Q2 2021 Calavo Growers Inc Earnings Call
Second quarter 2021 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 conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host.
At least the Mueller Investor relations. Thank you Lisa you may begin.
Thank you operator, and thank you all for joining us today to discuss Colorado growers second quarter 'twenty 'twenty, 1 financial result.
And this afternoon, we issued our earnings release and this document is available and the Investor Relations section of our website.
And I aren't got Colorado, the dotcom and I'm here today with Jim Gibson, Chief Executive Officer of Clawback, and Kevin Mannion, Chief Financial Officer on today's call management will provide prepared remarks, and then we will open up the call for any of your questions. Before we begin I would like to remind you that today's comments will include forward looking.
Host and.
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, 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 differ 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.
State and 10-Q.
With that I would now like to turn the call over to Jim Gibson Jimmy. Please go ahead.
Thank you Lisa and good afternoon, everyone.
We appreciate you joining us to discuss our 2021 second quarter results I'll kick off the call with the high level overview of the quarter and current.
And for company in the industry, Kevin will then as in past quarters address our second quarter financial results, our balance sheet and provide you with guidance based on our near term outlook and the evolving trends, we're seeing and the U S economy as it begins to emerge from the pandemic then we will open up.
State of the line for questions.
We were very pleased to report revenue that was essentially on par with last year, especially considering the second quarter 2021 was impacted by the pandemic for the full 3 months compared to only 1 and a half months last year. We were also pleased.
And with a 9 and.
The 5% increase and EBITDA compared to last year. This gives us comfort that the long term trends for the business are positive.
Our core avocado business continues to experience solid demand with the first half of 'twenty 'twenty..1 we recorded the highest volume we've seen and the last 5 years, reflecting growing.
ROE and consumer acceptance across all of our end markets avocado volume grew 9% and the second quarter, although elevated supply from the strong crop out of Mexico suppressed pricing.
However, with our teams' skillful management of both sourcing and volume growth, we reported of fresh segment gross profit in line with.
Peripheral norms.
With our RFG and food segments, we saw a return to year over year sales growth from improved demand in the retail grocery channel. The RFG segment did experienced headwinds at the start of the quarter with extreme weather events in Texas, and the Pacific Northwest, which caused us and.
And our customers to close some facilities and also created quite a bit of disruption for our employees and their families. Whether also led to poor quality of imported fruit, which also often delayed products coming in from our ports. We are now and the domestic season. So this issue is not expected.
The historic to impact us and the next quarter.
Despite these challenges and excluding the comparative impact from the April 2020 closure of our Midwest co packing partner I am proud of the team's efforts as RFG sales increased 16% year over year, we continued to introduce new.
<unk> seasonally relevant products and the fresh cut produce category that align with our commitment to provide our customers with healthy and convenient meal solutions.
We are seeing positive signs as the economy reopens, we have yet to see a full recovery of the foodservice industry, which includes hospitality and lodging and.
Anecdotally, we are hearing from some of our hospitality customers that they are forecasting of returned to normalcy by the fall at which time, they expect to relaunch their foodservice offerings.
We are encouraged about that timing, but for many foodservice operators. It is not as easy as turning on.
The rest of which the process to start things up again takes time, particularly given the current tight labor market, while we expect our foodservice business to fully recover it is likely to take more time, we're fully poised to benefit when it does happen.
We're also quite encouraged by the continued.
A light for us and our international business and both the fresh and food segments demand for Guacamole for example continues to increase.
And our near term outlook remains favorable with the number of new customer opportunities. We are seeing good traction in Asia and are preparing to launch in Europe and the third quarter.
The new growth, we're invested and additional personnel earlier this year and we are very excited about our future growth potential.
We also believe that our guacamole offering expands into these markets. It opens the door for our avocado business as well while these business lines.
And we will have different supply chains, we see a great opportunity because our customer base is pretty much the same while the international business as small as a percentage of our overall revenue base.
It represents a meaningful growth opportunity going forward and we should continue to see more lift and the third quarter and.
And the other potential.
Upside for our international business is our Jalisco packinghouse, the Mexican government has rescinded its ban on importing potatoes from the U S of regulatory limitations on exporting avocados from of lease goes should be lifted soon this would pave the way for the USDA to of pre approve of the region to sell.
And the U S and we'll also have the effect of opening up the international side as well for example, Japan and China do not get do not accept fruit from a lease go.
Because they follow the USDA guidelines and the state of the Leasco does not yet have USDA approval, we have been shifting.
And as markets out of the Mitchell con, but if the USDA approval where to open. These regions are shifting from the Leasco would be a smoother way for us to build our international business to these markets.
With respect to labor, we like many businesses across the country right now are experiencing challenges and staffing where experiment.
To the with.
With different options to attract and retain people such as wage increases periodic bonuses and company sponsored vaccinations. Our internal teams are working to create tailored employee retention plans that will reduce turnover and lead to a more stable and loyal workforce at our facilities.
And <unk>.
As always employee safety and well being remain our top priority. We have spent a significant amount of time evaluating our portfolio of products and manufacturing facilities to determine.
And the optimal mix and we'll continue this process, particularly in light of labor shortages and rising freight costs.
From an ESG.
<unk> <unk> is looking to the future with a focus on a number of fronts, including building our brand to bring innovative healthy and convenient.
Value added products to our customers and the marketplace utilizing technology to enhance our operations and improve our supply chain embracing agricultural.
And <unk> innovation, focusing on reducing food waste and continuing our sustainability commitment and all of the communities where we operate.
We are pleased to share that despite the challenges presented by the pandemic, we were able to make great strides on our transformational journey to become a more nimble company our third quarter annual.
The sustainability report will be published later this month I am proud of our recent achievements that include an 8% reduction and our scope 1 and 2 carbon emissions from 2019 to 2020, new projects to address food waste and electrical usage and a retail shrink reduction through the use.
Wood preservation technologies, we have deployed finally at our annual meetings of shareholders. We confirmed our plans to reduce the size of our board over time from 11 to 9 directors, which is more in line with the company of our size and we also presented our 3 year plan to the board which include the succession planning and if for mentioned.
Technology investments necessary to address growing data and security needs as we continue to consolidate under our 1 company initiative.
Included in that plan.
And as our goal to drive double digit growth based on 3 pillars organic growth international expansion and strategic.
Of M&A activity in the meantime, we remain focused on the things we can control and on advancing our near term objectives. We continue to monitor inflation the labor market.
The hospitality and food service industries, and our various supply chain to get a better read on how the second half of the year will evolve we.
Domestic and by our long term prospects and continue to focus on our strategic initiatives capitalizing on opportunities to increase operating leverage furthering our sustainability initiatives and realizing synergies across the entire organization with the goal of improving profitability and sustainability and shareholder value.
To that and we are launching project Uno, which is a strategic review of our business from top to bottom we will be engaging of consultant for this project to identify opportunities to enhance.
Revenue growth streamline operations drive efficiencies and make investments that strengthen our competitive position and improve.
Prove margins over the long term.
The project is and its early stages, and we will provide more details as it progresses.
With that I'll turn the call over to Kevin.
Thank you, Jim and good afternoon, and global World headquarters and Phoenix, Santa Paula, California, We are pleased to chose to.
And to join US as we know you of other earnings call options today.
I'll start by discussing our financial results for the second 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.
And in our earnings release and 10-Q.
We also have an updated investor relations presentation on our website, which is IR dot, Colorado Dot com.
On a consolidated basis second quarter revenue was $277 million, which was at the high end of our guidance range and a slightly.
Slight decline of 1% or $4 million year over year.
This was primarily driven by 2 factors lower tomato revenues, which decreased 31% from last year due to a late start and the season and had a negative impact of $6 million.
And 2% lower and lower overall.
All avocado revenue, which was positively impacted by 9% volume growth, but negatively impacted by 10% lower avocado average pricing.
Gross profit increased 2% year over year to $22.6 million and our gross profit margin percentage expanded to 8.2%.
Up from 7.9%.
The increase in gross profit and margin percentage was mainly due to improvement and the fresh segment as we delivered higher avocado gross margins and the quarter.
With increased volume of 9%, while maintaining our historical gross margin per case rates.
These improvements were partially.
Partially offset by a decline in gross profits and the RFG business unit due to a number of factors.
As I mentioned during our last earnings call at the beginning of the quarter, we incurred losses of $500000 due to increased <unk> on imported fresh fruit and vegetables, resulting from ongoing port delays from the severe weather.
Current events, and Texas and the Pacific Northwest that also created temporary disruptions and production.
And at the tail end of the quarter higher labor cost due to the nationwide labor shortage.
SG&A expenses declined 6% to $13.7 million from $14.5 million a year ago.
Primarily due to lower stock based compensation and lower sales broker commissions.
Adjusted EBITDA was $15 million for the quarter and increase of 9.5% compared to $13.7 million. The prior year and came in at the middle of our guidance range.
Net income for the quarter was $8.8 million or <unk> 50 per share up from a net loss of $3.3 million or <unk> 19 per share loss and the prior period.
Adjusted net income was $7.7 million or <unk>, 43, a share compared to $7 million or <unk> 40.
The last year.
Now moving on to our 3 business segments.
Sales and the fresh segment decreased 5% year over year to $161.7 million from $170.9 million and the second quarter of 2020.
Mostly driven by lower tomato revenues.
Importantly, while segment revenue declined.
Out of volume increased 9% from the prior year as consumer demand for avocados continues to grow.
Similar to last quarter. This quarter's high volume was offset by a 10% decline and the average selling price as the result of increased market supply due to the forecasted large Mexico harvest this year.
And unlike last year, when foodservice and wholesalers that serve smaller retailers and restaurants helped absorb supply COVID-19 continues to constrain sales to these customers and the second quarter.
As a reminder, foodservice is about 20% and wholesalers comprise an incremental 6% of our fresh revenue.
Gross profit and the fresh segment increased by $600000 to $15 million or 9.3% of revenue up from $14.4 million or 8.4 percentage of revenue and the second quarter of 2020.
Our gross profit per pound of avocados was consistent with last year's second quarter at 13.
Per pound.
On a per case basis, our gross profit per case was $3.30.
Which is within our historical target of $3 to $4 per 25 pound case.
Despite the lower avocado pricing, we continue to do a good job of managing growing consumer demand and the pricing.
Spread.
And RFG sales increased 3% to $96.3 million and the second quarter from $93.5 million.
The increase reflects improved demand as the country reopens from the pandemic additional sales and regions, where we have added manufacturing.
<unk> the past few years and our team's effort to deliver new products and sales channels to offset last year's closure of our Midwest co Packer, which occurred in April 2020, and had a $9.8 million impact.
Excluding this co packer impact revenue would have increased 15% year over year.
<unk> gross profit for the second quarter decreased to $2.3 million or 2.4% of segment sales compared to a gross profit of $2.7 million or 2.9% of sales from the same period last year.
This decline was mainly due to increased labor costs for a very tight labor market and.
<unk> and companion need for more overtime costs, which started in April. In addition, as I noted during the previous earnings call RFG experienced lower yields and higher cost on imported fresh fruits and vegetables, resulting from ongoing port delays as well as some temporary disruptions and production due to severe weather events.
And Texas and the Pacific Northwest This past February.
For the foods segment sales increased 16% year over year to $21.6 million.
Due to improved demand as foodservice began recovering from the pandemic.
And also following the staffing investments we made early.
And the results here international revenue increased 36%.
As Jim mentioned, while we have seen improvement and demand from our foodservice customers. We believe that of returned to normalized pre pandemic demand will occur later this year as many segments of the market are still reopening and ramping up.
As a reminder for.
Foodservice comprises about 50% of this business.
Gross profit was $5.3 million or 25, 6% of sales up from $4.9 million or 27, 6% of sales and the second quarter of 2020.
The higher gross profit was primarily the result of higher.
Volumes.
Turning to our balance sheet, we ended the quarter with $144 million of cash liquid investments and available debt capacity, which is an increase of 30% compared to $111 million last year.
Total debt.
The 30th including finance leases was $49 million and our leverage ratio was <unk> 8 X. We continue to have a strong balance sheet and low leverage positioning us to take advantage of potential opportunities and invest and current infrastructure for the future.
As.
Today for the third quarter of 2021, we see of continued near term impact of a slow recovery and foodservice demand the.
And the nationwide labor shortage and higher commodity and freight costs.
While we continue to see growing avocado volume, we believe that the same high supply dynamics, we have been experiencing this year we will.
We looked at and at lower levels than the prior year.
Therefore, we expect third quarter revenues to be and the range of $280 to $300 million.
Which the the year over year increase of 7% at the midpoint.
And adjusted EBITDA to be between $11 and $15 million, which is a.
Key parties of 43% at the midpoint of the third quarter of 2020.
To be clear. This forecast includes continued near term inflationary pressure on labor and raw materials and freight.
We anticipate that many of these pressures could be rectified by year and as we work on pricing initiatives with.
The decrease partners and 2 other internal operating efficiency initiatives.
As a reminder of the impact of project Uno, though will not be seen until next year.
Finally, Jim and I look forward to seeing you at 2 upcoming virtual conferences, the Baird Global consumer conference being held on Thursday of this week.
And the Jefferies Consumer conference on June 20 <unk>.
With that I'll turn the call over to the operator for questions.
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1 moment, please while we poll for questions.
Okay.
Thank you our first question comes from.
You may be and revenue with Stephens incorporated. Please proceed with your question.
Hey, good evening good afternoon guys.
Hi, Ben.
I wanted to ask and want to start on.
On the RFG business.
Margins, a little bit lighter than expected you called out some of the factors a lot of which sounded transitory.
Ben from of which sounded like they might linger for the balance of this fiscal year.
Could you help kind of if we try to bridge that margin back to what I think because of more normal margin and.
On the mid to high single digits kind of the magnitude of the pieces of freight labor and fruit yield it sounds like fruit yields should get better now that your end of the.
Sorry for and your net domestic supply.
Labor and freight though may be linger, maybe just help us think about the cadence of.
What that margin could look like and in particular relative to your guidance for the third quarter that'd be helpful.
Sure So I think.
So let's start with we are.
The summer and have the conversations with our customers for pricing actions. So that's underway.
The results at this point of are unclear and mixed.
Some of our retailers and fully expected it and we can get them implemented relatively quickly some of the larger ones, though it may take a little more.
So it is transitory when that part for <unk>.
Repairs itself, but specifically if you look at the labor, it's probably worth the little call between 4 and of happened $5 million of negative impact this quarter.
Again, we've raised rates for our people.
We've also put incentive.
More townhouses and therefore staying of certain amount of time and frankly, we're doing everything we can to get people to come in.
So right now our overtime rates for hi.
And frankly, we're running about 20% less people than we would like to have and so that's a difficult environment nationwide.
And <unk>.
On.
Incentive materials side, which includes freight because most of our stuff comes in and freight included and the commodity costs. That's about 4 to 4 and $5 million worth of additional costs for the quarter.
And then I think as we look at the Gist.
Yeah.
Going on the share of commodity costs.
The identify that separately from freight, we're probably talking somewhere between a <unk> 5 million $2 million.
So if I were to sort of bridge to what I think your model would look like it's almost all on the RFG side of things.
And.
And I would think of it.
And as well as that.
The kevin's kind of indicating we're moving.
To kind of.
And on the inflationary side of things to attract new labor and a very tight market, but we don't the probably the bigger issue that the drives us is just bringing labor in and so we're really looking at that the September time period for.
Pretty much.
Schools to be back in session fully childcare to be back into place.
And.
And then people beginning to being centered to come back kind of into work and as unemployment benefits begin to recede and so that would be the point, where it would be a bit transition area.
True transition area from from this period into the next as of as we get the new Labor group.
Some of those inflationary costs are probably going to linger because once they are in place the.
And they stay from that point of view.
Okay, that's great that's super helpful.
And for all the detail.
<unk>.
On avocado pricing.
On kind of post Cinco de Mayo prices have been bouncing around a little bit could you just talk a little bit about kind of what youre seeing and supply and demand I know you noted that we're kind of on the tail end of a large mexico crop, but how does.
And <unk> look it sounds like demand is still quite good just kind of a lay of the land, but there would be helpful for us I think for here.
Yes, I think I think and we probably talked about this before is that.
Certainly on the on the avocado demand side.
It's continuing to be strong and.
And in that general.
Does the trend, but much like we've talked about throughout the pandemic is that.
And Theres, just not doesn't seem to be a lot of appetite for.
For those holiday lift kind of concepts that they were historically.
Oracle used to meaning moving into the Cinco de Mayo or memorial day or things.
Like that are generally and this environment.
A little bit flatter than they've historically been and so we don't get that traditional that traditional lift and yes.
Currently we are.
And we're in that place where the Mexico.
Our supply chain and the Mexican market is very strong and California's.
He is coming into play as well kind of in that for US is a little bit of a later start but and that kind of April period, both of them in place and so certainly our supply was was.
Up against the demand in that environment.
Alright, great and then if I could just ask 1 more quick 1 on the project.
Kind of what.
Genesis of that.
Help us think about where you think of today at least as far as Youre aware of what the greatest areas of opportunity are for you to address and you said more detail on that later this year.
Maybe just to the extent of if you could walk us through kind of of the critical path of work that's going to be done. So we can get a.
What was the reference for.
And of the timeline, we should expect to hear more details on it.
Alright, So I think I think the conversation kind of continues on its the concept of of the 3 business units that the collateral of exists and and.
And this company of 1 kind of thought process that I am implementing and so.
So we've done quite a few things on the structural side to begin to moving that direction, but now I've kind of been here just a bit over a year and seen all of the business units operating I think it's a really good time to bring in of third party with another set of eyes that has industry experience overlooking.
The product sets the dynamics of the concepts of of our Foods Division and a Renaissance divisions working together and then it complements very well the timing that we're sitting and right now which is this concept of constrained labor and is there kind of the paradigm shift in the concept.
Sept of of how much labor is available versus the labor intensity and the products that we make and what is the best product set for us to be able to evolve to and so I think as we come into this.
And as we mentioned we're just in the the early stages. We've got several companies that we want to look at.
To begin to talk to you about working with us.
We will probably start that up probably by the the.
And the end of the the next of the third quarter and then as Kevin mentioned in his.
And discussion is that we would expect that maybe we will have benefits moving into the into the new year.
Alright, great best of luck and thanks for all of the detail.
Thanks, Craig.
Thank you. Our next question comes from Mitch Pinheiro with sort of event and company. Please proceed with your question.
Hi, good afternoon.
The image.
So I wanted to still get RFG for a second.
<unk>.
When you go back like 2 years ago, and the second quarter.
I think it was maybe 100 I forget the number 140 million of revenue and we are.
96.
Could you sort of.
Break that down how much.
Each of that was either retail business losses.
We got the co Packer piece.
But.
Versus and I know a lot of its foodservice, but can you break that down a little more I'd love to know how retail's been impacted here.
Yes.
I think we're talking about is is.
The the Midwest co pack operation was.
A very central strong player kind of in the Renaissance group and so that was in play in that time period, and what we're indicating now is that in the absence of of that.
At player.
The existing facilities that our Renaissance are beginning to grow out of.
The pandemic and are beginning to ask.
Access more business and the and finding.
The success in the marketplaces, where they operate.
On the Renaissance.
Greg I was asking.
I'm, sorry, I was asking more about you know I understand that the co pack of thing as a.
As an impact and the difference, but I was really looking at you know how much is retail been hurt.
At RFG with new packaging and different methods to market.
And at the at.
More of that level of.
All of bars, and sandwiches and salads and deli.
How much does that help for hasnt hurt or hurt.
Yes.
Great.
Right, we've talked talked about this a little bit the evolving kind of pandemic is that as it as.
As it came into play in retail a lot of our.
Delhi type business, which was was oriented on grab and go with certainly impacted meaning sandwiches salads and wraps as people were working remotely they werent passing through the grocery stores.
During the lunch.
Time to grab and grab the sandwich or something like that so that was definitely impacted early on and then the.
The.
The Renaissance team continues to evolve and begin to work on items that.
And that would support.
The people working remotely eating at home and so.
Convene.
<unk> Valley.
<unk> added vegetable entrees things like that that would support people that are just trying to cook at home.
Good healthy food, so they kind of evolved and address that and now we're kind of coming back out of the pandemic and so the product sets are a bit stronger grab and go is kind.
Back to a degree and so there's beginning to be a lift in that environment as far as the cut fruit and vegetable type business.
We're seeing.
And of a move right now back to the traditional.
Lift that that Renaissance is used to seeing kind of as we move into the into summer activity.
Coming and that is more what I would call normalized as we move into this season. Our issue right. Now is is not so much the the.
Demand side, it's really as we've talked a little bit earlier the <unk>.
And strength associated with labor.
And then.
Have you seen.
And any anything we still and RFG have you seen anything.
In the marketplace is still on.
The view that the.
The days of the open air salad bars are over at retail.
And it's gonna be of pre packaged.
<unk> type of delivery to the consumer or.
And then any changes to your view, there and what youre seeing and the marketplace today, what your customers are saying.
Yes, I think we've heard and.
The lately is that some of the salad bars are opening back up but it's retailer by retailer.
Okay. So you don't see this as you see it every normalizing.
Going back to where it was and is that a good thing for RFG or would you rather.
Day, and sort of of the current pre package format, the grab and go.
Format.
Yes, I mean, the 1 thing about Renaissance of historically, it's been.
A solutions provider and so generally based on what the retailer is looking for Renaissance has the capacity and capability to respond to that and so if the.
As we were in the pandemic of lot of the Delhi's were were shutting down and so we were moving to the.
The.
The pre packaged broccoli salad, but as the Deli is open back up we would move back into supplying broccoli salad kits that the Delhi prepares behind the glass and so there is capability on each side and I think the.
The initiative for Renaissance is that as it is opening up its moving to.
To respond to what the customer is looking for.
Okay.
And then I guess, just last question and it goes back to the pricing trying to trying to get higher prices on.
On the fresh side, particularly on the avocados.
Where is there opportunity can you price and foodservice.
Is that is that harder.
Hum.
Or is it equally hard both on the retail side and foodservice.
Well, yes, I think as we've talked before on on the.
On avocado pricing, we're moving inside of of the market.
<unk> and working to maintain our margin inside of the cost price scenario and that serves both retail and foodservice.
<unk> equally from that from that side of things the big deal for us and the and the volume kind of scenario is that we are out in the harvest.
Harvest were taking all sizes and all grades and so as we've talked kind of before inside of the pandemic kind of in the absence of parts of the foodservice it inhibits us.
In some fashion on the margin side, because we don't have outlets for all of the different sizes and grades and.
So when.
When when foodservice is fully in play generally because of lot of the foodservice product is.
Is used and brought out and service.
They can be like a number to the number 2 grade which allows us to have nice outlets all the time and it balances our full portfolio and allows.
To lift our margin.
Inside of how we perform there.
Okay. Thank you for your time I appreciate the questions.
Yes.
Thank you. Our next question comes from Ben Clive with Lake Street Capital Markets. Please proceed with your question.
How's the alright. Thank you for taking my questions. Just a couple for me first a quick clarifying question on project and now did I hear correctly, you are still looking to identify the consultants that youre going to work with and as such this isn't going to really start start and full here for for.
The later this year or do you have somebody named and you've begun that process.
Kind of in depth already.
We've narrowed it down pretty quickly they have not been engaged yet so you're right. There's the startup time is still to come.
Okay, Alright, very good thank you.
And then on the other question for me is you talked about pretty considerable growth on the international business from both of your fresh and your food segment.
It's really on you alluded to 2 staffing investments there.
And I'm wondering if you could elaborate a bit on kind of.
How those investments that you made and staffing.
And it really kind of drive that kind of of results here for quarters to come and if there was kind of onetime benefit that you saw in the quarter and maybe.
Can you help us understand the scale of what that.
Those international opportunities are within the.
Within those segments.
Yes, so we've hired a couple of guys that test and great experience. So the investment is and people and certainly we have also reached out.
Some of the relationships that we've historically had.
<unk> supplied dormant for the past many years and so right now international is about 3% of our total revenue as we put together our 3 year plan, we can easily see that getting to about 10 percentage of revenue.
Given the investment and given the capacity that we've got and that's why as Jim mentioned.
That of putting up of the <unk> facility is another great opportunity for us.
And we've got capacity there and certainly at this point, we have supply so whether it's the fresh or the foods business, they're very complementary and the customers overlap. So we've gotten off to a nice start I suspect it might be EBIT bumpy the next.
And the of inconsistent the next couple of quarters, because we are bringing in new relationships new customers.
And oftentimes, it's sort of fill the pipeline, which is probably happening this quarter next quarter.
Got it got it very good.
Well that doesn't for me and thanks for taking my questions and I'll get back in queue.
Thank you Ben.
Alright.
Thank you. Our final question comes from Eric Larson with Seaport Global Securities. Please proceed with your question.
Yes. Thanks.
Good afternoon everybody.
Quick question, just dive a little bit more and to kind of the kind of the the near term avocado.
While the situation, obviously, we're coming right.
More of the tail end of Mexico, but we have a pretty good U S crop.
Right now and we're now getting because of the time of the summer June July period, where you start getting a lot of the Peruvian fruit coming in kind of the.
It'd be lower quality of tends to be more.
And also can go drive pricing down a little bit it's not as it's.
It's not as good of fruit is what we produce in Mexico and the United States can you give me some ideas of what we're looking at for maybe some of the.
The U S supplies as well as international supply is coming in and the next quarter or so.
Well, Hey, let me start with the so the you're right Peru is starting to come in.
The crop size of what we heard is probably 20% higher than last year now that they've got more mature trees.
And on the U S side.
It will be the down ish year of keywords. So the every other year drops we figure that's going to be down some.
Between let's call it around 15%.
I think it was somewhat negatively impacted by the heat and high winds and we had in November and December that probably push it from a 10% decline and inventories are.
Supply level to maybe 15% down.
So youre right.
The Peru.
Some of it between fruit pushes prices down and margins down a little bit against the California food stays very localized to sort of the very west coast and the margins on that are always pretty good.
Okay.
And then.
Yes.
The club of food.
Provision.
And as expected.
Okay.
Alright.
And the third.
Yes.
Food.
And what you'd get.
Sure.
And of the school year.
Hey, Eric I apologize.
And then some of your question got broken up on the.
From what we heard or didn't hear could you repeat it alright.
Global Foods.
The the outlook for for margins, because when we get back into the <unk>.
The percent run rate by the time, we get to.
Through this fiscal year.
It's the most and how quickly is foodservice covering and foods I mean that tends to be of pretty good sized piece of that business.
Yes, the foods business.
Historically has about a 50% foodservice component to it so pretty big.
And I think right now of the margins are a little low because of the prices have risen on the prices.
We're paying and again.
As we look out the next couple of years, 30% is.
Little aspirational, but I, certainly think we can be back on the 27% to 8% range.
Part of that is of course as we are building the international markets, we need to we want to be very price competitive and.
And so we're starting.
<unk>.
Ranges that are probably a little bit less and 30%.
Okay.
<unk>.
Okay.
There are no further questions at this time I would like to turn the floor back over to Jim Gibson for closing comments.
I want to thank you our shareholders for your continued support and I look forward to updating you on our progress on our next earnings call. Thank you for your time today.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation of a wonderful evening.