Mission Produce, Inc. — Fiscal Third-Quarter 2021 Form 10-Q
Reporting period: Quarter and nine months ended July 31, 2021; comparisons are with the corresponding 2020 periods unless noted. Mission Produce sources, farms, packs, markets, and distributes avocados through Marketing & Distribution and International Farming. Amounts below are in millions of dollars, except per-share data and percentages.
Financial performance
| Metric | Quarter 2021 | Quarter 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $246.8 | $236.4 | $654.7 | $655.5 |
| Gross profit | $40.9 | $44.2 | $90.7 | $85.1 |
| Gross margin | 16.6% | 18.7% | 13.9% | 13.0% |
| Operating income | $23.7 | $30.7 | $42.6 | $45.7 |
| Net income | $18.4 | $23.4 | $28.0 | $10.0 |
| Diluted EPS | $0.26 | $0.37 | $0.39 | $0.16 |
| Adjusted EBITDA | $30.1 | $36.6 | $58.9 | $59.4 |
- Quarterly sales rose 4%, reflecting 2% higher avocado volume and 2% higher average per-unit sales prices. Gross profit fell 7% and gross margin contracted 210 basis points, mainly from tighter sourcing margins and costs to ramp the new Laredo facility. SG&A increased 27% to $17.2, partly due to higher professional fees and public-company insurance costs.
- Nine-month sales were nearly flat. Volume sold rose 10%, while average per-unit prices fell 11%, with strong Mexican supply driving both trends. Gross profit increased 7%; gross margin improved 90 basis points. Operating income declined despite higher gross profit, primarily amid increased SG&A.
- Nine-month net income increased from $10.0 to $28.0, but the prior-year comparison included a $21.2 impairment of the Moruga equity investment. The current period also included $5.1 of discrete tax expense from Peru’s enacted future tax-rate increases; the nine-month effective tax rate was 35.3%, versus 51.0%.
- Quarterly Marketing & Distribution adjusted EBITDA fell to $13.1 from $21.0; International Farming rose to $17.0 from $15.6. For nine months, the respective figures were $43.0 versus $48.8 and $15.9 versus $10.6.
Cash flow, liquidity, and debt
- Nine-month operating cash flow was $15.2, down from $32.9. The company cited a $30.9 working-capital use, including higher inventory and receivables, partly offset by higher grower payables. Inventory was $66.6 at July 31, versus $38.6 at October 31, 2020.
- Investing cash outflow was $58.9, including $61.3 of property and equipment purchases, principally for orchard development and the Laredo facility. Financing cash outflow was $6.6. Cash, cash equivalents, and restricted cash ended at $76.7, versus $127.0 at the start of the fiscal year; balance-sheet cash and cash equivalents were $70.9.
- Working capital was $156.3, compared with $170.2 at October 31, 2020. Long-term debt, net of issuance costs, totaled $168.5, including $8.8 current; capital lease liabilities totaled $3.6. No revolving credit was drawn. The facility provides up to $100 of revolver capacity, with an accordion feature subject to bank approval.
- The company reported compliance with debt covenants: leverage ratio 1.83x against a maximum 3.00x and fixed-charge coverage ratio 2.40x against a minimum 1.50x. Approximately $100 of term-loan principal was hedged with interest-rate swaps.
Outlook, risks, and notable items
- No formal earnings or sales guidance was provided. Management expected to spend approximately $20 on farming expansion and facility-improvement projects in fiscal fourth-quarter 2021, funded through operating cash flow.
- Management highlighted seasonal and variable results tied to avocado supply, price, volume, weather, crop yields, customer demand, and operating capacity. Other disclosed exposures include transportation and labor availability, foreign exchange, food safety, competition, and COVID-19 effects.
- The preliminary settlement of two California wage-and-hour class actions was $0.8, recorded in SG&A in the quarter ended April 30, 2021; court approval remained pending. The filing notes that outcomes of litigation and other contingencies are uncertain.
- Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter. The company expected to lose emerging-growth-company status on October 31, 2021 and anticipated adopting deferred accounting standards under public-company effective dates.
Important facts for investors to verify
- Whether Laredo facility utilization and related infrastructure costs improve, and whether Marketing & Distribution margins recover.
- How the elevated inventory and receivables convert to cash as seasonal crops are harvested and sold; operating cash flow is seasonal.
- Whether the planned fourth-quarter capital spending is funded as expected while maintaining covenant headroom and liquidity.
- Current status and final court approval of the $0.8 wage-and-hour settlement, and any material developments in other contingencies.
- Effects of Peru’s higher future tax rates and the company’s planned transition from emerging-growth-company reporting status.