Release Date: June 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Total revenue for the second quarter of fiscal 2024 increased by 35% to $298 million, driven by robust consumer demand for avocados.
- Adjusted EBITDA increased by 166% to $20.2 million in the second quarter.
- Cash flow from operations improved by $39 million year-to-date in fiscal 2024.
- The blueberry business showed strong performance, with increased volumes and higher yields from new premium varietals.
- Efforts to reduce corporate expenses resulted in approximately $10 million of annualized cost savings.
Negative Points
- El Nino weather conditions negatively impacted the development of the Peruvian avocado crop, reducing production volumes.
- The unseasonable warm temperatures in Peru stunted fruit development and reduced fruit sizing.
- International Farming segment experienced reduced crop size and delayed start to the avocado harvest season, impacting sales and adjusted EBITDA.
- Capital expenditures increased to a range of $40 million to $45 million, up approximately $10 million from previous expectations.
- Despite higher pricing, the lower production volumes in Peru are expected to negatively impact gross profit for the International Farming segment.
Q & A Highlights
Q: In your prepared remarks, you discussed robust demand and prices. Is this driven by more consistent supply out of Mexico, and what is the impact on the market and prices?
A: Yes, consumption continues to grow, and higher prices haven't negatively affected it. The overall volume sold compared to a year or two ago is higher, even at higher prices per pound. Consistent supply from Mexico and an earlier start to the California harvest season have contributed to this positive situation. (Stephen Barnard, CEO; Bryan Giles, CFO)
Q: On the M&A side, you mentioned gross margins being up in the UK due to stable supply, early California season, and fee increases. Can you elaborate on these drivers and the current fee levels?
A: We raised fees to align with the value we provide and industry standards. We don't see the need for further increases at this point but will continue to evaluate. The volume of mangoes going through the same facilities also helps cover costs. (Bryan Giles, CFO; Stephen Barnard, CEO)
Q: Regarding the International Farming segment, specifically Peru, with production down 50% year-over-year, how will this impact adjusted EBITDA potential?
A: We expect results in the farming segment to be more in line with last year due to lower volumes, despite cost-saving initiatives. The reduction in volume is consistent with industry trends, and we are working to offset this with third-party sourcing. (Bryan Giles, CFO; Stephen Barnard, CEO)
Q: On the blueberry initiative, are the targets for expansion still the same, and has the total CapEx changed?
A: The targets remain the same, with 2,600 acres by the end of 2028. We are accelerating some of the development planned for future years due to positive cash flow, but the overall CapEx related to the project has not changed. (Bryan Giles, CFO)
Q: Will the weather conditions affecting other operations impact the blueberry outlook?
A: The weather conditions do not appear to affect blueberries as much. We are planting new premium varieties that produce higher yields and command a premium price. We expect to start harvesting earlier this year, which may positively impact the third quarter. (Stephen Barnard, CEO; Bryan Giles, CFO)
Q: Regarding the $10 million annualized cost savings in the International Farming operation, are these savings sustainable, or will they change with normalized volumes?
A: These cost-saving initiatives are largely fixed and were implemented before knowing the crop size for this year. The savings are expected to be sustainable and carry forward to future periods. (Bryan Giles, CFO)
Q: Can you provide more details on the impact of the El Nino weather conditions on the Peruvian avocado crop and how you are mitigating this?
A: El Nino has reduced fruit development and sizing, impacting the global supply of avocados. We are mitigating this by sourcing third-party fruit from Peru and other regions. We also locked up loads from Peruvian packers to fill the gap in our own production. (Stephen Barnard, CEO)
Q: How are you managing the increased CapEx budget for fiscal 2024, and what are your priorities for capital allocation?
A: We are increasing our CapEx budget to $40-$45 million to accelerate investments in land development and plant cultivation. Our core capital allocation priority is maintaining a healthy capital structure and minimizing leverage, with debt paydown as a near-term priority. (Bryan Giles, CFO)
Q: What are your expectations for avocado pricing and industry volumes in the near term?
A: We expect industry volumes to decline by 10-15% in the third quarter due to an earlier conclusion to the Mexican harvest season and a weaker Peruvian harvest outlook. Avocado pricing is expected to be relatively flat sequentially, translating to a 15% year-over-year increase. (Bryan Giles, CFO)
Q: How are you leveraging your advanced global sourcing and distribution network for mangoes and blueberries?
A: We are using our state-of-the-art avocado ripening technology for mangoes and investing in premium blueberry varietals. These efforts provide more optionality and added value for retailers and consumers, helping us replicate our success with avocados. (Stephen Barnard, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
