Calavo Growers (NASDAQ: CVGW) reported Q3 EPS of $0.73, $0.01 better than the analyst estimate of $0.72. Revenue for the quarter came in at $270.4 million versus the consensus estimate of $325.37 million.

Third Quarter Highlights

• Total revenue of $270.4 million, a 24.7% decrease year-over-year, reflecting 18.2% growth in avocado volume offset by lower avocado prices and lower sales in the Renaissance Food Group (“RFG”) and Foods segments.
• Gross profit of $30.8 million, or 11.4% of revenue, compared to $35.8 million, or 10.0% of revenue, for the comparable period last year. The increase in gross profit margin was attributable to continued gross margin improvements in the RFG segment and Foods segment.
• Net loss of $15.6 million, or $(0.89) per diluted share, primarily reflecting a $37.2 million non-cash loss on reserve for FreshRealm note receivable and impairment of investment.
• Adjusted net income, excluding the loss on the reserve of FreshRealm note and investment, and other non-cash gains and losses and tax adjustments, was $12.9 million, or $0.73 per diluted share.
• Adjusted EBITDA of $23.1 million, compared to $26.6 million for the same period last year and $14.4 million for the second quarter of 2020.
• Maintained supply chain and business continuity during the third quarter despite the impact of the prolonged COVID-19 pandemic.

Management Commentary “We continued to execute with resilience and resolve in the face of a prolonged pandemic while prioritizing the health and safety of our team and customers. As a result, we maintained supply chain continuity across our 18 facilities in the U.S. and Mexico and provided uninterrupted service to our customers during these challenging times,” said James E. Gibson, CEO of Calavo Growers. “Our third quarter results were impacted by a combination of lower avocado prices, reflecting increased supply from Mexico and Peru, and lower demand in our RFG and Foods segments resulting from the second wave of COVID-19. While sales declined year-over-year, avocado volume increased 18%, signaling growth in consumer demand for avocados. Gross profit per carton for the third quarter was in-line with our historical averages.

“We continue to benefit from owning and operating our RFG manufacturing facilities. Gross margin improved on both a year-over-year and sequential basis, reflecting increased operating leverage from greater utilization of our facilities, especially in Georgia and the Pacific Northwest. Our Foods segment also delivered margin improvement versus the comparable period due to lower avocado costs, which helped offset weaker demand from foodservice and grocery retail outlets.

“Given the evolving and dynamic environment that we are operating in today, we remain focused on aspects of the business that we can control. To that end, I’d like to outline several near term priorities that we are actively working on to position the company to emerge from this period of uncertainty even stronger and more resilient,” said Gibson.

Near term priorities include:

• One Company: Consolidate the organizational structure of the Fresh, RFG and Foods operations. The reorganization aims to streamline the business by consolidating sales functions under one umbrella to serve all customers and maximize cross-selling opportunities; eliminating the redundancies across three business segments; and establishing centralized leadership in finance and operations.
• Financial Growth: Drive organic growth in each operating segment. For the Fresh segment, the Company is focused on controlling its inventory positions and leveraging its strong supply chain into the U.S. to optimize sell-through and margin profile. For its international markets, the Company is working towards utilizing its Jalisco packinghouse in Mexico to drive incremental sales and margin in the region. For the RFG segment, the Company is increasing the utilization and efficiency of its owned facilities and expanding its product set of fresh and prepared food offerings in partnership with grocery retailers. For the Foods segment, the Company is integrating its avocado products portfolio into RFG’s supply chain, leveraging its national distribution infrastructure to further scale the business. In addition, the Company continues to invest in its portfolio of high-margin Calavo branded product lines and establish new channels to market in hospitality, convenience and international. As part of its overall growth plan, Calavo plans to leverage its strong balance sheet and financial flexibility to evaluate strategic acquisitions opportunistically.
• Human Capital: Establish centralized leadership to support the Company and enhance talent identification and succession planning through continuous learning, employee development, training and career advancement.
• Environmental, Social and Governance (“ESG”): Build a comprehensive ESG program that will advance sustainability initiatives, community involvement, investments in employee training and development, food safety and commitment to increasing Board independence and diversity while decreasing the size of the Board over time.
• Transparency: Continue clear investor communications and increase active engagement with the investment community.

“Our near-term priorities reflect immediate opportunities to increase the operating leverage and synergies across our entire organization. It also embeds our commitment to shareholder alignment, our employees, communities and the environment. We believe these are the building blocks for value creation not only in the near-term but also for the long-term as it will provide a foundation for our plans to accelerate growth in the years ahead. I am excited about where we are headed as an organization and I look forward to updating you on our progress,” said Gibson.

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