What happened
Shares of Calavo Growers (CVGW 0.11%) plunged Friday after the company delivered its fiscal third-quarter earnings report. The avocado grower beat top-line estimates, but missed the mark on the bottom line as supply challenges and price volatility impacted performance.
As of 1:05 p.m. ET, the stock was down by about 14%.
So what
With average prices for avocados soaring over the last year, Calavo, which grows avocados and other fruits and sells prepared foods like guacamole, saw strong growth on the top line. In the fiscal quarter that ended July 31, revenue rose 20% to $342 million, beating estimates of $332.5 million. The average price per pound for avocados increased by 63% from $1.52 in the quarter a year ago to $2.46. However, supply issues weighed on its production, and volume sold actually fell by 19% to 79.5 million.
As a result, sales in its grown segment rose by 28% to $207.6 million, while revenue from the prepared segment increased by 9% to $134.9 million.
On the bottom line, the company swung from an adjusted loss of $0.17 per share in the prior-year quarter to a profit of $0.16 per share, but that was still well below the consensus estimate for earnings of $0.35 per share.
"I am pleased that our teams successfully navigated temporary avocado price volatility that impacted both our Grown and Prepared segments, particularly in July," CEO Brian Kocher said. However, he also noted that "a temporary but sharp increase in fruit input costs for our guacamole product line suppressed overall prepared earnings. Avocado input costs declined significantly in August, and we expect margins to normalize during the fourth quarter."
Now what
Calavo said in its outlook that the price volatility that impacted its fiscal third-quarter performance was subsiding, and it expects more normal conditions to prevail for the duration of the current fiscal quarter. The company didn't give any specific numbers.
Investors seem to be punishing the stock rather harshly for the bottom-line miss. Calavo was a success story for much of the 2010s, but more recently, price volatility in avocados has pushed the stock lower, and the company's gross margins have been compressed during the pandemic. If it can get back to gross margins of around 10%, where they were historically, the stock would appear to have significant upside. If management's fiscal Q4 forecast is accurate, look for the stock to recover from some of these declines after its next report.
