Calavo Growers Review: invest in avocados

Обзор Calavo Growers: инвестируем в авокадо

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 towards environmental friendliness and healthy eating. Main regions of activity - 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 business recovery process going after the crisis and what are the company's development plans.

What makes money

Products and brands. The company is engaged in the production and sale of fruits and vegetables, as well as products of their processing:

  1. Fresh Products - growing and distributing avocados, tomato, papaya and other vegetables and fruits.
  2. RFG - packaging of sliced ​​vegetables and fruits, processing and sale.
  3. Calavo Foods - Processed Avocado Foods & Salsa.

Financial performance have not been encouraging lately and have significantly decreased in the third quarter. Only net sales grew, and that is insignificant. Results also declined in nine months, excluding EBITDA.

Financial performance of the company 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%
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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 price increases to offset cost increases may be unsuccessful.

Besides, Skilled labor shortages at Calavo Growers. In US agriculture, a significant proportion of workers are labor migrants, but now, due to restrictions on movement, they cannot be counted on. The country's social policy also adds to the company's difficulties.: the amount 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..

Sales structure of the company 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%
Slicing fresh fruits and vegetables 107 846 91 200 18,25% 36,74%
Avocado prepared foods 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%
Slicing fresh fruits and vegetables 296 107 306 853 −3,50% 37,03%
Avocado prepared foods 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 Brands, 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%
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Arguments in favor of the company

The season is coming to an end. Despite weak financial results, there are prospects for improving the situation this year. Avocado cultivation 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 value of shares..

Good harvest. Calavo Growers Have A Good Harvest In The US State Of California. In addition, in the summer, the vaults were filled with a large crop from Peru., where does the company buy avocado. Lower quality Peruvian avocados, what in theory can bring down the price, but the supply volumes must balance this deficiency. 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. Calavo Growers partially ceased food processing activities at the Renaissance Food Group at the end of November. The company has laid off 150 employees at once. The problem is, what about 20 employees. Given the US labor crisis, this may negatively affect the company's reputation in the near future, and any criticism in the media can lead to a drop in the value of shares. In addition, the company's costs for shutdown of workshops will amount to USD 16 million.. Heavy losses can be avoided, if the management sub-leases the vacant premises. But the reputational risk in connection with the dismissal of employees will no longer be able to be leveled..

Slave labor and environmental threat. Michoacan de Ocampo is the only state in Mexico, from which the supply of avocados to the USA is allowed. This is where the main production facilities of Calavo Growers are located.. The Michoacan avocado business exploits local slave labor, but 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 for the sake of avocado plantations. Avocados are water-intensive., when grown using pesticides, which not only pollute the environment, but also harm farm workers.

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Plus, the business of growing Mexico's green gold is corrupt, and the residents of the USA know this very well. How much Calavo Growers is involved in this corruption is unknown., but the company's reputation suffers. In 2019, the USDA stated, what will block imports, unless security conditions improve.

What is the bottom line

Calavo Growers Stock Looks Good With Global Avocado Demand Rising, even excluding seasonal fluctuations in shipments from Mexico and other countries. But a huge confluence of negative factors makes it impossible to buy them now., before the first positive signs appear.

Many factors have a dual effect on the company's stock.: in particular, after the change of leadership in September, there was a short-term decline and only then - an increase. 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, it is worth waiting for the purchase of company shares.. Moreover, the decadent trend lasted too long, to respond to short term successes.

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