Shares of Calavo Growers slipped more than 17% on Sept. 9, one day after the Santa Paula-based avocado distributor released third quarter earnings that were held back by inflation and said its CEO, James Gibson, is retiring from the post immediately.
Calavo closed at $39.20 on Sept. 9, down from $47.26 the day before. The Sept. 9 closing price was less than half of Calavo’s value six months ago, and marked the first time since 2015 that Calavo shares had closed below $40. The stock opened at $39.45 on Sept. 10.
In earnings released Sept. 8, Calavo posted a net loss of $13 million in the third quarter of 2021, or 74 cents per share. That was an improvement over the same quarter last year, when the company suffered a loss of $15.6 million, or 89 cents per share.
However, the company’s adjusted net loss was $3 million, or 17 cents per share, down from positive adjusted net income of $13 million a year earlier, or 73 cents per share.
Adjusted earnings before taxes also took a big hit, as Calavo earned just $1 million in the third quarter of 2021 compared to $22.8 million in the same quarter last year.
Revenue did rise about 5% compared to the same quarter last year, up to $285 million.
But the company’s core avocado business was flat year-over-year, interim CEO Steven Hollister said during the company’s earnings call.
“Lower supply and delays in the expected avocado supply from Mexico and California, along with smaller fruit sizes, negatively impacted sales volume, which was 8% lower than a year ago,” Hollister said.
On a positive note, Hollister said avocado market demand continues to be strong, and average selling price increased 10%.
Calavo’s quarter was led by a double-digit sales growth in the company’s Renaissance Food Group, and overall foods segments revenues, which increased 14% and 12% year-over-year, respectively.
However, Renaissance was negatively impacted by higher costs associated with industry-wide inflation in labor and freight costs, coupled with supply issues in some fresh fruits and vegetables, Hollister said.
“Taken together, our third quarter revenues were generally in line with our expectations, but with inflationary pressures still present, gross margin and profitability fell far short of our initial expectations,” he said.
Hollister said avocado supplies should be back to normal in the fourth quarter of 2021, due to a larger crop coming from Mexico in mid-September.
However, inflationary costs are expected to persist in the fourth quarter of 2021, which could negatively affect the Renaissance subsidiary again.
Hollister also noted in the third quarter, Calavo launched Project Uno, a system based on reviewing the company’s own internal operations and looking for opportunities to reduce cost and optimize gross margins.
“This profit improvement program is expected to generate additional operating income of approximately $70 million over the next 24 months. Total costs associated with the program are estimated at about $30 million,” he said.
Calavo released the news of its third quarter results concurrently with the news that Gibson would be stepping down as CEO, effective Sept. 9.
Gibson spent over a decade with Calavo and served as the CEO for a year and a half, taking over for Lee Cole, who retired in 2020.
Gibson was the president and co-founder of Renaissance Food Group, which was acquired by Calavo in 2011.
““I am proud to have had the honor and opportunity to lead Calavo and would like to thank all of our employees for their commitment and service to the company. We have accomplished a great deal together, and I wish them the best success in the future,” Gibson said.
Gibson will remain on the team at Calavo, assisting in the transition until the end of the month, the company said in a news release. The board has begun its search for a permanent CEO, Calavo said.
In addition to stepping in as interim CEO, Hollister will also take the reins of interim CFO, allowing Farha Aslam, who was serving in that role for a few weeks, to return to her role as an independent director.
Hollister has been on the board of directors since 2008, and has also served in many executive roles at different companies throughout his career.
“While there is no perfect time for a transition like this, given our strong team here, the board and I are confident that we can execute a smooth transition,” Hollister said during the earnings call.