Calavo Growers, Inc. Announces Fiscal 2019 First Quarter Results

First Quarter Highlights Include:

  • Net Income Equaled $4.5 Million; Adjusted Net Income(1)
    Grew 36 Percent to $13.0 Million
  • Diluted EPS Totaled 26 Cents; Adjusted Diluted EPS(1)
    Registered 74 Cents
  • Operating Income Increased 53 Percent to $16.6 Million
  • Gross Profit Climbed 17 Percent to $30.8 Million from $26.3 Million
  • Revenues Rose to $258.0 Million from $247.9 Million
  • Double-Digit Sales Growth in RFG and Calavo Foods Segments

Looking Forward for Fiscal Year 2019:

  • CEO Cole Re-Affirms Forecast for Record Revenue (Driven By Growth in
    All Segments) and Double-Digit Increase in Adjusted Diluted EPS

SANTA PAULA, Calif.–(BUSINESS WIRE)–lt;a href=”https://twitter.com/hashtag/agribusiness?src=hash” target=”_blank”gt;#agribusinesslt;/agt;–Calavo Growers, Inc. (Nasdaq-GS: CVGW) today reported that fiscal 2019
first quarter adjusted net income rose 36 percent on a 17 percent
increase in gross profit over the corresponding period last year.
Operating income advanced 53 percent in the most-recent quarter,
according to the company, a global avocado-industry leader and expanding
provider of value-added fresh food.

For the three months ended Jan. 31, 2019, Calavo posted net income of
$4.5 million, equal to $0.26 per diluted share. Excluding certain items
impacting comparability, the company posted a 36 percent increase in
adjusted net income(1) to $13.0 million, or $0.74 per
adjusted diluted share, versus $9.5 million, equal to $0.54 per adjusted
diluted share, in the year ago initial quarter.

First-quarter revenues climbed four percent to $258.0 million from
$247.9 million in the corresponding quarter last year. Gross profit rose
to $30.8 million, equal to 12.0 percent of revenues, from $26.3 million,
or 10.6 percent of revenues, one year ago. Calavo’s operating income
increased by $5.8 million to $16.6 million in the most-recent quarter
from $10.8 million in the fiscal 2018 first period.

Chairman, President and Chief Executive Officer Lee E. Cole stated: “I
am pleased to report that Calavo began fiscal 2019 with record-breaking
results. Our first quarter adjusted net income and adjusted diluted
earnings per share were approximately 36 percent higher than our
previous first quarter record achieved last year. Further, we posted
higher total revenues, gross profit and operating income.”

Cole continued: “In the Fresh segment, we overcame a period of limited
industry supply in early November and yet still sold substantially more
avocado units in the quarter when compared to last year. Additionally,
we leveraged the company’s core strengths in fresh avocado sourcing,
production and sales management to deliver sharply higher segment gross
profit that contributed significantly to the aforementioned 17 percent
increase in the company’s total gross profit.

“Our Renaissance Food Group (RFG) segment posted strong top-line growth
of 12 percent despite continued industry challenges. In addition to the
FDA’s romaine lettuce advisory in November, we also faced raw material
challenges across a number of our key sourced ingredients during the
quarter, both impacting costs and constraining sales. These unforeseen
adverse conditions did not emerge until the last half of the first
quarter. RFG’s ability to grow its sales by double digits while
navigating these industry headwinds speaks to the underlying strength of
the business we have built over the past several years.

“Sales in the Calavo Foods segment rose 16 percent on strong volume
growth for our prepared guacamole products. As anticipated, segment
gross profit increased sequentially from last year’s fourth quarter and
trended in-line with historic norms. The first quarter’s performance
punctuates Calavo Foods’ meaningful contribution to the company’s total
revenue and profit growth.”

First quarter sales in the company’s Fresh segment totaled $116.9
million. This compares with segment sales of $122.8 million in the
fiscal 2018 initial period. Gross profit rose by $6.5 million or more
than 600 basis points in the most-recent quarter to reach $20.8 million,
equal to 17.8 percent of segment sales, which compares to $14.3 million,
or 11.6 percent of segment sales, in the first period last year. The
decrease in Fresh segment sales is principally attributable to lower
avocado market prices versus one year ago that was mitigated, in part,
by a seven percent increase in avocado unit volume sold in the quarter.
Segment gross profit and margin rose sharply owing to the avocado
sourcing, production and sales management capabilities referenced in CEO
Cole’s preceding commentary. Total Fresh segment units (avocados,
tomatoes and papayas) edged upward in the most-recent quarter, climbing
by four percent to 4.3 million from 4.1 million one year ago.

RFG segment sales rose to $119.1 million from $106.1 million. The 12
percent increase is indicative of recently added divisions of existing
customers in certain newer manufacturing geographies. Segment gross
profit totaled $3.6 million, or 3.0 percent of sales, which compares
with $6.1 million, equal to 5.7 percent of sales, in the like period one
year earlier. Sales growth came despite broader industry conditions,
which significantly impacted segment gross profit and margin for the
period. As cited by CEO Cole above, these factors included higher
raw-ingredient costs owing to inclement winter weather in key growing
regions, as well as the food safety advisory on romaine lettuce.
Additionally, other industry challenges in RFG’s business included
higher labor costs (owing to poor quality/yield on fresh fruit and
vegetables) and higher freight costs.

Sales in the Calavo Foods segment climbed 16 percent to $22.1 million
from $19.0 million one year ago. Segment gross profit trended upward to
$6.4 million, equal to 29.1 percent of sales, sequentially higher than
the 21.2 percent achieved in the fiscal 2018 fourth quarter. In the
first quarter last year, gross profit equaled $6.0 million, or 31.4
percent of segment sales. Sales growth continues to be primarily
attributable to increased demand for the company’s fresh prepared
avocado products in both the retail-grocery and food service sectors.

Total selling, general and administrative (SG&A) expense in the first
quarter fell by about eight percent to $14.3 million, or 5.5 percent of
total company revenues, compared to $15.5 million, or 6.3 percent of
total revenues, in the fiscal 2018 first quarter. Adjusting for
approximately $0.9 million in senior management transition expenses in
last year’s first quarter, total SG&A would be lower by $0.4 million
year-over-year. Factors contributing to the year-over-year reduction in
SG&A expense include lower costs related to broker commissions and
incentive shares that vested during the quarter.

The current year’s results include an over $4 million non-cash,
unrealized loss, per newly adopted accounting standards further
described below, 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). Income from
unconsolidated subsidiaries swung from a profit of $0.6 million in the
first quarter last year to a loss of $6.3 million in the most-recent
period. This principally reflects a non-cash loss of $6.9 million
attributable to Calavo’s ownership interest in FreshRealm, LLC,
mitigated by a $0.6 million profit from the company’s tomato
partnership, Agricola Don Memo. More details regarding FreshRealm will
be included in Calavo’s quarterly report on Form 10-Q soon to be filed
with the Securities and Exchange Commission for the three months ended
Jan. 31, 2019, as well as an amended annual report on Form 10-K for the
fiscal year ended Oct. 31, 2018.

Outlook

CEO Cole stated that Calavo moves forward in a “strong position and
remains on target to post record revenues and double-digit increases in
adjusted diluted earnings per share in fiscal 2019.”

Cole continued: “We are extremely confident and optimistic about the
course ahead in our Fresh business segment. Overall industry supply set
new records this Super Bowl season, another indication that consumer
demand for avocados continues to rise. As important, though, is that we
saw strong post-Superbowl demand, which provides a positive early
indicator heading into our fiscal second quarter. As an industry leader,
with our strong portfolio of resources and diversified sourcing model,
we are well positioned to take advantage of this category’s growth and
expect Calavo avocado unit sales volume to rise by double digits once
again this year.

“RFG’s ability to grow its sales in spite of a recent series of broader
industry challenges leaves us confident in the business segment’s
ability to deliver double-digit top-line growth during fiscal 2019.
However, these industry challenges—including the high cost, poor
quality/yield raw-material environment—had a much more significant
impact on our profitability in the fiscal first quarter than we
typically experience over winter seasons. And so, as we chart a course
of customer conversations for a more balanced approach on product
pricing, we will also continue to seek profit gains from better plant
capacity utilization and further in-plant automation. While we remain
confident that these initiatives will be beneficial, we are now
anticipating that our year-over-year growth in gross profit will not
achieve the levels previously forecast until the second half of fiscal
2019.

“With respect to Calavo Foods, we continue to be deeply gratified by the
growth in this business segment, both in terms of revenue and gross
profit. We continue to forecast double-digit top-line growth in the
segment for fiscal 2019 and anticipate a slight uptick in gross margin
percentage for the full year as compared with last year, resulting in
mid-teen growth in gross margin dollars. While this segment is a
consistent performer, we nonetheless continuously evaluate options for
accelerating expansion.

“I remain enthusiastic about FreshRealm—an unconsolidated subsidiary in
which Calavo continues to hold a significant ownership stake. My
enthusiasm is primarily supported by a meaningful new contract that
FreshRealm signed last quarter to supply a large multi-national,
multi-channel retailer, as well as cost saving initiatives inside
FreshRealm. Also during the most recent quarter, Calavo completed its
previously disclosed debt-financing and extended additional new loans to
FreshRealm, primarily to support this budding customer relationship and
other growth.

“Calavo’s businesses are executing well and we are excited about the
course ahead in fiscal 2019 and beyond. With our deep breadth of
resources—operating, financial and human capital—as well as planned
initiatives during the current year, we think the future looks
exceedingly positive and I am eagerly anticipating reporting on the
company’s 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 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; 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 CONDENSED BALANCE SHEETS (UNAUDITED)

(in thousands)

 
    January 31,   October 31,

2019

2018

Assets
Current assets:
Cash and cash equivalents $ 4,211 $ 1,520
Accounts receivable, net of allowances
of $4,528 (2019) and $3,227 (2018) 73,323 66,143
Inventories, net 38,463 35,044
Prepaid expenses and other current assets 8,033 16,727
Advances to suppliers 4,332 5,555
Income taxes receivable   2,296   3,521
Total current assets 130,658 128,510
Property, plant, and equipment, net 122,522 122,143
Investment in Limoneira Company 36,951 42,609
Investment in unconsolidated entities 18,507 24,805
Deferred income taxes 4,377 4,377
Goodwill 18,262 18,262
Loans to FreshRealm 19,942
Other assets   29,046   27,030
$ 380,265 $ 367,736
Liabilities and shareholders’ equity
Current liabilities:
Payable to growers $ 10,247 $ 14,001
Trade accounts payable 16,917 13,735
Accrued expenses 39,528 38,521
Short-term borrowings 39,000 15,000
Dividend payable 17,568
Current portion of long-term obligations   112   118
Total current liabilities 105,804 98,943
Long-term liabilities:
Long-term obligations, less current portion 271 314
Deferred rent 2,895 2,678
Other long-term liabilities   842   842
Total long-term liabilities 4,008 3,834
Commitments and contingencies
Total shareholders’ equity   270,453   264,959
$ 380,265 $ 367,736
 
 

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)

 

 

    Three months ended

January 31,

2019   2018
 
Net sales $ 258,032 $ 247,928
Cost of sales 227,195 221,618
Gross profit 30,837 26,310
Selling, general and administrative 14,276 15,517
Operating income 16,561 10,793
Interest expense (254) (231)
Other income, net 510 126
Unrealized and realized net loss on Limoneira shares (4,505)
Income before provision for income taxes 12,312 10,688
Provision for income taxes 1,533 4,302
Income (loss) from unconsolidated entities (6,298) 603
Net income 4,481 6,989
Less: Net loss attributable to noncontrolling interest 6 150
Net income attributable to Calavo Growers, Inc. $ 4,487 $ 7,139
 
Calavo Growers, Inc.’s net income per share:
Basic $ 0.26 $ 0.41
Diluted $ 0.26 $ 0.41
 
Number of shares used in per share computation:
Basic 17,500 17,446
Diluted 17,558 17,525
 
 

CALAVO GROWERS, INC.

NET SALES AND GROSS PROFIT BUSINESS SEGMENT (UNAUDITED)

(in thousands)

 
    Fresh

products

  Calavo

Foods

 

RFG

 

Total

 

(All amounts are presented in thousands)

Three months ended January 31, 2019
Net sales $ 116,854 $ 22,114 $ 119,064 $ 258,032
Cost of sales   96,064   15,682   115,449   227,195
Gross profit $ 20,790 $ 6,432 $ 3,615 $ 30,837
 
Three months ended January 31, 2018
Net sales $ 122,785 $ 19,037 $ 106,106 $ 247,928
Cost of sales   108,528   13,062   100,028   221,618
Gross profit $ 14,257 $ 5,975 $ 6,078 $ 26,310
 

For the three months ended January 31, 2019 and 2018, inter-segment
sales and cost of sales of $0.6 million and $0.4 million between Fresh
products and RFG were eliminated. For the three months ended January 31,
2019 and 2018, inter-segment sales and cost of sales of $1.0 million and
$0.9 million between Calavo Foods and RFG were eliminated. For the three
months ended January 31, 2019 and 2018, inter-segment sales and cost of
sales of $0.1 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

January 31,

2019     2018  
 
Net income attributable to Calavo Growers, Inc. $ 4,487 $ 7,139
Non-GAAP adjustments:
Non-cash losses recognized from FreshRealm (a) 6,858
One-time, non-cash tax charges from Tax Cut & Jobs Act (b) 1,702
Certain management transition expenses (c) 891
Unrealized and realized net loss on Limoneira shares (d) 4,505
Tax impact of adjustments (e)   (2,896 )   (205 )
Adjusted net income attributed to Calavo Growers, Inc. $ 12,954   $ 9,527  
 
Calavo Growers, Inc.’s net income per share:
Diluted EPS (GAAP) $ 0.26   $ 0.41  
Adjusted Diluted EPS $ 0.74   $ 0.54  
 
Number of shares used in per share computation:
Diluted   17,558     17,525  
 
(a)     For the three months ended January 31, 2019, we recorded $6.9
million of non-cash losses related to our ownership in FreshRealm.
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
January 31, 2019.
(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 results include higher stock-based
compensation expense related to senior management transitions, which
does not impact the underlying cost structure of the company.
(d) 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 first quarter, we recorded $4.4
million in unrealized losses related to these mark-to-market
adjustments, which previously would not have been recorded in net
income. Additionally, we sold 51,271 shares of Limoneira stock
during the quarter and recorded a loss of $0.1 million when compared
to the 10/31/18 share price.
(e) 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 (b). For the three ended January 31,
2019 the prevailing tax rate was 25.5%. For the three months ended
January 31, 2018 the prevailing adjusted tax rate were 23.0%.
 

Contacts

Calavo Growers, Inc.
Lee E. Cole
Chairman, President and CEO
(805)
525-1245

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