Market Overview

Calavo Growers, Inc. Announces Fiscal 2018 Third Quarter Results

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Third Quarter Highlights Include:

  • Net Income Grew 40 Percent to $12.4 Million; Adjusted Net Income1
    Increased 71 Percent to $15.1 Million
  • Diluted EPS Improved to 70 Cents; Adjusted Diluted EPS1
    Totaled 86 Cents
  • Operating Income Rose 58 Percent to $19.2 Million from $12.2 Million
  • Gross Profit Increased 33 Percent to $33.1 Million from $24.9 Million

Looking Forward for Fiscal Year 2018:

  • Greater than 20 Percent Growth in Avocado Volumes
  • Double-Digit Gross Profit Growth for RFG
  • Double-Digit Revenue Growth and Triple-Digit Gross Profit Growth in
    Calavo Foods
  • CEO Cole Reiterates Forecast of Record Revenue, Double-Digit Increase
    in Adjusted Diluted EPS

Calavo Growers, Inc. (Nasdaq-GS: CVGW) today reported that fiscal 2018
third quarter operating income rose 58 percent year-over-year on a 33
percent increase in gross profit. The company, a global avocado-industry
leader and expanding provider of value-added fresh food, said that
results for the most recent quarter increased net income and per-share
results for the first nine months of this fiscal year to new all-time
highs.

For the three months ended July 31, 2018, net income reached $12.4
million, equal to $0.70 per diluted share. Excluding certain items
impacting comparability, adjusted net income1 totaled $15.1
million, or $0.86 per diluted share, which compares with $8.8 million,
or $0.50 per diluted share, in the corresponding quarter last year.

Revenues in the most-recent quarter totaled $296.4 million, down a
slight 2 percent from the company's all-time quarterly record high of
$301.6 million in the fiscal 2017 third period. Gross profit advanced 33
percent to $33.1 million, equal to 11.2 percent of revenues, from $24.9
million, or 8.2 percent of revenues, in the corresponding quarter last
year. The company's operating income soared by 58 percent to register
$19.2 million versus $12.2 million in the fiscal 2017 like quarter.

Chairman, President and Chief Executive Officer Lee E. Cole stated:
"Calavo posted another strong showing in the fiscal third quarter. I am
extremely pleased by the outstanding operating performance in each of
our three principal business segments which contributed to our overall
results. This solid execution is best reflected in Calavo's increase in
net income and per-share results and, by extension, income from
operations that climbed by 58 percent year over year."

Cole continued: "In our Fresh segment, we executed well, increasing our
volume of avocado units sold by 18 percent from last year's third
period. While consumption tracked significantly higher, the larger
available fruit supply industry-wide resulted in lower year-over-year
fresh avocado market pricing which had the effect of constraining
Calavo's sales growth in the most-recent quarter.

"The Renaissance Food Group (RFG) business segment delivered eight
percent higher sales and increased gross profits by 46 percent in the
third period. The RFG unit continued its path of progress in the
quarter, deepening penetration with customers and expanding its
portfolio of innovative refrigerated-fresh product offerings. RFG
segment sales and gross profit would have been higher if not for a
widely publicized melon recall.

"We are excited about the continued upward trend line in the Calavo
Foods business segment, which was a meaningful contributor to overall
growth in the quarter. Twenty-five percent revenue growth in the most
recent period is indicative of a great-tasting lineup of prepared
avocado products that are being widely embraced by a strong client base
in the retail grocery and foodservice channels. Further, the segment
continued during the fiscal third quarter to maintain a gross profit
margin percentage in line with historical levels more commonly
experienced in our Foods business. When compared to last summer's
challenging input-cost conditions, this translates into a nearly
seven-fold expansion in year-over-year gross profit," Cole concluded.

Net income for the nine months ended July 31, 2018 increased by $6.6
million, or 24 percent, to reach a record $33.6 million, or $1.91 per
diluted share, from $27.0 million, equal to $1.54 per diluted share, in
the corresponding period one year ago. Adjusted net income for the first
nine months of fiscal 2018 increased by 39 percent to $38.7 million, or
$2.20 per diluted share.

Revenues in the initial nine months this year rose to a record $808.8
million, an increase from $798.4 million for the like period in fiscal
2017. Gross profit rose by 10 percent, registering $91.3 million, equal
to 11.3 percent of revenues, which compares with $83.0 million, or 10.4
percent of revenues, in the first nine months last year. Operating
income climbed to $49.1 million, a 19 percent increase from $41.1
million last year.

Sales in the company's Fresh business segment totaled $149.8 million in
the fiscal 2018 third quarter. This compares with Fresh segment sales of
$168.9 million in the third quarter one year ago. Segment gross profit
equaled $14.9 million, or 10.0 percent of segment sales, in the
most-recent period versus $16.9 million, or 10.0 percent of segment
sales, in the fiscal 2017 third quarter. As stated in CEO Cole's
comments above, Fresh segment sales were impacted principally by lower
industry-wide fresh avocado market prices versus one year ago and, more
modestly, by lower industry-wide tomato market prices. Double-digit unit
sales growth in all Fresh product categories—namely avocados and
tomatoes—resulted in 20 percent increase in total volume to 4.9 million
units in the most-recent quarter from 4.1 million in the like period of
fiscal 2017.

In the RFG business segment, sales rose by 8 percent to $121.2 million
from $112.5 million in the third quarter last year. RFG segment gross
profit climbed $3.2 million, or 46 percent, growing to $10.0 million,
equal to 8.2 percent of segment sales, from $6.8 million, or 6.1 percent
of segment sales, in the year-ago third period. The company stated that
RFG's year-over-year gross profit improvements are indicative of
progress in attaining operating efficiencies and economies of scale at
production facilities that opened and expanded last year, as well as
continued development of new fresh food programs with retail customers.

The Calavo Foods business segment saw sales expand in the most-recent
quarter to $25.3 million, a 25 percent increase from $20.3 million in
the fiscal 2017 third period. Gross profit increased to $8.1 million, or
32.1 percent of segment sales, from $1.1 million, equal to 5.3 percent
of sales, in the third quarter last year. The top-line improvement is
underpinned primarily by an increase in volume of prepared avocado
products sold in the third quarter. Gross profit and margin both
benefited from higher sales, as well as fruit input costs that, while
seasonally higher than in the second quarter, tracked below last year's
third-quarter record-high avocado input cost.

Calavo's total selling, general and administrative (SG&A) expense in the
most recent quarter was higher at $13.9 million, or 4.7 percent of total
revenues, from $12.7 million, approximating 4.2 percent of total
revenues, in the fiscal 2017 third period. The rise in SG&A expense owed
mainly to higher year-over-year management incentive plan accruals.

Income (loss) from unconsolidated subsidiaries decreased by $4.2 million
to a loss of $3.7 million in the most-recent quarter. This primarily
represents the recording of $3.5 million in non-cash losses from
FreshRealm, LLC. Certain 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,
2018.

Outlook

Looking toward the fourth quarter and ahead to fiscal 2019, CEO Cole
said he remains "highly confident and enthusiastic about Calavo's
prospects moving forward. Our proven, complementary multi-platform
model, which is focused on high-growth fresh food businesses, serves us
well and leaves me extremely optimistic about our future."

Cole continued: "As the avocado industry continues in a long-term
expansion mode, we are well positioned—with our best-in-class sourcing,
selling and distribution capabilities—to remain a category leader. The
industry continues to forecast avocado volume growth of more than 20
percent for 2018, and a strong, all-source supply in fiscal 2019. With
our diversified sourcing model and ample packing capacity in California
and Mexico, we are poised to once again deliver strong volume growth in
fiscal 2019.

"Turning to RFG, through Calavo's extensive investments over the past
several years, we have developed a best-in-class portfolio of fresh food
products with a national footprint that enabled us to partner with many
of the largest retailers in the U.S. As fresh food continues to gain
market share among consumers, RFG remains very well positioned to expand
its existing retail partnerships and to build meaningful new long-term
relationships with retailers. At the same time, our team remains
committed to continued improvement in manufacturing operation
efficiency. Year-over-year sales and gross profit growth through the
remainder of the year is expected to be generally in line with the
growth experienced this quarter, and we remain very excited for RFG's
prospects continuing into fiscal 2019.

"Calavo Foods continues to track strongly, with sales growth for the
year still expected to be in the high teens for fiscal 2018. While
higher seasonal input prices may contribute to a slightly lower gross
profit margin in the final quarter compared to the most-recent period,
we expect gross profit margin will remain generally in line with
year-to-date results, which should once again lead to very robust
year-over-year growth in gross profit in our fourth quarter."

Cole stated: "We remain optimistic about FreshRealm—an unconsolidated
subsidiary in which Calavo continues to hold a meaningful ownership
stake. During the most recent quarter Calavo invested an additional $3.5
million into FreshRealm (as part of a larger equity round) and committed
up to $12 million in new debt financing. We are closely monitoring
FreshRealm's progress and believe that this additional financing should
help give it the capital infusion to make a meaningful step forward in
its operations."

FreshRealm CEO Michael Lippold added: "The timing of the capital
infusion coincides with FreshRealm investing further in its own national
infrastructure to support B2B fresh prepped meal-kits, new business
development initiatives, and expanded customer programs."

"In sum, with its deep breadth of resources—operating, financial and
human capital—we are poised for growth now and into the future. Calavo
remains on target to post record revenues and gross profit, accompanied
by greater than 20 percent growth in adjusted earnings per share in
fiscal 2018. I look forward to reporting our continued success," 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, income (loss) from
unconsolidated entities, earnings, earnings per share, tax provisions,
cash flows, currency exchange rates, the impact of acquisitions 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; 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;
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 BALANCE SHEETS

(in thousands)

 
July 31, October 31,

2018

2017

Assets
Current assets:
Cash and cash equivalents $ 2,029 $ 6,625

Accounts receivable, net of allowances of $3,787 (2018) and $2,490
(2017)

73,412 69,750
Inventories, net 35,857 30,858
Prepaid expenses and other current assets 6,688 6,872
Advances to suppliers 5,321 4,346
Income taxes receivable   -   1,377
Total current assets 123,307 119,828
Property, plant, and equipment, net 121,309 120,072
Investment in Limoneira Company 47,121 40,362
Investment in unconsolidated entities 33,121 33,019
Deferred income taxes 4,778 9,783
Goodwill 18,262 18,262
Other assets   25,035   22,791
$ 372,933 $ 364,117
Liabilities and Shareholders' equity
Current liabilities:
Payable to growers $ 22,025 $ 16,524
Trade accounts payable 16,338 22,911
Accrued expenses 35,799 39,946
Income taxes payable 976 -
Short-term borrowings 8,000 20,000
Dividend payable - 16,657
Current portion of long-term obligations   118   129
Total current liabilities 83,256 116,167
Long-term liabilities:
Long-term obligations, less current portion 350 439
Deferred rent 2,782 2,732
Deferred income taxes   -   657
Total long-term liabilities 3,132 3,828
Commitments and contingencies
Total shareholders' equity   286,545   244,122
$ 372,933 $ 364,117
 
     

CALAVO GROWERS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share amounts)

 

 

Three months ended
July 31,

Nine months ended
July 31,

2018     2017 2018     2017
 
Net sales $ 296,419 $ 301,645 $ 808,752 $ 798,361
Cost of sales   263,349     276,793     717,403     715,332  
Gross profit 33,070 24,852 91,349 83,029
Selling, general and administrative   13,893     12,698     42,285     41,950  
Operating income 19,177 12,154 49,064 41,079
Interest expense (135 ) (227 ) (654 ) (797 )
Other income (loss), net   406     96     831     462  
Income before provision for income taxes and Income (loss) from
unconsolidated entities

19,448

12,023

49,241

40,744

Provision for income taxes 3,403 3,719 12,469 13,883
Income (loss) from unconsolidated entities   (3,677 )   492     (3,399 )   90  
Net income 12,368 8,796 33,373 26,951

Less: Net loss - noncontrolling interest

  (18 )   14     238     53  
Net income attributable to Calavo Growers, Inc. $ 12,350   $ 8,810   $ 33,611   $ 27,004  
 
Calavo Growers, Inc.'s net income per share:
Basic $ 0.71   $ 0.51   $ 1.92   $ 1.55  
Diluted $ 0.70   $ 0.50   $ 1.91   $ 1.54  

Number of shares used in per share computation:

Basic   17,481     17,428     17,475     17,412  
Diluted   17,581     17,544     17,567     17,507  
 
             

CALAVO GROWERS, INC.

NET SALES AND GROSS PROFIT BY BUSINESS SEGMENT

 

Fresh

products

Calavo
Foods

RFG

Total

 
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
 
Three months ended July 31, 2017
Net sales $ 168,919 $ 20,251 $ 112,475 $ 301,645
Cost of sales   151,971   19,175   105,647   276,793
Gross profit $ 16,948 $ 1,076 $ 6,828 $ 24,852
 

For the three months ended July 31, 2018 and 2017, inter-segment sales
and cost of sales of $0.3 million and $0.6 million between Fresh
products and RFG were eliminated. For the three months ended July 31,
2018 and 2017, inter-segment sales and cost of sales of $0.8 million and
$0.9 million between Calavo Foods and RFG were eliminated. For the three
months ended July 31, 2018, inter-segment sales and cost of sales of
$0.1 million between Fresh products and Calavo Foods were eliminated.

             

Fresh
products

Calavo
Foods

RFG

Total

 
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
 
Nine months ended July 31, 2017
Net sales $ 436,601 $ 53,876 $ 307,884 $ 798,361
Cost of sales   388,005   42,108   285,219   715,332
Gross profit $ 48,596 $ 11,768 $ 22,665 $ 83,029
 

For the nine months ended July 31, 2018 and 2017, inter-segment sales
and cost of sales of $0.9 million between Fresh products and RFG were
eliminated. For the nine months ended July 31, 2018 and 2017,
inter-segment sales and cost of sales of $2.5 million and $2.3 million
between Calavo Foods and RFG were eliminated. For the nine months ended
July 31, 2018, inter-segment sales and cost of sales of $0.2 million
between Fresh products and Calavo Foods were eliminated.

             

CALAVO GROWERS, INC.

RECONCILIATION OF ADJUSTED NET INCOME AND EPS

(in thousands, except per share amounts)

 

 

Three months ended
July 31,

 

Nine months ended
July 31,

 

2018 2017 2018 2017
 
Net income attributable to Calavo Growers, Inc. $ 12,350 $ 8,810 $ 33,611 $ 27,004
Non-GAAP adjustments:
Non-cash losses recognized from FreshRealm (a) 3,515 - 3,515 -

One-time, non-cash tax charges from Tax Cuts and Jobs Act (b)

- - 1,702 -
Certain management transition expenses (c) - - 891 1,172
Tax impact of adjustments (d)   (758 )   -   (1,035 )   (398 )
Adjusted net income attrib. to Calavo Growers, Inc. $ 15,107   $ 8,810 $ 38,684   $ 27,778  
 
Calavo Growers Inc. net income per share:
Diluted EPS (GAAP) $ 0.70   $ 0.50 $ 1.91   $ 1.54  
Adjusted Diluted EPS $ 0.86   $ 0.50 $ 2.20   $ 1.59  

Number of shares used in per share computation:

Diluted   17,581     17,544   17,567     17,507  
 
(a)   For the three months ended July 31, 2018, FreshRealm incurred losses
totaling $7.1 million, of which we recorded $3.5 million of non-cash
losses during our third fiscal quarter of 2018. Certain 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, 2018.
 
(b) 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.
 
(c) First quarter of fiscal 2018 and 2017 results include higher
stock-based compensation related to senior management transitions,
which does not impact the underlying cost structure of the company.
 
(d) Tax impact of non-GAAP adjustments are based on the prevailing tax
rates in each period. For the three and nine months ended July 31,
2018 the prevailing tax rates were 21.6% and 23.5%. For the three
and nine months ended July 31, 2017 the prevailing tax rates were
29.7% and 34.0%.

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