Mission Produce, Inc. (NASDAQ:AVO) Q1 2024 Earnings Call Transcript
Mission Produce, Inc. (NASDAQ:AVO) Q1 2024 Earnings Call Transcript March 11, 2024
Mission Produce, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to the Mission Produce Fiscal First Quarter 2024 Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note that today's event is being recorded. At this time, I'd like to turn the conference call over to Jeff Sonnek, Investor Relations at ICR. Sir, please go ahead.
Jeff Sonnek: Thank you, and good afternoon. Today's presentation will be hosted by Steve Barnard, Chief Executive Officer; and Bryan Giles, Chief Financial Officer. The comments during today's call and the accompanying presentation contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts are considered forward-looking statements. These statements are based on management's current expectations and beliefs as well as a number of assumptions concerning future events. Such forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward-looking statements.
Some of these risks and uncertainties are identified and discussed in the Company's filings with the 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, investors.missionproduce.com, for reconciliations of non-GAAP financial measures to their most directly comparable GAAP measures. With that, I'd now like to turn the call over to Steve Barnard, CEO. Steve, please go ahead.
Steve Barnard : Thank you for joining us today. We're off to a strong start in fiscal 2024 with the delivery of a first quarter that demonstrated solid execution across all facets of our business. Total revenue for the first quarter of 2024 increased $45.2 million or 21% year-over-year to $258.7 million and adjusted EBITDA increased by $16.9 million to $19.2 million. These results were a direct result of our team's focus, underpinning our strong adjusted EBITDA performance with significantly improved per unit margins across the Marketing and Distribution and Blueberries segments, which translated to nearly 700 basis points of gross margin expansion and a 69% increase in gross profit dollars versus the prior year period. This improvement was spurred by strength in avocado margins in our Marketing and Distribution segment, as well as the achievement of record quarterly revenues in our blueberry segment.
Blueberries are notable this quarter and that the strategy is becoming visible in the financial results. Within this business, we have been investing capital in new premium varietals and not only offer additional yield opportunity to drive higher returns on investment, but are also differentiated in terms of the appearance and flavor profile, which offer retailers and their customers significant value. Similar to our International Farming segment, we were able to generate higher margins as a result of behaving as an operator with a greater capital intensity, the blueberry business is providing us with incremental levers to drive per unit margins at the consolidated level. In an environment such as this where industry volumes are constrained, we are well positioned to capture the additional margin upside that is created from advantageous pricing.
Together, these businesses contributed meaningfully to our overall adjusted EBITDA generation in the first quarter and demonstrate Mission's unique ability to drive value through its leading global market position. Our primary goal is to drive long-term volume growth by supporting our markets with consistent supply, creating an environment to drive per capita consumption growth through greater access. To support opportunities in emerging growth markets such as Europe and Asia, we are methodically building our capabilities in those regions in a measured fashion. In the United Kingdom, the construction of our new forward distribution center is progressing according to plan with our Phase 2 build out to expand capacity, including additional ripening rooms, storage and sorting as well as building handling capacity for our very popular mango category.
While our mango program is still in its infancy, first quarter revenue grew nearly 50% compared to the same period last year to over $10 million. The opportunity ahead is immense. Mangoes are among the most consumed fruit globally, yet in the western markets it has lagged behind primarily due to the lack of consistent year round high quality sourcing. We are eager to bring some greater execution to this fragmented industry and help drive greater consumption. In fact, we recently reinvested in this business with new leadership that is already generating early wins through improving our third-party sourcing, enhancing our operational capabilities and meeting the needs of retailers in a more consistent fashion, all of which is translating to growth.
We think we are in an ideal position to compete for market share globally and this focus has immediately yielded new customer engagements in this very complementary of our avocado program from a merchandising perspective. Supporting these strategies are our physical distribution and ripening assets, our expansive third-party sourcing network and our vertically integrated growing operations in Peru. This allows Mission to provide year round sourcing to establish such as North America, but also strategically penetrate new regions as well. This is a playbook that has served us well over several decades and remains the core tenant of our long-term strategy. Although our international farming segment doesn't contribute materially until our fiscal second half of the year when the harvest commences, we have already started a rigorous optimization process that is intended to drive down our operating costs, while ensuring that we maintain the same quality standards that our customers have come to expect.
We are encouraged by the progress we are making with this initiative and expect that it will translate to improved operating performance later this fiscal year. Although it is still early to provide a reliable forecast of volume from our Peruvian operations, weather conditions have improved as El Nino conditions have dissipated, which should lead to a more predictable harvest for this coming season. We believe that the improved growing conditions combined with enhancements to our operations will create a more constructive backdrop for our International Farming segment performance later this year. In summary, Mission remains in a strong position with a network of global assets to drive growth, a strong balance sheet and a focused team that is generating enhanced margins and cash flow through thoughtful capital allocation.
On that note, I wanted to take a moment and comment on the executive appointment we announced last week. I'm excited to have John Pawlowski join our executive team as President and Chief Operating Officer beginning in April. John is an exceptional leader who brings more than 25 years in the global food and foodservice industry driving logistic efficiencies, market access and strategic partnerships at large global organizations such as J.M. Smucker. John comes to Mission from Lipari Foods, where he was President and CEO for the past two and a half years. With his comprehensive background in the international food industry, I believe his skill set will greatly contribute to our continued growth, as we work to enhance our operating strategies to maximize shareholder value.
With that, I'll pass the call over to our CFO, Bryan Giles for his financial commentary.
Bryan Giles : 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 industry conditions that we are seeing. Total revenue for the first quarter of fiscal 2024 increased 21% to $258.7 million driven by higher per unit avocado sales prices. Though the impact was less significant, we also experienced growth in mango and blueberry revenues, resulting from higher average sales prices that were driven by industry supply constraints during the period. Gross profit increased by $19.7 million to $28.7 million in the first quarter and gross profit margin increased 690 basis points to 11.1% of revenue.
These increases were driven by improved per unit margins across our Marketing and Distribution and Blueberry segments. Within Marketing and Distribution, we achieved avocado per unit margins that were near the high end of our typical range. This performance was bolstered by a decision to implement price increases for our value added services heading into this fiscal year to cover the structural inflation that has proven difficult to mitigate. Within Blueberries, we realized a significant margin benefit from higher per unit sales pricing as a result of the advantageous industry conditions. SG&A expense increased $1.6 million or 8% compared to the same period last year, primarily due to higher employee related costs, including stock based compensation expense and performance based incentive compensation associated with government mandated profit sharing in our foreign operations, a good portion of which was driven by the strong performance of our blueberry segment during the quarter.
Partially offsetting these costs was a reduction in our general corporate expenses of approximately $1 million, which demonstrates our progress in reducing controllable expenses. While off to a solid start, we anticipate that our expense optimization efforts will be more visible in our International Farming segment gross margin during the second half of the fiscal year. Net income for the first quarter of fiscal 2024 was breakeven or $0.00 per diluted share compared to a net loss of $8.8 million or $0.12 per diluted share for the same period last year. Adjusted net income for the first quarter of fiscal 2024 was $6.7 million or $0.09 per diluted share compared to an adjusted net loss of $5 million or $0.07 per diluted share for the same period last year.
Adjusted EBITDA increased $16.9 million to $19.2 million as compared to $2.3 million for the same period last year, driven by the strong gross profit performance noted earlier. Turning now to our segments. Our Marketing Distribution segment net sales increased 24% to $224.6 million for the quarter due to the favorable avocado pricing dynamics I described earlier. We believe that the meaningful price increase at comparable volume is a strong indicator of demand growth during the period. Segment adjusted EBITDA increased $6.4 million to $11 million due to the impact of higher per unit gross margins, resulting from relatively stable avocado supply conditions in Mexico during the period and the value added price increases previously discussed. Our International Farming segment revenues and EBITDA are concentrated in the second half of our fiscal year in alignment with the Peruvian avocado harvest season, which typically starts in April and runs into September of each year.
Activity during our fiscal first quarter is currently focused on packing and processing services for our blueberry segment and for third-party producers of blueberries, though this will evolve over time as our operations develop in other areas of Latin America. With this in mind, total segment sales in the International Farming segment were $5.8 million approximately flat compared to the same period last year. Segment adjusted EBITDA increased $1.3 million to a negative $0.5 million driven primarily by cost savings measures within our Peruvian Farming and Packing operations. Activity in our blueberry segment tends to be concentrated in the first and fourth quarters of our fiscal year in alignment with the Peruvian blueberry harvest season, which typically runs from July through February.
Net sales increased 9% to $32.5 million and segment adjusted EBITDA increased $9.2 million to $8.7 million compared to the same period last year. Industry supply conditions from Peru had a dramatic impact on sales pricing and volumes sold during the quarter. In regard to sales growth, we experienced a 90% increase in selling prices that was substantially offset by a 43% decrease in volume sold. EBITDA growth was driven by the significant increase in prices that resulted in substantial improvement in per unit margins. Shifting to our financial position, cash and cash equivalents were $39.9 million as of January 31, 2024 compared to $42.9 million at October 31, 2023. Operating cash flows are seasonal in nature, we typically see increases in working capital during the first half of our fiscal year as our supply is predominantly sourced from Mexico under payment terms that are shorter than terms established for other source markets.
In addition, we are building our growing crops inventory in our International Farming segment during the first half of the year for ultimate harvest and sale that will occur during the second half of the fiscal year. Net cash provided by operating activities was $9.5 million for the three months ended January 31, 2024 compared to cash used in operating activities of $1.3 million for the same period last year. The $10.8 million increase was driven by improved operating performance, partially offset by working capital growth. During the current period, our working capital position was negatively impacted by the higher avocado pricing environment, which had an unfavorable effect on both accounts receivable and inventory balances. Inventory growth in the current year period was also driven by higher blueberry growing crop inventory in Peru due to the extension of the harvest season compared to prior year.
Capital expenditures were $9.9 million for the first quarter ended January 31, 2024, compared to $17.6 million last year. Capital expenditures were balanced across each of our three operating segments and were comprised of avocado orchard development, preproduction orchard maintenance and land improvements in Peru and Guatemala, early stage blueberry plant cultivation in Peru and construction costs associated with our UK distribution facility. As we mentioned on our last call, the year-over-year reduction in capital spending reflects the tapering off of our recent heavy investment cycle in avocados and is at a level we feel comfortable with over the near-term to support our ongoing farming expansion and facility improvement projects. Our projected CapEx budget for fiscal 2024 remains unchanged at $30 million to $35 million.
Net, we believe the business is well positioned to generate positive free cash flow in fiscal 2024 and beyond. I want to reiterate that our core capital allocation priority is maintaining a healthy capital structure that minimizes leverage. Debt paydown remains our near-term priority and given our forecast for improved operating cash flow for the full year of fiscal 2024, we expect to be in position to strengthen our balance sheet by the end of this fiscal year. In terms of our near-term outlook on the fundamental drivers of our operations, we are providing some context around our expectations for industry conditions to help inform your modeling assumptions. Beginning with avocados, industry volumes are expected to be relatively flat in the fiscal 2024 second quarter versus the prior year period.
Sourcing from Mexico should taper off in the latter part of the quarter as we near completion of the current harvest season, while California harvest volume should begin to build toward the middle of the quarter as weather permits. Peruvian volumes are unlikely to have a meaningful impact on the market during the quarter. Avocado pricing is expected to be slightly higher on a sequential basis and approximately 10% to 15% higher than the $1.30 per pound average experienced in second quarter of fiscal 2023, assuming that volume aligns with our expectations. Turning to blueberries, harvest timing shifts relative to last year have extended our Peruvian blueberry season. As a result, we expect that approximately 20% of the harvest will be sold through in the fiscal second quarter, whereas the season was substantially complete in the prior year period.
Sales pricing is expected to decline sequentially in the fiscal second quarter in response to increased industry volume resulting from the expectation for other source regions to begin seasonal harvest on a normal cadence. That concludes our prepared remarks. Operator now over to you. Please open the call to Q&A.
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