Q1 2025 Mission Produce Inc Earnings Call
To ask questions. Please also note today's event is being recorded.
Speaker Change: At this time I would like to turn the conference over to Jeff Sonic Investor Relations at ICR. Thank you, Jeff you may begin.
Steve Barnard: Thank you and good afternoon, today's presentation will be hosted by Steve Barnard, Chief Executive Officer, and Brian Giles Chief Financial Officer, The Companys, President and Chief operating Officer, John Pawlowski at all.
Also on today's call for participation during the Q&A session.
Steve Barnard: The comments during today's call and the accompanying presentation contain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1095, all statements other than statements of historical facts are considered forward looking statements.
Steve Barnard: These statements are based on management's current expectations and beliefs as well as a number of assumptions concerning future events.
Steve Barnard: Such forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward looking statements some.
Steve Barnard: Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We will also refer to certain non-GAAP financial measures today. Please refer to the tables included in the earnings release, which can be found on our Investor Relations website investors Dot mission produce dot com for reconciliations of non-GAAP.
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Steve Barnard: Measures to their most directly comparable GAAP measures.
Speaker Change: Good afternoon and welcome to the Mission Produce, fiscal 1st order 2025 conference call. All participants will be in a listen on the mode. After today's presentation, there will be an opportunity to ask questions. Please also note, today's event is being recorded.
Speaker Change: And with that I'd now like to turn the call over to Steve Barnard CEO, Steve. Please go ahead.
Speaker Change: Thank you for joining us today, we're pleased to deliver a strong start to fiscal 2025, achieving record first quarter revenue of $334 $2 million.
Speaker Change: and Jeff Sonnek, Chief Executive Officer and Bryan Giles, Chief of Analogs. The company's President, Chief Operating Officer, John Polowski, has also on today's call a participation in today's UNIT discussion. The comments during today's call and the accompanying presentation contain more than the sum of the items discussed. I would like to thank Jeff Sonnek, Jeff Giles, Stephen Barnard, and Bryan Giles for their participation in today's conference. The comments during today's call and the accompanying presentation contain more than the sum of the items discussed.
Speaker Change: 29% increase compared to the same period last year. This.
Speaker Change: This performance demonstrates our ability to successfully navigate a dynamic operating environment, where we experienced industry supply challenges in Mexico during a period of strong consumption.
Speaker Change: With a Mexican avocados season ramping up our marketing and distribution segment is back and focused during the fiscal first quarter, we realized segment growth of 32% versus the prior year, reflecting a 5% increase in avocado volumes sold and a 25% increase in per unit avocado selling prices relative to the prior year period.
Speaker Change: Good afternoon. Today's presentation will be co-authored by Steve Barnard, Chief Security and Litigation Officer, and Bryan Giles, Chief Financial Officer. Other than the statements of the President and Chief Operating Officer, I'm concerned about four key statements.
Speaker Change: Combination of volume growth during a period of heightened price and clearly indicates the resiliency of consumer demand for the category. Despite the broader impacts from inflation that consumers continue to absorb.
Speaker Change: Our blueberry segment also contributed nicely to our strong line performance with a 12% increase in revenue to $36 4 million.
Speaker Change: From the results, others in the form of historical facts, are consulted with risks and certain teas are identified and the state does are based on the management of current expectations and belief, also referred to as the number of assumptions and insurgents today.
Speaker Change: <unk> are an exciting area for us and one that we continue to invest in in fact over 100 hectares of new plantings came online early last year growing the total footprint of over 550 actors, which positions us well in a category that continues to see growing consumer demand similar to avocados mangoes.
Speaker Change: We see tremendous long term growth and blueberries as consumer preferences shift towards healthy convenient snacking options and we are strategically positioning ourselves to capitalize on this trend by expanding our acreage and investing in premium varietals that deliver superior flavor profiles and an extended shelf life.
Speaker Change: While our mango program is still in its early stages, we're seeing encouraging progress as we expand our footprint and grow our share in this high growth category that is significantly underrepresented in the North American market.
Speaker Change: We are in an ideal position to continue driving this category, given our ability to enhance existing customer relationships as well as leverage our packing and distribution infrastructure.
Speaker Change: Similar to our approach with avocados, we see significant opportunity to further develop underserved mango markets by bringing greater consistency and quality to consumers.
Speaker Change: Which we believe will drive increased consumption as well as perceived consumer value over time.
Speaker Change: While we generated top line growth, we experienced some normalization of our per unit avocado margins during the first quarter, which was anticipated.
Speaker Change: The compression this quarter was specifically driven by unstable industry supply in Mexico, which began to materialize during the holidays and necessitated increased procurement through co Packers in spot market purchases to ensure we maintain the appropriate service levels to meet our fruit size and volume commitments to customers.
Speaker Change: Our unit margin was also impacted by our strategy to grow our share in mangoes as well as our Canadian facilities closures in the quarter as we optimize our distribution footprint in North America is.
Speaker Change: These closures are part of an ongoing effort to enhance operational efficiency and should ultimately strengthen our long term cost structure.
Speaker Change: Pleased and proud of our team's ability to manage the complexity of the supply challenges in Mexico and all of our other diverse countries of origin, the team's focus and commitment to driving results and delivering for our customers is unmatched in the industry.
Speaker Change: The dynamics, we faced this quarter underscore precisely what we've spent the last 45 plus years building, a durable and strategically diversified business model.
We see tremendous long term growth and blueberries as consumer preferences shift towards healthy convenient snacking options and we're strategically positioning ourselves to capitalize on this trend by expanding our acreage and investing in premium varietals that deliver superior flavor profiles and extended shelf life.
Speaker Change: The diversification encompasses two primary fronts number one expanding our global sourcing footprint to include key growing geographies, such as Peru, Colombia, Guatemala, and among others to ensure reliable year round supply.
While our mango program is still in its early stages, we're seeing encouraging progress as we expand our footprint and grow our share in this high growth category that is significantly underrepresented in the North American market.
Speaker Change: And number two shifting into complementary food categories like blueberries and mango.
Speaker Change: When we faced challenges in one sourcing region of our network provides us with the flexibility to pivot to alternative sources, while our category expansion allows us to leverage existing infrastructure and capabilities to drive efficiencies and create additional growth vectors.
We are in an ideal position to continue driving this category, given our ability to enhance existing customer relationships as well as leverage our packing and distribution infrastructure.
Speaker Change: This multi dimensional approach is designed to provide greater financial consistency throughout seasonal transitions, while ensuring reliable year round supply for our customers.
Similar to our approach with avocados, we see significant opportunity to further develop underserved mango markets by bringing greater consistency and quality to consumers, which.
Speaker Change: A prime example of this is improving our financial performance that can be seen in this quarter's international farming segment results will not typically a material contributor in Q1 adjusted EBIT for the segment improved to $3 million year over year to a positive $1 8 million.
Which we believe will drive increased consumption as well as perceived consumer value over time.
While we generated top line growth, we experienced some normalization of our per unit avocado margins during the first quarter, which was anticipated.
The compression this quarter was specifically driven by unstable industry supply in Mexico, which began to materialize during the holidays and necessitated increased procurement through co Packers in spot market purchases to ensure we maintain the appropriate service levels to meet our fruit size and volume commitments to customers.
Speaker Change: So relatively small in the context of our overall results.
Speaker Change: The segment's contribution demonstrates the positive influence of our diversification strategy on our fixed cost absorption within the farming operations more specifically, we are seeing greater utilization of our approved backing facility for blueberries volume.
Our unit margin was also impacted by our strategy to grow our share in mangoes as well as our Canadian facilities closures in the quarter as we optimize our distribution footprint in North America.
Speaker Change: During what is traditionally a slower period ahead of the avocado harvest in the second half of the year.
Speaker Change: This improved utilization of assets represents exactly the type of operational efficiency, we aim to achieve across our entire organization.
These closures are part of an ongoing effort to enhance operational efficiency and should ultimately strengthen our long term cost structure.
Speaker Change: In closing our first quarter results demonstrate the strategic value of our business model.
I am pleased and proud of our team's ability to manage the complexity of the supply challenges in Mexico and all of our other diverse countries of origin, the team's focus and commitment to driving results and delivering for our customers is unmatched in the industry.
Speaker Change: Our continued focus on operational excellence prudent capital allocation and strategic growth initiatives, we are well positioned to navigate shifting market dynamics, while delivering long term value to our shareholders.
The dynamics, we faced this quarter underscore precisely what we've spent the last 45 plus years building, a durable and strategically diversified business model.
Speaker Change: Our vertically integrated operations and expanding global footprint.
Speaker Change: Give us unique advantages and securing consistent supply for our customers, while our diversification across complementary food categories provides multiple avenues for sustainable growth.
<unk> vacation encompasses two primary fronts number one expanding our global sourcing footprint to include key growing geographies, such as Peru, Colombia, Guatemala, and among others to ensure reliable year round supply and number two shifting into complementary food categories like blueberries and mango.
Speaker Change: Although there is great uncertainty surrounding the tariff negotiations with our North American neighbors.
Speaker Change: These dynamics only served to reinforce the value of our global strategy, which provides us with tools to mitigate potential impacts we remain excited about the opportunities ahead, and we continue to strengthen our global leadership position.
When we faced challenges in one sourcing region of our network provides us with the flexibility to pivot to alternative sources, while our category expansion allows us to leverage existing infrastructure and capabilities to drive efficiencies and create additional growth vectors.
Brian <unk>: With that I'll pass the call over to our CFO, Brian <unk> for his financial commentary.
Thank you, Steve and good afternoon to everyone on the call I'll start with a review of our fiscal first quarter financial performance touch on some of the key drivers within our three reportable segments, then I'll provide an update on our financial position and conclude with some thoughts on the current market conditions that we're seeing.
This multi dimensional approach is designed to provide greater financial consistency around seasonal transitions, while ensuring reliable year round supply for our customers.
A prime example of this is improving our financial performance that can be seen in this quarter's international farming segment results, while not typically a material contributor in Q1 adjusted EBIT for the segment improved to $3 million year over year to a positive $1 8 million.
Brian <unk>: Total revenue for the first quarter of fiscal 2025 increased 29% to $334 2 million largely driven by growth in our marketing and distribution segment.
Brian <unk>: Our average per unit avocado selling prices increased 25% on a 5% increase in avocado volume sold.
So relatively small in the context of our overall results.
The segment's contribution demonstrates the positive influence of our diversification strategy on our fixed cost absorption within the farming operations more specifically, we are seeing greater utilization of our Peru backing facility for blueberries volume.
Brian <unk>: Gross profit increased by $2 8 million to $31 5 million in the first quarter driven by our international farming segment, which benefited from increased packing and cooling service activity that correlated with higher blueberry production volumes.
During what is traditionally a slower period ahead of the avocado harvest in the second half of the year.
This improved utilization of assets represents exactly the type of operational efficiency, we aim to achieve across our entire organization.
Brian <unk>: These favorable results were partially offset by lower gross profit in our marketing and distribution segment caused by lower per unit margins on fruit sold and costs associated with our Canadian facility closures during the quarter.
In closing our first quarter results demonstrate the strategic value of our business model.
Through our continued focus on operational excellence prudent capital allocation and strategic growth initiatives, we are well positioned to navigate shifting market dynamics, while delivering long term value to our shareholders.
Brian <unk>: Gross profit margin decreased 170 basis points to nine 4% of revenue.
Brian <unk>: As a reminder, gross profit percentage fluctuates based upon per unit sales price levels in relation to per unit costs as profitability is primarily managed on a per unit basis.
Our vertically integrated operations and expanding global footprint gives us unique advantages and securing consistent supply for our customers, while our diversification across complementary food categories provides multiple avenues for sustainable growth.
Brian <unk>: SG&A expense increased $1 5 million or 7% compared to the same period last year, primarily due to higher employee related costs, including statutory profit sharing and stock based compensation expense.
Although there is great uncertainty surrounding the tariff negotiations with our North American neighbors.
These dynamics only served to reinforce the value of our global strategy, which provides us with tools to mitigate potential impacts we remain excited about the opportunities ahead, and we continue to strengthen our global leadership position.
Brian <unk>: Adjusted net income for the quarter was $7 1 million or <unk> 10 per diluted share compared to an adjusted net income of $6 7 million or <unk> <unk> per diluted share last year.
With that I'll pass the call over to our CFO, Brian <unk> for his financial commentary.
Brian <unk>: Year over year growth was driven by improved nonoperating results, including reduced interest expense attributed to a combination of lower interest rates and lower borrowings and increased equity income related to improved performance in our avocado distribution joint venture in China.
Thank you, Steve and good afternoon to everyone on the call I'll start with a review of our fiscal first quarter financial performance touch on some of the key drivers within our three reportable segments, then I'll provide an update on our financial position and conclude with some thoughts on the current market conditions that we're seeing.
Brian <unk>: Adjusted EBITDA was $17 $7 million compared to $19 $2 million last year due primarily to lower per unit gross margins on fruit sold in our marketing distribution and blueberry segments.
Total revenue for the first quarter of fiscal 2025 increased 29% to $334 $2 million largely driven by growth in our marketing and distribution segment.
Brian <unk>: Turning now to the segments, our marketing distribution segment net sales increased 32% to $295 8 million for the quarter, primarily due to the avocado pricing and volume dynamics I described previously.
Our average per unit avocado selling prices increased 25% on a 5% increase in avocado volumes sold.
Gross profit increased by $2 8 million to $31 5 million in the first quarter driven by our international farming segment, which benefited from increased packing and cooling service activity that correlated with higher blueberry production volumes.
Brian <unk>: Segment, adjusted EBITDA was $9 7 million compared to $11 million in the same period last year as a result of lower gross profit driven primarily by lower per unit gross margins on fruit sold per unit margins on avocados sold were negatively impacted by challenges in obtaining Mexican supply required to meet customer <unk>.
These favorable results were partially offset by lower gross profit in our marketing and distribution segment caused by lower per unit margins on fruit sold and costs associated with our Canadian facility closures during the quarter.
Brian <unk>: <unk> during the quarter.
Brian <unk>: In the first quarter, our international farming segment results are typically focused on the provision of packing and processing services for our blueberry segment and for third party blueberry producers, though this will evolve over time as our operations develop in other areas such as Guatemala.
Gross profit margin decreased 170 basis points to nine 4% of revenue.
As a reminder, gross profit percentage fluctuates based upon per unit sales price levels in relation to per unit costs as profitability is primarily managed on a per unit basis.
Brian <unk>: With this seasonality in mind total segment sales in our international farming segment increased $3 4 million or 59% to $9 2 million compared to $5 8 million for the same period last year.
SG&A expense increased $1 5 million or 7% compared to the same period last year, primarily due to higher employee related costs, including statutory profit sharing and stock based compensation expense.
Brian <unk>: Segment, adjusted EBITDA increased $2 3 million to $1 8 million compared to.
Brian <unk>: To negative <unk> 5 million for the same period last year.
Adjusted net income for the quarter was $7 1 million or <unk> 10 per diluted share compared to an adjusted net income of $6 7 million or <unk> <unk> per diluted share last year.
Brian <unk>: The improved performance resulted from higher blueberry packing and calling service revenues, which was supported by growth of our own blueberries business as Steve discussed in his remarks, we are pleased to see the results of improved operating leverage and what has traditionally been a smaller quarter for this segment.
Year over year growth was driven by improved nonoperating results, including reduced interest expense attributed to a combination of lower interest rates and lower borrowings and increased equity income related to improved performance in our avocado distribution joint venture in China.
Brian <unk>: Yeah.
Brian <unk>: Net sales in the blueberry segment increased 12% to $36 4 million.
Brian <unk>: Compared to $32 5 million in the prior year period, driven by a 70% increase in blueberry volume sold that was partially offset by a 33% decrease in average per unit selling prices.
Adjusted EBITDA was $17 $7 million compared to $19 $2 million last year due primarily to lower per unit gross margins on fruit sold in our marketing distribution and blueberry segments.
Brian <unk>: Higher blueberry volumes were driven by increased total acreage and yields from our own farms, while price decreases were driven by a normalization of the supply and demand environment. This year as compared to last year's high pricing that was driven by lower supply following unfavorable regional weather conditions.
Turning now to the segments, our marketing distribution segment net sales increased 32% to $295 8 million for the quarter, primarily due to the avocado pricing and volume dynamics I described previously <unk>.
Segment, adjusted EBITDA was $9 7 million compared to $11 million in the same period last year as a result of lower gross profit driven primarily by lower per unit gross margins on fruit sold per unit margins on avocados sold were negatively impacted by challenges in obtaining Mexican supply required to meet customer commit.
Brian <unk>: Adjusted EBITDA was $6 $2 million compared to $8 7 million in the prior year period, primarily due to lower selling prices impacting per unit gross margins.
Brian <unk>: Shifting to our financial position cash and cash equivalents were $41 million as of January 31, 2025.
Speaker Change: <unk> during the quarter.
Brian <unk>: Cash used in operating activities was $1 2 million for the first quarter ended January 31, 2025 compared to cash provided by operating activities of $9 5 million for the same period last year.
Speaker Change: In the first quarter, our international farming segment results are typically focused on the provision of packing and processing services for a blueberry segment and for third party blueberry producers, though this will evolve over time as our operations develop in other areas such as Guatemala.
Brian <unk>: During the current year period, our working capital position was hindered by the impact of higher per unit price points.
Speaker Change: With this seasonality in mind total segment sales in our international farming segment increased $3 4 million or 59% to $9 2 million compared.
Brian <unk>: Higher prices had an unfavorable effect on both accounts receivable and inventory balances compounding the impact of typical working capital growth, we see in the first quarter.
Speaker Change: Compared to $5 8 million for the same period last year.
Brian <unk>: As a result of heavy sourcing of Mexican fruit with shorter payment terms and the build of growing crops inventory within our international farming segment for harvest and sale during the second half of our fiscal year.
Speaker Change: Segment, adjusted EBITDA increased $2 $3 million to $1 8 million compared.
Speaker Change: Compared to negative <unk> 5 million for the same period last year.
Speaker Change: The improved performance resulted from higher blueberry packing and calling service revenues, which was supported by growth of our own blueberries business.
Brian <unk>: Increased productive acreage in our international farming and blueberry segments. This year has led to further increases in growing crops inventory.
Speaker Change: As Steve discussed in his remarks, we are pleased to see the results of improved operating leverage and what has traditionally been a smaller quarter for this segment.
Brian <unk>: Capital expenditures were $14 8 million for the three months ended January 31, 2025, compared to $9 $9 million last year and were attributed to avocado and blueberry farming related investments in Latin America, and the construction of our Guatemala Pack House.
Speaker Change: Net sales in the blueberry segment increased 12% to $36 4 million compared to $32 5 million in the prior year period, driven by a 70% increase in blueberry volume sold that was partially offset by a 33% decrease in average per unit selling prices.
Brian <unk>: Our projected Capex budget for fiscal 2025 remains unchanged at $50 million to $55 million.
Brian <unk>: As a reminder, this figure is approximately $10 million higher than we would have expected due to spend in our international farming and blueberry segments that rolled over from fiscal 2024, as a result of the timing of vendor payments and blueberry plant development.
Speaker Change: <unk>.
Higher blueberry volumes were driven by increased total acreage and yields from our own farms, while price decreases were driven by a normalization of the supply and demand environment. This year as compared to last year's high pricing that was driven by lower supply following unfavorable regional weather conditions.
Brian <unk>: Our overall trajectory of moderating capital spending remains intact as we complete these remaining projects through fiscal 2026, which we believe positions the business to continue generating meaningful free cash flow with debt paydown as our near term priority to further strengthen our balance sheet.
Speaker Change: Adjusted EBITDA was $6 $2 million compared to $8 7 million in the prior year period, primarily due to lower selling prices impacting per unit gross margins.
Speaker Change: Shifting to our financial position cash and cash equivalents were $40 1 million as of January 31, 2025.
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.
Speaker Change: Cash used in operating activities was $1 2 million for the first quarter ended January 31, 2025, compared to cash provided by operating activities of $9 $5 million for the same period last year.
Brian <unk>: That said these projections do not consider any potential influence from the ongoing tariff discussion.
Brian <unk>: So please consider this as a base case scenario to help inform your modeling assumptions.
Speaker Change: During the current year period, our working capital position was hindered by the impact of higher per unit price points.
Beginning with avocados industry volumes in the fiscal 2025 second quarter are expected to be consistent with the prior year period.
Speaker Change: Higher prices had an unfavorable effect on both accounts receivable and inventory balances compounding the impact of typical working capital growth, we see in the first quarter.
Brian <unk>: Mexico volume should taper off during the quarter as the industry harvest comes in lighter than initial expectations.
Brian <unk>: However, California, improving harvest should get off to a faster start than prior year based upon improved weather conditions, which should mitigate the impact on overall available volumes.
Speaker Change: As a result of heavy sourcing of Mexican fruit with shorter payment terms and the build of growing crops inventory within our international farming segment for harvest and sale during the second half of our fiscal year.
Brian <unk>: At projected volume levels pricing is expected to be higher on a year over year basis by approximately 5% compared to the $1 59 per pound average experienced in the second quarter of fiscal 2024 indicative of continued strength in demand.
Speaker Change: Increased productive acreage in our international farming and blueberry segments. This year has led to further increases in growing crops inventory.
Speaker Change: Capital expenditures were $14 8 million for the three months ended January 31, 2025, compared to $9 $9 million last year and were attributed to avocado and blueberry farming related investments in Latin America, and the construction of our Guatemala Pack House.
Brian <unk>: Turning to blueberries, the harvest timing of our Peruvian blueberry season. This year is similar to the prior year with approximately 20% of the harvest to be sold through in the fiscal second quarter, which should translate to an increase in volumes sold of approximately 35% to 40% when applied to a larger total harvest from our farms for.
Speaker Change: Our projected Capex budget for fiscal 2025 remains unchanged at $50 to $55 million.
Speaker Change: As a reminder, this figure is approximately $10 million higher than we would've expected due to spend in our international farming and blueberry segments that rolled over from fiscal 2024, as a result of the timing of vendor payments and blueberry plant development.
Brian <unk>: The 2020 for 2025 season.
Brian <unk>: Average sales prices are expected to decline sequentially, but be consistent with prices experienced in the second quarter of fiscal 2024.
That concludes our prepared remarks, operator now over to you. Please open the call to Q&A.
Speaker Change: Our overall trajectory of moderating capital spending remains intact as we complete these remaining projects through fiscal 2026, which we believe positions the business to continue generating meaningful free cash flow with debt paydown as our near term priority to further strengthen our balance sheet.
Brian <unk>: Great. Thank you we will now 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 <unk>: Press Star two to remove yourself from the queue.
Speaker Change: 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.
Brian <unk>: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star.
Brian <unk>: One moment, please pull for questions.
Speaker Change: That said these projections do not consider any potential influence from the ongoing tariff discussion.
Speaker Change: First question here is a bank Levy from Lake Street Capital markets. Please go ahead.
Speaker Change: So please consider this as a base case scenario to help inform your modeling assumptions.
Speaker Change: Alright, Thanks for taking my questions first in the core.
Speaker Change: Order itself I'm wondering if you can help help us a bit and elaborate on this dynamic where you had to source from co Packers can you quantify kind of the degree to which you had to do this in the current quarter relative to normalized levels and then have conditions improved quarter to date such that.
Speaker Change: Beginning with avocados industry volumes in the fiscal 2025 second quarter are expected to be consistent with the prior year period.
Speaker Change: Mexico volume should taper off during the quarter as the industry harvest comes in lighter than initial expectations.
Speaker Change: That's enabled us to secure inventory more directly or condition.
Speaker Change: However, California, improving harvest should get off to a faster start than prior year based upon improved weather conditions, which should mitigate the impact on overall available volumes.
Speaker Change: Condition kind of sustained so far over the last six weeks.
Speaker Change: They have sustained over the last several weeks the crop overall is down slightly in Mexico, and as Brian said in his.
Speaker Change: At projected volume levels pricing is expected to be higher on a year over year basis by approximately 5% compared to the $1 59 per pound average experienced in the second quarter of fiscal 2024 indicative of continued strength in demand.
Speaker Change: Statements the demand is up in.
Speaker Change: And volume is.
Speaker Change: Up a little bit.
Speaker Change: So compared to the year ago, but.
Speaker Change: Turning to blueberries, the harvest timing of our Peruvian blueberry season. This year is similar to the prior year with approximately 20% of the harvest to be sold through in the fiscal second quarter, which should translate to an increase in volumes sold of approximately 35% to 40% when applied to a larger total harvest from our farms.
Speaker Change: We're going to have to live through this for probably another month or so until we get other sources of supply like California in Peru.
Speaker Change: <unk>, which is right around the corner.
Speaker Change: And I would also comment that.
Speaker Change: Kind of as we transitioned into December kind of early parts of the Mexico harvest season, I think everyone was expecting a bump in the overall industry crop this year.
Speaker Change: The 2020 for 2025 season.
Speaker Change: Average sales prices are expected to decline sequentially, but be consistent with prices experienced in the second quarter of fiscal 2024.
Speaker Change: I think we were planning for volume increases as we move to the holidays and into January I think what we've come to realize subsequent to that is that the overall industry harvest out of Mexico is unlikely to be as large as we had initially expected I think.
Speaker Change: That concludes our prepared remarks, operator now over to you. Please open the call to Q&A.
Speaker Change: Great. Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Yes.
Speaker Change: Some of that behavior in terms of some of the commitments. We've made to customers was driven around the need to move more volume and then once we've made those commitments we needed to go out and fulfill them I think as we've moved forward beyond that I think we have a better expectation now of what the overall, Mexico harvest is going to look like and I think that is likely to enable.
Speaker Change: Confirmation tone will indicate your line is in the question queue.
Price start to remove yourself from the queue.
Speaker Change: All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: One moment, please pull for questions.
Speaker Change: First question here is from Bank Levy from Lake Street Capital markets. Please go ahead.
Speaker Change: To avoid buying as much fruit kind of in the spot market and through co Packers as we did during that window. So I will say, it's not uncommon for us to use co packers to fill specific needs on specific sizes.
bank Levy: Hi, Thanks for taking my questions first in the quarter itself I'm wondering if you can help help us about an elaborate on this dynamic where you had to source from co Packers can you quantify kind of the degree to which you had to do this in the current quarter relative to normalized levels and then have conditions improved quarter to date such that.
Speaker Change: Or certain grades. So we do we do buy from them on a regular basis I think that percentage of fruit, though that we acquired via those means was much higher during the first quarter than what we would typically like to see.
bank Levy: That's enabled us to secure inventory more directly or.
bank Levy: Condition kind of sustained so far over the last six weeks.
Speaker Change: The other thing that affects it is the size of the fruit.
bank Levy: They have sustained over the last several weeks the crop overall is down slightly in Mexico, and as Brian said in his.
Speaker Change: It was affected by El Nino or some weather phenomenon as a year ago. So the size. The average size is much smaller.
bank Levy: Statements the demand is up and.
Speaker Change: <unk> two.
bank Levy: And volume is.
Speaker Change: History, which affects the overall tonnage.
bank Levy: Up a little bit.
bank Levy: So compared to the year ago, but.
Speaker Change: Yeah.
Speaker Change: Okay very good I appreciate that.
bank Levy: We're going to have to live through this for probably another month or so until we get other sources of supply like California in Peru.
Speaker Change: From both of you.
Speaker Change: Regarding the working capital build Brian you talked about.
bank Levy: <unk>, which is right around the corner.
Speaker Change: Reasons for this in the first quarter and I'm wondering the degree to which you have visibility of this unwinding in the second quarter or beyond.
bank Levy: And I would also comment that.
bank Levy: Kind of as we transitioned into December kind of early parts of the Mexico harvest season, I think everyone was expecting a bump in the overall industry crop this year.
Speaker Change: Taking all taking the cash off the balance sheet given the given the buildup in the first quarter.
Speaker Change: Yes.
Ben: Ben This is normal somewhat normal seasonality for our business.
bank Levy: I think we were planning for volume increases as we move through the holidays and into January I think what we've come to realize subsequent to that is that the overall industry harvest out of Mexico is unlikely to be as large as we had initially expected I think.
Ben: We generally have strains on working capital during the first half of our fiscal year and they generally unwind themselves. During the second half of our fiscal year I think maybe we didn't see it quite as much last year.
Ben: As we typically do where we actually had positive operating cash during the first quarter, but this is a very normal occurrence for us to see.
bank Levy: Yes.
bank Levy: Some of that behavior in terms of some of the commitments. We've made to customers was driven around the need to move more volume and then once we've made those commitments we needed to go out and fulfill them I think as we've moved forward beyond that I think we have a better expectation now of what the overall, Mexico harvest is going to look like and I think that is likely to enable.
Ben: It gets accentuated this year by the higher priced environment that we're in we do tend to have to pay our suppliers a little bit faster than we're able to turn inventory.
Ben: So it certainly does have a bit of a negative impact, but as we move to the second half of the year.
bank Levy: To avoid buying as much fruit kind of been in the spot market and through co Packers as we did during that window. So I will say, it's not uncommon for us to use co packers to fill specific needs on specific sizes of fruit.
Ben: No.
Ben: We would expect at a minimum.
Ben: As we move into harvesting our own fruit selling fruit farmer owned farms down in Peru that inventory balance is going to come down.
Price point stay at the levels that are at it will likely continue to put some pressure on working capital from the standpoint of the.
bank Levy: Or certain grades. So we do we do buy from them on a regular basis I think that percentage of fruit, though that we acquired via those means was much higher during the first quarter than what we would typically like to see.
Ben: The prices that we pay for the fruit in Mexico, but I think just as we transition away from the Mexico harvest and into other countries of origin that will have a favorable impact.
bank Levy: The other thing that affects it is the size of the fruit.
bank Levy: It was affected by El Nino or some weather phenomenon as a year ago. So the size. The average size is much smaller.
Ben: Okay.
Good.
Ben: One more from me and then I'll get back in queue around tariffs.
Ben: Obviously nobody knows.
bank Levy: Baird.
Ben: I'm not asking you guys to make any predictions here what I'm curious about is the degree to which you've observed kind of supplier behavior changing at all.
bank Levy: History, which affects the overall tonnage.
bank Levy: Okay.
bank Levy: Good I appreciate that.
Ben: As this has become.
bank Levy: Both of you.
bank Levy: Regarding the working capital build Brian you talked about.
Ben: Hey.
Ben: Our variable.
Ben: Particularly kind of in the.
bank Levy: Reasons for this.
Ben: Leading up to the February 1st.
bank Levy: In the first quarter and I'm wondering the degree to which you have visibility of this unwinding in the second quarter or beyond.
Deadline.
Ben: Initial 25% tariffs.
Ben: You're obviously going to be implemented did you see any kind of changing behavior in late January before that date or in late February here before the early March.
bank Levy: Taking out taking cash off the balance sheet given the given the buildup in the first quarter.
bank Levy: Yes.
Ben: Ben This is normal somewhat normal seasonality for our business.
Ben: <unk>.
Ben: We generally have strains on working capital during the first half of our fiscal year and they generally unwind themselves. During the second half of our fiscal year I think maybe we didn't see it quite as much last year.
John: Ben This is John.
John: Really there was a little bit more shakeup in movement at the March announcement, then the February announcement.
John: February non wisher.
John: Anything would go through or not and so it was really business as usual.
As we typically do where we actually had positive operating cash during the first quarter, but this is a very normal occurrence for us to see.
John: The March conversation became a little bit more choppy in regards to <unk>.
John: Suppliers, having more conversations with us and then vice versa us having more conversation with our customers on what the impact would be we had the whole industry experienced.
Ben: It gets accentuated this year by the higher priced environment that we're in we do tend to have to pay our suppliers a little bit faster than we're able to turn inventory.
John: Three days of the tariff being in place.
Ben: So it certainly does have a bit of a negative impact, but as we move to the second half of the year.
John: And there were some I would say challenges our bumps at the board in regards to things crossing and things not crossing et cetera, but overall, we felt pretty good about supply being being consistent and us being able to deliver against the requirements that we had with our customers. So.
Ben: Yeah.
Ben: We would expect at a minimum.
Ben: As we move into harvesting our own fruit selling fruit farmer owned farms down in Peru that inventory balance is going to come down.
Price point stay at the levels that are at it will likely continue to put some pressure on working capital from the standpoint of the.
John: So we didn't see any challenge in regards to either a getting fruit be moving fruit across our sea delivering that for it to our customers.
Ben: The prices that we pay for the fruit in Mexico, but I think just as we transition away from the Mexico harvest and into other countries of origin that will have a favorable impact.
John: Got it very good well.
John: Best of luck to everybody navigating this environment. Thanks for taking my questions and I'll get back in queue.
Speaker Change: Thank you Vince.
Ben: Okay.
Speaker Change: As a reminder, if you'd like to ask any question. It is star one.
Ben: Good.
Ben: One more from me and then I'll get back in queue around tariffs.
Ben: Obviously nobody knows.
Speaker Change: Hum.
Ben: I'm not asking you guys to make any predictions here, but what I'm curious about is the degree to which you've observed kind of supplier behavior changing at all.
Speaker Change: And if there are no further comments I'd like to turn the floor back to management for any closing comments.
Speaker Change: Paul.
Ben: As as this has become.
Paul: Thank you for your interest in mission produce and we look forward to speaking with you again next quarter.
Ben: Hey.
Ben: Our variable.
Ben: Particularly kind of in the.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
Ben: Leading up to the February 1st.
Ben: The deadline when the initial 25% tariffs were theoretically going to be implemented did you see any kind of changing behavior in late January before that date or in late February here before.
Ben: The early March.
Speaker Change: <unk> remarks.
Ben: No.
Ben: This is John.
Ben: Really there was a little bit more shakeup in movement at the March announcement, then the February announcement.
February non wisher.
Ben: We will go through or not and so it was really business as usual.
The March conversation became a little bit more choppy in regard.
Ben: Supply, having more conversations with us and then vice versa us having more conversation with our customers on what the impact would be we had the whole industry experienced.
Ben: Three days.
Ben: Tariff being in place.
Ben: And there were some I would say challenges our bumps at the board in regards to things crossing and things not crossing et cetera, but overall, we felt pretty good about supply being being consistent and us being able to deliver against the requirements that we had with our customers. So.
Ben: So we didn't see any challenge in regards to either a getting fruit be moving fruit across our sea delivering that for it to our customers.
Ben: Got it very good well.
Ben: Best of luck to everybody navigating this environment. Thanks for taking my questions and I'll get back in queue.
Speaker Change: Thank you Vince.
Speaker Change: As a reminder, if you'd like to ask any question. It is star one.
Speaker Change: Hum.
And if there are no further comments I'd like to turn the floor back to management for any closing comments.
Speaker Change: Paul.
Paul: Thank you for your interest submission produce and we look forward to speaking with you again next quarter.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Okay.
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Speaker Change: Good afternoon, and welcome to the mission produce fiscal first quarter 2025 conference call.
Speaker Change: All participants will be in a listen only mode. After today's presentation there'll be an opportunity to ask questions. Please also note today's event is being recorded.
Jeff Sonnek: At this time I would like to turn the conference over to Jeff <unk> Investor Relations at ICR. Thank you, Jeff you may begin.
Jeff Sonnek: Thank you and good afternoon, today's presentation will be hosted by Steve Barnard, Chief Executive Officer, and Brian Giles Chief Financial Officer, The Companys, President and Chief Operating Officer. John Pawlowski is also on today's call for participation during the Q&A session.
Jeff Sonnek: Comments during today's call and the accompanying presentation contain forward looking statements within the meaning of the safe Harbor provisions of the private Securities Litigation Reform Act of 1095.
Jeff Sonnek: All statements other than statements of historical facts are considered forward looking statements.
Jeff Sonnek: These statements are based on management's current expectations and beliefs as well as a number of assumptions concerning future events.
Jeff Sonnek: Such forward looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from the results discussed in the forward looking statements some.
Jeff Sonnek: Some of these risks and uncertainties are identified and discussed in the company's filings with the SEC. We will also refer to certain non-GAAP financial measures today. Please refer to the tables included in the earnings release, which can be found on our Investor Relations website investors Dot mission produce dot com for reconciliations of non-GAAP.
Speaker Change: Natural measures to their most directly comparable GAAP measures and with that I'd now like to turn the call over to Steve Barnard CEO. Steve. Please go ahead.
Speaker Change: Thank you for joining us today, we're pleased to deliver a strong start to fiscal 2025, achieving record first quarter revenue of $334 2, million% to 29% increase compared to the same period last year.
Speaker Change: This performance demonstrates our ability to successfully navigate a dynamic operating environment, where we experienced industry supply challenges in Mexico during a period of strong consumption.
Speaker Change: With a Mexican avocados season ramping up our marketing and distribution segment is back and focused during the fiscal first quarter.
Speaker Change: We realized segment growth of 32% versus the prior year, reflecting a 5% increase in avocado volumes sold and a 25% increase in for unit avocado selling prices relative to the prior year period.
Speaker Change: Combination of volume growth during a period of heightened pricing clearly indicates the resiliency of consumer demand for the category. Despite the broader impacts from inflation that consumers continue to absorb.
Speaker Change: Our blueberry segment also contributed nicely to our strong line performance with a 12% increase in revenue to $36 4 million.
Speaker Change: Blueberries or an exciting area for us and one that we continue to invest in in fact over 100 hectares of new plantings came online early last year growing the total footprint of over 550 acres, which positions us well in a category that continues to see growing consumer demand similar to avocado isn't mangoes.
Speaker Change: We see tremendous long term growth and blueberries as consumer preferences shift towards healthy convenient snacking options and we're strategically positioning ourselves to capitalize on this trend by expanding our acreage and investing in premium varietals that deliver superior flavor profiles and extended shelf life.
Speaker Change: While our mango program is still in its early stages, we're seeing encouraging progress as we expand our footprint and grow our share in this high growth category that is significantly underrepresented in the North American market.
Speaker Change: We are in an ideal position to continue driving this category, given our ability to enhance existing customer relationships as well as leverage our packing and distribution infrastructure.
Speaker Change: Similar to our approach with avocados, we see significant opportunity to further develop underserved mango markets by bringing greater consistency and quality to consumers.
Which we believe will drive increased consumption as well as perceived consumer value over time.
Speaker Change: While we generated top line growth, we experienced some normalization of our per unit avocado margins during the first quarter, which was anticipated.
Speaker Change: The compression this quarter was specifically driven by unstable industry supply in Mexico, which began to materialize during the holidays and necessitated increased procurement through co Packers in spot market purchases to ensure we maintain the appropriate service levels or meet our fruit size and volume commitments to customers.
Speaker Change: Our unit margin was also impacted by our strategy to grow our share in mangoes as well as our Canadian facilities closures in the quarter as we optimize our distribution footprint in North America.
Speaker Change: These closures are part of an ongoing effort to enhance operational efficiency and should ultimately strengthen our long term cost structure.
Speaker Change: I'm pleased and proud of our team's ability to manage the complexity of the supply challenges in Mexico and all of our other diverse countries of origin, the team's focus and commitment to driving results and delivering for our customers is unmatched in the industry.
Speaker Change: The dynamics, we faced this quarter underscore precisely what we've spent the last 45 plus years building, a durable and strategically diversified business model.
Speaker Change: Versification encompasses two primary fronts number one expanding our global sourcing footprint to include key growing geographies, such as Peru, Colombia, Guatemala, and among others to ensure reliable.
Year round supply number two shifting into complementary food categories like blueberries and mangoes.
Speaker Change: When we faced challenges in one sourcing region of our network provides us with the flexibility to pivot to alternative sources, while our category expansion allows us to leverage existing infrastructure and capabilities to drive efficiencies and create additional growth vectors.
Speaker Change: This multi dimensional approach is designed to provide greater financial consistency throughout seasonal transitions, while ensuring reliable year round supply for our customers.
A prime example of this is improving our financial performance that can be seen in this quarter's international farming segment results will not typically a material contributor in Q1 adjusted EBIT for the segment improved $2 3 million year over year to positive $1 8 million.
Speaker Change: So relatively small in the context of our overall results.
Speaker Change: The segment's contribution demonstrates the positive influence of our diversification strategy.
Speaker Change: Fixed cost absorption within the farming operations more specifically, we are seeing greater utilization of our group backing facility for blueberries volume.
During what is traditionally a slower period ahead of the avocado harvest in the second half of the year.
Speaker Change: This improved utilization of assets represents exactly the type of operational efficiency, we aim to achieve across our entire organization.
Speaker Change: In closing our first quarter results demonstrate the strategic value of our business model.
Speaker Change: Through our continued focus on operational excellence prudent capital allocation and strategic growth initiatives.
Speaker Change: We're well positioned to navigate shifting market dynamics, while delivering long term value to our shareholders.
Speaker Change: Vertically integrated operations and expanding global footprint gives us unique advantages and securing consistent supply for our customers, while our diversification across complementary food categories provides multiple avenues for sustainable growth.
Speaker Change: So there is great uncertainty surrounding the tariff negotiations with our North American neighbors.
These dynamics only serve to reinforce the value of our global strategy, which provides us with tools to mitigate potential impacts we remain excited about the opportunities ahead, and we continue to strengthen our global leadership position.
Speaker Change: With that I'll pass the call over to our CFO, Brian <unk> 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 first quarter financial performance touch on some of the key drivers within our three reportable segments, then I'll provide 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 first quarter of fiscal 2025 increased 29% to $334 2 million largely driven by growth in our marketing and distribution segment.
Brian Giles: Our average per unit avocado selling prices increased 25% on a 5% increase in avocado volumes sold.
Brian Giles: Gross profit increased by $2 8 million to $31 $5 million in the first quarter driven by our international farming segment, which benefited from increased packing and cooling service activity that correlated with higher blueberry production volumes.
Brian Giles: These favorable results were partially offset by lower gross profit in our marketing and distribution segment caused by lower per unit margins on fruit sold and costs associated with our Canadian facility closures during the quarter.
Brian Giles: Gross profit margin decreased 170 basis points to nine 4% of revenue.
Brian Giles: As a reminder, gross profit percentage fluctuates based upon per unit sales price levels in relation to per unit costs as profitability is primarily managed on a per unit basis.
Brian Giles: SG&A expense increased $1 5 million or 7% compared to the same period last year, primarily due to higher employee related costs, including statutory profit sharing and stock based compensation expense.
Adjusted net income for the quarter was $7 $1 million or <unk> 10 per diluted share compared to an adjusted net income of $6 7 million or <unk> <unk> per diluted share last year.
Brian Giles: Year over year growth was driven by improved nonoperating results, including reduced interest expense attributed to a combination of lower interest rates and lower borrowings and increased equity income related to improved performance in our avocado distribution joint venture in China.
Brian Giles: Adjusted EBITDA was $17 $7 million compared to $19 $2 million last year due primarily to lower per unit gross margins on fruit sold in our marketing distribution and blueberry segments.
Brian Giles: Turning now to the segments, our marketing distribution segment net sales increased 32% to $295 $8 million for the quarter, primarily due to the avocado pricing and volume dynamics I described previously.
Brian Giles: Segment, adjusted EBITDA was $9 7 million compared to $11 million in the same period last year as a result of lower gross profit driven primarily by lower per unit gross margins on fruit sold per unit margins on avocados sold were negatively impacted by challenges in obtaining Mexican supply required to meet customer.
Brian Giles: <unk> during the quarter.
Brian Giles: In the first quarter, our international farming segment results are typically focused on the provision of packing and processing services for a blueberry segment and for third party blueberry producers, though this will evolve over time as our operations develop in other areas such as Guatemala.
Brian Giles: With the seasonality in mind total segment sales in our international farming segment increased $3 4 million or 59% to $9 2 million.
Brian Giles: Compared to $5 8 million for the same period last year.
Brian Giles: Segment, adjusted EBITDA increased $2 $3 million to $1 8 million compared to negative <unk> $5 million for the same period last year the.
Brian Giles: The improved performance resulted from higher blueberry packing and calling service revenues, which was supported by growth of our own blueberries business.
Speaker Change: As Steve discussed in his remarks, we are pleased to see the results of improved operating leverage and what has traditionally been a smaller quarter for this segment.
Brian Giles: Okay.
Brian Giles: Net sales in the blueberry segment increased 12% to $36 4 million.
Brian Giles: Compared to $32 $5 million in the prior year period, driven by a 70% increase in blueberry volume sold that was partially offset by a 33% decrease in average per unit selling prices.
Brian Giles: Higher blueberry volumes are driven by increased total acreage and yields from our own farms, while price decreases were driven by a normalization of the supply and demand environment. This year as compared to last year's high pricing that was driven by lower supply following unfavorable regional weather conditions.
Brian Giles: Adjusted EBITDA was $6 $2 million compared to $8 7 million in the prior year period, primarily due to lower selling prices impacting per unit gross margins.
Brian Giles: Shifting to our financial position cash and cash equivalents were $40 $1 million as of January 31, 2025.
Cash used in operating activities was $1 2 million for the first quarter ended January 31, 2025, compared to cash provided by operating activities of $9 $5 million for the same period last year.
Brian Giles: During the current year period, our working capital position was hindered by the impact of higher per unit price points.
Brian Giles: Higher prices had an unfavorable effect on both accounts receivable and inventory balances compounding the impact of typical working capital growth, we see in the first quarter.
Brian Giles: As a result of heavy sourcing of Mexican fruit with shorter payment terms and the build of growing crops inventory within our international farming segment for harvest and sale during the second half of our fiscal year.
Brian Giles: Increased productive acreage in our international farming and blueberry segments. This year has led to further increases in growing crops inventory.
Brian Giles: Capital expenditures were $14 8 million for the three months ended January 31, 2025, compared to $9 $9 million last year and were attributed to avocado and blueberry farming related investments in Latin America, and the construction of our Guatemala Pack House.
Brian Giles: Our projected Capex budget for fiscal 2025 remains unchanged at $50 to $55 million.
Brian Giles: As a reminder, this figure is approximately $10 million higher than we would've expected due to spend in our international farming and blueberry segments that rolled over from fiscal 2024, as a result of the timing of vendor payments and blueberry plant development.
Our overall trajectory of moderating capital spending remains intact as we complete these remaining projects through fiscal 2026, which we believe positions the business to continue generating meaningful free cash flow with debt paydown as our near term priority to further strengthen our balance sheet.
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.
Brian Giles: That said these projections do not consider any potential influence from the ongoing tariff discussion.
Brian Giles: So please consider this as a base case scenario to help inform your modeling assumptions.
Beginning with avocados industry volumes in the fiscal 2025 second quarter are expected to be consistent with the prior year period.
Brian Giles: Mexico volume should taper off during the quarter as the industry harvest comes in lighter than initial expectations.
Brian Giles: However, California, Peruvian harvest should get off to a faster start than prior year based upon improved weather conditions, which should mitigate the impact on overall available volumes.
Brian Giles: At projected volume levels pricing is expected to be higher on a year over year basis by approximately 5% compared to the $1 59 per pound average experienced in the second quarter of fiscal 2024 indicative of continued strength in demand.
Brian Giles: Turning to blueberries, the harvest timing of our Peruvian blueberry season. This year is similar to the prior year with approximately 20% of the harvest to be sold through in the fiscal second quarter, which should translate to an increase in volumes sold of approximately 35% to 40% when applied to a larger total harvest from our farms for.
Brian Giles: The 2020 for 2025 season.
Brian Giles: Average sales prices are expected to decline sequentially, but be consistent with prices experienced in the second quarter of fiscal 2024.
Speaker Change: That concludes our prepared remarks, operator now over to you. Please open the call to Q&A.
Speaker Change: Great. Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
Speaker Change: Confirmation tone will indicate your line is the question Kim <unk>.
Speaker Change: You May press star two to remove yourself from the queue.
Speaker Change: All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star one.
Speaker Change: One moment please poll for questions.
bank Levy: First question here is from Bank Levy from Lake Street Capital markets. Please go ahead.
bank Levy: Thanks for taking my questions first in the quarter itself I'm wondering if you can help help us a bit on elaborate on this dynamic where you had to source from co Packers can you quantify kind of the degree to which you had to do this in the current quarter relative to normalized levels, and then half conditions improved quarter to date such that.
bank Levy: That's enabled us to secure inventory more directly or condition.
bank Levy: Condition kind of sustained so far over the last six weeks.
bank Levy: They have sustained over the last several weeks the crop overall is down slightly in Mexico, and as Brian said in his.
Speaker Change: Statements the demand is up and.
bank Levy: And volume is.
bank Levy: Up a little bit.
bank Levy: So compared to the year ago, but.
bank Levy: We're going to have to live through this for probably another month or so until we get other sources of supply like California in Peru.
bank Levy: On deck, which is right around the corner.
bank Levy: And I would also comment that.
bank Levy: Kind of as we transitioned into December kind of early parts of the Mexico harvest season, I think everyone was expecting a bump in the overall industry crop this year.
bank Levy: I think we were planning for volume increases as we move through the holidays and into January I think what we've come to realize subsequent to that is that the overall industry harvest out of Mexico is unlikely to be as large as we had initially expected I think.
bank Levy: Yes.
bank Levy: Some of that behavior in terms of some of the commitments. We've made to customers was driven around the need to move more volume and then once we've made those commitments we needed to go out and fulfill them.
bank Levy: I think as we've moved forward beyond that I think we have a better expectation now of what the overall, Mexico harvest is going to look like and I think that is likely to enable us to avoid buying as much fruit kind of in in the spot market and to co Packers as we did during that window. So I will say.
bank Levy: It's not uncommon for us to use co packers to fill specific needs on specific sizes of fruit.
bank Levy: Or certain grades. So we do we do buy from them on a regular basis I think that percentage of fruit, though that we acquired via those means was much higher during the first quarter than what we would typically like to see.
bank Levy: The other thing that effects. It is the size of the fruit.
bank Levy: It was affected by El Nino or some weather phenomenon as a year ago. So the size. The average size is much smaller.
Baird.
bank Levy: History, which affects the overall tonnage.
bank Levy: Yeah.
bank Levy: Okay very good I appreciate that.
bank Levy: From both of you.
Speaker Change: Regarding the working capital build Brian you talked about.
Speaker Change: The reasons for this in the first quarter and I'm wondering the degree to which you have visibility of this unwinding in the second quarter or beyond.
Speaker Change: Taking out taking cash off the balance sheet given the given the buildup in the first quarter.
Speaker Change: Yes.
Speaker Change: This is normal somewhat normal seasonality for our business.
Speaker Change: We generally have strains on working capital during the first half of our fiscal year and they generally unwind themselves. During the second half of our fiscal year I think maybe we didn't see it quite as much last year.
Speaker Change: As we typically do where we actually had positive operating cash during the first quarter, but this was a very normal occurrence for us to see.
Speaker Change: It gets accentuated this year by the higher priced environment that we're in we do tend to have to pay our suppliers a little bit faster than we're able to turn inventory.
Speaker Change: So it certainly does have a bit of a negative impact, but as we move to the second half of the year.
Speaker Change: We would expect at a minimum as we move into harvesting our own fruit selling fruit farmer owned farms down in Peru that inventory balance is going to come down.
Speaker Change: Price point stay at the levels that are at it will likely continue to put some pressure on working capital from the standpoint of.
Speaker Change: The prices that we pay for the freight in Mexico, but I think just as we transition away from the Mexico harvest and into other countries of origin that will have a favorable impact.
Speaker Change: Okay.
Speaker Change: Very good on one more from me and then I'll get back in queue around tariffs.
Speaker Change: Obviously nobody knows.
Speaker Change: Not asking you guys to make any predictions here what I'm curious about is the degree to which you've observed kind of supplier behavior changing at all.
Speaker Change: As as this has become.
Speaker Change: A.
Speaker Change: Our variable.
Speaker Change: Particularly kind of in the.
Speaker Change: Weeks, leading up to the February 1st.
Speaker Change: When the initial 25% tariffs were theoretically going to be implemented did you see any kind of changing behavior in late January before that date or in late February here before.
Speaker Change: Early March threat.
Speaker Change: Threat reemerge.
Speaker Change: Ben This is John.
Speaker Change: Really the there was a little bit more shakeup in movement at the March announcement, then the February announcement.
Speaker Change: February non wisher.
Anything would go through or not and so it was really business as usual.
Speaker Change: The March conversation became a little bit more choppy in regards to.
Speaker Change: Suppliers, having more conversations with us and then vice versa us having more conversation with our customers on what the impact would be we had the whole industry experienced.
Speaker Change: Three days of the tariff being in place.
Speaker Change: And there were some I would say challenges our bumps at the border in regards to things crossing and things not crossing et cetera, but overall, we felt pretty good about supply being kept being consistent and us being able to deliver against the requirements that we had with our customers. So.
So we didn't see any challenge in regards to either a getting fruit be moving fruit across our sea delivering that for it to our customers.
Speaker Change: Got it very good.
Speaker Change: Best of luck to everybody navigating this environment. Thanks for taking my questions and I will get back in queue.
Speaker Change: Thank you Vince.
Speaker Change: As a reminder, if you'd like to ask a question. It is star one.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: And if there are no further comments I'd like to turn the floor back to management for any closing comments.
Speaker Change: Paul.
Paul: Thank you for your interest in mission produce and we look forward to speaking with you again next quarter.
Speaker Change: Okay.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you again for your participation.