Calavo delivers 'all-time record performance' in Q2
Calavo Growers, Inc. today reported an all-time record quarter, in which fiscal 2019 second-quarter net income rose 16%. This marked a rise on the 8% increase in revenues from the corresponding period last year thanks to a strong performance in the company’s core fresh-avocado business.
The global avocado-industry leader and expanding provider of value-added fresh food also said it posted higher revenues, gross profit, operating income and adjusted net income in the initial six months of the year.
For the three months before April 30, 2019, Calavo reported a net income of US$16.3 million. This figure is equal to US$0.93 per diluted share. Excluding certain items affecting comparability, the company reported an adjusted net income of US$16.2 million. This figure is equal to US$0.92 per adjusted diluted share. This compares with the US$14.1 million in the corresponding quarter last year.
Meanwhile, revenues in the second quarter advanced 8% to US$286.2 million from US$264.4 million in the same period a year ago. Gross profit rose by 15% to $36.8 million, equal to a 12.9% increase of revenues from the year-ago second quarter.
Calavo’s operating income also climbed. The current figure is up 21% - at US$23.1 million - from last year's US$19.1 million.
Chairman, president and CEO Lee E. Cole stated: “Calavo delivered all-time record operating performance in the second quarter, with higher total revenues pacing our double-digit percentage increases in gross profit, operating income, net income and diluted earnings per share.
“The leading contributor to these results was our Fresh segment, especially our core avocado business, which registered yet another outstanding performance. Avocado unit volume and gross profit increased significantly year over year—indicative of consumer demand that continues to track strongly."
Calavo Foods' segment climbs
Cole elaborated on the success the company has seen in its food segment. “The Calavo Foods segment delivered a solid contribution to total company revenue and gross profit."
He added that the corporation's guacamole business "remains a complementary, strategic fit with our Fresh segment". What's more, he said it "extends our presence in the retail-grocery and foodservice categories".
Net income for the first half ended April 30, 2019 totaled US$20.8 million, equal to US$1.18 per diluted share. This compares with US$21.3 million, or US$1.21 per diluted share in last year’s initial six months.
Excluding certain items impacting comparability, the company reported that first half adjusted net income totaled US$29.1 million, equal to US$1.66 per adjusted diluted share.
This is a several million increase from last year's corresponding period. During that time, the company reported US$23.6 million, or US$1.35 per adjusted diluted share.
In addition, first-half revenues also increased. The company said they totaled US$544.3 million, an increase of 6% from US$512.3 million in the initial six months of fiscal 2018.
Gross profit rose even more, up 16% to US$67.7 million from US$58.3 million in the like period last year.
Operating income climbed by 33% to $39.7 million from $29.9 million in the first half of fiscal 2018. Operating income for the current quarter also includes a gain on the sale and partial leaseback of the company’s Temecula, Calif. packinghouse of approximately $1.9 million. (Net cash proceeds to Calavo from this transaction were approximately US$6.7 million).
Calavo's Fresh Segment performance
Second quarter sales in Calavo’s Fresh segment rose nearly 10% to US$150.9 million from US$137.9 million in the corresponding fiscal 2018 quarter.
The company attributes this year-over-year top-line growth in the Fresh segment to higher avocado and tomato unit sales. In fact, Fresh segment gross profit advanced by US$12.6 million or over 80% in the most-recent quarter to US$27.8 million. This figure is equal to 18.4% of segment sales, from US$15.1 million, or 11% of segment sales, in the second period last year.
CEO Cole noted that gross profit and margin expansion mainly reflected a number of strengths. These include strong avocado sourcing as well as positive sales and production management.
Total Fresh segment (avocados, tomatoes and papayas) unit volume increased by more than 19%, to 5.7 million units in the most-recent quarter. This was a one million unit rise from 4.7 million in last year’s second quarter.
RFG segment sees sales growth despite challenges
Looking at sales in the RFG segment, the company commented that they rose 9% to US$114.0 million from the year ago second quarter. It adds that the increase in segment sales is due to expanded customer relationships. It points out those especially in some of RFG’s newer manufacturing geographies.
Sales growth also benefited from a partial quarter of sales out of RFG’s newest Atlanta, Ga., manufacturing location, which began operation in April 2019. Gross profit for the RFG segment equaled US$2.8 million, or 2.4% of segment sales. This compares to gross profit of US$9.3 million, or 8.9% of segment sales, in the fiscal 2018 second quarter.
Calavo explains that gross profit and margin were impacted by industry-wide raw-ingredient challenges. It also suffered difficulties related to one of RFG’s co-packing partners.
Looking ahead to the second half of fiscal 2019, CEO Cole was optimistic. He stated: “We turn the corner into the third quarter in a very strong position. I am confident about our prospects for the balance of this year and beyond, and believe we remain squarely on track to post record revenues and a double-digit increase in adjusted diluted earnings per share."
As for the Fresh segment in particular, he said he looks forward to significant growth.
“The Fresh segment has been a stellar performer in the most recent quarters, pacing Calavo’s overall results. I am enthusiastic about its prospects; the building blocks for growth are in place, and the segment continues to execute extremely well.
With our breadth and depth of sourcing, sales and production capabilities, coupled with our financial resources and human capital, we are well positioned to capitalize on industry expansion that shows no signs of abating. We believe that avocado unit growth for the full fiscal year 2019 should match or exceed the performance in the first half. Given this growth, and our operational expertise navigating the market, we now anticipate a gross profit increase of approximately 50% for the full year in our Fresh segment."
Looking at how the company is moving forward as a whole, he added: “Calavo Foods remains a highly complementary component of the company’s strategic business plan. For the full year, we are now anticipating sales growth in the mid-single digits with a gross profit percentage that is slightly lower than what we have achieved year-to-date, largely attributable to the recent sharp increase in avocado prices of the grade and quality used by our Foods segment."