Business Context and Reporting Period
Mission Produce, Inc. filed this Form 10-K for the fiscal year ended October 31, 2022. The company farms, sources, packs, markets and distributes avocados globally, with operations reported in Marketing and Distribution, International Farming and Blueberries.
On May 1, 2022, Mission began consolidating Moruga, its 60%-owned blueberry operation, after gaining control. Fiscal 2022 includes Moruga’s results from that date; the new Blueberries segment is therefore not directly comparable with prior years.
Financial Performance
| Metric (US$ millions, except per-share data) | FY2022 | FY2021 |
|---|---|---|
| Net sales | $1,045.9 | $891.7 |
| Gross profit / margin | $89.8 / 8.6% | $124.5 / 14.0% |
| Operating income (loss) | ($37.2) | $60.9 |
| Net income (loss) | ($34.9) | $44.9 |
| Net income (loss) attributable to Mission / diluted EPS | ($34.6) / ($0.49) | $44.9 / $0.63 |
| Cash from operating activities | $35.2 | $47.0 |
| Capital expenditures | $61.2 | $73.4 |
| Segment adjusted EBITDA (non-GAAP) | $47.6 | $85.3 |
Sales rose 17%, primarily as average per-unit avocado selling prices increased 28%, partly offset by an 11% decline in avocado volume. Gross profit fell 28%; gross margin contracted 5.4 percentage points. Segment adjusted EBITDA declined 44%. The reported net loss included a $49.5 million noncash goodwill impairment.
Cash and cash equivalents were $52.8 million at year-end, down from $84.5 million. Working capital was $126.4 million, compared with $157.9 million. Operating cash flow less capital expenditures was negative $26.0 million. Total debt principal was $141.0 million, plus $2.5 million of short-term borrowings; the balance-sheet carrying value of long-term debt was $140.4 million before the separate short-term borrowings.
The amended credit facility provides up to $250 million in total capacity, including $100 million of term loans and a $150 million revolver; $40 million was drawn on the revolver at year-end. The company reported leverage and fixed-charge coverage ratios of 2.17x and 1.71x, respectively, and compliance with its covenants. Undiscounted lease payments were $105.3 million, including a 15-year U.K. distribution-facility lease.
Material Changes Versus the Prior Year
- Sales increased, but lower Mexican supply reduced volume and contributed to higher selling prices.
- ERP implementation problems disrupted purchasing, receiving, shipping, invoicing and inventory management in the first quarter. Management said most operational issues were largely resolved in the second quarter; the disruption contributed to lower gross profit.
- Marketing and Distribution adjusted EBITDA fell to $23.5 million from $51.4 million. International Farming adjusted EBITDA fell to $23.3 million from $33.9 million, reflecting higher freight, packaging and farming costs and losses at early-stage mango farms. Blueberries contributed $10.8 million of sales and $0.8 million of adjusted EBITDA for its six months of consolidation.
- Mission recorded a $49.5 million impairment of goodwill associated with Peruvian farming. Management cited higher discount rates, increased Peruvian tax rates, inflationary farm costs and updated harvest and sales information.
- Capital investment continued in farmland and orchard development. Property, plant and equipment spending declined from the prior year, when construction of the Laredo facility was a major use of funds.
Outlook, Risks and Unusual Items
- No specific revenue or earnings guidance is provided. Management expected fiscal 2023 capital expenditures, excluding the Moruga blueberry project, to be lower than fiscal 2022.
- The Moruga project plans approximately 1,500 additional blueberry acres in Peru, with an estimated total investment of about $50 million. Fiscal 2023 project capital expenditures were estimated at $20–$25 million. In November 2022, Moruga entered a 25-year land lease with approximately $60 million of undiscounted payments; the filing says the rent was comparable to market rates. The lessor is owned by a Mission director.
- Key exposures include avocado supply and price volatility, weather and crop risks, inflation in labor and transport, supply-chain reliability, international political and regulatory conditions, and customer concentration. The top 10 customers represented approximately 59% of sales; one customer represented 13% in fiscal 2022.
- New Mexican labor-inspection criteria could require Mission to directly employ some avocado harvesting and picking crews rather than subcontract them. The company was evaluating the implications and available responses.
- Peruvian corporate income tax rates are scheduled to rise from 15% to 20% in 2023–2024, 25% in 2025–2027 and 29.5% thereafter. Higher rates were among the factors affecting the Peruvian farming goodwill valuation.
- Two California wage-and-labor class actions were preliminarily settled for $0.8 million; courts approved the settlement in October 2022, subject to final approval estimated for spring 2023.
- Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting. Moruga was excluded from management’s and the auditor’s internal-control assessment following its consolidation.
Important Facts for Investors to Verify
- Whether avocado volumes, per-unit margins and Marketing and Distribution profitability recover after the supply constraints and ERP disruption.
- Whether inflation and transportation costs can be passed through to customers, and how the planned blueberry expansion affects cash needs and returns.
- Progress on the Mexican labor-law interpretation, including any direct-employment requirements, implementation costs or penalties.
- Peruvian farming performance and the assumptions behind goodwill valuation, including the possibility of further impairment.
- Liquidity and covenant headroom as investment commitments, debt service and the long-term land and facility leases progress.
- Final approval and payment status of the California class-action settlement, and the related-party terms and governance oversight of the Moruga land lease.