Cal-Maine Foods, Inc. Stock

Good morning, everyone, and welcome to the Cal-Maine Foods, Inc. Fourth Quarter and Fiscal Year 2026 Earnings Call and Webcast. Joining us on today's call are Sherman Miller, President and CEO; Max Bowman, VP and CFO; Carol Lombardo, Chief Strategy Officer; and John Seller, CFO, Prepared Foods. [Operator Instructions] Please note, this call is being recorded.

I will now turn the call over to Sherman. Please go ahead.

Good morning. Thank you for joining us today. I want to remind everyone that today's remarks may include forward-looking statements. These are based on management's current expectations and are subject to risks and uncertainties described in our SEC filings. I'd like to begin by highlighting the strategic progress we have made over the course of fiscal 2026. Throughout the fiscal year, we remain focused on diversifying our sales mix, an important initiative that we believe will strengthen the durability and predictability of our earnings over time. We completed several strategic acquisitions that advance our long-term objectives. We acquired certain assets of Graton Brothers LLC and its affiliates that are expected to further enhance our vertically integrated operating model and strengthen connectivity across our value chain. Building on our successful acquisition of Echo Lake Foods in 2025, we further diversified our earnings profile and expanded into higher-value consumer-facing markets through our more recent Vans Food brand acquisition. And subsequent to fiscal year-end, we increased our distribution footprint by acquiring additional Eggland's Best franchise territory in the Northeast, expanding our specialty egg category penetration in one of the nation's largest and highest income consumer markets. We're also capitalizing on the increasing consumer demand for our products by advancing our long-term growth strategy with a new $54 million investment to further expand our Prepared Foods production capacity. This investment is expected to add approximately 30% incremental production capacity to our Prepared Foods segment beginning in the first half of fiscal 2028. Together with our previously announced 30% organic capacity growth and 6% Vans acquisition-driven capacity growth, we believe our Prepared Foods production capacity will increase over 60% from the end of fiscal 2026 through the first half of fiscal 2028. I'd like to highlight several key developments from the fourth quarter and fiscal year 2026 that demonstrate the continued progress that we are making in executing our strategy. In the fourth quarter of fiscal 2026, Prepared Foods accounted for 10.9% of consolidated net sales. Combined, Specialty eggs and Prepared Foods grew to 53% of net sales. In fiscal 2026, Prepared Foods accounted for 8.4% of net sales. Combined, Specialty eggs and Prepared Foods increased to 44.4% of net sales. For the quarter, we are reporting under a new operating segment structure. This new reporting framework better aligns with how management reviews operating results and makes decisions about resource allocation and strategic initiatives. As the nation's largest producer and distributor of shell eggs with the most vertically integrated operating model in the industry, Cal-Maine is uniquely positioned to navigate market cycles while investing in long-term growth. Our scale, operational capabilities and financial strength, led by our strong balance sheet provides competitive advantages that are particularly valuable in challenging environments like the one we experienced this quarter.

During the fourth quarter, industry oversupply drove conventional shale egg prices to historically low inflation-adjusted levels. Importantly, this is a supply-driven environment, not a demand-driven one. We continue to see favorable long-term demand fundamentals across our end markets. According to third-party market commentary from the American Egg Board and Urner Barry, supply conditions remain elevated, although early indicators suggest the market is beginning to rebalance. American Egg Board estimates the U.S. laying clock at 340 million to 347 million hits based on producer assessment data collected across the commercial egg industry materially above USDA's published estimate and indicative of abundant egg supplies. While the American egg board estimate reflects May assessment data, which may overstate today's flock if producers have accelerated flock rotations this summer as reported, it appears production continues to be supported by strong hand productivity and exports that remain below historical norms. However, the American Egg Board and Urner Barry also cite slowing breeder activity, increased chick cancellations, softer hatchery demand and more aggressive flock rotations as evidence that flock growth is moderating. If accurate, these developments are likely to tighten supply in the near term and suggest supply may continue to moderate over the coming quarters.

Turning to demand. We continue to see very healthy underlying fundamentals. Household penetration remains exceptionally high at above 97% with purchasing households buying eggs approximately 19x per year. Our retail volume is up nearly 6% year-to-date as prices have retreated. We believe eggs remain well positioned to benefit from long-term consumer demand for protein, nutrition, convenience and value. We're also encouraged by the continued growth in GLP-1 adoption with approximately 22% of U.S. households now including a GLP-1 user, reinforcing demand for protein-dense foods like eggs. Foodservice demand remains robust. Specialty eggs continue to outperform conventional product growth. USDA projects per capita egg consumption to increase in both 2026 and 2027. And export demand has increased from South Korea as it imports U.S. shale legs to offset [indiscernible]-related supply shortages there. The strategic actions we've taken to evolve our portfolio, optimize operations and allocate capital with discipline help provide resilience during one of the most difficult conventional egg pricing environments we've experienced. While we are positioned today to emerge as a stronger, higher-quality business, we recognize that we're still in early stages of this transformation. The sustained [indiscernible] pricing environment in the quarter provides a valuable stress case reference point, demonstrating the resilience built through our strategic actions to date while highlighting the meaningful upside opportunity as our initiatives continue to mature.

As our business continues to diversify and grow and our operational initiatives mature, we expect a greater portion of our earnings to come from differentiated less cyclical businesses, improving resilience regardless of where we are in the commodity cycle. Taken together, we believe these initiatives will continue to enhance the consistency and resilience of our normalized earnings power while reinforcing our long-term competitive advantage.

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

Thanks, Sherman, and good morning, everyone. Earlier this morning, we issued our quarterly earnings release and filed our Form 10-K for fiscal year 2026. We also posted a supplemental fourth quarter earnings presentation to our website that provides additional details on our performance.

We previously managed our business as one operating and one reportable segment. Effective in the fourth quarter of fiscal 2026, as our business has evolved, we revised our internal reporting to more closely reflect the manner in which we manage our business, which focuses on enhancing operations and measuring results based on our product categories rather than on a consolidated basis. As a result, we identified 3 reportable segments: Conventional shale eggs, specialty shale eggs and prepared foods. Our remaining operations, which include co-pack shale eggs, egg products, hard cooked eggs and other business activities are not reportable segments as defined by the applicable accounting standard.

The conventional shale egg segment, which generated $1.348 billion of net sales and $217 million of operating profit in fiscal 2026 consists primarily of the production, grading, packaging, marketing and distribution of shale eggs sold as conventional shale legs, which includes our brands Sun Ups and Sunny Meadow.

The specialty Shale Egg segment, which generated $1.07 billion of net sales and $182 million of operating profit in fiscal 2026 and consist primarily of the production, grading, packaging, marketing and distribution of shell eggs sold as cage-free, neutrally enhanced, organic, brown, paster raised and free-range eggs. This segment includes our brands Farmhouse eggs and Ford grain as well as branded products from our membership of the Eglen's Best Inc. cooperative, which includes Eglin's best and land of likes.

The Prepared Foods segment, which generated $245 million of net sales and $34 million of operating profit in fiscal 2026 consists primarily of the production, packaging, marketing and distribution of Prepared Foods product offerings such as precooked egg patties, omelettes, [indiscernible] and scramble egg formats, pancakes, waffles and specialty rolls. This segment includes our brands, Vans and Kapuni. All prior year periods have been recast to reflect the new reportable segments.

I'll begin with a review of our fourth quarter results before discussing our full year performance, segment results, balance sheet and cash flow. For the fourth quarter, consolidated revenue was $552.6 million, down 49.9% compared with the prior year period. Consolidated gross profit was $34.1 million, resulting in a gross margin of 6.2%. Consolidated operating loss was $58.8 million, and operating margin was negative 10.6%. Net loss attributable to Cal-Maine Foods for the quarter was $35.9 million or a diluted loss per share of $0.76.

Conventional shell eggs generated revenue of $210.8 million, down 70% year-over-year. Segment operating loss was $40.6 million with an operating margin of negative 19.3%. Specialty Shale Eggs reported revenues of $239.7 million. That's down 21.4% from the prior year. Segment operating income totaled $17.5 million and operating margin was 7.3%. Prepared Foods revenue was $60.4 million. Segment operating income was $8.8 million with an operating margin of 14.6%.

Turning to our full year results. Consolidated revenue was $2.912 billion, down 31.7% versus the prior year. Consolidated gross profit was $672 million and gross margin was 23.1%. The consolidated operating income was $350.2 million with an operating margin of 12%. Net income attributable to Cal-Maine Foods for the year was $316.7 million, resulting in diluted earnings per share of $6.63. Full year revenue for the conventional shale eggs was $1.348 billion, down 51.1% versus the prior year. Segment operating income was $216.6 million with an operating margin of 16.1%. Full year revenue for specialty shale eggs for the year totaled $1.070 billion, down 7.3%. Segment operating income was $181.5 million and operating margin was 17%. Prepared Foods full year revenue was $244.8 million. Segment operating income was $33.9 million with an operating margin of 13.8%.

Now let me briefly discuss the performance of each segment. In our conventional Shale Egg segment, both fourth quarter and full year results reflected a pricing environment that steadily decreased throughout fiscal 2026, reaching historically low inflation adjusted levels during the fourth quarter. These conditions were driven by abundant industry supply rather than weakening demand. Supply levels increased significantly compared to the severe shortages experienced in the prior year period, and our fourth and first fiscal quarters are already typically our seasonally lowest pricing periods. Volumes increased 3.1% during the quarter and were approximately flat for the full year, demonstrating that industry-wide pricing not demand was a primary driver of financial performance. While conventional egg pricing is inherently cyclical and largely market determined, we are not passive participants in this environment. We continue to actively manage our cost structure through block optimization, be it efficiency initiatives and operational discipline across our production network. Our structured pricing arrangements with key customers provide a degree of downside protection relative to pure spot market exposure. And as the largest and most vertically integrated producer in the U.S., our scale advantages in procurement, logistics and our customer service become even more valuable during periods of industry stress, allowing us to maintain our competitive position and be well prepared to capture margin as pricing recovers.

In our Specialty Shale Egg segment, fourth quarter volumes returned to more typical seasonal patterns. The year-over-year comparison reflects an unusually strong prior year period that benefited from temporary demand acceleration created by atypical pricing relationship with conventional eggs as elevated pricing in conventional eggs drove consumer demand into specialty eggs as those conditions normalize fourth quarter 2026 specialty volumes moderated as expected. Importantly, for the full year, specialty shale egg volumes increased 2.4% despite more normalized pricing dynamics, which we believe reflects resilient consumer demand and strong commercial execution. Margins moderated from the elevated levels achieved during the prior year, which benefited from atypical pricing dynamics that temporarily widen the conventional specialty spread. We view the current margin profile as more representative of normalized conditions for this segment in the near term, though still below our long-term target as we continue to grow our higher-margin subcategories, including cage-free, organic and paster raised. The expansion of our Eglin's Best franchise territory in the Northeast, which we announced subsequent to quarter end, is a good example of how we're actively building toward a richer specialty mix over time.

In our Prepared Foods segment, performance continued to accelerate as we executed our network optimization and production capacity expansion initiatives. As production capacity expansion progressed on schedule, facility utilization improved, fixed cost absorption increased and operating performance strengthened. Both sales prices and sales volumes improved sequentially from the third quarter of fiscal 2026. Integration of our [indiscernible] Foods acquisition is progressing according to plan with encouraging early results. while our competing joint venture continues to demonstrate strong growth momentum. SG&A for the quarter was $93.6 million, down 1.4% and $329.2 million for the year, up 4.7%.

Net cash flow from operations for the quarter was $2.8 million, down 99.3%. We ended the quarter with cash and temporary cash investments of $924.1 million and remain virtually debt-free. We repurchased 396,083 shares of our common stock under our current share repurchase authorization [indiscernible] quarter for a total of $30.1 million. Repurchase program permits us to repurchase up to $500 million, of which $320.7 million remain available. Pursuant to our variable dividend policy, we will not pay a cash dividend for the fourth quarter or for any subsequent profitable quarter until we are profitable on a cumulative basis computed from the date of the most recent quarter for which a dividend was paid. As of May 30, 2026, the total cumulative loss to be recovered before payment of a dividend was $35.9 million.

With that, I'll turn the call back to Sherman for closing remarks before we begin the Q&A session.

Thanks, Max. Looking ahead, we believe we are increasingly well positioned as market conditions improve, particularly as we move beyond our first quarter of fiscal 2027. However, during the first 5 weeks of the first quarter of fiscal 2027, market prices averaged just $0.72, approximately 54% below the comparable period in the fourth quarter of fiscal 2026, reflecting the seasonal trough that typically characterizes our June through July period. More recently, pricing has strengthened, increasing by more than 90% in only a few weeks. Early indications point to improving supply-demand balance supporting a more constructive egg pricing environment heading into the fall, which is historically a seasonally stronger period. We believe the combination of improving market fundamentals and our own operational actions positions us for a more robust trajectory coming out of Q1.

As we look beyond today's market environment, our focus remains on bidding a stronger, more resilient Cal-Maine Foods. We continue to execute against the strategy designed to broaden our growth opportunities, diversify our earnings profile and strengthen our normalized earnings power over time. In Specialty shale eggs, we're expanding our portfolio to capitalize on favorable long-term consumer trends while increasing the mix of products that exhibit structurally higher margins and more stable demand characteristics.

In Prepared Foods, we're building a complementary growth platform that expands our addressable market, diversifies our earnings streams and positions us to participate in attractive categories beyond traditional shale eggs. What we believe makes this strategy particularly compelling is the connectivity between these businesses. Our vertically integrated supply chain and breaker network create meaningful advantages in supply, cost, quality and reliability that few competitors can replicate. These capabilities allow us to serve customers more comprehensively while creating operational efficiencies across the enterprise.

We're also advancing a broader portfolio approach that brings together branded and private label offerings across shale leagues and prepared foods. This enables us to meet customers across multiple categories, consumption occasions and price points while strengthening our strategic partnerships over the long term. Innovation remains an important component of our strategy. Prepared Foods is not simply about adding products about leveraging our expertise in eggs to expand into new day parts, formats, consumption occasions that can meaningfully extend our long-term growth runway.

Our acquisition of the [indiscernible] Foods brand continues to progress well. We are integrating the business into the Cal-Maine operating model, aligning processes and connecting the brand with our broader Prepared Foods capabilities. We remain encouraged by the opportunities to leverage our scale commercial relationships and operational expertise to accelerate growth over time. While egg markets will continue to fluctuate, our long-term strategy is not dependent on any single market environment. Instead, we remain focused on disciplined capital allocation, operational excellence, our portfolio evolution and consistent execution. We believe these initiatives position Cal-Maine to create durable long-term value for our stockholders, while enhancing the resilience and quality of our business across market cycles.

With that, I'll turn the call back over to the operator to begin the Q&A portion of today's call.

[Operator Instructions] And our first question comes from Heather Jones of Heather Jones Research.

I guess one wanted to start off with conventional pricing. So my understanding over the last year to 18 months as you guys had moved to create more stability in that pricing. And when I try to get to the average price for conventional this quarter, I have to assume something closer to like 30% for like cost plus. And then a relatively low realization rate for the market-based given that we were in a declining market. And so -- and that's different that I had understood things. And so I just -- and it's different than your price performance has been relative to my estimates for recent quarters. And so just wondering if you could talk about what has potentially changed during Q4 or what we may have missed?

Yes, Heather, thank you for that question. And nothing really has changed as far as our mix. And just to kind of run through it again, there's 3 types of pricing arrangements, market grain-based or hybrid, which is a mix of market and grain-based. And breakdown of these arrangements for our businesses, about 50% market and 50% that's made up of grain-based and hybrid. And for protection of specific customer agreements, we have not given more detail in that. However, as seen in this quarter, hybrid has a significant market component and also has grain-based components since our market realization was 102% of the [indiscernible] market. It did perform as intended. We just had a situation of an all-time low inflation-adjusted [indiscernible] market. In the first 5 weeks of Q1, we've had an average [indiscernible] market of just $0.72 compared to Q4, Earnaberry average of $1.08. As a reminder, it's usually a 10- to 14-day lag and realize some changes in the market, and we believe Q1 could have a slight improvement over Q4 in conventional egg pricing will still not be considered either normal or mid-cycle.

The tale of Q1 should look much better than the first half. The important part is that we've been through these cycles many times before, and it's exactly when we manage our company the way we do. Our balance sheet is fundamental and is in great shape. Also a reminder that high path AI is called extreme volatility over the last 4 years. And unfortunately, it's clear that it's not gone with the recent layer outbreaks in the U.S. continued presence in the U.S. dairy herd and outbreak Australia, South Korea. We should not consider this a problem in the past. The upside is exports, back-to-school pools on the horizon, continued GLP-1 adoption, favorable cost per gram of protein for eggs really putting the spotlight on our protein. And likely flock adjustments, as noted by [indiscernible], I'll point to a more normalized fall or Q2 for us. Our company is built for these low spots in the cycle and just emphasize again, this is a low spot and should not be considered normalized just as last year's high prices were also not normal.

We have a very high confidence this market condition just validates further our strategy of continuing to invest and grow both specialty eggs and prepared foods, and that's exactly what we're doing. However, we also know that conventional legs will heavily contribute as we see that normalization occur. And lastly, Heather, we continue to have confidence in our company as noted by the $30 million we spent in the quarter on share repurchases.

Okay. And then just a follow-up on a comment, Max, you have made I think I just want to make sure I understood correctly that you were saying, I think for this quarter, the specialty margin was roughly 7%. Did I understand you correctly that you were saying that is more representative of the conditions you all anticipate for the foreseeable future?

That is correct. That was the margin for the quarter. As Sherman said, I don't think we consider this fourth quarter are the conditions that we've seen in the first quarter, normal or mid-cycle by any point just like we didn't consider last year high ag markets normal. So you've got the percentage right, but I wouldn't say that, that would be normal mid-cycle earnings, no.

So what did you intend to say because I don't have the comment right in front of me, but it was something about -- we view the current margin profile is more representative of normalized conditions for this segment in the near term. So that when you say that, are we -- is that what you're thinking for the next few quarters? Or how should we think about that?

It's a move back towards a more normalized market. You still got -- with that hybrid pricing and with our segments with our specialty segment, we've got a market component in there, particularly the California market component, which we called that out before, but it was at a really low price all during the fourth quarter and it's been that way for most of the first quarter, thus far.

And just a reminder, Heather, there is a low double-digit percentage of specialty prices tied to the egg market and the California market was extremely, extremely low in Q4.

And our question comes from Leah Jordan of Goldman Sachs.

I actually want to follow up on Heather's last question because I think the specialty profit, it just compressed a lot more than we were expecting a lot more than the prior quarter when pricing was down year-over-year about the same. So maybe you could just provide more color on the puts and takes, what pressured specialty profit in the quarter, maybe how that evolved versus the prior quarter?

And then ultimately, how should we think about variability longer term in this segment? It sounds like maybe it's going to be compressed here a little bit in the short term, but normalizes. And I get the market-based piece that's still in the double-digit percent there, I was thought about 10%, but you can correct me if I'm wrong. So I guess, I think the general view as investors thought this business would be a bit more stable in specialty. So maybe help us think about the variability of this segment longer term, the path to getting back there.

Thank you for the question, Leah. And the starting point there is seasonality. The last several years, that just has not existed because there's been such a deficit of supply and eggs on the shelf and specialty eggs remained extremely solid in that Q4 and this Q1 type period because there was a shortage of eggs. And this year's hand numbers increased definitely more of a normal type June, July period and even beyond that, just the seasonality effect of that, nothing that we hadn't been through many times before. but it does show a little variability, but long term, directionally, specialty eggs are in good shape. They continue to outperform conventional lakes. Max, anything you'd add to that?

Well, volume had a lot to do with it, bringing that seasonality in that you mentioned. And we're confident against the fourth quarter of last year when specialty eggs sold at a discount to conventional legs. And so this quarter, with normal seasonality post Easter, our first quarter -- fourth and first quarter, it's not unusual to see a lower specialty price. But Leah, just keep in mind, I mean, we still -- you can still see a very differentiated price between that specialty and the conventional. The specialty does have the market component. Sherman called out of that California piece and you had the numbers about right. We said low double digits, 10% to 12%. But that California market has been under a real low price. We called out the fact that the whole egg market was at an inflation-adjusted historical low. And certainly, we're seeing that affect the specialty prices as well. But going forward, we expect specialty to remain more consistent price. If we get some help from the market and it goes up, then you wouldn't see quite the variability there that we experienced this quarter.

And last thing I'll add, Max, is just last year was a really, really strong year. There's a lot of points in last year where conventional eggs were more expensive than specialty eggs, which just drove lots of volume last year.

Okay. Great. That's really helpful color. Maybe just switching over to Prepared. I know that's another leg of kind of the improving earnings quality story. We have some more acquisitions and expansions announced today. Maybe you could just help us level set on where we go from here. I always got the sense that we should be getting a trough in the fourth quarter. It sounds like the current expansion plans are on track exiting the quarter. So maybe just as we go through to the ramp to '28, how you're thinking about top line growth and the margin evolution at this point?

We'll let [indiscernible] take that.

Leah, thanks for the question. So I take you back to December of last year when we announced 2 things. the optimization of the plants that we have and how we're producing product in certain plants. So that went underway in the second quarter. We saw that we called out that the third quarter would be kind of the low point for doing that as we're optimizing production in those plants. In addition, in December, we announced a 30% increase in capacity along pancakes, scrambled eggs. So the pancake as well as Carpini. The pancakes for about 12 million pounds of additional capacity, and we're at the tail end of getting that put in here at the end of the first quarter. and we should start to see that early in the second quarter, scrambled eggs. That's about 17 million pounds of additional capacity. We'll start to see that come in, in kind of mid-second quarter.

And then Carpini was about 18 million pounds, and we'll just kind of see that gradually through 2027 into 2028. And then this is what we just announced this morning, the $54 million investment. We'll start to see that kind of later mid-2028. So that's just starting to get underway here in the first and second quarter of getting that project going. And then obviously, we added band. So in total, that's about a 60% increase in production capacity from where we ended 2026.

Okay. That's helpful. But maybe just to follow up on that. Maybe just relative, how should we be thinking about top line outlook relative to the double-digit normalized rate you've spoken to before. And then the margin recovery, does the announcement today, does that delay any of the prior views? Are we getting there faster until we get to that normalized margin rate that you guys have spoken to before?

What we announced today doesn't delay anything. In terms of the top line, we should start to see the top line move up kind of beginning in the second quarter as we get that previously announced capacity expansion of about 30%. That will start in the second quarter and then kind of progress through 2027 into 2028. And then in 2028, we'll see the top line improve from what we announced this morning kind of mid-2028.

And our next question comes from Ben Klieve of Benchmark Stone.

First, I want to ask about the market base versus grain-based price dynamic that you've outlined. I'm curious really specifically here, over the past 6 months, as prices have really bottomed out in this kind of post-Easter period. What the behavior of your retailers has been like around this dynamic? Are you seeing any change in their interest in that mix between contract based and grain based? Or is it really kind of steady state even at this historically low level?

Yes. Steady state is the answer, Ben. But it certainly is not in an environment where anyone would want more of that tight pricing. So steady state is where we sit. And once again, we do think that it performed as intended with that market realization of 102% of the [indiscernible] market. The real news is just the situation of an all-time low inflation adjusted earner berry market.

Got it. Okay. That's helpful. And then my follow-up is going to continue the conversation here around the specialty side. I mean you both noted in your prepared remarks that you were looking for certain high-margin categories within the specialty segment to pursue growth. And I'm wondering if you can elaborate on that a bit. I mean, what kind of subcategories within the specialty market do you think are particularly compelling here? And then can you comment on the degree to what you're looking at that from an organic perspective or potentially an acquisitive perspective in this environment where there may be some cheap assets available to you?

Yes. So specialty eggs, you've heard us say it many times before we produce a broad variety of specialty is, which we really believe is the right answer. It gives us lots of options for growth and whether that's organic or M&A. It's a long runway. And [indiscernible] continues to be the #1 branded egg in the U.S. and expanding that market presence in the Northeast for us is very good because of the type of market that exists there, high population of people, higher income people. So when you get into those type of populations, it favors the higher end of the specialty egg type category. So it gives us lots of opportunity to grow, and we look forward to it.

Our next question comes from Pooran Sharma of Stephens.

First question, just wanted to understand just the general M&A environment. Has there been any change from where we were last quarter that we spoke? Or do you think that folks are a bit better capitalized around this down cycle? Just just given the prior 2 up cycles we went through.

Thank you for that question. We don't know how the people sit at bottom line, but we do know that we have more growth opportunities than ever before when you think about M&A from conventional eggs to specialty age, prepared foods, the ingredients, liquid eggs that go into Prepared Foods and brands particularly around Prepared Foods. All this gives us a lot more opportunity. But I just want to reemphasize that our thinking stays egg centric. We're thinking about bolt-on and tuck-in type M&A when we look at it. And our approach remains disciplined. It has to meet our criteria and those opportunities that are strategically aligned, financially attractive and capable of creating long-term shareholder value. Though we can't predict necessarily availability, we do know that our model works, and we'll continue to follow up.

Sure. Appreciate that there, Sherman. I guess on the follow-up and I'm not sure how much you could expand upon, but really excited to see you're continuing to expand in prepared foods with today's announcement Jonathan, you went through and kind of laid out the timetables for some of these expansions like the pancake line, scrambled eggs. Wanted to understand what you all see as the highest margin item within Prepared Foods? What makes the most sense for you guys to get into? And is it because it's the highest margin? Or are there kind of operational benefits into those areas?

Yes. So as Sherman mentioned, kind of being egg centric. So certainly, we think about our ability to provide raw material ingredients downstream to those businesses as being kind of fundamental to not only top line growth but also earnings potential. That certainly will continue to be kind of focused on that as well. And then with our recent acquisition of Vans, acquiring a brand in addition to the Carpini brand that we already have Prepared Foods certainly continuing to focus on enhancing brand portfolio and bringing that to bear with our total product offering in Prepared Foods. So those are areas we're certainly focusing on from not only a top line, but from an earnings potential and seeing kind of earnings and cash flows growing along with that.

Pooran, I would add to that, that from a prepared foods perspective, we believe the best strategy is to create a diversified portfolio of egg-based prepared foods really falling into 2 categories. the very pure-play egg-based prepared foods. I think egg bites, patties, omlettes, scrambles, those types of products, but then also products that use eggs as a key raw material ingredient, which is why you see us in pancakes and in waffles and in French toast and those types of products. And from a diversification standpoint, also thinking about it from a ready-to-heat and ready-to-eat perspective. When you take a look at all of those product categories in aggregate, you're looking at somewhere around a $9 billion or $10 billion total addressable market. We participate in a very small percent of that opportunity currently. So absolutely enormous and substantial runway for growth there.

Last thing I'll add on is just the investment that we announced this morning. is in existing facilities, which just further helps us with optimization and efficiency in what we're already doing.

and our next question comes from Ben Mahu of BMO Capital Markets.

So my first question is on your outlook commentary, which would suggest that recent price recovery is sticky and we may have found a bottom on conventional egg prices. So I was hoping if you could just provide maybe some further context on that hypothesis? And what -- like what can you -- what do you see from your operations? And maybe you can comment on the industry as well. But what do you see that gives you confidence that this $1.39 level is sticky and we've kind of put the bottom in and Q2 will start to look better in Q3 even better than that.

Yes. Thank you, Ben, for the question. And we can only come in about ourselves and what we can gain from these third parties. And just once again, to kind of point out the indicators that they're talking about, breeder activity slowing, increase in chick cancellations, hatchery activity softening signaling just a slower future pullet placement and moderation in the pace of flock expansion over time. Those are the real key indicators. And the big one is how path AI. It's unknown. It's a variable we can't predict. But it's very clear in the U.S. and on a global scale that it's not gone, and we can't predict any type of disruption. But until we build some serious time on the global scale of not having occurrences, it's a real threat.

Okay. I can appreciate that. And I guess just on CapEx because -- I think we've covered everything else I have here. On CapEx for '27, like I guess, how much of the $54 million investment falls in '27 versus '28. You had mentioned earlier some of the other Prepared Foods projects that were in process. So I guess if you could just give us a little bit more context on the cadence of CapEx for '27 and possibly '28, if you can, that would be helpful.

John, do you want to that one?

Yes. Thanks, Ben. So what we just announced this morning, $54 million, most of that will be spent in 2027. There'll be a tale of it kind of in the first part of 2028, but most of it is in 2027. And then what we announced back in December, most of that has been spent in 2026 with just a little bit left to go here in the first quarter as we -- and maybe a little bit in the second quarter as we finalize getting that capacity online tied into producing.

Just as a reminder, our CapEx for '16 was about $151 million. That was about 16% of our total use of capital. And we're looking at maintenance CapEx of around $50 million to $60 million.

[Operator Instructions] I show no further questions. I will now turn it back to Sherman Miller for closing remarks.

I just want to end by saying thank you for all the thoughtful questions today for your continued interest in Cal-Maine Foods. And operator, we're ready to conclude the call.

This concludes today's question-and-answer session. A replay of today's call will be available via webcast approximately 2 hours after the conclusion of this call and will remain available on demand for 1 year. The webcast can be accessed in the Investor Relations section of Cal-Maine Foods website. A transcript of today's call will also be posted in the Investor Relations section of the company's website. Thank you for joining us today, and you may now disconnect.

Good morning, everyone, and welcome to the Cal-Maine Foods Third Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions]. Please note this call is being recorded. I will now turn the call over to Sherman Miller, President and Chief Executive Officer of Cal-Maine Foods. Please go ahead.

Good morning. Thank you for joining us today. I want to remind everyone that today's remarks may include forward-looking statements. These are based on management's current expectations and are subject to risks and uncertainties described in our SEC filings. Let me start by sincerely thanking our teams across the organization whose execution, focus and commitment to excellence drive the operational and financial performance that underpins everything we do.

The hard work and dedication continue to set us apart, and these results are a direct reflection of their efforts. In February, we shared the sad news of the passing of long-time Board member, Jim Poole. Over more than 2 decades, Jim made a lasting impact on the company, and we extend our heartfelt condolences to his family and loved ones.

Today, we announced the appointment of Dudley Wooley to the Board to fill the vacancy left by Jim. Dudley brings deep expertise in risk management and governance, along with a strong track record of leading growth-oriented organizations and driving operational performance.

We look forward to the perspective he will add as we continue to strengthen our business, enhance earnings visibility and focus on long-term value creation. Before Max walks you through our results in detail and provides additional color on our financial performance, I'd like to spend a few minutes discussing how we think about the long-term direction of the business and how the strategy we're executing is designed to create durable value over time.

When investors evaluate Cal-Maine, they often focus on the consistency of our execution. That reputation has been built over time, not in any single quarter. It reflects the accountability, operational excellence and continuous improvement embedded across the organization. At Cal-Maine, our objective is straightforward: to compound intrinsic value per share over time through thoughtful portfolio evolution, efficient operations and prudent capital allocation.

While short-term earnings will naturally fluctuate in a cyclical industry, our focus remains on strengthening the long-term earnings power and resilience of the business. In practical terms, that strategy centers on several priorities. First, we continue to expand our specialty egg mix as specialty eggs represent a larger portion of our portfolio, they support structurally stronger margins, more stable demand characteristics and improved returns on invested capital.

Second, we are continuing to evolve our pricing structures. Over time, we are increasing the share of our business that operates under structured pricing arrangements, which we believe helps improve the stability and predictability of realized pricing across the cycle. Third, we're expanding our Prepared Foods platform. Prepared Foods broadens our addressable market, leverages our vertically integrated shell egg inputs and establishes a complementary long-term growth platform alongside our core shell egg business.

At the same time, we continue to reinforce the operational strengths that have long defined the company. Investments in biosecurity, productivity and vertical integration strengthen our cost leadership and support reliable operating performance across cycles. Together, we believe these actions will steadily improve the quality and durability of our normalized earnings power while strengthening the company's long-term competitive position.

Against that backdrop, let me highlight a few key developments from the third quarter and the first 3 quarters of our fiscal year that reflect how this strategy is translating into execution. Unless otherwise indicated, all comparisons are to the comparable period of fiscal 2025. In the third quarter of fiscal 2026, specialty eggs drove a greater portion of shell egg sales, accounting for 50.5% of total shell egg sales compared to 24.4%.

Prepared Foods accounted for 9.5% of net sales compared to 0.8%. Specialty eggs and Prepared Foods combined accounted for 52.9% of net sales compared to 24%. In the first 3 quarters of fiscal 2026, specialty eggs drove a greater portion of shell egg sales accounting for 42.7% of total shell egg sales compared to 29.2%. Prepared Foods accounted for 9.3% of net sales compared to 1%. Specialty eggs and Prepared Foods combined accounted for 45.7% of net sales compared to 28.6%.

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

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

The disruption hasn't gone away. It's still a reality, but it's not driving the same level of supply shock or panic-driven purchasing. Supply has improved and retailers and food service operators aren't rushing to build inventory, which has put downward pressure on wholesale prices with retail adjusting more gradually.

The key data points for December to February make that clear. The average layer in flock is up about 2.2% year-over-year and depopulations are down 70.6% year-over-year. So while high path AI is still present, the magnitude of disruption is meaningfully lower, and that's what's showing up in pricing. On the demand side, consumption remains stable to improving with a few timing dynamics influencing near-term trends.

In retail volumes are up about 3% year-to-date. What's important is that our market is broad-based. Growth is showing up across both value and premium segments. In foodservice, demand is beginning to recover with increased traffic and egg servings increasing, particularly in quick service. More broadly, eggs continue to benefit from strong structural tailwinds.

They align with high protein and health-focused diets, fit well with convenience and portable meal formats and remain a nondiscretionary item once the consumer is in the channel.

So overall, demand is holding up well and what we're seeing in the market today is much more about supply recovery and timing shifts than any fundamental change in consumption. You can see our strategic framework reflected in the acquisition of the shell egg, egg products and prepared foods assets of Creighton Brothers and Crystal Lake that we announced during the quarter.

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

We believe that over time, integrating she egg production, egg products and prepared foods more tightly within our value chain will help strengthen supply security, improve operational efficiency and reinforce the economics of our Prepared Foods platform. With that, let me turn the call over to Max to drill down into our financial results and discuss our capital allocation framework. Max?

Thanks, Sherman, and good morning, everyone. As a reminder, we published our third quarter earnings release and the 10-Q this morning. Additionally, we published a brief earnings presentation on our website. These documents contain detailed information on our financial results. I'll touch on the highlights for the third quarter of fiscal 2026.

Unless otherwise indicated, all comparisons are to the comparable period of fiscal 2025. For the third quarter of fiscal 2026, net sales were $667 million compared to $1.4 billion, down 53%. Conventional egg sales were $283.2 million compared to $1 billion, down 72.1% with 70.1% lower selling prices and 6.7% lower sales volumes. Specialty egg sales were $289.1 million compared to $328.9 million, down 12.1% with 16.9% lower selling prices and 5.8% higher sales volume. Our average breeder flocks grew 13%.

Total chicks hatched rose 41.7% and the average number of layer has expanded to 2%. Prepared Foods sales were $63.6 million compared to $11.8 million, up 441.2% year-over-year and compared to $71.7 million, down 11.2% quarter-over-quarter. Our majority-owned subsidiary, Crepini Foods delivered strong momentum with sales increasing by 283%, contributing positively to the overall Prepared Foods portfolio.

In Prepared Foods, Q3 represents a trough driven by the timing of previously announced planned network optimization and expansion activities. The near-term margin pressure is largely volume-driven, reflecting temporary downtime and under-absorption of fixed costs, along with some mix headwinds as the network transitions and we increased the use of cost type pricing arrangements that enhance stability.

As capacity comes back online, we expect a progressive recovery beginning in Q4 with margins trending back towards baseline through fiscal 2027 and 2028 as scale and network efficiencies are realized. We expect Prepared Foods capacity to increase more than 30% over the next 18 to 24 months. Importantly, demand remains intact. This is a function of execution timing, not structural weakness, and these investments position Prepared Foods as a more durable, high-margin growth platform.

Overall, gross profit was $119.3 million compared to $716.1 million, down 83.3%, primarily driven by 56.5% lower shell egg selling prices, partially offset by a decrease in the price and volume of outside egg purchases as our percentage produced to sold increased 3.1 percentage points to 91.5%.

Operating income was $35.9 million compared to $635.7 million, down 94.3% with an operating income margin of 5.4%. Net income attributable to Cal-Maine was $50.5 million compared to $508.5 million, down 90.1%. Diluted earnings per share were $1.06 compared to $10.38, down 89.8%. Cost of sales decreased 21.9%. Lower costs associated with egg purchases and egg products more than offset the increase in prepared food costs due to the acquisition of Echo Lakes Foods as well as the increase in our farm production and processing, packaging and warehouse costs. SG&A expenses increased 4.2% due to the addition of Echo Lake Foods and increased professional and legal fees.

This was partially offset by lower employee-related costs. Net cash flow from operations was $103.6 million compared to $571.6 million, down 81.9%. We ended the quarter with cash and temporary cash investments of $1.152 billion, down 17.3%. We remain virtually debt-free. We repurchased 329,830 shares of common stock under our current share repurchase authorization during the quarter for a total of $24.3 million.

The repurchase program permits us to purchase up to $500 million, of which $350.8 million remains available. For the third quarter of fiscal 2026, we will pay a cash dividend of approximately $0.36 per share to holders of our common stock pursuant to our variable dividend policy. The dividend is payable on May 14, 2026, to holders of record on April 29, 2026. The final amount paid will be based on the number of outstanding shares on the record date.

From a financial perspective, our priorities remain centered on strengthening the durability and predictability of Cal-Maine's earnings profile while maintaining a structured and flexible capital structure. Our capital allocation framework is designed to support long-term per share value creation while preserving the financial resilience necessary to navigate a cyclical industry. First, we will prioritize investment in high-return organic growth opportunities. This includes investments that expand specialty egg capacity, improve productivity and operational efficiency and support the continued development of our egg products and prepared food capabilities.

To that end, our Prepared Foods expansion initiatives are progressing on schedule and in line with plans previously communicated. At Echo Lake Foods, the network optimization and capacity expansion project is underway and expected to add approximately 17 million pounds of annual scrambled egg production capacity throughout fiscal 2027. In addition, the previously announced 14.8 million high-speed pancake line continues to advance as planned and is expected to contribute an additional 12 million pounds over the course of fiscal 2027.

Separately, our joint venture, Crepini Foods, is investing $7 million through fiscal 2028 to expand production capacity by approximately 18 million pounds through the installation of new equipment and production lines. Collectively, these initiatives remain on track and are expected to increase Cal-Maine's prepared food production capacity by more than 30% over the next 18 to 24 months as the projects are completed and ramp up as planned.

Second, we pursue selective acquisitions that strengthen the company's strategic positioning and meet stringent return thresholds. Our acquisition of certain assets of Creighton Brothers and Crystal Lake is a good example of this approach. The transaction expands the geographic scale of our shell egg platform while also adding nearby liquid egg capacity that we believe will strengthen our integrated value chain.

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

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

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

[Operator Instructions]. Our first question comes from Heather Jones with Heather Jones Research LLC.

Congratulations on the quarter. I guess I want to start with specialty pricing. That was where much of the upside was relative to our estimate for the quarter. And the California price had rallied nicely over the course of a few weeks, but has recently begun to pull back, but still not back to the Q3 lows. So just wondering if you would expect Q4 specialty price to be similar to Q3? Or is there some other dynamic that we need to consider there?

Heather, thank you for the question. Specialty eggs are continue to be extremely exciting for us. And as we move into Q4 and beyond, we see that as a huge part of our differentiation and us being able to diversify and -- the specialty price, as we've mentioned before, there is a smaller piece of that category that is tied to the market.

And as that market moves up and down, there is some fluctuation. But for the most part, those prices are a lot more stable. And Max, you might want to give a little bit more color on that.

Yes. As Sherman said, Heather, our specialty pricing doesn't fluctuate that much. We call out the vast majority of our specialty pricing is either grain-based or fixed price type arrangement cost plus.

So again, stays pretty flat. There is a component of that, that as you call out, that ties to the cage-free California market. It varies from quarter-to-quarter, but roughly, I'd say about 12% or in that range. And depending on how that price reacts this quarter and coming quarters will largely drive a lot of that movement. But we expect that specialty price to stay pretty consistent.

Okay. And then on my follow-up is just on the Prepared Foods business. I think -- and I joined the call a few minutes late, but I think I caught you all saying that you expect the margin for that business to trend back to baseline through '27 into '28.

So just wanting to clarify that. Are you not expecting it to fully get back there until '28? And then when you say baseline, there were some quarters where it was north of 20%, but I believe your baseline is 19%. So is it unlikely to get back to where it was a few quarters ago? And just like how should we -- just updated thinking on how we should be thinking about baseline?

Yes, Heather, I'll take that one. We think Q3 represents, I'd call it, a trough quarter. What you're seeing is anticipated impacts of some of the network expansion and capacity initiations that we've mentioned. In the quarter, we saw some lower volumes as we go and margin pressure as we go through these reconfigurations.

When you have lower volumes, the first thing that happens to you is under absorption of fixed cost, and that was one of the major headwinds for the quarter. But as we roll into Q4 '26, even we expect to see some of that rebound begin to come back online. It will be tempered a little bit as sales mix tied to the end of the school year partially will offset some of that margin recovery. And that's just a normal seasonal dynamic. It's not an execution issue there. We're currently because of these reconfigurations, having a slightly less desirable product mix that's impacting our margins as we reconfigure.

But again, that will improve over time, too. All these things are transitional and not reflecting of underlying demand, which we still believe to be strong. We'll continue -- we continue to migrate from market-based pricing towards grain-based and longer-term pricing arrangements. This moderates sometimes near-term pricing upside. But again, we're looking at the long-term durability and stability of our business, and we think it enhances that.

We -- as we begin to see this recovery in Q4 '26, we'll see higher capacity and better utilization of that capacity. And then that margin recovery will really start showing up towards the end of '27 and as you said, into '28. And that's when the volumes we've talked about through the additional investment that we've made in -- or are making, I should say, in Echo Lake as well as Crepini will be fully online and returning. So -- and when you speak of the 19% to 20% margin, that was the margin we had called out at Echo Lake and Crepini's coming along and the other elements of our Prepared Foods, we continue to work on as well.

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

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

Our next question comes from Pooran Sharma with Stephens Inc.

Congrats on the quarter here. I wanted to focus on pricing here, maybe for the conventional eggs. It did come in a little bit higher than we were modeling.

And you have stated in the past that your new hybrid pricing model gives you a little bit better floor. And I'm just looking at the price ratio between your conventional egg pricing and what we track with the USDA. And we just haven't seen it this high since over a decade. And I was wondering if maybe you could help us and the investment community just understand how to think about your cost of production for your conventional eggs just kind of based on some of the disclosures you have in your filings? And then maybe just marry that with what kind of at a high level rate of return do you all kind of generally expect from these type of assets?

Thank you for the question. I'll start off and then pass it to Max. And I think you pegged it very well. You are seeing reduced volatility. And as we mentioned with hybrid pricing, there's some trade-offs. On the top side, there's an opportunity. But on the bottom side, there is as well, and that's what you're seeing in this quarter and market realization certainly benefits from this as well as, as we mentioned before, having longer-term arrangements -- so any topside slippage is certainly balanced with downside uplift.

And that, of course, it depends heavily upon the type of customer and the real win here is us working with customers not only benefit the type of eggs you're talking about, but also specialty eggs and prepared foods that we also value very highly. On the cost side, there's certainly a lot going on geopolitically around the world. Grain certainly is one of the things that's come up in the news over the last few weeks, particularly tied to fertilizer and our consultants have assured us that probably 90% of the inputs have already been locked.

So fertilizer costs for this planting season shouldn't cause too much disruption. But certainly, fuel transporting not only grains, but everything else is certainly in the news and is real. But the reassuring piece of that is that we've been here many, many times before. And we navigate that not only by using our scale, but also by using things like our warehousing and our inventory and managing through situations like this. Max, what would you add?

Well, I mean, Pooran, when you talked about hybrid pricing, you're talking about primarily our conventional eggs. As you know, we only report one segment today. So we don't really give complete margin information and returns on conventional versus specialty. But all that hybrid pricing does exactly what you called out and what we've said before.

And we -- what we hope to get from that is a more stable and resilient and continuous profit. I mean I'm not saying it will always be a profit, but certainly, we're taking some off the top for high, high returns from conventional and trading that for longer-term, more stable earnings. And then we -- as we grow, that's a piece of the puzzle. and where we look for really good growth and even better returns would be from our specialty and our Prepared Foods business.

So we kind of look at the conventional business as our baseline. It's important because of its size and scale that it's strong and it operates profitably and consistently, and that's what the hybrid pricing does. And then we continue to invest in the Prepared Foods and our specialty where we hope to get higher returns. We don't disclose individual, again, returns for conventional and specialty at this time, but we've said in the past that our return on invested capital is double digit, well above our cost of capital. And so we feel good about the returns as we sit today, not only from conventional, but the opportunities in Specialty and Prepared Foods.

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

I'll start by just commenting on Creighton Brothers. As we pointed out, there is liquid egg capacity there, and it's very close to our Prepared Foods operations that ultimately egg products will be producing in the Southern 2 plants.

And our capital allocation hierarchy still remains intact to pursue selective accretive M&A where returns are compelling. And we believe that we have more ways to grow than ever before, being conventional eggs, specialty eggs, prepared foods, the ingredients that you mentioned and also brands tied to prepared foods. The ingredient piece, we want to, over time, closely align our needs within Echo Lake. And as we mentioned before, there are some arrangements that we're working through that we inherited.

But we think that Creighton Brothers is certainly a very strategic move in making now that come to pass. Max?

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

And I think there's a lot of balance there, and it kind of shows that in a lot of ways, we're putting our money where our mouth is. I mean it represents about $1 billion of capital that was allocated. About 38% or $384 million of that went to dividends to our shareholders, about $299 million or 30% went to the acquisitions, things like Echo Lake, [indiscernible], Creighton Brothers that we just announced.

And remember, we're in a -- we've been in a time when acquisitions are sometimes considered a little tougher because of the very good markets that we've been in, but yet we've been able to deploy capital towards these acquisitions that we believe really advance our goals for long term. On the CapEx side, we allocate about $117 million or 17% of that, and that includes about $35 million or so of maintenance CapEx. And then our stock repurchases or share repurchases about 15% over $150 million.

So again, I think that gives a good view of where we're spending our money. And as Sherman says, what our focus is there is really long-term shareholder value. We look at things opportunistically, and we want to do the things that we think clearly enhance our earnings quality and portfolio growth and resiliency.

Our next question comes from Leah Jordan with Goldman Sachs.

I wanted to ask about demand. So you talked about it being resilient in the quarter. But just seeing if you could provide more color on the trends you're seeing within your branded portfolio specifically? And then what are the growth opportunities you still see there, including any potential opportunity to gain more contracts or exclusivity over time?

Thank you for that question. And I'll certainly get to the branded, but just on a higher level, retail egg volumes are up about 3% year-to-date, and that's through late February. And the really incredible thing about that is it's broad across segments from conventional cage-free, free range, pasture raised and food services also showing early signs of recovery with January making a clear inflection point, up about 1% year-over-year with dollars up about 4%.

So we're seeing some good things from a high level -- and eggs continue to be well positioned with the long-term consumer shift toward high-protein diets, supported by their strong nutritional profile and affordability is a huge plus for us right now as a tailwind. And on our branded side, we do continue to grow that through many ways. One is establishing production to support it. And as Max has mentioned, these case-free projects that are coming online here now and in the next few months, tee us up to be able to continue to grow that. We have seen growth, of course, in this quarter and are planning future growth as well. Max, what would you add?

Yes. I think you pretty well covered it. But I mean, I would say that our specialty, not just branded, but specialty was up 6% for the quarter. That's higher than the overall market for specialty. And as Sherman says, it's kind of broad-based across case-free, free range, pasture raised.

And importantly, for us, from a volume perspective, it was a record specialty quarter, which I think is something to take note of, particularly when you consider the fact that lower conventional prices sometimes tend to tamper down specialty growth because the consumer goes for the cheaper egg, yet we were still able to get some growth. I didn't mention our [ Nutri Enhance ] or our branded relationship with [ EB, ] but that's something we continue to work to grow and think there's opportunity for some more regional growth there into the fourth quarter and beyond a bit. So -- and then as Sherman says, those projects that we called out, the 1.1 million of cage-free that we were adding, I think, 5 locations.

All those are -- a couple were done. The rest, I'll say one will finish up late in this quarter, this fourth quarter, and that one will finish in the fourth quarter -- excuse me, in August of next year -- of this year, but after this fiscal year. So we can still see growth in our specialty business ahead and I think there's great opportunity there.

That's very helpful detail. Just for a follow-up, I wanted to switch over to feed. I know Sherman, you touched on it a little bit in an earlier question. But just given the shift in grain markets in recent weeks, just seeing if you could provide more color on how you're thinking about your feed costs over the coming quarters and as you start to plan into FY '27 and any mitigation you have there, should we see costs continue to rise?

Yes. We continue to measure and mitigate risk, and that includes utilizing our grain warehousing basis locks or hedging strategies applicable. And certainly, these grain-based agreements have offset the effect of grain price change. And yesterday, the planting intentions report came out and viewed by some as fairly neutral.

If you look at what they were predicting planting last year at this time, it's very close in reality of what actually got planted corn down about 3.5 million acres and beans are up about 3.5 million. But -- we really focus on the carryout, 14% stocks to use is bearish.

And certainly, the geopolitical effect can change things in a hurry from the Middle East and a lot of fertilizer costs and fuel cost conversation happening. But at the end of the day, we've been through this many times, and we continue to utilize all of our tools to mitigate any risk that we have the best that we can, and we'll continue to do that. Max, anything to add there?

I think you covered, Sherman.

Our next question comes from Benjamin Mayhew with BMO Capital Markets.

So my first is, if you could just help us better frame up the current supply environment and particularly the specialty egg category. Competition seems to have picked up there quite a bit year-to-date with more promotional activity seen. So what is your view on the sustainability of the supply growth rates we are seeing?

Thank you for that question. And as we mentioned a few minutes ago, specialty eggs, we continue to grow that and the first step of it is having supply. So as some of these projects come online, it certainly indicates that we're going to be prepared for that type of growth.

And the last few years have certainly been very light on promotions, just simply there was a shortage of eggs and promotions were not needed going forward. We promoted all except for the last few years. So we'll continue to fall back into that routine and see good results coming from it. Max, anything to add on that for us?

I think that pretty much covers it.

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

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

We kind of consider it in 5 buckets, conventional eggs. We continue to grow Creighton Brothers, that acquisition had additional conventional eggs that fit very nicely, especially in the liquid piece, specialty eggs, that -- those organic projects have been going on as well as we've had M&A through Creighton also picked up about 500,000 case [indiscernible] there. And then, of course, also Prepared Foods.

We have about $30 million -- $36 million worth of expansion projects going on there as well as continue to look for M&A and opportunities -- and then lastly, ingredients, just a big opportunity for us to make sure that our production is aligned. So we don't just focus just on specialty eggs, but we certainly know that we've got to have the supply needed to be able to grow those, and I believe we're sitting in the right position to do that, Max?

I think you covered it. The only thing I'll say about the productivity. I mean, just our culture with our roughly 50 operating locations. We're always ranking those one against the other, trying to learn what one is doing that's really good or if there's one that's underperforming, how we can get that underperforming to duplicate the results of those in the top 1/3 of our business. So it is a constant analysis of productivity and looking for ways to bring our whole enterprise up as we identify things across it.

And I do think that, that scale and that opportunity to look at good at 50 locations gives you -- if you can really mine that and then take it to the other locations, it gives you a lot of opportunity for continuous improvement, and that's always part of our focus.

Our next question comes from Ben Klieve with Benchmark StoneX.

Congratulations on a nice quarter here. My first question is a follow-up to the conversation around the hybrid pricing model and the conventional. I'm wondering if you can elaborate a bit on the kind of behavior of your retail partners here as commodity egg prices have come down with intra-quarter sub-$1 various points throughout the quarter. Have those retailers that maybe were moving to contract-based pricing over the past year or 2, are they reconsidering that move here in the face of low commodity egg prices? Or has kind of the willingness for the move to -- from market-based to contract-based remain pretty consistent.

Ben, thank you for that question. And this quarter was certainly a test for whatever strategy a retailer had with the market range up to $2.69 all the way down to $0.85 within the same quarter, and that's in the Southeast market.

So definitely, the strategies got tested. And as we've mentioned, there's protection for our customers on the upside and then the downside, there's protection for us. And depending on their go-to-market strategy, whether it's a high, low or an everyday low price, different arrangements favor one retailer versus the next.

But I would say, overall, the strategies performed exactly like they were designed to. And you're seeing some of that benefit in our market realization in this quarter. I think you covered it.

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

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

So I wouldn't really say it's doubling down at this point, but we do continue to grow that both organically and through M&A as opportunities present themselves, and we'll be very strategic and make sure that we stay egg-centric while we do that in the breakfast channel and won't get too far outside of our core competencies. Max?

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

Well, thanks, everybody. It was an exciting quarter for us, and we are very grateful for everybody's attendance today and your continued interest in Cal-Maine Foods. And operator, we're ready to conclude the call.

This concludes the question-and-answer session. A replay of today's call will be available via webcast in approximately 2 hours after this call. The webcast will be available on demand for a year. It can be accessed by going to the company's website, Investor Relations section. In addition, a transcript of today's call will also be posted on Cal-Maine's website, Investor Relations section. Thank you for joining us today. You may now...

Good morning, everyone, and welcome to the Cal-Maine Foods Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note that this call is being recorded.

I will now turn the call over to Sherman Miller, President and Chief Executive Officer of Cal-Maine Foods. Please go ahead, sir.

Good morning. Thank you for joining us today. I want to remind everyone that today's remarks may include forward-looking statements. These are based on management's current expectations and are subject to risks and uncertainties described in our SEC filings. Looking at our performance in the second quarter and first half of the year, the story is clear. We built real momentum. We delivered solid results even against a tough comparison to last year, which is marked by supply-demand imbalances and historically high prices. With lower egg prices, our increasingly diversified business model, combined with effective execution has proven to be a source of resilience and that positions us uniquely today, a rare combination of both value and growth with the potential to strengthen even further over time.

Our specialty egg business maintained strong prices and volumes despite challenging comparisons and delivered growth in the first half of the fiscal year. At the same time, our recently announced expansions are positioning our Prepared Foods business to deliver sustained double-digit volume growth. Another key trend we're seeing is the ongoing shift in our sales mix across the portfolio. This shift was visible throughout the second quarter and first half of the fiscal year, and we expect it will steadily enhance the durability and predictability of our earnings. It's a direct reflection of the deliberate execution of our long-term strategy, and we believe our results continue to reinforce just how effective that approach will be in pursuit of operational and financial excellence.

Let me share a few strategic highlights from the second quarter and first half of the year that show how we're driving continued sales diversification and favorable mix shifts. In the second quarter of fiscal 2026, shell egg sales represented 84.4% of total net sales compared to 94.7%. Specialty eggs drove a greater portion of shell egg sales accounting for 44% of total shell egg sales compared to 31.7%, and specialty eggs and prepared foods combined accounted for 46.4% of net sales compared to 31.2%. In the first half of fiscal 2026, shell egg sales represented 85% of total net sales compared to 94.5% in the first half of fiscal 2025. Specialty eggs drove a greater portion of shell egg sales accounting for 39.6% of total shell egg sales compared to 33% and specialty eggs and prepared foods combined accounted for 42.8% net sales compared to 32.4%.

None of this happens without our people. I want to sincerely thank our teams across the organization whose disciplined focus and commitment to excellence drive the operational and financial performance that underpins everything we do. Their hard work and dedication continue to set us apart, and these results are a direct reflection of their efforts. Before Max walks you through our results in detail and provides additional color on our financial performance, I'd like to take a few minutes to focus on the long-term strategic direction of the company, how we're positioning our sales for sustainable growth and where we see the most compelling opportunities ahead. Cal-Maine enters this moment from a position of strength. Our core shell egg platform is durable, proven and built through decades of effective execution. That foundation gives us something rare in today's market, structural integrity at the base of our business paired with powerful avenues for growth.

What makes this platform particularly compelling is how the category and consumer behavior are evolving. Across the U.S., eggs remain an affordable protein source. Consumers are seeking complete high-quality proteins. GLP-1 users are gravitating towards satisfying nutrient-dense foods, younger consumers and families are treating eggs as an everyday staple. And across the board, convenience is a major tailwind with rising interest in ready-to-eat and ready-to-heat formats. We see consumers trading up. Specialty and premium segments are showing stronger repeat usage and alignment with the attributes people care about: wellness, taste, simplicity and clean labels. Put simply, eggs are leading on health, convenience and quality, and that combination is reshaping category growth in a way that we believe plays directly to our strengths.

This is why we're intentionally evolving Cal-Maine into a more resilient, strategically diversified portfolio, growing specialty eggs and accelerating value-added prepared foods. It's not a pivot. It's a progression. We're taking a well-established business and expanded into multiple growth engines that we believe would deliver high-quality earnings, deeper customer partnerships and a stronger alignment with the long-term consumer trends. A major part of that progression is our prepared foods platform.

Sitting on the acquisition of Echo Lake Foods, we're investing to meaningfully expand our prepared foods capabilities. We've launched a $15 million network optimization and capacity expansion project that is expected to add 17 million pounds of annual scrambled egg production by mid-fiscal 2027. This project consolidates all scrambled egg manufacturing into a single modernized facility, eliminating redundancy across sites, streamlining workflows and strengthening supply reliability. It also adds a new production line and upgraded automation that will improve yields, reduce labor requirements and increase throughput. In short, we believe it positions Echo Lake Foods to support both near-term customer demand and long-term organic growth with greater efficiency and precision.

This builds on our previously announced $14.8 million high-speed pancake line which is expected to add another 12 million pounds of capacity through early fiscal 2027. As these projects ramp, Echo Lake Foods has and will experience temporary lower volumes and higher costs which began late in the second quarter of fiscal 2026 and are expected to continue through the remainder of the fiscal year. But we believe the short-term impact will be outweighed by the long-term benefits, higher output, improved efficiency and a more agile modernized platform. We're also scaling our joint venture Crepini Foods, which is investing $7 million through the fiscal 2028 to add 18 million pounds of capacity expanding production more than sevenfold. When you combine Echo Lake and Crepini, we expect total prepared foods capacity to increase more than 30% over the next 18 to 24 months. We believe this will position us to meet accelerating demand for high-protein, ready-to-eat, convenience forward formats that are aligned with changing consumer preferences.

In addition to accelerating value-added prepared foods, we're growing specialty eggs. In the second quarter, we acquired certain production assets Clean Egg LLC in Texas, which expands our specialty cage-free and free-range egg capacity and supports local sourcing, captures accelerating market growth and optimizes our supply chain. These investments are expected to have strengthened our mid-cycle earnings profile and build a more resilient business over time. They also reinforce what makes Cal-Maine unique among agriculture producers.

We're a pure-play leader in one essential category, settling roughly 1 out of every 6 eggs consumed in the U.S. with full vertical integration from feed and flock to processing, distribution and customer delivery. And we're using that scale strategically designing solutions that make egg consumption easier, more valuable and more accessible across all channels. This is a long-term investment story, not a short-term trade. The egg industry has always been cyclical, supply-driven and headline sensitive. The object has never been to avoid cycles, is to manage through them effectively, and that is where we have consistently differentiated ourselves.

We have been in environments like this many times before, periods of supply disruption and price volatility are not new to this industry. And each time we have navigated them, we have emerged stronger. Importantly, the supply challenges related to High Path AI are not behind us. The current epi curve closely resembles prior years include 2022. Global outbreaks continue and recovery remains uneven and unpredictable rather than linear. This is not a short-term dislocation. It's a structural reality that reinforces the importance of scale and operational execution. Looking long-term, one of the most compelling opportunities in eggs is increasing USA consumption, and that growth does not occur without reliable supply. Reliability builds trust with retailers, food service partners and consumers. Increasing hen numbers over time is not a negative. It's a prerequisite for sustainable growth. Customers consistently value consistency over spot pricing and in an environment where volatility is the norm, reliability becomes a durable competitive advantage. Our strategy is intentionally designed to perform across cycles. We maintained a strong balance sheet to preserve flexibility in all environments, pursue accretive growth with disciplined capital allocation and continue expanding our portfolio across egg types and adjacent categories. We remain relentlessly focused on cost drivers and efficiency to protect margins through cycles or earning trust by doing the right thing with customers, employees and partners. This is not a strategy for a single cycle. It's a strategy built for durability. Demand in this category is real, but it is also complex.

What is often labeled as demand reflects a wide range of dynamic variables including the timing and geography of bird gains or losses, shifts in where consumers shop, media-driven panic buying, weather patterns, wholesale market movements, promotional activity and holiday timing, navigating that complexity effectively is a core operational capability.

Finally, this is a fundamentally different company than the last time we experienced similar market conditions. Today, we have a stronger balance sheet, meaningful growth, both organically and through acquisitions, greater diversification into specialty eggs and prepared foods, deeper bench strength across the organization and reduced exposure to pure commodity pricing through specialty mix, hybrid pricing models and value-added products. We are more diversified and more resilient and better positioned to compound value over the long term.

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

Thanks, Sherman, and good morning, everyone. As a reminder, we published our earnings release and 10-Q this morning. Additionally, we published a brief earnings presentation on our website. These documents contain detailed information on our financial results. I'll touch on the highlights for the second quarter and first half of fiscal 2026. Unless otherwise indicated, all comparisons are to the comparable period of fiscal 2025.

For the second quarter of fiscal 2026, net sales were $769.5 million compared to $954.7 million, down 19.4%. Total shell egg sales were $649.6 million compared to $903.9 million, down 28.1% with 26.5% lower selling prices and 2.2% lower sales volumes. Conventional egg sales were $363.9 million compared to $616.9 million, down 41% with 38.8% lower selling prices and 3.6% lower sales volumes. Specialty egg sales were $285.7 million compared to $287 million down 0.4% with relatively flat sales volume and selling prices. Breeder flocks grew 12.7%. Total chicks hatched rose 65.1% and the average number of layer hens expanded 2.6%. Prepared food sales were $71.7 million compared to $10.4 million in the second quarter of fiscal 2025 of 586.4% and compared to $83.9 million in the first quarter of fiscal 2026, down 14.5%.

Echo Lake's Foods contributed $56.6 million of the sales in the second quarter of fiscal 2026 compared to $70.5 million in sales in the first quarter of fiscal 2026. As Sherman mentioned, the announced expansion initiatives had an impact on second quarter fiscal 2026.

Gross profit was $207.4 million compared to $356 million, down 41.8%, primarily driven by 26.5% lower shell egg selling prices and 2.2% lower shell egg sales volumes, partially offset by lower egg prices for outside purchases and a 3% increase in percent of sold as well as contributions from prepared foods. Operating income was $123.9 million compared to $278.1 million, down 55.5% with an operating income margin of 16.1%. Net income attributable to Cal-Maine Foods was $102.8 million compared to $219.1 million, down 53.1%.

Diluted earnings per share were $2.13 compared to $4.47, down 52.3%. Cost of sales decreased 6.1%, lower costs associated with egg purchases and egg products more than offset the increase in prepared food costs due to the acquisition of Echo Lake Foods as well as the increase in our farm production and processing, packaging and warehousing costs. SG&A expenses increased 6.8% due to the addition of Echo Lake Foods and increased professional and legal fees. This was partially offset by a reduced charge in change in earnout liability recorded in the prior year period and lower employee-related costs. Net cash flows from operation was $94.8 million compared to $122.7 million down 22.8%. We ended the quarter with cash and temporary cash investments of $1.1 billion, down 18.2%. We remain virtually debt free.

We purchased 846,037 shares of our common stock during the quarter for a total of $74.8 million. These transactions were completed under our current share repurchase authorization which permits the repurchase of up to $500 million, of which $375.2 million remains available. For the second quarter of fiscal 2026, we will pay a cash dividend of approximately $0.72 per share to holders of our common stock pursuant to our variable dividend policy. The dividend is payable on February 12, 2026 to holders of record on January 28, 2026. The final amount paid per share will be based on the number of outstanding shares on the record date.

Our capital allocation strategy is designed to balance disciplined stewardship with long-term value creation. We maintain a strong cash position and an unlevered balance sheet, giving us the flexibility to execute targeted and accretive acquisitions, reinvest through CapEx and return capital to shareholders.

Recent operating cash flows have funded strong dividends under our longstanding policy of paying 1/3 of net income and have also supported share repurchases to further enhance returns. At the same time, reinvestment is focused on expanding specialty eggs and prepared foods for mix shift, scale efficiencies and vertical integration drive margin enhancement and higher quality earnings. Together, these actions are expected to create total shareholder return in which dividends, buybacks, earnings per share growth, improved mix and long-term multiple expansion all work together to compound value over time.

Turning to the first half of fiscal 2026. Net sales were $1.7 billion, down 2.8% or $48.4 million. Total shell egg sales were $1.4 billion compared to $1.6 billion, down 12.5% with 12.6% lower selling prices as volumes remained relatively flat. Conventional egg sales were $869.8 million compared to $1.1 billion, down 21% with 19.4% lower selling prices and 2% lower sales volumes. Specialty egg sales were $569.2 million compared to $543.7 million, up 4.7% with 3.8% higher sales volumes and 0.8% higher selling prices. Breeder flocks grew 21.6%. Total chicks hatched rose 71% and the average number of layer hens expanded 6%. Prepared food sales were $155.6 million compared to $19.4 million, up 702.9%. Echo Lake Foods contributed $127.1 million in sales. Gross profit was $518.7 million compared to $603.3 million, down 14%, primarily driven by 12.6% lower shell egg selling prices and partially offset by a decrease in the price and volume of outside egg purchases as dozens produced increased 3.1% as well as contributions from prepared foods.

Operating income was $373.1 million compared to $465 million, down 19.8% with an operating income margin of 22.1%. Net income attributable to Cal-Maine Foods was $302.1 million compared to $369 million, down 18.1%. Diluted earnings per share was $6.26 compared to $7.54, down 17%. Cost of sales increased 3.2% as our dozens produced increased 3.1% and our farm production cost per dozen increased 2.1%. Our prepared foods cost increased due to the acquisition of Echo Lake Foods. These costs were partially offset by lower costs associated with outside egg purchases and egg products. SG&A expenses increased 9.2%, due to the addition of Echo Lake Foods and increased professional and legal fees. This was partially offset by a reduced charge in the change in earnout liability recorded in the prior year period. Net cash flow from operations was $373.4 million compared to $240.2 million, up 55.5%.

That concludes my review of the financial results. I will now turn the call back over to Sherman.

Thanks, Max. Looking ahead, our priorities remain centered on execution as we expand specialty eggs and prepared foods we're integrating new assets, scaling new capabilities and continuing to focus on the quality and consistency customers expect. We're pursuing innovation and selective acquisitions that are expected to expand consumer choice, strengthen channel reach and build a more reliable growth profile. Ultimately, our opportunity is to demonstrate where Cal-Maine is going, not just where it's been. We're building a business with strong base returns and multiple growth engines, one that compounds value over time by serving consumers across every preference at every wrong of the egg value ladder. That's the Cal-Maine we're creating, durable, diversified and positioned to lead the category's next decade of growth.

With that, I'll turn the call back over to the operator to begin the Q&A portion of today's call.

[Operator Instructions] Our first question is going to come from the line of Heather Jones with Heather Jones Research.

Congratulations on a solid quarter. I wanted to ask about -- so given where current spot prices are for eggs. In the past, that would have translated to Cal-Maine generating losses at the EPS line. I was just talking about the changes that you all have made in the portfolio over the last few years to push into prepared foods and the higher percentage on cost-plus type models. Just wondering if you could walk through how you think about the earnings power or the earnings trajectory in depressed egg markets like this?

This is Sherman, and thank you for that question. And as you know, we don't give specific guidance, but I'll touch on each of those, especially something that we've been working on for a long time, and we've had double-digit growth, and we believe that will continue. Prepared foods is exciting for us, and it's performing. We've committed to already a 30% growth over the next 18 to 24 months, and we're excited about also additional growth there, whether it's organic or M&A in the future. And also the hybrid pricing, we talked about it last quarter that there's trade-offs on the higher side, but the real benefit happens in lower markets. So the point that you hit on is valid. And the real key there is us supporting our customers' go-to-market strategy and being a trusted supplier for the long term, and we believe that each of these will continue to improve our mid-cycle performance. Max, do you want to add anything there?

Sherman. I think you covered it, but what you said in your remarks about we're a different company than where we were the last time the market was at these levels, and you highlight those things just the growth we've had, even stronger balance sheet, more diversification, the growth of prepared foods, the continued emergence of specialty. All of those things, I think, make us a stronger, more durable company going forward.

Okay. And just to follow up on that, and I know there are always tail risk and things that could happen. But given these changes, do you think Cal-Maine is a position that it can weather down markets like this, without generating losses given these changes?

Once again, Heather, we don't give guidance, but Max just hit on the real strengths that make us completely different than what we was at last time we saw these market conditions, our balance sheet certainly is positioned better than it's ever been. And the growth that we've had, we've been very strategic to focus that growth in specialty eggs and also prepared foods, which carry a lot of weight in these lower market conditions. And then on top of that, the hybrid pricing, we think, is going to be very beneficial to us. So in a much better position than we've ever been, Heather. And those [indiscernible] prepared foods, and Heather, as we said before, prepared foods runs a little bit countercyclical. They're going to benefit from a lower egg market. So that's just another strength I think that we didn't have before.

Our next question comes from the line of Pooran Sharma with Stephens.

Wanted to start off with the prepared foods segment. Understanding you're making some adjustments there. So lighter volumes, maybe a little bit higher cost until the end of the year is what I'm understanding. You saw gross margins for that segment come down roughly 3% to around 19.6%. Is that a right kind of level to think about for the rest of this year? Or what kind of color can you give us in regards to gross margin for prepared foods?

Thank you for that question. Prepared foods, we gave guidance right out of the gate with Echo Lake that we're looking at a 19% EBITDA margin. And we still think that holds true. There was some slippage in this quarter for the reasons you mentioned us preparing for a stronger future. And there will probably be a little additional slippage to that during the next quarter. But the year in a whole, we're still feeling good about the 19% EBITDA margin. So once again, well worth the time of us pulling back and preparing for the future, this growth of 30% over the next 18 to 24 months is really exciting to us. And Max, what would you add to that?

I think you covered it.

Great, great. I guess my follow-up would be, and you guys have talked about the M&A pipeline in the past, maybe opening up when egg markets are depressed. But just given your broader expansion into prepared foods, do you think that this would limit your opportunity or your M&A pipeline? Because I would think that for these businesses, a lower egg market would mean higher earnings potential and potentially higher valuation. So I just wanted to get your take on the broader M&A pipeline opportunity given the depressed egg markets and given the change in your business.

Pooran, the attractiveness to that prepared foods business is tied back to stability and away from kind of what you're talking about the Easter famine. So we don't necessarily think that will be a huge influence to us. Growth is broader than it's ever been, all remaining egg centric to our core, but now growth in conventional specialty prepared foods, possible ingredients feeding prepared foods and even prepared foods brands are all possible avenues of growth for the future. So we will continue to use a very disciplined model to evaluate acquisitions and move forward at the right pace. Max?

Again, you covered it well, Sherman, I'll leave it there.

Our next question comes from the line of Veronica Augustin with Goldman Sachs.

This is actually Leah Jordan with Goldman. So the shift to specialty and prepared foods is really the key part of your story here going forward. And it looked great on the quarter today. But how are you thinking about capacity growth for specialty eggs over time? And given the Clean Egg acquisition we saw this quarter, how do you think about M&A versus organic growth to continue that capacity expansion? And ultimately, any color on how we should think about the cadence of the mix shift in your sales towards specialty over the longer term?

As you said, our specialty eggs and prepared foods is exciting, made up 46% of our net sales for the quarter. And we've seen double-digit CAGR type growth in specialty eggs. We look forward to continuing to drive to those same type growth metrics and longer term, we can definitely see specialty eggs making up greater than 50% of our total shell egg net sales. So when you pair that with the 30% growth that we're targeting in prepared foods, we think it lends well to much more stable earnings here in the future.

Leah, you brought up the Clean Egg acquisition. That was a small but very timely important acquisition for us. I mean if you look at the description we gave, it's composed of 677,000 brown cage-free and free-range layers and [indiscernible] all specialty. We have market growth planned occurring now and getting those eggs at this time and for what we anticipate upcoming was very important and critical to the continued growth of that specialty business.

That's very helpful. And just a follow-up on the prepared foods discussion just given the investments underway. Any more detail around the progress of the optimization and expansion efforts so far? Any -- and as well as any more color on just the related higher costs that we should think about in the back half of this year relative to kind of what we saw this quarter? And just as those investments come online kind of over the next 12 to 18 months, how should we think about that kind of cadence of the growth trend there?

You pointed out the important piece that is a 18- to 24-month project, and we've announced the CapEx piece of it at $36 million for that 30% growth in the interim of pulling back some lines so that we can get all of our automation and all of our different lines in place. There's some volume efficiency penalties we received from that. But growth long term is certainly going to be good and all at the same time, still believing we'll hit that 19% EBITDA margin that we initially talked about. And we're confident that we can continue over the long term to grow that business is what we call out when we acquired Echo Lake at that 9% to 10% CAGR. So again, we talked about in the first quarter about sort of letting it run. Let's see what it can do, and then we kind of assessed and now we're making the changes that we think position us the best for the long-term and for long-term growth and success in prepared foods.

Our next question comes from the line of Ben Klieve with Benchmark StoneX.

Congratulations on a good result here in a very dynamic period. First question is on the specialty volume. I'm wondering if you can hone in on specialty volumes within the second quarter. They were basically flat, given that -- they're basically flat and you noted that the small acquisition you had in the quarter and plus a general upward trend in specialty volumes. So I'm wondering if you can kind of break down the puts and takes that led to specialty volumes being, again, kind of roughly flat in the quarter.

Ben, specialty last year was a tremendous year. So we're making a very tough comparison. If you remember, conventional eggs became extremely tight that put a lot of demand on specialty eggs. So to be flat is a huge win, we believe, and especially specialty eggs now accounting for 44% of total shell egg sales. I did mention the free-range and pasture-raised both had double-digit growth, both in dollars and dozens. We don't formally break down that category. But as a whole, specialty eggs are solid in that the double-digit CAGR that we've been seeing, we think the mechanism is in place for us to continue to do that.

Yes. I mean the comparative quarter is a tough part there. And just to expand a little further on what Sherman said, when conventional eggs are selling for higher than specialty, of course, the consumer is going to move towards specialty because they perceive it as a bargain. And that was the case that we had last year. That is totally turned around in this quarter, we're reporting and today, but yet we held on to flat volumes. And we still feel good and have said that we believe we can have double-digit specialty growth over time. So despite very difficult market comparison, we still have a lot of confidence in where our specialty business is and where it's going.

One additional point, Max, so we do participate across every major specialty egg subcategory, which means that we're serving all customers interested in specialty. So regardless of which type of specialty egg they're interested in, we take pride in producing that.

Very good. That's very helpful across the board. One more for me and then I'll get back in queue. Is this dynamic that you've talked about regarding pricing of commodity eggs and kind of evolving that from the market-based -- purely market-based to -- more towards cost plus contract base, however you want to characterize it? Can you talk about kind of the receptivity of your retail customer for this dynamic like today in the face of kind of normalized egg pricing versus even several months ago when prices were elevated? I mean I would expect that the retailers are maybe less excited to engage in this conversation today than they were, but I'm wondering if you can elaborate on that dynamic in any way.

Yes, be glad to. It really all centers on the particular customer's go-to-market strategy, whether they're a high-low customer or whether they're an everyday low price, they have different needs. And so that's the way these pricing structures are geared. And I think the model is performing exactly like there's supposed to be for the customer. It gives them some high side protection, which is very important. And then also during these type periods, there's some benefit on the low side for us, which once again ties back to our mid-cycle earnings performance. So Max, what would you add to that?

I think you nailed it. I mean, it's just that long-term relationship, I think your thoughts are generally right Ben, but someone points out, different customers have slightly different priorities. And the other thing that was mentioned in some of our prepared remarks is just the reliability of supply. And what we're trying to do for the long term is demonstrate that even in times of tough production last year and even this year, Cal-Maine continues to get the egg to the customers that they want and demand, and we're going to work with them to build those long-term relationships to support their pricing priorities.

Our next question comes from the line of Heather Jones with Heather Jones Research.

I'm just trying to get a sense of how much of a step down we should anticipate for the prepared foods business for the second half of '26. Revenues came down significantly from Q1 to Q2, but some of that I would assume is due to egg pricing. But just how should we be thinking about the cadence of that business given its significance for your earnings for the second half?

Heather, I think we indicated that we would expect Q3 to have a continued pullback as we make these changes that we believe are good for the long term. So quarter-over-quarter, Q3 compared to Q2, I think you'll see slightly different results there. But we're confident that we're positioning the business for the long term and Sherman called out that growth that we're looking for over the next 18 to 24 months. And so you won't see as much of that in the third quarter. I think it starts emerging in the fourth quarter and then builds from there over the next 12 months or so.

Okay. And then on the SG&A side, that came in somewhat higher than I was expecting for the quarter. And so just trying to think -- because last year, you had a contingency payment of like -- I think it was like $7 million. So the year-on-year increase was much more significant in Q2 than Q1 on an adjusted basis. So how should we think about SG&A expense for the rest of the year?

Well, you're calling out that contingency payment that was associated with [indiscernible] we called that out. It was less this quarter than it was the same quarter last year, and that was just factor of egg prices being so high last year and down a bit now. I think that's sort of -- that continues through October of this fiscal year -- or excuse me, this calendar year, so we'll be following that and completing that at the end of -- sort of the end of '26. What was the other part of your question? I lost my train of thought.

Just trying to figure out what kind of number should we be using like a run rate.

Yes. The other thing on the -- I think we called out increased professional fees. That seems to be the order of the day these days. So I think those numbers are going to run a little high. And then I think the other thing that drives SG&A is particularly specialty volume sometimes. And we still are confident specialty volumes are going to grow. And when you do that, you're going to have some promotional expenses and some fees associated with that, that will make SG&A be up a bit. I suspect as our retailers get more comfortable with supply that we will see more promotional activity in the back half of the year, which will likely drive some increased cost on the SG&A line there.

Our next question comes from the line of Benjamin Mayhew with BMO Capital Markets.

Congratulations on the quarter. So it looks like you had a bit of a COGS benefit during the quarter as a result of lower priced outside egg purchases. So my questions are, has your volume outside egg purchases been on the decline sequentially as your company's supply recovers. Can you remind us how you plan to utilize outside egg purchases moving forward as supplies reach more normalized levels and egg prices are at $1? So what I'm really trying to get is -- like should we expect ongoing benefits in future quarters from outside purchases? Or is this more of like a one-off item?

Ben, last year was certainly a historic year, and our customers had some periods of extreme orders if the stores we serviced had eggs and the store across the road did not, then our orders were growing exponentially. And we cover those orders through our production plus outside sales, and we have been reporting our percent produced of sales for quite a while. And we've moved back to that right at that 90% mark, and we do see that growing a few percentage points going forward just because we plan adding supply to be able to ensure that our customers have the eggs that they need.

So whenever we do that, that does force lower purchases on the outside, and that's some of the effect that you're seeing. But we plan our business well far ahead and short-term changes are difficult, whether up or down, but we do see that percent produced of sales to get back to that more of that 93%, 94%, 95% range here in the near term.

Yes. And Ben, just historically, we've called out before, those outside egg purchasers to a large degree, sort of gap filler or how we address changes in the market. And as Sherman said, if we were to see more disruption in the market for the same reasons as last year, that would likely drive additional purchases because we will do that to benefit our customers. And as we said before, to prove up markets, if you will, and try to develop longer-term customers for the future. So it's a little bit opportunistic there, and it's a little bit based on what market conditions are. But no doubt, egg prices has been down. We called out the percentages related to the decrease in the egg price as well as the volume. And so both of those factors affect it. So at this point, with prices where they are, I think it will certainly be down. And as Sherman says, as our production comes more fully online, that should help mitigate it as well. But keep your eye for those other dynamics, it could drive more purchases as we go forward.

And that's a good segue to my last question here, other dynamics. So do you have any thoughts on why we have seen a rapid -- such a rapid decrease in bird flu cases across the industry? Is there any one thing that industry players are doing that is protecting against the spread? Or do you chalk it up more to maybe luck?

There's lots of ways of measuring that. If you're looking at just pure layer numbers, you would be correct. But if you look at what we think is a greater indicator and that's just presence of the virus, it's an absolute terrible situation. It's all over the U.S. And in bigger than that, it's all over the globe. Back in 2015, when we saw the virus disappear. We also saw it disappear on a global scale slightly before it did here. And all the indicators that it's a huge global presence since October 1, 26 countries are reporting High Path AI losses in poultry. And the number outbreaks is 496. So the presence of the virus is extremely strong. 2025 was the worst year ever at 45.6 million layers in pullets that exceeded the next worst year of 2022 of $43.1 million. So Ben, it's very difficult to estimate the magnitude. But all the indicators of the problem are still there. And it is certainly the incidence rates in November of this year is as high as 2022, just not the high bird numbers because smaller flocks were affected.

And usually, whenever big losses occur, there's some type of precursor, whether it's a major wild bird dial or where it's a turkey population in an area or a commercial duck population something increases that overall virus load in an area before we see these large bird explosions. So unfortunately, Ben, I would say that we're still on pins and needles watching this virus.

I'd just add, I was reading last night a lead market analytics report that came out. And amongst the things he was doing in that report was sort of critiquing his own primarily forecasting ability over the last several years and how it was driven. But there are many points, and it's worth of reading if you have access to that. But one of the things that he said, and I'll tie in to what Sherman said, the incidences are still there. So the potential is still there. And since '22, if you look at sort of the projections for flock numbers and those kind of things. For the most part, you've seen that they've been underestimated -- excuse me, they've been overestimated because of the influence of -- and the likelihood that we see for potential AI. So we don't know what the future brings, and always the past isn't necessarily the best predictor for the future, but it does inform it. And I think it's a worth consideration.

[Operator Instructions] I'm showing no further questions at this time. I would like to hand the call -- I'm sorry, one moment. All right. I am showing no further questions at this time. I would like to hand the conference back over to Sherman for further remarks.

All right. Well, thank you, since there's no additional questions. Operator, if you would, we're ready to conclude the call.

This concludes our question-and-answer session. A replay for today's webcast will be available following the call on the Investor Relations page of the Cal-Maine Foods website. In addition, a transcript of today's call will be posted on the Cal-Maine Foods website in the Investor Relations section. Thank you for joining us today. You may now disconnect. Everyone, have a great day.

Good morning, everyone, and welcome to the Cal-Maine Foods First Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] Please note, this call is being recorded.

I will now turn the call over to Sherman Miller, President and Chief Executive Officer of Cal-Maine Foods. Please go ahead.

Good morning, and thank you for joining us today. We appreciate your interest in Cal-Maine Foods and an opportunity to share our results and outlook. This is an important milestone for us as it marks our first ever earnings call. It's an important part of our commitment to a more robust investor relations strategy aimed at increasing visibility into the institutional investment community in providing stakeholders with increased transparency into our business.

Before we begin, I want to remind everyone that today's remarks may include forward-looking statements. These are based on management's current expectations and are subject to risks and uncertainties described in our SEC filings. I want to start the call today with an expression of humbleness and gratitude. I'm humbled each morning and realizing the dedication and strength of our Cal-Maine family. I'm truly grateful to have the opportunity to represent each and every one of them on this call today.

I'd like to recognize a few folks have been a huge part of building the Cal-Maine Foundation, which is the platform that we operate from today. Cal-Maine has always been about people. Our over 4,000 employees, our customers, our communities and our shareholders. Every day, our team demonstrates the disciplined accountability and provenness that have defined this company from the very beginning. We stand on the shoulders of our founder, Fred Adams, and leaders like Dolph Baker, who remains an important guy is Board Chair. Also, there is a long list that amend toward both me and our management team as a whole. I'd like to name just a few. Steve Storm, Bob Scott, [ Jack Sell ], David Jenkins, [ Mark Ashby ], our previous Vice President of Operations; [ Bobby Raines ] and Tim Dawson, previous CFOs, [ Jeff Harden ] and [ Ken Permar ], both previous Vice President of Sales; [ Ken Luper ], former President; [ Joe Wei ], Former Vice President of Feedmill, Charlie Collins and [ Mike Caseberry ] both former controllers.

There are many more to thank for the sake of time. I just want to say a very simple and humble thank you to all of our employees, both past and present. Each has contributed to building a strong foundation that is in place today. The cornerstones of that foundation are simple. We have broad scale, which provides us significant benefits. Our vertically integrated model allows us to manage every step of production, which keeps costs low, enables supply reliability, safeguard's quality and food safety and gives us the flexibility to optimize output. This is also a significant competitive advantage.

Our culture, what we refer to as the Cal-Maine way as one focused on operational excellence. We define operational excellence as an unwavering focus on the fundamentals. That means investing in modernization, embedding biosecurity and applying the calming way of accountability across our operations. With respect to biosecurity, we've invested more than $80 million in equipment procedures and training to safeguard flock health and mitigate the risk of highly pathogenic avian influenza since 2015. Unfortunately, high path AI remains a reality for the industry. Financially, we're operating from a position of strength with a great balance sheet and enough cash to opportunistically pursue acquisitions and furtherance of our strategy.

Finally, as I mentioned, we have a fantastic team with significant depth and experience. Speaking of our team, I'd like to welcome Melanie Boulden and Keira Lombardo to Cal-Maine. Melanie, who joins our Board of Directors has deep expertise in the food and beverage industry and nearly 3 decades of global business management, brand building and experience at companies like Coca-Cola Craft and most recently, Tyson. Keira was recently appointed as the company's first-ever Chief Strategy Officer. Like Melanie, Keira has significant experience working with consumer-facing companies. She will work with our senior leadership team to further accelerate and shape enterprise priorities, building on Cal-Maine Foods leadership role in a rapidly changing marketplace.

Our foundation and strong business momentum allowed us to deliver the strongest first quarter in our history and also reflects the benefits of diversification, the strength of our operations and the progress we've made in positioning Cal-Maine for the future. Specifically, our results were driven by strong growth in specialty eggs and the expansion of our Prepared Foods platform, supported by solid performance in conventional legs. Together, specialty eggs and prepared foods accounted for nearly 40% of net sales, underscoring their central role in calling strategy and long-term financial performance. These results show Cal-Maine advancing as a diversified consumer-driven food company. Our conventional egg business continues to provide stability and scale our specialty eggs and prepared foods are increasingly shaping the future of our portfolio.

Specialty eggs and prepared foods are positioned as growth engines. Shifting our mix towards higher value categories and across it all, our vertical integration and financial strength ensure that we can execute with discipline and resilience.

With that, let me turn the call over to our Chief Financial Officer, Max Bowman to drill down into our results for the quarter and discuss our capital allocation framework. Max?

Thanks, Sherman, and good morning, everyone. Thanks for tuning into our first live earnings call. This is a new format to us and is part of an increased focus on our part to deliver increased transparency to all of our stakeholders. As a reminder, we published our earnings release and 10-Q this morning. Additionally, we have published a brief earnings presentation on our website. These documents contain detailed information on our financial results.

I'll touch on the highlights for the first quarter of fiscal 2026. Net sales were $922.6 million, up 17.4% from $785.9 million last year. The increase was driven by increase in shale ag sales and from contributions from our recent acquisitions in the prepared food space. Shale egg sales were $789.4 million, up 6.5% driven by a 3.9% increase in net average selling price for shell eggs and a 7.5% increase in specialty ag sales volume. Shale ag represented 85.6% of total net sales that's down 880 basis points from last year as our portfolio mix diversified into prepared foods. Specialty Eggs generated $283.5 million in sales, up 10% and with double-digit growth in cage-free and passed arrays. Specialty eggs account for more than 30% of net sales. Conventional egg sales generated $505.9 million in sales, up 4%.

Prepared Foods delivered $83.9 million in sales, an increase of over 800% with Echo Lake Foods contributing sales of $70.5 million, Prepared Foods represented more than 9% of our net sales this quarter. This shift in mix demonstrates how specialty eggs and prepared foods are shaping our portfolio towards higher-margin categories. Gross profit was $311.3 million or 33.7% of net sales, up from $247.2 million or 31.5% of net sales last year. This nearly 26% improvement in gross profit was driven primarily by higher shale egg selling prices, growth in our specialty egg sales volume, lower feed costs and contributions from prepared foods. Operating income was $249.2 million or 27% of net sales compared with $187 million or 23.8% a year ago, a 320 basis point improvement. Net income was $199.3 million or $4.12 per diluted share, up from $150 million or $3.06 per diluted share last year. These improvements were driven by higher average selling prices for shale eggs and the incremental contributions from Prepared Foods.

Turning to cost and expenses. Our feed costs for [indiscernible] source to support this quarter. On a per dozen basis, feed costs decreased about 4% year-over-year, driven primarily by lower soybean mill prices. That reduction translated into roughly $6 million of savings in cost of sales. G&A expenses increased modestly, up about 12% from the prior year. This was largely tied to higher sales volumes and the integration of Ecolac Foods which drove higher delivery expense and other overhead. Marketing was essentially unchanged. Importantly, these added SG&A costs are directly supported growth in both shale eggs and Prepared Foods, in fact, SG&A as a percentage of sales decreased slightly from the prior year.

On the production side, capacity expansion and rebuild post HPAI is also supporting our growth. Breeder flocks increased 46%, chicks hatch were up 77% and the average number of layer hands rose 10%. We saw 2.5% more dozens year-over-year with specialty does increasing 7.5%. Our growth is not only driven by pricing, but also by real volume expansion supported by long-term investments in our capacity. We continue to see tangible benefits from our modernization initiatives and in-line facilities. These investments enhance yields, improve our productivity and reinforce our low-cost positioning. The calming way embedding best practices and process innovation remains central to our ability to operate efficiently. Operating cash flow was very strong at $278.6 million more than double last year's level of $117.5 million. We ended the quarter with $252 million in cash and equivalents and $1 billion in investments, and we remain virtually debt free.

Our capital allocation approach is centered on maximizing total shareholder return, and we view it through 5 lenses: First, our dividends. Consistent with our outstanding dividend policy, we will pay a dividend of $1.37 per share payable November 13 to shareholders of record on October 29. Second, share repurchases. We plan to take an opportunistic approach to share repurchases, guided by our broader commitment to disciplined capital deployment depending on circumstances we may use different methods to execute buybacks such as open market purchases, accelerated programs or prearranged trading plans. Third, earnings per share growth. This is supported by disciplined reinvestment in our business particularly in modernization, margin expansion initiatives and efficiency programs. Fourth, M&A, we are focused on related areas, geographic expansion and opportunities that meet strict financial return ratios while strengthening our SLA position.

Prepared Foods is a great example of this, where the best investments is in ourselves in the fast-growing subcategories we are building. And finally, multiple expansion. Over time, as we shift our mix and deliver a higher quality, more predictable earnings, we believe Cal-Maine Foods will be positioned for a valuation that reflects that improvement. In short, our strong cash generation allows us to fund growth, support our dividend, be opportunistic on repurchases and pursue disciplined M&A. In turn, these actions create even more cash flow for future deployment. That concludes my review of the financial results.

I'll now turn it call back to Sherman for additional commentary on where we are going strategically.

Thanks, Max. Let me close by reinforcing a few things. Cal-Maine is the largest ag producing in the United States with significant scale and vertical integration that delivers efficiency, lower cost and supply reliability, but scale alone is not enough. Consumers are demanding more choice, more convenience and more protein-rich foods. Our mission is to meet that demand with a diversified portfolio that ranges from conventional legs to specialty eggs and increasingly into prepared foods. Specialty eggs and prepared foods are not promises for tomorrow, they are delivering today. Over time, we expect them to continue to improve the quality of our earnings and lead to margin expansion. We're executing a strategy to create a stronger, more predictable Kalman.

That strategy, of course, is a strong M&A component embedded in it. supported by a robust pipeline of disciplined accretive opportunities. Echo Lake is a great example of how we're executing. Since the acquisition in June, utilization has ramped quickly, and we are on track to exceed every financial and operational expectations we set forth at the time of the acquisition. We've already approved a new $14.8 million investment in a high-speed pancake production line at our Burlington, Wisconsin facility, which will expand capacity, add automation and improved packaging to capture accelerating customer demand. Projects like this will increase efficiency and scale and they demonstrate our approach to disciplined investments in extensions and subcategories with attractive returns supported by strong consumer demand. We're becoming a house of brands for [ Megan's Best ], Land O'Lakes, [indiscernible], reaching consumers across national, regional and private label programs.

We account for roughly half of all England's best sales, which remains the #1 brand of specialty eggs in the United States. Our scale, vertical integration and financial discipline provide a strong foundation while specialty eggs and prepared foods are proven growth engines delivering higher quality, more consistent earnings. Together, these strengths make Cal-Maine a compelling combination of both value and growth in today's food sector. At the same time, our mission is clear. We provide one of the most nutrient-dense affordable sources of protein available. That matters today more than ever. Eggs are purchased by 97% of U.S. households and remain one of the lowest cost sources of high-quality protein.

Consumers are eating more protein overall with high protein diets ranking as the most combinating pattern for the third consecutive year. Eggs fits squarely into that trend because they are fresh, personal and cost-effective. Specialty formats and ready-to-eat products extend that value proposition, giving people more ways to include eggs in their diets. This is not just about chasing trends, it's about meeting fundamental needs for nutrition, affordability and value in the American diet. Looking forward, our strategy is clear. We will, number one, expand specialty in prepared foods. Number two, leverage vertical integration and operational excellence to remain a low-cost reliable supply and number three, pursue disciplined M&A to drive mix uplift geographically and create long-term stockholder value.

Cal-Maine combined scale, vertical integration and financial strength with proven growth from specialty and prepared foods, [indiscernible] provide a strong foundation while consumer demand for protein and the relative affordability of acre powerful tailwinds. Our disciplined capital allocation and operational excellence reinforces advantage. We are confident that the initiatives we're executing today will translate into durable growth, stronger margins and higher returns for our shareholders.

I want to close by thanking the entire Cal-Maine team for their dedication, our customers for their trust and our stockholders for their continued support. With that, I'll turn the call back over to the operator to begin the Q&A portion of today's call.

[Operator Instructions] Comes from the line of [ Heather Jones ] with [indiscernible].

Good morning, and I want to start with saying I appreciate starting these calls, they're very helpful. I guess my first question is just on pricing. Just wondering if you -- this quarter, your price capture relative to industry benchmarks was materially lower than it has been in the past. And so I was just wondering if you could share some quantitative or qualitative color as to the shift that's gone on in your mix as far as cost plus versus market-based just so that we can try to be more accurate in our projections going forward.

Heather, this is Sherman, and thank you for that question. I'll start, then I'll call on Max to finish up here. But I want to start this conversation just talking about how important our customers are and us keeping their trust and their support. And is always thinking about the long term, and each and every customer has their own go-to-market strategy, and there's certainly a multitude of different pricing structures out there. But I think what you're indicating, Heather, is some topside slippage in what we would encourage you to think about just balance that with the downside, the mid-cycle uplift that comes with that. and over time, market realization actually improving for the long term. The reduction of volatility and certainly, the longer term arrangements that come with that.

So we think there's a lot of appeal in this year. And certainly, it's not complete because we -- if you look in our Q, we do indicate that the majority of our [indiscernible] are still priced off of a market framework. So there's still a lot of high history in our pricing agreements, but certainly, certain customers have different thought patterns on their go-to-market strategy. And once again, upside opportunity is balanced with downside protection here and always, we strive for true partnerships to be the type of partner that they can rely on, not only for supply but meeting their other needs. So Max, I'll pass to you if you have any other comments to add there?

Chairman, I think you covered it. It's just all about customer alignment and positioning ourselves as best we can for the long term through the cycle.

And then my follow-up is on Echo Lake. Those results were stronger than expected across the board, just the sales and the margins. And so just, one, should we be expecting significant sequential revenue growth for that business? And secondly, was there anything related to cost timing, et cetera, that affected margins? Or is this a good gross margin to use going forward?

Heather, another great question, and it's hard to express the amount of excitement that we have when you say not only Echo Lake or Prepared Foods and just the growth opportunity that we have to focus on higher value, higher quality, more consistent and then margin expansion over time. It opens lots of doors for us for additional organic growth and M&A. And we do feel good the color that we added in our Q is that we feel very strongly that they're meeting and exceeding all of the initial goals that we set for them. And Echo Lake is strong. We spend a lot of time in due diligence not only looking at the business but looking at the team and the team is what I really like to brag about. Just extremely solid team that has a mine for growth, a mine for perfection and achieving goals. So very excited there. Max, I'll see if you have any comments there.

Yes, Heather, I think it's in line or exceeding as Sherman said, some of the benchmarks that we threw out in the initial investor presentation for Echo Lake and as Sherman said, no buyers are more. We're feeling great about Echo Lake and feeling good about where it's positioned for the future. We are -- we did call out the synergies early on, and we had said $15 million. I think we're on track to achieve those and potentially more. And we're already working on reinvestment at Eco Lake with an announced additional investment there.

Yes. And that's significant, Max. It's almost a 10% growth in the annual volume. So you can see how much we're believing in it, Heather.

Comes from the line of Pooran Sharma with Stephens.

Just wanted to say congrats on the quarter and on getting your first earnings call here. Maybe for the first question, I wanted to understand a little bit about the supply situation. It looks like we've had a pretty good sequential build back in the layer flock over the last couple of months. I know in our past conversations, we've talked about how long it will take to get back to about 325 million hands and I think the industry projections called for about 305 to 315 by year-end. But we have been hearing some expansion amongst smaller contract farmers may not be fully captured in the latest U.S. DA figures of about 300 million tons. So just wanted to get your thoughts on how to think about supplies over the next few quarters from here?

Thank you for that question. And the U.S. DAN numbers that came out September 1 indicated $101.4 million or $301.4 million. And that certainly is a number well lower than the 5-year, but I think we would challenge you to think a little bit broader than that. There is a general rule of thumb that it takes one chicken for each person in the U.S. In the U.S. population hovering somewhere around $340 million indicates that we're well short of the potential that the market could use. And there's certainly lots of things on the demand side. But unfortunately, there's some early indicators that the high path avian influenza certainly has not gone. And this is a lot bigger than the U.S. problem. It's a global problem and the global indicators indicate the same thing that there's lots of challenges sitting at the doorstep with [indiscernible] they've been influencing.

Unfortunately, about 3.1 million hands has been taken away from that $301.4 million already in numerous turkey blocks also depopulated. And the migration is certainly turning the volume up as we speak. And so there's lots of things that are concerning about the migration and about how this fall could play out. We have no exact indicators what that would be. But certainly, just looking and listening to the experts, there's lots of concerns around future high path avian influenza and you pair the supply with demand. And certainly, there's always seasonality that comes into play. The last few years has been a roller coaster. Normal seasonality has been disrupted by loss of birds during those times, which is kind of muddy the waters, but supply stabilization is just one of the important pieces to think about whenever marketing programs work most effectively. It's when they can count on supply.

And the tailwinds that are sitting there for the demand side are extremely favorable, and we're excited about the FDA now lets us put the word healthy on an a carton. American Heart Association recommended eggs as a part of a heart-healthy diet American Academy of Pediatrics. They recommended eggs from conception to 2 years of age because of choline. These GLP-1 drugs are certainly a catalyst of people looking for clean unprocessed foods and eggs just become a spotlight is 97% of households by eggs. And of course, the United Nations pushing egg still, but at the end of the day, eggs fit very well into the healthy trends, the convenient trends and they're still affordable on a program of protein serving. And they also -- some of the other spotlights against foods contained in sodium, sugar and saturated fat were either low or 0.

So we think there's tremendous tailwinds to pair with this supply and we -- unfortunately, over the last 3 years, has been 1 step forward, 2 steps back. And we're all hoping for a much better fall than what the indicators show. Max?

Thank you, [indiscernible] Sherman.

Great. Appreciate the color there. Just wanted to maybe hone in on HPAI. We had the $3.1 million case in Wisconsin. And I think in the northern states, you've been hearing about some turkey flocks that had been impacted by the virus. It seems a little bit earlier than expected early in the migration period as you called it. Do you think the industry is better prepared this year than last? I know you talked about your own biosecurity measures your own investments into your biosecurity. But just from an industry kind of perspective, do you think they're better prepared this time around than last time? And do you think we could see the potential for a similar magnitude just given where the industry is at.

I can't predict the magnitude, but what I do feel confident in is a lot of work is went into biosecurity and preventing the lateral spread. The big question mark still comes from these point source introductions that ties back to not only migrating birds but also the pair domestic species that are around farms. And just a huge need for concrete epidemiology to know how this virus is not only getting on to farms, but getting into chicken houses. And there's work certainly being done on that, but the silver bullet of here's the problem, here's how to solve it is still out there. We've got to find it. And certainly, biosecurity is top of mind. We have invested over $80 million. It's something that we've been very serious about since 2015 and beyond that even. So unfortunately, I can't give you a prediction of how it's going to play out, but the early indicators are that the birds are certainly carrying it as they migrate and it's certainly a violent strain that's still well capable of impacting chickens and Turkey.

I think we can't -- Sherman said, we can't speak for the industry and would pretend to. But I think our -- I think it's evident that everyone in the industry has taken it very seriously we just continue to focus on what we can control, and we know and trust in our scale and diversity of our operations that give us advantages. But we know at the same time, we've got to execute and remain diligent every day. You're only as good as your worst day when it comes down to it. So consistency is very important in our operations. And I think all of our locations are they talk about it literally daily and are focused on it, and that's what we're going to depend on going forward.

Our next question is from Leah Jordan with Goldman Sachs.

I wanted to ask about specialty eggs. You called out double-digit growth in cage-free and pasture rays. Just any more detail on the trends you're seeing in specialty? And how are you thinking about capacity growth for that segment going forward? And ultimately, where would you like to land in terms of mix between conventional and specialty longer term?

Leah, thank you. Great question. As you pointed out, pasture-raised double-digit growth year-over-year in dollars and volumes and Leah, one thing that we continue to focus on is the word choice. We want to produce what the customer, the consumer wants to purchase. We focus on a very broad range so that we make sure that we service all customers. We also love to talk about the strength of Eggland's Best, the #1 branded specialty eggs that we produce over 50% of the dozens per Eggland's Best, huge tailwinds for us. The way we think about it is that we want to move at our customers' long-term pace. We don't make short-term decisions. We've been in this business a long time, and we think very forward on how different categories play out and that circles us wrap back to choice. So we invest broadly, and we make sure that we're positioned for the long term.

But we certainly see a growth that's happening both in branded and private label and [indiscernible] and certainly case as well. And we really focus hard on our long-term enterprise pay to increase that over time. So we will continue to invest in cage-free. We will continue to invest in pasture-raised as well as the other items and the customer will be our guide on the pace and scale that we do that at. Max?

I mean we -- long term, we focus on capacity growth in specialty, particularly that's typically around double digits, 10% or so, and we continue to keep focusing there. And over time, it's hard to predict exactly that mix. I mean, obviously, acquisitions could play into that. We've purchased some nice acquisitions in the last 3 years. It had some significant conventional production. So those numbers go up. But over time, we believe and think that the specialty will continue to grow as a percentage of the overall mix.

That's very helpful. And then maybe just sticking with the theme of shifting the mix of your business. I wanted to go back to the Echo Lake discussion. What has been the initial learnings or key surprises over the past few months? And then just on the longer-term growth, any more color there? I guess, how many more opportunities like the recently announced line excision for pancakes are there?

We do believe there are more, which would definitely fall under the organic growth. But the other exciting part of this, we've added a lot of scale to our company through M&A. And this opens the door to a new channel of M&A, and we think there will be some opportunities there. And no surprises that go. We knew that there was a tremendous team coming with Echo and they've absolutely delivered in every area. A lot of key initiatives out of the gate, working on leadership and labor reliable manufacturing operational excellence, sales planning, gross margin management, net margin management market expertise, just everything about the business that we should be touching the team is driving for an extremely exciting, and we're excited about the showing the growth that we did this quarter, but we certainly believe that there's opportunities as we mentioned earlier about the approval of $14.8 million for new pancake line, that's almost a 10% increase in our volume right out of the gate. So good things to come there. Max?

Sherman, I think you covered it well. We're -- I will remind everyone, Leah, we're less than a full quarter into this. I mean, June 2 was the closing date. I know we've got some exciting meetings planned to really drill down with Echo Lake team on longer-term plans and what I think we've been very excited about, as Sherman said before, is just learning more about the capability of that team, the very disciplined approach and logical approach that they're taking strategic approaches to both maintaining the business they have and structuring the business for and position it for more growth in the future. So more to come. But as we said from the outset, Echo Lake has been everything that we projected and maybe a little more, and you can go back to those the initial investor decks and kind of see what was there and you can get a good idea of the margins from what we showed this quarter.

So we're really excited about the future for Echo and our old prepared foods, not to leave out [indiscernible] is sort of beginning to achieve, I think, a good base to go from. They're getting their volumes up and [indiscernible] got some exciting developments as well. So we'll be continually try to grow and invest in our sales in that important area of our business.

Our next question comes from the line of Ben Mayhew with BMO Capital Markets.

I guess just on your comments on share repurchases, you only did the $50 million so far this year. You still have quite a bit left on the authorization. And you mentioned a couple of options in your prepared remarks. So I just wanted to dig into that a little bit more. Do you think share repurchases are going to become a bigger piece of your allocation strategy? And is your goal to defend shares against commodity swings as you grow your value-added business? Or how are you thinking about utilizing that?

I'll start and pass it to Max pretty quick. But being very excited to have share repurchases in our capital allocation strategy. It's certainly a solid tool, and we know that that I think the investor community is as well, and we've not given any formal guidance on what the buyback criteria will be. But I will assure you that we have our eyes wide open we've described it as opportunistic. And certainly, we're waking up every morning and keeping our eyes wide open and being ready. Max, any other color you want to add?

Yes, Ben, you're well aware of the authorization that we have out there. And as you said, we spent $50 million against that authorization. The key word we're talking is opportunistic primarily through we're thinking at this point, open market-type purchases. When we feel the time is right. As Sherman says, we're watching things very closely. A lot happening in our industry and people are trying to figure out kind of where we're going. We've already talked about a lot of the factors this morning that will affect the future from a supply side, what happens with HPAI. And so we've got a lot to factor in there, but believe me, it's at the height of our thought process I can't leave this point without talking about -- I mean that is an important part of our capital allocation, just having that share repurchase there.

It's a tool that we historically have not had. We'll continue to use it. But we're always going to lean into some of the other triggers that we like to talk about, which are acquisitions and organic growth and those things that are very important in our capital allocation strategy.

Great. And then I'll just ask one more. When you think about the relative price of competing proteins, right? So record beef prices, chicken prices that are high relative to historical averages, pork prices that are high. How do you feel about where eggs kind of sit in that relative competitive basis or landscape? And headed into this holiday season, could we see more consumer trade down into eggs? How are you looking at the demand environment over the next 1 to 2 years? Do you think eggs will outperform from a consumer value perspective? And that will be my last question.

Yes. So Ben, great question. And certainly, eggs are competing exceptionally well being the lowest on a per serving a protein basis, except for milk. And we feel really good about it because a lot of focus is being put on ultra processed and [indiscernible] eggs or not, you get to crack an egg and certainly, the products that are created in prepared foods. They're clean, healthy, these things are awesome in the expansion of different formats as well as dayparts, eggs are good each and every part of the day, and that's one of my favorite things to do at night is to cook an egg. And so I think that carries over well into what you described. There's lots of things going on with other proteins, but the focus is being put on health and ultra clean as well as the sodium sugar and saturated fat, it just keeps elevating eggs as a better choice for consumers.

Yes. Great comment, Sherman. It's just all part of those tailwinds that we like to talk about. And this is, in my judgment, one of the most important ones. I mean, we've got a lot of people to feed in this country and around the world. Choice is a big part of that, as Sherman has said already many times today, but we're really excited about expanding into some of these additional formats and daypart prepared foods just gives us another platform to move in to really give more convenience and more access and making it easier for consumers in general to consume eggs, and we're excited about that future.

And it comes from the line of Heather Jones from Heather Jones Research.

I just want to -- I have 2 follow-ups actually. Just wanted to ask about the current market. It's honestly surprised me how much pricing has dropped given the numbers you mentioned, Sherman as far as the layers on the ground, I mean, clearly, there's been a rebuild from the spring lows. But -- so I guess I was just wondering if you think that's either a demand destruction? Or do you think maybe the USDA has undercounted the numbers that are on the ground? And then I've got a follow-up to that.

Heather, I would tie it more back to seasonality. I think there's certainly so many disruptions that's happened over the last couple of years, it's kind of easy to forget about normal leading patterns seasonality. But I think another huge piece of it is just tied back to the supply stabilization factor that the plan business, the plan features to showcase eggs that are so important with being a $65 difference in a basket in the grocery store, if eggs are in the baskets or not in the baskets. I don't see the demand destruction, but certainly, supply stabilization is key because if you're going to market eggs and move eggs, you've got to have #1 eggs on the shelf, and there's been some very strange times over the last few years where there's just simply not been enough eggs. And the price points they're sitting at today should be very attractive for the end consumer, especially paired with all these tailwinds that we've talked about.

So we see good things happening back in 2015, there were certainly some demand destruction on the liquid side, where some reformulations happened, and that was very difficult to get eggs put back in some firmness, but the liquid side has remained extremely strong, so that should have prevented any demand destruction on that side.

The point there, [indiscernible], I think obviously, the imports of eggs played into that liquid side staying strong because all those eggs that were brought into the country were we're further processed and put into that channel. So while that's not -- hasn't been historically our main focus, it certainly helped with the overall balance and supply of eggs. So we don't see a lot of demand destruction at this point. In fact, I think we would say just the opposite. We think there's the tailwinds that we keep talking about. And as we move as we move out of October or end of late October, early November, and we move towards the normal seasonal periods that really show demand. And remember, we're in our first quarter, which we typically think of a hit in our fourth quarter is our weakest quarters. So we think we've got a good year ahead given the current supply levels.

Okay. And then last follow-up is going back to your comments, Sherman, about leveraging your vertical integration to remain the low-cost producer I suspect you're not going to quantify that specifically, but just more of a qualitative idea thinking about the Echo Lake, your other prepared foods, your further processed eggs, is it part of your strategy to divert more and more of Cal-Maine's production -- owned production into those products and leave less to have to sell in the open market? Or how should we be thinking about that and the cadence of it over the next 2 or 3 years?

Great. Great question. Vertical integration is important to us to be able to have control over each step of the process to create efficiencies in each step of the process and to ultimately ensure for our customers. It's very important to us. And we've even thought of it as a cash rate approach. Each step along the way, adding another floor to that scatter in every floor creates efficiencies. It creates value for the end consumer that we all benefit from. And leverage and low cost. We have a great capacity to learn with the broadness of our diversity of our locations and that learning can be shared among our locations, and we all benefit in a hurry from it. And as far as the Echo Lake piece, we certainly have some agreements in place at the time of the acquisition that we absolutely honor for sourcing eggs and the thing that we really think we bring to the table is stabilizing their supply during some of these crazy periods over the last few years where supply was there and then wasn't there.

We do have the breaking capacity to supply these and for sure, we want to ensure that they have the eggs that they need to continue to grow that business. So we'll continue to develop our long-term plan, but ensuring they have supply is one of the key factors there.

This will conclude the Q&A session. I will pass it back to Sherman Miller for final remarks.

Once again, thank everybody for the time. We look forward to this day to have our first call, and we look forward to having greater visibility going forward. Thanks for all the thoughtful questions today, your continued interest in Cal-Maine Foods. And operator, we're ready to conclude the call.

Thank you so much. This concludes today's conference call. A replay of today's call will be available beginning at 12 p.m. Eastern Time on October 1, 2025 for 1 year and can be accessed on the Events and Presentations page in the Investor Relations section of Cal-Maine's website. A transcript of today's call will also be posted in the Investor Relations section. Thank you all for participating. You may now disconnect.