Calavo Growers (NASDAQ: CVGW) is a world leader in the production of avocados and avocado products, as well as some other fruits and vegetables. The main focus of the business is on fresh products from plant raw materials, grown in licensed private farms. The company can be considered "green", because it is in line with the global trend for environmental friendliness and healthy eating. Main regions of operation - USA and Mexico.
Calavo Growers manufactures and markets under the Fresh Foods brands, Renaissance Food Group (RFG) и Calavo Foods.
In Russia, the company's shares are traded on the SPB-Exchange with 28 February 2019. Recently, after the next stage of the fall, share price went up. Let's figure it out, how is the process of business recovery after the crisis and what are the company's plans for development.
What he earns
Products and brands. The company is engaged in the production and sale of fruits and vegetables, as well as products of their processing:
- Fresh Products - growing and distribution of avocados, tomato, papaya and other vegetables and fruits.
- RFG - packaging of cut vegetables and fruits, processing and sale.
- Calavo Foods - Processed Avocado & Salsa.
Financial indicators recently do not inspire optimism and in the third quarter decreased significantly. Only net sales grew, and that is insignificant. Results also declined in nine months, excluding EBITDA.
Company financial results for the third quarter, one thousand dollars
| 3к2021 | 3к2020 | The change | |
|---|---|---|---|
| Net sales | 285 008 | 270 425 | 5,39% |
| Net profit | −12 915 | −15 572 | −17,06% |
| Gross profit | 7867 | 30 835 | −74,49% |
| Adjusted EBITDA | 1020 | 22 786 | −95,52% |
| Profit before tax | −88 | −19 084 | −99,54% |
| EBITDA | 4724 | −15 358 | −130,76% |
| Operating profit | −5808 | 17 465 | −133,26% |
Financial performance of the company for 9 Months, thousand dollars
| 9м2021 | 9м2021 | The change | |
|---|---|---|---|
| EBITDA | 34 468 | 12 174 | 183,13% |
| Net sales | 782 407 | 824 941 | −5,16% |
| Gross profit | 48 306 | 68 718 | −29,7% |
| Adjusted EBITDA | 25 444 | 41 028 | −37,98% |
| Operating profit | 6752 | 24 654 | −72,61% |
| Net profit | 1116 | −19 980 | −105,59% |
| Profit before tax | 19 944 | −20 145 | −199% |
Operating losses. The company has increased labor costs, value of goods, transportation and logistics amid recovery from the coronavirus pandemic. At the same time, the purchasing power of the population around the world is not being restored.. Therefore, the company considers, that raising prices to compensate for rising costs may not be successful.
Besides, Calavo Growers faces a shortage of skilled labor. In US agriculture, a significant proportion of workers are migrant workers, but now, due to restrictions on movement, they cannot be counted on. The social policy of the country adds to the difficulties of the company: the size and number of social benefits increased, and due to the emergence of a new strain, they are unlikely to be canceled soon.
Sales. seasonal fruit and vegetable market, therefore, fluctuations in revenue across all product segments are the norm. But despite this, over the past nine months, there has been an increased demand for avocados..
Structure of the company's sales by types of products for the third quarter, one thousand dollars
| 3к2021 | 3к2020 | The change | share | |
|---|---|---|---|---|
| Avocado | 148 757 | 145 670 | 2,12% | 50,67% |
| Cutting fresh fruits and vegetables | 107 846 | 91 200 | 18,25% | 36,74% |
| Finished avocado products | 22 095 | 19 764 | 11,79% | 7,53% |
| Tomatoes | 11 344 | 13 827 | −17,96% | 3,86% |
| Papaya | 2683 | 2695 | −0,45% | 0,91% |
| Salsa | 746 | 816 | −8,58% | 0,25% |
| Other fresh fruits and vegetables | 95 | 88 | 7,95% | 0,03% |
The structure of the company's sales by types of products for 9 Months, one thousand dollars
| 9м2021 | 9м2020 | The change | share | |
|---|---|---|---|---|
| Avocado | 398 887 | 413 335 | −3,50% | 49,89% |
| Cutting fresh fruits and vegetables | 296 107 | 306 853 | −3,50% | 37,03% |
| Finished avocado products | 59 848 | 60 683 | −1,38% | 7,48% |
| Tomatoes | 33 963 | 46 151 | −26,41% | 4,25% |
| Papaya | 8081 | 7677 | 5,26% | 1,01% |
| Salsa | 2154 | 2143 | 0,51% | 0,27% |
| Other fresh fruits and vegetables | 548 | 328 | 67,07% | 0,07% |
Third quarter net sales of Calavo Growers branded products, one thousand dollars
| 3к2021 | 3к2020 | The change | |
|---|---|---|---|
| RFG | 103 786 | 90 923 | 14,15% |
| Calavo Foods | 21 313 | 18 967 | 12,37% |
| Fresh Products | 161 580 | 162 139 | −0,34% |
| Intercompany exceptions | −1671 | −1604 | −4,18% |
Calavo Growers net sales for 9 Months, one thousand dollars
| 9м2021 | 9м2020 | The change | |
|---|---|---|---|
| RFG | 290 380 | 305 386 | −4,91% |
| Calavo Foods | 58 508 | 57 304 | 2,10% |
| Fresh Products | 438 725 | 466 197 | −5,89% |
| Intercompany exceptions | −5206 | −3946 | −31,93% |
Arguments in favor of the company
The season is coming to an end. Despite weak financial results, there are prospects for improvement in the current year. Avocado production in Mexico declines as the end of the 2020-2021 season approaches. This could provoke further price increases.. According to the report, market recovery is evident, which fell below forecasts between May and June.
Inside information. 14 September, Acting CFO and CEO Steve Hollister bought 5 thousand common shares for a total of 180.6 thousand US dollars. This fact can positively affect the share price..
Good harvest. Calavo Growers Have A Good Harvest In The US State Of California. In addition, in the summer, the storage facilities were filled with a large crop from Peru., where does the company buy avocado. Lower quality Peruvian avocados, which in theory can bring down the price, but supply volumes should balance this disadvantage. In this way, if no force majeure occurs, the company can guarantee itself a strong bottom line by the end of the year.
What can get in the way
Company risks, Alas, more, than positive prospects.
You're fired. At the end of November, Calavo Growers partially ceased food processing activities at the Renaissance Food Group facility.. The company has laid off 150 employees at once. The problem is, what is left at the factory about 20 employees. Given the US labor crisis, this may negatively affect the reputation of the company in the near future, and any criticism in the media can lead to a drop in the value of shares. In addition, the cost of the company to stop the workshops will amount to 16 million US dollars.. Heavy losses can be avoided, if the management subleases empty premises. But the reputational risk due to the dismissal of employees can no longer be leveled..
Slave labor and environmental threat. Michoacán de Ocampo is the only state in Mexico., from which shipments of avocados to the US are allowed. It is in it that the main production facilities of Calavo Growers are located.. Avocado business in Michoacan is accompanied by the exploitation of the slave labor of the local population, and 46% state residents live in poverty. The average wage on a plantation is 100 $ USA per month. Forests are cut down for plantations: up to 20 thousand acres of coniferous forests are destroyed annually in favor of avocado plantations. Avocados are water-intensive., when grown using pesticides, which not only pollute the environment, but also harm farm workers.
Plus, Mexico's "Green Gold" business is corrupt., and the people of the United States know this very well.. To what extent Calavo Growers is connected with this corruption is unknown., but the reputation of the company suffers. In 2019, the USDA stated, what will block imports, unless security conditions improve.
What's the bottom line?
As global demand for avocados rises, Calavo Growers shares look promising, even if we do not take into account seasonal fluctuations in supplies from Mexico and other countries. But a huge confluence of negative factors does not make it possible to buy them now, before the first positive signs appear.
Many factors have a dual effect on the company's shares: in particular, after the change of leadership in September, there was a short-term decline and only then - growth. Reputational risks are high. The situation could be mitigated by significant geographic diversification of the group's business..
In connection with all of the above, with the purchase of shares in the company, it is worth the wait. Moreover, the decadent trend lasted too long, to respond to short term successes.
