Q1 2021 Calavo Growers Inc Earnings Call
Greetings and welcome to the Colombo growers and incorporate a FERC first quarter 'twenty 'twenty, one and earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation and fan.
Anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
A reminder, this conference is being recorded and it is now my pleasure to introduce your host Lisa Mueller Investor Relations. Thank.
Thank you Lisa you may begin.
Thank you operator, and thank you all for joining us today to discuss club O growers first quarter 'twenty 'twenty, one financial result.
This afternoon, we issued our earnings release and this document is available and the Investor Relations section of our website at IR Doc Colavito Dotcom I'm here today with Jim Gibson, Chief Executive Officer of Colorado, and Kevin Miller, Chief Financial Officer.
On today's call management will provide prepared remarks, and then we will open the call up 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.
And it's that are not historical facts, such as statements about our outlook for revenue and adjusted EBITDA are also 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 and good afternoon, everyone and we hope you and your families are healthy and safe. During this challenging time. We appreciate you joining us to discuss our 2021 per quarter results today, I'll kick things off with a high level overview of the quarter and current state of our company and the industry and Kevin will provide.
Commentary on our first quarter financial results balance sheet and guidance. We will then open up the line for Q&A.
It seems incredible that one year ago, we were facing the first real effects of Covid pandemic and while we have been successfully adapting to the new environment over the last several quarters. Our first quarter results were mixed reflecting improvement in some areas and challenges and others due to the ongoing impact of the pandemic our COO.
For avocado business delivered improved results for the quarter.
Market demand for avocados continues to rise and I'll bet.
Our slower pace due to the pandemic and.
And supply remains plentiful and given the strong crop out of Mexico. These dynamics continued to weigh on prices, which on average were down 14% year over year. However, we grew our volume and delivered higher avocado gross margins in the quarter as we did a good job of managing our pricing spread and our sales mix.
For RFG business was negatively impacted by industry wide supply chain disruptions, namely delivery delays and most of the U S ports due to the implementation of additional safety measures related to the pandemic. This dynamic impacted the availability and quality and some fresh fruit and vegetables, which created added challenges we have.
Also continued to be impacted by the closure of our co packing partner in the Midwest from April 2020, our food segment was again adversely impacted by lower foodservice demand, resulting from the pandemic offset slightly by favorable input commodity prices and taken.
<unk> taken and the aggregate our first quarter results were generally in line with our expectations and adjusted EBITDA was at the high end of our guidance range.
With respect to our fresh business.
Average repeating that even with increasing demand when we're sourcing avocados, we are buying a full spectrum of sizes and grades that come off the trees and our sales team then moves to match these sizes and grades with appropriate customers foodservice has historically represented about 20 per cent of our avocado business usually serves to absorb.
The supply of number two grapefruit and at the same time allows us to retain margin and good volume growth. This has been a challenge over the last several quarters as expectation our expectation is that as demand returns from our foodservice customers and the second half of 'twenty 'twenty, one we will be able to return to our per.
Pandemic sales and gross margin levels in terms of operations, we saw good results and savings from increasing utilization of our Europe and packinghouse.
With respect to our RV business, we believe the challenges we encountered during the quarter are short term in nature and are and we are cautiously optimistic that we'll return to topline growth and increased profitability and the second half of the year as the country ports are returning to more normalized conditions conditions and we move beyond the Anna's.
Three of the closure of our Midwest packing House.
From April of 'twenty, and 'twenty and addition, as the pandemic becomes less of an operational risk many of our facilities will return to more normalized operations, which should boost margins as well.
Finally, our foods segment continued to be adversely affected by lower foodservice demand, resulting from the pandemic I'll slip slightly by favorable input commodity prices as we take advantage of the excess supply of avocados from Mexico, and our efforts to grow our international sales and this segment are still and the early stages as we selectively.
Seek distribution partners and our targeted markets. We have made investments to support this side of the business, which we expect to show returns and the second half of the year.
We have made great strides with our ESG initiatives. This quarter, we joined the packing sustainability Council and the house Avocado task force on avocados sustainability to contribute to the industry's sustainability commitment.
We have also begun developing a carbon footprint measurement. So we can better measure our impact and report on this metric to our stakeholders and Mexico. We are now saving upwards of 5000 liters of water per week, following new efforts to optimize water usage and the fruit washing area. We have also expanded our relationship.
Chip with food Tech now knowledge the company appeal, bringing their plant based technology to customers, and Florida, and Texas and our use of shelf engines intelligent forecast system has been implemented and one of our largest retail partners and is already reducing food waste by reducing spoilage and eliminating shrinkage.
Finally, our upcoming annual shareholder meeting is mainly virtual and our use of notice and access saves costs and is environmentally friendly.
Turning to governance. It is our long term objective to both rightsize and refresh our board Lee Cole Rep recently stepped down from our board. Following his retirement as CEO and chairman last year, we were grateful to Lee for his decades long commitment to Colorado and the strong foundation he put in.
With that we are building upon today leaves departure and that up to other long standing directors door for steel and gene Carboni.
Are in line with our board's commitment to reduce its size to nine members by 2020 three of which seven will be independent and we were thrilled to now also have thorough as well as our.
On our board as of January 'twenty 'twenty, one she serves on our audit compensation.
And sustainability committees and she has already made great contributions our board independence right now, it's down and stands at over 63% with seven independent directors out of a total of 11.
Our governance activities and the quarter include includes the board's creation of a sustainability and corporate responsibility committee and the implementation of and anti hedging and anti pledging policy both initiatives reflect long standing values of our company and yet our and opportunity for us to continue to formalize and lay the foundation.
And for strong ESG leadership in the years to come.
Looking ahead, we expect to see a continuation of current trends at least through the first half of 'twenty 'twenty, one with a large supply of avocados from Mexico, continuing to weigh on prices and foodservice demand unable to fully recover and tell a majority of the country's vaccinated and we moved closer to herd immunity I want.
And thank our entire team of 4000 colleagues across our global operations for their tireless efforts and their ability to be both flexible and innovative regardless of the many obstacles we had to overcome in the meantime, we continue to implement strategic initiatives designed to enhance our learn and long term growth prospects cash.
Optimizing on opportunities to increase operating leverage and realize synergies across our entire organization, we remain committed to investing and our people and advancing our sustainability initiatives as well as maintaining best in class communication with our investors all with a focus on long term growth improved profitability.
And enhance value for our shareholders with that I'll turn the call over to Kevin.
Thank you, Jim and good afternoon, and from a global World headquarters and Phoenix, Ana Paula, California and.
And so that you have other earnings calls options at this time of day and I. Thank you for joining us, particularly our new analyst at Seaport Global and D. A Davidson.
I'll start by discussing our financial results for the first quarter, followed by our balance sheet and outlook. Please note that all comparisons are 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 issued our proxy statement earlier in the month, which identifies and number of governance enhancements such as our anti hedging anti pledging policy for self evaluation and creation of a sustainability committee.
We also have updated and Investor relations presentation on our website at IR dot collateral dot com.
On a consolidated basis first quarter revenue was $220 million, which is at the midpoint of our guidance. This is a decline of $53 million or 19% year over year.
This was primarily driven by three factors lower avocado prices, which decreased 14% from last year and had an impact of $16 million.
$25 million lower RFG revenues and the loss of our Midwest co packing relationship, which as Jim said cycles and April and the ongoing impact of Covid, 19, which particularly impacted our foodservice customers.
And even with the decline and consolidated revenue avocado avocado volumes increased 2% year over year, reflecting the ongoing trend of higher consumer demand.
Gross profit increased 13% year over year, $17 8 million from $15 $8 million and the first quarter of 2020 and our gross profit margin percentage expanded to eight 1% from five 8%.
The increase and gross profit and margin percent was mainly due to improvements and the price segment as we delivered higher avocado gross margins and the quarter by managing our pricing spread and sales mix better than in the prior year. As you remain as you may remember the crude quality was a significant issue last year with avocados.
These improvements were partially offset by a decline and gross profits and the RFG business due to a number of factors, including higher labor costs and increased spoilage on fresh fruit and vegetables, resulting from major port delays.
Poor quality and yields due to weather events, and Florida, and Central America, and Unabsorbed overhead due to lower and lower overall volumes.
SG&A expenses declined 13% to $14 2 million from $16 3 million and the year ago quarter, primarily due to the decrease and salary and benefit expense as a result of our consolidation and niches initiatives enacted and May 2020.
Adjusted EBITDA was $9 4 million for the quarter compared to $4 5 million for the comparable period and the prior year and came in at the high end of our guidance that we provided on last quarter's call.
Net income for the first quarter was $5 3 million or <unk> 30 per share up from a net loss of 938000 or negative <unk> 10 per share loss and the prior period prior year period and.
Adjusted net income was $3 million or <unk> 17 per share compared to <unk> 8 million or for cents last year.
Now moving on to our three business segments.
Sales and the fresh segment decreased 13% year over year to $115 5 million from $133 2 million and the first quarter of 2020.
Importantly, while revenue declined half a paddle volume increased 2% from the prior year as consumer demand for avocados continues to grow.
Similar to last quarter. This quarter's higher volume was offset by a 14 per cent decline and the average selling price as a result of increased market supply due to the large Mexico harvest this year and.
And unlike last year, when foodservice and wholesalers that serve smaller retailers and restaurants helped absorb supply co.
Covid continues to constrain sales to these customers and the first quarter as a reminder, our exposure to foodservice is about 20% and wholesalers comprised and incremental 6%.
Gross profit and a fresh segment increased $6 5 million to $13 1 million or 11, 3% of revenue up from $6 6 million or for 9% of revenue and the first quarter of 2020.
Please note that on the last table of the earnings press release, we disclosed pounds of avocados sold and gross margin of 12 cents per pound compared to five cents per pound last year at 25 pounds per case and this return to our historical target range of three to $4 per case.
And are a key sales declined $90 3 million for this first quarter from $120 9 million and the prior year period the.
The decrease primarily reflects lost sales from the termination of our co Packer relationship and the Midwest, which ended in April of last year. So we will lap comparison during the second quarter.
Excluding the co pack for impact revenue declined, 6%, primarily driven by a 4% decline and volume and less favorable product mix of more cut fruit and vegetables compared to last year. When the mix consisted of for value added meals.
Gross profit for the first quarter decreased to breakeven compared to a gross profit and a $2.9 million or 2.4 per cent of sales and the same period last year.
This decline was due to weather related supply chain disruptions, leading to major port delays and poor quality fruit, which impacted yields.
Labor shortages due to Covid also contributed to lower yields and higher cost.
For the Foods segment sales were again impacted by soft demand and the foodservice channel due to COVID-19 for the quarter sales declined to $16 $5 million down from $25 million and the year ago quarter.
Foodservice comprises about 50% for this business.
Gross profit was $4 $7 million or $28 seven per cent of sales as compared to $6 $4 million for 31 per cent of sales and the first quarter of 2020.
The lower gross margin was primarily the result of lower borrowing volumes, partially offset by a decrease and avocado cost.
Turning to our balance sheet, we ended the quarter with $148 million of cash and liquid investments and available debt capacity.
During the quarter, we amended and extended the terms of our secured credit facility, increasing the revolver commitment by $20 million now to be a total of $150 million and extending the maturity by five years.
Total debt, including finance leases was $45 million and our leverage ratio was <unk> seven and five X.
We continue to have a strong balance sheet and low leverage and positioning us to take advantage of potential opportunities and invest and the current infrastructure for the future.
In addition, we paid our annual cash dividend of $1 15 per share and December which represented a four and 5% increase from the prior year and our ninth consecutive year of increasing dividends.
This yields about one 5% and recent stock prices.
Finally, and the first quarter, we entered it entered into a separation agreement with fresh round and essentially we relinquished our previously written off promissory notes and equity and fresh realm and exchange for a new $6 million note and equity participation and any future monetization event.
Yeah.
As we look to the second quarter of 2021, we see a continued near term impact from the pandemic as it remains difficult to predict when foodservice demand will return to pre COVID-19 levels.
While we continue to see avocado volume is growing we believed that the same supply and demand dynamics will keep pricing and lower levels than the prior year.
In addition, our RF chief business continues to face increased labor cost and unabsorbed overhead due to lower volumes.
Therefore, we expect second quarter revenues to be and a range of $255 million to $275 million, which is a year over year decrease of 6% at the midpoint and.
And adjusted EBITDA to be between 14, and $18 million, which is an increase of 19% at the midpoint for the second quarter of 2020.
The slightly wider EBITDA guidance range reflects both the impact of the recent severe weather events and the northwest, Texas, and the northeast and which we were not able to ship or produce and our RFG facilities and those regions as well as the near term uncertainty of our labor pool, because reluctance of many workers towards getting back.
And at this time.
This forecast also presumes a stable Mexican peso exchange rate.
Jim and I look forward to seeing you at two upcoming virtual conferences. The D. A Davidson and consumer conference being held tomorrow and the Roth Annual conference on March 16th.
And a final note, Jim and I would like to congratulate our former CEO and board Chairman Lee Cole and his retirement and thank him again for building. This company that we are now and trusted with.
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 press star one on your telephone keypad and income.
Formation tone will indicate that your line and then the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing and Mr argues.
One moment, please while we poll for questions.
Yeah.
Okay.
Yeah.
Hello, and thank you. Our first question comes from Brian Holland with D. A Davidson. Please proceed with your question.
Yeah.
Hey, good afternoon, gentlemen, its actually build and there'd be on for Brian Holland today, and thanks for taking my questions.
Bill.
Welcome and just.
I guess just any more color you guys can give us on I.
And I guess, the visibility you have and to the supply environment here as we move and to move away from Mexico and towards California, I know, we're gonna have there theres some recent.
Changes and in Colombia, the ability to come into the U S market and Peru is expecting to have a have a higher supply this year. So I guess.
Are you still optimistic that we can see supply.
And a tightened up from these levels and move through the year I guess any any thoughts on that and I guess confidence and the visibility through the rest of the year.
Sure. So I think as we're looking into the second quarter are definitely Mexico is still going to be a strong player and and California will start to come on and so we expect that that supply is going to be.
To be strong and this period of time.
But we are seeing that.
As the economy is beginning to open up we can feel that there's latent demand that is beginning to press on the.
And that supply.
Demand balance and so as a result of that.
There is a.
There is pricing pressure and the in the upside and we're following that up so you know and outside of the world and that's occurring and we're really working on on.
On maintaining that.
That good cost structure that allows us to to stay in front of the pricing change. So we're we're balancing our inventory position with with demand as we move through the supply chain and that allows us and.
And and up price market to to continue to advance margin and we expect that that margin will benefit as well.
Right no that's.
That's helpful. I appreciate it appreciate the color there and then I guess just a couple of quick ones on our F and G and I guess, what how you guys are thinking about the the varying.
And what kind of dynamics as you move into two two or and through the rest of the year here I guess are you still see and delays at the U S ports, one and then I guess any more specificity you can provide on where you guys are seeing tail winds on the commodity prices and if you expect those to continue and to Institute.
And in latter part of the year.
Yeah. So on most of the year the fruit commodities were still offshore and will be that way for most of the second quarter. So we will continue to feel the impacts of the.
Of the of the quality situation associated with the weather challenges that they've had and there and their environments and so as we continue through the quarter I think you know.
The delays are relaxing.
And we're still feeling some of the impacts of fruit fruit quality, specifically, so that'll continue to weigh on the on the.
On us and then the other part of it is is that and you guys. You just saw US go through it probably but we do have a facility in Houston and Houston was down for a week with the with ice and and water situation. The Pacific Northwest, we have a facility up and clackamas. So they were impacted by that ice storm.
And then we have a facility and in Sweden Bird and New Jersey that was impacted by.
And that that's no storm so each one of those facilities were impacted in the month of February they've recovered and they are back and running for them and so our expectation is that as we kind of move through the quarter performance will get better and better and then as we move into the third quarter, we're beginning to see ourselves.
Moving towards the domestic season, and that's always a really strong period for for Renaissance.
And I think as we mentioned.
And our guidance, we've probably already absorbed.
Range of half million to $10 million of costs because of those weather incidents.
Thanks for the current and I guess and then on on the commodity prices I guess any any additional color there.
But I think.
And as Jim said, they're all imported products now so that should be pretty steady, which is meaning it's high right now and they'll stay.
About the same levels for most of the quarter until the domestic food start coming in and that will lower our overall average price for right. Now you know, particularly melons and pineapples have had a tough road in and so the prices are high because there's fewer of them and then sort of a knock on effect there quite frankly is the fruit spin.
Up a little bit and transport as it sits at the ports and so by the time, we've got it.
The efficiency of us getting to that fruit is low and the output of that food is lower so it's been a tough slog on the margin side on that and we think that will improve as the second quarter goes on.
Got it I appreciate it guys I'll hop back in queue.
And so much.
Thank you. Our next question comes from Eric Larson with Seaport Global Securities. Please proceed with your question.
Yeah no.
Good afternoon, everyone. Thank you for taking my questions My cough here.
The question that I have is really overall avocado volumes.
For 2%.
And your mix is 80 per cent retail 20 per cent foodservice I guess the question is you know we've been running this industry.
Recently run.
Growth of double digit volume and has been for quite some time, so I guess.
And as are we still seeing the strong.
And what what the issue is is that I thought 2% volume would be better because you still have really stronger growth at retail, obviously offset a little bit by pet food service, but.
I guess I'm with lower pricing, although it's in and elastic products by my judgment it seemed like that.
Volume number inherently should be higher what am I missing something here.
Well I think there's there are a couple of things and play.
There is definitely no.
Supplier suppliers and a large player inhibiting price dimmed.
And demand.
And is not.
In the historical reference I would say the demand is continuing to increase but.
Impacted certainly on the foodservice side by.
And the restrictions associated with Lockdowns and things like that shopping habits have changed quite a bit in the pandemic and so.
Or are not necessarily shopping on the Ah.
The daily cycle, they've kind of increase their their cycle to maybe a couple of times a week or once a week. So that has an impact on the way that they look at avocados, we know that we.
We shifted during the pandemic and started a really pushing and offering.
Bagged avocados and those sales have have moved up dramatically and we think it's obviously because it's easy for a shopper to walk by and pick up a bag and not have to handle different pieces of fruit and so it's all of that is certainly is certainly in play as the way we look at it and then the other piece of it is is that.
As we've lost the foodservice.
Side of the demand piece again, we're buying everything that's coming out of the field and so there are there are you know there are probably more of the number two grade product then we have homes for and so we're balancing.
That supply kind of quality quality condition against demand and and and the number and and amount of customer base that we go after in this period of time and so we're really focused on servicing our known customers and trying to service them really well at the expense of of chasing.
Individual customers that at lower prices and things like that.
Okay. So.
COVID-19 may have just like consumer buying habits, and other things may have taken a little bit of the.
All of the of the superior top line gross rate for the industry, maybe off the table near term just because this industry.
Get back to sort of adopt it cannot grow double digit and again if.
If you get back to.
A normal environment whatever normal means.
Well, we certainly believe that's the case I mean, I think I think even in the current period right. Now we can we can feel that the demand is beginning to press upward, it's lifting and and there is certainly as a result of that pressure on price to move upward as well and so we think that that.
And that's really a good sign in this environment that as we kind of pull through more vaccinations.
Local governments are releasing lockdowns and allowing for businesses to reopen and whatnot that people are going to get out and about again and begin to really aggressively by that great that great commodity which is an avocado, yes, I think one of the things that we certainly saw this quarter is.
The events that normally propel that margin or that volume growth whether it's.
Christmas or something like Super Bowl.
The lift was much more muted this year, but the carry of that lift was very short. So historically I think we'd expect a nice slip for Super Bowl and then it carries for another week or so this year. It was a couple of days and back down to normal and I think those are the things that will bring us back to the opportunity for them.
Digit growth going forward.
Okay, no that makes some sense so just.
Real near term question, you've talked about sort of the overabundance of number two fruit and.
And kind of the overhang and maybe a pricing overhang on the market.
Or are we getting past that that amount of fruit is coming to market was was that a grower issue.
A weather issue and Oh.
Is that and overhang there's still exists.
And maybe even until foodservice recovers.
Right I mean, it's like I said, it's it's natural coming out of the field that they would that they would be number two great fruit coming along with everything else. It's just that at this point.
Foodservice not all the way back that's those are natural homes for that product and it allows for people like us to maintain margin inside of that and then also aggressively work to grow the business because we can sell the full spectrum of sizes and grades.
Got it okay. So it's still really a foodservice issue as opposed to a crop quality or something like that that's taking place and Mexico.
Correct, absolutely I think what we've seen overall is the quantity of number twos has decreased from last year. When it was a very big issue that that did happen and overhang. We don't see that issue. This year got it. Thank you. That's what I was trying to get too. Thank you much.
Yeah.
Thank you. Our next question comes from Ben B and Vanilla with Stephens. Please proceed with your question.
Hey, guys. Good afternoon. This is actually per on jumping on for Ben.
Hello, Brian and I just good.
Good afternoon, Hi, good afternoon and.
I just wanted to start off and just.
Ask about avocado prices.
I know.
Seasonally get a bump.
Kind of Super Bowl, and and a little bit after but we've seen a pretty big price rally here in recent weeks.
And so just wanted to get your take.
This that Super Bowl, maybe that March madness kind of rally and.
Is this and.
And maybe a return to service I know you said your foodservice business was lower but maybe the pace of improvement has been.
And then greater and.
And so I just kind of want to get your take on on the recent avocado price rise.
Yes, well I think I think definitely there's there's the feel that.
That demand is is increasing or it is about to really increase and so we're seeing rising prices coming out of Mexico and transversely.
To aggressively go out and and seek new customers.
Yeah.
Okay, Great and then.
Has.
If you can just provide as much colors and count on those but how's your day.
The customer.
Conversations you've been having with customers and kind of in the food service Arena.
Yeah.
Obviously, you said, you're gauging the pace of improvement and you were kind of expecting.
Man, there's a feel for it but are you seeing that in your and your conversations with your customers or is this kind of just a general kind of feeling.
Well I think you know.
Foodservice is kind of a and a couple of different brackets. There's.
It was more like the quick serve kind of concept and that is is definitely recovering and has been recovering very well and and working pretty well for us.
We're looking for or as more of the the wholesale environment for us that services individual restaurants, and restaurants small restaurant chains and that has been.
Open up opportunities for us to sell into that environment again, and our expectation is that it feels like with the with the banks with the pace of the vaccines picking up.
Johnson and Johnson MAU and play we believe that the distribution is going to get stronger and stronger governments are beginning to to open up in the environment that they operate in and then the other piece of it is is that we're moving into springtime now where weather is getting nicer and nicer and people want to get out and even and those are those generally.
Colder environments are the weather's, getting nicer and and more apt to handle.
For the dining experience as they transition.
Okay.
Got it I appreciate the color I just had one more question I wanted to ask you about.
Higher freight rates represent and issue for you guys at all are you it does.
Where are you at nine am how if at all is it impacting avocado prices and.
Is there any connection there.
Well freight freight is definitely and play at this point.
It's one of the key measurement.
And measurement indicators that we use and.
It's definitely inside of our pricing.
Generally we have the contracts on a variety of our routes and those are holding.
But we're certainly monitoring as.
As we run from.
As an example from the border to our value added distribution centers and really operating to to reduce that kind of cost. What we can do is we work with our customers and some of our customers will take a direct loads right from right from the border and so we're able to offset some of the kind of that NAV.
Afraid of a stop over and a direct delivery and so we work those kind of angles as best we can we've got a lot of freight on the road, which includes avocados and fresh food from the Renaissance side of things.
And so where we can we.
We either combine or are we also are working on backhaul that allow for us to mitigate the cost of overall frame.
Got it and I appreciate the color I'll jump back in the queue.
Yeah.
Thank you. Our next question comes from Mitch Pinheiro with Stewart event and company. Please proceed with your with your question.
Hi, good afternoon.
And I jumped on late I guess.
Hum.
It's probably asked or you probably mentioned it but you have the avocado your fresh product margin was better than I expected and I you know.
And I realize you Hum.
See you benefit from lower food costs and I saw you know, there's some foreign currency helped but.
I was just surprised given the challenges at your house, you know, where you know you had number two free.
Nowhere to go and.
Things like that how are you how are you able to.
Deliver.
The type of margins that you did.
Yeah, well I think our our sales crowd is doing a really good job of managing inside of this environment specifically on the on the inventory control side. So that we're always we're always looking at the fresh cost and putting price over the top of that but then the other piece that we really focused on and this quarter and will continue throughout the.
Balance of the year is working on the on the non fruit costs, meaning the manufacturing and and as I was just talking about the the distribution piece of our business and so one of the things. We're really focused on specifically in Mexico is is pushing a lot of material through our packing house, so that we take on and <unk>.
All the efficiencies are the volume variance associated with the fixed overhead and we can generally translate that that efficiency into additional margin at the bottom line.
And that's even even with.
Despite just the 2% volume increase I mean, that's.
And you know not a lot of you know sort of throughput leverage typically.
But.
So that's one accomplish that with a lower volume growth.
We're in the factory as well.
Working to optimize throughput so it's always it's always hours and overtime.
Part of it too is there there are times when we.
We need to or can purchase outside of the packing house, and we're making conscious decisions to run as much volume as we can through those through that packing house. So we can take full efficiency there.
So all things being equal and you know if you look.
We could expect.
You know continued favorable sort of throughput and efficiency.
As you move forward here.
Correct. Yeah are we've got the initiatives even beyond the packinghouse into our supply chain, meaning the use of our value added distribution centers. The way, we bring as I was talking a little bit earlier and the questioning about the way we look at freight and try to optimize our freight lanes given the three business units that we operate in so there.
There are things that we can do on the non fruit side or non fruit cost side of things.
And to benefit the overall program and that's what we're really focused on and this environment.
Okay, and then just one other question and again it may have been answered, but it's our F. G.
Sales for a little lower than I expected and attributed mostly to you know maybe the comparison to the.
Co Packers.
But.
What I mean, it looked a little lower or was there any was there some day.
And the ability to sell because of the.
The port.
Congestion and things like that or was it just oh sorry.
And as a straight ahead, mostly just the losses that co Packer, Yeah, Hi, Kevin was slow and say Kevin was talking a little bit about it on the fresh side, but certainly and the AR.
And this quarter there are a couple of holidays that generally Renaissance really counts on and there was a you know.
If you remember in that period of time, specifically and December early January.
There were waves of the pandemic coming through that had a definite impact on demand and it also had impact on our operations just working through that specifically and like the southern California regions and Houston.
And that period of time, so I think we lost some of the lift associated with retail holiday sales, meaning.
Thanksgiving Christmas and years for Super Bowl Yep.
Okay. Thank you for your time.
Thanks Buddy.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate that your line is and a question and kill.
Okay.
Thank you. Our next question comes from Ryan Meyers with Lake Street Capital Markets. Please proceed with your question.
Yeah, Hi, guys. Thanks for taking my questions first one for me could you give us some additional color on the sales mix and the fresh and food segment and then how that helps kind of drive the gross margin there.
For.
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Just from a vernacular standpoint, and make sure we got crushed it all avocados correct. So the mix there is really more of a customer movement as compared to anything else, but I think maybe you're questioning as compared to last year, where we had number two quality supply was public.
80% higher than it was this year and number two qualities last year, just didn't have a home to go to and.
And so they were really depressing our margin. This year, we didn't have as much and our sales force has done a really great job throughout the pandemic have now finding a home for everything.
So I think that's the mix you're referring to.
Right right. Okay. And then you are you called out you said 20 per cent of the mix was.
Foodservice is how did this tranche.
2020 and have you guys sort and navigated through the.
Pandemic and and and then where do you think that that number will kind of go is it going to stick around that 20 per cent. There how do you see that changing there's things you can do and purpose.
Yeah, certainly I think out of that 20%.
Their business that segment was down anywhere from.
Low twenty's to 50% and our team has found a lot of new locations to put product, which was great and innovative and timely and.
And so I think you know.
Service will come back I mean restaurants will come back there's no doubt about it as time comes on and I think there's a lot of pent up demand to get there.
Timing, we don't see and it's unfortunate I think a lot of our restaurant tours will be replaced by new restaurant tours, and that's unfortunate and just from a turnover perspective, but I do think that the trends of where.
Whether it's fresh product being sold or our foods products being sold as guacamole into those restaurant areas, we're pretty optimistic and certainly one of them that we bought last year and closed last February with assets that by simply fresh fruit, which are timing was just relate to bad it didn't.
Work out, but we're still pretty optimistic that the hospitality business comes back and that will be another good great outlet for us as time goes on and so we're you know.
We are optimistic and I think that full 20% will come back to us.
If you sort of do the math and 20% was down anywhere from 20 to 50 that could share for the 10 and so I think you know that.
That's the volume that comes back to us ideally were up closer to the 10% and the 4% range.
Great. That's helpful and that's all I had thank you.
Thanks Buddy.
Yeah.
There are no further questions at this time I would like to turn the floor.
Back over to.
I would like to turn the floor back over to Jim Gibson for any closing comments.
I want to thank our shareholders for your continued support and I look forward to updating you on our progress and our next quarter's earnings call until then stay healthy and safe.
Yes.
Okay.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation have a wonderful evening.