Calavo Growers, Inc. Q4 FY2022 earnings call

Management Statement and Operational Highlights

• Financial Improvements: Fiscal 2022 showed improved financial metrics with gross profit of $74 million (up $16 million from 2021), adjusted EBITDA up $8 million to $35 million, and adjusted EPS up to $0.50 per share.
• Accomplishments: Board reduction and diversification, executive team alignment and compensation alignment to company performance, brand refresh, Jalisco avocado packing facility certification for export to the U.S., and publication of long-term ESG goals focused on climate action, social responsibility, sustainable agriculture, and sound governance. Also, entered a licensing partnership with General Mills as the exclusive U.S. manufacturer of Old El Paso brand fresh guacamole and salsas.

Segment Performance

• Prepared Segment: Fourth quarter revenue was $125 million, down $10 million from the third quarter. For the full year, Prepared gross profit more than doubled to $23.7 million. The Fresh Cut division saw a turnaround, while the guacamole division faced input cost pressure but margins rebounded. The Fresh Cut division posted an average gross margin of over 8% in the fourth quarter.
• Grown Segment: Fourth quarter revenue was $119 million, down $88 million from the third quarter. Full year gross profit increased by $2.4 million to about $50 million. Avocado volume declined about 2% in the fourth quarter, but higher gross profit per carton offset volume declines from lower supply from Mexico.

Guidance

• 2023 Outlook: Grown volume expected to rebound in 2023 with a larger Mexican avocado crop and Jalisco fruit available all season, pricing per unit lower than 2022. Prepared segment volume to benefit from growth initiatives. Fresh Cut business expected to exit 2023 with a 10%-12% gross margin run rate. Plan to invest approximately $18 million in CapEx in 2023, primarily in the Prepared business.

Risks

• Excess Peruvian fruit remaining in the market longer than expected pressured pricing at the end of Q3 and into Q4. Ongoing market price volatility in the avocado business due to changing supply and demand conditions. Need to adapt supply chain to growing volumes from new regions like Peru and Colombia.

Question and Answer

Q: Ben Bienvenu asked about the 2023 outlook for the Prepared business, specifically the run rate margin in the Fresh Cut fruit business.

A: Brian Kocher and Shawn Munsell responded that the 10%-12% is an annualized gross margin run rate, with seasonality affecting quarterly numbers but expecting the Fresh Cut business to have that annualized rate by the end of 2023.

Q: Eric Larson inquired about Peruvian supply and its impact on the market.

A: Brian Kocher stated they are preparing for growing Peruvian volume, expanding supply chain to adapt, with plans to increase Peruvian and Colombian volumes and utilize Jalisco facility in Mexico for optionality.

Q: Ben Klieve asked about CapEx expectations and Old El Paso relationship.

A: Shawn Munsell said CapEx in 2023 is ~$18 million, with most in the Prepared business. Brian Kocher mentioned the Old El Paso relationship is a new exclusive partnership started during the quarter.