What happened
Calavo Growers (CVGW 0.18%) shareholders had a rough day on Wednesday as their stock dropped 6% by noon, compared to a flat result in the wider market. The decline wasn't enough to push shares into negative territory for the year, but Calavo Growers is still trailing the 12% gain in the S&P 500 so far in 2023.
Wednesday's decline was sparked by the avocado grower's fiscal Q2 results.
So what
Management revealed before the market opened that sales fell 26% in the selling period that ended in late April. Net losses landed at $4 million.
Calavo Growers did benefit from slightly higher gross profit margins as compared to the prior quarter, and volume was higher compared to a year ago. But avocado prices are still far below the rate from mid-2022. On average, the company sold whole avocados at a 40% lower rate compared to last year.
NASDAQ: CVGW
Key Data Points
Management did note further progress on both prices and sales volumes into the start of June, and executives are predicting modest profit margin increases for both whole avocados and prepared products like guacamole in the second half of fiscal 2023.
Now what
The second half of Calavo Growers' fiscal year should look similar to these recent results, with significantly lower sales and profits compared to last year. As illustrated in this report, the company's profit is sensitive to demand swings, but also to supply shocks that can disrupt crop yields in its fields in California and Mexico.
Those issues mean investors can expect continued volatility for Calavo Growers' stock as prices and demand rates swing. The business has little control over key factors influencing its annual earnings, such as avocado prices and the weather's impact on crop yields, and so its shareholders must accept some wild shifts in profitability. Investors looking for attractive growth stocks should focus more on businesses that have demonstrated an ability to generate sustainably positive earnings.
