On September 9, 2024, Calavo Growers Inc (CVGW, Financial) released its 8-K filing for the fiscal third quarter ended July 31, 2024. Calavo Growers Inc, a global leader in the processing and distribution of avocados, tomatoes, papayas, and guacamole, operates in two segments: Grown and Prepared. The Grown segment includes fresh avocados, tomatoes, and papayas, while the Prepared segment comprises fresh-cut fruits and vegetables, ready-to-eat sandwiches, wraps, salads, snacks, guacamole, and salsa.
Performance Overview
Calavo Growers Inc reported total net sales of $179.6 million for the third quarter, surpassing the analyst estimate of $178.55 million. This represents an 11.7% increase from the $160.9 million reported in the same period last year. The Grown segment saw a 13.3% increase in sales, while the Prepared segment experienced a 2.4% decline.
Despite facing temporary supply disruptions from Mexico, the company managed to generate strong financial results due to its operational flexibility and resilient team. The average selling price of avocados in the Grown segment increased by 25% compared to the prior year, which helped offset a 4.5% decline in avocado volume.
Financial Achievements
Gross profit for the third quarter was $20.1 million, or 11.2% of net sales, compared to $22.0 million and 13.7% for the same period last year. Selling, general, and administrative (SG&A) expenses totaled $10.5 million, or 5.9% of net sales, down from $13.0 million and 8.1% of net sales in the prior year. This decrease was primarily driven by lower compensation expenses.
Net income for the third quarter was $5.4 million, or $0.30 per diluted share, compared to $8.7 million, or $0.48 per diluted share, for the same period last year. Adjusted net income was $10.2 million, or $0.57 per diluted share, compared to $7.7 million, or $0.43 per diluted share last year. Adjusted EBITDA was $13.5 million, up from $13.0 million in the prior year.
Balance Sheet and Liquidity
Calavo Growers Inc ended the quarter with $39.0 million of net debt, which included $33.5 million of borrowings under its credit facility and $6.6 million of other long-term obligations and finance leases, less cash and cash equivalents of $1.1 million. The company reduced its net debt by $9.5 million and had approximately $57.3 million of liquidity as of July 31, 2024. Subsequent to the quarter end, the company retired the remaining debt balance with proceeds from the sale of its Fresh Cut business.
Segment Performance
Grown Segment: The Grown segment reported a gross profit of $18.2 million, a decrease of $1.2 million from the prior year quarter. The increase in avocado prices helped offset the volume decline caused by supply disruptions from Mexico.
Prepared Segment: The Prepared segment reported a gross profit of $1.9 million, a decrease of $0.8 million from the third quarter last year. The decline was primarily driven by higher fruit input costs. However, the company expects margins in the guacamole business to improve in the fourth quarter as input costs recede.
Management Commentary
“Our third quarter results reflect continued momentum in our flagship avocado business,” said Lee Cole, President and Chief Executive Officer of Calavo Growers, Inc. “Despite temporary industry supply disruptions from Mexico during the quarter, we generated strong financial results due to our operational flexibility and our resilient team. Although our guacamole business experienced headwinds from higher fruit input costs compared to the third quarter last year, our volume increased 7% due to our focus on growing the business. I am also pleased to share that we will be launching some exciting, innovative guacamole products during the fourth quarter.”
Conclusion
Calavo Growers Inc's third-quarter performance demonstrates its ability to navigate industry challenges and capitalize on its core strengths. The company's focus on operational flexibility and strategic investments in its avocado and guacamole businesses positions it well for future growth. Value investors may find the company's strong revenue growth and strategic initiatives appealing as Calavo Growers Inc continues to enhance its market position.
Explore the complete 8-K earnings release (here) from Calavo Growers Inc for further details.
