CALAVO GROWERS INC Q2 FY2021 earnings call

• Core avocado business has solid demand; first half of 2021 saw highest volume in 5 years. Avocado volume up 9% in Q2, but pricing suppressed by Mexico supply.
• RFG had headwinds from Texas and Pacific Northwest weather, but sales up 16% Y/Y excluding co-packer impact. Now in domestic season, weather issues not expected to impact next quarter.
• Foodservice recovery slow, but international business growing; guacamole demand up, plans to launch in Europe in Q3. International business represents growth opportunity.
• ESG initiatives focus on innovative products, tech in operations, agricultural innovation, food waste reduction. Project Uno launched for strategic review of business.
• Board size to be reduced from 11 to 9 directors, with three-year plan including succession planning and IT investments.

Fresh segment: Sales decreased 5% year-over-year to $161.7 million, with avocado volume up 9% but average pricing down 10%. Gross profit increased to $15 million, or 9.3% of revenue. RFG segment: Sales increased 3% to $96.3 million, but gross profit decreased to $2.3 million, or 2.4% of sales, due to labor issues, freight costs, and yield problems. Foods segment: Sales increased 16% to $21.6 million, with gross profit of $5.3 million, or 25.6% of sales, driven by improved foodservice demand.

• Q3 revenue expected $280 million to $300 million (7% Y/Y midpoint), adjusted EBITDA $11 million to $15 million (43% Y/Y midpoint) due to inflationary pressures on labor, raw materials, and freight.
• Anticipate pricing initiatives with partners to rectify pressures by year-end. Impact of Project Uno not seen until next year.

• Labor shortages affecting RFG and other segments, with high overtime costs and difficulty attracting/retaining employees.
• Continued slow recovery of foodservice industry, impacting Foods segment.
• Inflationary pressures on freight, labor, and raw materials, which could linger into year-end if pricing initiatives are not fully implemented.

Q: Ben Bienvenu asked about RFG margins, asking to bridge back to normal margins. Kevin Manion responded about ongoing pricing conversations, labor impact ($4.5M-$5M negative this quarter), and material/freight costs ($4M-$4.5M). James Gibson added on labor transition around September when schools and unemployment benefits change.

Q: Mitch Pinheiro asked about RFG retail impact, deli business, and salad bars. James Gibson discussed deli business impact early in pandemic, Renaissance team evolving to convenient products, and labor constraints now. Also talked about salad bars opening back up retailer by retailer.

Q: Ben Klieve asked about Project Uno consultants and international growth. Kevin Manion said consultants not engaged yet, start-up time still needed. On international, investment in people, reaching out to dormant relationships, aiming for 10% of revenue from international in three years.

Q: Eric Larson asked about avocado supply (Peru crop up, US crop down) and Foods margin outlook. Kevin Manion said Peru crop up 20%+, US crop down ~15% due to weather, Peruvian fruit pushing prices down. Foods margins expected to move back to 27%-28% range from current lower levels.