Calavo Growers, Inc. Announces Record Fiscal 2019 Second Quarter Results

Second Quarter Highlights Include:

  • Net Income Equaled $16.3 Million; Adjusted Net Income(1)
    Rose 15 Percent to $16.2 Million
  • Diluted EPS Totaled 93 Cents; Adjusted Diluted EPS(1)
    Totaled 92 Cents
  • Gross Profit Increased 15 Percent to $36.8 Million from $32.0 Million
  • Revenues Grew 8 Percent to $286.2 Million from $264.4 Million
  • All-time Record Quarter for Net Income and Diluted EPS

Year-to-Date Highlights Include:

  • Net Income Totaled $20.8 Million; Adjusted Net Income(1)
    Rose 23 Percent to $29.1 Million
  • Gross Profit Increased 16 Percent to $67.7 Million from $58.3 Million
  • Revenues Grew 6 Percent to $544.3 Million from $512.3 Million

Looking Forward for Fiscal Year 2019:

  • CEO Cole Re-Affirms Full-Year Forecast for Record Revenue and
    Double-Digit Increase in Adjusted Diluted EPS

SANTA PAULA, Calif.–(BUSINESS WIRE)–#agribusiness–Calavo Growers, Inc. (Nasdaq-GS: CVGW) today reported an all-time record
quarter, in which fiscal 2019 second quarter net income rose 16 percent
on an eight percent increase in revenues from the corresponding period
last year on a strong performance in the company’s core fresh-avocado
business. The global avocado-industry leader and expanding provider of
value-added fresh food also said it posted higher revenues, gross
profit, operating income and adjusted net income in the initial six
months of the year.

For the three months ended April 30, 2019, Calavo reported net income of
$16.3 million, equal to $0.93 per diluted share. Excluding certain items
impacting comparability, the company reported adjusted net income(1)
of $16.2 million, equal to $0.92 per adjusted diluted share, which
compares with $14.1 million, or $0.80 per adjusted diluted share, in the
corresponding quarter last year.

Revenues in the second quarter advanced eight percent to $286.2 million
from $264.4 million in the same period a year ago. Gross profit rose by
15 percent to $36.8 million, equal to 12.9 percent of revenues, from
$32.0 million, or 12.1 percent of revenues, in the year-ago second
quarter. Calavo’s operating income climbed by 21 percent to $23.1
million from $19.1 million last year.

Chairman, President and Chief Executive Officer Lee E. Cole stated:
“Calavo delivered all-time record operating performance in the second
quarter, with higher total revenues pacing our double-digit percentage
increases in gross profit, operating income, net income and diluted
earnings per share.

“The leading contributor to these results was our Fresh segment,
especially our core avocado business, which registered yet another
outstanding performance. Avocado unit volume and gross profit increased
significantly year over year—indicative of consumer demand that
continues to track strongly. I previously expressed optimism and
confidence about the prospects for our Fresh segment for this year and
for the longer term, due to the world-class global avocado operation we
have built. The second quarter performance is gratifying validation that
our initiatives to develop dynamic sourcing, production and sales
management have enabled this business to prosper and generate sustained,
strong results.”

Cole continued: “The company’s Renaissance Food Group (RFG) business
segment posted a nine percent increase in sales over the second quarter
last year in spite of several headwinds. As expected, challenges related
to raw-material quality, price and availability that emerged late in the
first quarter continued to impact both sales and profitability during
the most-recent period. Additionally, RFG encountered unexpected
challenges during the second quarter at one of its co-packers related
primarily to a food-safety issue.

“The Calavo Foods segment delivered a solid contribution to total
company revenue and gross profit. Our guacamole business remains a
complementary, strategic fit with our Fresh segment and extends our
presence in the retail-grocery and foodservice categories.”

Net income for the first half ended April 30, 2019 totaled $20.8
million, equal to $1.18 per diluted share, which compares with $21.3
million, or $1.21 per diluted share in last year’s initial six months.
Excluding certain items impacting comparability explained below, the
company reported that first half adjusted net income(1) totaled
$29.1 million, equal to $1.66 per adjusted diluted share, which compares
with $23.6 million, or $1.35 per adjusted diluted share, in the
corresponding period last year.

First-half revenues totaled $544.3 million, an increase of six percent
from $512.3 million in the initial six months of fiscal 2018. Gross
profit rose by 16 percent to $67.7 million, or 12.4 percent of revenues,
from $58.3 million, or 11.4 percent of revenues, in the like period last
year. Operating income climbed by 33 percent to $39.7 million from $29.9
million in the first half of fiscal 2018. Operating income for the
current quarter also includes a gain on the sale and partial leaseback
of the company’s Temecula, Calif. packinghouse of approximately $1.9
million. (Net cash proceeds to Calavo from this transaction were
approximately $6.7 million).

Second quarter sales in Calavo’s Fresh segment rose nearly 10 percent to
$150.9 million from $137.9 million in the corresponding fiscal 2018
quarter. Year-over-year top-line growth in the Fresh segment is
principally attributable to higher avocado and tomato unit sales. Fresh
segment gross profit advanced by $12.6 million or over 80 percent in the
most-recent quarter to $27.8 million, equal to 18.4 percent of segment
sales, from $15.1 million, or 11.0 percent of segment sales, in the
second period last year. As CEO Cole noted in his comments above, gross
profit and margin expansion principally reflects strong avocado
sourcing, sales and production management. Total Fresh segment
(avocados, tomatoes and papayas) unit volume increased by nearly one
million, or more than 19 percent, to 5.7 million units in the
most-recent quarter from 4.7 million in last year’s second quarter.

Sales in the RFG segment rose approximately nine percent to $114.0
million from $104.6 million in the year ago second quarter. The increase
in segment sales is attributable to expanded customer relationships,
most prominently in some of RFG’s newer manufacturing geographies. Sales
growth also benefited from a partial quarter of sales out of RFG’s
newest Atlanta, Ga., manufacturing location, which began operation in
April 2019. Gross profit for the RFG segment equaled $2.8 million, or
2.4 percent of segment sales. This compares to gross profit of $9.3
million, or 8.9 percent of segment sales, in the fiscal 2018 second
quarter. As previously reported, gross profit and margin were impacted
by industry-wide raw-ingredient challenges, as well as specific issues
related to one of RFG’s co-packing partners.

In the Calavo Foods segment, sales totaled $21.3 million in the most
recent quarter, down slightly from $21.9 million in the year-earlier
quarter. Gross profit equaled $6.3 million, equal to 29.7 percent of
segment sales, compared to $7.6 million or 34.5 percent of segment sales
in the same quarter in fiscal 2018.

Total selling, general and administrative (SG&A) expense in the most
recent quarter equaled $15.7 million, or 5.5 percent of total company
revenues, which compares with $12.9 million, or 4.9 percent of total
revenues, in the second period last year. Higher SG&A is primarily
related to a $1.8 million increase in the accrual for the company’s
performance-based management incentive plan. Additionally, SG&A expense
in the quarter includes approximately $0.4 million of transaction
expenses related to the sale and partial leaseback of the company’s
Temecula packinghouse which was finalized in April.

The current quarter’s results include a non-cash, unrealized gain of
approximately $1.4 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 increased from $0.3
million last year to $3.1 million in the most-recent period. This
principally reflects a non-cash loss of $2.7 million in the most-recent
period attributable to Calavo’s ownership interest in FreshRealm, LLC.
The loss from unconsolidated subsidiaries in the second quarter narrowed
significantly on a sequential basis from the first quarter, reflecting
reduced losses in the most-recent period at FreshRealm.

Outlook

Looking ahead to the second half of fiscal 2019, CEO Cole stated: “We
turn the corner into the third quarter in a very strong position. I am
confident about our prospects for the balance of this year and beyond,
and believe we remain squarely on track to post record revenues and a
double-digit increase in adjusted diluted earnings per share.

“The Fresh segment has been a stellar performer in the most recent
quarters, pacing Calavo’s overall results. I am enthusiastic about its
prospects; the building blocks for growth are in place, and the segment
continues to execute extremely well. With our breadth and depth of
sourcing, sales and production capabilities, coupled with our financial
resources and human capital, we are well positioned to capitalize on
industry expansion that shows no signs of abating. We believe that
avocado unit growth for the full fiscal year 2019 should match or exceed
the performance in the first half. Given this growth, and our
operational expertise navigating the market, we now anticipate a gross
profit increase of approximately 50 percent for the full year in our
Fresh segment.

Cole continued: “Turning to RFG, we remain encouraged by the solid gains
in sales, with the top line up approximately 10 percent in the first
half. This growth comes in spite of the industry-wide raw material
challenges, as well as the aforementioned issues experienced at one of
our co-pack partners. The lingering effects from our co-pack partner
will result in slower top-line growth, with RFG achieving a
high-single-digit sales increase for the full year. Still, we have begun
to see many promising indicators and trends in the business over the
recent months, including an improvement in both raw material
availability and quality, as well as manufacturing efficiencies within
our facilities. These positive trends give us confidence that
performance will improve in the second half of this year.

“Calavo Foods remains a highly complementary component of the company’s
strategic business plan. For the full year, we are now anticipating
sales growth in the mid-single digits with a gross profit percentage
that is slightly lower than what we have achieved year-to-date, largely
attributable to the recent sharp increase in avocado prices of the grade
and quality used by our Foods segment.

“FreshRealm, the unconsolidated subsidiary in which Calavo holds a
significant ownership stake, continues to make encouraging strides in
its operations. The business continues the transition process of its
primary customers, such as adding the new large multi-national,
multi-channel retailer announced last quarter. Notable, as well, is
FreshRealm’s progress implementing cost reductions, which are underway
and evident in its second quarter results.

“Our solid performance in the first half makes me optimistic about
Calavo’s prospects for 2019 and beyond. I anticipate that we will make
gains across our various businesses – anchored by continued strong
performance in the fresh avocado category – and I look forward to
reporting our continued progress as we move ahead,” 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; 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); 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); 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)

 
    April 30,   October 31,

2019

2018

Assets
Current assets:
Cash and cash equivalents $ 7,361 $ 1,520
Accounts receivable, net of allowances
of $4,694 (2019) and $3,227 (2018) 83,392 66,143
Inventories, net 49,616 35,044
Prepaid expenses and other current assets 7,878 16,727
Advances to suppliers 4,136 5,555
Income taxes receivable     3,521
Total current assets 152,383 128,510
Property, plant, and equipment, net 125,696 122,143
Investment in Limoneira Company 38,310 42,609
Investment in unconsolidated entities 15,370 24,805
Deferred income taxes 4,377 4,377
Goodwill 18,262 18,262
Loans to FreshRealm 24,680
Other assets   30,126   27,030
$ 409,204 $ 367,736
Liabilities and shareholders’ equity
Current liabilities:
Payable to growers $ 25,632 $ 14,001
Trade accounts payable 13,903 13,735
Accrued expenses 43,178 38,521
Income tax payable 421
Short-term borrowings 26,500 15,000
Dividend payable 17,568
Current portion of long-term obligations   221   118
Total current liabilities 109,855 98,943
Long-term liabilities:
Long-term obligations, less current portion 3,434 314
Deferred rent 3,224 2,678
Other long-term liabilities   5,063   842
Total long-term liabilities 11,721 3,834
Commitments and contingencies
Total shareholders’ equity   287,628   264,959
$ 409,204 $ 367,736
 
 

CALAVO GROWERS, INC.

CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)

 

 

    Three months ended

April 30,

    Six months ended

April 30,

2019

 

2018

2019

 

2018

 
 
Net sales $ 286,236 $ 264,405 $ 544,268 $ 512,333
Cost of sales   249,399     232,436     476,594     454,054  
Gross profit 36,837 31,969 67,674 58,279
Selling, general and administrative 15,657 12,875 29,933 28,392
Gain on sale of Temecula packinghouse   1,927         1,927      
Operating income 23,107 19,094 39,668 29,887
Interest expense (365 ) (288 ) (619 ) (519 )
Other income, net 886 299 1,396 425
Unrealized and realized net gain (loss) on Limoneira shares   1,359         (3,146 )    
Income before provision for income taxes and income from
unconsolidated entities

24,987

19,105

37,299

29,793

Provision for income taxes 5,573 4,764 7,106 9,066
Income (loss) from unconsolidated entities   (3,136 )   (325 )   (9,434 )   278  
Net income 16,278 14,016 20,759 21,005
Add: Net loss attributable to noncontrolling interest   67     106     73     256  
Net income attributable to Calavo Growers, Inc. $ 16,345   $ 14,122   $ 20,832   $ 21,261  
 
Calavo Growers, Inc.’s net income per share:
Basic $ 0.93   $ 0.81   $ 1.19   $ 1.22  
Diluted $ 0.93   $ 0.80   $ 1.18   $ 1.21  

Calavo Growers, Inc.’s shares used in per share computation:

Basic   17,530     17,481     17,514     17,472  
Diluted   17,609     17,580     17,582     17,561  
 
 

CALAVO GROWERS, INC.

NET SALES AND GROSS PROFIT BY BUSINESS SEGMENT (UNAUDITED)

(in thousands)

 
    Fresh

products

  Calavo

Foods

 

RFG

 

Total

 
Three months ended April 30, 2019
Net sales $ 150,935 $ 21,309 $ 113,992 $ 286,236
Cost of sales   123,169   14,989   111,241   249,399
Gross profit $ 27,766 $ 6,320 $ 2,751 $ 36,837
 
Three months ended April 30, 2018
Net sales $ 137,935 $ 21,913 $ 104,557 $ 264,405
Cost of sales   122,815   14,361   95,260   232,436
Gross profit $ 15,120 $ 7,552 $ 9,297 $ 31,969
 

For the three months ended April 30, 2019 and 2018, inter-segment sales
and cost of sales of $0.4 million and $0.2 million between Fresh
products and RFG were eliminated. For the three months ended April 30,
2019 and 2018, inter-segment sales and cost of sales of $0.7 million and
$0.8 million between Calavo Foods and RFG were eliminated. For the three
months ended April 30, 2019 and 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

 
Six months ended April 30, 2019
Net sales $ 267,789 $ 43,423 $ 233,056 $ 544,268
Cost of sales   219,233   30,671   226,690   476,594
Gross profit $ 48,556 $ 12,752 $ 6,366 $ 67,674
 
Six months ended April 30, 2018
Net sales $ 260,720 $ 40,950 $ 210,663 $ 512,333
Cost of sales   231,343   27,423   195,288   454,054
Gross profit $ 29,377 $ 13,527 $ 15,375 $ 58,279
 

For the six months ended April 30, 2019 and 2018, inter-segment sales
and cost of sales of $0.9 million and $0.6 million between Fresh
products and RFG were eliminated. For the six months ended April 30,
2019 and 2018, inter-segment sales and cost of sales of $1.7 million and
$1.6 million between Calavo Foods and RFG were eliminated. For the six
months ended April 30, 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.

 

CALAVO GROWERS, INC.

RECONCILIATION OF ADJUSTED NET INCOME AND EPS (UNAUDITED)

(in thousands, except per share amounts)

 

 

    Three months ended

April 30,

    Six months ended

April 30,

2019   2018 2019   2018
 
Net income attributable to Calavo Growers, Inc. $ 16,345 $ 14,122 $ 20,832 $ 21,261
Non-GAAP adjustments:
Non-cash losses recognized from FreshRealm (a) 2,728 9,586
Gain on sale-Temecula packinghouse, net sales commission (b) (1,572 ) (1,572

)

 

One-time, non-cash tax charges from Tax Cut & Jobs Act (c) 1,702
Certain management transition expenses (d) 891
Net (gain)/loss on Limoneira shares (e) (1,359 ) 3,146
Tax impact of adjustments (f)   50       (2,846 )   (218 )
Adjusted net income attributed to Calavo Growers, Inc. $ 16,192   $ 14,122 $ 29,146   $ 23,636  
 
Calavo Growers, Inc.’s net income per share:
Diluted EPS (GAAP) $ 0.93   $ 0.80 $ 1.18   $ 1.21  
Adjusted Diluted EPS $ 0.92   $ 0.80 $ 1.66   $ 1.35  
 
Number of shares used in per share computation:
Diluted   17,609     17,580   17,582     17,561  
 
(a)   For the three months ended April 30, 2019, FreshRealm incurred
losses totaling $7.5 million, of which we recorded $2.7 million of
non-cash losses during our second fiscal quarter of 2019. For the
six months ended April 30, 2019, FreshRealm incurred losses totaling
$18.9 million, of which we recorded $9.6 million of non-cash losses
during the first six months of fiscal 2019. 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 April 30, 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 (primarily sales commissions) totaling $0.4
million) and, concurrently, leased back a portion of the facility
representing approximately one-third of the total square footage.
This generated a gain of $6.4 million. Since our leaseback of the
building is classified as a capital lease and covers substantially
all of the leased property, the gain recognized currently is the
amount of the gain in excess of the recorded amount of the leased
asset. As a result, we recognized a gain of approximately $1.9
million in the second quarter and recorded a deferred gain of $4.5
million, which will be recognized over the life of the lease (i.e.
straight-line over 15 years).

(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 second quarter, we recorded $1.4
million in unrealized gains related to these mark-to-market
adjustments, which previously would have been recorded in other
comprehensive income. For the six months ended April 30, 2019, we
recorded $3.2 million in unrealized losses related to these
mark-to-market adjustments, which previously would have been
recorded in other comprehensive income. Additionally, we sold 51,271
shares of Limoneira stock during the first quarter of fiscal 2019
and recorded a gain 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).

Contacts

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

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