Mission Produce, Inc. — Q1 FY2024 Form 10-Q
Reporting period: Three months ended January 31, 2024; balance-sheet figures are as of January 31, 2024. Mission Produce sources, farms, packs, markets and distributes avocados and other fruit. Its reportable segments are Marketing and Distribution, International Farming and Blueberries. Unless noted otherwise, amounts are in millions of U.S. dollars.
Financial results
| Metric | Q1 FY2024 | Q1 FY2023 |
|---|---|---|
| Net sales | $258.7 | $213.5 |
| Gross profit / gross margin | $28.7 / 11.1% | $9.0 / 4.2% |
| Operating income (loss) | $8.0 | $(10.1) |
| Income (loss) before taxes | $4.1 | $(12.3) |
| Consolidated net income (loss) | $2.0 | $(10.6) |
| Net income attributable to Mission Produce | $0.0 | $(8.8) |
| Operating cash flow | $9.5 | $(1.3) |
| Capital expenditures | $9.9 | $17.6 |
- Revenue and margins: Sales rose 21%. Avocado revenue was $212.3 million versus $174.0 million; blueberry revenue was $32.5 million versus $29.8 million. Gross margin increased 690 basis points, reflecting improved per-unit avocado margins and higher blueberry pricing.
- Segment performance: Marketing and Distribution sales were $224.6 million and adjusted EBITDA was $11.0 million, versus $181.8 million and $4.6 million. Blueberries sales were $32.5 million and adjusted EBITDA was $8.7 million, versus $29.8 million and a $0.5 million loss. International Farming sales were $1.6 million and adjusted EBITDA was a $0.5 million loss, versus $1.9 million and a $1.8 million loss. Segment adjusted EBITDA is a non-GAAP measure.
- Cash, working capital and liquidity: Cash and cash equivalents were $39.9 million, down from $42.9 million at October 31, 2023; working capital was $136.6 million, up from $122.6 million. Operating cash flow improved year over year, though working-capital changes used $11.5 million, largely from higher receivables and inventory, partly offset by grower payables.
- Debt and interest: Long-term debt, including the current portion and before debt issuance costs, was $156.5 million. The revolving facility balance was $60.0 million. Borrowings carry variable rates; disclosed rates were 7.43% on the revolver and A-1 term loan and 7.68% on the A-2 term loan. Interest expense increased 38% to $3.3 million, primarily due to higher SOFR. The company reported compliance with its covenants; leverage was 2.43x against a maximum of 3.5x, and fixed-charge coverage was 1.96x against a minimum of 1.25x.
Changes, outlook and notable items
- Avocado average selling price per unit increased 23% while volume was flat. Blueberry average selling price rose 90%, while volume fell 43%, reflecting reduced Peruvian industry supply following regional weather conditions.
- The effective tax rate was 51.2%, versus 13.8% in the prior-year quarter. Management cites, among other factors, book losses in jurisdictions where tax benefits were unavailable or limited. The filing does not provide a clear normalized tax rate.
- Management expects fiscal 2024 capital expenditures of $30–$35 million. The Moruga project to develop approximately 1,500 additional blueberry acres had an estimated $35 million of remaining capital expenditures at quarter-end. No specific earnings or revenue guidance is provided.
- Q1 included $4.1 million of accelerated depreciation for blueberry plants deemed to have no remaining useful life, $1.3 million of severance expense and a $0.2 million additional reserve for California wage-and-labor class actions. Segment adjusted EBITDA excludes specified items and is not a GAAP measure.
- Seasonality affects results and cash flow: first-half working capital typically rises, International Farming activity generally strengthens with the April–September Peruvian avocado harvest, and blueberry sales are concentrated in the first and fourth fiscal quarters.
Risks and contingencies
- Key exposures include fruit supply, market prices and volumes, weather and farming conditions, customer concentration or loss, competition, transportation and supply-chain disruption, food safety, international operations and currency movements.
- The credit facility has restrictive covenants; noncompliance could affect liquidity and potentially accelerate debt. The company was compliant at January 31, 2024.
- Two California wage-and-labor class actions remain subject to final approval of a previously agreed settlement; a final approval hearing was scheduled for June 2024. The company recorded an additional $0.2 million reserve this quarter.
- Accrued uncertain tax positions included $18.1 million related to income taxes, including $10.0 million of interest and penalties. Separately, other long-term liabilities included $20.7 million of uncertain tax positions and statutory reserves; these disclosures have different stated scopes and should not be treated as interchangeable.
Important facts for investors to verify
- Whether higher avocado prices and blueberry margins persist, and how pricing, supply and volume trends affect future gross margins.
- Whether working-capital investment, seasonal cash flows and planned capital expenditures can be funded without materially increasing borrowings.
- Debt balances, variable-rate exposure, covenant headroom and the effects of the scheduled maturity of the remaining $25 million interest-rate swap in Q2 FY2024.
- Progress, funding and expected returns for the Moruga blueberry expansion, including the estimated remaining $35 million investment.
- Final outcome and any further costs associated with the California class-action settlement, and developments in uncertain tax positions.
- That consolidated net income of $2.0 million was entirely attributable to noncontrolling interests; Mission Produce reported no attributable income for the quarter.