Earnings call transcript: Mission Produce beats Q1 2025 forecasts, stock drops

Mission Produce (NASDAQ: AVO) reported its first-quarter earnings for fiscal year 2025, showcasing a significant earnings beat but experiencing a stock price decline in aftermarket trading. The company posted an earnings per share (EPS) of $0.10, surpassing the forecasted $0.03, and reported revenue of $334.2 million, exceeding the expected $272 million. Despite these strong results, the company’s stock fell 8.13% in aftermarket trading, closing at $10.85. With a market capitalization of $835 million and trading near its InvestingPro Fair Value, the company maintains a P/E ratio of 22.5x. InvestingPro analysis reveals several key insights about Mission Produce’s financial health, with comprehensive details available in the Pro Research Report.

Key Takeaways

• Mission Produce’s Q1 2025 EPS and revenue significantly exceeded forecasts.
• The stock price declined by over 8% in aftermarket trading despite strong earnings.
• The company expanded its operations in blueberries and mangoes, diversifying its product line.

Company Performance

Mission Produce demonstrated robust performance in Q1 FY2025, with a 29% year-over-year increase in revenue. The company’s diversification strategy, including expanded operations in premium blueberries and mangoes, is positioning it well in the market. Despite the positive financial metrics, the decline in gross profit margin by 170 basis points and a slight decrease in adjusted EBITDA compared to the previous year are areas of concern. InvestingPro data confirms this trend, highlighting weak gross profit margins as a key challenge, though the company maintains strong liquidity with current assets exceeding short-term obligations at a ratio of 1.87x.

Financial Highlights

• Revenue: $334.2 million, up 29% YoY
• EPS: $0.10, significantly above the $0.03 forecast
• Gross profit: $31.5 million, up $2.8 million YoY
• Gross profit margin: 9.4%, down 170 basis points
• Adjusted EBITDA: $17.7 million, down from $19.2 million last year

Earnings vs. Forecast

Mission Produce’s actual EPS of $0.10 significantly surpassed the forecast of $0.03, marking a notable earnings surprise. The revenue of $334.2 million also exceeded expectations by over $62 million. This performance reflects strong operational execution and strategic expansion efforts.

Market Reaction

Despite the earnings beat, Mission Produce’s stock fell 8.13% in aftermarket trading. The stock closed at $10.85, down from the previous close of $11.96. This decline might be attributed to investor concerns over the decrease in gross profit margin and adjusted EBITDA, as well as broader market volatility.

Outlook & Guidance

Looking ahead, Mission Produce expects avocado pricing to increase by 5% in Q2 and plans to focus on debt reduction. The company projects capital expenditures of $50-55 million for FY2025. Future revenue forecasts suggest consistent growth, with projections for FY2025 and FY2026 set at $1.1 billion and $1.1 billion, respectively. According to InvestingPro data, the company operates with a moderate debt level, with a debt-to-equity ratio of 0.4x. Analyst targets suggest potential upside, with price targets ranging from $16 to $18 per share. For detailed analysis and additional ProTips, investors can access the comprehensive Pro Research Report.

Executive Commentary

CEO Steve Barnard emphasized the strategic value of the company’s business model and the improved utilization of the Peru packing facility. CFO Brian Giles highlighted the typical strains on working capital during the first half of the fiscal year.

Risks and Challenges

• Supply chain issues, particularly in Mexico, could impact future performance.
• Inflationary pressures may affect consumer demand.
• Potential tariff impacts could alter supplier behavior and costs.
• Fluctuations in avocado pricing could influence revenue stability.
• Market saturation in key regions may limit growth potential.

Q&A

During the earnings call, analysts inquired about supply challenges in Mexico and the working capital build in Q1. The company addressed potential tariff impacts and their effects on supplier behavior, emphasizing strategic measures to mitigate these risks.

Full transcript - Mission Produce Inc (AVO) Q1 2025:

Conference Operator: Good afternoon, and welcome to the Mission Produce Fiscal First Quarter twenty twenty five 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 conference over to Jeff Sonnich, Investor Relations at ICR.

Thank you, Jeff. You may begin.

Jeff Sonnich, Investor Relations, ICR: Thank you, and good afternoon. Today’s presentation will be hosted by Steve Barnard, Chief Executive Officer and Brian Giles, Chief Financial Officer. The company’s President and Chief Operating Officer, John Pawlowski is also on today’s call for participation during the Q and A session. 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 1995. All statements other than statements of historical facts are considered forward looking statements.

These statements are based on management’s current expectations and beliefs as well as a number of assumptions concerning future events. 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 of these risks and uncertainties are identified and discussed in the company’s filings with the SEC. 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.missionproduce.com, for reconciliations of non GAAP financial 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.

Steve Barnard, Chief Executive Officer, Mission Produce: Thank you for joining us today. We’re pleased to deliver a strong start to fiscal twenty twenty five, achieving record first quarter revenue of $334,200,000 a 29% increase compared to the same period last year. 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. With the Mexican avocado season ramping up, our marketing and distribution segment is back in focus during the fiscal first quarter. We realized segment growth of 32% versus the prior year reflecting a 5% increase in avocado volume sold and a 25% increase in per unit avocado selling prices relative to the prior year period.

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 the inflation that consumers continue to absorb. Our blueberry segment also contributed nicely to our strong line performance with a 12% increase in revenue to $36,400,000 Blueberries 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 five fifty hectares, which positions us well in a category that continues to see growing consumer demand similar to avocados and mangoes. We see tremendous long term growth in 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. 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.

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. 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. 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 and spot market purchases to ensure we maintained appropriate service levels to meet our fruit size and volume commitments to customers. Per 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.

These closures are part of an ongoing effort to enhance operational efficiency and should ultimately strengthen our long term cost structure. 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. The dynamics we faced this quarter underscore precisely what we’ve spent the last forty five plus years building a durable and strategically diversified business model. 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 and number two, shifting into complementary food categories like blueberries and mangoes.

When we face challenges in one sourcing region, 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. This multidimensional 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. While not typically a material contributor in Q1, adjusted EBITDA for this segment improved $2,300,000 year over year to positive $1,800,000 Though relatively small in the context of our overall results, this 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 packing facility for blueberries volume 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. 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’re well positioned to navigate shifting market dynamics while delivering long term value to our shareholders. Our vertically integrated operations and expanding global footprint give us unique advantages in securing consistent supply for our customers, while our diversification across complementary food categories provides multiple avenues for sustainable growth. Although 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. With that, I’ll pass the call over to our CFO, Brian Giles for his financial commentary.

Brian Giles, Chief Financial Officer, Mission Produce: Thank you, Steve, and good afternoon to everyone on the call. I’ll start with a review of our fiscal first quarter financial performance, touching on some of the key drivers within our three reportable segments. Then I’ll provide an update on our position and conclude with some thoughts on the current market conditions that we are seeing. Total revenue for the first quarter of fiscal twenty twenty five increased 29% to $334,200,000 largely driven by growth in our Marketing and Distribution segment, where average per unit avocado selling prices increased 25% on a 5% increase in avocado volume sold. Gross profit increased by $2,800,000 to $31,500,000 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.

These favorable results were partially offset by lower gross profit in our Marketing and Distribution segment caused by lower per unit margins on fruits sold and costs associated with our Canadian facility closures during the quarter. Gross profit margin decreased 170 basis points to 9.4% 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. SG and A expense increased $1,500,000 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 $7,100,000 or $0.1 per diluted share compared to an adjusted net income of $6,700,000 or $0.09 per diluted share last year.

Year over year growth was driven by improved non operating 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. Adjusted EBITDA was $17,700,000 compared to $19,200,000 last year due primarily to lower per unit gross margins on fruit sold in our Marketing Distribution and Blueberry segments. Turning now to the segments, our Marketing Distribution segment net sales increased 32% to $295,800,000 for the quarter primarily due to the Avocado pricing and volume dynamics I described previously. Segment adjusted EBITDA was $9,700,000 compared to $11,000,000 in the same period last year as a result of lower gross profit driven primarily by lower per unit gross margins on fruits sold. Per unit margins on avocados sold were negatively impacted by challenges in obtaining Mexican supply required to meet customer commitments during the quarter.

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. With this seasonality in mind, total segment sales in our International Farming segment increased $3,400,000 or 59% to $9,200,000 compared to $5,800,000 for the same period last year. Segment adjusted EBITDA increased $2,300,000 to $1,800,000 compared to negative $500,000 for the same period last year. The improved performance resulted from higher blueberry packing and cooling 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 in what has traditionally been a smaller quarter for the segment.

Net sales in the blueberry segment increased 12% to $36,400,000 compared to $32,500,000 in the prior year period, driven by a 70% increase in blueberry volumes sold that was partially offset by a 33% decrease in average per unit selling prices. 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. Adjusted EBITDA was $6,200,000 compared to $8,700,000 in the prior year period, primarily due to lower Shifting to our financial position, cash and cash equivalents were $40,100,000 as of 01/31/2025. Cash used in operating activities was $1,200,000 for the first quarter ended 01/31/2025 compared to cash provided by operating activities of $9,500,000 for the same period last year. During the current year period, our working capital position was hindered by the impact of higher per unit price points.

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 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. Increased productive acreage in our International Farming and Blueberry segments this year has led to further increases in growing crops inventory. Capital expenditures were $14,800,000 for the three months ended 01/31/2025 compared to $9,900,000 last year and were attributed to avocado and blueberry farming related investments pack house. Our projected CapEx budget for fiscal twenty twenty five remains unchanged at $50,000,000 to $55,000,000 As a reminder, this figure is approximately $10,000,000 higher than we would have expected due to spend in our international farming and blueberry segments that rolled over from fiscal twenty twenty four as a result of the timing of vendor payments in blueberry plant development. Our overall trajectory of moderating capital spending remains intact as we complete these remaining projects through fiscal twenty twenty six, which we believe positions the business to continue generating meaningful free cash flow with debt pay down as our near term priority to further strengthen our balance sheet.

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. That said, these projections do not consider any potential influence from the ongoing tariff discussion. So please consider this as a base case scenario to help inform your modeling assumptions. Beginning with avocados, industry volumes in the fiscal twenty twenty five second quarter are expected to be consistent with the prior year period. Mexico volumes should taper off during the quarter as the industry harvest comes in lighter than initial expectations.

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. 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 twenty twenty four, indicative of continued strength in demand. 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 volume sold of approximately 35% to 40% when applied to a larger total harvest from our farms for the twenty twenty four-twenty twenty five season. Average sales prices are expected to decline sequentially, but be consistent with prices experienced in the second quarter of fiscal twenty twenty four. That concludes our prepared remarks.

Operator, now over to you. Please open the call to Q and A.

Conference Operator: Great. Thank you. We will now be conducting a question and answer session. First question here is from Ben Quievy from Lake Street Capital Markets. Please go ahead.

Ben Quievy, Analyst, Lake Street Capital Markets: All right. Thanks for taking my questions. First, in the quarter itself, I’m wondering if you can 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 normalized levels? And then have conditions approved quarter to date such that you’re able to secure inventory more directly or has the condition kind of sustained so far over the last six weeks?

Steve Barnard, Chief Executive Officer, Mission Produce: They’ve sustained over the last several weeks. The crop overall is down slightly in Mexico. And as Brian said in his statements, the demand is up and volume is up a little bit also compared to the year ago. But we’re going to have to live through this for probably another month or so until we get other sources of supply like California and Peru on deck, which is right around the corner.

Brian Giles, Chief Financial Officer, Mission Produce: Hey, Ben. And I would also comment that we 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. But 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’d initially expected. I think some of the 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 us 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 of fruit or certain grades. So 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.

Steve Barnard, Chief Executive Officer, Mission Produce: The other thing that affects it is the size of the fruit was affected by El Nino or some weather phenomena as a year ago. So the size the average size is much smaller compared to history, which affects the overall tonnage.

Ben Quievy, Analyst, Lake Street Capital Markets: Okay. Very good. I appreciate that from both of you. Regarding the working capital build, Brian, you talked about 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, taking cash off the balance sheet given the buildup in the first quarter?

Brian Giles, Chief Financial Officer, Mission Produce: Ben, this is normal somewhat normal seasonality for our business. 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 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. I think it’s 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 in AR. So it certainly does have a bit of a negative impact. But as we move to the second half of the year, we would expect at a minimum as we move into harvesting our own fruit, selling fruit from our own farms down in Peru, that inventory balance is going to come down. If price points stay at the levels that they’re at, it’ll likely continue to put some pressure on working capital from the standpoint of 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.

Ben Quievy, Analyst, Lake Street Capital Markets: Okay. Very good. One more for me and then I’ll go back to you around tariffs. I mean, obviously, nobody knows. 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 as this has become a variable, particularly kind of in the weeks leading up to the February 1 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 the early March threat reemerged?

John Pawlowski, President and Chief Operating Officer, Mission Produce: Ben, this is John. Really there was a little bit more shakeup and movement at the March announcement than the February announcement. February, no one was sure if anything would go through or not. And so it was really business as usual. The March conversation became a little bit more choppy in regards to 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 three days of the tariff being in place, and there were some, I would say, challenges or bumps at the border in regards to things crossing and things not crossing, etcetera. But overall, we felt pretty good about supply being consistent and us being able to deliver against the requirements that we had with our customers. So we didn’t see any challenge in regards to either A, getting fruit B, moving fruit across or C, delivering that fruit to our customers.

Ben Quievy, Analyst, Lake Street Capital Markets: Got it. Very good. Well, best of luck to everybody navigating this environment. Thanks for taking my questions and I’ll get back in queue.

John Pawlowski, President and Chief Operating Officer, Mission Produce: Thank you,

Conference Operator: And if there are no further comments, I’d like to turn the floor back to management for any closing comments.

Steve Barnard, Chief Executive Officer, Mission Produce: Thank you for your interest in Mission Produce and we look forward to speaking with you again next quarter.

Conference Operator: This concludes today’s teleconference. You may disconnect your lines at this time. Thank you again for your participation.

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