Yesterday Calavo Growers reported Q4 EPS of $.34, missing consensus of $.64. Revenue was 9% below consensus estimates. Revenue was 9% below consensus estimates and 20% lower YOY. Fresh segment revenue decreased by 18%, RFG decreased by 26%, and Food segment revenue decreased by 33%. Gross margins expanded 60bps and adjusted for nonrecurring items expanded 170bps. SG&A increased by 80bps due to the lower revenue.
Avocado volumes were up 3% YOY while prices were 22% lower. Management said both California and Mexico had strong production combined with the lower demand from foodservice pressured prices and margins. Wholesale prices are the lowest level of the past five years, as seen in the following chart.
Despite the lower wholesale prices, retail prices have not reflected the large supplies. Consumers do not purchase the same crop size or quality of the product that foodservice does. Management guided Q1 revenue 15% below consensus estimates as the supply and demand environment is expected to remain the same.
Mission Produce is a leader in sourcing, producing, and distributing fresh avocados. It owns 10,000 acres in Peru and four packing facilities in the US, Mexico, and Peru, among other assets for globally distributing avocados. The company is led by CEO Steve Barnard, who is well regarded in the industry. It has had an attractive revenue growth record, as seen in the following chart. Mission Produce's profitability is attractive, with 14% EBITDA margins compared to 7% last year for Calavo. It is also less than 1x levered.
Mission Produce went public in October despite the poor track record for single crop equities. Even if the crop has secular demand, growth price swings can reduce the stock to a commodity price tracker. Mission Produce has international customers, which can buffet the price pressure in the U.S. to some extent. However, Mission Produce will be subject to the same supply situation as Mexico is the leading Haas avocado producer. The crop in Mexico looks to be 8-10% larger and the second harvest in the early spring looks to be nearly as strong. Super Bowl demand will also likely be lower this year with social distancing rules in effect.
