Avocado and citrus agribusiness Calavo Growers (CVGW 6.09%) was able to boast all-time records in no less than five financial metrics in its fiscal fourth-quarter 2019 earnings report, issued on Thursday morning. The avocado distributor and fresh and packaged foods wholesaler notched record 12-month revenue, gross margin, operating income, adjusted net income, and adjusted earnings per share (EPS) in fiscal 2019. Additionally, management provided a healthy outlook for the upcoming 2020 year.
As we dive into the quarter below, bear in mind that all comparative numbers refer to the prior-year quarter.
Calavo Growers: A bird's-eye view
| Metric | Q4 2019 | Q4 2018 | Change |
|---|---|---|---|
| Revenue | $292.2 million | $280.0 million | 4.4% |
| Net income | $5.2 million | ($1.3 million) | N/A |
| Diluted earnings per share | $0.30 | ($0.08) | N/A |
Data source: Calavo Growers. N/A = not applicable: items not comparable due to Q4 2018 loss.
What happened this quarter?
- "Calavo Fresh," the organization's core segment, which handles the sourcing and sale of fresh avocados, led the quarter's performance. Sales grew by a modest 2.2% to $144.2 million, while gross margin improved by an admirable 170 basis points to 8.7%. Total gross profit in the segment soared by 27% to $12.5 million. As it did earlier in the year, management attributed the climbing profitability to Calavo's leveraging of its strengths in "sourcing, production, and sales in the avocado category."
- In Calavo's Renaissance Food Group (RFG) segment, sales rose 7% to $125.5 million. Sales benefited from the opening in recent quarters of new production facilities, such as RFG's newest packing plant in Georgia. However, costs associated with the start-up and scaling of new facilities crimped gross margin by about 60 basis points, to 6%.
- The Calavo Foods segment increased sales by 3% to $22.5 million. This segment, which manufactures refrigerated guacamole and other packaged foods, saw its gross margin slip by 90 basis points to 20.3%. Moderating avocado prices helped the segment rebound sequentially from a gross margin of just 11.4% in Q3 2019.
- Loss attributable to Calavo's nonconsolidated meal-kit subsidiary FreshRealm declined to $2.3 million, against $8.5 million in the comparable quarter. The larger loss from FreshRealm in the fourth quarter of fiscal 2018 is the primary culprit behind the company's total net loss in that period, as seen in the table above.
- Calavo booked an unrealized loss of $1.4 million on its shares in closely affiliated agribusiness and lemon wholesaler Limoneira (LMNR 1.40%).
- Adjusting the current and prior-year periods for the FreshRealm and Limoneira impacts, Q4 2019 diluted EPS of $0.45 jumped 55% from the $0.29 earned in Q4 2018.
Image source: Getty Images.
Management's comments on Calavo's outlook
In the organization's earnings press release, CEO Lee Cole commented on the current state of the U.S. avocado supply, which will affect results of all three segments in fiscal 2020:
The extended upward arc in consumer demand for fresh avocados is expected to be met in 2020 with an all-source U.S. supply that, by early industry estimates, should be more than 10 percent above the recently concluded year. With ample supply, we anticipate considerable opportunities to boost Calavo's avocado sales both domestically and abroad while continuing to leverage our ability to execute across a range of industry conditions.
Cole also outlined the typically broad earnings guidance Calavo Growers issues annually in its fourth-quarter report:
Calavo's strategic blueprint continues to serve us well -- we will build upon this foundation without deviating from the course that has enabled our strong, enduring performance. Our multiple revenue and profit engines are going to continue driving this success, and I am confident that Calavo will once again post a record top line and double-digit growth in adjusted diluted earnings per share in the current year. We look forward to reporting our progress to these ends as fiscal 2020 advances.
Like most small-cap agribusiness concerns, Calavo Growers tends to see volatility each year in its share price, as many factors, from harvests to international supply considerations, can seasonally affect investors' perception of stock value. Calendar year 2019 has indeed resulted in a jagged stock chart for the company, but shares have gradually trended upward, and including a 4% bump at midday on Thursday, they're now up 25% heading into the final trading weeks of the year.
