Calavo Growers, Inc. Announces Fiscal 2018 Third Quarter Results
SANTA PAULA, Calif.–(BUSINESS WIRE)– Calavo Growers, Inc. (Nasdaq-GS: CVGW) today reported that fiscal 2018 third quarter operating income rose 58 percent year-over-year on a 33 percent increase in gross profit. The company, a global avocado-industry leader and expanding provider of value-added fresh food, said that results for the most recent quarter increased net income and per-share results for the first nine months of this fiscal year to new all-time highs.
For the three months ended July 31, 2018, net income reached $12.4 million, equal to $0.70 per diluted share. Excluding certain items impacting comparability, adjusted net income1 totaled $15.1 million, or $0.86 per diluted share, which compares with $8.8 million, or $0.50 per diluted share, in the corresponding quarter last year.
Revenues in the most-recent quarter totaled $296.4 million, down a slight 2 percent from the company’s all-time quarterly record high of $301.6 million in the fiscal 2017 third period. Gross profit advanced 33 percent to $33.1 million, equal to 11.2 percent of revenues, from $24.9 million, or 8.2 percent of revenues, in the corresponding quarter last year. The company’s operating income soared by 58 percent to register $19.2 million versus $12.2 million in the fiscal 2017 like quarter.
Chairman, President and Chief Executive Officer Lee E. Cole stated: “Calavo posted another strong showing in the fiscal third quarter. I am extremely pleased by the outstanding operating performance in each of our three principal business segments which contributed to our overall results. This solid execution is best reflected in Calavo’s increase in net income and per-share results and, by extension, income from operations that climbed by 58 percent year over year.”
Cole continued: “In our Fresh segment, we executed well, increasing our volume of avocado units sold by 18 percent from last year’s third period. While consumption tracked significantly higher, the larger available fruit supply industry-wide resulted in lower year-over-year fresh avocado market pricing which had the effect of constraining Calavo’s sales growth in the most-recent quarter.
“The Renaissance Food Group (RFG) business segment delivered eight percent higher sales and increased gross profits by 46 percent in the third period. The RFG unit continued its path of progress in the quarter, deepening penetration with customers and expanding its portfolio of innovative refrigerated-fresh product offerings. RFG segment sales and gross profit would have been higher if not for a widely publicized melon recall.
“We are excited about the continued upward trend line in the Calavo Foods business segment, which was a meaningful contributor to overall growth in the quarter. Twenty-five percent revenue growth in the most recent period is indicative of a great-tasting lineup of prepared avocado products that are being widely embraced by a strong client base in the retail grocery and foodservice channels. Further, the segment continued during the fiscal third quarter to maintain a gross profit margin percentage in line with historical levels more commonly experienced in our Foods business. When compared to last summer’s challenging input-cost conditions, this translates into a nearly seven-fold expansion in year-over-year gross profit,” Cole concluded.
Net income for the nine months ended July 31, 2018 increased by $6.6 million, or 24 percent, to reach a record $33.6 million, or $1.91 per diluted share, from $27.0 million, equal to $1.54 per diluted share, in the corresponding period one year ago. Adjusted net income for the first nine months of fiscal 2018 increased by 39 percent to $38.7 million, or $2.20 per diluted share.
Revenues in the initial nine months this year rose to a record $808.8 million, an increase from $798.4 million for the like period in fiscal 2017. Gross profit rose by 10 percent, registering $91.3 million, equal to 11.3 percent of revenues, which compares with $83.0 million, or 10.4 percent of revenues, in the first nine months last year. Operating income climbed to $49.1 million, a 19 percent increase from $41.1 million last year.
Sales in the company’s Fresh business segment totaled $149.8 million in the fiscal 2018 third quarter. This compares with Fresh segment sales of $168.9 million in the third quarter one year ago. Segment gross profit equaled $14.9 million, or 10.0 percent of segment sales, in the most-recent period versus $16.9 million, or 10.0 percent of segment sales, in the fiscal 2017 third quarter. As stated in CEO Cole’s comments above, Fresh segment sales were impacted principally by lower industry-wide fresh avocado market prices versus one year ago and, more modestly, by lower industry-wide tomato market prices. Double-digit unit sales growth in all Fresh product categories—namely avocados and tomatoes—resulted in 20 percent increase in total volume to 4.9 million units in the most-recent quarter from 4.1 million in the like period of fiscal 2017.
In the RFG business segment, sales rose by 8 percent to $121.2 million from $112.5 million in the third quarter last year. RFG segment gross profit climbed $3.2 million, or 46 percent, growing to $10.0 million, equal to 8.2 percent of segment sales, from $6.8 million, or 6.1 percent of segment sales, in the year-ago third period. The company stated that RFG’s year-over-year gross profit improvements are indicative of progress in attaining operating efficiencies and economies of scale at production facilities that opened and expanded last year, as well as continued development of new fresh food programs with retail customers.
The Calavo Foods business segment saw sales expand in the most-recent quarter to $25.3 million, a 25 percent increase from $20.3 million in the fiscal 2017 third period. Gross profit increased to $8.1 million, or 32.1 percent of segment sales, from $1.1 million, equal to 5.3 percent of sales, in the third quarter last year. The top-line improvement is underpinned primarily by an increase in volume of prepared avocado products sold in the third quarter. Gross profit and margin both benefited from higher sales, as well as fruit input costs that, while seasonally higher than in the second quarter, tracked below last year’s third-quarter record-high avocado input cost.
Calavo’s total selling, general and administrative (SG&A) expense in the most recent quarter was higher at $13.9 million, or 4.7 percent of total revenues, from $12.7 million, approximating 4.2 percent of total revenues, in the fiscal 2017 third period. The rise in SG&A expense owed mainly to higher year-over-year management incentive plan accruals.
Income (loss) from unconsolidated subsidiaries decreased by $4.2 million to a loss of $3.7 million in the most-recent quarter. This primarily represents the recording of $3.5 million in non-cash losses from FreshRealm, LLC. Certain details regarding FreshRealm, will be included in Calavo’s quarterly report on Form 10-Q soon to be filed with the U.S. Securities and Exchange Commission for the three months ended July 31, 2018.
Looking toward the fourth quarter and ahead to fiscal 2019, CEO Cole said he remains “highly confident and enthusiastic about Calavo’s prospects moving forward. Our proven, complementary multi-platform model, which is focused on high-growth fresh food businesses, serves us well and leaves me extremely optimistic about our future.”
Cole continued: “As the avocado industry continues in a long-term expansion mode, we are well positioned—with our best-in-class sourcing, selling and distribution capabilities—to remain a category leader. The industry continues to forecast avocado volume growth of more than 20 percent for 2018, and a strong, all-source supply in fiscal 2019. With our diversified sourcing model and ample packing capacity in California and Mexico, we are poised to once again deliver strong volume growth in fiscal 2019.
“Turning to RFG, through Calavo’s extensive investments over the past several years, we have developed a best-in-class portfolio of fresh food products with a national footprint that enabled us to partner with many of the largest retailers in the U.S. As fresh food continues to gain market share among consumers, RFG remains very well positioned to expand its existing retail partnerships and to build meaningful new long-term relationships with retailers. At the same time, our team remains committed to continued improvement in manufacturing operation efficiency. Year-over-year sales and gross profit growth through the remainder of the year is expected to be generally in line with the growth experienced this quarter, and we remain very excited for RFG’s prospects continuing into fiscal 2019.
“Calavo Foods continues to track strongly, with sales growth for the year still expected to be in the high teens for fiscal 2018. While higher seasonal input prices may contribute to a slightly lower gross profit margin in the final quarter compared to the most-recent period, we expect gross profit margin will remain generally in line with year-to-date results, which should once again lead to very robust year-over-year growth in gross profit in our fourth quarter.”
Cole stated: “We remain optimistic about FreshRealm—an unconsolidated subsidiary in which Calavo continues to hold a meaningful ownership stake. During the most recent quarter Calavo invested an additional $3.5 million into FreshRealm (as part of a larger equity round) and committed up to $12 million in new debt financing. We are closely monitoring FreshRealm’s progress and believe that this additional financing should help give it the capital infusion to make a meaningful step forward in its operations.”
FreshRealm CEO Michael Lippold added: “The timing of the capital infusion coincides with FreshRealm investing further in its own national infrastructure to support B2B fresh prepped meal-kits, new business development initiatives, and expanded customer programs.”
“In sum, with its deep breadth of resources—operating, financial and human capital—we are poised for growth now and into the future. Calavo remains on target to post record revenues and gross profit, accompanied by greater than 20 percent growth in adjusted earnings per share in fiscal 2018. I look forward to reporting our continued success,” Cole concluded.
About Calavo Growers, Inc.
Calavo Growers, Inc. is a global avocado-industry leader and an expanding provider of value-added fresh food serving retail grocery, foodservice, club stores, mass merchandisers, food distributors and wholesalers worldwide. The Company’s Fresh segment procures and markets fresh avocados and select other fresh produce, including tomatoes and papayas. The Renaissance Food Group (RFG) segment creates, markets and distributes a portfolio of healthy, fresh foods, including fresh-cut fruit, fresh-cut vegetables and prepared foods. The Foods segment manufactures and distributes guacamole and salsa. Founded in 1924, Calavo’s fresh food products are sold under the respected Calavo brand name as well as Garden Highway, Chef Essentials and a variety of private label and store brands.