Mission Produce, Inc. — Fiscal Q2 2024 Form 10-Q
Reporting period: Three and six months ended April 30, 2024. Unless otherwise noted, financial amounts are in millions of U.S. dollars. Mission Produce sources, farms, packs, markets and distributes avocados and other produce through Marketing and Distribution, International Farming and Blueberries segments.
Financial performance
| Metric | Q2 2024 | Q2 2023 | Six months 2024 | Six months 2023 |
|---|---|---|---|---|
| Net sales | $297.6 | $221.1 | $556.3 | $434.6 |
| Gross profit / margin | $31.0 / 10.4% | $18.1 / 8.2% | $59.7 / 10.7% | $27.1 / 6.2% |
| Operating income (loss) | $12.3 | $(1.2) | $20.3 | $(11.3) |
| Net income (loss) | $7.0 | $(4.7) | $9.0 | $(15.3) |
| Net income (loss) attributable to Mission | $7.0 | $(4.6) | $7.0 | $(13.4) |
| EPS attributable to Mission, basic and diluted | $0.10 | $(0.07) | $0.10 | $(0.19) |
| Adjusted EBITDA, segments combined | $20.2 | $7.6 | $39.4 | $9.9 |
Q2 sales rose 35%, led by Marketing and Distribution, where avocado prices per unit increased 22% and volume sold increased 8%. Six-month sales rose 28%, reflecting a 23% increase in average avocado prices and 4% higher volume. Management attributed improved gross profit primarily to stronger per-unit avocado margins and volume; blueberry pricing also supported first-half results.
- Q2 segment adjusted EBITDA: Marketing and Distribution $21.7 (prior-year $8.6); International Farming $(2.2) ($(1.1)); Blueberries $0.7 ($0.1).
- Six-month segment adjusted EBITDA: Marketing and Distribution $32.7 (prior-year $13.2); International Farming $(2.7) ($(2.9)); Blueberries $9.4 (prior-year $(0.4)).
- Six-month blueberry revenue increased 35% to $42.5, with average price up 63% and volume down 17%; Q2 revenue growth reflected harvest timing and higher volume.
Cash flow, liquidity and debt
- Six-month operating cash flow was $12.9, versus cash use of $26.1 a year earlier. Investing cash use was $18.3, including $17.7 of capital expenditures; financing provided $9.3. Cash, cash equivalents and restricted cash ended at $47.2. Operating cash flow less capital expenditures was approximately $(4.8).
- At April 30, cash and cash equivalents were $46.2; working capital was $154.6, up from $122.6 at October 31, 2023. Current assets were $276.3 and current liabilities $121.7.
- Gross long-term debt and note payable reported in the debt note totaled $170.6 ($170.2 net of issuance costs), versus $152.4 at October 31, 2023. The revolving facility had $75.0 drawn; the $150 million revolver therefore had $75 million of nominal unused capacity. The full syndicated facility capacity is $250 million. Borrowings bear variable rates; reported rates were 7.42% on the revolver and A-1 term loan and 7.67% on the A-2 loan.
- Debt covenants were met: leverage ratio 2.14 versus a maximum of 3.5, and fixed-charge coverage 2.25 versus a minimum of 1.25. No short-term borrowings were outstanding. Cash and debt figures exclude operating and finance lease liabilities; undiscounted lease cash liabilities were approximately $175.3.
Changes, outlook and risks
- Compared with Q2 2023, gross margin improved 220 basis points and the company returned to quarterly profitability. For the six months, it likewise moved from a net loss to net income. Interest expense rose 26% in Q2 and 31% in the first half, primarily due to higher rates.
- Management expects warmer temperatures associated with El Niño to reduce exportable volume from company-owned Peruvian avocado farms by more than 50% in the second half of fiscal 2024 versus recent seasons. Lower volume is expected to hurt fixed-cost absorption and International Farming gross profit; management does not expect higher prices to offset the volume impact.
- Fiscal 2024 capital expenditures are expected to be $40–$45 million. The Moruga blueberry expansion in Peru had approximately $35 million of estimated remaining capital expenditures at April 30.
- Seasonality and exposure to fruit prices, supply, weather, crop yields, transportation, customer demand and foreign exchange can materially affect results. Blueberries are substantially sold to one distributor under an exclusive marketing agreement. Management provided no overall earnings or revenue guidance in the supplied filing text.
- Unusual items included $4.1 of accelerated depreciation on blueberry plants with no remaining useful life during the first half, $1.3 of severance expense, and a $1.5 accrued settlement of two California wage-and-hour class actions; a final approval hearing was scheduled for June 2024.
- The company reported $18.3 accrued for uncertain income-tax positions, including $10.1 of interest and penalties. It stated that disclosure controls were effective and that there were no material changes to internal control over financial reporting.
Key facts for investors to verify
- Whether the forecast reduction of more than 50% in owned-farm avocado export volume materializes and how it affects segment margins and consolidated results.
- How much of the strong first-half avocado pricing and margin performance is sustainable as supply, prices and volumes change.
- Cash conversion, seasonal working-capital needs, planned capital spending and funding for the blueberry expansion.
- Exposure to variable-rate debt, remaining revolver availability, covenant headroom and lease obligations.
- Outcome and final cost of the California settlements, and developments in uncertain tax positions.