Q1 2022 Calavo Growers Inc Earnings Call
Okay.
Good afternoon, and welcome to the first quarter 2022 Colorado Growers earnings conference call and webcast all participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero I will now turn the conference over to your host Larry Clark Investor Relations for Colorado. Thank you.
You may begin.
Good afternoon, and thank you for joining us today to discuss Calaba growers financial results for the first quarter of 2022.
This afternoon, we issued our earnings release and it's available in the Investor Relations section of our website at IR Docs Labo Dot com.
With me today on today's call are Brian <unk>, President and Chief Executive Officer of Colombo, and Mariella Madhu <unk> Chief Financial Officer, we will begin with their prepared remarks, and then open the call for your questions.
Before we begin I'd like to remind you that today's comments will include forward looking statements under the federal Securities laws.
We're 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 expected improvement in revenue and operating profit are also forward looking statements.
Our actual results may vary materially from those contemplated by such forward looking statements.
Discussion of the factors that could cause material differences in our results compare to these forward looking statements are contained in our SEC filings, including our reports on Form 10-K and 10-Q.
I'll now turn the call over to Brian Cooker, Brian .
Yeah.
Thank you Larry and good afternoon, everyone. We appreciate you joining us it's my pleasure to speak with you today on my first earnings call as President and CEO of Clabo growers.
I joined the company February one and six weeks into this new role I am confident that I made the right decision at the right time with the right company.
I'm impressed by the talent of the <unk> team and their willingness and desire to drive our financial performance and achieve our potential.
I'm encouraged by the early results of projects and that we are on track to reach $70 million and EBITDA improvement in 2023.
Most importantly, I am excited that our opportunity to improve month by month and quarter by quarter, we carry a mantra forward be better today than yesterday and better tomorrow than today, we can see the impact of that mindset by the sequential improvement in gross profit adjusted EBITDA and adjusted net loss.
From quarter four to quarter one.
We're making solid progress toward our goal of improved profitability, but challenges still remain.
We must address these challenges in multiple ways in order to continually enhance our operating performance.
As it relates to headwinds the pandemic is becoming endemic and the inefficiencies associated with labor shortages have eased, but they have not been eliminated.
We must remain vigilant managing our labor cost, having them become more stable and predictable and we will do this through productivity improvements process initiatives and further automation where possible.
Higher freight costs have continued to be an issue to.
To address this for the first time, we launched an RFP for free.
And consolidated our transportation under one National program.
This should result in substantial savings and reduce volatility as we implement our new carrier agreements throughout the balance of the year.
Although stabilizing and reducing costs are important I am excited that we have also made good progress on our pricing initiatives to date as customers recognize the need for price increases in this higher cost environment, but also appreciate the value we provide in the marketplace.
Additionally, we are working with each of our customers to ensure they have the right product mix and this will support our continued efforts and SKU rationalization.
Another structural component that as part of project Duenow relates to asset utilization.
Last fall, we announced the closure of our Florida RFG plant in November and December consolidating operations into our Georgia facility.
The Georgia facility is one of our newer plants and required substantial reconfiguration to accommodate the volume. So it is taking a little longer to reach optimal throughput.
It is also worth noting the consolidation began during the army crop surge in the southeast when labor supply was especially problematic and certainly caused short term inefficiencies during our December transition.
In fact, we have already seen labor stabilize and corresponding productivity improvements at our Georgia facility in both January and again in February .
Lastly, and importantly project Uno has helped shape our reality of one Colorado.
Over the course of the last three months human resources Finance and accounting and transportation have all consolidated into shared service centers that enabled the entirety of club O to operate more efficiently.
We will continue deploying best practice sharing and central services, where they make sense to drive improved productivity across Colorado.
Despite the ongoing challenges that our industry is facing we are navigating them head on we are optimistic that with the plans. We are implementing we are well on the road towards improved profitability and stability in our business.
Now, let me take a few moments to talk about our business segments.
In our fresh segment avocado prices were 64% higher compared to the first quarter of 2021.
Lower available supply in Mexico drove prices higher and also impacted our volume during the quarter, which was down 12% year over year.
Our gross profits were down year over year, mainly due to $1 6 million adverse swing in foreign currency rates.
Excluding the impact of foreign exchange gross profit per carton for the first quarter of 2022 was $3 31.
Which was 54 cents of case higher than the prior year period.
Additionally, as a sign of continuous improvement fresh gross profit also improved by $4 3 million from the fourth quarter of 'twenty, one as higher prices more than offset the cost pressures that we've been experiencing.
And our RFG segment, our overall operating performance improved with the exception of our Georgia facility sales increased 6% compared to Q1 last year.
Our gross margin loss widened slightly during the quarter as increased pricing and improved product mix were offset by headwinds from commodity cost inflation.
Labor turnover that led to increased costs and some short term ramp up cost as our Georgia facility transition, Florida customers. However, excluding our Georgia facility Rfg's gross margin improved by $700000 from the same quarter as last year and $150000 over the fourth quarter of <unk>.
'twenty one.
To continue improving sequential results at RFG, we are passing along higher input costs through our pricing initiatives with our customers.
Driving labor productivity through process automation.
Revising our raw product sourcing procedures to stabilize input cost and are rationalizing skus, where it makes sense.
And our food segment.
Sales increased 4% year over year due to improved retail demand.
However, increased fruit and labor costs pressured gross profit for the segment, which was down $2 5 million from the first quarter of 2021.
But up 300000 from the fourth quarter of 'twenty one.
We are currently working with our customers on pricing.
We expect to see reflected in our results in the coming quarters and are constantly assessing our raw product sourcing model and techniques to stabilized cost and improve margins.
Let me just briefly touch on two items that are not part of our quarterly results, but are worth mentioning.
As you are probably aware the USDA temporarily banned the export of avocados into the United States from the Michigan Con region of Mexico, effectively halting shipment of avocados into the country.
Fortunately the band lasted only seven days and it occurred the week after the Super Bowl, which is typically a slow week for avocado sales.
We had enough inventory to continue servicing our customers and because of the ban was resolved quickly the effects on our customers and our business was minimal.
The disruption to the supply chain has cause choppiness in the volume of the fruit coming into the U S and that could lead to temporary shortages. However, we expect this choppiness to resolved within the next few weeks.
The second area to discuss relates to avocado supply.
As we move from the Michigan Cotton harvest into the California crop, we anticipate prices to remain firm and supplies to remain tight.
As was mentioned in our previous call. The state of Jalisco was approved to ship fresh avocados into the U S and we expect the fruit to enter the country by mid year.
We're looking forward to the added flexibility when managing market dynamics that will come from an additional sourcing region and an additional facility.
In the back half of the year as fruit from Jalisco begins to move into the U S. Our volume should improve and we have already accounted for that impact in our overall sourcing strategy.
Before turning it over to somebody else I would like to make a few closing remarks.
I'd like to thank Steve Hollister for his leadership, while serving as interim CEO and for his support as I joined Collazo Steve.
Steve was able to Shepherd project, who now and get the ship headed in the right direction and clobber us better for it.
I'd also like to congratulate Steve on being named Chairman of the board.
We have a strong diverse board of directors, who take their governance responsibilities very seriously and it's my privilege to work with Steve and the board to move <unk> forward.
As CEO I want to bring clarity to our organization through a common purpose with goals and objectives that make us better decision makers and better operators focused on what matters to us and our customers.
We will relentlessly execute this focus and the discipline necessary to drive operational and financial improvements, we will put <unk> back on a path of sustainable profit growth with the ultimate goal of generating shareholder value.
With that I'll now turn the call over to somebody else.
Thank you, but I am it is connected to partnering with you and good afternoon everyone.
But I would note we have made progress in our efforts to counter the market disruption caused by Covid and that is more work to do.
Here is a recap of some of our efforts to date.
Have a nice price increase does that put us at ft <unk> customer base, we have eliminated approximately five 5% that's about where less profitable SBU.
We have adopt E starts to process I could ask all of the work facilities and have begun integrating back office functions to improve our speed up the execution and free cash flow.
As we consolidate it and if the food processing operation from Florida into Georgia facility, which will improve capacity utilization.
As a result of these actions we realized approximately 5 million of profit improvement in the first quarter as compared to the fourth quarter, bringing our total profit improvement since the beginning of a project.
Approximately 9 million.
We expect to see gradual increase and improvement in each quarter of the current fiscal year and we'll update you on a quarterly basis as we make forgotten it.
Now I'll turn into a discussion regarding our financial results for the first quarter as we have provided a detail on the year on year comparison in our press release I will focus my discussion on improvements, we made on sequential basis, but on our fourth quarter.
On a consolidated basis first quarter revenue was consistent with the fourth quarter of 2021 .
Segment revenue was sequentially higher as both volume and average prices were up quarter over quarter.
These it was upset by lower sequential revenue on both RFG in the food segment, mainly due to lower state Tonight.
Consolidated gross profit increased to $13 3 million.
Up $5 2 million from the fourth quarter, they increase with you I'm not sure.
Charlie to our Portland, 3 million increase in gross profit at the fresh set.
The fluids segment had a $348000 sequential increase in gross profit and honesty posted a $384000 higher loss in the quarter.
We know it's not just the consolidation in the patients who didn't know what Atlanta facility during December .
Gross profit would have increased $150000 sequentially.
Well I'll, let ft is beginning to realize price increases labor productivity gains and the benefits of what it is.
You originally station it is a student facing higher labor material and freight costs.
The first segment is also experiencing similar cost pressures, which limited our sequential improvement in the gross profit.
SG&A was 15 3 million for the first quarter down 1 million from the fourth quarter of 'twenty 'twenty. One the improvement was primarily due to lower restructuring cost, which include consulting management recruiting and severance cost as well.
Lower body of all incentive compensation.
Adjusted EBIT was $4 7 million for the first quarter, an improvement of 3.3 million from the fourth quarter of 2021 mainly driven by the higher gross profit in the fresh settlement.
During the quarter, we generated cash from operations of $2 5 million keep in mind, our first quarter is typically a slower quarter for cash generation do you just see Tonight.
We invested $2 5 million in Capex in the quarter, mostly focused on automation investments, we expect full year capex to be at or below fiscal 2021 with the majority of the investments targeting put it like this that will increase our operational efficiency.
Now turning to our financial position subsequent to quarter end, we reached an agreement with our lenders and amended our credit facility, which among other things reduces the total capacity of the facility to $80 million with this amendment our pro forma liquidity.
At quarter end would have been 21 million, which is sufficient for our working capital growth and now we're investment plans as we continue to implement but yes, or no and drive performance improvements across the business.
And finally, as Brian said, the long term outlook for our business remain favorable.
The pace of our improvement should continue and just sell it eight over the next two years consistent with our progress on our plan.
In Q1 January was gross profit pocket.
And early Q2 is showing improvement over January weather industrywide inflationary pressures on raw materials freight packaging and labor cost iron ongoing uncertain, we have and we've continued to implement pricing and operational initiatives to us.
This increased cost with that I will turn the call to the operator for questions.
Thank you at this time, we will be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if he would like to remove your question from the queue for 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.
Our first question is from Ben <unk> of Stephens. Please proceed with your question.
Hey, good afternoon, thanks for taking my questions.
Hi, Ben how are you.
They're done.
I wanted to start on the RFG business, so youre working through consolidating consolidating rationalizing capacity there you alluded to price increases that you're putting in place.
You also referenced inflation across the industry do the pricing increases that you've put in place cover the inflationary cost pressures that you have in that business and to the extent you could talk about when you look at the options ahead of you as you work to recalibrate that business what <unk>.
You think the path to an ultimate margin profile of that business looks like that's my first question.
Yeah.
Thanks, Ben I appreciate it I think a couple of things to think about with RFG one even for the first quarter. Our price increases were able to offset some of the pressures that we saw on commodity cost increases and inflation. We did have as we mentioned in our prepared remarks.
So as we were consolidating some of the assets in the southeast it was a little bit of inefficiency.
Partly caused by omicron, but but certainly I would call. It short term and we continued to see improvement in January has seen improvement in February and even to date March in our Atlanta productivity. So I do think price increases.
We are offsetting our cost inflation. The fact of the matter is though cost inflation is not.
Stagnant. So we are making sure that we have a mindset associated with managing constantly managing our portfolio and its a string of many things.
The cost side, where we're doing E sourcing as Marty Ellen mentioned, it's the revenue side as we're working on on continuous pricing.
Increases sensitivity to input cost and triggers for input cost price increases.
It's also labor productivity, where we're either working on training process improvement or a.
Our investments in automation, where it makes sense. So I don't think it's exactly one answer its the combination of those but we are squarely focused on pricing and I'll work I think the one thing you can take away our work on pricing our work on SKU rationalization that should never finish that that should be a constant optimization.
Jason of pricing SKU optimization labor productivity, it's like quality food safety and culture that work never finishes.
Yeah, Okay understood. Thank you.
My second question is on the fresh product business, you know the margin and the volume actually.
It held up well just given how challenging the environment has been so I wonder if you could talk about.
The challenges you're facing in that business, you've alluded too choppy supply that's ongoing into the second quarter, but could you talk to some of the details that you guys have underway with respect to quantifying that business because I think that is the core of the business. It was a really solid business.
Oh sure. So I think a couple of things when you are.
A distributor in a market or like we are optionality is really important. So the fact that we have at least go that's coming on probably in our third quarter. The fact that Peru in California are now coming on.
It gives us some optionality and again Mexico.
Is the lion's share of that avocado supply.
But having a little bit of options and potentially arbitrage between sourcing regions for either quality sake or price sake is really important to us driving.
Continuous profit I think the other thing and again it is a commodity business. So the other thing that's been helpful has been.
At least in maintaining our market is theres been tightness of supply. So if we look at our import figures from from Mexico, I'd I'd say profits were car excuse me imports were down probably 10% year over year, 10, 10, and a half of our volume was down 12%.
I think it's important to notice we also want to grow.
But we want to grow in the segments of the market that makes sense for us.
Both for Growth's sake, just just won't work in our commodity trading business. So growing in the segments of the out of a cadre of supply chain that are attractive that have good returns I think that's where that's where we'll focus our time effort and energy.
Okay. Thanks, very much best of luck.
Thank you.
Our next question is from Rob Dickerson of Jefferies. Please proceed with your question.
Yeah.
Oh, great. Thanks, so much.
I guess.
The first question.
Is this as you've kind of stepped into this new seat Oh I see yeah, Brian .
Obviously the product you know it was kind of.
Well.
Let's say you kind of fully developed or you know it seems as if there was a decent progress on what the strategic outlook what are you going to be.
I'm just curious you know kind of given your background.
The broader space.
Have there been any.
Or is it you know you kind of were surprised.
About or how do you how.
How do you think on a go forward, where you think there could be some potential upside extracted just outside of.
You know I'll be a lot, we're talking rationalization like labor productivity, but have you a lot of times you know.
<unk> already been enacted this is now kind of a more of a rethinking how to improve it but I'm, assuming you know you're not in the role just execute there how do you do something you saw or think of that.
That might be.
Incremental as you think forward the next few years.
Thanks, Rob I appreciate the question. So a couple of things I thought about when when I thought about Colorado first and foremost our long legacy of leadership in this industry.
Dating back to Lee cold dating back to Rob with Dean and his his efforts and a long history and legacy of leadership and that was exciting for me I think the other thing that was important or some of the macro economic conditions that are tailwind for Colorado looking at avocado in a category where.
Demand has exceeded supply for several years in a row and it looks like it will continue doing so there are even.
Consumption per capita opportunities in the U S forget international even though there are opportunities internationally.
So so having those chances I think.
Produce being.
In right in line with U S trends on health and wellness.
He is really critical for the long term success and one of the things that excited me value added produce growing disproportionately to produce as a whole.
It's really exciting for our RFG and food segment now I'll just a couple of bits of data on that if you look at grab and go and then what I call fresh cut that's grown depending on the category data you see from 20% to 25% over the course of the last year, that's a category you'd really like to play and when someone.
That's something that's growing that much and I will tell you one thing that's really interesting purchase intent in Gen Z.
Millennials and Gen Y is anywhere from three to five times higher than purchase intent for baby boomers and Thats a huge tailwind as we think about opportunities for RFG long term.
So those are some of the broad economic opportunities that I looked at some of the tailwind that I looked at it with club O. Joining the organization I was excited about project to now excited that they they've done the work on that we have execution to work on we have to execute that well and bringing the right discipline.
And and reviews to drive results is important.
So project do know was in fact, a big benefit.
Coming into this seat and then I think the two other things that I'd say I'd mentioned, it specifically in in and consumption opportunities for the U S. But globalization of produce globalization of avocados is a real opportunity for US and then lastly, I I just.
I really like the idea of being in in AG and in produce where the.
The food is good it's good for you it's healthy it's sustainable it hits a lot of of cultural.
Significant.
Purchased two intent criteria and so I'm excited about that.
Alright fair enough.
And then just kind of quickly on the key.
<unk> for the year or I guess, maybe the trajectory given there's no. There's no guide itself, there's probably not much credence.
Be giving.
I thought I heard.
Comment in the prepared remarks about.
Maybe limited gross profit sequential improvement.
You get into Q2 relative to Q1 and I just couldn't.
I couldn't tell if that was one giving segment or that's total company. So maybe just you know.
Any clarification remarks, you can provide.
I think in Q2 relative to Q1, and then just you know obviously the dynamic between cost and pricing.
That's it.
Hi, Ross this is money earlier and a yes, we are planning to continually improve our profit generation and validate and then lets see sort of improvement quarter over quarter.
But yet or not take.
Our plan today consists of margin enhancements every quarter as we execute our pricing initiatives, our SKU rationalization, and our plant optimization and procurement initiatives.
We would have somehow your growers and some quarters that are and will be better than Q1, and then we bought <unk>, but we will expect that trajectory to improve play out like water.
Got it okay. Thank you so much.
Okay.
Our next question is from Ben Queens of Lake Street Capital. Please proceed with your question.
Alright, Thanks for taking my questions just a couple from me.
One on the the consolidation of your shipping relationship down to a nationwide provider I'm curious when that started if we saw if you saw any effect on that from that on the Q1 financials and kind of you know it really kind of how we can.
How material of a benefit that is gonna be here you know over the next couple of quarters.
Hi, Hey, bad money or not and we don't have any rent of six in Q1, we use a fine print.
Cleanup finalize negotiations with many national carriers, we've put that if be back in February and we got many responses.
And those responses.
I confirm with savings and none more important than ever is to have good transparency on our freight and supply and know what our ability to pass towards to charges and being transparent with the cost per mile.
Got inflation in freight has hit us in the past. So we are excited about this initiative and this will allow us to have some timing formation to understand the freight increases and to pass this through to our customer base with data driven analytics.
Okay.
Thank you and then one other one for me on your your your effort to SKU rationalization.
I forget the number you quoted I think you said something like four or 5% of screws or skus have been rationalized, thus far on it.
It is you know when you look at that or are you looking at kind of broad categories for it to be completely rationalized and you know just in markets that you don't like or are you really just kind of looking at kind of fine tuning skus within within all the broad categories and getting rid of you know the lowest performing skus across the <unk>.
Board.
Or both.
Yeah. So so this is a process that we do in line or working with a wife costumers and with our suppliers.
There's more to I live in the sea shell. So we are looking at.
From ingredients packaging or their size to it sometimes change that do you all sit in in line with what that the Montana consumer signs her telling us. So this is in them going conversation to consolidate in some cases seem to different skus.
And also and working with customers to enhance that is offsetting andrey salt into a win win.
No Mick where are they asking you produce is higher margin, but also higher quality than a fit for the end consumer.
Then the only other thing that I would that I would add is this this should be a continuous cycle of rationalization and innovation. So that we're constantly refreshing our SKU portfolio both for growth, but also cost deficiencies.
And I would think of it not only as product, but sometimes its ingredients as well potentially harmonizing proteins amongst various sandwiches or cheeses amongst various offerings. So we really ought to think of this as an ongoing program to manage the portfolio of product offerings that.
We have with customers and just as many Ellis mentioned do that in conjunction with the customer. So that we are driving growth and driving efficiency on the shelf.
Got it yeah and I.
I heard those comments that you made in your prepared remarks about kind of continue driving continuous improvement loud and clear on that that's great to hear and good to hear you reiterate that so it's.
Very good I appreciate you, taking my questions and I'll jump back in queue.
Thank you.
Yeah.
Our next question is from Eric Larson of Seaport Research Partners. Please proceed with your question.
Yeah, well. Thank you for taking my question good afternoon, everyone and.
Congratulations Brian and look forward to working with you and.
We get a chance if we can get together and.
And because each other in person so congrats.
Thank you. Thank you very much looking forward to it well and good luck.
And so the first question I have for you Brian .
You came from.
It came from a business you came from Takeda, which as.
We all know that the global banana markets are large they are there.
They are very global in nature and.
The one thing that I think you know.
Clausell.
Could probably use some help with is why can't they do internationally, what they've done in the United States and.
I think they're on a path to start doing some of that but you know is this an area where you can add.
Add a lot more value.
Given your given your background with Takeda.
Well I appreciate the question Erik and thank you.
I think there certainly are opportunities for international expansion. We wanted to do this right we want to do it in the right sequence, we wanted to do it in with the right resource allocation.
And again I think our clear focus has been.
Trying to drive the right EBITDA and profit improvements through project, who know and other initiatives and that's one that I'm squarely focused on in terms of priorities that being said there is an opportunity to grow internationally. We've tried to to even address that with some resources that we have now I don't know if it comes out.
<unk> clear and in the earnings release, but I think in the first quarter, we had somewhere around 20 or 22% growth in international sales. So you will see us continue to try to to to drive.
Business internationally, where it makes sense, but I wanted to get back to one to one comment about the avocado category as a whole we want to grow we want to expand but we want to do it in segments of the market that makes sense for us and I think theres opportunities certainly in international where it makes sense.
And we will continue to look at that as well.
Kind of go along this path of driving profit growth.
Okay.
My My next question is you know I know you've only been there for you know what.
What six weeks or something like that but.
When you look at the RFP business yet so.
It's significantly more complicated I think than that really the avocado business are more labor intensive probably even more logistics intensive and.
We've always had the assumption that this business can get.
Into the mid to high single digit sort of EBIT margins.
And I'm curious on your perception of that is this a business that can achieve that and then as a follow up to that.
Is there can you give us a little bit off of.
A timeframe of when you're talking to gradually continually improving some profit margins here, but.
Is there a is there.
Is there a timeframe for when RFG is actually going to contribute to the bottom line again here is it measure it on a quarter is it two quarters three quarters, you can how how should we be evaluating the progress in rfps in the near term stuff too.
Sure sure. So I appreciate again the question trying to provide a little bit of clarity first of all I think we have always thought in my mind that that RFG could get into double digit gross margin double digit gross margin.
And I see a path to get there.
Lynn when Calabro announced project who know they.
They did we did we collateral talked about that being a two year journey and so I think that reference in that time frame is still right.
And it is as I mentioned on one of the previous questions. It's a multifaceted approach it's pricing, it's volume growth, it's material efficiency and sourcing strategy, its labor efficiency and productivity at SKU rationalization.
Working with customers to ensure we've got the right product on the shelf for the consumer all of those things feed into it but but I believe that there is a long term path.
For success I believe over the course of the next Oh.
Seven quarters, you'll you'll kind of see the work of project, who know youll see us each and every quarter get better.
And that improvement will accelerate over the course of the next seven quarters. So I can't give you a definitive number on next quarter or the quarter after but if you think about it in those terms.
Where we're excited about RFG in the portfolio and what it has to offer and I will get back to those two.
Market data segments that I mentioned before grabbing goes cut.
Cut fruit whatever you want to kind of categorize that it's growing between 20 and 25% a year.
That's a market that I think we have some expertise in and we want to play in that and then the purchase intent figures that I mentioned before Gen Z Gen Y and millennials are anywhere from two to five times more likely to buy.
Grab and go or or fresh cut produce items than baby boomers, saying as the edge.
The composition of consumers tilt.
Tilts more and more heavily to those three generations that should yield real growth opportunity for the category and that's why we're excited about it.
Okay, great. Thanks for the comments.
Our next question is from Mitch Pinheiro of started that and company. Please proceed with your question.
Yeah, Hi.
A couple of questions just sort of staying on on our F. G SIB volumes, where you know.
Flat and I'm sure you know.
SKU rationalization played into that but what what.
What's happening on your customer and I mean.
You know.
So you know, obviously flex flat, but when you look across your customers is there is there are you know sort of one segment of customers that.
Are still struggling.
Where are we on your customers sort of road back.
To normalcy.
Hey, Mitch this is somebody else and I'm going to start with but I asked last time Sir.
Your answer on the market expectations for RFG that demand.
After call it search and we continue to see costumers tifton call like get up and go and fresh cut fruits and veggies in prepared foods in airports in different channels. So our volume was flat primarily because we closed our Florida facility and we consolidate.
Some of the attractive volume into Georgia and were making some hardcore.
Hi, Cole to optimize their product line, where we want to participate in this industry and our customers are working with us and remember in Q1, we also had the seasonality demand.
It goes down because fresh fertility in there we intend to consume less so so we are at.
Priority sized in our part of this optimization with our customers.
It's a cute that to get cost savings and we expect that demand will continue to be there and we plan to grow this business. Once we have the right product line to go to market.
So okay. So what.
So if it's if.
If you didn't have the Georgia.
Just the disruption in the <unk>.
That's sort of the relocation I mean volumes, you're suggesting volumes would have been up in RFG.
Yes.
Okay.
And.
You know I mean.
So.
Whats the grab and grow grab and go market I mean, what what's that growth rate right now with your customers I mean is that growing or.
I still don't have a sense of we are we you know it is customer demand.
Yes.
There's isn't where it was in 2019 or have.
Has there been a.
I, you know sort of lost in that.
Demand or volume in that segment.
Mitch I think two things that I would say is absolutely continues to grow alright, there there's no doubt that grabbing grows.
Grab and go it's growing.
I think in our results, it's hard to see and it's just frankly, a lot of the growth that happening in certain segments of our of our portfolio was offset because there were certain skus that we rationalized, but in in transition in our capacity. There were also certain customers were.
We couldn't find a path for mutual success is probably the best way I can say it. So you do see in this quarter you see a little bit of growth that's offset by some of the changes were made we made two stabilized RFG business first rule of improving profit stabilized business <unk>.
Rule grow so I think you'll have a chance to see some of that.
In quarter, two because a we will get some seasonality impact b will will have a more stable customer base and see I think this has been really encouraging for us in sort of the first.
45 days of the second quarter is labor productivity has improved.
Material costs have improved.
We've seen fill rates improve all of those things obviously, a help improve your your volume line as well, but I think in the first quarter growth is masked a little bit because we had some other.
Just going on in both the SKU and customer portfolio.
Okay.
The color.
And then.
On the fresh side can you talk about maybe the different dynamics in the first quarter foodservice.
<unk> versus retail.
Oh.
So yes, so we see most turn that's going on the fresh side. So our total sales grew 40% and the majority of that obviously was seen in price and not in volume and we see similar trends in both in food services as well as retail.
Okay.
So both so.
So volume was down 12% in the quarter is that 12 is it evenly split foodservice was down 12, and retail was down 12, yeah. So tough tough to put it into it there's just pretty car with our food service channel is still unfavorable if that's what you're asking we have.
Had room to recover our volume was 6% down in foodservice lessor them in retail, but it's still down.
Okay.
I would also remember in first quarter, I think some of that volume impact with capacity constraints as well.
So we're more of a tail where more sales available if more product was able to be extracted out of Mexico.
Got it and then.
You know so.
With with Mexico, I mean.
They've been a very inconsistent supplier I mean, they're the largest supplier and you know it.
Realized police cars gonna help probably.
You know Theres always something with Mexico, if it's not you know.
Growers, holding back through and and and and you know disagreements there or if it's a.
I don't know you know whether their agricultural expertise kind of can is keeping up you know it just seems like the quality of fruit that I see.
Is below average.
I find the sizing available at retail and consistent.
It might be this might be a retailer's issue and not a not not the wholesaler.
Side of the equation, but.
You know it just doesn't seem like.
You know that that you can count on.
On Mexico for consistent supply I know its an agricultural industry, you know business, but.
How do you deal with.
How do you deal with that I mean, I know, it's an industry problem, but.
It's we haven't you know, but I thought it would be 567, 8% kind of volume growth in the in the in the in the category you know you've already seen you know flat to 2% type of supply growth.
When does this sort of.
You know get to better equilibrium.
So Mitch I think there was a lot of questions in that commentary, but let me, let me kind of talk through the way were thinking about sourcing.
First of all let's let's also remember Mexico's 80% of the U S market.
So that that isn't going to change anytime soon.
80% of the U S market I do think there's opportunities, which is why you've seen us continue to expand year after year imports from Peru why were excited.
Cited about police go being an opportunity why we've started to bring on potentially some sourcing from.
Colombia or or other areas and why we continue to play heavily in the California market because in in a in a commodity marketing commodity trading area Optionality is important and but considering that Mexico is 80% of the market.
You only have so much optionality. So I think part of it is making sure that that you have a sourcing strategy and we do that allows the most optionality that you can in the arena.
That's one I think the other part of it is making sure that you understand the rules of the game in Mexico as best as you can and then play those rules as hard as we can.
So that you get you get access to fruit, where where you need it when you get the high quality fruit, you're able to market. It to the right customers are again, a little bit back into that concept of playing in the right spots of the avocado category not all the spots just to be playing in all the spots we want to play in the right spots.
And are those are those are all aspects of how to manage a successful commodity business and we're pushing and pulling on on levers at all of those phases and me too if I may add.
Mexico still has the highest concentration of sustainable farming.
Natural water irrigation practice in song that means volatility through their supply production. So while we do lots of companies that we manage the margin and expectations for the profitability of that cut up on a weekly basis and you can see that over time and we.
We have been consistent with our margin and believe it is so we try to adjust to that magical ability because that's the reality of our avocado plan.
It can last up to six be here something around but we manage the margin and all the time, we have been successful in delivering that margin.
Okay, well, thanks for taking the questions.
Okay.
We have reached the end of the question and answer session I will now turn the call back over to Bryan Coca for closing remarks.
Ah well before we hang up I'd just like to say thank you for your participation I'd like to thank our shareholders for their continued support of Colorado and I look forward to meeting many of you in the coming months either in person or virtually.
Till then we wish you the best and thanks again for tuning in today and for your continued support.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Okay.
[music].