Mission Produce, Inc. Price & Performance (AVO)

Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. SEC. We'll also refer to certain non GAAP financial measures today. Please refer to the tables included in the earnings release, which can be found on our Investor Relations website [indiscernible] investors.missionproduce.com, for reconciliations of non GAAP financial measures to their most directly comparable GAAP measures. And with that, I'd now like to turn the call over to Steve Barnard, CEO Steve, please go ahead.

Thank you for joining us today. We're pleased to deliver a strong start to fiscal fiscal twenty twenty five achieving record first quarter revenue of $334,200,000 29% increase compared to the same period last year. This performance demonstrates our ability to successfully navigate a dynamic operating environment where we experienced industry supply challenges in Mexico during a period of strong consumption. With the Mexican avocado season ramping up, our marketing and distribution segment is back in focus during the fiscal first quarter. We realized segment growth of 32% versus the prior year reflecting a 5% increase in avocado volumes sold and a 25% increase in per unit avocado selling prices relative to the prior year period. Combination of volume growth during a period of heightened price clearly indicates the resiliency of consumer demand for the category despite the broader impacts from the inflation that consumers continue to absorb. [indiscernible] Our blueberry segment also contributed nicely to our strong line performance. A 12% increase in revenue to $36,400,000 Blueberries are an exciting area for us and one that we continue to invest in. In fact, over 100 hectares of new plantings came online early last year growing the total footprint of over five fifty hectares which positions us well in a category that continues to see growing consumer demand similar to avocados and mangoes.

We see tremendous long term growth in blueberries as consumer preferences shift towards healthy, convenient snacking options and we're strategically positioning ourselves to capitalize on this trend by expanding our acreage and investing in premium varietals that deliver superior flavor profiles and extended shelf life. While our mango program is still in its early stages, we're seeing encouraging progress as we expand our footprint and grow our share in this high growth category that is significantly underrepresented in the North American market. We are in an ideal position to continue driving this category given our ability to enhance existing customer relationships as well as leverage our Similar to our approach with avocados, we see significant opportunity to further develop underserved mango markets by bringing greater consistency and quality to consumers. Which we believe will drive increased consumption as well as perceived consumer value over time. While we generated top line growth, we experienced some normalization of our per unit avocado margins during the first quarter, was anticipated. The compression this quarter was specifically driven by unstable industry supply and mix which began to materialize during the holidays and necessitated increased procurement through co packers and spot market purchases to ensure we maintained appropriate service levels to meet our fruit size and volume commitments to customers.

Our unit margin was also impacted by our strategy to grow our closures in the quarter as we optimize our distribution footprint in North America. These closures are part of an ongoing effort to enhance operational efficiency and should ultimately strengthen our long term cost structure. I'm pleased and proud of our team's ability to manage the complexity of supply challenges in Mexico and all of our other diverse countries of origin.

The team's focus and commitment to driving results and delivering for our customers is unmatched in the industry. The dynamics we faced this quarter underscore precisely what we've spent the last forty five plus years building a durable and strategic diversified business model.

The diversification encompasses two primary fronts, Number one, expanding our global sourcing footprint to include key growing geographies such as Peru, Colombia, Guatemala, and among others to ensure reliable year round supply. And number two, shifting into complementary food categories like blueberries and mangoes When we face challenges in one sourcing region, our network provides us with flexibility to pivot to alternative sources, while our category expansion allows us to leverage existing infrastructure and capabilities to drive efficiencies and create additional growth vectors.

This multidimensional approach is designed to provide greater financial consistency throughout seasonal transitions while ensuring reliable year round supply for our customers. A prime example of this is improving our financial performance that can be seen in this quarter's International Farming segment results. While not typically a material contributor in Q1, adjusted EBITDA for this segment improved $2,300,000 year over year to positive $1,800,000 Though relatively small in the context of our overall results, the segment's contribution demonstrates the positive influence of our diversification strategy. On our fixed cost absorption within the farming operations. More specifically, we are seeing greater utilization of our proved packing facility for blueberries [indiscernible] during what is traditionally a slower period ahead of the avocado harvest in the second half of the year. This improved utilization of assets represents exactly the type of operational efficiency we aim to achieve across our entire organization. In closing, our first quarter results demonstrate the strategic value of our business model. Through our continued focus on operational excellence, prudent capital allocation, and strategic growth initiatives we're well positioned to navigate shifting market dynamics while delivering long term value to our shareholders. Our vertically integrated operations and expanding global footprint give us unique advantages in securing consistent supply for our customers, while our sustainable growth.

Although there is great uncertainty surrounding the tariff negotiations with our North American neighbors, These dynamics only serve to reinforce the value of our global strategy. Which provides us with tools to mitigate potential impacts We remain excited about the opportunities ahead and we continue to strengthen our global leadership position. With that, I'll pass the call over to our CFO, Brian Giles, for his financial commentary.

Thank you, Steve, and good afternoon to everyone on the call.

I'll start with a review of our fiscal first quarter financial performance, touching on some of the key drivers within our three reportable segments. Then I'll provide an update on our financial position and conclude with some thoughts on the current market conditions that we are seeing. Total revenue for the first quarter of fiscal twenty twenty five increased 29% to $334,200,000 largely driven by growth in our Marketing and Distribution segment, [indiscernible] where average per unit avocado selling prices increased 25% on a 5% increase in avocado volumes sold. [indiscernible] Gross profit increased by $2,800,000 to $31,500,000 in the first quarter. We driven by our International Farming segment, which benefited from increased packing and cooling service activity that correlated with higher blueberry production volumes. These favorable results were partially offset by lower gross profit in our Marketing and Distribution segment. Caused by lower per unit margins on fruit sold and cost of associated with our Canadian facility closures during the quarter. Gross profit margin decreased 170 basis points to 9.4% of revenue. As a reminder, gross profit percentage fluctuates based upon per unit sales price levels in relation to per unit costs, as profitability is primarily managed on a per unit basis.

SG and A expense increased $1,500,000 or 7% compared to the same period last year. Primarily due to higher employee related costs and stock based compensation expense. Adjusted net income for the quarter was $7,100,000 or $0.1 per diluted share. Compared to an adjusted net income of $6,700,000 or $0.09 per diluted share last year. Year over year growth was driven by improved non operating results including reduced interest expense attributed to a combination of lower interest rates and lower borrowings, and increased equity income related to improved performance in our avocado distribution joint venture in China. Adjusted EBITDA was $17,700,000 compared to 19 Adjusted EBITDA was $17,700,000 compared to $19,200,000 last year. Due primarily to lower per unit gross margins on fruit sold in our marketing distribution [indiscernible] Turning now to the segments. Our Marketing Distribution segment net sales increased 32% to $295,800,000 for the quarter. Primarily due to the avocado pricing and volume dynamics I described previously. Segment adjusted EBITDA was $9,700,000 compared to $11,000,000 in the same period last year. As a result of lower gross profit driven primarily by lower per unit gross margins on fruits sold.

Per unit margins on avocados sold were negatively impacted by challenges in obtaining Mexican supply required to meet customer commitments during In the first quarter, our International Farming segment results are typically focused on the provision of packing and processing service for our Blueberry segment and for third party Blueberry Producers. Though This Will Evolve Over Time As Our Operations Develop In Other Areas Such As Guatemala. With this seasonality in mind, total segment sales in our International Farming segment increased $3,400,000 or 59%. To $9,200,000 compared to $5,800,000 for the same period last year. Segment adjusted EBITDA increased $2,300,000 to $1,800,000 compared to negative $500,000 for the same period last year. The improved performance resulted from higher Blueberry Packaging and Cooling Service revenue [indiscernible] As Steve discussed in his remarks, we are pleased to see the results of improved operating leverage what has traditionally been a smaller quarter for the segment. Net sales in the Blueberry segment increased 12% to $36,400,000 compared to $32,500,000 in the prior year period.

Driven by a 70% increase in blueberry volumes sold that was partially offset by a 33% decrease in average per unit selling prices. Higher blueberry volumes were driven by increased total acreage and yields from our own farms. While price decreases were driven by a normalization of the supply and demand environment this year as compared to last year's high pricing that was driven by lower supply, following unfavorable regional weather conditions, Adjusted EBITDA was $6,200,000 compared to $8,700,000 in the prior year period, primarily due to lower sell prices impacting per unit gross margins. Shifting to our financial Mission, cash and cash equivalents were $40,100,000 as of 01/31/2025. Cash used in operating activities was $1,200,000 for the first quarter ended 01/31/2025, compared to cash provided by operating activities of $9,500,000 for During the current year period, working capital position was hindered by the impact of higher per unit price points, Higher prices had an unfavorable effect on both accounts receivable and inventory balances. Compounding the impact of typical working capital growth we see in the first quarter as a result of heavy sourcing of Mexican fruit, shorter payment terms and the build of growing crops in mid harvest and sale during the second half of our fiscal year.

Increased productive acreage in our international farming and blueberry segments this year has led to further increases in growing crops inventory. Capital expenditures were $14,800,000 for the three months ended 01/31/2025, compared to $9,900,000 last year. And were attributed to avocado and blueberry farming related and the construction of our Guatemala pack house. Our projected CapEx budget for fiscal twenty twenty five remains unchanged at $50,000,000 to $55,000,000 As a reminder, this figure is approximately $10,000,000 higher than we would have expected due to spend in our international farming and blueberry segments that rolled over from fiscal twenty twenty four as a result of the timing of vendor payments and blueberry plant development.

Our overall trajectory of moderating capital spending remains intact as we complete these remaining projects through fiscal twenty twenty six, which we believe positions the business to continue generating meaningful free cash flow with debt pay down as our near term priority to further strengthen our balance sheet. In regards to our near term outlook on the fundamental drivers of our operations, we are providing some context around our expectations for industry conditions. That said, these projections do not consider any potential influence from the ongoing tariff Mission. So please consider this as a base case scenario to help inform your modeling assumptions Beginning with avocados, industry volumes in the fiscal twenty twenty five second quarter are Mexico volume should taper off during the quarter as the industry harvest comes in lighter than initial expectations. However, California and Peruvian harvest should get off to a faster start than prior year based upon improved weather Mission, which should mitigate the impact on overall available volume. [indiscernible] At projected volume levels, pricing is expected to be higher on a year over year basis by approximately 5% compared to the $1.59 per pound average experienced in the second quarter of fiscal twenty twenty four, indicative of Turning to blueberries, the harvest timing of our Peruvian blueberry season this year is similar to the prior year, where approximately 20% of the harvest to be sold through which should translate to an increase in volume sold of approximately 35% to 40% when applied for the twenty twenty four-twenty twenty five season.

Average sales prices are expected to decline sequentially but be consistent with prices experienced in the second quarter of fiscal twenty twenty four. That concludes our prepared remarks. Operator, now over to you.

Please open the call to Q and A. Great. Thank you. We will now be conducting a question and answer First question here is from Ben Kleeve from Lake Street Capital Markets. Please go ahead.

All right. Thanks for taking my questions. First, in the quarter itself, I'm wondering if you can help us a bit and elaborate on this dynamic where you had sourced from co packers. Can you quantify kind of the degree to which you had do this in the current quarter relative to normalized levels? And then have conditions approved quarter to date such that that you're able to secure inventory sustained so far over the last six weeks?

They've sustained over the last several weeks. The crop overall is down slightly in Mexico. And as Brian said in his his his statements, the demand is up. And volume is up a little bit also compared to the year ago. But we're going to have to live through this for probably another month or so until we get other sources of supply like California and Peru. On deck, which is right around the corner.

Hey, Ben. And I would also comment that we kind of as we transitioned into December, kind of of early parts of the Mexico harvest season, I think everyone was expecting a bump in the overall industry crop this year.

So I think we were planning for volume increases as we move through the holidays and into January. I think what we've come to realize subsequent to that is that the overall industry harvest out of Mexico is unlikely. To be as large as we'd initially expected. I think some of the behavior in terms of some of the commitments we've made to customers was driven around the need to move more volume And then once we'd made those commitments, we needed to go out and fulfill them. I think as we've moved forward beyond that, I think we have a better expectation now of what the overall Mexico harvest is going to look like.

And I think that is likely to enable us to avoid buying as much fruit kind of in the spot market and through co packers as we did during that window. So I will say it's not uncommon for us to use co packers to fill specific needs on specific sizes of fruit or certain grades. So we do buy from them on a regular basis. I think the percentage of fruit though that we acquired via those means was much higher during the first quarter than what we would typically like to see.

The other thing that affects it is the size of the fruit was affected by El Nino or some weather phenomena a year ago. So the size, the average size is much smaller. Compared to history. Which affects the overall tonnage.

Okay. Very good. I appreciate that. From both of you. Regarding the working capital build, Brian, you talked about the reasons for this in the first quarter. And I'm wondering the degree to which you have visibility of this unwinding in the second quarter or beyond, and taking cash off the balance sheet given the build up in the first Yes.

This is normal somewhat normal seasonality for our business. We generally have strains on working capital during the first half of our fiscal year. And they generally unwind themselves during the second half of our fiscal year. I think maybe we didn't see it quite as much last year, as we typically do where we actually had positive operating cash during the first quarter. But this is a very normal occurrence for us to see. I think it's accentuated this year by the higher priced environment that we're in. We do tend to have to pay our suppliers a little bit faster than we're able to turn inventory in AR. So it certainly does have a bit of a negative impact. But as we move to the second half of the year, we would expect at a minimum as we move into harvesting our own fruit selling fruit from our own farms down in Peru, that inventory balance is going to come down. If price point stay at the levels that they're at, it'll likely continue to put some pressure on working capital from the standpoint of the prices that we pay for the fruit in Mex we But I think just as we transition away from the Mexico harvest and into other countries of origin, that will have a favorable impact.

Okay. Very good. One more for me and then I'll go back in queue around tariff tariffs. Obviously nobody knows. I'm not asking you guys to make any predictions here. What I'm curious about is the degree to which you've observed kind of supplier behavior changing at all, as as this has become a variable, particularly kind of in the weeks leading up to the February 1 deadline when the initial 25% tariffs were theoretically going to be implemented? Did you see any kind of changing behavior in late January before that date or in late February here before the early March threat reemerged? Ben, this is John.

Really, there was a little bit more shakeup and movement at the March announcement than the February announcement. February, no one was sure if anything would go through or not.

And so it was really business as usual. The March conversation became a little bit more choppy in regards to suppliers having more conversations with us and then vice versa, us having more conversation with our customers on what the impact would be. We had the whole industry experienced three days of the tariff being in place And there were some I would say, challenges or bumps at the border in regards to things crossing and things not crossing etcetera. But overall, we felt pretty good about supply being being consistent and us being able to deliver against the requirements that we had with our customers So we didn't see any challenge in regards to either a, getting fruit, across, C, delivering that fruit to our customers.

Got it. Very good. Well, best of luck to everybody navigating this environment. Thanks for taking my questions and I'll get back in queue.

Thank you, Ben. And if there are no further comments, I'd like to turn the floor back to management for any closing comments.

Thank you for your interest in Mission Produce and we look forward to speaking with you again next quarter.

This concludes today's teleconference. May disconnect your lines at this time.