Calavo Growers, Inc. Announces Fiscal 2011 Third Quarter Operating Results

Calavo Growers, Inc. (Nasdaq-GS: CVGW), a global avocado-industry leader and an expanding provider of value-added fresh food, today reported a solidly profitable fiscal 2011 third quarter on the strength of revenues that rose 44 percent owing to sharply higher avocado sales. However, the company said net income in the most recent quarter was constrained principally by high fruit costs in its Calavo Foods business segment, as well as the effects of a smaller supply of fresh avocados in the marketplace.

Operating results for the most-recent quarter include those of Renaissance Food Group, LLC (RFG), which became part of the company on June 1, 2011. RFG’s results are included in the company’s Calavo Foods business segment. For the three months ended July 31, 2011, net income of $2.7 million, equal to $0.18 per diluted share, compares with $5.9 million, or $0.41 per diluted share, in the year-earlier third quarter. Revenues advanced to $165.1 million, which represents an increase of more than $50 million from $114.6 million in the fiscal 2010 third quarter. (RFG accounted for $22.8 million of the revenue increase.) Third-quarter gross margin narrowed to $11.3 million, or 6.9 percent of total revenue, from $15.3 million, or 13.3 percent of revenue, in the comparable period last year.

Net income for the nine months ended July 31, 2011 equaled $7.4 million, or $0.50 per diluted share. This compares with nine-month net income last year of $13.0 million, equal to $0.89 per diluted share. Revenues for the initial nine months of fiscal 2011 climbed 29 percent to $375.2 million from $291.1 million in the year-earlier corresponding period. Gross margin totaled $29.4 million, or 7.8 percent of total revenues, versus $37.2 million, or 12.8 percent, for the first three quarters of fiscal 2010.

Chairman, President and CEO Lee E. Cole stated: “While the fiscal 2011 third quarter presented challenges due principally to the limited avocado supply and strong avocado demand, Calavo’s ability to navigate them and remain solidly profitable underscores the strength of our business model. Simultaneously, the company made measurable strides in building a stronger, larger and more broad-based enterprise. On June 1, we completed our acquisition of Renaissance Food Group and its portfolio of brands, which contributed to quarterly revenues that reached record levels. Calavo’s operating results, though, principally reflect the two-fold impact on gross margins due to the significantly smaller year-over-year avocado supply.

“Most significantly, the limited supply of avocados drove up fruit costs overall, and specifically, in our prepared avocado business, where fruit prices have risen by more than 70 percent from last year’s third quarter. This factor accounts for the majority of the decrease in our third-quarter operating results year over year. Secondarily, the cyclically lower volume of fresh avocados from California resulted in moving fewer overall units, which reduced production efficiencies and increased our per-unit packing costs. We expect this to change with next year’s anticipated larger crop.”

Third-quarter revenues in Calavo’s Fresh business segment advanced 29 percent to $130.0 million, primarily due to higher avocado prices, versus $100.7 million in the corresponding period last year. The company shipped 1.3 million, equal to 27 percent, fewer Fresh units in the most recent quarter when compared to the same period in fiscal 2010. The year-over-year unit decrease is principally due to the aforementioned smaller avocado supply, as well as lower tomato volumes in the most recent period. Gross margin as a percentage of Fresh segment revenues was $10.2 million, equal to 7.9 percent sales. This compares with gross margin of $12.7 million, or 12.7 percent of Fresh sales, in last year’s third quarter.

Calavo Foods business segment revenues rose to $35.1 million, an increase of 153 percent from $13.9 million in the corresponding fiscal 2010 quarter. Results in the most recent quarter include $22.8 million in revenues attributable to RFG. Excluding the acquired company’s contribution to sales, Calavo Foods’ third-quarter revenues equaled $12.3 million. The year-over-year decline (excluding RFG revenues) is in part the result of the discontinuance of sales to certain high-volume, low-margin customers of Calavo’s frozen-avocado product as the company continues to focus growth initiatives on its ultra-high pressure guacamole. Lower prepared avocado sales in concert with higher fruit costs narrowed Calavo Foods gross margin to $1.1 million, or 3.2 percent of business-segment revenues, in the most recent quarter. This compares with gross margin of $2.5 million, or 18.2 percent of Calavo Foods revenues, in last year’s third quarter.

Third-quarter selling, general and administrative (SG&A) expense totaled $6.8 million, which includes approximately $1.2 million attributable directly to RFG operations. Excluding that figure, Calavo SG&A remained substantially unchanged from $5.5 million recorded in the fiscal 2010 third quarter. SG&A as a percentage of total revenues equaled 4.1 percent, a decrease of about 700 basis points from 4.8 percent in last year’s third quarter, reflecting the initial top-line contributions by RFG in the most recent period. SG&A as a percentage of gross margin was 60.4 percent in the most recent quarter. This compares with 36.1 percent in the third quarter of fiscal 2010.

The Outlook Ahead

Commenting on the fourth quarter, CEO Cole said: “As anticipated, we are seeing certain promising early indicators of an easing in the avocado supply. This has been a stiff headwind to our operating performance the past two quarters. The seasonal supply of avocados sourced from Chile has begun in earnest and the crop is significantly larger than last year’s. Along with Mexico-sourced fruit, we expect increased availability of fresh avocados in the marketplace, easing the hamstrung supply—and high costs at Calavo Foods—we have encountered the past few quarters. We believe the expected improvement in fourth quarter fresh-avocado supply is the beginning of strong volume growth in fiscal 2012. Furthermore, the anticipated larger avocado volume in 2012 will place Calavo on the strong growth trend that has characterized our company’s performance over the past five years.”

Cole continued: “We continue to focus on building the Calavo Foods segment into a complete consumer packaged goods company. This will be the first full quarter incorporating RFG results. With our growing lineup of products and brands, including Garden Highway and Chef Essentials acquired with RFG, we are establishing a portfolio with the goal of being a leader in the important fresh-food category. Combining RFG’s offerings with Calavo’s current branded lineup of guacamole, Salsa Lisa and tortilla chips, provides us with significant presence when working with grocery retailers. In bringing together RFG’s just-in-time delivery platform with Calavo’s established strength in logistics, we gain meaningful competitive advantage in the refrigerated-distribution fresh products category.

“We are diligently staying the course with our proven strategy: diversifying sourcing, diversifying products and leveraging infrastructure. I am confident and optimistic about the improving picture for the balance of this year. Longer term, we are well positioned and have put in motion the programs to drive significant growth—and value creation—in fiscal 2012 and beyond,” Cole concluded.

About Calavo

Calavo Growers, Inc. is a global avocado-industry leader. The company also procures and markets diversified fresh produce items, ranging from tomatoes to tropical produce. An expanding provider of value-added fresh food, the company’s Calavo Foods business segment manufactures and distributes guacamole, guacamole hummus, salsa and tortilla chips under the respected Calavo brand name. Calavo Foods’ wholly owned subsidiary, Renaissance Food Group, LLC, creates, markets and distributes a portfolio of healthy, high-quality lifestyle products for consumers through fast-growing brands that include Garden Highway and Chef Essentials. Founded in 1924, Calavo serves food distributors, produce wholesalers, supermarket retailers and restaurant chains worldwide.

Safe Harbor Statement

This news 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. Actual results and events may differ from those projected as a result of certain risks and uncertainties. These risks and uncertainties include but are not limited to: increased competition, conducting substantial amounts of business internationally, pricing pressures on agricultural products, adverse weather and growing conditions confronting avocado growers, new governmental regulations, as well as other risks and uncertainties detailed from time to time in the company’s Securities and Exchange Commission filings, including, without limitation, the company’s Annual Report on Form 10-K for the year ended October 31, 2010. These forward-looking statements are made only as of the date hereof, and the company undertakes 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 BALANCE SHEETS (UNAUDITED)

(in thousands)
 
July 31, October 31,
2011 2010
Assets
Current assets:
Cash and cash equivalents $ 2,454 $ 1,064

Accounts receivable, net of allowances of $1,996 (2011) and $1,372 (2010)
63,455 31,743
Inventories, net 21,852 14,831
Prepaid expenses and other current assets 6,043 8,424
Advances to suppliers 1,227 1,598
Income taxes receivable 1,529 1,816
Deferred income taxes   2,336   2,336
Total current assets 98,896 61,812
Property, plant, and equipment, net 46,267 41,059
Investment in Limoneira Company 35,833 34,986
Investment in unconsolidated entities 2,286 2,016
Goodwill 18,696 4,085
Other assets   14,174   6,240
$ 216,152 $ 150,198
Liabilities and shareholders’ equity
Current liabilities:
Payable to growers $ 28,820 $ 11,208
Trade accounts payable 7,813 2,839
Accrued expenses 17,773 15,353
Short-term borrowings 24,220 8,150
Dividend payable 8,092
Current portion of long-term obligations   5,368   1,369
Total current liabilities 83,994 47,011
Long-term liabilities:
Long-term obligations, less current portion 19,282 6,089
Deferred income taxes   8,518   8,266
Total long-term liabilities 27,800 14,355
Commitments and contingencies
Noncontrolling interest 513 575
Total Calavo Grower’s shareholder’s equity   103,845   88,257
$ 216,152 $ 150,198
 
             

CALAVO GROWERS, INC.

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(in thousands, except per share amounts)
 

 

Three months endedJuly 31,

Nine months endedJuly 31,
2011       2010 2011       2010
 
Net sales $ 165,141 $ 114,578 $ 375,180 $ 291,117
Cost of sales   153,801     99,303     345,751     253,881  
Gross margin 11,340 15,275 29,429 37,236
Selling, general and administrative   6,844     5,514     17,494     16,133  
Operating income 4,496 9,761 11,935 21,103
Interest expense (280 ) (181 ) (719 ) (644 )
Other income, net   175     362     859     1,094  
Income before provision for income taxes 4,391 9,942 12,075 21,553
Provision for income taxes   1,689     4,045     4,709     8,608  
Net income 2,702 5,897 7,366 12,945
Add: Net loss – noncontrolling interest   11     50     62     69  
Net income attributable to Calavo Growers, Inc. $ 2,713   $ 5,947   $ 7,428   $ 13,014  
 
Calavo Growers, Inc.’s net income per share:
Basic $ 0.18   $ 0.41   $ 0.50   $ 0.89  
Diluted $ 0.18   $ 0.41   $ 0.50   $ 0.89  

Calavo Growers, Inc.’s shares used in per share computation:
Basic   14,755     14,651     14,735     14,576  
Diluted   14,767     14,676     14,744     14,601  
 
 

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

Freshproducts

CalavoFoods(1)

Total

 

(All amounts are presented in thousands)
Nine months ended July 31, 2011
Net sales $ 318,341 $ 56,839 $ 375,180
Cost of sales   294,384   51,367   345,751
Gross margin $ 23,957 $ 5,472 $ 29,429
 
Nine months ended July 31, 2010
Net sales $ 254,265 $ 36,852 $ 291,117
Cost of sales   226,960   26,921   253,881
Gross margin $ 27,305 $ 9,931 $ 37,236
 
(1)    

Included are two months of net sales and gross margin of $22.8 million and $1.4 million related to the recently acquired business RFG.
 

For the nine months ended July 31 2011, and 2010, inter-segment sales and cost of sales for Fresh products totaling $11.7 million and $9.6 million were eliminated. For the nine months ended July 31, 2011 and 2010, inter-segment sales and cost of sales for Calavo Foods totaling $18.0 million and $6.9 million were eliminated.
                                   

Freshproducts

CalavoFoods(1)

Total

 

(All amounts are presented in thousands)
Three months ended July 31, 2011
Net sales $ 130,035 $ 35,106 $ 165,141
Cost of sales   119,825   33,976   153,801
Gross margin $ 10,210 $ 1,130 $ 11,340
 
Three months ended July 31, 2010
Net sales $ 100,681 $ 13,897 $ 114,578
Cost of sales   87,936   11,367   99,303
Gross margin $ 12,745 $ 2,530 $ 15,275
 
(1)    

Included are two months of net sales and gross margin of $22.8 million and $1.4 million related to the recently acquired business RFG.

For the three months ended July 31, 2011 and 2010, inter-segment sales and cost of sales for Fresh products totaling $3.2 million and $2.1 million were eliminated. For the three months ended July 31, 2011 and 2010, inter-segment sales and cost of sales for Calavo Foods totaling $12.2 million and $2.5 million were eliminated.

Copyright Business Wire 2010

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