Calavo posts 40% rise in Q3 net income but lower fresh segment sales

September 05 , 2018

U.S.-based Calavo Growers (Nasdaq-GS: CVGW) boosted net income by 40% to US$12.4 million in the third fiscal quarter but achieved lower sales in its fresh business segment.

The avocado and value-added fresh food company also saw gross profit rise by 33% to US$33.1 million and operating income grow by 58% to US$19.2 million.

However, total revenues saw a slight decline of 2% from last year’s record to US$296.4 million.

The results for the quarter increased net income and per-share results for the first nine months of this fiscal year to new all-time highs, it said.

“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,” said CEO Lee E. Cole.

In the company’s fresh business segment, sales fell by 11% year-on-year to US$149.8 million despite the volume of avocado units sold rising by 18%. 

“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,” he said.

Tomatoes also saw double-digit unit sales growth but lower industry-wide prices.

The Renaissance Food Group (RFG) business segment recorded an 8% rise in sales to US$121.2 million and a 46% increase in gross profit to US$10 million – a performance that Cole said would have been even stronger if not for the “widely publicized melon recall.”

Meanwhile, Calavo Foods sales rose by 25% to $25.3 million during the quarter, primarily due to an increase in volume of prepared avocado products sold in the third quarter.

Outlook

Looking toward the fourth quarter and ahead to fiscal 2019, 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,” he said.

He added that as the avocado industry continues in a “long-term expansion mode”, Calavo is well positioned 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,” he said.

For the RFG segment, Cole said that Calavo has invested heavily in its 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,” he said.

“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.”

He also said the company remains “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,” he said.

“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.”

 

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