Mission Produce, Inc. — Fiscal Q3 2023 Form 10-Q
Reporting period: Three and nine months ended July 31, 2023; comparative periods ended July 31, 2022. Amounts are in U.S. dollars, millions except per-share data. Mission Produce sources, farms, packs, markets and distributes avocados and other produce through Marketing and Distribution, International Farming and Blueberries segments.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net sales | $261.4 | $313.2 | $696.0 | $807.9 |
| Gross profit / margin | $28.4 / 10.9% | $42.6 / 13.6% | $55.5 / 8.0% | $62.9 / 7.8% |
| Operating income (loss) | $11.0 | $22.0 | $(0.3) | $4.9 |
| Net income (loss) attributable to Mission Produce | $6.6 | $18.4 | $(6.8) | $7.4 |
| Diluted EPS | $0.09 | $0.26 | $(0.10) | $0.10 |
| Adjusted EBITDA (non-GAAP) | $21.2 | $31.6 | $31.1 | $30.4 |
- Q3 sales fell 17%. A 33% decline in average avocado selling price, driven by higher Mexican industry supply, was partly offset by 23% higher avocado volume.
- Q3 gross profit declined 33%; management attributed the reduction principally to lower prices on fruit from company-owned farms. Q3 SG&A fell 16% to $17.4 million, largely on lower incentive compensation, ERP reengineering costs and professional fees.
- Nine-month sales declined 14%, as avocado prices fell 32% and volume rose 19%. Nine-month net loss included a $1.7 million discrete Mexican uncertain-tax-position charge; losses in some jurisdictions did not generate corresponding tax benefits.
- Q3 Marketing and Distribution adjusted EBITDA rose to $16.1 million from $15.5 million. International Farming adjusted EBITDA fell to $4.9 million from $16.3 million, reflecting lower farm-gate avocado prices. Blueberries recorded $0.2 million of adjusted EBITDA in Q3; its nine-month result was a $0.2 million loss.
Cash flow, liquidity and debt
- Nine-month operating cash flow was negative $7.3 million, versus negative $3.0 million a year earlier. Working-capital changes used $31.2 million, and management cited weaker International Farming performance.
- Investing cash outflow was $50.7 million, including $47.0 million of capital expenditures. Financing provided $29.1 million. Cash, cash equivalents and restricted cash totaled $25.1 million at July 31, 2023, including $23.0 million unrestricted cash.
- Working capital was $129.1 million, compared with $126.4 million at October 31, 2022. Long-term debt, net of current portion, was $164.3 million; the filing reports $168.3 million of total term-loan and note maturities and $2.8 million of short-term borrowings.
- The $250 million credit facility comprises $150 million of revolving capacity and $100 million of term loans. The company had $70 million drawn on the revolver. Variable rates on the principal facility borrowings were approximately 7.33%–7.67%; interest expense rose to $8.3 million for nine months from $3.5 million.
- At July 31, the company reported compliance with covenants: leverage ratio 2.97 versus a maximum 3.5, and fixed-charge coverage 1.68 versus a minimum 1.25. It had $100 million of interest-rate swaps, scheduled to expire at various dates through fiscal Q2 2024.
Outlook, risks and notable items
- No specific revenue or earnings guidance is provided. For fiscal 2023, management expected capital expenditures excluding the Moruga Blueberry Project to be below fiscal 2022’s $61.2 million. The blueberry expansion project is expected to require about $50 million in total, with approximately $13 million of fiscal 2023 capex anticipated, subject to timing and other factors.
- Results are exposed to fruit supply, market prices and volumes, weather, crop yields, customer demand, seasonality, logistics, inflation, foreign exchange and customer concentration. Management says results are seasonal; working capital commonly rises in the first half, while Peruvian avocado harvest and farming-segment results are concentrated in the second half.
- Two California wage-and-labor class actions remain subject to settlement approval. In July 2023, the court directed notice to a class scope the company disputes; final approval was set for January 30, 2024. The company had previously recorded a $0.8 million settlement contingency. Management cautions that adverse outcomes could materially affect results.
- As of July 31, the company had $20.1 million accrued for uncertain income-tax positions, including $10.0 million of interest and penalties. Lease cash liabilities were approximately $182.5 million, including about $60.0 million related to a blueberry land lease.
- After quarter-end, the board approved a share repurchase authorization of up to $20 million over 36 months; no shares had been repurchased through September 11, 2023. A director and spouse also adopted a Rule 10b5-1 plan covering sales of up to 1,651,500 shares, with sales scheduled to begin October 16, 2023.
Important facts for investors to verify
- Whether higher avocado volumes and improved supply conditions can offset lower selling prices, particularly in International Farming.
- Cash conversion, seasonal working-capital needs and funding of substantial capex and the blueberry expansion.
- Debt, borrowing costs, covenant headroom and the expiration of interest-rate swaps.
- The final outcome and potential financial exposure of the wage-and-labor litigation and Mexican tax position.
- Performance of the Blueberries segment and its reliance on a single distributor under an exclusive marketing agreement.