Business Overview and History: Mission Produce, Inc. is a world leader in sourcing, producing, and distributing fresh Hass avocados, with additional offerings in mangos and blueberries. The company has established a global footprint, leveraging its expertise and vertically integrated supply chain to serve customers across retail, foodservice, and wholesale channels.
Mission Produce was founded in 1983 as a family-owned avocado farming and distribution business. The company started by growing avocados in California and later expanded its operations to Mexico and Peru to procure avocados from those regions as well. In its early years, Mission Produce faced challenges with fluctuating avocado supplies and pricing, as well as managing the complexities of operating in multiple countries. To address these issues, the company built strong relationships with growers, developed advanced logistics and distribution capabilities, and invested in its own farming operations to better control supply. These efforts helped stabilize the business and position Mission Produce as a reliable supplier to its retail, wholesale, and foodservice customers.
In the 2010s, Mission Produce further diversified its product offerings by adding mangos and blueberries to complement its avocado business. This expansion into adjacent categories allowed the company to leverage its global sourcing and distribution platform to offer customers a broader range of high-quality fresh produce. However, this diversification also came with its own set of operational and regulatory challenges that the company had to navigate.
Despite the various challenges it has faced over the decades, Mission Produce has remained a leader in the fresh produce industry through its commitment to innovation, quality, and customer service. The company's global footprint, sophisticated operations, and diverse product portfolio have been key to its success in providing a reliable supply of fresh fruits and vegetables to consumers around the world.
Diversification into Adjacent Categories: While avocados remain the core of Mission Produce's business, the company has strategically diversified its product portfolio in recent years. In 2022, the company acquired Moruga, a Peruvian blueberry producer, further expanding its presence in the growing fresh produce category. The Blueberries segment now contributes a meaningful portion of Mission Produce's overall revenue and profitability.
Additionally, the company has leveraged its distribution network and ripening capabilities to introduce mangos to its product mix. This diversification strategy has proven successful, with the Mango category experiencing strong growth and contributing to the company's top-line performance.
Financial Performance: Mission Produce's financial performance has been solid, reflecting the strength of its business model and operational execution. Over the past three fiscal years, the company has reported the following financial results:
- Fiscal Year 2023 (ended October 31, 2023): - Revenue: $953.90 million - Net Income: -$3.10 million - Operating Cash Flow: $29.20 million - Free Cash Flow: -$20.60 million
- Fiscal Year 2022 (ended October 31, 2022): - Revenue: $1.05 billion - Net Income: -$34.90 million - Operating Cash Flow: $35.20 million - Free Cash Flow: -$26.00 million
- Fiscal Year 2021 (ended October 31, 2021): - Revenue: $891.70 million - Net Income: $44.90 million - Operating Cash Flow: $47.00 million - Free Cash Flow: -$26.40 million
In the most recent quarter, Mission Produce reported: - Revenue: $324.00 million - Net Income: $12.40 million - Operating Cash Flow: $42.50 million - Free Cash Flow: $34.90 million
The company experienced a year-over-year revenue growth of 24% in the most recent quarter. This increase was primarily driven by a 36% increase in avocado sales prices, resulting from lower avocado supply due to weather impacts on fruit development and production in Peru and fruit harvesting disruptions in Mexico. Despite overall volume reductions, domestic sales volumes remained relatively flat, demonstrating the resilience of avocado demand in the US market amid higher price points.
Liquidity and Financial Ratios: The company's financial ratios demonstrate a mixed picture. The current ratio of 2.02 and the quick ratio of 1.40 suggest adequate liquidity. The company's debt-to-equity ratio of 0.27 indicates a conservatively leveraged capital structure. The return on equity of 6.5% in fiscal 2023 is relatively low, but the company's asset turnover ratio of 1.04 suggests efficient asset utilization.
Mission Produce has a syndicated credit facility with Bank of America with a total borrowing capacity of $250.00 million, comprising two senior term loans totaling $100.00 million and a $150.00 million revolving credit agreement. As of July 31, 2024, the company had $40.00 million outstanding on the revolving credit facility.
Operational Highlights and Challenges: Mission Produce's vertically integrated supply chain and global footprint have been key to its success. The company operates through three main segments:
1. Marketing and Distribution Segment: This segment sources fruit, primarily avocados, from growers and distributes it through Mission's global network. In the first nine months of fiscal 2024, it accounted for $833 million or 95% of total net sales, with a 27% year-over-year increase. Segment adjusted EBITDA increased 103% year-over-year to $59.5 million, primarily due to improved per-unit gross margins on avocados sold.
2. International Farming Segment: This segment owns and operates avocado orchards, primarily in Peru. Total segment sales decreased 31% year-over-year to $34.6 million, primarily due to lower volumes of owned avocados sold, partially offset by higher average sales prices. Segment adjusted EBITDA decreased 5% to $1.9 million.
3. Blueberries Segment: Representing the results of Moruga, this segment cultivates blueberries in Peru. Net sales increased 34% year-over-year to $44.1 million, primarily due to a 66% increase in average per-unit sales price, partially offset by a 19% decrease in volume sold. Segment adjusted EBITDA was $9.5 million, compared to $0.2 million in the prior year period.
Overall, Mission Produce's net sales increased 26% year-over-year to $880.3 million in the first nine months of fiscal 2024, with total adjusted EBITDA across the three segments reaching $70.9 million, up significantly from $31.1 million in the prior year period.
The company has faced some operational challenges in recent years. In fiscal 2023, unfavorable weather conditions in Peru, including a prolonged El Niño event, resulted in lower avocado yields from the company's own farms. This supply disruption was partially offset by the company's ability to leverage its diversified sourcing network and strong customer relationships to meet demand.
The company's Blueberries segment, bolstered by the Moruga acquisition, has shown promising growth, but the integration of the new business and the development of the blueberry farming operations have required significant capital investments.
Guidance and Outlook: For the fiscal 4th quarter of 2024, Mission Produce expects industry avocado volumes to be flat to slightly lower compared to the prior year period, as they continue to feel the impact of the smaller Peruvian crop. The company anticipates avocado sales prices in the fiscal 4th quarter to decrease sequentially but remain approximately 15% higher than the $1.39 per pound average experienced in the 4th quarter of fiscal 2023.
In the Blueberry segment, Mission Produce expects to see meaningful volume increases from their owned farms in Peru during the fiscal 4th quarter. However, the impact on revenue will likely be offset by lower average sales prices compared to the previous year when supply constraints led to abnormally high prices.
The company's management has emphasized its focus on operational excellence, cost optimization, and leveraging its global platform to capture growth opportunities in the avocado, mango, and blueberry markets. Additionally, the company's strong balance sheet and free cash flow generation provide the financial flexibility to pursue strategic initiatives, such as capacity expansions and potential acquisitions.
Industry Trends: The global avocado market is expected to grow at a compound annual growth rate (CAGR) of around 5-6% over the next few years. This growth is driven by increasing consumer demand for healthy and nutritious foods, as well as the expanding use of avocados in various industries such as food, cosmetics, and pharmaceuticals.
Conclusion: Mission Produce's position as a global leader in the avocado industry, coupled with its diversification into adjacent categories, such as mangos and blueberries, positions the company well for long-term growth. The company's vertically integrated supply chain, international farming operations, and strong customer relationships have been instrumental in navigating industry challenges and capitalizing on market opportunities. As Mission Produce continues to execute its strategic plan, investors will be closely monitoring the company's ability to maintain its operational excellence, manage its capital investments, and drive sustainable profitability in the face of ongoing industry challenges and opportunities.