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Operator: Good day, and thank you for standing by. Welcome to Apogee Enterprises Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. As a reminder, this conference is being recorded. For replay purposes. Will now turn the conference over to Jeremy Stephan, Vice President, Investor Relations and Communications to begin. Jeremy, please go ahead. Jeremy Stephan: Thank you. Good morning, and welcome to Apogee Enterprises. Fiscal 2026 Third Quarter Earnings Call. On the call today are Don Nolan, Apogee's Chief Executive Officer and Mark Ogdahl, our interim chief financial officer. During this call, the team will reference certain non-GAAP financial measures. Definitions of these measures a reconciliation to the nearest GAAP measures provided in the earnings release and slide deck. Are available in the Investor Relations section of our website. As a reminder, today's call will contain forward-looking statements. These reflect management's expectations based on currently available information. Actual results may differ materially from those expressed today. More information about factors could affect Apogee's business and financial results be found in our press release and in the company's SEC filings. With that, I'll turn the call over to Don. Thanks, Jeremy, and good morning, everyone. We're glad you could join us for our third quarter earnings call. Don Nolan: Before I begin my prepared remarks, I want to acknowledge an announcement made earlier today. Matt Osberg has informed us of his decision to leave the company to pursue an opportunity elsewhere. Want to thank Matt for his many contributions over the past three years, and wish him continued success in the future. Stepping in as the interim CFO is our chief accounting officer, Mark Ogdahl. Who has been at Apogee for over twenty-five years. I look forward to partnering with him as we begin our search for the company's next CFO. Next, I'd like to start by saying it's a real privilege have the opportunity to lead the company through this period of transition. While I've served on Apogee's board since 2013, the past few months as CEO have given me a deeper perspective strengthening my confidence in Apogee's future. I'd like to share a few observations. First, our customers consistently tell us how much they value the quality and reliability of our products and services. That feedback is energizing and underscores a core principle of mine, Companies that delight their customers, win in the market. Apogee has built that reputation over seventy-six years and continues to raise the bar. Second, across Apogee, we have exceptional talent. Individuals who are passionate, resilient, and relentlessly focused on exceeding the expectations of customers. Their ability to deliver tremendous value especially in this dynamic environment, reinforces the strength of this company and gives me tremendous confidence in our future. And third, the Apogee management system continues to drive value across our manufacturing footprint. The returns on our AMS investments are fueling margin benefits and reinforcing the operational excellence helps define our organization. I'd also like to highlight the UW Solutions acquisition which celebrated its one-year anniversary this quarter. We pleased with the initial results, and the team is on track to deliver our fiscal 2026 expectations of $100 million in net sales approximately 20% in adjusted EBITDA margin. UW Solutions expands our market and geographical reach adding substrate capabilities and coding technology and provides a platform for potential growth in fiscal 2027 and beyond. Now turning to our results for the quarter. I am pleased with the team's ability to deliver in a dynamic environment. This performance reflects not only disciplined execution, but also the strength of our culture the dedication for our people. It reinforces my confidence in the strategies put in place and our ability to adapt and win in dynamic markets. Although macroeconomic factors remain challenging, Apogee is well positioned because of three key strengths. Operational excellence through AMS, driving continued productivity improvement across our manufacturing footprint, our proven cost out execution with Fortify phase one, phase two, and a strong balance sheet and healthy cash generation, giving us flexibility for future M&A. These fundamentals, combined with the talent of our team, enable us to navigate near-term challenges and capitalize on long-term opportunities. In the near term, our priorities remain clear and unchanged. First, become the economic leader in our target markets with differentiated product and service offerings and competitive cost structures. Number two, managing our portfolio through pursuing accretive M&A opportunities aligned with our strategic and financial objectives. And number three, strengthening our core by driving more efficient operations, greater scalability, and enabling sustained profitable growth. I'm confident in our strategy and excited about what's ahead Together, we have the opportunity to create significant value for all stakeholders. With that, I'll turn it over to Mark. Thanks, Don, and good morning, everyone. First, I'll begin with the review of the results of the third quarter. And then follow with commentary on our outlook for the remainder of fiscal 2026 and some early insights into fiscal 2027. Beginning with our consolidated results, net sales increased 2.1% to $348.6 million primarily driven by $18.4 million of inorganic sales from the acquisition of UW Solutions. As well as favorable product mix. This was partially offset by lower volume primarily in metals. Adjusted EBITDA margin decreased slightly to 13.2%, The year-over-year change was primarily driven by lower volume and price and higher aluminum and health insurance costs. These were partially offset by lower incentive compensation expense and benefits from the cost savings related to Fortify phase two. Adjusted diluted EPS was $1.02. In line with our expectations and down year-over-year primarily driven by higher amortization and interest expense as a result of the UW Solutions acquisition. Turning to our segment results. Metals net sales declined primarily due to lower volume partially offset by favorable price and product mix. Adjusted EBITDA margin improved to 13.5%, primarily driven by increased productivity, including cost savings from Fortify phase two, lower incentive compensation expense, and favorable price and product mix. Mark Ogdahl: These were partially offset by lower volume. Our services segment delivered its seventh consecutive quarter of year-over-year net sales growth. Primarily due to increased volume. Adjusted EBITDA margin increased to 9.7% mostly driven by lower incentive compensation expense. Partially offset by unfavorable project mix. Additionally, backlog for services ended the quarter at $775 million down slightly from Q2 but up over 4% compared to Q3 of last year. Glass net sales increased slightly to approximately $71 million primarily driven by increased volume and favorable mix. Partially offset by lower price driven by end market demand softness. Adjusted EBITDA margin moderated from last year primarily due to lower price and higher material costs. Partially offset by higher volume favorable product mix, and lower incentive compensation expense. Performance surfaces net sales increased driven by the inorganic sales contribution from the acquisition of UW Solutions. Inorganic growth primarily from price. Adjusted EBITDA margin decreased primarily driven by the dilutive impact of lower adjusted EBITDA margin from the UW Solutions and unfavorable productivity. Partially offset by favorable product mix and price. Turning to cash flow and the balance sheet. For the third quarter, net cash provided by operating activities was $29.3 million down slightly from $31 million in the third quarter of prior year. On a year-to-date basis, cash from operating activities was $66.6 million compared to $95.1 million a year ago, due to lower operating cash flow in the first quarter. Our balance sheet remains strong Don Nolan: with a consolidated leverage ratio of 1.4 times. Mark Ogdahl: No near-term debt maturities and significant capital available for future deployment. Turning now to our outlook for the remainder of fiscal 2026. We are updating our estimates for both net sales and adjusted diluted EPS. We now expect net sales to be approximately $1.39 billion and adjusted diluted EPS in the range of $3.40 to $3.50. This outlook includes an updated estimate of the EPS impact from tariffs of approximately $0.30 Our updated outlook assumes an adjusted effective tax rate of approximately 27% and capital expenditures between $25 million and $30 million The current macroeconomic backdrop remains challenging, in both our metals and glass segments competitive market dynamics continue to put significant pressure on pricing and volume. Additionally, in our metal segment, average aluminum prices in the third quarter rose approximately 13% compared to the second quarter and are up over 50% compared to the third quarter of last year. These factors are driving volume pressure and margin compression. And we anticipate this dynamic will continue to impact us through the fourth quarter and to some extent, into fiscal 2027. Additionally, as we look ahead to fiscal 2027, we expect cost headwinds from the normalization of incentive compensation expense. And higher health insurance costs. In order to offset a portion of the anticipated impact of these headwinds, we have expanded the scope of Project Fortify Phase two to include further restructuring actions primarily in metals and corporate. Based on the expected benefits of the expanded scope of Fortify phase two, we now expect to incur a total of approximately $28 to $29 million in pretax charges and deliver an estimated annual pretax cost savings of approximately $25 to $26 million. With approximately $10 million of that benefit to be realized in fiscal 2027. In addition, we expect the majority of the tariff impact of fiscal 2026 not to repeat. And to be a benefit to fiscal 2027. Although we are on the in the initial stages of our planning for fiscal 2027, we are taking proactive measures. Such as the expansion of Fortify phase two to manage near-term headwinds as well as position us to be more agile and better equipped to capitalize on growth opportunities as market conditions stabilize. Finally, I wanna recognize and thank our employees for their resilience and dedication. Their commitment is critical to our success. By executing with rigor today, we are laying the groundwork for long-term value creation opportunities for our shareholders. Don Nolan: With that, Mark Ogdahl: will now open the call to questions. Operator, please go ahead. Operator: Thank you. As a reminder, to ask a question at this time, you will need to press 11 on your telephone and wait for your name to be announced. Please stand by while we compile the Q and A roster. First question coming from the line of Brent Thielman with D. A. Davidson. Your line is now open. Brent Thielman: Hey. Thanks. Good morning. Don, I mean, a lot has changed here since the last earnings call. Don Nolan: And maybe if you could just start off and talk about what the board is looking for in terms of new leadership on a go forward basis. And is there any different view on the strategic direction of the company going forward versus what's been vocalized is the strategy before, particularly sort of scaling the Performance Services business? Hi, Brent. Brent Thielman: Thanks for that question. No. No change in strategy. We remain focused on the existing strategies. The strategies that quite frankly, were working, you know, before my tenure. On becoming the economic leader in our target market, continuing to manage the portfolio, and pursuing accretive M&A opportunities in faster growing markets. You UW Solutions being the the best example And then, you know, strengthening our core, driving more efficient operations, greater scalability, and and enabling, you know, sustained profitable growth. So notes, strict There's no change whatsoever. Brent Thielman: Okay. And and sorry, Don. In terms of what you're looking for in terms of new new leadership as you're out with Don Nolan: CEO search here? Yeah. So so look, we started we started our process. And clearly, we're looking for someone who has deep growth and operational excellence experience M&A integration, you know, the things that are are are called out in our strategy. Brent Thielman: Alright. And then I mean, in terms of the updated outlook, it looks to me like the big impact there is just discontinued inflation and aluminum that we continue to see post quarter. Assume it's predominantly impacting the metals Yes, Brian, if I could. But that's the yeah. Yeah. Please. I'll let you follow-up with your the rest of your question. No. Just just in regard to the outlook. And the updated outlook, looks like it's primarily the metals segment, I presume. If that's the case, Don Nolan: looks like Brent Thielman: you're sort of embedding a more severe impact to margins in metals in the fourth quarter relative to what you saw in the third quarter. Is that the right way to think about this? Yeah, Brent. Good observations. You have you know, both I would say both in metals and in glass, Don Nolan: market dynamics continue to be very they continue to to evolve. So, yeah, back on metals, the prime primary issue there is Brent Thielman: the aluminum prices continue to increase. You know, in our prepared comments, we commented that Don Nolan: between Q2 and Q3, Brent Thielman: aluminum prices went up third 13%. Don Nolan: And then even here in December, we're seeing, you know, continued increases in that price So the margin pressures continue to build. Brent Thielman: And then, you know, maybe a little bit in glass as well. Don Nolan: You know, we have about a sixty day window on what we can see for orders. At the '3 or excuse me, at the '2, we thought that we would kinda maintain that level, but we're we're seeing slightly declines there. So we're again, seeing a little bit of an impact both on volume and price going into the fourth quarter. I would tell you, though, that, you know, we you know, we remain focused on managing our margin dollars. Brent Thielman: So as as Don Nolan: to the best of our abilities, we're controlling costs and implementing things that we can control those costs, Fortify phase two expansion as an example. Brent Thielman: And and I guess not notwithstanding some of these short term pressures that you are seeing in the market, are the long term kind of EBITDA margin targets that you laid out before they'll sort of appropriate to think about? Again, know there's going to be some nuances in the near term for some of the things you called out. Don Nolan: That's exactly right, Brent. Brent Thielman: Okay. Okay. Thank you. I'll pass it on. Don Nolan: Thank you. Operator: And our next question in queue coming from the line of Jon Braatz with KCCA. Your line is now open. Jon Braatz: Hello? Don Nolan: Hi, Jon. Oh, I'm sorry. I I I missed my queue. Jon Braatz: Don, I just want to go back to the Don Nolan: sort of the strategic direction of the company. And Jon Braatz: how much emphasis you might place on on M&A activity because Don Nolan: let's face it, in in the past, it just it hasn't turned out to M&A activity hasn't been that Jon Braatz: positive for Apogee. And it seems to me the focus should be almost exclusively on running the business as profitably as possible Don Nolan: returning cash flow to Jon Braatz: to shareholders in terms of dividends and share repurchases. So I I wanna get a better sense from you as as Don Nolan: where you see M&A going forward. Jon Braatz: Well, look. Our our our pipeline for M&A is robust. It's very active right now. And, you know, I I we we have spent a great deal of time and energy building all the processes and systems in the company. To continue to drive M&A. UW Solutions was a great a great acquisition for us. Twelve months in, we have achieved or beat all of our objectives. So you know, it's a business that's growing robustly. You know, our our performance services business, that segment, was able to successfully integrate a the UW Solutions almost doubling the size of the business and deliver organic growth at the same time. So we've demonstrated that we can execute We can we can select a great acquisition that works for in our strategy. We have the discipline to execute on the integration. And we continue to work our our pipeline aggressively. Jon Braatz: Okay. Another question. In in the fourth quarter of last year, when Project Fortify was announced, mentioned $26 million in cost, costs that will be incurred and savings of 13 to 15 million. Don Nolan: And Jon Braatz: this quarter, said cost of 28 million to 29 million a little bit higher. But savings of 25 to 26. Is what's the difference between the fourth quarter savings and and what you said here in the first quarter? Am I I have something wrong there? Nope. Jon, I'll take that Yes. You're the ranges that you provided were accurate. The the increases in in costs are primarily head headcount based, and re and holding our cost structure tight, we we we did incur some footprint related matters in the fourth quarter here. Don Nolan: Which was the Jon Braatz: the primary cost in the court in the fourth quarter. But, you know, again, we're we're focusing on things that will drive cost savings going forward. Don Nolan: So so the cost savings Jon Braatz: 13 to 15 to 25 to 26, that's correct with that number? Yep. That's what we're showing. Don Nolan: Okay. Alright. Alright. Thank you. Operator: Thank you. Our next question coming from the line of Gowshihan Sriharan with Singling Research. Your line is now open. Gowshihan Sriharan: Good morning. Can you hear me? Don Nolan: Yes. Loud and clear. Gowshihan Sriharan: Thank you. Thank you for taking my questions. My first question is on on the metals in glass. I know you guys have mentioned some pricing discipline Don Nolan: with keeping the plants efficiently utilized. How are you thinking about the bid approval process threshold and hurdle mud hurdle margins changing over the six months. I mean, have you walked away from any large pack, projects or packages that might that might leave kind of under absorption risk in early fiscal twenty seven? And are you willing to or when would you start considering the the the flexibility around the pricing discipline? Don Nolan: I'll I'll start off, and Mark Ogdahl: then turn it over to Mark. But look, glass is a highly competitive market. Don Nolan: But the glass team has been working hard maximize EBITDA dollar contribution while protect protecting their premium margins. They faced significant challenges on volume and price, true, But, look, the business is in a much stronger position than during the last downturn. Even with the market challenges that we face today, glass is still operating in the teens EBITDA margin versus mid single digit in the last downturn. So, you know, yes, we're we're gonna continue to to focus on maximizing EBITDA dollar contribution. As we move as as the market, you know, shifts. Mark Ogdahl: Don, I really I don't really have anything to add. I think you covered up what I thought was important with is, you know, we we implemented some really, really nice and solid pricing strategies as we were executing our initiating our current strategy. And we intend to to continue on that process. Of course, you know, volume Don Nolan: matters. Mark Ogdahl: So we need to we need to look at every every project and every opportunity when they come across. The other thing I would mention is you know, as was pointed out, you know, fortify one, fortify two, Don Nolan: we continue to actively manage our cost structure. To mitigate, you know, these short term headwinds. So in addition to making sure that we hold onto our margins and manage manage the the top line appropriately. Also managing our cost structure. Gowshihan Sriharan: Gotcha. And are you seeing any noticeable pricing differences between your, say, your strategic repeat customers as opposed to your more transactional work? Has that Don Nolan: No. I don't think so. Gowshihan Sriharan: Gap kind of widened or narrow since we spoke, in Q2? Don Nolan: You know, I think we're we're look. We're seeing higher volume of projects. Mark Ogdahl: In glass for sure. Don Nolan: And, you know, on average, a little smaller. What we've seen in the past. Mark Ogdahl: Yep. Primarily Oh, it's a very challenging environment. There you go. Thank you. Yes. Gowshihan Sriharan: And on the performance services side, can you kind of unpack on how much of that growth is coming from the high margin SKUs versus kind of mid tier offerings? And with the current mix, would you adjust your long term margin aspirations for that segment? Don Nolan: Well, we've so so we've mentioned this in past quarters. We took some share over the past few quarters in our distribution business. So these are, you know, think of it as retail shelf space. Okay? So we've we've expanded our shelf space. A couple years ago, we lost some. And we gained that back. Mark Ogdahl: And Don Nolan: that is that that is a very attractive business. Gowshihan Sriharan: Gotcha. The the other the other area that I might mention is Don Nolan: look, the UWS solutions, one of the reasons why we thought this was such an attractive acquisition is because it allowed us to enter a part of the flooring market that serves warehouses and manufacturing facilities. Mark Ogdahl: So this is a growth area Don Nolan: and has has demonstrated some nice organic growth for us. Mark Ogdahl: Okay. In our highest in our highest performing segment. Don Nolan: Yeah. Highest margin segment. Yeah. Gowshihan Sriharan: I'll make this my last question. I know you've highlighted the lower incentive compensation as a tailwind to margin across several segments. This quarter. I know I I think you've alluded that that there will be some kind of normalization in in the the intensive compensation. But how how should we think about from a sustainability and talent standpoint? Are you structurally resetting some of that incentive programs? Or or is this or is this, paying below at a at a at a tough year? Are you as you look at the labor market in your key regions, are you comfortable with the overall comp structure remains competitive? Enough to, execute project 45 and your growth plans. Mark Ogdahl: Yeah. We we believe our our structure is fine. We just entered a into a more difficult year and our we're not meeting our targets. So our compensation will be less this year, but we expect that to normalize. Into the future. Gowshihan Sriharan: Thank you. That's all I have. Thank you, guys. Operator: Thank you. Our next question coming from the line of Julio Romero with Sidoti. Your line is now open. Julio Romero: Thanks. Hey. Good morning. Don, could you help us think about how you view the company's growth trajectory and opportunity set And then also, how does the next leg of growth in your view for the company translate to any change in in ROIC hurdles or or or metrics? Don Nolan: Well, Julio Romero: you know, first of all, we'll be the strategy that we're focused on hasn't changed. So we remain focused on becoming the economic leader in the target markets we serve. Managing our portfolio, and strength strengthening the core. Julio Romero: So Don Nolan: no change, Julio, in how we think about where we're where we're gonna grow and how. The addition of UW Solutions certainly opened up new markets, new products, that will enable us to grow faster. And as part of our managing portfolio strategy, we continue to look for new opportunities along those lines. So looking for acquisitions that will enable faster growth and at higher margins. We're gonna we're gonna talk a lot more about that on our next call when we talk about fiscal year 2027. Julio Romero: Okay. Understood. I guess maybe can you dig into a little bit into the priorities that are more near term in nature. Obviously, you you you have project Fortify expansion any other kind of quicker turn wins, or or low hanging fruit that Mark Ogdahl: looking to kind of achieve early on? Don Nolan: Well, Julio Romero: delivering the results you know, delivering our results will be critical. Know, we're we're focused on delivering the year. Right now. Julio Romero: I mean, that's that's front and center. Mark Ogdahl: Hooey, I would just add yes, project four to five phase two is probably the most important, but I would I would suggest that, you know, we're amping up AMS. Again as it as we think about, you know, how we're trying to drive cost structure down, our best tool to do that is through the Apogee management system. So that's that's our that's gonna be our tool to get there. Don Nolan: I mean, to Frank, Julio, so so AMS, I mean, that's one of my observations for the search my first sixty days. Operational excellence of productivity improvements that we've been able to deliver through AMS are are truly extraordinary, especially in the glass business. We're seeing strength across the board, safety, quality, on time delivery, you name it. And by the way, that was the birthplace of AMS. So they're leading the way and it shows what we could do with the rest of the company. So it's it'll be a key focus for us. Last thing is, you know, I I mentioned a couple times, but accretive M&A, it's it's right. It's front and center too. We have a very we have a robust pipeline and we're active. Julio Romero: Got it. And I guess it just you know, just going back to my first question a little bit more, you know, and it ties into the your comment about robust M&A pipeline. Do you see any any kind of you know, viewpoint difference with regards to yourself versus the last management team with regards to kind of kind of you know, IRR hurdles or or rate of return hurdles, when you look at that M&A and kind of moving forward with that. Don Nolan: No. I don't think any difference in in the Julio Romero: in the financial Don Nolan: analysis, but I would say, you know, move faster. And you know, we we move with discipline, of course, but also faster. Julio Romero: Got it. That's that's helpful. I appreciate it. And then last one for me would just be on you know, you gave some some preliminary commentary on your fiscal twenty seven You talked about you don't expect the tariff impact to reoccur in fiscal twenty seven, but any other kind of high level thoughts with regards to how you see, you know, the possibility of revenue or profit growth in '27? Mark Ogdahl: Yeah. I guess I'll reiterate, you know, kind of in the process right now of our doing our AOPs. We highlighted what I viewed are the are the key headwinds and headwinds that have in front of us, tailwinds being project four to five phase two, and the tariffs not repeating. In the headwinds, of course, you know, we've covered now several times with normal normalization of incentive comp and certainly, aluminum prices will continue to be monitored as we go through the fourth quarter and as we scenario plan our AOP. Julio Romero: Helpful. Best of luck, guys. Thanks. Don Nolan: Thank you. Operator: Thank you. And I'm showing no further questions in queue at this time. I will now turn the call back over to Donald for any closing comments. Don Nolan: Well, thank you for joining us today. We look forward to sharing the fourth quarter and full year results in April. Along with our fiscal 2027 outlet. I would look. I hope you have a great week. Operator: Ladies and gentlemen, this concludes today's conference call. I Thank you for your participation, and you may now disconnect.
Operator: Welcome to the Albertsons Companies Third Quarter 2025 Earnings Conference Call, and thank you for standing by. This call is being recorded. I would now like to hand the call over to Cody Perdue, senior vice president of treasury, investor relations, and risk management. Please go ahead. Cody Perdue: Good morning. Thank you for joining us for The Albertsons Company's Third Quarter 2025 Earnings Call. With me today are Susan Morris, our CEO, and Sharon McCollam, our President and CFO. Today, Susan will provide an overview of our 2025, and update you on our progress against our strategic priorities. Then Sharon will provide the details related to our third quarter financial results and our outlook for the remainder of fiscal 2025. Before handing it back to Susan for closing remarks. After management comments, we will conduct a Q and A session. I would like to remind you that management may make forward-looking statements within the meaning of the federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in our filings with the SEC. Any forward-looking statements we make today are only as of today's date. And we undertake no obligation to update or revise any such statements as a result of new information, future events, or otherwise. Additionally, we will be discussing certain non-GAAP financial measures. A reconciliation of these financial measures to the most directly comparable GAAP financial measures can be found in this morning's earnings release. And with that, will hand the call over to Susan. Susan Morris: Thanks, Cody. Good morning, everyone, and happy New Year. This quarter marked the first since we declared a new day at Albertsons. And we delivered. We drove bold decisions in our Tech and AI transformation, purposeful investments to strengthen our customer value proposition, and accelerated execution in digital and pharmacy. In the face of a government shutdown, SNAP delays, and a challenging consumer backdrop, our team executed with discipline and urgency. Identical sales grew 2.4%, digital sales rose 21%, and adjusted EBITDA was $1.039 billion. These results underscore the resilience of our model anchored by more than 2,240 neighborhood stores. Our proximity, deep fresh expertise, and trusted portfolio of brands give us a clear advantage in serving more than 49 million loyal customers and advancing our customers for life strategy. We're building a structurally advantaged Albertsons. One that wins in any environment. And yet our current valuation does not reflect the progress that we've made or the long-term earnings power we're creating. This disconnect only sharpens our resolve to execute faster, scale our transformation, and deliver the performance that ultimately commands the value this company deserves. Our mission is clear, growing customers for life by leveraging our strengths, sharpening our competitive edge, and delivering consistent value for customers all while driving sustainable long-term value for our shareholders. During the quarter, execution was strong, and we delivered meaningful efficiencies through intentional and methodical cost control. Importantly, year-over-year unit trends improved sequentially versus the second quarter, reflecting the impact of our surgical price investments and reinforcing the effectiveness of our broader strategy. I'm extremely proud of how our team is executing. Also during the quarter, we continue to advance our strategic priorities with intent and conviction to position us for profitable growth as we enter 2026. These priorities include modernizing capabilities through technology, scaling digital engagement and monetizing our media collective, enhancing our customer value proposition, and unlocking structural productivity gain. As we look forward, one of the most exciting drivers of our transformation and a key source of long-term competitive advantage is technology. Our advanced cloud data infrastructure provides the foundation for scaling AI solutions and business processes across the enterprise. Additionally, we're enhancing our agility and speed to market with our global capability center in Bengaluru. We're not just adopting AI. We're working to scale it across the enterprise to fundamentally change how we operate and how customers experience Albertsons. This is not incremental. It's designed to be a step change in speed, intelligence, and personalization. Our teams are energized, and our foundation is strong. Our strategic priorities are clear. With bold decisions and partnering with world-class leaders like Google, OpenAI, and Databricks, we're building a future where every decision is smarter, every process is more efficient, and every interaction is more seamless. So where are we focused first? Our transformational big bets are in four critical areas. First, in digital customer experience. Digital customer experience is a critical pillar of our growth strategy. By leveraging AI, we're creating differentiated experiences that go beyond convenience. They increase basket size, drive repeat trips, and deepen loyalty. Early results are compelling. Our Ask AI search capability is already delivering a 10% increase in basket size for those customers using it, signaling a meaningful revenue upside as adoption scales. In addition, our autonomous shopping assistance is meeting customers where they are and delivering frictionless personalized journeys, keeping our omnichannel customer experience modernized and on-trend. Next, in Merchandising Intelligence. We'll be equipping our merchants with AI-driven insights and automated execution to optimize pricing, promotions, and assortment decisions, transforming category management and driving margin improvement. Our vision is a future where intelligent automation guides these decisions, freeing our people to focus on strategy and innovation. Our ambition is for customers to truly feel seen, to reliably find the essentials they need at prices they trust, while also discovering unique inspiring items that make our stores a destination and eliminate the need for a trip elsewhere. Next in empowering and managing labor. We're deploying generative AI to optimize labor forecasting and scheduling across our retail labor model, reducing costs while improving associate experience through intuitive conversational tools. By leveraging AI, we ensure the right associates are in the right place at the right time, which not only drives productivity but also elevates customer service. This transformation simplifies complex scheduling tasks, frees up associates to focus on the customer, and positions us to deliver consistent execution across thousands of stores. Finally, optimizing our end-to-end supply chain. AI demand forecasting is central to our supply chain transformation, enabling precise product tracking from vendor to customer. By applying advanced analytics and computer vision, we're improving forecasting accuracy, fulfillment, quality, and on-shelf availability, optimizing labor and inventory while ensuring that customers can find the products they need when and where they need them. In sum, our tech and AI are designed to be scalable enterprise-wide programs that can deliver measurable impact and build the foundation for tomorrow. By embedding this across our business, we will unlock structural cost advantages, accelerate speed to market, and create new profit pools. Returning technology into a growth engine, improving margins, deepening customer loyalty, and positioning us to win. With momentum accelerating and a clear roadmap, we're confident that this transformation will help drive sustainable value for customers and long-term returns for shareholders. Turning to our digital e-commerce business. We continue to gain market share with sales up 21% this quarter and penetration now at 9.5%. As we've consistently said about our e-commerce business, the resilience, scalability, and customer proximity of our store-based fulfillment model remains a structural advantage in last-mile fulfillment and positions us well for profitable growth. In fact, during Q3, more than half of our orders were delivered in three hours or less, underscoring the speed and convenience that differentiate our offering. In addition, more than 95% of our delivery households are eligible to receive our flash delivery in as soon as thirty minutes. We're also adding features to our platform, the AI shopping assistant I just mentioned, a groundbreaking tool that redefines the shopping experience. This AI-powered assistant enables customers to interact in natural language, receive personalized recommendations, and build smarter baskets faster. Whether they're planning meals, discovering new products, or shopping for specific occasions. This innovation enhances convenience for our customers while strengthening our competitive advantage by leveraging rich data to optimize marketing, improve loyalty, and unlock new monetization opportunities. Through our media collective. Our Pharmacy and Health business delivered another outstanding quarter. Growth was driven by strong execution in our immunization offering, GLP-one therapies, and core prescriptions. We captured leading share in immunizations and strengthened long-term customer relationships. These efforts reinforce our position as a trusted health partner and deepen engagement across channels. Customers who engage across both grocery and pharmacy continue to demonstrate significantly higher lifetime value, underscoring the strength of our customers for life strategy. Based on the strength of this performance, we remain on track to deliver profitable growth in our pharmacy business in 2025, supported by disciplined execution and efficiency initiatives. Scaling higher-margin services, expanding central fill capabilities, driving innovative procurement, and leveraging operational efficiencies continue to be key priorities as we position this business for sustained growth into 2026 and beyond. In loyalty, we continue to drive digital engagement and value creation with membership growing 12% to over 49 million members in the third quarter. Program enhancements and simplification continue to fuel deeper engagement. Members are transacting more frequently, redeeming rewards more easily, and spending more. 40% of engaged households continue to choose the cash-off option, underscoring the appeal of immediate value for our most engaged and loyal customers. Loyalty also serves as a rich data source for our merchant and for our media collective, enabling targeted marketing and monetization. Most recently, we again extended the value of our loyalty platform beyond grocery with the launch of a new offering with Uber One, offering members exclusive benefits and savings, further strengthening engagement and broadening the appeal of our platform. Our media collective continues to gain traction as a high-margin growth engine. In Q3, On-site Media delivered double-digit growth year over year. We also strengthened performance by adding transaction capability to Off-site Ad units. These improvements drove higher ROI for our partners, faster campaign activation, positioning us to capture incremental spend. While the retail media space remains highly competitive, our advantage lies in the depth of our loyalty data and omnichannel reach, which enable targeted, measurable campaigns that improve both partner outcomes and the customer experience. Looking ahead, we're focused on scaling these capabilities and unlocking new monetization opportunities, creating a structural profit pool that complements our core retail business. Few companies possess the depth of store-level, customer-level, and category-level data that we do. And we're increasingly using that data to deliver a more relevant, localized, and differentiated customer experience. From a customer value perspective, we continue to invest in value through loyalty enhancement, personalized promotions, and selective price investments in key categories. And these actions, combined with vendor funding and own brands innovation, are strengthening engagement and driving unit growth. In our own brands portfolio, we have a clear path to growing penetration from 25% to 30%. In the divisions where we've launched our new lower-priced campaign, we continue to see fundamentally better unit trends and growth in unit share, reflecting the impact of our targeted strategy. We also very carefully managed the pass-through of inflation to deliver value for customers across the entire company, ensuring affordability while protecting margin. Importantly, unit trends for the quarter improved sequentially even with the government shutdown, again underscoring the resilience of our approach. Productivity remains a cornerstone of our transformation and a critical enabler of our investments. Our teams are executing with discipline across multiple fronts. Optimizing our labor model, redesigning ways of working, including a targeted global diversification of talent to drive efficiency at scale. We're also unlocking structural savings through automation, advanced analytics, and process simplification across merchandising, supply chain, and store operation. In pharmacy, where growth continues to accelerate, we're streamlining fulfillment and procurement to improve cost to serve while also enhancing the customer experience. These efforts are not isolated. They're part of our comprehensive plan to deliver $1.5 billion in productivity gains over the next three fiscal years, creating capacity to fund innovation, strengthen our value proposition, and improve profitability. Already in 2025, we're seeing the benefits of our productivity, reduced SG and A spend, as we accelerate our efforts around labor optimization. By attacking waste, modernizing labor planning, and embedding technology into core processes, we're building a leaner, more agile organization that's positioned to win. Finally, before I hand it over to Sharon to cover the financial details of the quarter, our outlook for the remainder of the year, I want to spend a minute on the consumer backdrop. And what we continue to see from our customers. Consistent with what you've heard from others, the environment remains mixed and continues to reflect pressure across income segments. At the low end, shoppers are clearly stretched, putting fewer items in the basket each trip and prioritizing essentials while visiting more frequently as they manage their cash flow. Middle-income households, have been relatively resilient, are showing some signs of softening with increased price sensitivity and trade-down behavior emerging in certain categories. At the high end, spending patterns remain largely stable but even these customers are becoming more conscious of price and value, reflecting a broader shift towards cautious discretionary spending. Looking ahead, our outlook and actions are fully aligned with these dynamics. We're leaning into personalized promotion, loyalty enhancements, and the surgical management of cost inflation to deliver immediate value while continuing selective price investments in key categories to support unit growth. At the same time, we're leveraging technology and AI just as we discussed. Deepen engagement and optimize the shopping experience, ensuring that our strategy not only addresses current consumer behavior but also positions us to capture share and drive profitable growth as behaviors evolve. Sharon, over to you. Sharon McCollam: Thank you, Susan, and good morning, everyone. It's great to be here with you today. Building on Susan's comments, Q3 did mark a new day for our Albertsons teams. Disciplined execution and purposeful investments drove a 2.4% identical sales increase and a 21% increase in digital sales. While temporary headwinds from the government shutdown and delayed SNAP funding negatively impacted ID sales by approximately 10 to 20 basis points, we sequentially strengthened our year-over-year unit trends. Clear evidence that our targeted price investments are working and reinforcing the resilience of our model. In pharmacy and health, sales increased 18% as we delivered another strong quarter and deepened engagement through immunization and value-added services. Loyalty membership grew to 49.8 million, reinforcing the strength of our customers for life strategy. At the same time, as Susan shared, we continued scaling the media collective and advancing our technology transformation, including embedding AI across the enterprise and modernizing capabilities to drive productivity and growth. Each of these initiatives contributed to the results we just delivered for the third quarter. Which I will discuss now. From a top-line perspective, ID sales grew 2.4% which is net of the 10 to 20 basis point government shutdown headwind and we saw encouraging growth in areas where we made price investments. Gross margin came in at 27.4% a decline of 55 basis points year over year excluding fuel and LIFO. Reflecting the expected mix shift impact of digital and pharmacy and our targeted price investments. Importantly, year-over-year gross margin improved sequentially versus Q2. As productivity benefits partially offset targeted investments demonstrating that our actions are delivering results even as we prioritize value for customers. Our selling and administrative expense rate was 24.9% down 33 basis points year over year excluding fuel, another clear proof point of disciplined cost management. This improvement reflects ongoing productivity initiatives and operating leverage, which we are using to fuel our investments to drive growth. Interest expense increased $7 million to $116 million this quarter, primarily due to borrowings related to our $750 million accelerated share repurchase program announced last quarter. Adjusted EBITDA in Q3 was $1.039 billion and adjusted EPS was $0.72 per diluted share, in line with our expectations and reflective of the strategic investments we're making in long-term growth. Turning to capital allocation, our priorities remain clear. Invest in the business to drive growth and value for our customers, maintain and grow our dividend over time, opportunistically repurchase shares, and preserve a strong balance sheet that gives us flexibility to accelerate investment when opportunities arise. In Q3, we invested $462 million in capital expenditures to upgrade our store fleet, and advanced digital technology and supply chain capabilities. In our store fleet, we opened two new stores, completed 23 remodels, and closed 16 underperforming locations. All actions that strengthen our asset base for long-term competitiveness. From a digital and technology perspective, we further invested in AI and digital transformation, to create structural cost advantages, deepen customer loyalty, and unlock new profit pools. Further modernizing the company for sustainable profitable growth in an evolving retail landscape. We also returned $77 million to shareholders through our quarterly dividend of $0.15 per share, and continued our $750 million accelerated share repurchase program, which began last quarter and is expected to be complete in early 2026. The benefits of this ASR will accrue to EPS as we move through fiscal 2026. There is also $1.3 billion remaining under our existing $2.75 billion authorization. That can be executed at the completion of the ASR. Our net debt to adjusted EBITDA ratio ended the quarter at 2.29 times, underscoring the strength of our balance sheet and capacity to fund growth while returning capital to shareholders. Finally, in the third quarter, we also refinanced $1.5 billion of existing indebtedness in two tranches. $700 million of 5.5% notes due 2031 and $800 million of 5.75% notes due 2034. These proceeds were used to refinance our 07/2026 bond maturity and repay $750 million in borrowings under our revolving credit facility. Demonstrating the strength and flexibility of our balance sheet. Before we turn to the outlook, I'd like to give you a quick update on our year-to-date labor negotiations. As a reminder, in fiscal 2025, we had collective bargaining agreements covering 120,000 associates up for renewal. As of today, we've successfully reached agreements covering more than 112,000 of these associates leaving only 8,000 left to bargain this year. Now let's walk through our 2025 outlook. Our focus remains squarely on investing in and driving long-term profitable growth through our strategic priorities. Digital remains a powerful growth engine as we continue to add loyal shoppers to our ecosystem and scale the business profitably. Disciplined cost control and productivity also remain key focuses of our strategy. Fueling reinvestment into these high-impact initiatives while maintaining financial strength. At the same time, we expect our pharmacy business to continue to accelerate. Driven by immunizations and value-added services that enhance customer engagement, through profitability. In pharmacy, however, on 01/01/2026, the Inflation Reduction Act Medicare drug price negotiation program took effect reducing consumer prices and supplier costs on certain branded drugs. While this will result in lower reported pharmacy sales, the impact to profit is near neutral. In the fourth quarter, we estimate and have included in our outlook an approximate 65 to 70 basis point headwind to identical sales which will equate to a 16 to 18 basis point impact for the full year with no impact to adjusted EBITDA. With that as the backdrop, we're updating our fiscal 2025 outlook as follows: For identical sales, we are narrowing our range to reflect the impact of the inflation reduction act to 2.2% to 2.5%. Adjusted EBITDA is now expected to be in the range of $3.825 billion to $3.875 billion including the approximate $65 million in adjusted EBITDA in the fourth quarter related to our fifty-third week. We are narrowing our adjusted EPS to a range of $2.08 to $2.16. The effective income tax rate is expected to be in the range of 23% to 24%, and capital expenditures are unchanged in the range of $1.8 to $1.9 billion. And with that, I will hand it back to Susan for closing remarks. Susan Morris: In closing, our Customers for Life strategy is building a future-fit distinct Albertsons company. When it combines scale with local relevance. Advanced analytics with deep experience of our team and operational excellence bold growth ambition. The path forward is clear. The opportunities are significant, and we're just getting started. Q3 demonstrates the strength of this foundation and the acceleration of our transformation. We're not just navigating a competitive and dynamic environment, we're reshaping it. Our investments in digital loyalty, pharmacy, and retail media are delivering measurable results today while our AI strategy positions us to lead tomorrow. When we get together again for our fourth quarter earnings release, we'll share the next evolution of our Customers for Life strategy. Building on the progress we've made and the strength of our model. As we've said, at the core of this evolution is a deeper integration of data and AI across the enterprise. We're not using AI as a short-term lever. We're embedding it into merchandising, labor, and supply chain to create a durable structural advantage. From personalized shopping and merchandising intelligence to supply chain optimization, these capabilities are already scaling. Driving lower costs, faster execution, and compounding return that will support growth profitability for years to come. We're also focused on delivering a more differentiated customer experience. We'll provide an overview of micro-market merchandising. And how we're leveraging our robust customer data to create more curated experiences across the assortment pricing and promotion, while further strengthening our leadership in Fresh and expanding affordable meal solutions. In parallel, we're actively transforming our portfolio for the future. We'll outline how we plan to densify, differentiate, and scale our network including through strategic partnerships. We're targeting markets where we have strong share and growth. As well as opportunities where we see a clear right to win, through new store development and strategic acquisitions that enhance our footprint drive supply chain efficiencies, and create meaningful synergies. Supporting all of this is our continuous productivity engine. We will reiterate our commitment to disciplined cost management while outlining the next tranche of initiatives designed to deliver benefits in 2026 and beyond. Fueling reinvestment in growth innovation and customer value. As we approach fiscal 2026, we do so with confidence and a clear path to sustainable, profitable growth. To our 280,000 associates, thank you for your passion and commitment. You're the driving force behind this transformation, and together, we're creating an Albertsons that wins for our customers, our communities, and our shareholders today and for the long term. We look forward to continuing this journey and delivering against our priorities. Thank you and we'll now take your questions. Operator: Thank you. If you'd like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. To allow for as many questions as we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Mark Carden with UBS. Please proceed with your question. Mark Carden: Good morning. Thanks so much for taking the questions. So to start, you continue to make surgical investments in value, and they seem to be gaining traction with the grocery unit growth. At the same time, you've got some of your larger competitors continuing to make price investments as well. Just how is the overall pricing environment lined up relative to your initial expectations? And do you see much risk ahead for the need for incremental price investments? Susan Morris: Hi, Mark. Thanks for the question. So first, I'd start out with we are taking a very surgical and targeted data-driven approach to our price investments. And I think we've shared that we've seen green shoots in the categories where we're investing. I also want to make sure that I call out that price investment comes in in three ways for us. Well, many ways, but three of them are our investments in loyalty, our investments in, pulling forward on promotion, base price investments, and then how we're managing through inflation we're working very hard to soften the pass-through of inflation to our customers. So that said, we are pleased with the progress that we see in our price investments to date. I also want to make sure that you understand that our price gaps are very market-driven category-driven, and we're very thoughtful about how we're approaching each of these investments. Our price indices versus competitors often miss our personalized loyalty discounts, and that really materially makes a difference in our effective price. So we do intend to continue to invest very surgically, very thoughtfully. We're pleased with the initial results that we've seen and recognize there are some more surgical opportunities out there. But also, I want to remind you that we look at price as one key piece of the value equation. Along with that, are our fresh capabilities, proximity to our customers, our e-commerce and pharmacy expertise. That add value for the customer. Sharon McCollam: And, Susan, I might also add Oh, go ahead, Mark. Mark Carden: No. Please, Sharon. Go on. Sharon McCollam: I also want to add that another area of key focus for us, which we can talk about later, is our own brand focus. That has been a primary offering that we have put front and center for our customers because to provide value our own brands is one of the tools in our toolbox in order to do that. And it is an area that we are doubling down and amplifying. Mark Carden: That's great. And then just as a follow-up, you guys have talked in the past about your ability to capitalize on some of the drugstore closures that are taking place across the country. How are you progressing with getting your new pharmacy shoppers to cross over? And purchase more grocery items And are you seeing any changes to the timing or lifts just given some of the macro pressures that you highlighted in the call? Thank you. Susan Morris: Sure. So again, we're very pleased with our pharmacy growth overall. Much of it has come from organic growth inside our store. We're seeing core scripts excluding GLPs grow. Obviously, GLPs play a factor as well. What we typically see is the bulk of our customers are already shopping with us in some way shape or form in grocery and as they convert into the pharmacy that's when we start to see the deeper relationship They become more highly engaged. They adopt our digital platforms, they engage our loyalty programs. And, I think we've shared with you in the past it's somewhere around a one to two-year journey depending on the customer to get to a fully robust loyalty platform with us. But that said, again, I want to remind you that the bulk of our customers are already shopping in the store. It's really about deepening that engagement. We're pleased with the acquisitions that we've had. Both some that we've paid for and many of our customers are just choosing to come to us. Which we see as a structural advantage from the services that we provide. Mark Carden: Thanks so much. Good luck. Susan Morris: Thank you. Thank you. Our next question comes from the line of Leah Jordan with Goldman Sachs. Please proceed with your question. Leah Jordan: Thank you. Hi, Susan and Sharon. Thanks for all the detail on the call today. I know it's a little too early to guide for FY 2026 at this point. But there are a number of potential headwinds investors have been concerned about, such as and just ongoing volume pressure within food across the industry. Along with the lower Medicare drug prices, as you noted in the prepared comments. But then you have your own efforts and in driving unit improvements, which we saw this quarter, along with the ongoing productivity efforts. So just seeing if you could comment on a high level the puts and takes we should think about next year and your confidence in being on algo? Thank you. Susan Morris: You bet. Hi, Leah. Thanks. So first and foremost, want to reiterate our confidence in our algo. And the reasons we believe in that is our Customers for Life strategy is working We see that we have outsized upside in pharmacy, in our digital customer growth. Our media which we've shared is very early in its journey. We've talked about our focus on value enhancement, which includes pricing, it includes loyalty, as Sharon just mentioned, own brands. We're pleased with our technology modernization, but again, that's early stages. We believe there are more unlocks to come in the future there. And then our productivity agenda continues to deliver quarter over quarter, and we only expect that to grow. And I think all of these feed one another Pharmacy digital and loyalty grow engagement in baskets. Media creates high margin fuel. Our productivity and tech agenda frees up resources to reinvest in value. So we are very confident in our ability to deliver the algorithm. Sharon, what would you add to that? Sharon McCollam: I would only add that each of these initiatives Leah, build on one another. And as you think about it, for '26 and you think about the year, it's gradually and incrementally going to build. So as you're calendarizing the year, think of it in that way. And I think that this concept of gradual and incremental I don't care who you're talking to about AI and some of the digital transformation that's occurring, that learning is so powerful and the value that it's bringing to the bottom line just continues to grow. So as we look forward to next year, the other thing about the algo that Susan didn't say is remember when we gave that we talked about this last quarter. We ran multiple scenarios. We know that this environment is constantly changing and evolving, and we acknowledge everything that you just said around the different aspects of the macro that could be affecting us. But our plan at this point in time has levers to pull And, again, I will reiterate Susan's confidence in our ability to get into the algo next year. Leah Jordan: Thank you both. That's all really helpful color. Just wanted to go back to the lower ID sales guide for this year. And I understand the impact from the Medicare drug prices that you detailed. But within the lower guide, it's still implying a fairly wide range for the fourth quarter. So just maybe more detail on how you're thinking about the key drivers there, what gets you to the high versus low end, and how much is just tied to the uncertainty in the consumer as you highlighted just a broadening pressure across income cohorts? And then if you could, any color on kind of where quarter to date trends are tracking for ID sales? Susan Morris: I think there's two key areas, Leah, where the guidance range is wide. First and foremost, we've got this 65 to 70 basis point impact that we are anticipating from the Inflation Reduction Act drug pricing issue. So you pointed that out. We've tried to incorporate that. That's 10 to 20 or 16 to 18 basis points on the full year. It's very significant. But within pharmacy, there's also a lot of other opportunities happening There's scenarios, where GLP one's going, what's gonna be the adoption with New Year's resolutions around weight loss, the pill that's coming out for GLP-1s. So there is upside in our minds depending on how each of those play out. We're also keeping a I would say, a cautious view around industry units You pointed it out on the units in the industry. And that can be ranged So within those ranges, we're keeping everything that we currently see in mind. And, again, I would say this, when you take out the impact of the inflation reduction act, on the drug pricing, we are very much where we expect it to be at this point in time. Leah Jordan: Great. Thank you. Operator: Our next question comes from the line of Edward Kelly with Wells Fargo. Edward Kelly: Yeah. Hi. Good morning. So I just wanted to follow-up on, you know, that Thiago, next year maybe to start. And I just wanna make sure. Are you are you saying that if the backdrop stays where it is currently from a, you know, unit volume standpoint and we have you know, slightly less you know, pricing, which obviously is gonna put some pressure on IDs. That you still think that you can get into your file, though, next year. If that's the case, maybe can you just talk about, you know, what the levers are? That you might be pulling in order to do that? And then, you know, big picture here, you maybe talk about know, the temptation to move a bit faster, from an investment standpoint. To generate you know, longer term growth versus, the desire to deliver EBITDA growth you know, in line with the plan. Susan Morris: Hi, Ed. I'll I'll I'll start, and I'll I'll ask Sharon to chime in as well. So as she stated a couple seconds ago, one of the pivotal points of our strategy is our ability to be agile. And recognizing that the market is dynamic, there are different levers that we can pull to meet the algo. We we keep continued to talk about our acceleration in digital platforms, merchandising intelligence, our firm seeing customer experience, our price investments and so forth. We believe they'll deliver outsized growth and a lot of that growth is building as we exit 2025 and continues to grow as we go throughout 2026. We recognize there are some pressures from the pharmacy Inflation Reduction Act that we just spoke of. That I want to make sure everybody understands too, though, that that is a top line pressure. It is not a bottom line pressure. It's actually net neutral to the bottom line. Sharon, what would you I wanna be make sure that I understand your question. Because with the Inflation Reduction Act, the 16 to 18 basis points that we have quantified on the full year comp for 2025 that is only two periods for us this year. So you can see the magnitude of that for 2026. It is possible. We we said that we would have a two plus percent comp store sales increase Because of this reduction act, to that point it is possible the comp will be on a comparable basis. It won't be comparable. There will be a significant headwind, could be as much as 125 basis points to the comp. And if that was the case, you may not deliver the comp number with x x the inflation act. It would be in the two plus. But it may be different depending on how many more drugs get added to that. So we've gotta think through that. When we're talking about the algorithm, we are talking about on a comparable basis to 2025 We expect comp store sales growth to be two plus percent before the adjustment for the Inflation Reduction Act and that adjusted EBITDA will grow slightly faster than that. Edward Kelly: Got it. And then just a follow-up I was hoping maybe you could talk about the progress of the cost savings and how you're tracking so far against the plan, and the cadence in terms of savings as you think about 2026? Susan Morris: Yeah. So I'll start off and just say we're executing very well against our $1.5 billion plan. As we've stated, driven by technology, automation, analytics, We've also undergone process redesign across the company in merchandising supply chain, store operation, You can see the results that we've shared in our SG and A We're very pleased with what's flowing through the bottom line there from a productivity perspective. That said, though, part of our productivity is meant to fuel our growth in terms of the reinvestment in price, how we're we're structurally managing our store labor, and developing stronger customer experiences both in store and online. Sharon, anything you want to offer about our outlook on Yeah. Activity? When we get into 2026, in our Q4 discussion that Susan shared in our call, we'll also be giving you an update on productivity. We do see new opportunities with all of the things that we've talked about, and we'll be giving you an update on our productivity agenda. To Susan's point, we are achieving our productivity, and to some extent exceeding our productivity. You can see that in the numbers that we're delivering. And we expect to continue to be pushing that heavily. As we go into 2026 and these opportunities course, are like, I've everything I keep saying, they're gradually incremental because they're building on each other. Edward Kelly: Great. Thank you. Operator: Our next question comes from the line of John Heinbockel with Guggenheim Securities. Please proceed with your question. John Heinbockel: Hey, Susan. You you guys have you've you've acquired a lot of customers. You've missed 12% growth right, year over year over the the past couple of years. Can you talk to wallet share? Right? When I think and you also talked about that one to two-year journey with pharmacy. When I think about, you know, maybe your upper decile you know, loyalty members, average loyalty, you know, brand new. Can you maybe at least give us some guidance on you know, how those wallet share numbers differ? Right? So, like, is, you know, is the highest decile two x the average, or what does that look like And then, is there much difference, I guess, with a pharmacy customer some of those new ones are still lagging. Right? The the wallet share of mature pharmacy customers. Susan Morris: Thanks, John. So our digitally engaged customers spend approximately two to three times more than those not engaged in digital. And engagement rises further as they broaden to our ecosystem. So as they engage in online ordering, in loyalty, in different features on our apps as our health as an example, our pharmacy. And when we get when pharmacy enters that, that ecosystem, we start to see that number grow, four x, five x, So our most loyal customers definitely have outsized growth in lifetime value. And our focus there is to continue to build upon that strength as customers engage with us, delivering more personalized journeys. We talked about our AI assistant offering meal planning. We can help you curate a party or different occasions. And all of those things help deepen baskets and repeat trips for us. John Heinbockel: Okay. May maybe a follow-up. You talked about the divisions where you've invested in price. I'm curious, have they crossed over into positive food volume territory And then, maybe related to that, think you've talked about core, noncore assets and wanting to you know, wanting to double down on on some of the strongest markets. Do you do you see potential to exit markets and redeploy those assets and resources to the strongest ones or not really? Susan Morris: Okay. So with with regards to the price investment, I I'll speak to it more at the category level. We have seen strong unit improvement in the categories that we've invested. In many cases, they've moved to positive, year over year. In other cases, they've the decline has lessened substantially. And as we think about our price investments, I want to remind you too that we've got some areas where we've executed a new low price campaign, but there are other areas where we're leveraging price in terms of deepening promotion and as I mentioned before, the mitigation of inflation path. Through. So we're very pleased to see the positive customer response there in share as well. With regards to our fleet, yes, we're evaluating our entire portfolio end to end as we always do. And I think we mentioned a couple calls ago that because of the merger, we were unable to conduct some of the normal hygiene that we would do in terms of store closures, and you'll see an outsized list of closures as we exit 2025 based upon that. But as we look forward, yes, we're looking very much at where we're strong and want to grow. Again, organically or through acquisition. And then we'll also evaluate markets where we perhaps aren't performing as like we should and make the determination on if we can grow. If we can invest differently and make a change there. And, John, I would add to that we are also looking to materially sophisticate our real estate operations in 2026. In addition to that, we are looking at all noncore. When I say noncore assets, surplus real estate, things other things like that. Everything is being evaluated at this point in time. I want to make sure, however, that we are not having a similar conversation to other competitors in the grocery landscape. We did not have material type investments like others. And in no way do I are we indicating or signaling any type of massive write-off in front of us. John Heinbockel: Right. Thank you. Operator: Our next question comes from the line of Rupesh Parikh with Oppenheimer and Company. Please proceed with your question. Rupesh Parikh: So just going back to, I guess, the gross margin line, we've seen now improvement for really the two or three quarters. It's the lowest decline that we've seen all year. Sharon, just curious how you're thinking about Q4, some of the puts and takes there and whether you'd expect further improvement versus what we saw in Q3? Sharon McCollam: Yes. I think as you think about Q4, you should think about it more like Q2. And here's the reason. In the third quarter, we saw an exceptionally strong pharmacy business. And it was in the value-added side of the business which brought some incremental profit. It really moved from Q4 into Q3 because of what happened nationally with flu, and, fear of COVID, We saw an acceleration into the third quarter that will then turn itself around in the fourth quarter. And fourth-quarter pharmacy margin is never as strong as Q3. So you'll be in the I think if you model out more like Q2, in the neighborhood. Rupesh Parikh: Great. And then maybe my follow-up question, just going back to the GLP one conversation, given some of the enthusiasm out there on the pill format, does your team at this point think it's it sounds like you does your team at point think it could be more of a tail or maybe even a bigger tailwind as we go into year? Is is that the current thought process? Or just any thoughts on how your team's thinking about it. Susan Morris: Yes. We absolutely think it can be more of a tailwind as as we move forward with the accessibility and and delivery mechanism change, and pills versus shots and so forth. Sharon McCollam: Yeah. And, Rupesh, I think the inflection on the pill version of the GLP-one, it is not so it's not broadly used, obviously. And it will depend likely on the side effects. But at this point, we do not see it having a material impact one way or the other on the EBITDA in pharmacy. This is really about top line, and it's really about our patients. If they could come out with a pill and provide our patients with a pill form versus the injection form that would be great for the patients. But from a material P and L point of view, I don't see it in the short term. As something that you need to worry about from a modeling point of view as it relates to adjusted EBITDA. Rupesh Parikh: Great. Thank you for all the color. Operator: Thank you. Our next question comes from the line of Tom Palmer JPMorgan. Please proceed with your question. Tom Palmer: Good morning, and thanks for the question. I wanted to ask again just the price investment side. It sounds like there was perhaps a more intense promotional environment in November, especially when SNAP benefits were deferred. One of your competitors discussed the likelihood of higher promotions persisting into subsequent quarters. I think you you earlier addressed your tactical actions on this call, but I I wondered if you might talk maybe more broadly about what you're seeing across the industry and whether we should think about maybe more promotions funded by food producers or if you know, more of that funding is coming from kind of the grocer side? Thank you. Susan Morris: Hi, Tom. So with regards to pricing, yes, we also saw a more aggressive promotional environment. This year. And certainly, it was accelerated throughout the holiday season. As we've mentioned before, our customers are absolutely more price sensitive. Our value-focused competition is clearly showing growth. But that said, our market density and strong location combined with our loyalty and AI-driven personalization, help us create a more durable edge to serve our customers faster and at a closer proximity while protecting value. So we absolutely see promotional investments continuing. By the way, our by nature, we are a promotional merchant. That's who we are. That's who we've always been. And with our buying better together work, we're we're spoken before about how we're leveraging our size and scale. As a national company, to procure a lower cost of goods to secure more promotional funding where it makes sense all of those things will help us support where we need to be to meet the customers where they are in terms of of a price impression. And the timing for us when you think about our productivity related to buying together where we're bringing our buying for the divisions and buying together as a national at the national level. The timing of that and the fact that that is an opportunity and front of us it completely is in line with the timing of the nature of your question. So obviously, that is opportunistic at the moment. Tom Palmer: Understood. For the details. Susan Morris: Thank you. Operator: Our next question comes from the line of Simeon Gutman with Morgan Stanley. Please proceed with your question. Zach: Hi, this is Zach on for Simeon. Thanks for taking our questions. You mentioned the sequential improvement in unit trends. Can you speak to the composition of that trend? Is it loyal families spending more? Is it new customers? How much is coming from digital versus in store? Thanks. Susan Morris: So what I would say, just a reminder too for everyone that the industry what we've seen in the industry is units were slightly positive in the first quarter, turned negative in the second quarter and remained flat to negative in the third quarter. And obviously, within that backdrop, our unit trends improved sequentially and we credit that to our surgical price investment and to our loyalty-led value. I would say that we continue to see customers very price sensitive. Thinking about how they prioritize essentials, We're seeing some smaller baskets in those price-sensitive customers and, obviously, some trade down that's happening as well there. We know that customers are more value aware. Their spending remains relatively stable. For us. And again, our personalized promotions, targeted price investments, our own brands innovation all of these are designed to support unit recovery over time. Zach: Thank you. And as a quick follow-up regarding digital sales, what is the economic model look like today? And where are you on the profit curve there? Susan Morris: Sure. So I'll I'll start and ask Sharon to chime in on some of this. But as a reminder, it continues to be a very powerful engine for us. We shared that sales were up 21%. We're very pleased with our penetration growth quarter over quarter. And also, we have a structural advantage in that for last mile, over half of our orders are delivered in less than three hours. And I think we shared 95% of our households are eligible for delivery, which means as fast as thirty minutes. So that reinforces speed and convenience for us. From a profitability perspective, we continue to see margin improvement as we scale adoption and embed an AI into everything that we're doing end to end. Cherry, do you wanna add any color on profit? Sharon McCollam: Only that we had said that we expect that as we continue to grow, we will get to profitability, possibly the end of this year or going into next year. The volume levers, obviously, the fixed cost And when we're talking about profitability, we are not including retail media. And we are fully allocating that P and L with fixed cost. Operator: Thank you. Our next question comes from the line of Kelly Bania with BMO Capital Markets. Please proceed with your question. Kelly Bania: Hi. Thanks for fitting us in. Sharon, I wanted to go back to the efforts to shift the buying to a national buying campaign rather than than more localized Just wondering if you could talk about how that is progressing Did the did the savings, are they starting to come through as you expected? And what does that imply for maybe the gross margin outlook into the fourth quarter and next year? Sharon McCollam: When we laid out our productivity Kelly, we said that we expected the big benefits from that to come in year two and year three of our productivity program, thus the response to the earlier question. That as we are seeing this more competitive environment, this is still in front of us. I'm going to turn it over to Susan in a second because the other thing that we're doing simultaneously is in our four big bets, on AI, merchandising intelligence, is one of those. And that provides a very data-driven way to approach this change material change in the way we're working And I'll let Susan talk about the merchandising organization and how that's transformed, since she took this role. So, Susan, you wanna just add a little bit to that? Susan Morris: Of course. And I'll just tag on to to your AI comment as well. It the merchandising intelligence that we listed under AI does exactly what Sharon described, but it and it's also meant to help us not only create better customer experiences, create curated assortment, but also optimize the profitability of our price and promotion end to end. We're very excited about our proprietary work there. From an internal construct perspective, we've, as as we've shared before, we've we've got a new merchant Michelle Larson took the seat a few months ago. And under her leadership and with the collaboration across all of our divisions, we're actually very, we're bullish about what we're going to be able to capture from a benefits perspective as we leverage our size and scale to to buy better together. We've got alignment across every single one of our divisions, We've got a common calendar. We're building the right processes and tools, as I just mentioned, from an AI perspective to support all of this. So we're very bullish about the future potential benefits that we will deliver in 2026 and beyond. Kelly Bania: That's helpful. Can I just follow-up a little bit on the discussion of of the units? I believe the the plan was to try to approach flattish units by year end. I was wondering if if that's, you know, possible still on the horizon terms of the core grocery categories? And can you also talk about the performance of fresh versus branded? I think you talked a little bit about private label, but just some of the growth in some of those categories versus your expectations? Sharon McCollam: I'll start, and then I'll let Susan take the second half of your question. In the outlook, that we have for the fourth quarter and as we think about where we will start to go into the algorithm in 2026, in light of industry units being negative and the trends in that having no clear sign of material improvement or catalyst for improvement. We will we did not assume that we would be at flat units coming into 2026. And don't expect to be in 2025 Q4. Susan Morris: And what I would add to that is again, we've seen strong unit inflection in our price investment categories and other categories as well. We are bolstered by what we're seeing there and that only helps us gain confidence in our pricing approach and supports what we want to do as we move into 2026 and beyond. Thank you. Operator: Thank you. Our final question this morning comes from the line of Paul Lejuez with Citi. Please proceed with your question. Paul Lejuez: You gave us an update on free income demographics earlier in your comment. I'm curious what you actually saw in each of those three during this quarter? And how does that differ in store versus online? Curious where you're seeing yourselves gain share by income demographic or maybe even losing a little share? Thanks. Susan Morris: Sure. So thanks, Paul. So we are by by nature, by the our go to market strategy, we are appeal more to the middle and upper income customer base. Now that said, we serve everyone in many markets across the country. And as we've said before, our low-income customers are certainly stretched, and that is where we're seeing smaller baskets. They're focusing on essentials. Our middle-income households also though do show some softening of what we're seeing there is maybe a trade down. So instead of buying steak, they're buying beef and so forth. Our higher-income customers, their spend is largely stable. But also we are starting to see that see them be increasingly value conscious. And that's again where we're really leaning into our personalized promotions, our surgical cost inflation management, making sure that we're delivering value across all cohorts. And we're able leverage our loyalty programs to help us do that in a more meaningful way. Paul Lejuez: Hey. This just just one follow-up on on units. If we exit out pharmacy, in terms of this quarter's ID sales, how did that look in terms of pricing versus units? If we look at the ID sales x pharmacy? Sharon McCollam: I think it's gonna we expect Q4 to look pretty similar. We're expecting to see similar trends to Q3. Paul Lejuez: What was that what was that? Sharon McCollam: We didn't give that specifically. Paul Lejuez: Inflation piece, the pricing piece in Q3? Sharon McCollam: CPI was up two. In Q3. We did not pass through 2%. And, we passed through less than our cost inflation. That's what you see in the margin. Paul Lejuez: Thanks, Good luck. Susan Morris: Thank you. Okay. Thank you all for your time today. That concludes our Q and A section. Have a great day. Thank you. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good morning, everyone, and welcome to the Cal-Maine Foods Second Quarter Fiscal 2026 Earnings Conference Call. All participants are in a listen-only mode. After today's prepared remarks, there will be a question and answer session. At that time, I will provide instructions for those wishing to ask a question. Please note 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. Sherman Miller: 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've built real momentum. We delivered solid results even against a tough comparison to last year, which was 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. 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. 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 sale diversification and favorable mix shifts. In 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%. Specialty eggs and prepared foods combined accounted for 46.4% of net sales compared to 31.2%. In 2026, shell egg sales represented 85% of total net sales compared to 94.5% in 2025. Specialty eggs drove a greater portion of shell egg sales, accounting for 39.6% of total shell egg sales compared to 33%. Specialty eggs and prepared foods combined accounted for 42.8% of 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 ourselves 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 US, 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, with specialty and premium segments 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. 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 expanding into multiple growth engines that we believe will deliver higher quality earnings, deeper customer partnerships, and a stronger alignment with long-term consumer trends. A major part of that progression is our prepared foods platform. Building 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 volume and higher costs beginning late in 2026 and are expected to continue through the remainder of the fiscal year. 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, Trapini Foods, which is investing $7 million through fiscal 2028 to add 18 million pounds of capacity, expanding production more than sevenfold. When you combine Echo Lake and Trapini, we expect total prepared foods capacity to increase more than 30% over the next eighteen to twenty-four 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 from Clean Egg LLC in Texas, which expands our specialty cage-free and free-range egg capacity, supports local sourcing, captures accelerating market growth, and optimizes our supply chain. These investments are expected to help strengthen 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, selling roughly one out of every six eggs consumed in the US, with full vertical integration from feed and flock to processing, distribution, and customer delivery. 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 objective has never been to avoid cycles; it's to manage through them effectively. 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. Each time we've navigated them, we've emerged stronger. Importantly, the supply challenges related to high-path AI are not behind us. The current epi curve closely resembles prior years, including 2022. Global outbreaks continue, and recovery remains uneven and unpredictable rather than linear. This is not a short-term dislocation; it's a structured reality that reinforces the importance of scale and operational execution. Looking long-term, one of the most compelling opportunities in eggs is increasing US egg consumption. That growth does not occur without reliable supply. Reliability builds trust with retailers, food service partners, and consumers. Increasing in 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 maintain 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, 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, 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? Max Bowman: Thanks, Sherman, and good morning, everyone. As a reminder, we published our earnings release in October 2026. Unless otherwise indicated, all comparisons are to the comparable period of fiscal 2025. For 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 2025, up 586.4%, and compared to $83.9 million in 2026, down 14.5%. Echo Lake Foods contributed $56.6 million of the sales in 2026 compared to $70.5 million in sales in 2026. As Sherman mentioned, the announced expansion initiatives had an impact on the second quarter of 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 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 the change in earn-out liability recorded in the prior year period and lower employee-related costs. Net cash flows from operations were $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. In 2026, we will pay a cash dividend of approximately 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 long-standing policy of paying one-third 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. 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 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 remain 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 earn-out 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. Sherman Miller: Thanks, Max. Looking ahead, our priorities remain centered on execution. As we expand Specialty Eggs and Prepared Foods, 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's going, not just where it's been. 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 rung 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: Thank you. We will now begin the question and answer session. We ask that you please limit yourself to one question and one follow-up. Once your questions have been answered, please reenter the queue if you would like to ask additional questions. One moment while we compile our Q&A roster. Our first question is going to come from the line of Heather Jones with Heather Jones Research. Your line is open. Please go ahead. Heather Jones: Good morning and congratulations on a solid quarter. Apologize for my voice. I have a really bad cold, so apologies. I wanted to ask about, given where current spot prices are for eggs, in the past, that would have translated to Cal-Maine generating losses, you know, at the EPS line. I was just talking about the changes that you all have made in the portfolio over the last few years, the push into prepared foods and the higher percentage on cost-plus type models. Just wondering if you could walk us through how you think about the earnings power or the earnings trajectory in depressed ag markets like this? Sherman Miller: Good morning, Heather. This is Sherman, and thank you for that question. As you know, we don't give specific guidance, but I'll touch on each of those. Specialty is something that we've been working on for a long time, and we've had double-digit growth. We believe that will continue. Prepared foods is exciting for us, and it's performing. We committed to already a 30% growth over the next eighteen to twenty-four months, and we're excited about also additional growth there, whether it's organic or M&A in the future. 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. The real key there is us supporting our customers' go-to-market strategy and being a trusted supplier for the long term. We believe that each of these will continue to improve our mid-cycle performance. Max, you want to add anything there? Max Bowman: 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 in prepared foods, continued emergence of specialty. All those things, I think, make us a stronger, more durable company going forward. Heather Jones: Okay. And just to follow-up on that, and I know there are always tail risks and things that could happen, but given these changes, do you think Cal-Maine is in a position that it can weather down markets like this without generating losses given these changes? Sherman Miller: Once again, Heather, we don't give guidance, but Max just hit on the real strengths that make us completely different than where we were the last time we saw these market conditions. Our balance sheet certainly is positioned better than it's ever been. 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. 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. Max Bowman: And those prepared foods, 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. Heather Jones: Okay. Thank you. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Pooran Sharma with Stephens. Your line is open. Please go ahead. Pooran Sharma: Good morning, and thanks for the question. 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? Sherman Miller: Good morning, Pooran, and 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. There will probably be a little additional slippage during the next quarter, but the year as 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 of this growth. Of 30% over the next eighteen to twenty-four months is really exciting to us. Max, what would you add to that? Max Bowman: I think you covered it. Pooran Sharma: 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 ag markets are depressed. But just given your broader expansions 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 ag market would mean higher earnings potential and potentially higher valuation. So 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? Sherman Miller: Pooran, the attractiveness to that prepared foods business is tied back to stability. Away from what you're talking about, feast or 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, even prepared foods brands are all possible avenues of growth for the future. We'll continue to use a very disciplined model to evaluate acquisitions and move forward at the right pace. Max? Max Bowman: Again, you covered it well, Sherman. I'll leave it there. Pooran Sharma: Okay. Appreciate the color. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Veronica Augustine with Goldman Sachs. Your line is open. Please go ahead. Leah Jordan: Hi. Good morning. This is actually Leah Jordan with Goldman. So the shift to specialty eggs and prepared foods is really the key part of your story here going forward, and it looked great on the quarter today. But just how are you thinking about capacity growth for specialty eggs over time? Given the Clean Egg acquisition we saw this quarter, how do you think about M&A versus organic growth to continue that capacity expansion? Ultimately, any color on how we should think about the cadence of the mix shift in your sales towards specialty over the longer term? Sherman Miller: Good morning, Leah. As you said, our specialty eggs and prepared foods are exciting, making up 46% of our net sales for the quarter. We've seen double-digit CAGR type growth in acreage. We look forward to continuing to drive to those same type growth metrics. Longer term, we can definitely see specialty eggs making up greater than 50% of our total shell egg net sales. 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. Max Bowman: Yeah. And Leah, you brought up the Clean Egg acquisition. That was a small but very timely important acquisition for us. If you look at the description we gave, it's composed of 677,000 brown cage-free and free-range layers and pullets, all specialty. We have market growth planned and 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. Leah Jordan: Thank you. That's very helpful. Just to follow-up on the prepared foods discussion, given the investments underway, any more detail around the progress of the optimization and expansion efforts so far? As well as any more color on the related higher costs that we should think about in the back half of this year relative to what we saw this quarter? As those investments come online over the next twelve to eighteen months, how should we think about that cadence of the growth trend there? Sherman Miller: You pointed out the important piece that is an eighteen to twenty-four month project, and we've announced the CapEx piece of it, $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 the 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 talked about. Max Bowman: We're confident that we can continue over the long term to grow that business, as we called 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. Now we're making the changes that we think position us the best for long-term growth and success in prepared foods. Leah Jordan: That's all very helpful. Thank you. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Ben Klieve with Benchmark Stonex. Your line is open. Please go ahead. Ben Klieve: Alright. Thanks for taking my questions, and congratulations on a good result here in a very dynamic period. The first question is on the specialty volume front. 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 know, you noted that small acquisition you had in the quarter, plus a general upward trend in specialty volumes. 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? Sherman Miller: Good morning, Ben. Especially last year was a tremendous year, so we're making a very tough comparison. If you remember, conventional eggs became extremely tight, which 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 that 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, and the double-digit CAGR we've been seeing, we think the mechanisms are in place for us to continue to do that. Max Bowman: Yeah. 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. That was the case that we had last year that has totally turned around in this quarter we're reporting and today. But yet we held on to flat volumes. We still feel good and have said that we believe that we can have double-digit specialty growth over time. So despite a very difficult market comparison, we still have a lot of confidence in where our specialty business is and where it's going. Sherman Miller: One additional point, Max, is 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 in, we take pride in producing that. Ben Klieve: 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 purely market-based to more towards cost-plus contract-based, however you want to characterize it. Can you talk about the receptivity of your retail customer for this dynamic 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. Sherman Miller: Yeah. 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. I think the models perform exactly like they're supposed to be. For the customer, it gives them some high side, which is very important. During these tight periods, there's some benefit on the low side for us, which once again ties back to our mid-cycle earnings performance. Max, what would you add to that? Max Bowman: I think you nailed it. I mean, it's just that long-term relationship. I think your thoughts are generally right, Ben. But, you know, Sherman points out different customers have slightly different priorities. The other thing that we mentioned in some of our prepared remarks is just the reliability of supply. 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. Ben Klieve: Got it. Got it. Very helpful. Very good. Well, thanks for taking my questions. Appreciate the time. I'll get back in queue. Operator: Thank you. One moment for our next question. Our next question comes from the line of Heather Jones with Heather Jones Research. Your line is open. Please go ahead. Heather Jones: Thanks for taking the follow-up. 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 2026. 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? Thank you. Sherman Miller: Well, 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. Sherman called out that growth that we're looking for over the next eighteen to twenty-four months. 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 twelve months or so. Heather Jones: Okay. Thank you for that. Then on the SG&A side, that came in somewhat higher than I was expecting for the quarter. 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? Sherman Miller: Well, you're calling out that contingency payment that was associated with Favio, and we called that out. It was less this quarter than it was the same quarter last year, and that was just a factor of egg prices being so high last year and down a bit now. I think that continues through October this fiscal year or excuse me, this calendar year. So we'll be following that and completing that at the end of '26. What was the other part of your question? I lost my train of thought. Heather Jones: Oh, just trying to figure out what kind of numbers should we be using. Sherman Miller: Going forward, so it's like a run rate. Yeah. The other thing on the SG&A, 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 hot. The other thing that drives SG&A is particularly specialty volume sometimes. We still are confident specialty volumes are going to grow. 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, we will see more promotional activity in the back half of the year, which will likely drive some increased costs on the SG&A line there. Heather Jones: Okay. Thank you. Operator: Thank you. And one moment for our next question. Our next comes from the line of Benjamin Mayhew with BMO Capital Markets. Your line is open. Please go ahead. Benjamin Mayhew: Hey, good morning. 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 of 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 a dollar? So what I'm really trying to get at is like, should we expect ongoing benefits in future quarters from outside purchases, or is this more of a one-off item? Sherman Miller: Good morning, Ben. Last year was certainly a 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. We cover those orders through our production plus outside sales. We have been reporting our percent of produced of sales for quite a while. We've moved back to that right at that 90% mark. We do see that growing a few percentage points going forward. Just because we plan on 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 the percent produced of sales to get back to that more of that 93, 94, 95% range here in the near term. Max Bowman: Yeah. And, Ben, just historically, we've called out before, those outside egg purchases to a large degree are sort of a gap filler or how we address changes in the market. 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. 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 being down. We called out the percentages related to the decrease in the egg price as well as the volume. So both of those factors affect it. At this point, with prices where they are, I think it will certainly be down. As Sherman says, as our production comes fully online, that should help mitigate it as well. But keep your eye out for those other dynamics that could drive more purchases as we go forward. Benjamin Mayhew: Thank you for that. Yeah. And that's a good segue to my last question here. Other dynamics. Do you have any thoughts on why we have seen 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, you know, maybe luck? Sherman Miller: 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 the presence of the virus, it's an absolute terrible situation. It's all over the US. 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. All the indicators that it's a huge global presence, since October. First, 26 countries are reporting high-path AI in poultry. The number of outbreaks is 496. So the presence of the virus is extremely strong. 2025 was the worst year ever at 45.6 million layers and 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. The incidence rates in November were as high as 2022. Just not the high bird numbers because smaller flocks were affected. Usually, whenever big losses occur, there's some type of precursor, whether it's a major wild bird dive or where it's a turkey population 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. Max Bowman: I'd just add. I was reading last night a lead market analytics report that came out. 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. There are many points, and it's worth a read if you have access to that. But one of the things that he said, and I'll tie into what Sherman said, the incidences are still there. So the potential is still there. Since '22, if you look at sort of the projections for flock numbers and those kinds of things, for the most part, you've seen they've been underestimated. Excuse me. They've been overestimated because of the influence of the or the likelihood that we see further potential AI. We don't know what the future brings. Always the past isn't necessarily the best predictor for the future, but it does inform it. I think it's worth consideration. Benjamin Mayhew: Very helpful. Thank you. I'm going to hop back in the queue. Operator: To ask a question, please press 11 on your telephone. I'm showing no further questions at this time. I would like to hand the oh, I'm sorry. One moment. Alright. I am showing no further questions at this time. I'd like to hand the conference back over to Sherman for further remarks. Sherman Miller: Alright. Well, thank you. Since there's no additional questions, operator, if you would, we're ready to conclude the call. Operator: 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.