultants assured us that probably 90% of the inputs have already been locked.

Speaker #5: So, fertilizer costs for this planting season shouldn't cause too much disruption, but certainly fuel—transporting not only grains, but everything else—is certainly in the news and is real.

Sherman Miller: The reassuring piece of that is that we've been here many, many times before, and we navigate that not only by using our scale, but also by using things like our warehousing and our inventory and managing through situations like this. Max, what would you add?

Speaker #5: But the reassuring piece of that is that we've been here many, many times before, and we navigate that not only by using our scale, but also by using things like our warehousing and our inventory, and managing through situations like this.

Speaker #5: Max, what would you add?

Max Bowman: Well, I mean, Pooran Sharma, when you talked about hybrid pricing, you're talking about primarily our conventional eggs. As you know, we only report one segment today, so we don't really give complete margin information and returns on conventional versus specialty. You know, all that hybrid pricing does is exactly what you called out and what we've said before. What we hope to get from that is a more stable and resilient and, you know, continuous profit. You know, I mean, I'm not saying it will always be a profit, but certainly we're taking some off the top for high returns from conventional and trading that for longer term, more stable earnings.

Speaker #1: Well, I mean, Brandon, when you talked about hybrid pricing, you're talking about primarily our conventional eggs. As you know, we only report one segment today.

Speaker #1: So, we don't really give complete margin information and returns on conventional versus specialty. But all that hybrid pricing does is exactly what you called out, and what we've said before.

Speaker #1: What we hope to get from that is a more stable and resilient, and continuous, profit. I mean, I'm not saying it will always be a profit, but certainly we're taking some off the top for high returns from conventional and trading that for longer-term, more stable earnings.

Max Bowman: As we grow, you know, that's a piece of the puzzle. Where we look for really, you know, good growth and even better returns would be from our specialty and our prepared foods business. You know, we kind of look at the conventional business as our baseline. It's important because of its size and scale, that it's strong and that it operates profitably and consistently, and that's what the hybrid pricing does. We continue to invest in the prepared foods and our specialty where we hope to get higher returns. We don't disclose, you know, individual, again, returns for conventional and specialty at this time.

Speaker #1: And then as we grow, that's a piece of the puzzle. And where we look for really good growth and even better returns would be from our specialty and our prepared foods business.

Speaker #1: So, we kind of look at the conventional business as our baseline. It's important because of its size and scale that it's strong, and that it operates profitably and consistently.

Speaker #1: And that's what the hybrid pricing does. And then we continue to invest in the prepared foods and our specialty, where we hope to get higher returns.

Speaker #1: We don't disclose individual, again, returns for conventional and specialty at this time, but we've said in the past that our return on invested capital is double-digit, well above our cost of capital.

Max Bowman: You know, we've said in the past that our Return on Invested Capital is, you know, double digit, well above our cost of capital. We feel good about the returns as we sit today, not only from conventional, but the opportunities in specialty and prepared foods.

Speaker #1: And so we feel good about the returns as we sit today, not only from conventional, but the opportunities in specialty and prepared foods.

Pooran Sharma: Great. I appreciate the detail there, Sherman and Max. Maybe just wanted to understand from a capital allocation front, you still have a pretty strong balance sheet and, you know, when in our recent conversations you had called out liquids as maybe an area of focus. So as you're looking kinda across the M&A landscape, does that remain an area that you wanna continue to build? Or are you kinda just more looking at it opportunistically in terms of what's out there in terms of conventional specialty or more prepared foods assets?

Speaker #6: Good. I appreciate the detail there, Sherman and Max. Maybe just wanted to understand from a capital allocation front—you still have a pretty strong balance sheet—and in our recent conversations, you had called out liquids as maybe an area of focus. So, as you're looking kind of across the M&A landscape, does that remain an area that you want to continue to build, or are you kind of just more looking at it opportunistically in terms of what's out there in terms of conventional, specialty, or more prepared foods assets?

Sherman Miller: I'll start by just commenting on Creighton Brothers. As we pointed out, there's liquid egg capacity there, and it's very close to our prepared foods operations that ultimately eggs, egg products will be produced in the southern two plants. Our capital allocation hierarchy still remains intact to pursue selective accretive M&A where returns are compelling. We believe that we have more ways to grow than ever before, being conventional eggs, specialty eggs, prepared foods, the ingredients that you mentioned, and also brands tied to pre-prepared foods. The ingredient piece we wanna over time, closely align our needs within Echo Lake. As we mentioned before, there's some arrangements that we're working through that we inherited.

Speaker #5: I'll start by just commenting on Creighton Brothers. As we pointed out, there is liquid egg capacity there, and it's very close to our prepared foods operations that ultimately egg products will be producing in the southern two plants.

Speaker #5: And our capital allocation hierarchy still remains intact to pursue selective, accretive M&A where returns are compelling. And we believe that we have more ways to grow than ever before, being conventional eggs, specialty eggs, prepared foods, the ingredients that you mentioned, and also brands tied to prepared foods.

Speaker #5: The ingredient piece, we want to over time closely align our needs within Echo Lake, and as we mentioned before, there are some arrangements that we're working through that we inherited, but we think that Creighton Brothers is certainly a very strategic move in making now that come to pass.

Sherman Miller: We think that Creighton Brothers is certainly a very strategic move in making all that come to pass, Max?

Max Bowman: Yeah, I guess I would just say in our materials that we published. We've got an investor deck. It's got a few slides on there, and it recaps our capital allocation for the last twelve months, ending at the end of our Q3. You know, I think there's a lot of balance there, and it kind of shows that in a lot of ways we're putting our money where our mouth is. I mean, it represents about $1 billion in capital that was allocated. About 38% or $384 million of that went to dividends to our shareholders. About $299 million or 30%, you know, went to the acquisitions, you know, things like Echo Lake, Crystal Lake, Creighton Brothers that we just announced.

Speaker #5: Max?

Speaker #1: Yeah. And I guess I would just say, in our materials that we've published, we've got an investor deck. It's got a few slides on there and it recaps our capital allocation for the last 12 months, ending at the end of our third quarter.

Speaker #1: And I think there's a lot of balance there, and it kind of shows that, in a lot of ways, we're putting our money where our mouth is.

Speaker #1: I mean, it represents about a billion dollars of capital that was allocated. About 38%, or $384 million, of that went to dividends to our shareholders.

Speaker #1: About $299 million, or 30%, went to acquisitions—things like Echo Lake, Clean Egg, Creighton Brothers that we just announced. And remember, we've been in a time when acquisitions are sometimes considered a little tougher because of the very good markets that we've been in, but yet we've been able to deploy capital towards these acquisitions that we believe really advance our goals for the long term.

Max Bowman: Remember, we're in a—we've been in a time when acquisitions are sometimes considered a little tougher because of the very good markets that we've been in. Yet, we've been able to deploy capital towards these acquisitions that we believe, you know, really advance our goals for long term. On the CapEx side, we allocate about $117 million or 17% of that, and that includes about $35 million or so of maintenance CapEx. Then our stock repurchases or share repurchases, about 15% over $150 million. You know, again, I think that gives a good view of where we're spending our money. As Sherman says, you know, what our focus is there is really long-term shareholder value.

Speaker #1: On the CapEx side, we allocate about $117 million, or 17% of that. That includes about $35 million or so of maintenance CapEx. And then our stock repurchases, our share repurchases, are about 15%, over $150 million.

Speaker #1: So again, I think that gives a good view of where we're spending our money, and as Sherman says, what our focus is there is really long-term shareholder value.

Max Bowman: We look at things opportunistically, and we wanna do the things that we think clearly enhance our earnings quality and portfolio growth and resiliency.

Speaker #1: We look at things opportunistically, and we want to do the things that we think clearly enhance our earnings quality, portfolio growth, and resiliency.

Pooran Sharma: Great. Thank you for the detail.

Speaker #6: Great. Thank you for the detail.

Operator: One moment for our next question. Our next question comes from Leah Jordan with Goldman Sachs. Your line is open.

Speaker #3: One moment for our next question. Our next question comes from Leah Jordan with Goldman Sachs. Your line is open.

Leah Jordan: Thank you. Good morning. I wanted to ask about demand. You talked about it being resilient in the quarter, but just seeing if you could provide more color on the trends you're seeing within your branded portfolio specifically. What are the growth opportunities you still see there, including any potential opportunity to gain more contracts or exclusivity over time?

Speaker #7: Thank you. Good morning. I wanted to ask about demand. So, you talked about it being resilient in the quarter, but just seeing if you could provide more color on the trends you're seeing within your branded portfolios specifically.

Speaker #7: And then, what are the growth opportunities you still see there, including any potential opportunity to gain more contracts or exclusivity over time?

Sherman Miller: Good morning, Leah. Thank you for that question, and I'll certainly get to the branded. Just on a higher level, retail egg volumes are up about 3% year to date, and that's through late February. The really incredible thing about that is it's broad across segments from conventional, cage-free, free-range, pasture-raised. Food services also showing early signs of recovery, with January making a clear inflection point up about 1% year over year with dollars up about 4%. We're seeing some good things from a high level. Eggs continue to be well positioned with the long-term consumer shift toward high protein diets, supported by their strong nutritional profile, and affordability is a huge plus for us right now as a tailwind.

Speaker #5: Good morning, Leah. Thank you for that question. And I'll certainly get to the branded, but just on a higher level, retail egg volumes are up about 3% year to date.

Speaker #5: And that's through late February. And the really incredible thing about that is it's brought across segments from conventional, cage-free, free-range, pasture-raised, and food services. Also, we see early signs of recovery, with January making a clear inflection point—up about 1% year over year, with dollars up about 4%.

Speaker #5: So we're seeing some good things from a high level. And eggs continue to be well positioned with a long-term consumer shift toward high-protein diets, supported by their strong nutritional profile, and affordability is a huge plus for us right now as a tailwind.

Sherman Miller: On our branded side, we do continue to grow that through many ways. One is establishing production to support it. As Max has mentioned, these cage-free projects that are coming online here now and in the next few months tee us up to be able to continue to grow that. We have seen growth, of course, in this quarter and are planning future growth as well.

Speaker #5: And on our branded side, we do continue to grow that through many ways. One is establishing production to support it, and as Max has mentioned, these cage-free projects that are coming online here now and in the next few months tee us up to be able to continue to grow that.

Speaker #5: We have seen growth, of course, in this quarter and are planning future growth as well. Max, what would you add?

Sherman Miller: Max, what would you add?

Max Bowman: Yeah, I think you pretty well covered it, but I mean, I would say that our, you know, our specialty, not just branded, but specialty, it was up 6% for the quarter. That's higher than the overall market for specialty. As Sherman says, it's kind of broad-based across cage-free, free-range, pasture-raised. You know, importantly for us from a volume perspective, it was a record specialty quarter, which, you know, I think is something to take note of, particularly when you consider the fact that lower conventional prices sometimes tend to temper down specialty growth because the consumer goes for the cheaper egg, yet we were still able to get some growth.

Speaker #1: Yeah, I think you pretty well covered it, but I mean, I would say that our specialty—not just branded, but specialty—was up 6% for the quarter.

Speaker #1: That's higher than the overall market for specialty. And as Sherman says, it's kind of broad-based across cage-free, free-range, pasture-raised. And, importantly for us, from a volume perspective, it was a record specialty quarter, which I think is something to take note of—particularly when you consider the fact that lower conventional prices sometimes tend to tamp down specialty growth because the consumer goes for the cheaper egg.

Speaker #1: Yet we were still able to get some growth. I didn't mention our nutrient enhancer—our branded relationship with EB—but that's something we continue to work to grow, and we think there's opportunity for some more regional growth there.

Max Bowman: You know, I didn't mention our NutriEnhanced or our branded relationship with EB, but that's something we continue to work to grow and think there's opportunity for some more regional growth there, into Q4 and beyond a bit. As Sherman says, those projects that we've called out, the 1.1 million of cage-free that we were adding at, I think, five locations, all those are a couple were done. The rest, all save one, will finish up late in this quarter, Q4, and the other one will finish in August of this year, but after this fiscal year.

Speaker #1: End of the fourth quarter and beyond a bit. So, and then as Sherman says, those projects that we've called out—the $1.1 million of cage-free that we were adding at, I think, five locations—all those, a couple were done, the rest, all save one, will finish up late in this quarter, this fourth quarter.

Speaker #1: And that other one will finish in the fourth quarter—excuse me, in August of next year, of this year, but after this fiscal year.

Max Bowman: You know, we could still see growth in our specialty business ahead and think there's great opportunity there.

Speaker #1: So, we can still see growth in our specialty business ahead, and I think there's great opportunity there.

Leah Jordan: Thank you. That's very helpful detail. Just for a follow-up, wanted to switch over to feed. I know, Sherman, you touched on it a little bit in an earlier question, but just given the shift in grain markets in recent weeks, just seeing if you could provide more color on how you're thinking about your feed costs over the coming quarters and as you start to plan into FY 2027, and any mitigation you have there should we see costs continue to rise.

Speaker #7: Thank you. That's very helpful detail. Just as a follow-up, I wanted to switch over to feed. I know, Sherman, you touched on it a little bit in an earlier question, but just given the shift in grain markets in recent weeks, I was just seeing if you could provide more color on how you're thinking about your feed costs over the coming quarters.

Speaker #7: And as you start to plan into FY27, and any mitigation you have there, should we see costs continue to rise?

Sherman Miller: Yes. We continue to measure and mitigate risk, and that includes utilizing our grain warehousing basis locks or hedging strategies that are applicable. Certainly, these grain-based agreements help offset the effect of grain price change. Yesterday, the planting intentions report came out, viewed by some as fairly neutral. If you look at what they were predicting planting last year at this time, it's very close in reality of what actually got planted. Corn is down about 3.5 million acres, and beans are up about 3.5. We really focus on the carryout. 14% stocks-to-use is bearish, and certainly the geopolitical effect can change things in a hurry from the Middle East and a lot of fertilizer costs and fuel costs conversation happening.

Speaker #5: Yeah. So, we continue to measure and mitigate risk, and that includes utilizing our grain warehousing basis locks, hedging strategies if applicable, and certainly these grain-based agreements help offset the effect of grain price change.

Speaker #5: And yesterday, the planning intentions report came out. And, viewed by some, it's fairly neutral. If you look at what they were predicting for planning last year at this time, it's very close.

Speaker #5: And the reality of what actually got planted—corn is down about 3.5 million acres, and beans are up about 3.5 million. But we really focus on the carryout; 14% stocks-to-use is bearish.

Speaker #5: And certainly, the geopolitical effect can change things in a hurry—from the Middle East, and a lot of fertilizer costs and fuel costs conversation happening.

Sherman Miller: At the end of the day, we've been through this many times, and we continue to utilize all of our tools to mitigate any risk that we have the best that we can. We'll continue to do that. Max, anything to add there?

Speaker #5: But at the end of the day, we've been through this many times, and we continue to utilize all of our tools to mitigate any risk that we have.

Speaker #5: The best that we can. And we'll continue to do that. Max, anything to add there?

Max Bowman: I think you covered it, Sean.

Speaker #1: I think you covered it, Sherman.

Leah Jordan: Great. Thank you.

Speaker #7: Great. Thank you.

Operator: One moment before our next question. Our next question comes from Benjamin Mayhew with BMO Capital Markets. Your line is open.

Speaker #3: One moment for our next question. Our next question comes from Benjamin Mayhew with BMO Capital Markets. Your line is open.

Benjamin Mayhew: Hi, good morning, guys. Thanks for the questions. My first is, if you could just help us better frame up the current supply environment and particularly the specialty egg category. Competition seems to have picked up there quite a bit year to date with more promotional activity seen. What is your view on the sustainability of the supply growth rates we are seeing?

Speaker #8: Hi, good morning, guys. Thanks for the questions. So, my first is if you could just help us better frame up the current supply environment, particularly in the specialty egg category.

Speaker #8: Competition seems to have picked up there quite a bit year to date, with more promotional activity seen. So, what is your view on the sustainability of the supply growth rates we are seeing?

Sherman Miller: Ben, good morning. Thank you for that question. As we mentioned a few minutes ago, specialty eggs, we continue to grow that and the first step of it is having supply. As some of these projects come online, it certainly indicates that we're gonna be prepared for that type of growth. The last few years have certainly been very light on promotions, just simply, there was a shortage of eggs and promotions were not needed. Going forward, we promoted all except for the last few years, so we'll continue to fall back into that routine and see good results coming from it. Max, anything to add on that question?

Speaker #5: Ben, good morning. Thank you for that question. And as we mentioned a few minutes ago, especially eggs, we continue to grow that and the first step of it is having supply.

Speaker #5: So, as some of these projects come online, it certainly indicates that we're going to be prepared for that type of growth. And the last few years have certainly been very light on promotions—just simply, there was a shortage of eggs and promotions.

Speaker #5: We're not needed going forward. We promoted all except for the last few years, so we'll continue to fall back into that routine and see good results coming from it.

Speaker #5: Max, anything to add on that question?

Max Bowman: I think that pretty much covers it.

Speaker #1: I think that pretty much covers it.

Benjamin Mayhew: Okay. Just thinking about your organic growth investments, your thought process around that. How do you view the trade-offs or any trade-offs between investing in productivity enhancements up and down your value chain, versus adding more capacity at this point? Given like the current market environment, how are you know, thinking about deploying, you know, your capital there?

Speaker #8: Okay. And just thinking about your organic growth investments, just your thought process around that, how do you view the trade-offs—or any trade-offs—between investing in productivity enhancements up and down your value chain versus adding more capacity at this point?

Speaker #8: Given the current market environment, how are you thinking about deploying your capital there?

Sherman Miller: You know, back to capital allocation, capital is allocated to the opportunities that most clearly enhance our earnings quality, portfolio resilience, and long-term shareholder value. As I mentioned, there's more ways than ever for us to consider that, Ben. We kinda consider it in five buckets. Conventional eggs, we continue to grow. Creighton Brothers, that acquisition had additional conventional eggs that fit very nicely, especially in the liquid piece. Specialty eggs, those organic projects have been going on as well as we've had M&A through Creighton, also picked up about 500,000 cage-free hens there. Of course, also prepared foods. We have about $36 million worth of expansion projects going on there, as well as continue to look for M&A and opportunities.

Speaker #5: So, back to capital allocation—capital is allocated to the opportunities that most clearly enhance our earnings quality, portfolio resilience, and long-term shareholder value. And as I mentioned, there's more ways than ever for us to consider that, man.

Speaker #5: We kind of consider it in five buckets: conventional eggs—we continue to grow. Creighton Brothers, that acquisition had additional conventional eggs that fit very nicely, especially in the liquid piece.

Speaker #5: Specialty eggs—those organic projects have been going on, as well as we've had M&A through Creighton. Also picked up about 500,000 cage-free hens there.

Speaker #5: And then, of course, also prepared foods. We have about $30 million to $36 million worth of expansion projects going on there, as well as continuing to look for M&A and other opportunities.

Sherman Miller: Lastly, ingredients. Just a big opportunity for us to make sure that our production is aligned. We don't just focus on specialty eggs, but we certainly know that we've got to have the supply needed to be able to grow those. I believe we're sitting in the right position to do that. Max.

Speaker #5: And then, lastly, ingredients. Just a big opportunity for us to make sure that our production is aligned, so we don't just focus on specialty eggs.

Speaker #5: But we certainly know that we've got to have the supply needed to be able to grow those. And I believe we're sitting in the right position to do that.

Speaker #8: Max?

Max Bowman: You know, I think you covered it. You know, the only thing I'll say about the productivity, I mean, just our culture, with our, you know, roughly 50 operating locations, you know, we're always ranking those one against the other, trying to learn what one is doing that's really good. Or if there's one that's underperforming, how we can get that underperforming to duplicate the results of those at the top third of our business.

Speaker #1: I think you covered it. The only thing I'll say about the productivity—I mean, just our culture with our roughly 50 operating locations—we're always ranking those one against the other, trying to learn what one is doing that's really good.

Speaker #1: Or if there's one that's underperforming, how we can get that underperforming one to duplicate the results of those in the top third of our business.

Max Bowman: It is a constant analysis of productivity, and looking for ways to, you know, bring our whole enterprise up as we identify things, you know, across it. I do think that scale and that opportunity to look at good at 50 locations gives you, if you can really mine that and then take it to the other locations, a lot of opportunity for continuous improvement. That's always part of our focus.

Speaker #1: So it is a constant analysis of productivity, and looking for ways to bring our whole enterprise up as we identify things across it. And I do think that that scale and that opportunity to look at good at 50 locations gives you if you can really mine that and then take it to the other locations, gives you a lot of opportunity for continuous improvement.

Speaker #1: And that's always part of our focus.

Benjamin Mayhew: Great. Thank you, guys. Have a great rest of your day.

Speaker #8: Great. Thank you, guys. Have a great rest of your day.

Sherman Miller: Thank you.

Operator: One moment for our next question. Our next question comes from Ben Klieve with Benchmark. Your line is open.

Speaker #5: Thank you.

Speaker #3: One moment for our next question. Our next question comes from Ben Cleve with Benchmark StoneX. Your line is open.

Ben Klieve: All right. Thank you for taking my questions, and congratulations on a nice quarter here. My first question is a follow-up to the conversation around the hybrid pricing model and the conventional egg. I'm wondering if you can elaborate a bit on the kind of behavior of your retail partners here as commodity egg prices have come down, you know, with intra-quarter sub a dollar at various points throughout the quarter. Have those retailers that maybe were, you know, moving to contract-based pricing over the past, you know, year or two, are they reconsidering that move here in the face of low commodity egg prices? Or has kind of the willingness for the move to, you know, from market-based to contract-based remained pretty consistent?

Speaker #8: All right. Thanks for taking my questions, and congratulations on a nice quarter here. My first question is a follow-up to the conversation around the hybrid pricing model and the conventional egg.

Speaker #8: I'm wondering if you can elaborate a bit on the kind of behavior of your retail partners here as commodity egg prices have come down with interquarter sub a dollar.

Speaker #8: At various points throughout the quarter, have those retailers that maybe were moving to contract-based pricing over the past year or two—are they reconsidering that move here in the face of low commodity egg prices?

Speaker #8: Or has kind of the willingness for the move from market-based to contract-based remained pretty consistent?

Sherman Miller: Good morning, Ben. Thank you for that question. Boy, this quarter was certainly a test for whatever strategy a retailer had with the market range up to $2.69 all the way down to $0.85 within the same quarter, and that's in the Southeast market. Definitely the strategies got tested. As we've mentioned, there's protection for our customers on the upside, and then the downside, there's protection for us. Depending on their go-to-market strategy, whether it's a high-low or an everyday low price, different arrangements are favorable to one retailer versus the next. I would say overall, the strategies performed exactly like they were designed to. You're seeing some of that benefit in our market realization in this quarter. Max?

Speaker #5: Good morning. Ben, thank you for that question. And boy, this quarter was certainly a test for whatever strategy a retailer had, with a market range up to $2.69 all the way down to $0.85 within the same quarter.

Speaker #5: And that's in the Southeast market. So, definitely the strategies got tested. And as we've mentioned, there's protection for our customers on the upside. And then, on the downside, there's protection for us.

Speaker #5: And depending on their go-to-market strategy—whether it's a high, low, or an everyday low price—different arrangements favor one retailer versus the next. But I would say, overall, the strategies performed exactly like they were designed to.

Speaker #5: And you're seeing some of that benefit in our market realization in this quarter.

Max Bowman: I think you covered it.

Speaker #8: Max?

Speaker #1: I think you covered it.

Ben Klieve: All right. Very good. I appreciate that. My follow-up question is pivoting over to the prepared side. Can you educate us a bit on the state of this market, you know, doubling down after Echo Lake with another acquisition here a few weeks ago? I'm wondering if you can educate us on kind of the size of this addressable market and the degree of fragmentation within it. I'm just kinda curious if you guys are maybe looking to continue this acquisition pace or if you've reached a reasonable level of market share within this space.

Speaker #8: All right. Very good. And I appreciate that. My follow-up question is pivoting over to the prepared side. Can you educate us a bit on the state of this market, doubling down after Echo Lake with another acquisition here a few weeks ago?

Speaker #8: I'm wondering if you can educate us on kind of the size of this addressable market and the degree of fragmentation within it, and just kind of curious if you guys are maybe looking to continue this acquisition pace or if you've reached a reasonable level of market share within this space.

Sherman Miller: Ben, we certainly have not topped out here. Crystal Lake that came with Creighton Brothers is certainly in our announcement, but it was more or less a distribution of Echo Lake products. I wouldn't really say it's doubling down at this point, but we do continue to grow that both organically and through M&A as opportunities present themselves, and we'll be very strategic and make sure that we stay egg-centric while we do that in the breakfast channel. Won't get too far outside of our core competencies. Max?

Speaker #5: Ben, we certainly have not topped out here. And Crystal Lake—that came with Creighton Brothers—is certainly in our announcement. But it was more or less a distribution of Echo Lake products.

Speaker #5: So, I wouldn’t really say it’s doubling down at this point. But we do continue to grow that, both organically and through M&A, as opportunities present themselves.

Speaker #5: And we'll be very strategic and make sure that we stay egg-centric while we do that in the breakfast channel, and won't get too far outside of our core competencies.

Ben Klieve: Got it.

Sherman Miller: Matt.

Speaker #5: Max?

Speaker #8: Got it. Very good. All right. Well, I appreciate you guys taking my questions. Congratulations again on a nice quarter. And I'll get back in queue.

Ben Klieve: Very good. All right. Well, I appreciate you guys taking my questions. Congratulations again on a nice quarter, and I'll get back in queue.

Sherman Miller: Thank you.

Speaker #5: Thank you.

Operator: I'm not showing any further questions at this time. I'd like to turn the call back over to Sherman.

Speaker #3: And I'm not showing any further questions at this time. I'd like to turn the call back over to Sherman.

Sherman Miller: Well, thanks everybody. It was an exciting quarter for us, and we're very grateful for everybody's attendance today and your continued interest in Cal-Maine Foods. Operator, we're ready to conclude this call.

Speaker #5: Well, thanks, everybody. It was an exciting quarter for us, and we're very grateful for everybody's attendance today and your continued interest in Cal-Maine Foods. And operator.

Speaker #5: We're ready to conclude the call.

Operator: This concludes the question and answer session. A replay of today's call will be available via webcast in approximately two hours after this call. The webcast will be available on demand for a year. It can be accessed by going to the company's website investor relations section. In addition, a transcript of today's call will also be posted on Cal-Maine's website investor relations section. Thank you for joining us today. You may now disconnect.

Speaker #3: This concludes the question and answer session. The replay of today's call will be available via webcast in approximately two hours after this call. The webcast will be available on demand for you.

Speaker #3: It can be accessed by going to the company's website, investor relations section. In addition, a transcript of today's call will also be posted on Cal-Maine's website, investor relations section.

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