Q4 2024 Mission Produce Inc Earnings Call
Two our approach with other sourced regions. The goal with Guatemala is just fill voids in the calendar to reliably supply customers year round and we look forward to the additional flexibility that the USDA approval affords us, which we expect to further strengthen our competitive position in the years to come.
Further on the topic of our facility work, we took actions in the fourth quarter to optimize our distribution footprint and enhance our efficiency as part of this effort, we will be winding down our Toronto and Calgary facilities through the first quarter of fiscal 2025.
We will be able to maintain the same high level of customer service and while eliminating redundant costs in our system.
This decision reflects the flexibility and efficiencies that we build into our North American distribution network over the years.
In closing I want to thank our team for their outstanding execution throughout fiscal 2024.
Their hard work and dedication enabled us to successfully navigate dynamic market conditions, while driving meaningful growth and operational improvements as.
As we look ahead to fiscal 2025, we're confident in our competitive positioning.
Global sourcing network continues to be a key differentiator, providing us with the flexibility to meet customer demand regardless of regional supply dynamics.
Combined with our strong balance sheet and disciplined approach to capital allocation. We believe we're well positioned to continue creating value for our shareholders.
With that I'll pass the call over to our CFO, Brian Giles for his financial commentary.
Brian Giles: Thank you, Steve and good afternoon to everyone on the call I'll start with a review of our fiscal fourth quarter financial performance touching on some of the key drivers within our three reportable segments, then I'll provide.
Brian Giles: An update on our financial position and conclude with some thoughts on the current market conditions that we're seeing.
Brian Giles: Total revenue for the fourth quarter of fiscal 2024 increased 37% to $354.4 million driven primarily by a 36% increase in avocado sales prices.
Brian Giles: Higher prices resulted from constrained avocado supply during the quarter driven by weather impacts on fruit development and production in Peru, combined with stronger consumer demand.
Brian Giles: Despite lower proven volumes, we were able to leverage our diverse sourcing network across California, Columbia, and Mexico to drive a 9% increase in North American avocado sales volumes compared to the prior year.
Brian Giles: Amidst the supply challenges, we faced we made a strategic decision to prioritize the north American market, where strong consumer demand supported by retail promotional activity translated to higher per unit price points.
Brian Giles: Gross profit increased by $28 million to $55 $8 million in the fourth quarter and gross profit margin increased 490 basis points to 15, 7% of revenue.
Brian Giles: These increases were primarily driven by stronger per unit margins on avocados sold during the period.
Brian Giles: We can further attribute these increases to the combination of favorable mix of source fruit and internal initiatives that Steve spoke to earlier.
Brian Giles: Our blueberry segment also contributed to the increase with higher volumes while per unit margins remained generally consistent with the prior year.
Brian Giles: SG&A expense increased $6 $6 million or 32% compared to the same period last year.
Brian Giles: Merrily due to higher employee related costs, including performance based incentive compensation and stock based compensation expense as a result of our improved operating performance relative to the prior year period.
Adjusted net income for the quarter was $19 $6 million or 28 cents per diluted share compared to an adjusted net income of $7.5 million or 11 cents per diluted share last year.
Brian Giles: Adjusted EBITDA increased $19 $6 million or 113% to $36 $9 million as compared to $17 $3 million last year.
Brian Giles: This improvement was driven primarily by the stronger gross profit performance from our marketing and distribution and blueberry segments.
Turning now to our segments, our marketing and distribution segment net sales increased 35% to $319 $6 million for the quarter, primarily driven by the avocado pricing increases I described previously.
Brian Giles: Segment, adjusted EBITDA increased $14.8 million to $25 $6 million as a result of the higher per unit gross margins we discussed.
Total segment sales and adjusted EBITDA in our international farming segment were $33 million and $2 $7 million, respectively, compared to $43 million and $1.1 million in the same period last year.
Brian Giles: While we experienced a decrease in segment sales due to the previously disclosed reduction in volume from our own farms as a result of the unfavorable El Nino weather conditions during the harvest sat in Peru.
Brian Giles: We were pleased to generate positive adjusted EBITDA that was higher than the prior year period.
Brian Giles: The improved profitability correlated to the strong pricing environment within which we work diligently to maximize sales returns with our U S market focus.
Brian Giles: And the cost containment efforts, we implemented near the end of the prior harvest season.
Brian Giles: And our blueberry segment activity is typically concentrated in the first and fourth quarters of our fiscal year and alignment with the Caribbean Blueberry harvest season.
Brian Giles: Net sales in the blueberry segment totaled $31 $6 million compared to $19 $5 million in the prior year period, and adjusted EBITDA increased to $8.6 million from $5 $4 million in the prior year period.
Brian Giles: The increases in both sales and adjusted EBITDA were driven by higher blueberry volume sold during the quarter that resulted from both new plantings coming into production as well as yield improvements on existing plant teens following the challenging weather conditions experienced in the prior year.
Shifting to our financial position cash and cash equivalents were $58 million as of October 31, 2024, compared to $42 $9 million at October 31, 2023.
Brian Giles: We are very pleased with our operating cash flow performance in fiscal 2024, which increased $64 $2 million versus the prior year to $93.4 million for the fiscal year ended October 31st the growth in operating cash flow was primarily driven by improved operating performance during fiscal 2024.
Brian Giles: Further supporting the improvement in operating cash flow was favorable working capital management.
Brian Giles: Well higher avocado pricing drove increases in inventory and accounts receivable. These increases were more than offset by higher grower payable balances driven primarily by those same high prices.
Brian Giles: And higher accounts payable and accrued expenses, the latter of which was significantly impacted by incentive compensation and statutory profit sharing accruals in the current year.
Brian Giles: In addition, higher accounts payable and accrued expenses were attributed to the impact of higher volume and increased acreage within our blueberry segment.
Brian Giles: Capital expenditures were $32 $2 million for the 12 months ended October 31, 2024, compared to $49.8 million last year and were attributed to avocado and blueberry farming related investments in Latin America, as well as construction costs associated with expanding capacity at our U K distribution facility.
Brian Giles: During the fiscal year International farming segment also began construction of a pack house in Guatemala.
Brian Giles: Of note our Capex spending in fiscal 2024 was approximately $10 million less than we contemplated in our outlook due to timing of vendor payments and blueberry plant development that will push this spending into fiscal 2025.
Brian Giles: As a result of this timing shift our projected capex budget for fiscal 2025 is expected in the range of $50 million to $55 million allocated largely to the national farming and blueberry segments.
Brian Giles: However, our overall trajectory of moderating capital spending remains intact as we complete these remaining projects re fiscal 2026 and focus on optimizing returns from our existing asset base.
Brian Giles: To that end, we remain committed to driving free cash flow is a means towards maintaining a healthy capital structure. We're proud to have generated approximately $60 million of free cash flow in fiscal 2024.
Brian Giles: Looking ahead, we believe the business is well positioned to continue generating meaningful free cash flow in the years ahead.
Brian Giles: Debt Paydown remains our near term priority and we expect to continue to strengthen our balance sheet next year.
Brian Giles: In regards to our near term outlook on the fundamental drivers of our operations, we are providing some context around our expectations for industry conditions to help inform your modeling assumptions.
Brian Giles: Beginning with avocados with the conclusion of the California in Peru harvest seasons, we have transitioned to a Mexico centric source model.
Brian Giles: We expect industry volumes in our fiscal 2025 first quarter to be consistent with the prior year period.
Brian Giles: While supply from Mexico has been constrained during the early part of the quarter due to fruit maturity and sizing.
Brian Giles: We expect industry volumes to ramp up when we move to the latter portion of the quarter as we expect a larger Mexican harvest season.
Brian Giles: Pricing is expected to be higher on a year over year basis by approximately 20% compared to the dollar 40 per pound average experienced in the first quarter of fiscal 'twenty 'twenty four indicative of continued strength and demand.
Brian Giles: Pricing assumptions are closely tied to the volume estimates previously mentioned.
Brian Giles: As the industry transitions to Mexico being the primary country of origin for supply and supply becomes more readily available.
Brian Giles: We are expecting that per unit margins on purchased avocados.
To our historical targeted ranges from the elevated levels that we experienced during our fiscal 2020 for third and fourth quarters.
Brian Giles: Our blueberry harvest season in Peru will peak during the first quarter.
Brian Giles: We expect to see meaningful volume increases from owned farms, resulting from yield improvements and new acreage and production, but the impact on revenue is expected to be offset by lower average sales prices due to higher overall industry volumes from Peru.
Brian Giles: Pricing is expected to be approximately 30% lower on a year over year basis, which will negatively impact segment adjusted EBITDA during the quarter as compared to the previous year when weather related supply constraints led to abnormally high sales prices.
Brian Giles: In closing, we're incredibly proud of the progress we've made this year we've.
Brian Giles: We've demonstrated our industry leadership in a turbulent environment, while delivering some of the strongest financial performances in our history as a public company.
Brian Giles: They're underscored by robust free cash flow generation.
Brian Giles: These achievements have laid a very strong foundation for missions future and were excited to continue executing on our growth strategy.
Brian Giles: That concludes our prepared remarks, operator now over to you. Please open the call to Q&A.
Speaker Change: Great. Thank you at this time, we'll be conducting a question and answer session. If you'd 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.
Brian Giles: You May press star two to remove yourself from the queue.
Brian Giles: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys one.
One moment please poll for questions.
bank Levy: First question here some bank Levy from Lake Street Capital markets. Please go ahead.
Speaker Change: Thanks for taking my questions and congratulations great end to a great year here.
Speaker Change: My first question is the result in the quarter relative to the prerelease information, you're both revenue and EBITDA comfortably exceeded what you had laid out on our pre release, a five or six weeks ago I'm, just wondering kind of what the delta was.
Speaker Change: And the actual results versus what you saw in the press release.
Speaker Change: Yeah sure thing, but yeah, we certainly wanted to get out in front of it. We we knew that some of the data that was out on the street was well below where we expected the quarter to track to.
Speaker Change: We certainly didn't have our all of our information closed out at the point in time, when we put this release together I would say we were bullish on our marketing and distribution segment, and where pricing and per unit margins were even though we did not yet have everything finalized and that is certainly where why we kind of set a floor and.
Speaker Change: We knew that there was.
Speaker Change: Some room to to be a little bit better than those figures I think the biggest delta that we saw though was really in our farming and blueberry segments. We really had not pulled the closing information together from either of those areas yet it does take us a little bit longer to to extract that data from our systems. So.
Speaker Change: I'd say the biggest delta where the volumes sold through on blueberries, not not harvested, but actually sold through were a little higher than we expected and the average selling prices that we realized held up better than we'd originally thought they would we knew as we were transition towards Q1 that blueberry prices were beginning to.
Speaker Change: Decline so we factored in some conservatism into what we thought pricing was going to look like but in reality through the end of October that pricing held up better than we'd expected.
Speaker Change: Got it got it okay, that's very helpful.
A couple of others for me. So first of all Steve you noted winding down a couple of facilities here in this current fiscal quarter.
Speaker Change: I'm wondering if you can comment at all on any costs associated with that you bolt cash or noncash costs.
Speaker Change: Okay.
Speaker Change: Well those two facilities I mentioned were.
Speaker Change: Not running at a profit.
Speaker Change: There's ways to.
Speaker Change: Provide the same service level that we were we were.
Speaker Change: Writing with a lot less cost by just going direct from other facilities either at the border or somewhere else.
Speaker Change: United States into Canada. So.
Speaker Change: At.
Speaker Change: You know, we we put those in there several years ago for a specific customer.
Speaker Change: And they are started buying more and more direct.
A lot of it from US I mean, we didn't lose the customer, but they were wanting to go direct from the border.
Speaker Change: I have it right than they were in a rabbit themselves. So it just it kind of outgrew its purpose.
Speaker Change: Yeah in terms of the the cost band I would just say that.
Speaker Change: Certainly we have some assets there in those facilities that aren't fully amortized or depreciated, yet, but most of our leases.
Speaker Change: These leases were due to expire in the next one to two years. So they were close to their end date. So there's a tail on some fixed assets. There's a tail on some lease payments that we have left to go.
Speaker Change: Then there's also potentially some asset retirement related obligations, a minimal amount of severance when all of a sudden down the facilities werent staffed.
Speaker Change: Well, we had maybe 12.
Speaker Change: People within those facilities so they they weren't they shouldn't we're not expecting this to have a significant impact when all of a sudden done but.
But we do think that longer term it will generate some meaningful cost savings for us to steves point. They fished the facilities there was not enough volume moving through those facilities to enable them to operate efficiently. The Canadian market simply has changed over the last decade, it's not what it was when we <unk>.
Speaker Change: First opened our facilities in Toronto back in the.
Speaker Change: The first Oh, 2007, 2008 timeframe I'm in it and.
Speaker Change: Certainly we've had two it's taken us time to adapt to the changing market conditions out there. We think long term. This is the right choice for us.
Speaker Change: Okay Alright.
Speaker Change: Definitely makes sense.
Speaker Change: Both of your comments on the international farming segment excuse me yes.
Speaker Change: Now both of your comments on the international farming segment seemed pretty.
Speaker Change: Pretty encouraging I'm wondering if you can just kind of big picture talk about.
Speaker Change: You know, especially the EBITDA expectations coming out of that segment here.
Speaker Change: If you anticipate kind of a directional.
Speaker Change: You know the directional improvement that you saw in 'twenty four to continue in 'twenty five.
Speaker Change: Given kind of stabilizing weather conditions in the operational efficiency that you guys have made down there.
Speaker Change: Okay.
Brian Giles: I'll refer to Brian on the numbers.
Speaker Change: Yeah, I mean, I think as you know at a high level then.
Speaker Change: Things are moving in the right direction I think we did some things in 2024 related to the cost structures within the farms that will continue to pay dividends going forward I think it'll we expect the market conditions to be different next year than they were in 2020 for them.
With the weather changes down in Peru.
Speaker Change: The El Nino effect kind of dissipated in may of this.
Speaker Change: This year with so with weather conditions change and we're expecting a larger crop as we move into next year, which likely translates and not only from Peru, but in general we're expecting larger crops across many of the source regions.
Speaker Change: We work in so we're expecting a higher a year of higher volumes and a year, where pricing is likely going to come down off the highs. We saw this year, particularly as we reengage to a greater extent with some of the international markets that we work in I'd say in general what we're bullish about the direction of farming. Yeah. If we look back we were.
Speaker Change: Come off a couple of difficult years, 'twenty 2023 'twenty 'twenty four EBITDA has not been where we would've expected it to be we go back to 2022, our EBIT. It was in the $23 million range in 2020. One it was north of $30 million, we absolutely believe that the farming segment can move back.
Speaker Change: To those types of levels again in the near future as volume picks up and we continue to kind of reopen markets for for that fruit.
Yeah, we'd gone good weed.
Speaker Change: We've gone through an El Nino series, a year or two ago, which kind of damage those trees for a year or so.
Speaker Change: And the crop suffered size wise quality rise got hot it got wet at AR, but we've outgrown that and I think we're on the <unk>.
Speaker Change: That happens about every 10 years, so I hope they won't see it for.
Speaker Change: Another 10.
Speaker Change: Very good alright, well fingers crossed up here.
Speaker Change: So one more for me and I'll get back in queue, just kind of a big picture macro question you know given that.
Speaker Change: How much.
Speaker Change: You are involved in the import export world.
Speaker Change: How you're thinking about kind of the future of agricultural exports into the U S, particularly from Mexico in the context of potential tariffs is there. So that's a dynamic that's changing at all how you think about operating your supply chain or are you really just kind of sitting back and waiting to see you know kind of how it all shakes out.
Speaker Change: Well I think.
On Trump's behalf.
Speaker Change: I think that's a ploy to get them to the table.
Speaker Change: Oh shaped our help with the immigrant problem.
Speaker Change: Whether he pulls the trigger on the tariff or not I don't know I hope not but.
Speaker Change: Obviously, it'll raise costs, probably slow consumption down a little bit.
Speaker Change: Who knows I mean consumption keeps growing and if you look at the overall category volume goes up and pricing has gone up so.
Speaker Change: You know, even if it leveled off we'd be in pretty good shape.
Speaker Change: So I'm not too worried about it really.
Speaker Change: This is John Pawlowski, I would add to Steve's comments that.
Speaker Change: When you look at.
Speaker Change: Historical capabilities.
Speaker Change: The team here in Michigan.
Disruption price changes price inflation.
Speaker Change: The challenge is getting product from one country or another has always been part of the game and this team has proven and really proven over the last 12 months, how well they can execute when things get choppy.
Speaker Change: So if theres things that come down the path that creates some choppiness. This team is absolutely ready for that and then the second piece of it is also what Steve just mentioned and Thats. The consumer resilience, we have really seen the consumer be resilient through both an inflationary period as well as price.
Speaker Change: Not just the price side, but also from a supply challenge perspective, and the consumer is really taking away.
Speaker Change: More and at a higher price than they ever have so both of those two things combined I see mission positioned in a great spot kind of regardless of what happens on the tariff side of things I think that's directly focus at Mexico to not because I don't think he's going to put a tariff on Peru, Colombia and Guatemala.
Speaker Change: I hope.
Speaker Change: Gotcha very good.
Speaker Change: Alright, well I appreciate that context from your both congratulations again on a really great quarter, and really great year, and I will get back in queue.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Next question is from Gerry Sweeney from Roth Capital Partners. Please go ahead.
Speaker Change: Hey, good.
Gerry Sweeney: Good afternoon, guys. Thanks for taking my call.
Speaker Change: Sure thing Jerry.
Speaker Change: Just to follow up on Ben's question, and then the answer but.
Speaker Change: It seems like.
Speaker Change: Consumers have.
Speaker Change: Maybe you know.
Speaker Change: A better phrase busted through the price barrier and seem more consistent at higher prices than maybe a couple of years ago was that is that fair to say.
Speaker Change: I see.
Speaker Change: This past year's results.
Speaker Change: Yeah, Yeah, where we're seeing two macro trends that are driving that Jerry this is John.
Speaker Change: The first one I think you'll hear consistently across.
Speaker Change: Anyone in the grocery sector and that is exactly what you just said theres been inflationary pressure over the last 18 months and Youre starting to reach points, where the consumer has adapted to that.
The second piece more specific to our kind of slice of the pie in regards to the produce section as we're seeing a lot of younger consumers enter the marketplace. You've got people that are you know.
Speaker Change: 18 to 30 that are picking up more avocado consumption and those consumers as they enter the marketplace, they're making them, making up a much bigger portion of our shopper base. They are much more resilient than the traditional baby, but baby boomers have proven to be in the past.
Speaker Change: Got it.
Speaker Change: Does this mean moving forward that.
Speaker Change: Yeah.
Speaker Change: Retail can keep prices elevated make more money and maybe how does that sort of trickle through to the to the Miss.
Speaker Change: Sure.
Well I guess they had the prices they make more money piece is always the tricky question right because the price versus our cost always plays always plays a role in that.
Speaker Change: I think you'll see more consistency compared to from margin perspective on the retail side of things where they were in 'twenty four.
Speaker Change: I mean, Jerry I think it's all in relative terms, where pricing is going to set them theres going to be a supply of volume available and prices need to it will need ultimately be set at a level that enables the market to consume that supply due I think at at comparable levels I think the price points will settle in higher there.
Speaker Change: Where they were in the past 234 years ago, but I think as we look to this coming year if volumes were to increase.
Speaker Change: 10, 15% across all countries of origin I would think that that is going to bring pricing down somewhat with that much of a volume increase.
Speaker Change: But again it'll be a more resilient price than it would've been.
234 years ago, and still be good they're pretty high to start with.
Speaker Change: Yeah, Yeah yeah.
Speaker Change: Got it.
Speaker Change: Curious it feels like.
Speaker Change: Prices are elasticity is coming back or something like that.
Speaker Change: No.
Speaker Change: Yeah.
Speaker Change: I wouldn't say there were definitely times I mean.
Speaker Change: Where that 99 cent per piece, Barry or was this kind of an indicator of when demand would start to taper and that doesn't seem to be the threshold or the limit any longer.
Speaker Change: Price points it'd be a dollar nine dollar and a quarter dollar for dollar 49, I'm, we're not seeing that having a negative impact on pull through any longer. So yeah. I think inflation. It's taken a few years I think for maybe the consumer to adapt to paying higher prices, but it feels like it's fine.
Speaker Change: They kind of come through our category in this last year.
Speaker Change: Got it switching gears to blueberries and blueberries are great.
Speaker Change: Okay.
But you also noted.
Speaker Change: Increased plantings how many.
Speaker Change: How many more acres this year than last year and two years ago and then what is the plan for the blue bars for the next couple of years going forward.
Speaker Change: So in production, you're talking about or planning.
Speaker Change: Yes.
Speaker Change: That's right that's right yeah, blueberries have a pretty quick turn like usually within a year there in a productive state. Unlike an avocado tree, where it can take four or five years.
Speaker Change: But blueberries I think we rolled out another hundred hundred Hector's. This year I think we'll be layering in.
Speaker Change: At least another hundred.
So because we're doing some double density planting Jerry in the first year. So I'm back in my head I'm, Yeah, 100 hectares. This year, but maybe a little more than 100 hectares were at the plants and then we're probably looking at another Han young to close to 200 actors coming into production for the next harvest season, which would roll through Q4.
Speaker Change: Four of 25 and into Q1 of 2026 and that would be on top of I think prior to this we had about somewhere close to 500 actors in production.
Speaker Change: And another 200 and develop.
Speaker Change: So when all said and done with our planning is up in the northern almost region, we should roughly double the size of the the blueberry planting so that we had in place before we started that project 1000.
Speaker Change: So.
Speaker Change: Overall acreage certainly a lot of these plantings are of the new more desirable varieties as well, which we believe over over the long haul are going to help drive higher average selling prices over some of the generic varieties that are being grown in country. So.
Speaker Change: I think we're excited about the opportunity that that that lies ahead certainly focus on.
Speaker Change: Trying to stretch harvest season, you know things of that nature. So we're not overloading markets at certain times of the year and again getting fruit there was premium varieties with the right sizing and the right quality to generate those above average returns.
Speaker Change: Got it and then obviously balance sheets, good shape, you kind of touched on cash flow, but.
Speaker Change: Next couple of years, good cash flow I mean that would be high and a very excellent spot I mean any thoughts on what's after that.
Speaker Change: Do we go back into maybe increasing some planting Stuart.
Speaker Change: Agree or.
Speaker Change: Just curious on that.
Speaker Change: Perspective.
Speaker Change: I mean, I think our plan Jerry I mean, and we've been communicating for years and for a couple of years I don't think we've changed too much on it that our expectation was that yes.
Speaker Change: We've gone through a couple had gone through a couple of years, where operating cash was depressed I think the year. We saw in 2024 was more in line with what we believe the long term capabilities of this business. Our capital has continued to step down.
Speaker Change: Stepped down it looks like it's stepped down a little more this year than it really did because of some timing things, but nonetheless, it's well off of the numbers that we've seen over the last three or four years and we expect that that'll continue.
Speaker Change: So yes, we're going to generate significant cash flow I would think next year you know as we look to fiscal 'twenty five our priority was still be on paying debt down.
Speaker Change: Beyond that Youre right, we will be in a position, where we'll have our balance sheet in really good shape and that will enable us to evaluate other opportunities.
Speaker Change: With that cash one of which could be.
Speaker Change: Returning cash to shareholders in some way shape or form.
Speaker Change: Got it.
Speaker Change: Okay.
Speaker Change: Relations on a great year I appreciate it.
Speaker Change: Hey, Thank you Gerry.
Speaker Change: Okay.
Speaker Change: This concludes the question and answer session I'd like to turn the floor back to management for any closing.
Speaker Change: Thank you for your interest in mission produce and we look forward to talking to you again.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
Speaker Change: Hum.
Speaker Change: [noise] [music].
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Speaker Change: [music].
Speaker Change: Yeah.