Third Quarter Highlights Include:
- Net Income Equaled $10.6 Million; Adjusted Net Income(1) Rose
to $16.0 Million
- Diluted EPS Totaled 60 Cents; Adjusted Diluted EPS(1) Equaled
91 Cents
- Gross Profit Increased 8 Percent to $35.8 Million from $33.1
Million
- Revenues Rose 21 Percent to an All-Time Record $359.3 Million
from $296.4 Million
Year-to-Date Highlights Include:
- Net Income Totaled $31.4 Million; Adjusted Net Income(1) Rose
17 Percent to $45.2 Million
- Diluted EPS Equaled $1.79; Adjusted Diluted EPS(1) Totaled
$2.57
- Gross Profit Increased 13 Percent to $103.4 Million from $91.3
Million
- Revenues Grew 12 Percent to $903.6 Million from $808.8
Million
Looking Forward for Fiscal Year 2019:
- CEO Cole Expects Record Revenue and over 20 Percent Increase in
Adjusted Diluted EPS for Full Year
Calavo Growers, Inc. (Nasdaq-GS: CVGW) today reported that
fiscal 2019 third quarter revenues rose to the highest
single-period total in company history. The company, a global
avocado-industry leader and rapidly expanding provider of
value-added fresh food, also announced that gross profit, operating
income and adjusted net income all tracked substantially higher
than last year.
For the three months ended July 31, 2019, net income totaled
$10.6 million, equal to $0.60 per diluted share. This compares with
net income of $12.4 million, or $0.70 per diluted share, in last
year’s third quarter. Excluding certain items impacting
comparability, the company reported adjusted net income(1) of $16.0
million, equal to $0.91 per adjusted diluted share, which compares
with $15.1 million, or $0.86 per adjusted diluted share, in the
corresponding quarter last year.
Third quarter revenues rose 21 percent to a record $359.3
million from $296.4 million in the year-earlier corresponding
quarter. Gross profit advanced to $35.8 million, or 10.0 percent of
revenues, an eight percent increase from $33.1 million, equal to
11.2 percent of revenues, in the third period of 2018. Operating
income registered a 12 percent increase, climbing to $21.6 million
from $19.2 million in the fiscal 2018 third quarter.
Chairman, President and Chief Executive Officer Lee E. Cole
stated: “As forecast, Calavo posted strong operating results in the
third quarter, maintaining the company’s trajectory toward a record
performance this fiscal year.”
Cole continued: “The Fresh segment continues to power overall
results, with sales increasing 38 percent and total gross profit
for the segment expanding by 70 percent in the most recent quarter.
Calavo’s expertise in avocado sourcing, production and sales
management have enabled us to successfully navigate a range of
different market conditions this year, including this most recent
quarter during which strong consumer demand outpaced a lower
overall industry supply.
“As foreshadowed in our second quarter earnings release, the
short supply and sharp increase in prices for avocados used in our
Calavo Foods segment adversely impacted gross profit during our
third fiscal quarter. However, we did see fruit input costs easing
at the end of our third quarter which supports our expectation for
improved performance in the coming fourth quarter (further
described in Outlook below).
“In the third quarter, Renaissance Food Group (RFG) generated
higher sales and turned in sharply improved gross profit
performance – nearly three-fold higher – than realized in the
company’s fiscal second quarter. We are especially encouraged by
the improved efficiency of our manufacturing operations, where
certain factors that challenged RFG in the first half of the year –
namely raw-materials cost, quality and availability – have
abated.”
Year-to-date net income through July 31, 2019 totaled $31.4
million, or $1.79 per diluted share, which compares with $33.6
million, equal to $1.91 per diluted share in the initial three
quarters last year. Excluding certain items impacting
comparability, the company reported that nine-month adjusted net
income(1) increased by 17 percent to $45.2 million, equal to $2.57
per adjusted diluted share, which compares with $38.7 million, or
$2.20 per adjusted diluted share, in the corresponding period last
year.
Nine-month revenues rose by 12 percent to $903.6 million from
$808.8 million in the fiscal 2018 initial three quarters.
Year-to-date gross profit climbed 13 percent to $103.4 million, or
11.4 percent of revenues, from $91.3 million, or 11.3 percent of
revenues, in the corresponding period one year ago. Operating
income increased 25 percent to $61.2 million versus $49.1 million
in the like three quarters of fiscal 2018.
In Calavo’s Fresh segment, third quarter sales grew 38 percent
to $207.0 million from $149.8 million in the like quarter of fiscal
2018. Higher industry prices for avocados, along with a
double-digit increase in tomato unit sales, principally drove
top-line growth in the segment in the most recent quarter. Fresh
segment gross profit climbed by more than $10 million, or about 70
percent, to $25.3 million, or 12.2 percent of segment sales, from
$14.9 million, or 10.0 percent of segment sales in last year’s
third quarter. Segment gross profit and margin expansion
principally reflect the underlying strength of Calavo’s avocado
sourcing, production and sales platform that continues “executing
exceptionally well,” according to the company. Total Fresh segment
(avocados, tomatoes and papayas) unit volume totaled 4.7 million in
the most recent quarter, which compares with 4.9 million units in
last year’s third period.
Third quarter sales in the RFG segment rose five percent to
$127.5 million from $121.2 million in the corresponding quarter of
fiscal 2018. The upward sales trend line is indicative of expanded
customer relationships in regions where RFG has added manufacturing
capabilities in recent years, most notably the segment’s Georgia
production facility, which completed its first full quarter of
operation. Partially offsetting that growth were lower sales from
one of the segment’s co-pack partners stemming from issues
discussed in last quarter’s release. Gross profit in the segment
totaled $7.6 million, or 6.0 percent of segment sales. This
compares with gross profit of $10.0 million, or 8.2 percent of
segment sales in the fiscal 2018 third quarter. Segment gross
profit in the most recent quarter represents an improvement of $4.9
million, or 177 percent from $2.8 million, or 2.4 percent of
segment sales, from the immediately preceding quarter. The company
said that the sharp quarter-to-quarter gross profit and margin
increase primarily reflect a more favorable raw ingredient
environment and improved efficiency across the segment’s
manufacturing footprint.
Calavo Foods segment third quarter sales totaled $24.8 million
versus $25.3 million in the corresponding period last year. Segment
gross profit totaled $2.8 million, equal to 11.4 percent of segment
sales, which compares with $8.1 million, or 32.1 percent of segment
sales, in the fiscal 2018 third period. As stated in CEO Cole’s
comments above, Calavo Foods segment gross profit and margin were
impacted by substantially higher avocado input costs versus a year
ago.
Total selling, general and administrative (SG&A) expense in
the most recent quarter equaled $14.3 million, or 4.0 percent of
total company revenues, which compares with $13.9 million or 4.7
percent of total revenues, in the third period last year. As a
point of note, Calavo expanded its top line by 21 percent with just
a modest increase in SG&A expense, indicative of the company’s
capacity to support incremental revenue and profit growth.
Third quarter results include a non-cash, unrealized loss of
approximately $5.1 million on the company’s ownership interest in
Limoneira Company. (Owing to a recent generally accepted accounting
principle – or “GAAP” – rule change, unrealized “paper” gains and
losses on investments are now included in the company’s income
statement.) The company’s loss from unconsolidated subsidiaries
narrowed by nearly $1.2 million to $2.5 million in the most recent
quarter from approximately $3.7 million in the fiscal 2018 third
quarter. The reduced loss from unconsolidated subsidiaries both on
a sequential and year-over-year basis reflects a narrower loss in
the most recent period at FreshRealm.
Outlook
Looking forward, CEO Cole stated: “Based on our operating
performance in the most-recent quarter and fiscal 2019 to date,
Calavo enters our final quarter squarely on target to post record
revenues and adjusted diluted earnings per share—and I am
forecasting an increase of over 20 percent in adjusted diluted
earnings per share.
“Underscoring my optimism and confidence is the robust
performance of our Fresh avocado segment, which continues to
execute extremely well. Our breadth of resources enables our
leadership position in the long-term expansion of the avocado
industry. Calavo has demonstrated strength navigating this dynamic
market across a range of conditions and, even though total
all-source industry volume was lower than we expected in the third
quarter, we continue to anticipate an increase in Fresh segment
gross profit for the full year exceeding 50 percent.”
Cole continued: “Our RFG segment, as previously forecast,
continues to improve; the notable quarter-to-quarter increase in
sales and gross profit are promising indicators. In particular, the
results this quarter from our established manufacturing facilities
give us added confidence in our long-term strategy of bringing more
of our manufacturing operations under direct company control. While
we continue to make advances optimizing our existing manufacturing
operations, we are also investing in new facilities to build
stronger footholds in additional regions. Following our first full
quarter of production in Georgia, our newest production facility in
the Pacific Northwest is coming online during the fourth quarter,
which should bolster our long-term growth potential. For the full
year 2019, we continue to forecast high-single-digit revenue growth
and an overall gross profit percentage that is slightly higher than
our year-to-date results for RFG.
“I reiterate that Calavo Foods remains a highly complementary
part of the company’s business strategy, extending our brand
presence both in the retail and food-service categories. Gross
profit and margin have been adversely impacted by high avocado
prices this year. However, we anticipate month-to-month improvement
across the fourth quarter with margins nearing the segment’s
historic norms by the end of the fiscal year. We are also expecting
stronger top-line sales growth during the final quarter, leading to
mid-single-digits sales growth for the year for our Foods
segment.
“FreshRealm, the unconsolidated subsidiary in which Calavo holds
a minority ownership stake, made some further progress. The
business’ newest customers continued to ramp (leading to sequential
quarter growth in sales) and its cost-reduction program led to
lower loss realization.
“We advance toward the conclusion of fiscal 2019 in a very
strong position that underscores my confidence for Calavo’s
potential for the current year and well into the future. Our
company has in place a very strong, flexible strategic platform –
with multiple revenue and profit drivers – capable of performing
well across a range of market conditions as Calavo has repeatedly
demonstrated. With so much to build on, I look forward to the
course ahead and reporting our continued progress,” Cole
concluded.
About Calavo Growers, Inc.
Calavo Growers, Inc. is a global avocado-industry leader and an
expanding provider of value-added fresh food serving retail
grocery, foodservice, club stores, mass merchandisers, food
distributors and wholesalers worldwide. The Company’s Fresh segment
procures and markets fresh avocados and select other fresh produce,
including tomatoes and papayas. The Renaissance Food Group (RFG)
segment creates, markets and distributes a portfolio of healthy,
fresh foods, including fresh-cut fruit, fresh-cut vegetables and
prepared foods. The Foods segment manufactures and distributes
guacamole and salsa. Founded in 1924, Calavo’s fresh food products
are sold under the respected Calavo brand name as well as Garden
Highway, Chef Essentials and a variety of private label and store
brands.
Safe Harbor Statement
This news release contains statements relating to future events
and results of Calavo (including certain projections and business
trends) that are "forward-looking statements," as defined in the
Private Securities Litigation and Reform Act of 1995, that involve
risks, uncertainties and assumptions. If any of the risks or
uncertainties ever materialize or the assumptions prove incorrect,
the results of Calavo may differ materially from those expressed or
implied by such forward-looking statements and assumptions. All
statements, other than statements of historical fact, are
statements that could be deemed forward-looking statements,
including, but not limited to, any projections of revenue, gross
profit, expenses, gain/(loss) on Limoneira shares, income/(loss)
from unconsolidated entities, earnings, earnings per share, tax
provisions, cash flows, currency exchange rates, the impact of
acquisitions or debt or equity investments or other financial
items; any statements of the plans, strategies and objectives of
management for future operations, including execution of
restructuring and integration (including information technology
systems integration) plans; any statements regarding current or
future macroeconomic trends or events and the impact of those
trends and events on Calavo and its financial performance, whether
attributable to Calavo or any of its unconsolidated entities; any
statements regarding pending investigations, legal claims or tax
disputes; any statements of expectation or belief; any risks
associated with doing business internationally (including possible
restrictive U.S. and foreign governmental actions, such as
restrictions on transfers of funds and trade protection measures,
such as import/export/customs duties, tariffs and/or quotas); any
risks associated with receivables from and/or equity investments in
unconsolidated subsidiaries; and any statements of assumptions
underlying any of the foregoing. Risks, uncertainties and
assumptions include the impact of macroeconomic trends and events;
the competitive pressures faced by Calavo's businesses; the
development and transition of new products and services (and the
enhancement of existing products and services) to meet customer
needs; integration and other risks associated with business
combinations; the hiring and retention of key employees; the
resolution of pending investigations, legal claims and tax
disputes; any risks associated with doing business internationally
(including possible restrictive U.S. and foreign governmental
actions, such as restrictions on transfers of funds and trade
protection measures, such as import/export/customs duties, tariffs
and/or quotas); any risks associated with receivables from and/or
equity investments in unconsolidated subsidiaries; and other risks,
including, without limitation, those items discussed in Calavo’s
latest filed Annual Report on Form 10-K and those detailed from
time to time in our other filings with the Securities and Exchange
Commission. These forward-looking statements are made only as of
the date hereof, and the company undertakes no obligation to update
or revise the forward-looking statements, whether as a result of
new information, future events or otherwise.
(1) Adjusted financial metrics, such as adjusted net income and
adjusted EPS, used throughout this release are non-GAAP measures
that exclude items affecting comparability. Reconciliations of
non-GAAP financial measures to GAAP financial measures are provided
in the financial tables that accompany this release.
CALAVO GROWERS, INC.
CONSOLIDATED CONDENSED BALANCE
SHEETS (UNAUDITED)
(in thousands)
July 31,
October 31,
2019
2018
Assets
Current assets:
Cash and cash equivalents
$
5,168
$
1,520
Accounts receivable, net of allowances of
$4,122 (2019) and $3,227 (2018)
87,977
66,143
Inventories, net
46,340
35,044
Prepaid expenses and other current
assets
7,248
16,727
Advances to suppliers
5,140
5,555
Income taxes receivable
361
3,521
Total current assets
152,234
128,510
Property, plant, and equipment, net
131,245
122,143
Investment in Limoneira Company
33,194
42,609
Investment in unconsolidated entities
12,860
24,805
Deferred income taxes
4,377
4,377
Goodwill
18,262
18,262
Notes receivable from FreshRealm
30,743
—
Other assets
30,132
27,030
$
413,047
$
367,736
Liabilities and shareholders'
equity
Current liabilities:
Payable to growers
$
34,597
$
14,001
Trade accounts payable
15,385
13,735
Accrued expenses
48,941
38,521
Income tax payable
—
—
Short-term borrowings
—
15,000
Dividend payable
—
17,568
Current portion of long-term
obligations
754
118
Total current liabilities
99,677
98,943
Long-term liabilities:
Long-term obligations, less current
portion
5,590
314
Deferred rent
3,631
2,678
Other long-term liabilities
4,987
842
Total long-term liabilities
14,208
3,834
Commitments and contingencies
Total shareholders' equity
299,162
264,959
$
413,047
$
367,736
CALAVO GROWERS, INC.
CONSOLIDATED CONDENSED
STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per
share amounts)
Three months ended
Nine months ended
July 31,
July 31,
2019
2018
2019
2018
Net sales
$
359,332
$
296,419
$
903,601
$
808,752
Cost of sales
323,557
263,349
800,152
717,403
Gross profit
35,775
33,070
103,449
91,349
Selling, general and administrative
14,295
13,893
44,228
42,285
Gain on sale of Temecula packinghouse
75
—
2,002
—
Operating income
21,555
19,177
61,223
49,064
Interest expense
(228)
(135)
(847)
(654)
Other income, net
936
406
2,332
831
Unrealized and realized net loss on
Limoneira shares
(5,116)
—
(8,262)
—
Income before provision for income taxes
and loss from unconsolidated entities
17,147
19,448
54,446
49,241
Provision for income taxes
3,987
3,403
11,093
12,469
Net loss from unconsolidated entities
(2,510)
(3,677)
(11,944)
(3,399)
Net income
10,650
12,368
31,409
33,373
Less: Net loss (income) attributable to
noncontrolling interest
(47)
(18)
26
238
Net income attributable to Calavo Growers,
Inc.
$
10,603
$
12,350
$
31,435
$
33,611
Calavo Growers, Inc.’s net income per
share:
Basic
$
0.61
$
0.71
$
1.79
$
1.92
Diluted
$
0.60
$
0.70
$
1.79
$
1.91
Number of shares used in per share
computation:
Basic
17,525
17,481
17,517
17,475
Diluted
17,605
17,581
17,589
17,567
CALAVO GROWERS, INC.
NET SALES AND GROSS PROFIT BY
BUSINESS SEGMENT (UNAUDITED)
(in thousands)
Fresh
Calavo
products
Foods
RFG
Total
Three months ended July 31,
2019
Net sales
$
206,989
$
24,832
$
127,511
$
359,332
Cost of sales
181,668
22,000
119,889
323,557
Gross profit
$
25,321
$
2,832
$
7,622
$
35,775
Three months ended July 31,
2018
Net sales
$
149,834
$
25,340
$
121,245
$
296,419
Cost of sales
134,903
17,199
111,247
263,349
Gross profit
$
14,931
$
8,141
$
9,998
$
33,070
For the three months ended July 31, 2019 and 2018, inter-segment
sales and cost of sales of $0.5 million and $0.3 million between
Fresh products and RFG were eliminated. For the three months ended
July 31, 2019 and 2018, inter-segment sales and cost of sales of
$1.0 million and $0.8 million between Calavo Foods and RFG were
eliminated. For the three months ended July 31, 2019 and 2018,
inter-segment sales and cost of sales of $0.2 million and $0.1
million between Fresh products and Calavo Foods were
eliminated.
Fresh
Calavo
products
Foods
RFG
Total
Nine months ended July 31, 2019
Net sales
$
474,779
$
68,258
$
360,564
$
903,601
Cost of sales
400,902
52,671
346,579
800,152
Gross profit
$
73,877
$
15,587
$
13,985
$
103,449
Nine months ended July 31, 2018
Net sales
$
410,554
$
66,290
$
331,908
$
808,752
Cost of sales
366,246
44,622
306,535
717,403
Gross profit
$
44,308
$
21,668
$
25,373
$
91,349
For the nine months ended July 31, 2019 and 2018, inter-segment
sales and cost of sales of $1.4 million and $1.0 million between
Fresh products and RFG were eliminated. For the nine months ended
July 31, 2019 and 2018, inter-segment sales and cost of sales of
$2.7 million and $2.5 million between Calavo Foods and RFG were
eliminated. For the nine months ended July 31, 2019 and 2018,
inter-segment sales and cost of sales of $0.4 million and $0.2
million between Fresh products and Calavo Foods were
eliminated.
CALAVO GROWERS, INC.
RECONCILIATION OF ADJUSTED NET
INCOME AND EPS (UNAUDITED)
(in thousands, except per
share amounts)
Three months ended
Nine months ended
July 31,
July 31,
2019
2018
2019
2018
Net income attributable to Calavo Growers,
Inc.
$
10,603
$
12,350
$
31,435
$
33,611
Non-GAAP adjustments:
Non-cash losses recognized from FreshRealm
(a)
2,299
3,515
11,885
3,515
Gain on sale-Temecula packinghouse, net
sales commission (b)
—
—
(1,572)
—
One-time, non-cash tax charges from Tax
Cut & Jobs Act (c)
—
—
—
1,702
Certain management transition expenses
(d)
—
—
—
891
Net loss on Limoneira shares (e)
5,116
—
8,262
—
Tax impact of adjustments (f)
(2,002)
(758)
(4,848)
(1,035)
Adjusted net income attributed to Calavo
Growers, Inc.
$
16,016
$
15,107
$
45,162
$
38,684
Calavo Growers, Inc.’s net income per
share:
Diluted EPS (GAAP)
$
0.60
$
0.70
$
1.79
$
1.91
Adjusted Diluted EPS
$
0.91
$
0.86
$
2.57
$
2.20
Number of shares used in per share
computation:
Diluted
17,605
17,581
17,589
17,567
(a)
For the three months ended July 31, 2019
and 2018, FreshRealm incurred losses totaling $6.2 million and $7.1
million, of which we recorded $2.3 million and $3.5 million of
non-cash losses during our third fiscal quarter of 2019 and 2018.
For the nine months ended July 31, 2019 and 2018, FreshRealm
incurred losses totaling $25.0 million and $20.9 million, of which
we recorded $11.9 million and $3.5 million of non-cash losses
during the first nine months of fiscal 2019 and 2018. Additional
details regarding FreshRealm will be included in Calavo’s quarterly
report on Form 10-Q soon to be filed with the U.S. Securities and
Exchange Commission for the three months ended July 31, 2019.
(b)
During the second quarter of fiscal 2019,
we sold our Temecula, Calif., packinghouse for $7.1 million in cash
($6.7 million, net of transaction costs totaling $0.4 million) and,
concurrently, leased back a portion of the facility representing
approximately one-third of the total square footage. As a result,
we recognized a gain of approximately $1.9 million ($1.6 million
net of sales commissions) in our second quarter.
(c)
First quarter of fiscal 2018 results
include the company’s estimate for the effects of the Tax Cuts and
Jobs Act. Calavo recorded a one-time, non-cash charge due to the
revaluation of our net deferred tax assets and the transition tax
on the deemed repatriation of foreign earnings.
(d)
First quarter of fiscal 2018 results
include higher stock-based compensation expense related to senior
management transitions, which does not impact the underlying cost
structure of the company.
(e)
In the first quarter of fiscal 2019, we
adopted a new ASU which requires us to record changes in fair value
of equity investments, including our investment in Limoneira (LMNR)
common stock, in net income during the period. In the third
quarter, we recorded $5.1 million in unrealized losses related to
these mark-to-market adjustments, which previously would have been
recorded in other comprehensive income. For the nine months ended
July 31, 2019, we recorded $8.2 million in unrealized losses
related to these mark-to-market adjustments. Additionally, we sold
51,271 shares of Limoneira stock during the first quarter of fiscal
2019 and recorded a loss of $0.1 million.
(f)
Tax impact of non-GAAP adjustments are
based on the prevailing year-to-date tax rates in each period and
adjusted to the one-time tax charges mentioned in note (c).
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190905005284/en/
Calavo Growers, Inc. Lee E. Cole Chairman, President and CEO
(805) 525-1245
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