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Category: Stock Market and Calavo Growers
Date: 8 September 2019 Stock Price: $98.51 We take a look at the 3rd quarter earnings for their 2019 fiscal year of Calavo an industry leading avocado and fresh food provider.
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About Calavo Growers
Calavo Growers, Inc. is a global avocado-industry leader and an expanding provider of value-added fresh food serving retail grocery, food service, club stores, mass merchandisers, food distributors and wholesalers worldwide. The company operates in three business segments. The Fresh segment ("Fresh") procures and markets fresh avocados and select other fresh produce (tomatoes). The Renaissance Food Group segment ("RFG") creates, markets and distributes a portfolio of healthy, fresh foods, including fresh-cut fruit, fresh-cut vegetables and prepared foods. The Foods segment ("Foods") manufactures and distributes guacamole and salsa. Founded in 1924, Calavo’s fresh food products are sold under the respected Calavo brand name as well as Garden Highway, Chef Essentials and a variety of private label and store brands
Financial overview of Calavo Growers' latest earnings report
The numbers we are interested in (for the quarter):
- Net sales: $359.332 million (up from $296.419 million from the same quarter of the previous year)
- Cost of goods sold : $323.557 million (up from $263.349 million for the same quarter of the previous year)
- Net income: $10.603 million (up from from $12.350 million for the same quarter of the previous year)
- Diluted earnings per share: $0.60 (up from $0.70 for the same quarter of the previous year)
- Diluted weighted-average shares outstanding: 17.605 million (up from 17.581 million for the same quarter of the previous year)
- PE ratio: 40.8 (based on the earnings per share for the current quarter being reported for full fiscal year)
- Cash and cash equivalents: $5.168 million
- Cash and cash equivalents per share: $0.29
- Cash and cash equivalents makes up 0.29% of Calavo Growers current market capital
- Cash and cash equivalents makes up 1.25% of Calavo Growers total assets
- Inventories: $46.340 million (up from $35.044 million for the same quarter of the previous year)
- Inventories makes up 11.2% of Calavo Growers total assets
- Inventories grew by 32.23% over the last year
- Total shareholders' equity of Calavo Growers: $299.162 million
- Shareholders' equity per share: $16,99
Calavo Growers' management commentary on the results and earnings guidance
SANTA PAULA, Calif.--(BUSINESS WIRE)-- Calavo Growers, Inc. (Nasdaq-GS: CVGW) today reported that fiscal 2019 third quarter revenues rose to the highest single-period total in company history. The company, a global avocado-industry leader and rapidly expanding provider of value-added fresh food, also announced that gross profit, operating income and adjusted net income all tracked substantially higher than last year.
For the three months ended July 31, 2019, net income totaled $10.6 million, equal to $0.60 per diluted share. This compares with net income of $12.4 million, or $0.70 per diluted share, in last year’s third quarter. Excluding certain items impacting comparability, the company reported adjusted net income(1) of $16.0 million, equal to $0.91 per adjusted diluted share, which compares with $15.1 million, or $0.86 per adjusted diluted share, in the corresponding quarter last year.
Third quarter revenues rose 21 percent to a record $359.3 million from $296.4 million in the year-earlier corresponding quarter. Gross profit advanced to $35.8 million, or 10.0 percent of revenues, an eight percent increase from $33.1 million, equal to 11.2 percent of revenues, in the third period of 2018. Operating income registered a 12 percent increase, climbing to $21.6 million from $19.2 million in the fiscal 2018 third quarter.
Chairman, President and Chief Executive Officer Lee E. Cole stated: “As forecast, Calavo posted strong operating results in the third quarter, maintaining the company’s trajectory toward a record performance this fiscal year.”
Cole continued: “The Fresh segment continues to power overall results, with sales increasing 38 percent and total gross profit for the segment expanding by 70 percent in the most recent quarter. Calavo’s expertise in avocado sourcing, production and sales management have enabled us to successfully navigate a range of different market conditions this year, including this most recent quarter during which strong consumer demand outpaced a lower overall industry supply.
“As foreshadowed in our second quarter earnings release, the short supply and sharp increase in prices for avocados used in our Calavo Foods segment adversely impacted gross profit during our third fiscal quarter. However, we did see fruit input costs easing at the end of our third quarter which supports our expectation for improved performance in the coming fourth quarter (further described in Outlook below).
“In the third quarter, Renaissance Food Group (RFG) generated higher sales and turned in sharply improved gross profit performance – nearly three-fold higher – than realized in the company’s fiscal second quarter. We are especially encouraged by the improved efficiency of our manufacturing operations, where certain factors that challenged RFG in the first half of the year – namely raw-materials cost, quality and availability – have abated.”
Outlook
Looking forward, CEO Cole stated: “Based on our operating performance in the most-recent quarter and fiscal 2019 to date, Calavo enters our final quarter squarely on target to post record revenues and adjusted diluted earnings per share—and I am forecasting an increase of over 20 percent in adjusted diluted earnings per share.
“Underscoring my optimism and confidence is the robust performance of our Fresh avocado segment, which continues to execute extremely well. Our breadth of resources enables our leadership position in the long-term expansion of the avocado industry. Calavo has demonstrated strength navigating this dynamic market across a range of conditions and, even though total all-source industry volume was lower than we expected in the third quarter, we continue to anticipate an increase in Fresh segment gross profit for the full year exceeding 50 percent.”
Cole continued: “Our RFG segment, as previously forecast, continues to improve; the notable quarter-to-quarter increase in sales and gross profit are promising indicators. In particular, the results this quarter from our established manufacturing facilities give us added confidence in our long-term strategy of bringing more of our manufacturing operations under direct company control. While we continue to make advances optimizing our existing manufacturing operations, we are also investing in new facilities to build stronger footholds in additional regions. Following our first full quarter of production in Georgia, our newest production facility in the Pacific Northwest is coming online during the fourth quarter, which should bolster our long-term growth potential. For the full year 2019, we continue to forecast high-single-digit revenue growth and an overall gross profit percentage that is slightly higher than our year-to-date results for RFG.
“I reiterate that Calavo Foods remains a highly complementary part of the company’s business strategy, extending our brand presence both in the retail and food-service categories. Gross profit and margin have been adversely impacted by high avocado prices this year. However, we anticipate month-to-month improvement across the fourth quarter with margins nearing the segment’s historic norms by the end of the fiscal year. We are also expecting stronger top-line sales growth during the final quarter, leading to mid-single-digits sales growth for the year for our Foods segment.
“FreshRealm, the unconsolidated subsidiary in which Calavo holds a minority ownership stake, made some further progress. The business’ newest customers continued to ramp (leading to sequential quarter growth in sales) and its cost-reduction program led to lower loss realization.
“We advance toward the conclusion of fiscal 2019 in a very strong position that underscores my confidence for Calavo’s potential for the current year and well into the future. Our company has in place a very strong, flexible strategic platform – with multiple revenue and profit drivers – capable of performing well across a range of market conditions as Calavo has repeatedly demonstrated. With so much to build on, I look forward to the course ahead and reporting our continued progress,” Cole concluded.
For the three months ended July 31, 2019, net income totaled $10.6 million, equal to $0.60 per diluted share. This compares with net income of $12.4 million, or $0.70 per diluted share, in last year’s third quarter. Excluding certain items impacting comparability, the company reported adjusted net income(1) of $16.0 million, equal to $0.91 per adjusted diluted share, which compares with $15.1 million, or $0.86 per adjusted diluted share, in the corresponding quarter last year.
Third quarter revenues rose 21 percent to a record $359.3 million from $296.4 million in the year-earlier corresponding quarter. Gross profit advanced to $35.8 million, or 10.0 percent of revenues, an eight percent increase from $33.1 million, equal to 11.2 percent of revenues, in the third period of 2018. Operating income registered a 12 percent increase, climbing to $21.6 million from $19.2 million in the fiscal 2018 third quarter.
Chairman, President and Chief Executive Officer Lee E. Cole stated: “As forecast, Calavo posted strong operating results in the third quarter, maintaining the company’s trajectory toward a record performance this fiscal year.”
Cole continued: “The Fresh segment continues to power overall results, with sales increasing 38 percent and total gross profit for the segment expanding by 70 percent in the most recent quarter. Calavo’s expertise in avocado sourcing, production and sales management have enabled us to successfully navigate a range of different market conditions this year, including this most recent quarter during which strong consumer demand outpaced a lower overall industry supply.
“As foreshadowed in our second quarter earnings release, the short supply and sharp increase in prices for avocados used in our Calavo Foods segment adversely impacted gross profit during our third fiscal quarter. However, we did see fruit input costs easing at the end of our third quarter which supports our expectation for improved performance in the coming fourth quarter (further described in Outlook below).
“In the third quarter, Renaissance Food Group (RFG) generated higher sales and turned in sharply improved gross profit performance – nearly three-fold higher – than realized in the company’s fiscal second quarter. We are especially encouraged by the improved efficiency of our manufacturing operations, where certain factors that challenged RFG in the first half of the year – namely raw-materials cost, quality and availability – have abated.”
Outlook
Looking forward, CEO Cole stated: “Based on our operating performance in the most-recent quarter and fiscal 2019 to date, Calavo enters our final quarter squarely on target to post record revenues and adjusted diluted earnings per share—and I am forecasting an increase of over 20 percent in adjusted diluted earnings per share.
“Underscoring my optimism and confidence is the robust performance of our Fresh avocado segment, which continues to execute extremely well. Our breadth of resources enables our leadership position in the long-term expansion of the avocado industry. Calavo has demonstrated strength navigating this dynamic market across a range of conditions and, even though total all-source industry volume was lower than we expected in the third quarter, we continue to anticipate an increase in Fresh segment gross profit for the full year exceeding 50 percent.”
Cole continued: “Our RFG segment, as previously forecast, continues to improve; the notable quarter-to-quarter increase in sales and gross profit are promising indicators. In particular, the results this quarter from our established manufacturing facilities give us added confidence in our long-term strategy of bringing more of our manufacturing operations under direct company control. While we continue to make advances optimizing our existing manufacturing operations, we are also investing in new facilities to build stronger footholds in additional regions. Following our first full quarter of production in Georgia, our newest production facility in the Pacific Northwest is coming online during the fourth quarter, which should bolster our long-term growth potential. For the full year 2019, we continue to forecast high-single-digit revenue growth and an overall gross profit percentage that is slightly higher than our year-to-date results for RFG.
“I reiterate that Calavo Foods remains a highly complementary part of the company’s business strategy, extending our brand presence both in the retail and food-service categories. Gross profit and margin have been adversely impacted by high avocado prices this year. However, we anticipate month-to-month improvement across the fourth quarter with margins nearing the segment’s historic norms by the end of the fiscal year. We are also expecting stronger top-line sales growth during the final quarter, leading to mid-single-digits sales growth for the year for our Foods segment.
“FreshRealm, the unconsolidated subsidiary in which Calavo holds a minority ownership stake, made some further progress. The business’ newest customers continued to ramp (leading to sequential quarter growth in sales) and its cost-reduction program led to lower loss realization.
“We advance toward the conclusion of fiscal 2019 in a very strong position that underscores my confidence for Calavo’s potential for the current year and well into the future. Our company has in place a very strong, flexible strategic platform – with multiple revenue and profit drivers – capable of performing well across a range of market conditions as Calavo has repeatedly demonstrated. With so much to build on, I look forward to the course ahead and reporting our continued progress,” Cole concluded.
Calavo Growers (NASDAQ: CVGW) stock price history
The image below shows the stock price history of Calavo Growers over the last 5 years. 5 years ago the stock traded at around $40 a share, and its currently trading at $98.51. This is almost a 100% return provided to Calavo Growers stockholders over the last 5 years. The stock is also trading at a lot closer to its 52 week high of $108, than it is to its 52 week low of $67.52 which is an indication that shorter term sentiment towards the stock is still positive.
Calavo Growers (NASDAQ: CVGW) latest stock valuation
Based on Calavo Growers latest earning report , what do we value the group's stock at? Based on Calavo growers latest earnings report and their fiscal guidance and outlook our valuation model sets a target price for Calavo Growers of $61.50. We therefore believe the stock is overvalued and would not recommend that long term fundamental or value investors buy into Calavo Growers at their current price.