February 6, 2023
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Calavo shares down, but company’s optimism remains high for 2023

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Shares of Santa Paula-based Calavo Growers faced another steep drop during the trading day Dec. 21, one day after the company’s fourth quarter and full-year earnings announcement.

The company limped through the finish line in the fourth quarter, with both revenue and net income falling well below analysts’ expectations.

It’s why Calavo’s stock fell as much as 13% during the trading day Dec. 21, with the stock falling below $30 a share. Year-to-date, shares are down more than 30%, the most of any agricultural public company on the Central Coast.

In the fourth quarter, Calavo generated a net loss of $3.3 million, or 19 cents per share. 

Adjusted for one-time losses, Calavo did net about $600,000 in income, which equates to about 3 cents per share, but well below the mark analysts surveyed by FactSet had forecast, which was at 33 cents a share.

Moreover, revenue fell 11% to $243.6 million, falling behind market expectations of $298 million, according to FactSet.

During the company’s earnings call, CEO Brian Kocher said Calavo’s avocado division was hit by lower profit as volumes fell by 12%.

“Although improved versus the prior year, the volume and margin recovery in our avocado business occurred more gradually from the third quarter than anticipated,” Kocher said.

It has been a tough year for Calavo, an avocado and produce distributor, which has filled multiple c-suite positions in 2022 while also dealing with “challenging market conditions” throughout the year in multiple segments, Kocher said.

But, Kocher, who took over as CEO in Feb., was optimistic during the earnings call, saying “by looking at the full year, every relevant financial metric improved versus fiscal year 2021.”

In fiscal year 2022, Calavo suffered a net loss of $6.2 million, or 35 cents per share, but it was lower than 2021’s net loss of $11.8 million, or 67 cents per share.

When adjusted for one-time losses, however, Calavo had positive net income worth $8.9 million, or 50 cents per share, higher than $6.2 million, or 35 cents per share, the company generated the year before.

Revenue was also up from $1.1 billion to $1.2 billion, as both the grown and prepared segments for Calavo contributed more to higher earnings.

Kocher said the prepared segment showed signs of “significant improvement” because of the Project Uno initiatives. 

“To date, we’ve achieved 46 million in annualized savings of the 70 million we set out to generate when Project Uno was announced last year, and we are on track to deliver the balance of the savings by the time we close the books on fiscal ’23. Even before then, I suspect the title, Project Uno, won’t be needed because it is simply our way of operating,” Kocher said.

“It’s not a project with an expiration date. It’s a systematic, ongoing process to manage our business for success. Pricing optimization will always be our focus. Labor efficiencies will always be our focus. Controlling input costs will always be our focus. Those things are not going away when we reach the $70 million mark.”

He added that the executive team at Calavo is now fully ready to embrace the new year, which should bring a larger avocado crop, about 10% to 20% larger, from Mexico in 2023.

Avocado pricing is expected to be lower due to higher supply.

“But lower avocado prices will also reduce input costs for the guacamole division in fiscal 2023, which, when combined with production efficiencies already in place and from some capital projects underway, we expect to generate guacamole division gross margins at approximately 25%,” Shawn Munsell, CFO of Calavo, said during the earnings call.

He added that Calavo expects around 15% to 20% of its full-year earnings to be generated in the first quarter with prepared first-quarter earnings to decline by about a third from the fourth quarter level due to seasonality.

Overall, Kocher was confident that the Calavo team has “set a solid foundation for growth in 2023.”

“We are committed to achieving our strategic and financial goals, and we’re excited about the future and about expanding our leadership position in both prepared foods and avocados,” he said.

Calavo ended the quarter with about $2 billion in cash and cash equivalents.