Release Date: September 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Mission Produce Inc (AVO, Financial) reported a 24% year-over-year increase in revenue, reaching a record $324 million.
- Adjusted EBITDA surged by 49% to $31.5 million, showcasing strong financial performance.
- The company successfully leveraged its global sourcing network to meet customer demand despite challenges in Peru.
- Mission Produce Inc (AVO) achieved a record share of the California avocado market, capitalizing on larger-than-expected harvest yields.
- The UK facility reached profitability for the first time since opening, reflecting successful market penetration and strategy adaptation.
Negative Points
- The International Farming segment experienced a reduction in quarterly sales volume of over 40% due to adverse weather conditions in Peru.
- SG&A expenses increased by $2.8 million, primarily due to higher employee-related costs, including performance-based incentive compensation.
- Despite cost-saving measures, the International Farming segment's gross profit was down slightly, excluding asset disposal impacts.
- The blueberry segment's adjusted EBITDA decreased slightly, indicating challenges in maintaining profitability in this area.
- Future avocado supply from Peru remains uncertain due to past weather impacts, potentially affecting future revenue and margins.
Q & A Highlights
Q: Can you comment on how your expectations for the upcoming Peruvian avocado harvest have evolved over the last three months? Also, can you comment on the fruit size and quality of that crop?
A: Stephen Barnard, CEO: We are done harvesting for the season. We initially estimated about 42,000 tonnes, but extreme heat due to El Nino resulted in substantially lower yields. However, higher prices offset this somewhat. Looking forward, El Nino has moved offshore, and the trees look healthier. Bryan Giles, CFO: Our expectations three months ago were accurate regarding volumes and size curves. Pricing held up better than expected due to a lack of fruit. We anticipate better weather conditions will lead to more normalized harvest levels next year.
Q: What drove the increase in your market share in California, and can you provide any quantitative details about this share increase?
A: John Pawlowski, President and COO: The California crop was larger than anticipated, and we pivoted to secure more share to meet customer needs. We leveraged relationships with local growers and executed well, resulting in close to a 30% share in the California market, potentially higher when all is said and done. Bryan Giles, CFO: Our proactive approach with large-scale growers and the favorable conditions in California contributed significantly to our increased share.
Q: Given your strong cash flow performance, how is your thought process evolving towards future capital allocation?
A: Bryan Giles, CFO: Our priorities remain the same. We focused on getting the balance sheet back in order and reducing debt. We have communicated a step down in capital spend over time. We did accelerate some investments related to blueberries due to strong cash flow. M&A opportunities are always evaluated, but our approach remains consistent. The strong cash position gives us more flexibility.
Q: Can you provide a longer-term view on margin improvements and cost-saving initiatives?
A: Bryan Giles, CFO: Most margin improvement in Q3 was driven by the marketing segment. Cost-saving initiatives in farming helped mitigate lower volumes. We have set a good baseline for future growth with a lower cost base. John Pawlowski, President and COO: The sales and marketing team has executed well, and we see significant growth opportunities. The infrastructure built over the years has room for more product, and we are focused on growth.
Q: Can you elaborate on the success and future potential of your mango category?
A: John Pawlowski, President and COO: The mango category saw a 40% increase in volumes and doubled revenues to $14 million. We achieved meaningful improvement in per unit margins. The demand for fresh ripened mangoes is strong, and we see significant growth potential in this category.
Q: How did you manage to achieve such strong financial performance despite the challenges in Peru and Mexico?
A: Stephen Barnard, CEO: Our ability to pivot and leverage our global sourcing network allowed us to meet customer demand and maximize per unit margins. The constrained supply environment created opportunities for our marketing and distribution segment. We effectively utilized our relationships and sourcing capabilities to supplement lower industry volumes.
Q: What are your expectations for avocado pricing and volumes in the near term?
A: Bryan Giles, CFO: Industry volumes are expected to be flat to slightly lower in Q4 2024 due to the smaller Peruvian crop. We will transition to a Mexico-centric source model. We anticipate prices to decrease sequentially but remain approximately 15% higher than the prior year. Higher price points at comparable volume levels indicate continued strong demand.
Q: Can you provide an update on your financial position and cash flow performance?
A: Bryan Giles, CFO: Cash and cash equivalents were $49.5 million as of July 31, 2024, up from $42.9 million as of October 31, 2023. Operating cash flow performance year to date is up $62.7 million versus the prior year. Net cash provided by operating activities was $55.4 million for the nine months ended July 31, 2024. Capital expenditures were $25.3 million for the same period, and we remain committed to driving free cash flow and reducing debt.
Q: How are you managing cost containment and operational efficiencies in your international farming segment?
A: Bryan Giles, CFO: Despite lower harvest yields, we implemented cost containment efforts that largely offset the impact. We achieved approximately $2.5 million in cost savings year to date. We are focused on reducing controllable expenses and improving operational efficiencies, which will translate into better performance when growing conditions normalize.
Q: What are your plans for the blueberry segment, and how does it align with your overall strategy?
A: Stephen Barnard, CEO: We are accelerating our expansion plans in the blueberry segment due to exceptional cash flow performance. The blueberry business complements our existing offerings and aligns with our strategy of delivering high-quality, differentiated products across multiple growing seasons. We are excited about the opportunities this segment presents.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
