Mission Produce (AVO) 9 Jun 222022 Q2 Earnings call transcript

Good afternoon and welcome to the Mission Produce Fiscal Second Quarter 2022 Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please also note today's event is being recorded. At this time, I'd like to turn the call – conference call over to Jeff Sonnek, Investor Relations at ICR. ahead. go please Sir,

accompanying current good expectations historical future the Chief are differ management's presentation statements that Giles, Executive the of to are comments materially of results safe are statements statements. based and Officer. and a the All statements and as uncertainties by of statements. XXXX. considered Securities meaning events. Chief be known Litigation cause risks Steve The the unknown in statements concerning the forward-looking beliefs statements call These today's Barnard, Officer; and from number provisions during than contain facts afternoon. you forward-looking forward-looking will within forward-looking of subject Today's harbor assumptions the hosted well to Financial actual presentation Private discussed could and as Thank other on and of Such results Act Bryan Reform

With the of in these with refer their be directly reconciliations of CEO. release, to and identified investors.missionproduce.com, We'll uncertainties on the the today. comparable are Some discussed the which risks earnings refer included certain tables for measures non-GAAP company's to the SEC. can financial Please like financial measures GAAP to filings the Investor also to website, non-GAAP to now Steve Barnard, found Relations that, measures. turn over I'd most in call and

that EBITDA. $XXX.X temporary generated XXXX with call. in on XXXX the second $X.X for back to which earnings following demand, supply. for the revenue environment driven pleased continued ability is to fiscal of associated adjusted you fiscal our was and being supported our for we resilient XX% amid industry growth quickly a quarter by pricing quarter get our second lower by million, strong track challenges million Total increased Revenue quarter implementation. fiscal performance, our Thank the demonstrated joining us ERP with I'm second operational business

was end experience our margins, the it fruit. recovery second of to grading during however, industry with high in From importantly, per drive have challenges Mexican inconsistency normal ongoing a continued and a perspective, of supply of ranges. ability continued The More the quarter. to the fiscal which abnormal historical to sizing of box returned supply harvested

approximately this the context, was from primarily of Mexican fill demand, fruit alternate Colombia produced volume to quarter. For the year sourced We as XX% well second focused distributed U.S. as production which larger and on sources crop were a which California, in utilize Chile.

Despite half to to in industry, largely the to staple a that trends underpin this elevating proven be gaps of whole, health and been have is relative of fill the an example Mission's of backdrop U.S. these reduce to are demand supply in on to Mission While in where the the year, not continued there year. the advantages sustained offset meaningfully approximately of a supply enough prices XX% constrained first many broader the time sources investing supply resilient elastic. Mexican as why in We and proactive the this versus the higher and year think ample This of at households. footprint these provides The through wellness this core impact supply global upward create industry speaks to the pricing sourcing global of integrated sources shortages. pressure fruit were with volatility. markets industry coupled to prior higher avocado vertically fiscal has prices, demand avocado in consistent available must-have

and pandemic, the of the period, the avocados are of same the the in onset distributed fact, amount over volume we demonstrating the diets. yet years as of value second quarter XXXX in we ago In same two XX% quarter did of prices approximately during higher second consumers'

developed less well due opportunity in consumption isn't markets to foster believe suited While are capita we to the address those strong lower resilient global to we markets, per similarly especially international of levels trends new this in markets. the in dynamic as consumption

own expect. constant assessing requires in continuously being sourcing supply. focus new optimize Mission growers, that and to able investing consistent greater retailer international This comes services. with supply in foresight ensure and well these year drive we through capabilities quality supply a third-party in and can back that our restaurant round access avocados our provide have to control at markets come to to our on Our to opportunities has role favorite critical growth and farms your year-round to neighborhood value-added as to as ability creating the a played customers our

invest Our be vertical competitive an integration strategy advantage. proven to unparalleled to in has

Peruvian to own needs production only to fruit, on Mission volumes and us our reliable scale a access customer deliver. meet gives at that Specifically, can

to of are half second crop. to and yields has We contributes positioned these our growing well fiscal in solid a owned Peruvian EBITDA. adjusted up step we leverage productive online significant our the in typically our Peruvian The from been season and very when expecting product comes capabilities are year,

prudent expect the later year. fiscal conditions rationalization However, this it price is supply we some improving to think with in connection

key In to expect we to operating round leverage strategically maintaining our segment. our long-term own our typically the mitigate And we in position. summary, sourcing year expect some environment year, second While half plans. of growth continues Mission a inflationary sales the is generate of the production to is key that of growth in organic a to long-term own ensure the growth Farming component fiscal in International global great out is of and expected be to the investing

the environment we dynamics. Bryan his that, and strategy record to enhancing commentary. over and long-term have our value-added for by value. share consistent advantage generating call created market pass drive of are abnormal generating our shareholder of we network some believe capacities I'll of Although CFO, will growth, increasing long this assets undisputed growth track long-term our challenges, financial to with continuing global an a we capabilities on and to Mission adapt has focused that has year's while sustainable, supply industry With Giles

$XXX.X two I'll financial with the with XX, of second position primarily review due following a well and was quarter within supply and was operating to the snapshot afternoon some increase by the average offsetting segments. call. in of industry increased industry Steve. drivers our for sales everyone million inflationary I'll our as thoughts our that you, $XXX.X the last the period in XXXX, unit April compared seeing. avocado lower by prices Mexico, a XX% a XXXX are driven conclude brief Growth as Then XX% harvest, smaller to which to fiscal some conditions to of pressures. we year. on a some second Mexican sold, decrease million out start same Thank harvest. Partially smaller ended revenue provide touch fiscal again performance was on And XX% industry for as of volume the quarter on price a good of current driven avocado of gains per Total

our absorption. impact decreased Second to profit Distribution decreased $X.X segment of and points impact million XX% $XX.X were percentage in primarily and by volume the its of on gross to last driven same X.X% decreases gross quarter or related profit revenue. Marketing lower avocado The sold year And the fixed basis compared cost million. XXX to period

labor income the million million share $X.X the of fluctuate. per was and Marketing compared and due for our have EBITDA eased. a diluted The million managed of the $X.XX expense to profit of was of for in can the share the same for experienced to non-capitalizable movement we was per period Marketing early-stage Adjusted to quarter quarter for in per-unit timing by and or for travel second lead in driven percentage share costs segment. net basis to year. previously. gross system per higher million increased prices. for due on $XX.X employee our sales SG&A incurred pricing and year. same implementation $X.XX second when which the $X.X per Distribution Adjusted segment, last share the income segment diluted International $X.X costs mango new higher million gross as Margin $X.XX last income with as year, profit ERP million second in driven the Farming or or addition, million volume compared last prices to diluted impact same headcount is increased our COVID-related cost period $X.XX Net Higher restrictions sold travel driven inflation period primarily percentage to related fiscal & significant avocado by decreases gross by lower and of $XX.X described $X.X In at farms. net per-unit XXXX, costs compared lower $X.X to sales the quarter associated higher million primarily SG&A $X.X Distribution or diluted profit expenses was primarily

segment $XXX.X XX% from increased sales of Marketing our segment million, those and terms XX% EBITDA quarter prior I the consolidated Marketing a In similar results. segments, Distribution and the described are Distribution net The million to $XX.X year. to that segment for decrease the was and adjusted drivers for our for

own International we our Our Farming manage segment in represents farms Peru. primarily that

the harvest in runs significant as to fourth And see and for the a EBITDA on contribute result, influence farms our the Peruvian operation through a Farming and in segment from our August avocado Furthermore, third typically of the financial season highlight our I'd emerge year. reminder, of results. International a each As fashion. you quarter April mango segment adjusted

fiscal timing of on mangoes timeframe. have as concentrated this harvest a pronounced the a the is second more mango in performance impact result, As segment during financial And the quarter.

hectares X,XXX to are This approximately that operate Peru. production For hectares of with XX% in we an of early the XXX stage compares largely in acres Peru of fruit. operate in producing those avocados context, of we mangoes approximately approximately productive planted that

terms, broader our pool ambitions. While important is the operational in these are small supporting labor for that our category year-round several work existing our leveraging among relative infrastructure and our Chief synergies with and has mango presence investments. growth

this So well working last for $X.X harvest increased compared increase, segment year. to corresponding to with second and mind, the stage Yields revenue primarily cash to generation. this for XXXX, EBITDA the position, of negative $XX sales by financial Segment at was the of October cash million million adjusted EBITDA period first as operating in volumes April $XX.X with mango as influenced third-party in growers of varying as seasonal higher mango XX, in as last capital was we over stage farms. to XXXX, million and XX% Company’s are Farming And used same production. due higher activities time International timing resulting expect quarter source XX, the to to million incurred are service Shifting or prevailing and due the $X.X million year. $XX.X from period flows cash million, improvement the shifts net fiscal equivalents adjusted in XXXX. terms of volumes, different be to were commensurate Net of mango impacted prices. a early $XX.X can in would cash regions in compared our cost our same improves and payment and of maturity half operating pricing market compared as nature temporarily

In changes $XX.X partially first half in in is the first the in year million were growing building working fiscal year partially higher year, inventory favorable harvest versus reflects Changes the during grower for due ultimate International addition, in crops net net of its Changes and on and to the inventory expenditures capital. favorable change of the to costs unfavorable were expenditures of second were Peru offset prior Peru, year. as the box changes in inventory. period the its in purchase to improvement occur half by sale well year The during to developments for payables of XXXX, that company $XX.X year. by higher working inflationary the compared were million of Within fruit grower acreage offset were $XX.X additional hand payables pressures half will land America by Peru, in per capital, the loss fruit change year. of crop and in Farming growing driven half million first to Guatemala. in compared inventory as in Capital productive farmland prices and value North last the last year. prior orchard increased on and due fiscal in Current for in concentrated same compared the segment farming

incremental As with a that now Laredo, had a Texas period, capital we in ago is expenditures reminder, year facility associated operational. the

help supply to outlook, we near-term increase conditions swing void inform fourth primary quarter fill be The quarter XX% our expectation Peruvian In to crop. in terms fiscal around Mexico XX% we as our is early for The of the industry’s general context but modeling balance providing rationalize industry your help to ongoing from constraints to half bloom some primarily believe to sequentially, half environment versus With full fiscal its volumes volume lower to volumes, crop for as in expecting approximately Mexico are assumptions. further year this turn due volumes of the in expectations fiscal this expect prior the in quarter. remain that its alleviate third crop improving transitions bloom and through to will pricing specifically, expected hit California fourth for we should expectation Peru Mexico’s see from some starts period, not then and fully the More the that to to increase increased the year. to are market. until

lower packaging been others, a remarks. drive environment to margins That our creates the over and our documented. costs and EBITDA. have call adjusted that Please pressures additional include inflationary labor headwinds ability same to the battle per-unit now to higher to prepared freight, Operator, you. in well among Q&A. These volume which continue to concludes We open

Thank you.

be a session. [Operator will you. conducting We Instructions] question-and-answer Thank now

first proceed your Please with Stephens. Our Ben Bienvenu with from is question question.

the until fourth up be the Ben Hi the the really the Peru to couple Is match to third a that we as quarter? California, into in to that talk ask or get today. with quarter could is that something about pricing? new alleviate stepped you enough in questions on fully can environment, supply demand from Salera guys, doesn’t satisfy maybe prices Jim online the and supply for comes If more so going

at that probably so. time tell gets some realistically, what the system, until or degree, say week really it’ll Peru from or in to August X at by quarter, Mexico earliest the third I the you’re affect of demand third it is And the we of would July. probably the looking in the fourth the the good. get be but the end could pretty quarter. second primarily started can won’t

So I to change would the think Mexico it’ll dramatically. take have to thing

supply the sorry, Okay. – ahead. on Yes, go

was just meaningful one have that I we QX volume. have going we thing say Peruvian is in didn’t will in to the some Peru

trend a it’ll be sequentially, still while So this seen year-over-year. pricing higher the from lower than year will but think we’ve months. to over we I environment down start volume up what last a ago expect at be saw time, I’d should few

terms of concerning food seeing you and was just Perfect. the the in Mexico. in Peru, of itself that? supply, reliability I in going any there specifically, to versus in health the ask California what around been guys Is have

a the or gets Well, full here They’re the the will it blast it’ll go help. that’ll but pretty we’re now, Peru’s not supply more good be getting we there stopping, this year. end they’re it coming California’s But going got what now. slowing What probably towards like know by really new there weeks July, on. pretty from down it weeks start be time they and from slowing is bit. mostly is early contracted, and start It to but crop the say up bringing volume. of but today supplies here here, it three be down little where could in down much Mexico four but appears on delayed then peaked going a will with is month,

either at pricing supply, some related at Chipotle. related of volume have category a once of specifically side, in to power any the or Okay. demand price you sneak QSR say the decrement hit on the one And fruit question if but just out then they point, could restaurants consumer more to I demand, prices certain I’ll like sees the where consumer the seen swap guys a umbrella not maybe

there. Well, it’s out

years not to the keeps rising stability to so we’re five sources the impressive would week what’s this million really these I or number the pounds be think pounds XX we seeing prices. tide years XX saying. even I the moving is still mean, situation a mean, keeps with seven what million these from – ago, I between prices, compared on industry’s happening. all ago, week a

know strong. There’s just it So We I is moving. the don’t very limit. a It yet. keeps is category overall think where

I at what this until of increases supply example think And intersect. price a Yes. and say lines supply correspondingly is pretty we’ve would work. seen demand decreases, that, that’s I mean, of mean, I good those I laws as happen. the

faster at I to think than the the much demand a rate curve or proven is particularly U.S. thought. maybe be pricing with is in faster market rising declined. than steeper had mean, volume I rate people much

strong I to that’s extended the happy time, short-term relatively believe going impact. don’t is could concerns environment alleviation because soon. market point. the to certainly think think the there an Again, that long-term. over this could But today. I period I in with where be that over We over hope what consumption view we the it volume that there. meaningful the a positive, haul. believe have long And then price for we back don’t that impact a track on it want is demand get at remain I – that as of out is be at the will See some market on How

moving on in slowing and are if might sneak the the in seeing kind rate? locked forward. is a sequential If step I’ll lead anything great. say up is more Or to, much pretty you the I guys that normal could is inflation front, one Okay, in that it, least not question at just normal, of this inflation return that’s to it, this the

impact meaningful product. the on of it’s when come year things I at a probably inflation mean, the the our of one back. to of second going some is that’s going we more the – farming think look have I to half

last of year ocean remain to last are things going higher to we’re those time, was around than year’s at experienced what seeing I controlled in atmosphere don’t costs the this close what that at much some level. that are think containers it double we transport I think market. that

constraints that a think get at lower capacity will I resolved in those come level back. prices will over settle Hopefully the fuel will time. and

seen of a some crop; types longer. our materials other into there other we as the may think I with that things, Those pressures at fertilizers, stick when of we’ve bit raw the go look little operations well. farming inflationary

it’s think more difficult. I

the that that other in over they are may some that I more not think that at minimum a think with of hopeful But I stabilize a to if we’re have play right little things at now. do the time. world revert

for it pass guys. Thanks Perfect. the I’ll color along.

Thank you.

Our with next Tom question question. your proceed JPMorgan. is Please Palmer with from

Hi the of last harvest other shortfall maybe you are on getting I and sounds we’re the up the on be It to regions thanks get Just you’re more like harvest. size that the on from counting for that larger to from check the like specific, questions. to little your anything operations. first expecting where farming But make to some should Peru visibility Maybe we just company-owned the Mexico. on a point you’re mean, guess, than I year? supply. in starting some expect

Yes.

from the we’ve ever to of U.S., year plant the Our harvest don’t X% ever we that Tom we’ve just for particular spread targeting know, and help largest will it in had the by, crop to build world. locations we’re getting after had is probably yes, and year have trees which California Mexico. around to the going most But periods. because is most XX% the to come the But going or different I bigger will continue offsets specific the increase be are supply

that around vertically space world. position in integrated we’re leading as a great So being the as far and

bit. And little Great then to hear. a gears switching

understood you right? ranges. make probably as margins I this leverages costs, the mentioned I to still little wanted noted – bit got high, high fixed-cost end freight, ramps You’d Laredo meant per-box what the because historic You’ve think also added sure up. a to got I back you’ve to some just shrinks of

that and about is in per-box number the that margins these that instance when we costs So across or of Distribution all before when considering an maybe spread Marketing is at are the talk look you base? some volume segment, for

It’s an Tom. in that number referring we’re to. Good Tom. all Thanks

could is in carrying certain better the despite we So that you we’re than fruit costs because rate up areas fact pressures. with argue high margin in that’s those that a with making even that we’re coming on historically, end at the that blended are it’s been higher the the

came the high a between of just out that somewhere a were $X quarter we that. a of the box we operating margin. above kind to That’s think of end people in past $X.XX try told And operate. I we’ve where we goal where of to yes,

goal range. cause at that forward, I to term is in that that that of near don’t think as not move achievable. stay to I looking now think would kind we’re we see our right anything within the that, that’s us

Thank you. Great.

you. Thank

is Bryan question your Spillane with Please next America. of question. with Our from proceed Bank

Hey this profit thanks just times, just Good a Maybe on afternoon guys. question few a a profit per normalized box. fielded and follow-up unit Tom’s operator. we’ve to back or getting

the to biggest come thinking terms really driver, those kind simplistically, of from Just most to what guess, like like important the just going of what’s next coming just I supply of back to down going we to norms? is the that – that, Or really to should we’re places? optimal are there year? So, guess, historic about? looking to get the be supply in is I at But kind just be and most driver having Mexico, in other us harvest it

to demand, supply, grow. demand having meet supply Well, continues to enough

Peruvian ago, every this second is a crop mentioned I growing year. As

Our gaps. to numbers going. planting kind where Who in of XX% and the knows demand up this about are still areas fill is

this year if steady forward comes million a at the next look a level, we’re little fact, today, going prices be lower pace the £XX it the know, to could that there’s thing a you moving don’t I a a there. million I looking in of in at week, history. lot pretty room week down just If mean at £XX

ahead. go sorry, – Mexico in And

on having of Yes, going sources countries of Brian, say that time, I options add on to us from I of at given add a that, fruit variety – markets I’d origin multiple the one of any off lever helps just would other. top was

when down one on I it dependent supply it’s for challenges heavily on us. there, and we’re market gets creates that think upside supply not or market

So, when kind multiple origin price with transition year and as the certainly available, off lever countries flexibility enable times another. we balance and into we to of out I those us us of different of have that think one helps markets them

guess And I important have about kind the shorter-term, sort if next Mexico more look supply supply? just the most months from is at thinking we’re the a is of to maybe perspective, Mexico XX of variable as we trying

the over have maybe generally months? a we’ll to we’ll have Well next of some product XX% by The September, the XX I course. overlap, there’ll here they Definitely. or September, U.S. California, of for days period longer. Peruvian volume with next an And of until mean the product here represent be XX October, the then XX% late consumption. maybe little

So the got in options short-term. we’ve

quality? just just this is the the is the industry just supermarkets? versus selling is question all having me you Are we’re maybe grade fruit is lower seen, yeah. of more places or it product matter just the – fruit fruit quality because that one for in, guess stretching I more, at would up last of point, being one it’s at And able it to normally that just affected gaps or that a separate then selling especially And how then make some has or different just source there’s the we’ve of quality last that given Okay. from maybe

maturity you’re lower been months couple a to a Peru life's out over degree little I or the I this high. past think the other drug say has right. would shelf Mexican is the say of California. mean I than some where the crop And

of the source going mean to what month kind as crop I with At start we depends new So it move it about getting you’re product year just or of They’re forward. here so. a and is. time this what changes

target a and on the source So year. the just it the – it’s of timing moving

right. guys. Thanks All

Thank you.

question. from your Please next Sweeney with Capital. proceed Our Roth with question is Gerry

Thanks my afternoon, for good and taking call. Bryan. Hey, Steve

Hi, Gerry.

the – The QX, that previous question you looking volume year? is fall again XX out way just see of on this at sort on on years, Peru fruits, XX/XX the of it – falls QXs, kind the falling

I be think year. it might that lower that than little a this bit

I harvest weeks tree. like fruit QX, The the maturity think think for really would've dictated soon we to harvest than started later that I the I possible, as is we versus certainly, harvest few QX the some to of of the – but certainly have this year. a that on liked would as by begun

we we likely I won't note be But on dramatically year to that a I think that it that the QX. in So take that XX/XX from I'd under of through QX bit of crop say, in estimate, if split. this it I had I'd different that sell last about will have had little year. XX% less will our sell through

target. think that probably reasonable is like I a – that don't I something So

fourth you you Peru an question, not just, and the price have obviously, bloom I but rationalizing in then mentioned off is then And does as and quarter mean, Mexico, this is pricing and it. How out, the of food nearly What harvest maybe coming could not see? much easy big change but it's with out of obviously rational fruit, California's off-bloom probably is in. then Mexico Got Peru we Mexico. mean, coming a mean? through, in as pricing I

pretty they're range lower Peru been been source, so $XX or to we're is think match extremely I that. for in Retail which has – high fruit downstairs but they're at, coming fruit been in at [ph] are the per Mexican it's Well, is California log mostly this morning, contracts those high. but price, a for, but little other I this little bit and haven't I bit demand rising. we will that see you'll Mexico, see once going think has season. floor substantial the a higher to supply as out throughout be get And it's continuing we words, grow, than the off it of I In back stable but in been. think to it coming reduction the a keeps

little higher in pretty past, FOB in I than an the if would It a that were average, price that average. the an low-XXs as say. we be So was were could

And any it? taker, baked some they is mean, or I on anything of mitigate then side, of to get ability manage guess, prices but of it does you're inflation degree the I you this – can on price some to or do there do pass into sort to then And the price? sales the final

I that with recover we cost distribution have marketing higher by can our or we business, our have customer. advantage we inflation on drive think a our the price side the either is a fruit pushing variables to of there via lower supplier back two and it we can

think circumstance, utilize either strategies we I those depending the sometimes one could both. on of or

So gives us party, with third I more think flexibility. that

side, farming have the the work at we that With which the on we it price price really impact – up be supply settling to while off just pressures. sold, avocados it And more floor, side. on price which we with. may avocado It to at the inflation, in is can will is is price driven supply than have at floor that and inflationary the be true that demand end don't the

that are low extent in pricing side. of we've level many some and near it to that think money, dealing on right parties actually market some levels anywhere a The we're unless got pressures inflationary avocados to those independent very ways with So you're a get that. were in now, to that, now. not where is losing And in marketing while like while we're I – right of are the the cost

it. Got

et sort side then the transitionary Okay. or quarter short-term the or Were just into sort from issue to this or exit either quarter, in ERP, in fourth obviously move costs see cetera? big of that third quarter costs just And ERP any there before. going maybe of we're not the third a

believe We're issues there don't believe as there created related – were the costs costs down. But SG&A our by still are was of margin don't within or to and that we gross a consulting the result a meaningful related seeing support that or some side during noncapitalizable that ERP on our are ERP inefficiencies quarter. they're that to impact and I operational trending

me. appreciate for the, Thanks Got That's for my I it, it it. okay. questions. taking

You’re welcome.

Thanks, Good. Gerard.

the end questions. any there time, question-and-answer turn closing session comments. further Barnard and and I'd are to back gentlemen, no the Ladies this conference for like Mr. to at

to Mission time. Well, Thank look you Produce your for to soon. in speaking interest thank and we you you again your for forward

This you. conference call. concludes today's Thank

lines. You disconnect your may now