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Risk Factors - CALM

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Item 1A. Risk
Factors and elsewhere
in this report
as
well as
those included
in other
reports we
file from
time to
time with
the Securities
and Exchange
Commission (the
“SEC”)
(including our Quarterly Reports
on Form 10-Q and Current
Reports on Form 8-K),
(ii) the risks and hazards
inherent in the shell
egg
business
(including
disease,
pests,
weather
conditions,
and
potential
for
product
recall),
including
but
not
limited
to
the
current outbreak of HPAI
affecting poultry in the U.S.,
Canada and other countries that was
first detected in commercial flocks
in the U.S. in
November 2023 and that first
impacted our flocks in December
2023, (iii) changes in
the demand for and market
prices of shell eggs
and feed costs, (iv)
our ability to predict
and meet demand for
cage-free and other specialty
eggs, (v) risks,
changes, or obligations that could
result from our recent or
future acquisition of new flocks
or businesses, such as our
acquisition
of Echo Lake Foods completed
June 2, 2025, and risks
or changes that may cause
conditions to completing a pending
acquisition
not to
be met,
(vi) our
ability to
successfully integrate
and manage
the business
of Echo
Lake Foods
and realize
the expected
benefits of the
acquisition, including synergies, cost
savings, reduction in earnings
volatility, margin expansion, financial returns,
expanded
customer
relationships, or
sales or
growth
opportunities, (vii)
our
ability
to retain
existing customers,
acquire new
customers
and
grow
our
product
mix
including
our
prepared
foods
product
offerings,
(viii)
the
impacts
and
potential
future
impacts of
government, customer
and consumer
reactions to
recent high
market prices
for eggs,
(ix) potential
impacts to
our
business as a result of our Company ceasing to be a “controlled company” under the rules of The Nasdaq Stock
Market on April
14, 2025,
(x) risks
relating to
potential changes
in inflation,
interest rates
and trade
and tariff
policies, (xi)
adverse results
in
pending litigation
and other
legal matters,
(xii) global
instability, including as
a result
of the
war in
Ukraine, the
conflicts involving
Israel and
Iran, and
attacks on
shipping in
the Red
Sea. The
actual timing,
number and
value of
shares repurchased
under our
share repurchase program will be determined by management in its discretion and will depend on a number
of factors, including
but not
limited to,
the market
price of
our Common
Stock and
general market
and economic conditions.
The share
repurchase
program may be suspended, modified or discontinued at any time without prior notice. Readers are
cautioned not to place undue
reliance on forward-looking statements because, while we believe the assumptions on which the forward-looking statements are
based are reasonable,
there can be
no assurance that
these forward-looking statements
will prove to
be accurate. Further, forward-
looking statements included herein are made only as of
the respective dates thereof, or if no date is
stated, as of the date hereof.
Except as otherwise required
by law,
we disclaim any intent
or obligation to update
publicly these forward-looking statements,
whether because of new information, future events, or otherwise.
ITEM 1.
BUSINESS
Our Business
We are the largest producer and distributor of shell eggs in the United States. Our mission is to be the most sustainable producer
and
reliable
supplier
of
consistent,
high
quality
fresh
shell
eggs,
egg
products
and
prepared
foods
in
the
United
States.
Our
operating approach is built around operational
excellence, a "Culture of Sustainability" and
creating value for our stockholders,
customers, team
members and
communities. We
sell most
of our
products throughout
much of
the United
States (“U.S.”)
and
aim
to
maintain
efficient,
state-of-the-art
operations
located
close
to
our
customers.
We
were
founded
in
1957
and
are
headquartered in Ridgeland,
Mississippi.
The Company has
one operating and
one reporting segment,
which is the
production, packaging, marketing
and distribution of
shell eggs, egg
products and prepared
foods. Our integrated
operations consist
of hatching chicks,
growing and
maintaining flocks
5
of pullets, layers and breeders,
manufacturing feed, and producing,
processing, packaging, and distributing
shell eggs. Layers are
mature female chickens,
pullets are female
chickens usually less
than 18 weeks
of age, and
breeders are male
and female chickens
used to
produce fertile
eggs to
be hatched
for egg
production flocks.
Our total
flock as
of May
31, 2025
consisted of
approximately
48.3 million layers and 11.5 million pullets and breeders.
Many of our customers rely on us to provide most of their
shell egg needs, including specialty and conventional eggs. Specialty
eggs encompass
a broad
range of
products. We
classify cage-free,
organic, brown,
free-range, pasture-raised
and nutritionally
enhanced eggs as specialty
eggs for accounting and
reporting purposes. We classify all other shell
eggs as conventional products.
While we report separate sales information for these egg types, there are many cost factors that are not specifically available for
conventional or
specialty eggs
due to
the nature
of egg
production. We
manage our
operations and
allocate resources
to these
types of eggs on a consolidated basis based on the demands of our customers.
We believe that one
of our important
competitive advantages
is our ability
to meet our
customers’ evolving
needs with a
favorable
product mix of conventional
and specialty eggs, including
cage-free, organic, brown, free-range,
pasture-raised and nutritionally-
enhanced eggs, as well as
egg products and prepared foods.
While a small part of
our current business, demand for
the free-range
and pasture-raised eggs we produce and sell continues to grow. They represent attractive offerings to a subset of consumers, and
therefore our
customers, and
help us
continue to
serve as
the trusted
provider of
quality food
choices. We
have expanded
our
prepared foods
product offerings,
including with
our strategic
investment in
Crepini Foods,
LLC in
September 2024,
and our
acquisition of Echo Lake Foods, LLC (formerly Echo Lake Foods, Inc.) and certain related companies (collectively “Echo Lake
Foods”) subsequent to the end of our 2025 fiscal year.
Throughout
the
Company’s
history,
we
have
acquired
other
businesses
in
our
industry.
Since
1989,
we
have
acquired
and
integrated 25 businesses. Subsequent to the end of our 2025 fiscal year,
we acquired our 26
th
business when we purchased Echo
Lake
Foods.
For
information
on
our
recent
acquisitions,
refer
to
and Part
II. Item
8. Notes
to Consolidated
Financial Statements,
When
we
use
“we,”
“us,”
“our,”
or
the
“Company”
in
this
report,
we
mean
Cal-Maine
Foods,
Inc.
and
our
consolidated
subsidiaries, unless
otherwise indicated
or the
context otherwise
requires. The
Company’s
fiscal year-end
is
on
the Saturday
closest to May 31. Our
fiscal year 2025 ended May
31, 2025, and the
first three fiscal quarters of
fiscal 2025 ended August 31,
2024, November 30, 2024, and March 1, 2025. All references herein to a fiscal year means our fiscal year and all references to a
year mean a calendar year.
Industry Background
According to the
U.S. Department of
Agriculture (“USDA”) Agricultural
Marketing Service, in
2024 approximately 71%
of table
eggs produced in the U.S. were sold as shell eggs, with 57% sold through food-at-home outlets such
as grocery and convenience
stores, 12%
sold to
food-away-from home
channels such
as restaurants
and 2%
exported. The
USDA estimated
that in
2024
approximately 29% of eggs produced in
the U.S. were sold as egg
products (shell eggs broken and sold
in liquid, frozen, or dried
form) to institutions
(e.g. companies
producing baked
goods). For
information about
egg producers
in the
U.S., see
“Competition”
below.
Our industry has been greatly impacted by several outbreaks of highly pathogenic avian influenza (“HPAI”) in recent years. For
additional information regarding HPAI and its impact on our industry and business, see
and
Given historical
consumption trends,
we believe
that general
demand for
eggs in
the U.S.
increases basically
in line
with the
overall
U.S.
population
growth;
however,
specific
events
can
impact
egg
supply
and
consumption
in
a
particular
period,
as
occurred with the
2015 HPAI outbreak, the COVID-19
pandemic (particularly during
2020), and the
most recent HPAI outbreaks
starting
in
early
2022.
For
fiscal
2025,
shell
egg
household
penetration
is
approximately
97%.
According
to
the
USDA’s
Economic Research
Service, estimated
annual per
capita consumption
in the
United States
between 2020
and 2024
varied, ranging
from 271 to 288 eggs which is directly impacted by available supply.
The USDA calculates per capita consumption by dividing
total shell egg disappearance in the U.S. by the U.S. population.
The most significant
shift in demand in
recent years has been
among specialty eggs, particularly
cage-free eggs. For additional
information, see “Specialty Eggs” below.
calm2025053110Kp6i0
6
Prices for Shell Eggs
Wholesale shell egg
sales prices are
a critical component
of revenue for
the Company.
Wholesale shell egg
prices are volatile,
cyclical, and impacted by
a number of factors, including
consumer demand, seasonal fluctuations, the
number and productivity
of laying
hens in
the U.S.
and outbreaks
of agricultural
diseases such
as HPAI.
We
believe the
majority of
conventional shell
eggs sold in
the U.S.
in the retail
and foodservice
channels are sold
at prices
that take into
account, in
varying ways, independently
quoted and certified wholesale market prices,
such as those published by Urner
Barry Publications, Inc. (“UB”) or the
USDA for
shell eggs; however, grain-based or variations of cost plus arrangements are also commonly utilized.
Wholesale prices for cage-free
eggs are quoted by
independent sources such as
UB and USDA. There
is no independently quoted
wholesale
market
price
for
other
specialty
eggs
such
as
nutritionally
enhanced,
organic,
pasture-raise
and
free-range
eggs.
Specialty eggs are typically sold at prices and terms negotiated directly with customers and in the case of cage-free eggs, can be
sold at
prices that
take into
account independently
quoted markets.
Historically,
prices for
specialty eggs
have generally
been
higher due to customer and consumer willingness to pay more for specialty eggs.
The weekly average price
for the southeast region
for large white
conventional shell eggs as
quoted by UB is
shown below for
the past three fiscal years along
with the five-year average price. The
actual prices that we realize on
any given transaction will
not necessarily equal
quoted market prices
because of the
individualized terms that
we negotiate with
individual customers which
are influenced
by many
factors. As
further discussed
in
, egg prices in fiscal 2023 through fiscal 2025 were significantly impacted by HPAI.
Our pricing for
shell eggs is
negotiated with our
customers on individual
terms. We sell our shell
eggs at prices
based on formulas
that take into account,
in varying ways, independently
quoted regional wholesale market
prices for shell eggs,
formulas related
to
our
costs of
production,
such
as
grain-based
and variations
of
cost-plus arrangements,
or
hybrid models
including cost
of
production and wholesale market prices.
The majority of our conventional eggs are priced and sold under frameworks
that generally utilize market-based formulas tied to
independently quoted regional wholesale market
quotes.
The majority of our
specialty eggs are sold
under frameworks that do
not utilize market-based formulas, although we do have some customers that prefer market-based pricing for cage-free eggs. As
a result, specialty
egg prices typically
do not fluctuate
as much as
conventional pricing. We do not
sell eggs directly
to consumers
or set the prices at which eggs are sold to consumers.
calm2025053110Kp7i0
7
Depending on market conditions, input costs and individualized contract terms,
the price we receive per dozen eggs in any
given
transaction may be more than or less than our production cost per dozen.
Feed Costs for Shell Egg Production
Feed is a primary
cost component in the
production of shell eggs
and represented 53.4%
of our fiscal 2025
farm production costs.
We routinely fill our
feed storage bins
during harvest season
when prices for
feed ingredients, primarily
corn and to
a lesser extent
soybean meal, are
generally lower.
To
ensure continued availability
of feed ingredients,
we may enter
into contracts for
future
purchases of
corn and
soybean meal,
and as
part of
these contracts,
we may
lock-in the
basis portion
of our
grain purchases
several months
in advance.
Basis is
the difference
between the
local cash
price for
grain and
the applicable
futures price.
The
difference can
be due
to transportation
costs, storage
costs, supply
and demand,
local conditions
and other
factors. A
basis contract
is a common
transaction in the grain
market that allows us
to lock-in a
basis level for a
specific delivery period and
wait to set
the futures price at a later date. Furthermore, due to the
more limited supply for organic ingredients,
we may commit to purchase
organic
ingredients
in
advance
to
help
assure
supply.
Ordinarily,
we
do
not
enter
into
long-term
contracts
beyond
a
year
to
purchase corn
and soybean
meal or
hedge against
increases in
the prices
of corn
and soybean
meal. As
the quality
and composition
of feed
is a
critical factor
in the
nutritional value
of shell
eggs and
health of
our chickens,
we formulate
and produce
the vast
majority of our own feed at our feed mills located near our production plants. Our annual feed requirements for fiscal
2025 were
2.1 million tons
of finished
feed, of
which we
manufactured 1.9 million
tons. We currently
have the
capacity to
store 215
thousand
tons of corn and soybean meal, and we replenish these stores as needed throughout the year.
Our primary feed ingredients, corn and soybean meal, are commodities that are subject to volatile price changes due to weather,
various supply
and demand
factors, transportation
and storage
costs, speculators,
agricultural, energy
and trade
policies in
the
U.S. and internationally, and global instability that could disrupt
the supply chain. We purchase the vast majority of
our corn and
soybean meal from U.S sources but may be forced to purchase internationally when U.S. supplies are not readily
available. Feed
grains are currently available
from an adequate number
of sources in the
U.S. As a point
of reference, a multi-year
comparison
of the average of
daily closing prices per
Chicago Board of Trade for
each quarter in our
fiscal years 2021-2025 are
shown below
for corn and soybean meal:
8
Shell Egg Production
Our percentage of dozens produced to sold was 88.6% of our total shell eggs sold in fiscal 2025. We supplement our production
through purchases of eggs from
others when needed. The quantity
of eggs purchased will vary
based on many factors such
as our
own production capabilities and current market conditions. In fiscal 2025, 90.8% of our production came
from Company-owned
facilities, and
9.2% from
contract producers.
The majority
of our
contract production
is with
family-owned farms
for organic,
pasture-raised and free-range eggs. Under a typical arrangement with a contract producer, we own the flock, furnish all feed and
critical supplies, own
the shell eggs
produced and assume market
risks. The contract
producers own and
operate their facilities
and are paid a fee based on production with incentives for performance.
The commercial production of shell eggs requires a source of baby
chicks for laying flock replacement. We
supply the majority
of our
chicks from
our breeder
farms
and hatch
them in
our hatcheries
in a
computer-controlled environment
and obtain
the
balance from commercial sources. The
chicks are grown in our
own pullet farms and
are placed into the laying
flock once they
reach maturity.
After eggs
are produced,
they are
cleaned, graded
and packaged.
Substantially all
our farms
have modern
“in-line” facilities
which
mechanically
gather,
clean,
grade
and
package
the
eggs
at
the
location
where
they
are
laid.
The
in-line
facilities
generate
significant efficiencies
and cost savings
compared to the
cost of
eggs produced from
non-in-line facilities, which
process eggs
that
have
been
laid
at
another
location
and
transported
to the
processing facility.
The
in-line facilities
also
produce a
higher
percentage of USDA Grade A
eggs, which sell at higher
prices. Eggs produced on farms
owned by contractors are brought
to our
processing plants to
be graded and
packaged. We maintain a Safe
Quality Food (“SQF”)
Management Program which
is overseen
by our Food Safety Department and
senior management team. As of May
31, 2025, every Company-owned processing
plant was
SQF certified. Because shell
eggs are perishable, we
do not maintain large egg
inventories. Our egg inventory
averaged five days
of sales during
fiscal 2025. We
believe our constant
focus on production
efficiencies and automation
throughout our vertically
integrated operations enable us to be a low-cost supplier in our markets.
We
are
proud
to
have
created,
implemented
and
maintained
what
we
believe
is
a
leading
poultry
Animal
Welfare
Program
(“AWP”).
We
have aligned our
AWP
with regulatory,
veterinary and our
third-party certifying bodies’
guidance to govern
the
welfare of animals in
our direct care and
our contract farmers’ care.
We
continually review our program to
monitor and evolve
standards that guide how
we hatch chicks, rear pullets
and nurture breeder and layer
hens. At each stage of
our animals’ lives, we
are dedicated to providing welfare conditions aligned to our commitment to the principles of the internationally recognized
Five
Freedoms of Animal Welfare
.
We
do not
use artificial
hormones in
the production
of our
eggs. Hormone
use in
the poultry
and egg
production industry
has
been
effectively
banned in
the U.S.
since the
1950s. We
have an
extensive written
protocol that
allows the
use of
medically
important
antibiotics
only
when
animal
health
is
at
risk,
consistent
with
guidance
from
the
United
States
Food
and
Drug
Administration
(“FDA”)
and
the
Guidance
for
Judicious
Therapeutic
Use
of
Antimicrobials
in
Poultry,
developed
by
the
American Association of
Avian Pathologists. When antibiotics are
medically necessary, a licensed veterinary
doctor will approve
and
administer
approved
doses
for
a
restricted
period.
We
do
not
use
antibiotics
for
growth
promotion
or
performance
enhancement.
Specialty Eggs
We
are
one
of
the
largest
producers
and
marketers
of
value-added
specialty
shell
eggs
in
the
U.S.,
which
continues
to
be
a
significant and
growing segment
of the market.
We classify cage-free, organic,
brown, free-range,
pasture-raised and
nutritionally
enhanced as specialty eggs
for accounting and reporting
purposes. Specialty eggs are
intended to meet
the demands of consumers
sensitive to environmental, health and/or animal welfare issues and to comply with state requirements for cage-free
eggs.
Ten
states
in
the
U.S.
have
passed
legislation
or
regulations
mandating
minimum
space
or
cage-free
requirements
for
egg
production or
mandated the
sale of
only cage-free
eggs and
egg products
in their states,
with implementation
of these laws
ranging
from January 2022 to January
2030. These states represent approximately
27% of the U.S. total
population according to the 2020
U.S. Census.
California, Massachusetts,
Colorado, Michigan,
Oregon, Washington,
and Nevada,
which collectively
represent
approximately 23% of the total estimated
U.S. population, have cage-free legislation in
effect.
Due to the national egg
shortage
caused by HPAI, Nevada temporarily suspended its cage-free egg mandate and other states are considering similar actions.
A significant
number of
our customers
previously announced
goals to
either exclusively
offer
cage-free eggs
or significantly
increase the volume
of cage-free egg
sales in the
future, subject in
most cases to
availability of supply, affordability
and consumer
demand, among other
contingencies. Our
customers typically
do not commit
to long-term purchases
of specific
quantities or types
of eggs with us, and as a result,
it is difficult to accurately predict customer requirements for
cage-free eggs. We
are focused on
9
adjusting our cage-free
production capacity with
a goal of
meeting the future
needs of our
customers in light
of changing state
requirements
and
our
customer’s
goals.
As
always,
we
strive
to
offer
a
product
mix
that
aligns
with
current
and
anticipated
customer purchase decisions. We are engaging with our customers to help them meet their announced goals and needs. We have
invested
significant
capital
in
recent
years
to
acquire
and
construct
cage-free
facilities,
and
we
expect
our
focus
for
future
expansion will continue to include cage-free facilities. Our volume of cage-free egg
sales has continued to increase and account
for a larger share of our product mix. Cage-free egg revenue represented approximately
22.5% of our total net shell egg sales for
fiscal year
2025. At
the same
time, we
understand the
importance of
our continued
ability to
provide affordable
conventional
eggs in order to provide our customers with a variety of egg choices and to address hunger in our communities.
Branded Eggs
We are a member of the Eggland’s Best, Inc. cooperative (“EB”) and produce, market, distribute and sell
Egg-Land’s
Best®
and
Land O’
Lakes®
branded eggs under
license from EB
at our facilities
under EB guidelines.
EB hens
are fed a
proprietary diet
and offerings
include nutritionally
enhanced, cage-free,
organic, pasture-raised
and free-range
eggs.
Land O’
Lakes®
branded
eggs are produced by hens that are fed a whole-grain vegetarian diet and include brown, organic and cage-free eggs.
In 2024, EB
was the third
best-selling dairy brand
in the U.S.
The top three
best-selling branded specialty
egg SKUs in
2024 were
EB branded eggs
and seven out
of 10 best-selling
SKUs were EB
branded eggs. In
2024, our sales
(including sales from
affiliates)
represented approximately 50% of EB branded eggs and 46% of
Land O’ Lakes®
branded eggs nationwide.
Our
Farmhouse Eggs
® brand eggs are produced at
our facilities by hens that are
provided with a vegetarian diet. Our
offerings
of
Farmhouse Eggs
® include cage-free, organic
and pasture raised eggs.
We market organic, vegetarian and omega-3 eggs
under
our
4-Grain®
brand, which consists of conventional and
cage-free eggs. Our
Sunups®
and
Sunny Meadow®
brands are sold as
conventional eggs.
We also produce, market and distribute private label specialty and conventional shell eggs to several customers.
Egg Products and Prepared Foods
Our egg product
offerings include liquid
and frozen egg
products, as well
as prepared foods
such as hard-cooked
eggs, egg wraps,
protein pancakes,
crepes and
wrap-ups. Liquid
and frozen
egg products
are primarily
sold to
the institutional,
foodservice and
food manufacturing sectors in the U.S. Prepared foods are sold primarily within the retail and foodservice channels.
During March 2023, MeadowCreek Food,
LLC (“Meadowcreek”),
a majority-owned subsidiary,
began operations with a
focus
on being
a leading
provider of
hard-cooked eggs.
During second
fiscal quarter
2025, we
acquired the
remaining ownership
interest
in MeadowCreek and it became a wholly-owned subsidiary.
Effective on
September 9,
2024, we
completed a
strategic investment
with Crepini
LLC, establishing
a new
egg products
and
prepared foods venture. Crepini LLC,
founded in 2007, grew its
brand throughout the U.S.
and in Mexico featuring egg
wraps,
protein pancakes, crepes,
and wrap-ups, which
are sold online
and in over
3,500 retail stores.
The new entity, located in
Hopewell
Junction, New
York,
operates as
Crepini Foods
LLC (“Crepini”).
We
capitalized Crepini with
approximately $6.75
million in
cash
to
purchase
additional
equipment
and
other
assets
and
fund
working
capital
in
exchange
for
a
51%
interest
in
the
new
venture. Crepini LLC contributed its existing assets and business in exchange for a 49% interest in the new venture.
Subsequent
to
fiscal
2025,
we
acquired
Echo
Lake
Foods
for
approximately
$258
million.
Echo
Lake
Foods
is
based
in
Burlington, Wisconsin and produces, packages,
markets and distributes prepared foods, including waffles,
pancakes, scrambled
eggs, frozen cooked
omelets, egg patties, toast
and diced eggs. For
additional information regarding
our acquisition of
Echo Lake
Foods, see
and Part II. Item 8. Notes to Consolidated Financial Statements,
10
Summary of Product Sales
The
following
table
sets
forth
the
contribution
as
a
percentage
of
revenue
and
volumes
of
dozens
sold
of
conventional
and
specialty shell eggs and egg products and prepared food sales for the following fiscal years:
2025
2024
2023
Revenue
Volume
Revenue
Volume
Revenue
Volume
Conventional Eggs
Branded
6.0
%
5.1
%
4.3
%
4.9
%
6.6
%
6.4
%
Private-label
53.8
49.7
46.8
54.4
52.9
52.6
Other
7.1
8.5
4.4
5.8
5.7
6.3
Total Conventional Eggs
66.9
%
63.3
%
55.5
%
65.1
%
65.2
%
65.3
%
Specialty Eggs
Branded
12.2
%
17.0
%
20.3
%
17.4
%
18.0
20.4
%
Private-label
14.1
17.8
18.5
16.3
11.3
12.9
Other
1.3
1.9
1.0
1.2
1.1
1.4
Total Specialty Eggs
27.6
%
36.7
%
39.8
%
34.9
%
30.4
%
34.7
%
Egg Products and Prepared Foods
4.6
%
3.8
%
3.9
%
Marketing and Distribution
In
fiscal
2025,
we
sold
our
products
in
40
states
through
the
southwestern,
southeastern,
mid-western,
mid-Atlantic
and
northeastern regions
of the
U.S. as
well as
Puerto Rico
through our
extensive distribution
network to
a diverse
group of
customers,
including national
and regional
grocery
store chains,
club stores,
companies servicing
independent supermarkets
in the
U.S.,
foodservice distributors and egg product consumers. Some of
our sales are completed through co-pack agreements –
a common
practice in the industry whereby production and processing of certain products are outsourced to another producer.
The majority of eggs sold are based on the daily or short-term needs of our customers. Most sales to established accounts are on
payment terms ranging
from seven to
30 days. Although
we have established
long-term relationships
with many
of our customers,
most of them are free to acquire shell eggs from other sources.
The shell eggs
we sell are
either delivered to
our customers’ warehouse
or retail stores,
by our own
fleet or contracted
refrigerated
delivery trucks, or are picked up by our customers at our processing facilities.
We
are a member of
the Eggland’s
Best, Inc. cooperative and
produce, market, distribute and
sell
Egg-Land’s
Best®
and
Land
O’ Lakes®
branded eggs directly
and through our
joint ventures, Specialty
Eggs, LLC and
Southwest Specialty Eggs,
LLC, under
exclusive
license
agreements
in
Alabama,
Arizona,
Florida,
Georgia,
Louisiana,
Mississippi
and
Texas,
and
in
portions
of
Arkansas, California, Kansas, Nevada,
North Carolina, Oklahoma and
South Carolina. We also have an exclusive
license in New
York City in addition to exclusivity in select
New York metropolitan areas, including areas within
New Jersey and Pennsylvania.
As discussed above under “Branded Eggs,” we also sell our own
Farmhouse Eggs
® and
4-Grain
® branded eggs.
Customers
Our top three
customers accounted for
an aggregate of
49.2%, 49.0% and
50.1% of our
net sales dollars
for fiscal 2025,
2024,
and 2023, respectively.
Our largest customer,
Walmart
Inc. (including Sam's Club),
accounted for 33.6%, 34.0%
and 34.2% of
net sales dollars for fiscal 2025, 2024 and 2023, respectively.
For shell
egg sales
in fiscal
2025, approximately
86% of
our revenue
related to
sales to
retail customers
and 13%
to sales
to
foodservice providers. Retail customers include primarily national and regional grocery store chains, club stores, and companies
servicing independent supermarkets in the U.S.
Foodservice customers include primarily companies that
sell food products and
related items to restaurants, healthcare and education facilities and hotels.
11
Competition
The production, processing, and distribution of shell
eggs is an intensely competitive business, which
has traditionally attracted
large numbers of producers in the U.S.
Shell egg competition is generally based on price, service and
product quality. The shell
egg
production
industry
remains
highly
fragmented.
According
to
Egg
Industry
Magazine
,
the
ten
largest
producers
owned
approximately 54% of industry table egg layer hens at calendar year-end 2024 and 2023.
Seasonality
Retail sales of shell eggs historically have been highest during the fall
and winter months and lowest during the summer months.
Prices for shell eggs fluctuate in response to seasonal demand
factors and a natural increase in egg production during the
spring
and early summer.
Historically, shell
egg prices tend to increase
with the start of the
school year and tend to
be highest prior to
holiday
periods,
particularly
Thanksgiving,
Christmas
and
Easter.
Consequently,
and
all
other
things
being
equal,
we
would
expect to experience lower selling
prices, sales volumes and net
income (and may incur net
losses) in our first and
fourth fiscal
quarters ending in
August/September and May/June, respectively. Accordingly, we generally
expect our need
for working capital
to be highest during those quarters.
Growth Strategy
Our growth
strategy is
centered on
both organic
growth and
growth through
acquisitions while
also diversifying
our product
portfolio.
Organic
growth
is
a
core,
ongoing
focus
area
for
us
which
is
grounded
in our
culture of
operational
excellence to
streamline workflows, reduce waste,
optimize resources and enhance
productivity. We are committed to investing in our existing
operations to strive for improved profitability by increasing sales, lowering costs and maintaining exceptional customer service.
We
have continued to grow our production
of cage-free shell eggs and other
higher value specialty eggs such as
pasture-raised,
free-range and organic shell
eggs. In addition to organic
efforts, we believe that
we can continue to expand
the market reach of
our shell egg and egg product businesses, as
well as grow our prepared foods business through
accretive acquisitions that deliver
favorable returns through our operating model emphasizing synergies and efficient operations.
Trademarks and License Agreements
We own the trademarks
Farmhouse Eggs®
,
Sunups®
,
Sunny Meadow®
and
4Grain®
. We produce and
market
Egg-Land's Best
®
and
Land O’ Lakes
® branded eggs under license agreements with
EB. We
believe these trademarks and license agreements
are
important to our business.
Government Regulation
Our facilities and operations are
subject to regulation by various federal,
state, and local agencies, including, but
not limited to,
the FDA,
USDA, Environmental
Protection Agency
(“EPA”),
Occupational Safety
and Health
Administration (“OSHA”)
and
corresponding state agencies. The applicable regulations relate to grading, quality control, labeling, sanitary control
and reuse or
disposal of waste. Our shell egg facilities are subject to
periodic USDA, FDA, EPA and OSHA inspections. Our feed production
facilities are subject to FDA, EPA
and OSHA regulation and inspections. We maintain inspection programs and in certain cases
utilize
independent
third-party
certification
bodies
to
monitor
compliance
with
regulations,
our
own
standards
and
customer
specifications. It is possible that we will be required to incur significant costs for compliance with such statutes and regulations.
In the future, additional rules could be proposed that, if adopted, could increase our costs.
A number
of states
have passed
legislation or
regulations mandating
minimum space
or cage-free
requirements for
egg production
or have
mandated the
sale of
only cage-free
eggs and
egg products in
their states.
For further
information refer
to the
heading
“Specialty Eggs” within this section.
Environmental Regulation
Our operations and facilities are subject to various federal, state, and local environmental, health and safety
laws and regulations
governing, among
other
things, the
generation, storage,
handling, use,
transportation, disposal,
and remediation
of
hazardous
materials. Under these laws and
regulations, we must obtain
permits from governmental authorities,
including, but not limited to,
wastewater discharge permits. We
have made, and will continue
to make, capital and other
expenditures relating to compliance
with existing
environmental, health
and safety
laws and
regulations and
permits. We
are not
currently aware
of any
material
capital expenditures necessary to comply with such laws and regulations; however, as environmental, health and safety laws and
regulations are becoming increasingly more stringent, including those relating to
animal wastes and wastewater discharges, it is
possible that we will have to incur significant costs for compliance with such laws and regulations in the future.
12
Human Capital Resources
As of May
31, 2025, we
had 3,828 employees, of whom 3,064 worked
in egg production,
processing, and marketing,
231 worked
in feed
mill operations
and 533, including our
executive officers, were
administrative employees. Approximately
3.8% of
our
personnel
are
part-time, and we
utilize
temporary
employment
agencies
and
independent
contractors
to
augment
our
staffing needs when
necessary.
For
fiscal
2025,
we
had
1,975
average monthly
contingent workers.
As
of
May
31,
2025,
43
employees were covered by a collective bargaining agreement. We consider our relations with employees to be good.
Culture and Values
We are proud
to be contributing corporate citizens where we live and work and to help
create healthy, prosperous communities.
Our
colleagues help
us
continue to
enhance our
community contributions,
which
are driven
by
our longstanding
culture that
strives to promote an environment that upholds integrity and respect and provides opportunities for each colleague to
realize full
potential. These commitments
are encapsulated in the
Cal-Maine Foods’
Code of Ethics and
Business Conduct
and in our
Human
Rights Statement.
Health and Safety
Our top
priority is
the health
and safety
of our
employees, who
continue to
produce high-quality,
affordable products
for our
customers and contribute
to a stable
food supply. Our enterprise safety
committee is comprised of
two corporate safety
managers,
and
seven
local
site
compliance
managers.
The
committee
that
oversees health
and
safety reviews
our
written policies
and
changes to OSHA regulation standards annually and shares information as it relates to
outcomes from incidents monthly with all
our facilities to improve future performance and our health and safety practices. The
committee’s goals include working to help
ensure that our engagements with customers and regulators evidence our strong commitment to our workers’ health and safety.
Our commitment to our colleagues’ health includes a strong commitment to on-site worker safety, including a focus on accident
prevention and life safety.
Our Safety and Health Program is designed to promote best practices that
help prevent and minimize
workplace accidents and illnesses.
The scope of our Safety
and Health Program applies to
all enterprise colleagues. Additionally,
to help
protect the
health and
well-being of
our colleagues
and people
in our
value chain,
we require
that any
contractors or
vendors
acknowledge
and
agree
to
comply
with
the
guidelines
governed
by
our
Safety
and
Health
Program.
At
each
of
our
locations, our general managers are expected to uphold and implement our Safety and Health Program in alignment with OSHA
requirements. We
believe that this
program, which is
reviewed annually by
our senior management
team, contributes to
strong
safety outcomes. As part
of our Safety and
Health Program, we conduct
multi-lingual training that
covers topics such
as slip-and-
fall avoidance, respiratory
protection, prevention of
hazardous communication of
chemicals, the proper
use of personal
protective
equipment, hearing
conservation, emergency
response, lockout
and tagout
of equipment
and forklift
safety,
among others.
We
have
also
installed dry
hydrogen
peroxide biodefense
systems
in
our
processing
facilities
to
help
protect
our
colleagues’
respiratory health.
To help drive
our focus
on colleague
safety, we developed
safety committees
at each
of our
sites with
employee
representation from each department.
We
review the
success of
our safety
programs on
a monthly
basis to
monitor their
effectiveness and
the development
of any
trends that need to be addressed.
People
Our
strength
as
a
company
comes
from
our
employees
at
all
levels
and
we
have
a
long-established
culture
that
values
each
individual’s contributions and
encourages productivity
and growth. This
culture is driven by
our Board of
Directors (the
“Board”)
and
executive
management
team.
Our
Policy
against Harassment,
Discrimination,
Unlawful
or
Unethical
Conduct
and
Retaliation; Reporting
Procedure affirms our
commitment to
supporting our
employees regardless
of race, color, religion,
sex,
national origin or any other basis protected by applicable law.
We
are
an
Equal
Opportunity
Employer
that
prohibits
any
violation
of
applicable
federal,
state,
or
local
law
regarding
employment. Discrimination
on any
basis protected
by applicable
law is
prohibited. We
maintain strong
protocols to
help our
colleagues perform
their jobs
free from
harassment and
discrimination. We are committed
to offering our
colleagues opportunities
commensurate with our operational needs and their experiences, goals and contributions.
Recruitment, Development and Retention
We
believe
in
compensating
our
colleagues
with
fair
and
competitive
wages,
in
addition
to
offering
competitive
benefits.
Approximately 79%
of
our
employees
are paid
at
hourly
rates,
which
are
all
paid
at
rates
above
the
federal
minimum wage
13
requirement. We offer our full-time eligible
employees a range
of benefits, including company-paid
life insurance. The
Company
provides
a
comprehensive
self-insured
health
plan
and
pays
approximately
76%
of
the
costs
of
the
plan
for
participating
employees and their families
as of December 31,
2024. Recent benchmarking of
our health plan indicates
comparable benefits,
at lower employee contributions, when compared to an applicable Agriculture and Food Manufacturing sector grouping, as well
as peer group data. In addition, we offer employees the opportunity
to purchase an extensive range of other group plan benefits,
such as
dental, vision,
accident, critical
illness, disability
and voluntary
life. After
six months
of employment,
full-time employees
who
meet
eligibility
requirements may
elect
to
participate
in
our
KSOP
retirement
plan,
which
offers
a
range
of
investment
alternatives and includes many positive
features, such as automatic
enrollment with scheduled automatic contribution increases
and
loan
provisions.
Regardless
of
the
employees’
elections
to
contribute
to
the
KSOP,
the
Company
contributes
shares
of
Company stock or cash equivalent at 3% of participants’ eligible compensation for each pay period that hours are worked.
We
provide
extensive
training
and
development related
to
safety,
regulatory
compliance,
and
task
training.
We
invest
in
developing our future leaders through our Management Intern, Management Trainee and informal mentoring programs.
Sustainability
We understand that climate, and the potential consequences of climate change, freshwater availability and preservation of global
biodiversity, in addition
to responsible
management of
our flocks,
are vital
to the
production of
high-quality eggs
and egg
products
and to the success of
the Company. We have engaged in
agricultural production
for more than
60 years. Our
agricultural practices
continue to evolve as we continue to
strive to meet the need for nutritious, affordable foods
to feed a growing population even as
we exercise responsible
natural resource
stewardship and
conservation. We
published our most
recent sustainability report for
our fiscal 2024 in July 2025, which is available
on our website. Information contained on our website is not a
part of this report
on Form 10-K.
Our Corporate Information
We
maintain
a
website
at
www.calmainefoods.com
where
general
information
about our
business
and
corporate
governance
matters is
available. The
information contained
in our
website is
not a
part of
this report.
Our Annual
Reports on
Form 10-K,
Quarterly Reports on Form 10-Q, Current Reports on
Form 8-K, proxy statements, and all amendments to
those reports filed or
furnished pursuant to
Section 13(a) or
15(d) of the
Exchange Act are
available, free of
charge, through
our website as
soon as
reasonably
practicable
after
we
file
them
with,
or
furnish
them
to,
the
SEC.
In
addition,
the
SEC
maintains
a
website
at
www.sec.gov
that
contains
reports,
proxy
and
information
statements,
and
other
information
regarding
issuers
that
file
electronically with the SEC. Cal-Maine Foods, Inc. is a Delaware corporation, incorporated in 1969.
ITEM 1A.
RISK FACTORS
Our
business
and
results
of
operations
are
subject
to
numerous
risks
and
uncertainties,
many
of
which
are
beyond
our
control. The following is a description of
the known factors that
may materially affect our
business, financial condition or
results
of operations. They should
be considered
carefully,
in addition to
the information set
forth elsewhere
in this Annual
Report on
Form
10-K,
including
under
Part
II.
Item 7.
Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations,
in
making
any
investment
decisions
with
respect
to
our
securities. Additional
risks
or
uncertainties
that
are
not
currently known
to us, or
that we are
aware of
but currently
deem to be
immaterial or that
could apply to
any company could
also materially adversely affect our business, financial condition or results of operations.
INDUSTRY RISK FACTORS
Market prices of
wholesale shell eggs
are volatile,
and decreases
in these prices
can adversely impact
our revenues
and
profits.
Our operating results are significantly affected by wholesale shell egg market prices, which fluctuate widely and are outside our
control. As a
result, our
prior performance
should not
be presumed
to be
an accurate
indication of
future performance.
Under
certain circumstances,
small increases
in production,
or small
decreases in demand,
within the industry
might have a
large adverse
effect on shell egg prices. Low shell egg prices adversely affect our revenues and profits.
Market prices for wholesale shell
eggs have been volatile and
cyclical. Shell egg prices have
risen in the past
during periods of
high demand such as the initial outbreak of the COVID-19 pandemic and periods when high protein diets are popular. Shell egg
prices
have
also
risen
during
periods
of
constrained
supply,
such
as
during
outbreaks
of
highly
pathogenic
avian
influenza
(“HPAI”).
During
times
when
prices
are
high,
the
egg
industry
has
typically
geared
up
to
produce
more
eggs,
primarily
by
14
increasing the number of layers, which historically has ultimately resulted in an oversupply of eggs, leading to a period of lower
prices.
As discussed
above in
, seasonal
fluctuations impact
shell egg
prices. Therefore,
comparisons
of
our
sales
and
operating
results
between
different
quarters
within
a
single
fiscal
year
are
not
necessarily
meaningful
comparisons.
A decline in consumer demand for shell eggs can negatively impact our business.
We believe high-protein diet trends, industry advertising campaigns, the improved nutritional reputation of eggs and an increase
in at-home consumption of eggs
during the COVID-19 pandemic, have
all contributed at one time
or another to increased shell
egg demand. However, it is possible that the demand
for shell eggs will decline in the
future. Adverse publicity relating to health
or safety
concerns and
changes in
the perception
of the
nutritional value
of shell
eggs, changes
in consumer
views regarding
consumption of animal-based
products, as well
as movement
away from high
protein diets,
could adversely
affect demand
for
shell eggs, which could have a material adverse effect on our future results of operations and financial condition.
Feed costs are volatile and increases in these costs can adversely impact our results of operations.
Feed costs are the
largest element of our
shell egg (farm) production
cost, ranging from 53%
to 63% of total
farm production cost
in the last five fiscal years.
Although feed ingredients,
primarily corn and soybean
meal, are available
from a number
of sources, we
do not have control
over
the prices
of the
ingredients we
purchase, which
are affected
by weather,
various global
and U.S.
supply and
demand factors,
transportation and
storage costs,
speculators, agricultural,
energy and
trade policies
in the
U.S. and
internationally,
and global
instability, including as
a result of the war in Ukraine,
the conflicts involving Israel and Iran and
attacks on shipping in the Red
Sea. For example, while
feed costs declined during
fiscal 2025, we saw
higher prices for corn
and soybean meal over
the last five
fiscal years as a
result of weather-related
shortfalls in production and
yields, ongoing supply chain
disruptions, and the Russia-
Ukraine war and its impact on the export markets. Our costs for corn and soybean meal are also affected by local basis prices.
Increases in feed costs unaccompanied by increases in
the selling price of eggs can have a
material adverse effect on the results
of our operations and
cash flow. Alternatively,
low feed costs can
encourage egg industry overproduction, possibly
resulting in
lower egg prices and lower revenue.
Agricultural risks, including
outbreaks of avian
diseases such as
HPAI,
have harmed and
in the future
could harm our
business.
Our shell egg production activities
are subject to a variety
of agricultural risks. Unusual or
extreme weather conditions, disease
and pests can materially and
adversely affect the quality and quantity
of shell eggs we produce
and distribute. Outbreaks of avian
influenza among poultry occur periodically worldwide and have occurred sporadically in the U.S. Recent HPAI outbreaks in the
U.S. caused
significant depopulation
of U.S.
commercial table
egg layer
flocks, lower
shell egg
supplies and
higher shell
egg
prices. During the third
and fourth quarters of
fiscal 2024, we experienced
HPAI outbreaks within our facilities located in
Kansas
and Texas,
which are now
fully operational. For
additional information, refer
to
We
maintain controls
and procedures
designed to
reduce the
risk of
exposing our
flocks and
employees to
harmful diseases;
however, despite
these efforts, outbreaks
of avian diseases
can and do
still occur and
have adversely impacted,
and may in
the
future adversely impact, the health
of our flocks and could in the
future adversely impact the health
of our employees. Continued
or intensified spread of
HPAI could have a material adverse impact on
our financial results by
increasing government restrictions
on the sale and distribution of
our products and requiring us to
euthanize the affected layers. Negative publicity
from outbreaks
within our industry can
negatively impact customer perception. If
a substantial portion of
our layers or production
facilities
are
affected by any of these factors in any given quarter or year, our business, financial condition, and results of operations could be
materially and adversely affected.
Shell
eggs
and
shell
egg
products
are
susceptible to
microbial
contamination, and
we
may
be
required
to,
or
we
may
voluntarily, recall contaminated products.
Shell eggs
and shell
egg products
are vulnerable
to contamination by
pathogens such
as Salmonella
Enteritidis. The Company
maintains policies and procedures designed to comply with the complex
rules and regulations governing egg production, such as
The Final
Egg Rule
issued by
the FDA
“Prevention of
Salmonella Enteritidis
in Shell
Eggs During
Production, Storage,
and
Transportation,” and the FDA’s
Food Safety Modernization Act. Shipment of contaminated products, even if inadvertent, could
15
result in a
violation of law
and lead to
increased risk
of exposure to
product liability
claims, product
recalls and scrutiny
by federal
and
state
regulatory
agencies.
We
have
little,
if
any,
control
over
proper
handling
once
the
product
has
been
shipped
or
delivered. In
addition,
products
purchased
from
other
producers
could
contain
contaminants
that
might
be
inadvertently
redistributed by us. This has occurred in the past and we were
required to recall eggs redistributed to our customers. As such, we
might decide
or be
required to
recall a
product if
we, our
customers or
regulators believe
it poses
a potential
health risk. Any
product recall
could result
in a
loss of
consumer confidence
in our
products, adversely
affect our
reputation with
existing and
potential customers and
have a material
adverse effect on
our business, results
of operations and
financial condition. We currently
maintain insurance
with respect
to certain
of these
risks, including
product liability
insurance, business
interruption insurance,
product recall insurance and general liability insurance, but in many cases such insurance is
expensive, difficult to obtain and no
assurance can be
given that such
insurance can be
maintained in the
future on acceptable
terms, or in
sufficient amounts to
protect
us against losses
due to any such events, or at all.
Our
profitability
may
be
adversely
impacted
by
increases
in
other
input
costs
such
as
packaging
materials,
delivery
expenses, construction materials and equipment, including as a result of inflation and tariffs.
In addition to feed ingredient costs, other significant input costs include costs
of packaging materials and delivery expenses. Our
costs of
packing materials
increased during
the past
three fiscal
years due
to inflation
and higher
labor costs,
and during
2022
also as a
result of supply
chain constraints initially caused
by the pandemic,
and these costs
may continue to increase.
We
also
experienced increases in delivery expenses during fiscal 2023 and 2022 due to increases in fuel and labor costs for
both our fleet
and contract trucking, and these
costs may continue to increase.
Changes in U.S. trade and
tariffs policies may cause higher costs
for construction materials, equipment, packaging and other
items. Increases in these costs are
largely outside of our control
and
could have a material adverse effect on our profitability and cash flow.
BUSINESS AND OPERATIONAL RISK FACTORS
Our acquisition growth strategy subjects us to various risks.
As discussed in
, we plan to continue to pursue a growth strategy that includes,
in part,
selective acquisitions
of
other
businesses engaged
in
the production
and sale
of
shell
eggs, with
a priority
on
those that
will
facilitate our ability
to expand our
cage-free shell egg
production capabilities
in key locations
and markets.
We may over-estimate
or under-estimate the
demand for cage-free
eggs, which could
cause our acquisition
strategy to be
less-than-optimal for our
future
growth and profitability.
The number of existing businesses with
cage-free capacity that we may
be able to purchase is
limited,
as
most
production
of
shell
eggs
by
other
companies
in
our
markets
currently
does
not
meet
customer
demands
or
legal
requirements to be designated as cage-free. Conversely, if we acquire cage-free production capacity, which is more expensive to
purchase
and
operate,
and
customer
demands
or
legal
requirements
for
cage-free
eggs
were
to
change,
the
resulting
lack
of
demand for cage-free eggs may result in higher costs and lower profitability.
Acquisitions require capital resources and
can divert management’s attention from our existing
business. Acquisitions also entail
an inherent risk that
we could become
subject to contingent
or other liabilities,
including liabilities arising
from events or
conduct
prior to
our acquisition
of a
business that
were unknown
to us
at the
time of
acquisition. We
could incur
significantly greater
expenditures in integrating an acquired business than we anticipated at the time of its purchase.
We cannot assure you that we:
●
will identify suitable acquisition candidates;
●
can consummate acquisitions on acceptable terms;
●
can successfully integrate an acquired business into our operations; or
●
can successfully manage the operations of an acquired business.
No
assurance can
be
given
that
businesses
we
acquire
in
the
future
will
contribute
positively
to
our
results
of
operations
or
financial condition.
In addition,
federal antitrust
laws require
regulatory approval
of acquisitions
that exceed
certain threshold
levels of significance, and we cannot guarantee that such approvals would be obtained.
The consideration we pay
in connection with any
acquisition affects our financial
results. If we pay
cash, we could be
required
to
use
a
portion
of
our
available cash
or
credit
facility
to
consummate
the
acquisition.
To
the
extent
we
issue
shares
of
our
Common Stock, existing
stockholders may be
diluted. In addition,
acquisitions may result
in additional debt.
Our ability to
access
any additional capital
that may
be needed
for an
acquisition may be
adversely impacted by
higher interest rates
and economic
uncertainty.
16
We
may
not
realize
the
anticipated
benefits
of
our
acquisition
of
Echo
Lake
Foods
and
our
strategy
to
diversify
our
product mix to include more prepared foods.
As discussed
elsewhere in
this report,
we completed
our acquisition
of Echo
Lake Foods
on June
2, 2025.
Although we
had
already diversified our business
with some prepared foods
product offerings, the
acquisition of Echo Lake
Foods represented a
significant expansion of
this strategy.
Accordingly, we
may experience unexpected
challenges in integrating
and managing the
business of
Echo Lake
Foods. Integrating
Echo Lake
Foods’ business
may be
more costly
or time
consuming than
we expect.
Even if
the business
of Echo
Lake Foods
is successfully
integrated, we
may not
realize the
benefits we
expect from
the acquisition,
including the
synergies, cost
savings, reduction
in earnings
volatility,
margin expansion,
financial returns,
expanded customer
relationships, or sales
or growth opportunities.
Our experience managing
prepared foods businesses
is much more
limited than
our experience managing
our shell egg
and egg products
businesses, and our
strategy to diversity
our product mix
to include more
prepared foods may not produce the
favorable financial and other results
that we anticipate. For additional information
regarding
our
acquisition of
Echo Lake
Foods, see
and
Global or
regional
health crises
including pandemics
or epidemics
could have
an adverse
impact on
our business
and
operations.
The
effects
of
global
or
regional
pandemics
or
epidemics can
significantly
impact
our
operations.
Although
demand
for
our
products could
increase as
a result
of restrictions
such as
travel bans
and restrictions,
quarantines, shelter-in-place
orders, and
business and government
shutdowns, which can
prompt more consumers
to eat at
home, these restrictions
could also significantly
increase our cost of doing
business due to labor shortages,
supply-chain disruptions, increased costs
and decreased availability of
packaging supplies or feed, and
increased medical and other costs.
We
experienced these impacts as a
result of the COVID-19
pandemic,
primarily
during
our
fiscal
years
2020
and
2021.
The
pandemic
recovery
also
contributed
to
higher
inflation
and
interest
rates,
which
persist
and
may
continue
to
persist.
The
impacts
of
health
crises
are
difficult
to
predict
and
depend
on
numerous factors
including the severity,
length and
geographic scope of
the outbreak, resurgences
of the
disease and
variants,
availability and
acceptance of
vaccines, and
governmental, business
and individuals’
responses.
A resurgence
of COVID-19
and/or variants, or any future major
public health crisis, would disrupt our
business and could have a material adverse
effect on
our financial results.
Our largest customers have accounted
for a significant portion of
our net sales volume. Accordingly, our business
may be
adversely affected by the loss of, reduced purchases by, or pricing pressure from, one or more
of our large customers.
Our customers, such as supermarkets, warehouse clubs and food distributors, have continued to consolidate and consolidation is
expected to continue.
These consolidations have
produced larger customers and
potential customers with
increased buying power
that are more
capable of operating with
reduced inventories, opposing price
increases, and demanding lower
pricing, increased
promotional programs and specifically
tailored products. Because of
these trends, our volume
growth could slow or
we may need
to lower prices or increase promotional spending for our products, any of which could adversely affect our financial results.
Our top three customers
accounted for an aggregate
of 49.2%, 49.0% and
50.1% of our net
sales dollars for fiscal
2025, 2024 and
2023, respectively.
Our largest
customer, Walmart
Inc. (including Sam's
Club), accounted for
33.6%, 34.0% and
34.2% of net
sales dollars for fiscal
2025, 2024 and 2023,
respectively. Although we have established long-term
relationships with most of
our
customers who continue to
purchase from us based
on our ability to
service their needs, they
are generally free to
acquire shell
eggs from other
sources. If, for any
reason, one or
more of our
large customers were
to purchase significantly
less of our
shell
eggs in the future, terminate their
purchases from us or demand significantly
lower pricing, and we were not
able to sell our shell
eggs to
new customers
at comparable
levels, it
would have
a material
adverse effect
on our
business, financial
condition, and
results of operations.
The recent high market prices
for eggs, primarily caused by the
HPAI-related
reduction in supply,
led to pressure from
customers to
change long-standing
market-based pricing
frameworks and/or
otherwise reduce
the price
of our
eggs. A
material change in
our sales arrangements
with key customers
could have a
material adverse effect
on our revenues,
gross
profits and
net income. Other
reactions to
high egg prices,
including by state
or federal government
agencies, may also
adversely impact our business.
Market prices for wholesale shell eggs have been volatile
and cyclical over time. Market prices for eggs
tend to increase during
and following outbreaks of
agricultural diseases in the
egg industry that reduce
the supply of eggs,
which has occurred during
the
current
HPAI
outbreak,
until
the
supply
and
demand
balance
is
restored.
Many
of
our
sales
arrangements
with
customers,
particularly for conventional eggs, are based on formulas that take into account, in varying ways, independently quoted regional
wholesale
market
prices
for
eggs.
The
recent
high
market
prices
for
eggs
have
led
to
pressure
from
customers
to
change
17
longstanding market-based pricing frameworks and/or otherwise reduce the price of our
eggs. To remain competitive
and retain
our
customers
and
gain
new
ones,
we
must
consider
our
customer
relationships
and
the
reactions
and
potential
reactions
of
competitors. A
material change
in our
sales arrangements
with key
customers could
have a
material adverse
effect on our
revenues
and gross profits.
Other
reactions
to
high
egg
prices
may
also
adversely
impact
our
business.
On
February
26,
2025,
the
U.S.
Secretary
of
Agriculture announced a
$1 billion comprehensive
strategy to curb
HPAI, protect the U.S. poultry industry, and lower
egg prices.
The Secretary’s
five-pronged strategy
includes an
additional $500
million for
biosecurity measures,
$400 million
in financial
relief for affected farmers, and $100 million for vaccine research, actions to reduce regulatory burdens, and exploring temporary
egg import options.
In March 2025,
we received a
civil investigative demand
in connection with
a widely publicized
investigation
by the
Antitrust Division
of the
Department of
Justice (“DOJ”)
into the
causes behind
nationwide increases
in egg
prices. In
addition,
persistent
high
egg
prices
may
cause
some
consumers
to
purchase
fewer
eggs.
Persistent high-price
cycles
and
the
existence of the
DOJ investigation may
also increase attention
on the egg
industry,
and the Company
specifically, by
state and
federal government agencies, which may lead
to additional government investigations or
related activities. The potential impacts
of these reactions on our
business are unclear,
unpredictable and may divert our
resources and attention from our
core business
activities, and they may have an adverse effect that could be material.
Our business is highly competitive.
The production and sale of fresh shell eggs, which accounted for 94.3% to 95.3% of our net sales in our last three fiscal years, is
intensely competitive.
We
compete with
a large
number of
competitors that
may prove
to be
more successful
than we
are in
producing, marketing and selling shell eggs. We cannot provide assurance that we will be able to compete successfully with any
or all of these companies. Increased competition could result in price reductions, greater
cyclicality, reduced margins and loss of
market share, which would negatively affect our business, results of operations, and financial condition. In
addition, our growth
strategy
includes
expansion
of
our
product
offerings
including
prepared
foods.
The
prepared
foods
business
is
intensely
competitive and includes
competition from
other prepared food
companies and
other suppliers of
prepared and convenience
foods
including
restaurants,
grocery
stores
and
convenience
stores,
many
of
which
have
more
experience
operating
prepared
and
convenience foods businesses.
We
are
dependent
on
our
management
team,
and
the
loss
of
any
key
member
of
this
team
may
adversely
affect
the
implementation of our business plan in a timely manner.
Our success depends
largely upon
the continued service
of our senior
management team. The
loss or interruption
of service of
one or more of
our key executive officers
could adversely affect our
ability to manage our
operations effectively and/or pursue
our growth strategy.
We
have not entered into
any employment or non-compete
agreements with any of
our executive officers.
Competition could cause us to lose talented employees, and unplanned turnover could deplete institutional knowledge and result
in increased costs due to increased competition for employees.
Our
business
is
dependent
on
our
information
technology
systems
and
software,
and
failure
to
protect
against
or
effectively respond to cyber-attacks, security
breaches, or other incidents involving those systems, could adversely affect
day-to-day operations and decision making processes and have an adverse effect on our performance and reputation.
The efficient operation of our business depends on our information technology systems, which we rely on to effectively manage
our
business
data,
communications,
logistics,
accounting,
regulatory
and
other
business
processes.
If
we
do
not
allocate
and
effectively manage the resources necessary
to build and sustain an
appropriate technology environment, our
business, reputation,
or financial results could be negatively impacted. In addition, our information technology systems may be vulnerable to damage
or
interruption
from
circumstances
beyond
our
control,
including
systems
failures,
natural
disasters,
terrorist
attacks,
viruses, ransomware, security breaches or cyber incidents. Cyber-attacks are becoming more sophisticated and
are increasing in
the number of attempts and frequency by groups and individuals with a wide range of motives. We have experienced and expect
to continue to experience attempted cyber-attacks of our information technology systems or networks.
We regularly engage
with third-party
service providers
as part
of our
operations to
provide a
high level
of service
to our
customers.
We have implemented certain practices and policies to minimize the potential risks associated with the exchange of
information
with contracted vendors.
Despite these practices
and policies, we
cannot guarantee that
information technology systems
of our
third-party service
providers will
prevent and
detect all
cybersecurity breaches
and incidents.
Although we
require third-party
service providers to
notify us upon
a potential breach
or incident, there
is a potential
risk that our
business, reputation, or
financial
results could be negatively impacted by cybersecurity incidents at their businesses.
Additionally, future or past
business transactions
(such as acquisitions
or integrations) could
expose us
to additional cybersecurity
risks and vulnerabilities, as our systems could be negatively affected by vulnerabilities present in acquired or integrated systems
18
and technologies.
Furthermore, we
may discover
security issues
that were
not found
during due
diligence of
such acquired
or
integrated businesses, and
it may be
difficult to
integrate businesses into
our information technology
environment and security
program.
Our information technology systems also subject us to numerous data privacy obligations. We may at times fail (or be perceived
to have failed) in our
efforts to comply with our
data privacy obligations. If we or
the third parties on which we
rely fail, or are
perceived to have failed, to address or comply with applicable data privacy obligations, we could face significant consequences,
including but
not limited
to government
enforcement actions
and litigation.
A security breach of
sensitive information
could result
in damage to
our reputation and our
relations with our customers
or employees. Any
such damage or interruption
could have a
material adverse effect on our business.
Technology
and related
business and
regulatory requirements
continue to
change rapidly.
Failure to
update or
replace legacy
systems
to
address
these
changes
could
result
in
increased
costs,
including
remediation
costs,
system
downtime,
third
party
litigation, regulatory actions or cyber security vulnerabilities which could have a material adverse effect on our business.
Labor shortages or increases in labor costs could adversely impact our business and results of operations.
Our
success
is
dependent
upon
recruiting,
motivating,
and
retaining
staff
to
operate
our
farms.
Approximately
79%
of
our
employees are
paid at
hourly rates,
often in
entry-level positions.
While all
our employees
are paid
at rates
above the
federal
minimum wage requirements, any significant increase
in local, state or federal
minimum wage requirements could increase our
labor costs. In
addition, any regulatory
changes requiring us to
provide additional employee benefits
or mandating increases
in
other employee-related costs, such
as unemployment insurance or
workers compensation, would increase our
costs. A shortage
in
the
labor
pool,
which
may
be
caused
by
competition
from
other
employers,
the
remote
locations
of
many
of
our
farms,
decreased labor
participation rates
or changes
in government-provided
support or
immigration laws
or policies,
particularly in
times of lower unemployment, could adversely affect
our business and results of operations. A
shortage of labor available to us
could cause our farms to operate with
reduced staff, which could negatively impact
our production capacity and efficiencies. In
fiscal 2022, our
labor costs increased
primarily due to
the COVID-19 pandemic
and its effects,
which caused us
to increase wages
in response to
labor shortages.
In fiscal 2024
and 2025, labor
wages continued to
rise due to
inflation and low
unemployment.
Accordingly, any significant labor shortages or increases in our labor costs could have a material adverse effect on our results of
operations.
LEGAL AND REGULATORY
RISK FACTORS
Pressure from animal rights groups regarding the treatment
of animals may subject
us to additional costs to
conform our
practices
to
comply
with
developing
standards
or
subject
us
to
marketing
costs
to
defend
challenges
to
our
current
practices and protect our image with our customers. In particular,
changes in customer preferences and state legislation
have accelerated an increase in demand for cage-free eggs, which increases uncertainty in our business
and increases our
costs.
We and many of our customers face
pressure from animal rights
groups, such as People
for the Ethical Treatment of
Animals and
the Humane Society of the United States, to require companies that supply food products
to operate their businesses in a manner
that
treats
animals
in
conformity
with
certain
standards
developed
or
approved
by
these
groups.
In
general,
we
may
incur
additional costs to conform
our practices to address
these standards or to
defend our existing practices
and protect our image
with
our customers. The
standards promoted by
these groups change
over time, but
typically require minimum
cage space for
hens,
among other requirements, and some of these groups have led successful legislative efforts to
ban any form of caged housing in
various states.
As
discussed
in
,
ten
states
have
passed
minimum
space
and/or
cage-free
requirements for
hens, and
other states
are considering
such requirements.
In addition,
a significant
number of
our customers
have announced goals to either exclusively offer cage-free eggs or significantly increase the
volume of cage-free egg sales in the
future, subject in most cases to availability of
supply, affordability and consumer demand, among other contingencies. While we
anticipate that
our retail
and foodservice
customers will
continue to transition
to selling
cage-free eggs
given publicly
stated goals,
there is
no assurance
that this
transition will
take place
or take
place according
to the
timeline of
current cage-free
goals. For
example, customers may accelerate their transition to
stocking cage-free eggs, which may challenge
our ability to meet the cage-
free volume needs
of those customers
and result in
a loss of
shell egg sales.
Similarly,
customers who commit
to stock greater
proportional quantities of cage-free eggs
are under no obligation to
continue to do so, which
may result in an oversupply
of cage-
free eggs and
result in lower
specialty egg prices,
which could reduce
the return on
our capital investment
in cage-free production.
In
addition, on
July
9,
2025, the
DOJ filed
a
lawsuit
against the
State of
California alleging
that
California’s
cage-free laws
“impose burdensome red tape on the production of eggs and poultry products nationally in
violation of the Supremacy Clause of
19
the U.S. Constitution” and lead to higher egg prices for U.S. consumers.
The outcome of this litigation could further complicate
and the cage-free egg landscape and affect our ability to successfully navigate these issues.
Changing
our
infrastructure
and
operating
procedures
to
conform
to
consumer
preferences,
customer
demands,
laws
and
challenges to these
laws. has resulted
and will continue
to result in
additional costs, including
capital and operating
cost increases.
The USDA reported that the estimated U.S. cage-free flock was 129.2 million hens as of May 31, 2025, which
is approximately
44.9% of the total U.S. table egg layer hen population. According to the USDA Agricultural Marketing Service, as of December
2024
approximately
221.4
million
hens,
or
about
73%
of
the
U.S.
non-organic
laying
flock
would
have
to
be
in
cage-free
production to meet projected cage-free commitments from the retailers, foodservice providers and food manufacturers that have
stated goals to transition to cage-free eggs.
In response
to our
customers’ announced goals
and increased
legal requirements for
cage-free eggs, we
have increased
capital
expenditures
to
increase
our
cage-free
production
capacity.
We
are
also
enhancing
our
focus
on
cage-free
capacity
when
considering acquisition
opportunities. Our
customers typically
do not
commit to
long-term purchases
of specific
quantities or
type of eggs with
us, and as a
result, we cannot predict
with any certainty which
types of eggs they
will require us to
supply in
future
periods.
The
production
of
cage-free
eggs
is
more
costly
than
the
production
of
conventional
eggs,
and
these
higher
production costs contribute to the
prices of cage-free eggs,
which historically have typically
been higher than conventional
egg
prices. Many
consumers prefer
to buy
less expensive
conventional shell
eggs. These
consumer preferences,
in addition
to the
regulatory
landscape,
may
in
turn
influence
our
customers’
future
needs
for
cage-free
and
conventional
eggs.
Due
to
these
uncertainties, we may over-estimate future demand for cage-free eggs, which could increase our costs unnecessarily,
or we may
under-estimate future demand for
cage-free eggs, which could harm
us competitively.
If our competitors obtain non-cancelable
long-term contracts to provide cage-free
eggs to our existing or
potential customers, then there may
be decreased demand for our
cage-free
eggs
due
to
these
lost
potential
sales.
If
we
and
our
competitors increase
cage-free
egg production
and
there is
no
commensurate increase in
demand for cage-free
eggs, this overproduction
could lead to
an oversupply of
cage-free eggs, reducing
the sales price for specialty eggs and our return on capital investments in cage-free production.
Failure
to
comply
with
applicable
governmental
regulations,
including
environmental
regulations,
could
harm
our
operating results,
financial condition,
and reputation. Further,
we may
incur significant
costs to
comply with
any such
regulations.
We are subject to federal,
state and local
regulations relating to
grading, quality control,
labeling, sanitary control,
waste disposal,
and other
areas of
our business.
As a
fully-integrated shell
egg producer,
our shell
egg facilities
are subject
to regulation
and
inspection by the USDA, OSHA, EPA and FDA, as well as state and local health and agricultural agencies, among others. All of
our shell egg production
and feed mill
facilities are subject
to FDA, EPA and OSHA regulation
and inspections. In
addition, rules
are often proposed that, if adopted as proposed, could increase our costs.
Our operations and facilities are subject to various federal, state and local environmental, health, and safety
laws and regulations
governing, among
other
things, the
generation, storage,
handling, use,
transportation, disposal,
and remediation
of
hazardous
materials. Under these laws and regulations, we are required to obtain permits from governmental authorities, including, but not
limited to wastewater discharge permits and manure and litter land applications.
If we
fail to
comply with
applicable laws or
regulations, or fail
to obtain necessary
permits, we could
be subject
to significant
fines and penalties or other sanctions, our reputation could be harmed, and our
operating results and financial condition could be
materially adversely
affected.
In addition,
because these
laws and
regulations are
becoming increasingly
more stringent,
it is
possible that we will be required to incur significant costs for compliance with such laws and regulations in the future.
Climate change and legal or regulatory responses may have an adverse impact on our business and results of operations.
Extreme weather
events, such
as derechos,
wildfires, drought,
tornadoes, hurricanes,
storms, floods
or other
natural disasters
could materially and adversely affect our operating results and financial condition. In fact, derechos, fires, floods, tornadoes and
hurricanes have affected our facilities or the facilities of other egg producers in the past. Increased
global temperatures and more
frequent occurrences
of extreme
weather events,
which may
be exacerbated
by climate
change, may
cause crop
and livestock
areas to
become unsuitable,
including due
to water
scarcity or
high or
unpredictable temperatures,
which may
result in
much
greater stress on food systems and more pronounced food insecurity globally. Lower global crop production, including corn and
soybean meal, which
are the primary
feed ingredients that
support the health
of our animals,
may result in
significantly higher
prices for these commodity inputs, impact
our ability to source the commodities
we use to feed our flocks, and
negatively impact
our ability to
maintain or grow
our operations. Climate
change may increasingly
expose workers and
animals to high
heat and
humidity
stressors
that
adversely
impact
poultry
production
and
our
costs.
Increased
greenhouse
gas
emissions
may
also
negatively impact air quality, soil quality and water quality, which may hamper
our ability to support our operations,
particularly
in higher water- and soil-stressed regions.
20
Increasing frequency
of severe
weather events,
whether tied
to climate
change or
any other
cause, may
negatively impact
our
ability to
raise poultry
and produce
eggs profitably
or to
operate our
transportation and
logistics supply
chains. Regulatory
controls
and market
pricing may
continue to
drive the
costs of
fossil-based fuels
higher,
which could
negatively impact
our ability
to
source commodities necessary
to operate
our farms or
plants and
our current
fleet of
vehicles. These
changes may
cause us
to
change, significantly, our day-to-day business operations and our strategy. Climate change and extreme weather events
may also
impact demand for
our products given
evolution of consumer
food preferences. Even
if we take
measures to position
our business
in anticipation
of such
changes, future
compliance with
legal or
regulatory requirements
may require
significant management
time, oversight and enterprise expense. We may also incur significant expense tied to regulatory fines if laws and regulations are
interpreted and applied in a manner
that is inconsistent with our business practices.
We
can make no assurances that our
efforts
to prepare
for these
adverse events
will be
in line
with future
market and
regulatory expectations
and our
access to
capital to
support our business may also be adversely impacted.
Current and
future
litigation and
other legal
matters could
expose us
to significant
liabilities and
adversely affect
our
business reputation.
We
and
certain
of
our
subsidiaries
are
involved
in
various
legal
proceedings
and
other
legal
matters. Litigation, government
investigations and
other legal matters
are inherently
unpredictable, and although
we believe we
have meaningful
defenses in these
matters, we may incur liabilities due
to adverse judgments or penalties or
we may enter into settlements of
claims, which could
have a material
adverse effect on
our results of
operations, cash flow
and financial condition.
For a discussion
of our ongoing
legal proceedings see
below and Part
II. Item 8.
Notes to the
Consolidated Financial Statements,
Such lawsuits,
investigations and other
legal matters are
expensive to respond
to
and
defend,
divert
management’s
attention,
and
may
result
in
significant
adverse
judgments,
penalties
or
settlements. Legal
proceedings may expose us to negative publicity,
which could adversely affect our business reputation and customer preference
for our products and brands.
FINANCIAL AND ECONOMIC RISK FACTORS
Weak or unstable economic conditions, including continued high inflation
and interest rates, could negatively impact our
business.
Weak
or unstable economic conditions,
including continued high inflation
and interest rates, may
adversely affect our
business
by:
●
Limiting our access to capital markets or increasing the cost of capital we may need to grow or operate our business;
●
Changing consumer spending and habits and demand for eggs, particularly higher-priced eggs;
●
Restricting the supply of energy sources or increasing our cost to procure energy; or
●
Reducing the availability
of feed ingredients,
packaging material, and
other raw materials,
or increasing the
cost of these
items.
Deterioration of economic conditions could also negatively impact:
●
The financial condition of our suppliers, which may make it more difficult for them to supply raw materials;
●
The financial condition of our customers, which may decrease demand for eggs or increase our bad debt expense; or
●
The financial condition of our insurers, which
could increase our cost to obtain insurance,
and/or make it difficult for or
insurers to meet their obligations in the event we experience a loss due to an insured peril.
According
to
the
U.S.
Bureau
of
Labor
Statistics,
from
May
2021
to
May
2022,
the
Consumer
Price Index for
All
Urban
Consumers (“CPI-U”) increased 8.5 percent, the largest 12-month
increase since the period ending December 1981. The
CPI-U
increased 4.1%, 3.3%, and 2.4% annually from May 2022 to May 2025. Inflationary costs have increased our input costs, and if
we are unable to pass these costs through to the customer it could have an adverse effect on our business.
We
hold significant
cash balances
in deposit
accounts with
deposits in
excess of
the amounts
insured by
the Federal
Deposit
Insurance Corporation
(“FDIC”). In
the event
of a bank
failure at
an institution where
we maintain deposits
in excess of
the FDIC-
insured amount, we may lose such excess deposits.
The
loss
of
any
registered
trademark
or
other
intellectual
property
could
enable
other
companies
to
compete
more
effectively with us.
We
utilize intellectual
property in
our business. For
example, we
own the
trademarks
Farmhouse Eggs®
,
4Grain®, Sunups®
,
and
Sunny Meadow®
. We
produce and market
Egg-Land’s
Best®
and
Land O’ Lakes
® under license agreements
with EB. We
21
have invested a
significant amount of
money in establishing
and promoting our
trademarked brands. The loss
or expiration of
any
intellectual property
could enable
our competitors
to compete
more effectively
with us
by allowing
them to
make and
sell products
substantially
similar
to
those
we
offer. This
could
negatively
impact
our
ability
to
produce
and
sell
those
products,
thereby
adversely affecting our operations.
Impairment in the
carrying value of
goodwill or other
assets could negatively
affect our results of
operations or net
worth.
Goodwill
represents
the
excess
of
the
cost
of
business
acquisitions
over
the
fair
value
of
the
identifiable
net
assets
acquired. Goodwill
is
reviewed
at
least
annually
for
impairment
by
assessing
qualitative
factors
to
determine
whether
the
existence of events or circumstances leads to a determination that it is
more likely than not that the fair value of a reporting unit
is less than
its carrying amount. As
of May 31,
2025, we had
$46.8 million of goodwill. While
we believe the
current carrying
value of this goodwill is
not impaired, future goodwill impairment
charges could adversely affect our results of
operations in any
particular period and our net worth.
Events beyond our control such as extreme weather and natural disasters could negatively impact our business.
Fire, bioterrorism,
pandemics, extreme
weather or
natural disasters,
including droughts,
floods, excessive
cold or
heat, water
rights restrictions, hurricanes or other
storms, could impair the health
or growth of our flocks, decrease
production or availability
of feed ingredients,
or interfere with
our operations due
to power outages,
fuel shortages, discharges
from overtopped or
breached
wastewater treatment lagoons, damage to our production
and processing facilities, labor shortages or disruption
of transportation
channels, among other things. Any of these factors could have a material adverse effect on our financial results.
RISK FACTORS RELATING
TO OUR COMMON STOCK
Provisions of our certificate
of incorporation, bylaws,
and Delaware law may
make an acquisition
of us or a
change in our
management more difficult.
Certain provisions of
our certificate of incorporation
and bylaws could
discourage, delay or
prevent a merger, acquisition or
other
change in control that stockholders may consider favorable, including transactions in which an investor might otherwise receive
a premium for its shares. These
provisions also could limit the price
that investors might be willing
to pay in the future for
shares
of our Common Stock, thereby depressing the
market price of our Common Stock. Stockholders
who wish to participate in these
transactions may
not have
the opportunity
to do
so. Furthermore,
these provisions
could prevent
or frustrate
attempts by
our
stockholders to replace or remove our management. These provisions:
●
provide for the
division of the
Board into three
classes as nearly
equal in size as
practicable with staggered three-year
terms and limit the removal of directors and the filling of vacancies;
●
authorize our Board to set the
terms of and issue preferred stock, without
stockholder approval, that could be issued to
persons friendly to management
or could operate as
a “poison pill” to
dilute the stock ownership
of a potential hostile
acquirer to prevent an acquisition that is not approved by our Board;
●
prohibit stockholder action by written consent;
●
prohibit stockholders from calling special meetings of stockholders;
●
establish advance notice requirements
for stockholder nominations
to our Board or
for stockholder proposals that
can be
acted on at stockholder meetings; and
●
require the approval of the
holders of at least 66-2/3%
of the voting power of all
then outstanding shares of capital
stock
of the Company entitled
to vote generally in
the election of directors,
voting together as a
single class, in order
to amend
our certificate of incorporation and bylaws.
In addition,
we are
governed by
the provisions
of Section
203 of
the Delaware
General Corporation
Law,
which may,
unless
certain criteria are
met, prohibit large stockholders,
in particular those
owning 15% or
more of our
outstanding voting stock,
from
merging or combining with us for a prescribed period of time.
The loss of controlled company status could disrupt our business.
Until April 14,
2025, our Company
was controlled
by members of
the family
of our founder,
Fred R. Adams,
Jr. since its founding
and since it became a public company.
As described in Part II. Item 8. Notes
to the Consolidated Financial Statements, Note 11
– Equity,
on April
14, 2025,
the Company
ceased to
be a
“controlled company”
under the
rules of
The Nasdaq
Stock Market
when all
of the
outstanding shares
of Class
A Common
Stock, all
of which
were controlled
by the
family,
were converted
to
Common Stock.
Immediately prior thereto,
members of
the family-controlled shares
of Class
A Common
Stock and
Common
Stock that
resulted in
voting power
of 53.2%.
After the
conversion of
the Class
A Common
Stock and
the subsequent
sale by
family members in a registered
public offering of 2,978,740
shares of Common Stock on
April 17, 2025, and as
reported on an
22
amendment to Schedule 13D, the
family beneficially owned approximately 6.1% of
our outstanding Common Stock. Adolphus
B. Baker,
Board Chair and a
family member, has
indicated that he is
willing to serve as
executive Board Chair at
least through
our 2027 annual meeting
of stockholders. The effect of
the loss of controlled
company status on the
trading price of our
Common
Stock and
on our
business is
uncertain, including
our ability
to retain
and hire
key personnel
and maintain
relationships with
customers and suppliers,
and on our
operating results. In
addition, our business
may be more
likely to be
disrupted by persons
seeking to influence or
effect a change
of control, change
of management or
change in governance of
our Company.
Any such
disruptions to our business could have a material adverse effect on our operations and financial results.
The price of
our Common Stock
may be affected
by the availability
of shares
for sale in
the market, and
investors may
experience significant dilution
as a result of
future issuances of our
securities, which could
materially and adversely
affect
the market price of our Common Stock.
The sale or availability for
sale of substantial amounts of
our Common Stock could adversely
impact the price of our
Common
Stock. Our Fourth Amended and Restated Certificate of Incorporation authorizes
us to issue 120,000,000 shares of our Common
Stock
and
10,000,000
shares
of
preferred
stock.
As
of
July
22,
2025,
there
were
48,497,477
shares
of
our
Common
Stock
outstanding and
no shares
of preferred
stock outstanding.
Accordingly,
a substantial
number of
shares of
our Common
Stock
remain authorized for issuance and could become available for sale in the market. Our Fourth
Amended and Restated Certificate
of Incorporation authorizes our
Board to set the
terms of and issue
preferred stock, without stockholder
approval, and such shares
if
issued
could
dilute
the
voting
and
economic
interests
of
holders
of
Common
Stock.
In
addition,
2,791,854
shares
of
our
Common
Stock
held
by
the
family
of
our
late
founder
remain
subject
to
the
registration
rights
provided
by
the
Agreement
Regarding Conversion, dated February 25, 2025, by and among the Company, DLNL, LLC and such family members. Also, we
may be obligated to
issue additional shares of
our Common Stock in
connection with employee benefit
plans (including equity
incentive plans or under our KSOP).
In
the
future,
we
may
decide
to
raise
capital
through
offerings
of
our
Common
Stock,
preferred
stock,
additional
securities
convertible into or exchangeable for our Common Stock of preferred stock, or rights
to acquire those securities or our Common
Stock or
preferred stock.
We
may also
issue such
securities as
consideration in
an acquisition. The
issuance of
such securities
could result in dilution of existing stockholders’
equity interests in us. Issuances of
substantial amounts of our Common Stock
or
preferred stock, or
the perception that
such issuances could
occur, may adversely affect prevailing
market prices for
our Common
Stock.
The price of our Common Stock may fluctuate significantly.
The market price of our Common Stock
has fluctuated significantly and may continue to
do so for various reasons including, but
not limited to, the following, many of which are beyond our control:
●
our quarterly or annual earnings or those of other companies in our industry;
●
the public’s reaction to our press releases, our other public announcements and our filings with the SEC;
●
changes in recommendations by research analysts who track our Common Stock or the stock of other companies in our
industry, or a decision by such an analyst to reduce or cease coverage regarding our Common Stock;
●
changes in
general conditions
in the
U.S. and
global economy, financial
markets or
our industry, including
those resulting
from changes in trade and tariff
policies, changes in fuel prices
or fuel shortages, war, incidents of terrorism,
pandemics
or responses to such events;
●
changes
in
the
competitive
landscape
for
our
business,
including
any
changes
resulting
from
industry
consolidation
whether or not involving us;
●
our liquidity position;
●
future sales of our Common Stock;
●
any changes in our dividend policy or share repurchase program; and
●
the other risks described in this Risk Factors section.
The
actual
timing,
number
and
value
of
shares
repurchased
under
our
share
repurchase
program
will
be
determined
by
management in
its discretion
and will
depend on
a number
of factors,
including but
not limited
to, the
market price
of our
Common
Stock and general market and economic conditions. The share repurchase program may be suspended, modified or discontinued
at any time without prior notice.
ITEM 1B.
UNRESOLVED STAFF
COMMENTS
None.
23
ITEM 1C.
CYBERSECURITY
Risk Management and Strategy
We
understand the importance of
cybersecurity and its role
in the success of
our Company.
Our business operations depend on
the effective use of our information systems in order
to properly serve our customers, manage our business and track and report
our financial results. Our technology
operations consider risks from cybersecurity
threats in the implementation and
execution of
our business processes. We consider and assess the risks
from cybersecurity threats as part
of our overall risk assessment
process
using the National Institute of Standards and Technology (“NIST”) Cybersecurity Framework.
In order to
identify, assess and
manage material
risks arising
from cybersecurity threats,
we maintain internal
resources to monitor
and quickly respond to such threats. We
perform vulnerability scans and penetration testing designed to test the effectiveness of
our
security
practices.
We
engage
third
-party
service
providers
to
assist
in
the
evaluation
of
our
internal
controls
over
our
information systems through
audit and
consulting services to
test the design
and operational effectiveness
of security controls.
We continually monitor our systems to
detect and identify cybersecurity
threats. Prior to contracting
with third-party vendors, we
perform risk assessments of the vendors
and require the vendors to manage
cybersecurity risks to our business operations
as well
as
notify us
of
any
potential or
known
cybersecurity risks.
We
also require
our
employees
to
complete training
programs to
increase their
awareness of
and sensitivity
to cybersecurity
threats. These
training programs
include the
identification of
such
threats and the proper responses to a potential cybersecurity beach that aligns with our adopted processes.
The Company has implemented
a response process in
the event of a
cybersecurity incident through its crisis
management plan.
The
process
includes
the
cooperation
of
the
information
technology
team
and
our
management
team
to
properly
detect
and
respond to these
incidents. These responses
include determination of
the potential impact
and materiality of
the incident, potential
disclosure
and
litigation
matters,
and
mitigation
of
actual
or
potential
damage
to
our
systems
or
reputation
arising
from
the
incident. An action plan is implemented to
respond to any potential cybersecurity breach in
order to continue to effectively serve
our customers and conduct our operations with as little interruption as practicable. The information technology team
reviews the
response process on
a regular basis
to ensure that
it is designed
to be effective
and to encompass
current or new
cybersecurity
threats.
As of July
22, 2025,
we are
no
t aware
of any
risks from
cybersecurity threats,
including as
a result
of prior
cybersecurity incidents,
that have
materially affected
or that
we believe
are reasonably likely
to materially affect
the Company,
including our business
strategy,
results
of
operations
or
financial
condition.
See
for
further
discussion
about
risks
from
cybersecurity threats.
Governance
The Board is responsible for the oversight of management’s
process for identifying and mitigating risks related to cybersecurity
threats.
On a quarterly
basis, the Director
of Information Technology provides
a report to
the Audit Committee
regarding ongoing
processes to improve and update
our current cybersecurity protocols, new
cybersecurity threats, results of internal
assessments,
and any recent cybersecurity incidents.
The
Audit
Committee will make the Board aware of any information it deems necessary
or appropriate in order for the Board to effectively oversee the Company’s cybersecurity risk management and strategy.
The Director
of
Information Technology
and the
team he
manages
are responsible
for the
operation and
maintenance of
our
information systems, including the assessment, identification and management of risks from cybersecurity threats.
Together,
the
Director of Information Technology
and his team have over 150 years of experience
in the information technology and security
environment.
Our
Chief Financial Officer
, to
whom the
Director of
Information Technology reports,
has served
as Chief
Financial
Officer and a Board member since 2018 and has over 40 years of risk management experience.
24
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