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Avocado King Mission Produce Delivers Impressive Q2 Results, But Faces Headwinds in Peru
Published on September 24, 2024 | Ticker: AVO

Mission Produce, Inc. (NASDAQ:AVO), a global leader in the avocado industry, has reported its fiscal second quarter 2024 results, showcasing impressive growth and profitability. The company's diversified business model, strategic investments, and operational excellence have enabled it to navigate the challenges posed by volatile weather patterns and industry dynamics.

In the second quarter of fiscal 2024, Mission Produce reported revenues of $297.6 million, a 35% increase compared to the same period last year. This strong performance was driven by a 22% increase in avocado sales prices and an 8% increase in avocado volumes sold in the company's Marketing and Distribution segment. The Blueberry segment also contributed to the revenue growth, with a significant increase in volumes attributed to an extended harvest season.

Gross profit for the quarter increased by $12.9 million to $31 million, and gross profit margin expanded by 220 basis points to 10.4% of revenue. This improvement was primarily driven by stronger per-unit margins and higher volumes of avocados sold in the Marketing and Distribution segment, as well as increased volumes in the Blueberry segment.

Financials

The company's net income for the second quarter of fiscal 2024 was $7 million, or $0.10 per diluted share, compared to a net loss of $4.6 million, or $0.07 per diluted share, in the same period last year. Adjusted net income for the quarter was $9.8 million, or $0.14 per diluted share, compared to an adjusted net loss of $0.5 million, or $0.01 per diluted share, in the prior-year period. Adjusted EBITDA increased by $12.6 million to $20.2 million, reflecting the strong performance in the Marketing and Distribution segment.

Business Overview

Mission Produce's diversification strategy has been a key driver of its success. The company's rapidly growing Blueberry business, which has traditionally been concentrated in the first and fourth quarters, saw a significant increase in volumes in the second quarter, contributing to the overall financial results. Additionally, the company's investments in the mango category have positioned it well to capitalize on the growing demand for this fruit, which aligns with key consumer trends.

Risks and Challenges

The company's International Farming segment, however, faced challenges due to the impact of El Niño weather patterns on the Peruvian avocado crop. Warmer temperatures have stunted fruit development and reduced fruit sizing across the Peruvian growing region, resulting in a notable decrease in industry and owned production volumes. While Mission Produce is working to offset the impact of lower-owned production by sourcing from third-party suppliers, the company expects the decrease in volume to negatively impact the absorption of fixed costs at its Peruvian farms.

Despite these headwinds, Mission Produce remains committed to its long-term growth strategy. The company has implemented a rigorous cost optimization process within its International Farming operations, targeting approximately $10 million in annualized cost savings for fiscal 2024. These initiatives, combined with the company's diversification efforts, are expected to help mitigate the impact of the smaller Peruvian crop on its second-half results.

Outlook

Looking ahead, Mission Produce expects industry avocado volumes to decline by 10% to 15% during the fiscal 2024 third quarter compared to the prior year, as a result of an earlier conclusion to the 2023-2024 Mexican harvest season and the weaker Peruvian harvest outlook. However, the company anticipates avocado pricing to increase by approximately 15% year-over-year, supported by the industry-wide volume constraints.

Liquidity

Mission Produce's financial position remains strong, with cash and cash equivalents of $46.2 million as of April 30, 2024. The company's operating cash flow for the six months ended April 30, 2024 improved significantly to $12.9 million, compared to cash used in operating activities of $26.1 million in the same period last year. This improvement was driven by the company's strong operational performance and effective management of seasonal working capital dynamics.

In terms of capital expenditures, Mission Produce has increased its projected CapEx budget for fiscal 2024 to a range of $40 million to $45 million, up approximately $10 million from its previous expectation. This increase is primarily due to the company's decision to accelerate investments in its rapidly growing Blueberry business, capitalizing on the traction that the new blueberry varietals are gaining in the marketplace.

Conclusion

Despite the challenges posed by the weather-related impact on the Peruvian avocado crop, Mission Produce remains well-positioned to navigate the industry's dynamics. The company's diversified business model, strategic investments, and operational excellence have enabled it to deliver impressive financial results in the second quarter. As the company continues to execute on its growth initiatives and optimize its cost structure, it is poised to maintain its leadership position in the avocado industry and capitalize on emerging opportunities in the broader produce market.

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