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Thursday, Sep 21, 2023

Calavo’s Avocado Market Steady in Pandemic

Following a change of leadership months prior, Santa Paula’s Calavo Growers presented its first earnings report under new management at the beginning of June. Despite the pandemic, the avocado marketing company reported revenue comparable to the same time last year at $281 million against $286 million a year ago. Net loss was $3.3 million, or -19 cents a share, while adjusted income came in at $7 million, or 40 cents per share, missing analyst expectations by 8 cents. The company’s new chief executive started his presentation to analysts with a nod to the company’s legacy under former chief executive Lee Cole. “I have had the good fortune of working alongside Lee for 10 years as president of Renaissance Food Group, a company that I co-founded and was acquired by Calavo,” Chief Executive James Gibson said during the conference call. “While Lee has left us a proud legacy, I am even more excited about our future.” Cole also retired from his post as chairman of the board, leaving J. Link Leavens, a member of the Calavo board for 33 years, to take up the position. Other Calavo careerists were promoted to key positions at the beginning of this year, including Kevin Manion as chief financial officer and Joel Silva as corporate controller and chief accounting officer. “Our operations here in the U.S. and Mexico are led by a senior team with more than 200 years of collective industry knowledge and experience,” Gibson explained. Calavo started in 1924 in a Vernon warehouse. The publicly traded company is a leading supplier of avocados, along with other prepared foods and refrigerated fruits and vegetables. Currently, Calavo has three business segments: Fresh Products, which the company acquired in February, focuses on grading, sizing and packing avocados for delivery; Renaissance Food Group produces, markets and distributes packaged food products for retailers; and Calavo Foods is focused on procuring and processing avocados into guacamole products. ‘Green gold’ Affectionately calling avocados “green gold,” Gibson said demand continues to be “robust” — the U.S. consumes approximately 8 pounds of avocados today per person compared to 3 pounds a decade ago. There’s also a growing demand for the fruit in Asia, Gibson said. In the company’s 13 facilities in the U.S. and Mexico, which employ more than 3,500 workers, several employees at Calavo’s Santa Paula location tested positive for COVID-19 in mid-May. The affected plant was closed for four days while a third-party cleaning company sanitized the facility, Gibson said. “Since then, we’ve had no new incidence of COVID-19,” Gibson said during the call. “Our proactive efforts have allowed us to minimize supply chain disruptions and continue to safely serve our customers.” Overall, however, growth was constrained by the virus, with sales falling sharply mid-March because of stay-at-home orders, food service customers seeing less foot traffic, canceled orders having to be resold at discounted prices, and the “rapid devaluation of the Mexican peso,” Calavo’s chief executive said. “The fresh segment began to recover in April and May as consumers shifted back to normal buying patterns at retail grocery outlets and the food service industry began to open for takeout and delivery,” Gibson explained to analysts. The company’s foods sector helped pick up the slack too. Unsold avocados were repurposed for frozen guacamole — inventory with an extended shelf life. Looking ahead, analysts from Jefferies, Sturdivant and Co., Stephens Inc. and Lake Street Capital Markets await recovery across all of Calavo’s sectors in the third quarter through a better avocado crop and more favorable pricing. “Price volatility isn’t always that pronounced, but it seems to be now,” said Robert Frederick Dickerson, analyst for Jeffries during the earnings call. “If (the third quarter) is a higher seasonal quarter, pricing is down but volume comes back, it would seem as if there could still be some profitability pressure. But I’m hoping that pricing dynamic recovers quickly as we get through the summer and demand increases.” “The quality, I would say, of the pick is getting better and better,” answered Gibson. “And as you know, that allows us to dedicate certain sizes and grades to certain customers. And as long as we have control of that, we can maintain a margin.”

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