Calavo(US:CVGW)2022-09-02 03:10Financial Data and Key Metrics Changes - Gross profit more than doubled to $18.5 million compared to Q3 last year, with net income improving to $0.07 per share from a loss of $0.74 per share [6][29] - Adjusted EBITDA improved by more than $7 million year-over-year, but decreased by $4.6 million sequentially from Q2 [6][37] - Consolidated revenue for Q3 was $342 million, an increase of $10.6 million from the second quarter [27] Business Line Data and Key Metrics Changes - Grown segment revenue was $207.6 million, down about $3 million from the second quarter, with avocado volume down almost 20% due to supply constraints [27][10] - Prepared segment revenue was $134.9 million, up $14 million from the second quarter, benefiting from price and mix initiatives [28] - The former RFG portion of the Prepared segment achieved a gross margin of 7.7%, up from just over 2% in the prior quarter [30][21] Market Data and Key Metrics Changes - Mexican avocado import volume was down 34% versus the second quarter and 35% year-over-year [10] - Input costs in the Prepared segment were up 50% compared to last year, but began to decline over the course of the quarter [18][19] - Market prices for avocados decreased over $20 a carton from the beginning to the end of July [11] Company Strategy and Development Direction - The company has implemented a new segment reporting structure, combining Foods and RFG segments into a new Prepared segment [5] - The opening of the Jalisco facility for exports to the U.S. market is expected to enhance sourcing capabilities and provide flexibility [15][16] - The company aims for the Prepared segment to achieve gross margins of 10% to 12% by the end of fiscal 2023 [43] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about recovering avocado market prices and expected margins to normalize in Q4 [14][41] - The company is focused on continuous improvement and managing commodity volatility effectively [45][52] - Management acknowledged the challenges faced in Q3 but highlighted the progress made in operational efficiency and debt reduction [49][51] Other Important Information - The company generated strong cash from operations of over $20 million and paid down $16 million in debt during the quarter [39][40] - Year-to-date gross profit through Q3 totaled $53.5 million, up from $48.3 million for the prior year [32] Q&A Session Summary Question: How should we be thinking about supply-demand setup as we pivot into the fall? - Management noted that supply and demand are rebalancing, with a larger summer harvest contributing to lower prices and reduced purchase costs [55] Question: Have you seen any changes in consumer buying behavior due to inflation pressures? - Management indicated it is difficult to assess real demand due to supply constraints, but noted some retailers reduced promotions when prices were high [60][61] Question: Where are you in building out the team and what new abilities does it give you? - Management expressed excitement about the newly filled leadership roles and the structured transition plan in place for new team members [65][67] Question: Can you talk about the sourcing for the processed avocado business and how it has changed? - Management highlighted a shift towards diversifying sourcing geographically and noted that raw product costs have significantly decreased [75][78] Question: What are your expectations for profitability levels in a more regular operating environment? - Management expects to see gross margins consistent with historical levels as inventory flows through at current prices [81] Question: Was there anything one-time in nature that led to the gross margin increase in the RFG business? - Management confirmed that the increase was primarily due to steady progress across the P&L, with no unusual or non-recurring items [87]