Calavo Growers, Inc. Q1 FY2023 earnings call

• Grown Segment Challenges: High Mexican avocado volume, especially small fruit, pressured wholesale prices and margins. Expected price improvement around Super Bowl was muted.
• Prepared Segment Pressures: Volume softness due to inflation and economic conditions, with fresh-cut division down 13% volume.
• Actions Taken: Implemented new transportation management system, restructured U.S. and Mexico operations, consolidated Grow distribution network, exited noncore salsa business, converted over 50% of Prepared revenue to flexible pricing.
• Outlook: Expect sequential improvement, but margin volatility in Grown and volume softness in Prepared may persist. Grown margins expected at low end of $3-$4 range; Prepared fresh cut at low end of 10%-12% range, guacamole at ~20%.

Grown Segment: Revenue was $118 million, down $45 million from the prior year. Average case price fell to ~$28 vs ~$34 in Q4 2022 and $43 in prior year quarter. Margin per case was ~$2.20 vs ~$3 last year. Volume up over 3% due to increased Mexico supply, but pressured by high small fruit volume and retail price stickiness. Prepared Segment: Revenue was $108 million, down $4 million from prior year. Volume down ~13% due to seasonality, inflation, and economic conditions. Gross profit was $5 million, up from $1.6 million prior year. Fresh cut division had ~1% gross margin with weather-related costs of ~$1M, while guacamole division had ~26% gross margin.

• Adjusted EBITDA expected in range of $40 million to $45 million for 2023.
• Capital expenditures for fiscal 2023 now approximately $13 million, down from prior plans.
• Onetime charges in Q2 related to restructuring and salsa exit expected to total approximately $3.2 million.

• Volatility in Grown margins due to California and Peru avocado seasons.
• Volume softness in Prepared segment near term.
• Supply and demand imbalances in avocado market affecting margins.

Q: Ben Bienvenu with Stephens asked about demand elasticities in Prepared and restructuring plans.

A: Brian Kocher discussed demand elasticities in Prepared due to inflation and economic conditions, and detailed restructuring efforts including exiting noncore salsa business and streamlining operations.

Q: Mitch Pinheiro with Sturdivant asked about structural changes in Grown and CapEx.

A: Brian Kocher and Shawn Munsell discussed structural changes in Grown like supply dynamics and CapEx being disciplined with focus on high-return initiatives.

Q: Benjamin Klieve with Lake Street Capital Markets asked about salsa divestiture and CapEx.

A: Shawn Munsell explained salsa divestiture to divert resources to guac, and CapEx expectations with focus on growth-related investments.

Q: Eric Larson asked about avocado mix, Prepared margins, and competitive landscape.

A: Brian Kocher and Shawn Munsell discussed avocado mix impact on margins, Prepared margin improvements, and competitive dynamics in the produce category.