Calavo Growers, Inc. Announces Second Quarter 2022 Financial Results

SANTA PAULA, Calif., June 02, 2022 (GLOBE NEWSWIRE) -- Calavo Growers, Inc. (Nasdaq-GS: CVGW), a global avocado-industry leader and provider of value-added fresh food, today reported its financial results for the fiscal second quarter ended April 30, 2022.

Second Quarter Financial Overview

• Delivered sequential improvement from the first quarter to the second quarter 2022:
  • Gross profit improved by $8.5 million;
  • Net loss improved by $3.9 million, or $0.22 per diluted share;
  • Adjusted EBITDA improved by $7.9 million.
• Total revenue of $331.4 million, a 20% increase from the year-ago quarter.
• Fresh segment revenue increased 30% year-over-year to $211.0 million, Renaissance Food Group (RFG) increased 6% year-over-year and Foods segment revenues decreased 4% year-over-year.
• Gross profit of $21.7 million, or 6.6% of revenue, compared to $22.6 million, or 8.2% of revenue, for the year-ago quarter.
• Net loss of $(0.2) million, or $(0.01) per diluted share, compared to net income of $8.8 million, or $0.50 per diluted share, for the same period last year.
• Adjusted net income of $5.8 million, or $0.33 per diluted share, compared to $7.7 million, or $0.43 per diluted share for the year-ago quarter.
• Adjusted EBITDA of $12.7 million, or $0.71 per diluted share compared to $15.0 million, or $0.85 per diluted share for the same period last year.

Adjusted net income (loss) and adjusted EBITDA are non-GAAP financial measures. See “Non-GAAP Financial Measures” below.

Second Quarter Highlights

• Progressed with pricing initiatives, SKU rationalization, unified procurement, labor efficiencies, freight consolidation and administrative synergies across all business units as part of Project Uno.
• Launched a brand refresh, updating the company’s logo, tagline, brand personality and website to support Calavo’s One Company vision.
• Announced plans to reorganize our business into two reporting segments, Grown and Prepared, to better serve customers, deliver cost savings and improve efficiencies.
  • Grown segment will consist of fresh avocados, tomatoes and papayas.
  • Prepared segment will include all other products: fresh cut fruit and vegetables, ready-to-eat sandwiches, wraps, salads and snacks, guacamole, and salsa sold at retail and foodservice as well as avocado pulp sold to foodservice.
  • New segment reporting is expected to occur in the third quarter’s earnings report.

Management Commentary
“We are pleased with the progress we’ve made, as we showed sequential improvement in gross profit, EPS, and adjusted EBITDA during the second quarter,” said Brian W. Kocher, President and Chief Executive Officer of Calavo Growers, Inc. “I’m especially pleased with the improvements made in our RFG segment where Project Uno initiatives have delivered positive impacts in our pricing, raw materials management, labor efficiency and transportation costs.

“Our mantra is ‘Be better today than yesterday; be better tomorrow than today.’ We therefore intend to continue delivering incremental progress. The Calavo team has fully embraced this mindset, and the efforts are demonstrating results.

“We streamlined our organizational structure to bring clarity to decision-making authorities and become even more efficient initiating continuous improvement. We enhanced processes and structure, and we are acquiring the talent to serve our customers and ensure that Project Uno efforts are sustainable. I remain confident in our ability to bring Calavo back to a position of generating improved, sustainable financial results and long-term shareholder value.”

Second Quarter 2022 Consolidated Financial Review
Total revenue for the second quarter 2022 was $331.4 million, compared to $276.8 million for the second quarter 2021, an increase of 20%. Fresh segment sales increased 30%, RFG sales grew 6%, and Foods sales decreased 4%. The average selling price of avocados in the Company’s Fresh segment increased by 70% while volumes were 13% lower than the prior-year period due to lower available supplies.

Gross profit for the second quarter was $21.7 million, or 6.6% of revenue, compared to $22.6 million, or 8.2% of revenue, for the same period last year. Improvements in avocado margin in the quarter were offset by higher fruit costs in our Foods business.

Selling, general and administrative (SG&A) expenses for the second quarter totaled $16.6 million, or 5.0% of revenue, compared to $13.7 million, or 4.9% of revenue, for the same period last year. SG&A expenses were largely in line with expectations, with the year-over-year increase primarily driven by approximately $2 million in expenses related to the business reorganization.

Net loss for the second quarter was $(0.2) million, or $(0.01) per share. This compares with net income of $8.8 million, or $0.50 per diluted share, for the same period last year.

Adjusted net income was $5.8 million, or $0.33 per diluted share, compared to adjusted net income of $7.7 million, or $0.43 per diluted share last year.

Adjusted EBITDA was $12.7 million, or $0.71 per diluted share, compared to $15.0 million, or $0.85 per diluted share for the same period last year.

Balance Sheet and Liquidity
The Company ended the quarter with $48.1 million of total debt, which included $41.9 million of borrowings under its line of credit and $6.2 million of long-term obligations and finance leases. Cash and cash equivalents (unrestricted) totaled $2.3 million as of April 30, 2022.

In the second quarter, the Company reached an agreement with its lenders to amend the existing revolving credit facility, which among other things reduces the total capacity of the facility to $80.0 million and incorporates a borrowing base. Under the new terms of the facility, total liquidity as of April 30, 2022 was $15.9 million, including unrestricted cash, investments, and availability under the facility, which we believe is sufficient for our working capital needs and investment plans as we continue the implementation of Project Uno and drive performance improvements across the business.

Second Quarter Business Segment Performance
Fresh
Second quarter 2022 sales in Calavo’s Fresh business segment were $211.0 million, up from $161.7 million for the same period last year. Avocado prices were 70% higher year-over-year and volume 13% lower, which is consistent with the reduction in imports from Mexico for the entire US market. Fresh segment gross profit for the second quarter of 2022 was $18.2 million, or 8.6% of segment sales, compared to $15.0 million, or 9.3% of segment sales, for the same period last year. The increase in gross profit primarily was driven by the higher avocado pricing, partially offset by the lower volume.

Renaissance Food Group (RFG)
RFG business segment sales in the second quarter of 2022 were $102.2 million, up 6% from $96.3 million in the same period last year reflecting price increases and favorable product mix, partially offset by a slight volume decrease year-over-year. Segment gross profit was $2.2 million, down slightly from $2.3 million the same period last year. RFG has benefited from increased pricing, improved transportation costs, enhanced materials yield and labor management.

Foods
Sales in the Foods segment totaled $19.8 million for the second quarter 2022, 4% lower than $20.7 million in the same period last year due to limited supply of fruit. Segment gross profit totaled $1.3 million, or 6.8% of sales, for the second quarter, compared to $5.3 million, or 25.6% of sales, for the same period last year. The decrease in gross profit for the second quarter was mainly due to year-over-year increases in fruit costs. We have been implementing price increases, raw product sourcing initiatives, labor productivity projects and freight consolidation to offset these increased costs. We expect to see benefits from these efforts continue in coming quarters.

Outlook
Calavo is conducting a search for a new chief financial officer and is working with an outside search firm and within professional networks to identify candidates. Interviews are underway, and we are moving with speed; however, finding the right person is our primary goal.

We are enthusiastic about sequential results given our Project Uno efforts, and we are optimistic that we will see ongoing profit improvement from our efforts in the third and fourth quarters, with the third quarter as our typically strongest quarter due to seasonality.

Non-GAAP Financial Measures
This press release includes non-GAAP measures such as EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted EPS, which are not prepared in accordance with U.S. generally accepted accounting principles, or “GAAP.”

EBITDA is defined as net income (loss) attributable to Calavo Growers, Inc. excluding (1) interest income and expense, (2) income tax (benefit) provision, (3) depreciation and amortization and (4) stock-based compensation expense. Adjusted EBITDA is EBITDA with further adjustments for (1) non-cash net losses recognized from unconsolidated entities, (2) goodwill impairment, (3) write-off of long-lived assets, (4) acquisition-related costs, (5) restructuring-related costs, including certain severance costs, (6) certain litigation and other related costs, and (7) one-time items. Adjusted EBITDA is a primary metric by which management evaluates the operating performance of the business, on which certain operating expenditures and internal budgets are based. Additionally, the Company’s senior management is compensated in part on the basis of Adjusted EBITDA. The adjustments to calculate EBITDA and adjusted EBITDA are items recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded.

Adjusted net income is defined as net income (loss) attributable to Calavo Growers, Inc. excluding (1) non-cash net losses recognized from unconsolidated entities, (2) goodwill impairment, (3) write-off of long-lived assets, (4) acquisition-related costs, (5) restructuring-related costs, including certain severance costs, (6) certain litigation and other related costs, and (7) one-time items. Adjusted net income and the related measure of adjusted diluted EPS exclude certain items that are recognized and recorded under GAAP in particular periods but might be viewed as not necessarily coinciding with the underlying business operations for the periods in which they are so recognized and recorded. We believe adjusted net income affords investors a different view of the overall financial performance of the Company than adjusted EBITDA and the GAAP measure of net income (loss) attributable to Calavo Growers, Inc.

Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are provided in the financial tables that accompany this release.

Items are considered one-time in nature if they are non-recurring, infrequent or unusual and have not occurred in the past two years or are not expected to recur in the next two years, in accordance with SEC rules. One-time items are identified in the notes to the reconciliations in the financial tables that accompany this release.

Non-GAAP information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP. None of these metrics are presented as measures of liquidity. The way the Company measures EBITDA, adjusted EBITDA, adjusted net income and adjusted diluted EPS may not be comparable to similarly titled measures presented by other companies and may not be identical to corresponding measures used in Company agreements.

Conference Call and Webcast
Calavo will host a conference call, today at 5:00 pm ET/2:00 pm PT to discuss its financial results. The conference call may be accessed by dialing 877-407-3982 (domestic) or 201-493-6780 (international) with conference ID: 13730081. A live audio webcast of the call also will be available on the Investor Relations section of Calavo’s website at Events & Presentations | Calavo Growers, Inc. and will be archived for replay.

About Calavo Growers, Inc.
Calavo Growers, Inc. (Nasdaq: CVGW) is a global leader in quality produce, including avocados, tomatoes and papayas, and a pioneer of healthy fresh-cut fruit, vegetables and prepared foods. Calavo products are sold under the trusted Calavo brand name, proprietary sub-brands, private label and store brands.

Founded in 1924, Calavo has a rich culture of constant innovation, sustainable practices and market growth. The company serves retail grocery, foodservice, club stores, mass merchandisers, food distributors and wholesalers worldwide. Calavo is headquartered in Santa Paula, California, with processing plants and packing facilities throughout the U.S. and Mexico. Learn more about The Family of Fresh™ at calavo.com.

Safe Harbor Statement
This press 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 Reform Act of 1995, that involve risks, uncertainties and assumptions. These statements are based on our current expectations and are not promises or guarantees. 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. The use of words such as "anticipates," "estimates," "expects," "projects," "intends," "plans" and "believes," among others, generally identify forward-looking statements. Risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by the forward-looking statements include, but are not limited to, the following: the impact of Project Uno initiatives on our business, results of operations, and financial condition, including uncertainty as to whether the desired effects will be achieved; the impact of the COVID-19 pandemic on our business, results of operations, and financial condition, including, but not limited to, disruptions in the manufacturing of our products and the operations of the related supply chains supporting our ability to deliver our products to consumers, impacts on our employees and uncertainty regarding our ability to implement health and safety measures for our employees, uncertainties regarding consumer demand for our products, impact on our food service customers, increased costs, the impact of governmental trade restrictions imposed as a result of COVID-19 and the possible adverse impact of COVID-19 on our goodwill and other intangible assets; our ability to raise prices, particularly in our RFG and Foods segments, to offset increases in costs of goods sold, and the impact of such price increases on future net sales; seasonality of our business; sensitivity of our business to changes in market prices of avocados and other agricultural products and other raw materials including fuel, packaging and paper; potential disruptions to our supply chain; risks associated with potential future acquisitions, including integration; potential exposure to data breaches and other cyber-attacks on our systems or those of our suppliers or customers; dependence on large customers; dependence on key personnel, including personnel that have not yet been hired, and the ability of our future management team to work together successfully; potential for labor disputes; reliance on co-packers for a portion of our production needs; competitive pressures, including from foreign growers; risks of recalls and food-related injuries to our customers; changing consumer preferences; the impact of environmental regulations, including those related to climate change; risks associated with the environment and climate change, especially as they may affect our sources of supply; our ability to develop and transition new products and services and enhance existing products and services to meet customer needs; risks associated with doing business internationally (including possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds and COVID-19 and trade protection measures such as import/export/customs duties, tariffs and/or quotas and currency fluctuations); risks associated with receivables from, loans to and/or equity investments in unconsolidated entities; volatility in the value of our common stock; the impact of macroeconomic trends and events; and the resolution of pending investigations, legal claims and tax disputes, including an assessment imposed by the Mexican Tax Administrative Service (the “SAT”) and our defenses against collection activities commenced by the SAT.

For a further discussion of these risks and uncertainties and other risks and uncertainties that we face, please see the risk factors described in our most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission and any subsequent updates that may be contained in our Quarterly Reports on Form 10-Q and other filings with the Securities and Exchange Commission. Forward-looking statements contained in this press release are made only as of the date of this press release, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

CALAVO GROWERS, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(in thousands)

CALAVO GROWERS, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share amounts)

CALAVO GROWERS, INC.
NET SALES AND GROSS PROFIT BY BUSINESS SEGMENT (UNAUDITED)
(in thousands)

For the three months ended April 30, 2022 and 2021, intercompany sales and cost of sales of $0.5 million and $0.7 million between Fresh products and RFG were eliminated. For the three months ended April 30, 2022 and 2021, intercompany sales and cost of sales of $1.1 million and $1.2 million between Calavo Foods and RFG were eliminated. For the six months ended April 30, 2022 and 2021, intercompany sales and cost of sales of $1.1 million and $1.2 million between Fresh products and RFG were eliminated. For the six months ended April 30, 2022 and 2021, intercompany sales and cost of sales of $1.8 million and $2.3 million between Calavo Foods and RFG were eliminated.

CALAVO GROWERS, INC.
RECONCILIATION OF ADJUSTED NET INCOME AND EPS (UNAUDITED)
(in thousands, except per share amounts)

The following table presents adjusted net income and adjusted diluted EPS, each a non-GAAP measure, and reconciles them to net income (loss) attributable to Calavo Growers, Inc., and Diluted EPS, which are the most directly comparable GAAP measures. See “Non-GAAP Financial Measures” earlier in this release.

(a)   For the three months ended April 30, 2022 and 2021, we realized losses from Agricola Don Memo totaling less than $0.1 million and $1.1 million. For the six months ended April 30, 2022 and 2021, we realized losses from Agricola Don Memo totaling less than $0.5 million and $1.3 million.
(b)   We had professional fees related to the FreshRealm Separation Agreement for the three and six months ended April 30, 2021. Partially offsetting this expense, as part of the FreshRealm Separation Agreement, we received $0.1 million of previously reserved receivables for the six months ended April 30, 2021.
(c)   For the six months ended April 30, 2021, we incurred professional service costs related to a considered but non-consummated acquisition.
(d)   For the three months ended April 30, 2022 and 2021, we recorded $4.9 million in unrealized losses and $3.5 million in unrealized gains related to these mark-to-market adjustments, respectively. For the six months ended April 30, 2022 and 2021, we recorded $7.0 million in unrealized losses and $7.1 million in unrealized gains related to these mark-to-market adjustments, respectively. 
(e)   For the three months ended April 30, 2022 and 2021, we incurred $0.1 million related to rent paid for RFG corporate office space that we have vacated and plan to sublease. For the six months ended April 30, 2022 and 2021, we incurred $0.2 million related to rent paid for RFG corporate office space that we have vacated and plan to sublease.
(f)   For the three and six months ended April 30, 2022, we recorded $0.7 million and $1.8 million of consulting expenses related to an enterprise-wide strategic business operations study conducted by a third-party management consulting organization for the purpose of restructuring to improve the profitability of the organization and efficiency of our operations. In addition, for the three and six months ended April 30, 2022, we recorded $1.3 million of severance accrual related to the Project Uno restructuring. For the three months and six months ended April 30, 2021, we recorded higher stock-based compensation for the early vesting of restricted stock for the retirement of our former Chief Executive Officer and Board member.
(g)   For the three and six months ended April 30, 2022, we incurred $0.5 million and $0.8 million of related professional fees related to the Mexican tax matters. For further information see Note 7 to the consolidated condensed financial statements included in our Quarterly Report filed with the Securities and Exchange Commission for the period ending April 30, 2022.
(h)   On October 18, 2021, we announced the closure of RFG’s food processing operations at our Green Cove Springs (near Jacksonville), Florida facility, as part of our Project Uno profit improvement program. As of November 15, the Green Cove facility of RFG has ceased operations. We incurred $0.3 million and $1.0 million of expenses for the three and six months ended April 30, 2022, related to the closure of this facility.
(i)   Tax impact of non-GAAP adjustments are based on effective year-to-date tax rates.

CALAVO GROWERS, INC.
RECONCILIATION OF EBITDA AND ADJUSTED EBITDA (UNAUDITED)
(in thousands, except per share amounts)

The following table presents EBITDA and adjusted EBITDA, each a non-GAAP measure, and reconciles them to net income (loss) attributable to Calavo Growers, Inc., which is the most directly comparable GAAP measure. See “Non-GAAP Financial Measures” earlier in this release.

See prior page for footnote references

CALAVO GROWERS, INC.
OTHER INFORMATION (UNAUDITED)
(in thousands, except per pound amounts)