What happened
Shares of Calavo Growers (CVGW -1.39%), a company that sells packaged foods and fresh avocados, took off on Thursday after the release of its financial results for its fiscal third quarter of 2023. The stock was up as much as 17% early in the session and was still trading 8% higher as of 1:50 p.m. ET.
So what
Long-time Calavo Growers CEO Lee Cole returned to the company in the fiscal second quarter, promising to "restore Calavo's profitability." It didn't take long for Cole to start delivering results, which is why the stock is up today.
Q3 revenue for Calavo Growers plunged 24% year over year to $260 million. However, the company's gross profit jumped to $25 million compared with a gross profit of $18.5 million in the prior-year quarter. Moreover, whereas it had a net income of only $1.3 million last year, its net income grew to $6.6 million in Q3.
Calavo Growers' profitability improved year over year due to massive improvements in profit margins for its avocado business. And the importance of this achievement can't be overstated. Avocado prices fell 38% year over year, which should have hammered margins. Therefore, growing profitability under these circumstances is remarkable.
Now what
Profitability for Calavo Growers fell off of a cliff after Cole retired in 2020. Unsurprisingly, the company was forced to reduce its dividend and the stock has underperformed the market. However, I believe shareholders should feel optimistic about the future now that Cole is back. He clearly knows how to operate this company and it could help the stock get back on track.
