Q4 2020 Calavo Growers Inc Earnings Call
[music] greetings and welcome to the Calavo growers incorporated fourth quarter 2020 earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the call.
Frank Please press Star zero on your telephone Keypad. Other reminder, this conference is being recorded.
It is now my pleasure to introduce your host Lisa Mueller. Thank you Lisa you may begin.
Thank you operator, and thank you all for joining us today to discuss Calavo growers fourth quarter 2020 financial results.
This afternoon, we issued our earnings release and this document is available in the Investor Relations section of our website at IR Dot Calavo Dot com.
I'm here today with Jim Gibson, Chief Executive Officer of Calavo, and Kevin Mandia, Chief Financial Officer on today's call management will provide prepared remarks, and then we will open up the call for your questions.
Before we begin I would like to remind you that today's comments will include forward looking statements under the federal Securities laws.
Forward looking statements are identified by words, such as will be intend believe expect anticipate or other comparable words and phrases statements that are not historical facts that just statements about our outlook for revenue and adjusted EBITDA are on the forward looking statements.
Our actual financial condition and results of operations may vary materially from those contemplated by such forward looking statements discussion of the factors that could cause our results to differ materially from these forward looking statements are contained in our SEC filings, including our reports on form 10-K and 10-Q.
With that I would now like to turn the call over to Jim Gibson Jim. Please go ahead.
Thank you Lisa good afternoon, everyone. We welcome the opportunity to speak to you today and hope you and your families continue to be healthy and safe.
The fourth quarter played out similar to the trends that we saw on the third quarter avocado volumes continue to expand reflecting heavy demand and rising popularity across the country. Even so there was ample supply to meet that demand Mexico had larger harvest. This year and there was no supply restrictions that we experienced last year.
California in Peru also had strong growing seasons, which led to a 22% price contraction compared to last year.
Our supply chain remain strong with very low incidence of disruption due to the pandemic, we continued to optimize our supply chain by knowing what our customers want and managing their preferences at the source for our team is very skilled and matching sizes in grades to customer profiles, which is a delicate balance achieved through day.
Kids have experience.
In the RF GE and food segment volume was lower due to the closure up on mid West co Packer earlier, this year as well as the challenging demand environment and our wholesale on food service channel due to the pandemic.
Well COVID-19 continued to have a negative impact on our business. We remain focused on the things that we can't control, including steps to improve processes innovation efficiency across our organization. For example, Archie has a strong reputation for its solutions based approach to serving.
Customers when demand drop for grab and go products a high value category for our customers our team shifted to meet the rising demand.
For fast and easy meals at home, we adapted to provide meal solutions, such as family size Green salads.
Couple side dishes.
And Deli service items sold in single serve configuration to drive sales were deli counters and self service bars are now closed.
The quick pivot.
Well, we made enhanced our ability to innovate and adapt which will ultimately lead the company in a stronger position once we emerge on the pandemic, especially when food service and hospitality markets return.
I'm very proud of our team and want to thank our nearly 4000 employees for their dedication and commitment their collective efforts allow allowed us to.
To maintain a supply chain continuity and better serve our customers during these unprecedented times.
Regardless of the current challenges we continue to implement our transformative one company initiatives and we are already seeing the power of operating as one company.
Our RF GE and food segments are really beginning to work together to create product sets that are very practical combinations for customers.
And there are cross selling efforts are paying off for some of our largest customers. We plan to keep expanding into higher margin food products by developing complimentary products with favorable margin profile and as we extend our product line. We will also leverage the Calavo brand appeal to develop new higher margin products.
The current lower avocado price scenario has a silver lining it presents an opportunity to lower our input costs in our foods division, allowing us to keep comfortable margins even in the lower volume.
With the lower with the growing popularity Ababa condos driving double digit growth digit gross in consumption across Europe and Asia growing international sales is another big initiative for US in response, we are focused on achieving higher utilizations from our wholly scope packing house by selling into the European market.
Place and from our Mitchell can plant by selling into Asia. We're excited by the relatively untapped potential for clabo in those vast markets.
Our one company priorities for our employees are to establish centralized leadership enhanced continuous learning and provide career enhancement.
To that end, we have consolidated our employee benefits plans have begun building our management team by adding new leaders in our region on procurement functions. We're also promoting top employees to the corporate level in areas of quality assurance marketing corporate communications and information technology.
In addition, we have raised our commitment to increase communication across our entire one company organization by hosting our first and second employee town Hall meetings and publishing a company newsletter.
From an environmental perspective, we reduced our office space footprint by about 60%. We also partnered with two.
Through technology companies to offer our customers options to drastically reduce food waste, including appeal a plant based protection barrier that extend shelf life for produce and shelf engine and intelligent forecasting system that helps grocers more accurately by perishables.
[noise] as I've said before we're very committed to increasing our transparency with all audiences. This year, we accomplished many for what the investor community, including hosting quarterly conference calls this being our third we also produced an investor presentation, which can be found on our website and participated in two.
Ritual investor conferences with a third scheduled for January.
As we close out 2020 and reflect back on the year, our entire team worked very hard to build upon.
Our solid foundation on to that position the company for purchase or gross future growth.
Made it a top priority to maintain an uninterrupted supply chain, we bolstered our senior management team with key promotions on additions and centralize leadership for all critical operational and financial functions, we initiated programs to consolidate our organizational structure that will deliver improved operational efficiency.
[music].
We introduced new products and innovative solutions to our customers, we expanded our independent board representation and redoubled, our commitment to our SG initiatives.
We maintained a strong balance sheet and ample financial flexibility.
We continued to pay an annual dividend to our shareholders as we have for the past 19 years and we increased it by 4.5% this year.
We strengthened our position to capture the increasing demand for avocados across the U.S. and we will continue to push our growth objectives, both domestically and internationally in 2021.
As we look.
At 2021, we expect to see a continuation of current trends across all segments. The large harvest in Mexico combined with continued impact of COVID-19 will maintain its net scenario in which supply remains higher than demand the silver lining for this situation will benefit the foods segment.
As lower input costs will allow for solid retain margins and opportunities to gain business. The.
The circumstance is allowing the segment to expand into new selling channel that will be developed as we progress into the second quarter.
Well on GE is still imply.
Impacted by the closure of our Midwest Co pack operation through April 2021 year over year sales out of existing facilities is expected to continue.
Growing and will provide our of GE with the platform to accelerate sales and margin growth during the second half of the year with that I will turn the call over to Kevin.
[noise]. Thank you Jim and good afternoon from global World headquarters in Scenic Santa Paula, California I'll.
I'll start by discussing our financial results for the fourth quarter, followed by our balance sheet and outlook. Please note that all comparisons on a year over year unless otherwise noted.
We will also be discussing non-GAAP results and a reconciliation of non-GAAP financial measures is included in our earnings release.
We've also updated on our Investor relations presentation on our website at <unk> Dot Calavo dotcom.
On a consolidated basis fourth quarter revenue declined $58 million or 20% year over year. This is primarily driven by three factors lower avocado prices, which decreased 22% from last year and had an impact of $30 million.
A decrease of $32 million for RF key revenue on the loss of our Midwest co packing relationship.
And the ongoing impact of Cobot, 19, which particularly impacted our foodservice segment.
Even with the decline in consolidated revenues avocado volumes were up 3% year over year, reflecting the ongoing trend of higher consumer demand, particularly at lower price points on.
So excluding the impact from the terminated are a key Midwest cut back on relationship revenue at our Apache increased 3% year over year, which we are pleased to see.
Gross profit declined 14% year over year to $21.2 million from $24.6 million.
The gross profit decline was primarily attributable to underperformance in the fresh segment due to the lower pricing environment and $2.5 million of nonrecurring charges on various legacy items in our international operations.
These items were slightly offset by improved margins in the RFP business.
Our fourth quarter 2020, gross profit margin percentage expanded to 9% up from 8.4% in the fourth quarter of 2019 higher.
Higher gross margins and hot tea in food more than offset the lower margins and fresh.
Excluding the nonrecurring items I just noted the gross margin percentage would have been 10.1%.
<unk> expenses declined 8% to $13.7 million from $14.9 million a year ago, primarily due to the decrease in performance based compensation reduced marketing and travel expenses and a reduction in head count that took effect at the end of the second quarter as it.
For set of revenues for the quarter SGN, a increased by 80 basis points to 5.9% due to lower revenue as compared to 5.1% a year ago.
Adjusted EBITDA was $13.4 million for the quarter compared to 14.8 for the comparable period.
This year over year decline was due to the two and half million dollars nonrecurring charges for the legacy items in the Internap net international operations that I mentioned earlier.
Absent these items adjusted EBITDA would have increased by 7% year over year consistent with the guidance that we provided on the last quarter's call.
Net income in the fourth quarter was $6.2 million for 35 cents per share up from 5.2 million for 30 cents a share in the prior period.
Adjusted income was $6 million for 34 cents a share if we exclude the impact of the nonrecurring items. Adjusted net income would have been 8.4 million for 48 cents per share.
Now moving on to our three business segments.
Sales in the fresh segment decreased 18% year over year to 118 million point $9 from 144.5 million in the fourth quarter of 2019.
Importantly, while revenue declined avocado volume increased 3% as consumer demand for avocados remained strong.
This quarter's higher volume was offset by a 22% decline in the average selling price as a result of increased market supply due to large harvest this year.
And unlike last year, when foodservice and wholesalers that serve smaller retailers and restaurants help absorb supply.
COVID-19 continue to constrain or in many cases prevent sales for these customers in the fourth quarter.
Furthermore, last year supply with unusually low to a small harvest, both in Mexico, and California, which contributed to historically high pricing and margin.
Gross profit in the fresh segment declined to $8.8 million or 7.4% of revenue down from $12.5 million or 8.7% of revenue in the fourth quarter of 2019.
Lower avocado pricing and the nonrecurring charges weighed on gross profit and gross profit per carton relative to a year ago.
And our other key sales declined to $99.3 million in the fourth quarter from 125.5 million in the fourth quarter of 2019.
Well the sales decrease reflects lost sales from the termination of our co packer relationship and the Midwest underlying revenues increased 3% year over year.
As a reminder, our Midwest co pack for relationship ended in late March of this year. So we will lap. This comparison during April 2021.
Gross profit for the quarter was $7.7 million or 7.8% of sales up.
Up from seven point Threemillion for 5.8% for sales for the same period last year.
This improvement in gross margin reflects the benefit of the shifted production to our company operated production facilities and increased manufacturing efficiencies from longer production runs a fresh cut fruit and vegetables.
In addition, we are experiencing higher volumes at our new facilities, which helped contribute to the higher margins.
For the food segment sales continued to be impacted by softer demand in the heavily cobot impacted foodservice channel along with lower volume in retail as consumer buying habits have not returned to their pre cobot patterns for.
For the quarter sales declined to $17.9 million from $23.8 million in the quarter year ago.
Gross profit was 4.6 million or 25.7% of sales as compared to 4.9 million for 20.4% of sales last year. The higher gross margin was primarily that primarily the result of lower avocado costs.
Turning to our balance sheet.
We ended the year with 137 million of cash liquid investments and available debt capacity.
Total debt at year end was $20 million and our leverage ratio was <unk> 0.5 x.
We have a strong balance sheet and low leverage positioning us to take advantage of opportunistic situations or remain very conservative in this on certain time.
We're also in the process of amending our senior credit facility to extend the term another five years as well as to allow for greater flexibility with an upsized facility.
As Jim mentioned, we declared an annual cash dividend of $1.15 per share, which is an increase of 4.5% from last year. This was our ninth consecutive year of increasing dividends.
As we look toward 2021 day, we see a near term continuation of the pandemic impact, which makes it difficult to predict when end market demand for returned to pre covert level. Therefore, we are not on a position to provide guidance for the full year.
However, with respect to the first quarter of 2021, as Jim mentioned, we see avocado supply volume continuing to grow which will keep pricing and margins at lower levels than the priory low prior year.
Because we do not have a view as to when foodservice resumed which is an important outlet for non retail sizes and overall margin support we expect revenues to be in the range of $215 million to $225 million, which.
Which is a year over year decrease of 20% at the midpoint.
And adjusted EBITDA to be between seven and $10 million, which is an increase of 90% at the midpoint on the first quarter of 2020.
Again, we wanted to provide such specific quarterly guidance for this first quarter of 2021, as we will not be providing for your guidance due to the uncertainty of the marketplace due to the cobot situation.
Lastly, we file our 10-K today you will notice we have provided additional details on revenue and margin per pound for fresh business to provide more transparency. We've also included tables for adjusted net income and adjusted EBITDA, which are non-GAAP metrics, and which we believe compliment the GAAP financial information.
And by providing another perspective on day ongoing operational performance and our metrics, we use to manage the business.
Before I close Jim and I look forward to seeing you at the IC our confidence in January of 2021.
With that I'll turn the call over to the operator for questions.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please one on your telephone keypad a confirmation tone will indicate your line is on the question Q you May Press Star two if you would like to remove your question from the queue for par.
Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please while we poll for questions.
Thank you. Our first question comes from Ben Bienvenu with Stephens. Please proceed with your question.
Hi, good evening everybody.
Hi, Ben.
Well I want to ask Kevin you made some comments and you you provided detail on the press release as well about a the Mexico crops still being up on that as we head into fiscal 2021 on can you elaborate a little bit on what you can tell now in terms of you know overall crop.
It will still be sourcing primarily for Mexico until at least.
Kinda early summer of next year, but what does California look like as far as you can tell into next summer.
Is there any or any reason to be hopeful that we might see some convergence of kind of returned to normal demand patterns at the same time as we see.
To be a transition into a slightly less abundant crop or is that wishful thinking.
Hi, Ben Yeah, absolutely I, you know I think what we're seeing is that the crop out of Mexico certainly in this bloom is a is very strong.
As we look and you know and we've seen a probably you know annually, we've seen estimates between probably 8% to 10% all the way up to 20% in growth. We believe that were more on the 8% to 10% range and we are looking at the second bloom that is going to come off in.
And and that Kinda like February March area, which we believe may be a little bit less strong than we're currently than we're currently experiencing right now.
Yeah on and on the demand side I think.
So as long as we're operating in a in the pandemic and certainly we know right now that that foodservice on the extension to out to a to the restaurant trade is just suffering immensely in this environment and so you know until we get some relief from that regard I think I think we're going to continue to operate on that side.
For the world than they are in the same way on the retail side I think retail is moving to to increase while not a well not what we would say promoting very hard, but we're certainly seeing a an increase in volume as we're as we're moving through the you know through the month for month to month so to speak.
Okay. Thanks for that and then is it too early to tell what California looks like for the some for I'm sorry, absolutely.
Yeah.
Sure sure Yeah.
Yeah, absolutely sorry, I missed that second part of the question. There. Yeah. You know I think California is you know if you follow us it's the kind of like the alternate year scenario, it's going to be a bit of a lighter crop for saying, yeah, we're seeing probably in the maybe 10% less range than ER than 2020, and then we also.
So you know just in this time of year, while we're waiting for a for the seasons the chains and hope we rein to come in or we can experience. Some some wins that are that are accounted for two to the cropping. So they could have you know they can be influenced from that regard if a if they get some some fruit drop or anything like that but I think it's.
Going to be a you know it will still be a good solid crop it'll just be a maybe 90% of what we saw last year.
Alright, great that's.
Switching gears, a little bit Q RFP, you noted that the overall revenue change for you noted or the revenue change up 3% Midwest facility.
Yeah, I know that you guys have the new distribution center in Georgia, what else are you guys doing and saying that's that's exciting because I know, there's there's obviously headwinds that exist as a result of credit but better transitory in nature. What are you seeing on the Mets in this environment that that you're pleased with as you.
Looks to grow that business as we head out.
Right I you know I think we mentioned it a little bit in the a and the presentation, but you know those.
Those are those are still fairly young plants that we're talking about specifically in Atlanta, and and over in Portland, and what we're seeing what we're really excited about is the the operating efficiency that those two plants are really coming into the fold with I think we've got a quite a bit of learning from a from the openings of.
Riverside in a in Florida over the last several years and those plants for executing very well. So I think what we're looking for in 2021 is that.
For the full extent of those operations, meaning the six a renaissance facilities are big are going to begin to perform at a higher level as the younger plants begin to lift the you know the average margin up associated.
Okay last quick one for me you gave a once you guidance on revenue I'm sure I know a big portion of that will be just the absolute price decline and other call does.
Any additional color you can offer across the other segments, but we should be mindful of as we think about modeling out into next year.
Sure as as as Kevin was mentioning specific to one Peter sorry, I should have them are clearly.
Right as a as Kevin was mentioning you know I think we've got a lot of initiatives both in a in Renaissance and in.
In foods I think you.
As a result for pandemic and just the nature of fresh food.
There's a lot of innovation in play and I think we're getting good.
Good food hold on a on innovation and on new channels to market in that segment and so we're looking for.
For that to play out into that in first quarter, maybe ended the second quarter on the on the food side I think it's similar and I think I've mentioned this little bit before is that we're seeing maybe in substitution for the standard foodservice type products, we're seeing a really nice initiatives on in that.
On industrial type products that are that are going out as ingredients for a for other finished goods and then even in the <unk> in the U.S. on the industrial side selling food service type products to the industrial marketplace.
Okay, Thanks, and best on that.
Thank you thanks Ben.
Thank you. Our next question comes from Rob Dickerson with Jefferies. Please proceed with your question.
Hi, great. Thanks, a lot.
Yes.
Two questions first.
First question is just on the volume side.
So obviously volumes were up which is oh is positive.
But pricing was down a lot as you've said for number for reasons. So you know I'm just I'm just kind of curious you know obviously you Jim.
At this flow time, depending on you know category food.
Yes, just you can be different prices go down go up for the price you go back up for you some good.
Down I'm just curious if you think through you know next year or more broadly or next three five years right. If if we're kind of reaching let's say you know a more normalized pricing environment at some point right, which is contingent on the supply the crop what I do.
Good do you kind of feel just this adjusted in the fresh segment share like the opportunity for volumes to continue to go up is obviously still there maybe it's more international relative to the U.S. if prices go up right because the prices are.
On this because I guess I'm thinking prices are down 20%. Some category for you would say Oh, well look there are a lot cheaper other you out by 10% more on avocados, you got 3% more so I'm curious if prices go up you know what.
Do you think that buying rates go down or I mean, it seems like consumers just really like avocados, and they're going to continue to to buy so you're almost you know price elastic on the volume side, Let me just kind of talk about that for all the time.
Great. Thanks.
Yeah, Yeah for sure Rob I think I think the other piece of this on on the demand side is that you know there is the expectation that that foodservice is going to come back for US and then as we've talked about as we've talked before is that you know when that when calavo is out buying a buying avocados, they're buying.
The the full spectrum of sizes and grades that come off the trees and so as we do that we're looking to marry those sizes in grades up with the appropriate customers and certainly foodservice plays a big role in maintain margin in that regard because a lot of that that product either.
Either excess product that at a certain size or in the number two grade configuration, because they're not looking for the the fruit they're going to sell at the retail level, we have really nice outlets for it and so as that matrix kinda plays out when it's really balanced well it allows.
As for a good retain margin and obviously good a good volume growth our expectation is that that yes, we are going to find our way back to.
The you know the pre pandemic U.S. marketplace that is continuing in lockstep to to increase in volume as we go forward.
Okay, Great and then.
And then I guess just on your comments around selling a little bit of some excess supply into Europe, and then obviously the opportunity in Asia is still there you know.
I'm not sure frankly, so excuse my ignorance I'm not sure if you've really sold into Europe previously or in any material way.
So I'm just curious you know kinda absent the discussion.
On the Asian opportunity.
Have you learned anything you know in the past few months.
Yeah, just regarding selling into Europe, and maybe Europe actually becomes you know another you know another driver of gross over the longer on.
That's it thanks a lot yeah.
Yes, sure, but yeah I think you know the big thing for US is that we realize that we've got to.
Build some infrastructure into the thought process of selling into.
Into Europe as an example on so you know the idea of a finding the right partners are.
In the European theater of of getting some you know from our perspective, some boots on the ground that belong to Calavo and begin to evolve that process. So certainly it's not you know, it's not going to be a light switch, but it is an initiative that they calavo is very interested in developing and we think that the opportunity is certainly there.
Yeah.
All right Super Thanks, so much Jim.
Thank you. Our next question comes from Mark Smith with Lake Street Capital Markets. Please proceed with your question.
Hi, guys I, just wanted to touch a little bit on kind of demand trends a little bit can can you talk about foodservice trends that you saw on during the quarter with with maybe some reopening during the quarter and then what weve seen as far as maybe more shutdowns today during Q1.
Right. So if we're looking at for.
Foodservice and in our World and and this would be both will talk about both the fresh and the food side of things is that there's there's kind of like three three different sections. One is the is wholesale which is the restaurant trade and obviously, we know that that's been debilitated by.
By the ongoing shut downs and things like that and that's you know that's on going into the it feels like into the first quarter of the year.
The next pieces is the QSR type type channel and we're seeing that one kind of coming back to a degree is as certainly that channel figures out how to service customers in this environment and so as we're looking into the new year, we're expecting that we're going to continue to grow and that you know in that arena and.
On the the other one which is very strong on the fresh side of things is the is the likes of the other AAA, which early on in the pandemic really was successful at figuring out the the way to connect with their customers and we're a big supplier and supporter of of their efforts and so those three areas.
Areas are where we're operating.
We think two of three are coming are coming back nicely and.
The third is going to be dependent on the end of the pandemic I'm afraid.
Did you see much for.
Volatility I guess during the quarter within that did you see some maybe signs of life on before we entered more shutdowns later in the fall and winter.
Yeah, I would say on the in the on the restaurant side, maybe a little bit but are hardly measurable to be honest as there you know.
If you. If you are following they are up and down and trying to figure out where where they could be in the in the process and so we really didn't that didn't feel a whole lot on the on the wholesale side, but but certainly on the other two.
Okay and then similar question just as we look at customer trends within grocery stores should we look at kind of fresh versus package you know what what have you seen as far as evolution from customers and what they're.
Looking for and if they're hanging out more at the kind of outside of the store more on a fresh or if they continue to move more towards kind.
Kind of the Internet store on more package goods.
Right I think I think early on we talked about and we may we're waiting to see we may feel it again, but early on there was a movement towards the middle of the of the store when a when people were just trying to figure out what the extent of the of the pandemic was going to look like and how to spend their dollars, but overtime weve seen a we've seen.
You know the customer base move back out to the exterior of the.
The stores begin to buy produce and deli products again.
The next piece of that though is that the concept of grabbing go was challenged.
As customers.
You know a move to the remote position they were cooking more in in house and are not a going out and buying a sandwich, while other at work in bringing it back to the office that sort of thing. So a lot of the Renaissance efforts we're too.
Where to innovate and support our customers. So there was rationalization of products and then additions of new products in support of the of the way that people are cooking and eating food at home during the pandemic and then probably the last piece is is shopping habits is that probably over the last several years in the United States.
It's you know there was almost at the daily Drumbeat people were going to the grocery store quite often during the week and as the pandemic.
Kinda to hold the shopping habit habits change and that was a movement towards maybe only a one or two times during the week with a grocery list to get in and out of the grocery store and so one of the things that they calavo is moving very quickly to do on the fresh side was to get to a bag configuration on avocados were in.
Net of selling individual avocados B, we're also selling heavily in like four or five avocados in a bag. So that individual as they shopped would just be able to pick up the bag and not have to touch a lot of the product and put it in a shopping cart and keep moving and so we saw pretty dramatic growth in that.
Type product.
Okay, Great and then last one for me just kind of modeling question as we look at tax rate, it's kind of been all over the place and barring any big changes in statutory rate is there what would you expect for reported tax rate going forward here.
Hi.
So we've got our reconciliation in the middle of the K. There for you on page 71, but I think theres a.
A few enterprise zone credit that we had put on valuation allowances for so thats, probably the only significant.
Permanent difference that you're going to get so that's probably worth one day, one and a half points for us on a favorable side.
Okay, great. Thank you.
[noise]. Thank.
Thank you our last question comes from Mitch Pinheiro with sort of on income. Please proceed with your question.
Hey.
Good afternoon.
So.
You know what I'm looking at if you start looking at the fresh side and you start comparing you are starting to get easier price comparison as you know year over year I mean, clearly the your fourth quarter had some very tough comparisons in you know in September.
On October, but they're starting to moderate is that is that what you see or is it just something that you don't want to try and day.
Yeah, I think what we wanted to do is specifically is give you a first quarter view and let's see how the rest of the world works its way out to the pandemic.
Well I mean, even right now so in the in December and then looking year over year instead of being down in the 20% area I'm seeing prices down you know call it high single digits.
That's not what you're saying or not what you expect to continue you would think that pricing could we're seeing a little bit here as we enter.
January February.
Well I think if we talk on the supply side, it's going to grow, particularly for Mexico anywhere from eight to 10 some people it even quoted 20%. So that's a pretty substantial income.
Increase in supply and so I think it would be fair enough to say that that would put downward pressure on selling prices, which.
I would probably then have a knock on effect on margins.
Okay.
And then second.
When you talk about Calavo stooge and the new channels, what kind of new channels. Like are you are you referring to it you can share.
Right when we're talking about the on the food side. This is a little bit of the answer I was giving you know from an earlier question is that there is a couple a very good channels for us that are also very nice substitutions.
On the foodservice side of the world. So the foodservice product set is generally more of a bulk pack.
Avocado pole type product, so our channels to market with that going in dust International where it's sold in.
And then used as an ingredient going into something else and then even in the U.S., we sell a similar product and were seeing opportunities there, where we can sell that bulk type product and sell it in on the industrial side to other.
Actuators that would use that as an ingredient as well for their finished product.
Okay.
Moving on just two quick.
Quick questions here Rs G.
So.
Hey, you were up 3%, excluding the co packing comparison.
[music].
What.
In in that 3% what was the strongest gross and what was still lagging Europe.
Year over year.
Well, so what kind of Renaissance.
Sales in in a three manufacturing areas, so one cut fruit and other.
Cut vegetables convenient style vegetables, and then the other is a kind on the U.S.D.A. certified deli.
Deli type operations, so sandwiches salads wraps meal solutions things like that so so in those in those configurations wherever we had a grab and go type product those were certainly inhibited, but as I was mentioning overtime, what our teams have been able to day.
Do very successfully is use the capabilities and innovate into new products that support.
The way that consumers are now eating in this environment and so those just substituted in core for items that are kind of a pandemic lagging so to speak.
[noise] as they are as a margin enhancing gross margin neutral.
When you make the switch.
I would say in this environment. There are there more margin neutral there they are literally a substitution and using pretty much the same products that ingredient base to achieve them.
Okay and then final question is just on what do you do your Capex plans on.
What are they for fiscal 2001.
So we've got a we've got a lot of it we've got infrastructure going into Mexico in sport in support of the supply chain So looking to.
Optimize our packing house and now you're often and then on the.
On both the foods in the rents on side a lot of our efforts are in to optimization of of.
Labor efficiencies and ER and materials.
So again most of it will be certainly in net margin enhancement type activities total dollars will probably be about the same as they were last year.
Okay. Thank you very much.
There are no further questions at this time I would like to turn the call back to Jim Gibson for any closing comments.
Okay in closing, we believe our fourth quarter results do not reflect our true potential in a more normalized environment. While there will always be uncontrollable factors that influenced our results for the pandemic certainly tested our entire organization our team not only rose to the new challenges. They also build strong.
For connections with our customers as we work together to find innovative solutions that will enhance our reputation as a valued strategic partner for years to come we're excited about our strategic initiatives and we believe we will even be in a better position to compete and succeed in 2021.
We wish everyone, a very safe and happy holiday season, and a prosperous and much anticipated new year. Thank you for joining us today.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation have a wonderful evening.