Mission Produce, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended October 31, 2021. This is an annual report, not a standalone fourth-quarter report; separate Q4 financial results are not provided in the filing text.
Business context
Mission Produce sources, farms, packs, ripens and distributes fresh avocados, principally to retail, wholesale and foodservice customers. Its segments are Marketing and Distribution and International Farming. Most farming-segment fruit is sold internally to Marketing and Distribution. Peru’s harvest makes farming profits more concentrated in the third and fourth fiscal quarters.
Key financial metrics
| Metric | FY2021 | FY2020 |
|---|---|---|
| Net sales | $891.7 million | $862.3 million |
| Gross profit / margin | $124.5 million / 14.0% | $124.6 million / 14.4% |
| Operating income / margin | $60.9 million / 6.8% | $68.4 million / 7.9% |
| Net income | $44.9 million | $28.8 million |
| Diluted EPS | $0.63 | $0.45 |
| Operating cash flow | $47.0 million | $78.9 million |
| Capital expenditures | $73.4 million | $67.3 million |
| Cash and cash equivalents at year-end | $84.5 million | $124.0 million |
| Working capital at year-end | $157.9 million | $170.2 million |
| Total debt before issuance costs | $164.3 million | $174.7 million |
Cash flow from operations less capital expenditures was negative $26.4 million in FY2021. Restricted cash was an additional $6.1 million. The company had no revolver borrowings at year-end; its $100 million revolving facility expires in October 2023. It reported leverage and fixed-charge coverage ratios of 1.26x and 2.52x, respectively, and compliance with covenants. FY2021 dividends were zero.
Segment adjusted EBITDA, a non-GAAP measure, was $85.3 million versus $91.5 million. Marketing and Distribution contributed $51.4 million, down from $68.2 million; International Farming contributed $33.9 million, up from $23.3 million.
Material changes versus FY2020
- Sales rose 3%, as avocado volume increased 5%, partly offset by a 2% decline in average per-unit sales prices.
- Gross profit was essentially flat, while gross margin fell 40 basis points. Management cited tighter per-unit margins on California and Mexican fruit, smaller fruit sizes, ramp-up costs at the Laredo facility, and fourth-quarter port delays and resulting quality-related returns. Higher volumes from company-owned farms partly offset these pressures.
- Operating income declined $7.5 million, reflecting higher SG&A and lower margin. SG&A increased 13% to $63.6 million, including public-company costs, higher insurance and professional fees, rent, and a $0.8 million legal-settlement accrual.
- Net income increased despite lower operating income. FY2020 included a $21.2 million impairment of the Moruga blueberry investment; FY2021 also benefited from lower interest expense and higher equity-method income. A $5.4 million deferred-tax expense from Peru’s enacted tax-rate increases partly affected FY2021 results.
- Operating cash flow fell $31.9 million, principally because of working-capital use from higher receivables and inventory, partly offset by higher grower payables. Cash and cash equivalents declined $39.5 million year over year.
Outlook, risks and unusual items
- No numerical revenue or earnings guidance is provided. Management described the new 262,000-square-foot Laredo distribution center as a strategic hub, with potential for expanded storage, packing and distribution services; it was still ramping up utilization in FY2021.
- Orchard investments and land improvements continued in Peru and Guatemala. Trees generally begin producing after about three years and reach full production in five to seven years. Farming yields and earnings remain seasonal and dependent on weather, crop conditions and harvest timing.
- Key exposures include avocado supply and price volatility, dependence on Mexico and Peru, competition, perishability and food-safety risks, weather and farming risks, inflation and transportation costs, port and supply-chain disruption, and the ability to pass cost increases to customers. The top 10 customers generated approximately 59% of sales; no single customer exceeded 10% of FY2021 sales.
- Two California wage-and-labor class actions were preliminarily settled for $0.8 million; court approval remained pending. A Mexican subsidiary’s 2013 tax assessment was under appeal/litigation. Uncertain tax positions were $15.7 million, including this complex tax exposure.
- Peru’s new law raises the company’s applicable agricultural corporate tax rate from 15% to 20% in 2023–2024, 25% in 2025–2027 and 29.5% thereafter. Management recorded a $5.4 million tax expense to remeasure deferred taxes.
- Management and Deloitte reported effective internal control over financial reporting; Deloitte issued unqualified opinions on the financial statements and internal controls. The company adopted lease accounting in FY2021, recognizing operating lease assets and liabilities.
Important facts for investors to verify
- Whether Laredo utilization and any third-party services grow enough to offset start-up costs and support margins.
- Whether Marketing and Distribution margins recover, given FY2021’s lower adjusted EBITDA and exposure to fruit prices, freight and input-cost inflation.
- How working capital, capital spending and orchard expansion affect cash generation and liquidity; FY2021 operating cash flow was below capital expenditures.
- The status and potential financial outcome of the Mexican tax dispute, uncertain tax positions and California settlement approval.
- Debt maturities, covenant headroom and financing needs, particularly the scheduled October 2023 maturity of the A-1 term loan and revolving facility.