Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
CVGW > SEC Filings for CVGW > Form 10-Q on 6-Jun-2014All Recent SEC Filings

Show all filings for CALAVO GROWERS INC

Form 10-Q for CALAVO GROWERS INC


6-Jun-2014

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This information should be read in conjunction with the unaudited consolidated condensed financial statements and the notes thereto included in this Quarterly Report, and the audited consolidated financial statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in the Annual Report on Form 10-K for the year ended October 31, 2013 of Calavo Growers, Inc. (we, Calavo, or the Company).

Recent Developments

Dividend payment

On December 12, 2013, we paid a $0.70 per share dividend in the aggregate amount of $11.0 million to shareholders of record on November 29, 2013.

Contingencies

From time to time, we are also involved in litigation arising in the ordinary course of our business that we do not believe will have a material adverse impact on our financial statements.

FreshRealm

As of April 30, 2014, we entered into a Second Amended and Restated Limited Liability Company Agreement (Agreement) by and among FreshRealm, and the ownership members of FreshRealm. With this agreement, Impermanence, LLC (Impermanence) was admitted as an ownership member of FreshRealm. Impermanence contributed $10.0 million to FreshRealm for approximately 28.2% ownership. With this contribution, and a new noncontrolling ownership percentage, $4.6 million of this contribution was attributed to noncontrolling interest.

As a result of the admission of Impermanence, Calavo's ownership was reduced from 71.5% to 50.8%.

Effective April 1, 2014, with this agreement, the first $10.0 million of losses will be allocated solely to Impermanence. As a result, all losses from FreshRealm effective April 1, 2014, will be considered losses attributed to noncontrolling members, and not attributed to Calavo.

FreshRealm is currently considered in its development stage, as planned, principal operations have not commenced. As a result, the company has no sales, or cost of sales. When principal operations commence, FreshRealm is expected to become our fourth segment. For the three and six months ended April 30, 2014, FreshRealm has incurred $0.5 million and $1.0 million in expenses, which has been recorded in selling, general and administrative. For the three and six months ended April 30, 2013, FreshRealm has incurred $0.6 million in expenses.


Table of Contents

Net Sales

The following table summarizes our net sales by business segment for each of the
three and six-month periods ended April 30, 2014 and 2013:



                                          Three months ended April 30,                Six months ended April 30,
(in thousands)                          2014         Change         2013           2014         Change         2013
Net sales to third-parties:
Fresh products                       $  123,952         10.2 %    $ 112,488      $ 223,674         13.2 %    $ 197,555
Calavo Foods                             15,117         23.9 %       12,204         27,973         15.9 %       24,134
RFG                                      55,825         34.1 %       41,644        111,412         32.4 %       84,146

Total net sales                      $  194,894         17.2 %    $ 166,336      $ 363,059         18.7 %    $ 305,835

As a percentage of net sales:
Fresh products                             63.6 %                      67.7 %         61.6 %                      64.6 %
Calavo Foods                                7.8 %                       7.3 %          7.7 %                       7.9 %
RFG                                        28.6 %                      25.0 %         30.7 %                      27.5 %

                                          100.0 %                     100.0 %        100.0 %                     100.0 %

Summary

Net sales for the three months ended April 30, 2014, compared to fiscal 2013, increased by $28.6 million, or 17.2%. Net sales for the six months ended April 30, 2014, compared to fiscal 2013, increased by $57.2 million, or 18.7%. The increases in sales, when compared to the same corresponding prior year periods, are related to increases in sales from all segments. We experienced an increase in RFG sales during the second quarter of fiscal 2014 and the six months ended April 30, 2014, which was due primarily to increased sales from cut fruit and vegetables platters, as well as an increase in sales of deli products. We experienced an increase in Fresh product sales during the second quarter of fiscal 2014 and the six months ended April 30, 2014, which was due primarily to increased sales of Mexican and Chilean sourced avocados. Partially offsetting this increase in Fresh product sales, however, was a decrease in sales of California sourced avocados. We experienced an increase in our Calavo Foods segment during the second quarter of fiscal 2014 and the six months ended April 30, 2014, which was due primarily to an increase in the sales of our guacamole products. While the procurement of fresh avocados related to our Fresh products segment is very seasonal, our Calavo Foods business is generally not subject to a seasonal effect.

Net sales to third parties by segment exclude value-added services billed by our Uruapan packinghouse and our Uruapan processing plant to the parent company. All intercompany sales are eliminated in our consolidated results of operations.

Fresh products

Second Quarter 2014 vs. Second Quarter 2013

Net sales delivered by the Fresh products business increased by approximately $11.5 million, or 10.2%, for the second quarter of fiscal 2014, when compared to the same period for fiscal 2013. As discussed above, this increase in Fresh product sales during the second quarter of fiscal 2014 was primarily related to increased sales of Mexican and Chilean sourced avocados, partially offset by a decrease in sales from California sourced avocados. See details below.

Sales of Mexican sourced avocados increased $22.5 million, or 32.8%, for the second quarter of 2014, when compared to the same prior year period. The increase in Mexican sourced avocados was primarily due to an increase in the sales price per carton. The increase for the sales price per carton for Mexican sourced avocados increased by approximately 38.0%. We attribute much of this change to a higher demand for avocados and a lower supply in the marketplace. Partially offsetting this increase, however, was a decrease in the pounds sold, which decreased by approximately 2.8 million pounds of avocados sold, or 3.8%, when compared to the same prior year period.


Table of Contents

Sales of Chilean sourced avocados increased $1.0 million for the second quarter of 2014, when compared to the same prior year period. The increase in Chilean sourced avocados was due to an increase in pounds sold. Chilean sourced avocados sales reflect an increase of 0.9 million pounds of avocados sold, when compared to the same prior year period. This increase in sales is due to the lower availability of other avocado sources, and an increased focus on obtaining an increased supply of avocados from more diversified sources.

Partially offsetting such increases was a decrease in sales of California sourced avocados, which decreased $11.9 million, or 45.9%, for the second quarter of 2014, when compared to the same prior year period. The decrease in California sourced avocados was due to a decrease in pounds sold. California sourced avocados sales reflect a decrease in 14.1 million pounds of avocados sold, or 56.0%, when compared to the same prior year period. We attribute most of this decrease in volume to the cyclically smaller California avocado crop for fiscal 2014. Partially offsetting this decrease, however, was the increase in the sales price per carton, which increased by approximately 23.0%. We attribute this increase primarily to a lower overall volume of avocados in the marketplace and an overall increase in the demand of avocados.

Six Months Ended 2014 vs. Six Months Ended 2013

Net sales delivered by the Fresh products business increased by approximately $26.1 million, or 13.2%, for the six months ended April 30, 2014, when compared to the same period for fiscal 2013. As discussed above, this increase in Fresh product sales during the six months ended April 30, 2014, was primarily related to increased sales of Mexican and Chilean sourced avocados, partially offset by a decrease in sales from California sourced avocados. See details below.

Sales of Mexican sourced avocados increased $37.7 million, or 27.0%, for the six months ended April 30, 2014, when compared to the same prior year period. The increase in Mexican sourced avocados was primarily due to an increase in the sales price per carton, which increased by approximately 31.3%. We attribute this increase primarily to a lower overall volume of avocados in the marketplace, and an overall increase in the demand of avocados. Partially offsetting this increase, however, was a decrease in the pounds sold, which decreased by approximately 5.0 million pounds of avocados sold, or 3.3%, when compared to the same prior year period.

Sales of Chilean sourced avocados increased $2.5 million for the six months ended April 30, 2014, when compared to the same prior year period. The increase in Chilean sourced avocados was due to an increase in pounds sold. Chilean sourced avocados sales reflect an increase of 2.3 million pounds of avocados sold, when compared to the same prior year period. This increase in sales is due to the lower availability of other avocado sources, and an increased focus on obtaining an increased supply of avocados from more diversified sources.

Partially offsetting such increases was a decrease in sales of California sourced avocados, which decreased $13.4 million, or 46.1% for the six months ended April 30, 2014, when compared to the same prior year period. The decrease in California sourced avocados was due to a decrease in pounds sold. California sourced avocados sales reflect a decrease in 16.0 million pounds of avocados sold, or 56.1%, when compared to the same prior year period. We attribute most of this decrease in volume to the cyclically smaller California avocado crop for fiscal 2014. Partially offsetting this decrease, however, was the increase in the sales price per carton, which increased by approximately 22.7%. We attribute this increase primarily to a lower overall volume of avocados in the marketplace and an overall increase in the demand of avocados.

We anticipate that California avocado sales will experience an increase during our third fiscal quarter of 2014 as compared to the second quarter of 2014. We believe that the sales volume of California grown avocados will decrease in the third quarter of fiscal 2014, when compared to the same prior year period. This decrease is due primarily to a smaller expected California avocado crop.


Table of Contents

We anticipate that net sales related to Mexican sourced avocados and tomatoes will decrease during our third fiscal quarter of 2014, as compared to the second fiscal quarter of 2014.

Calavo Foods

Second Quarter 2014 vs. Second Quarter 2013

Sales for Calavo Foods for the quarter ended April 30, 2014, when compared to the same period for fiscal 2013, increased $2.9 million, or 23.9%. This increase is due to an increase in sales of prepared guacamole products which increased approximately $3.0 million, or 25.3%, in the second quarter of fiscal year 2014, when compared to the same prior year period. The increase in sales of prepared guacamole was primarily related to an increase in overall pounds sold, which increased 1.7 million pounds, or 34.1%, partially offset by a decrease in the average net selling price per pound for both our frozen guacamole products and our refrigerated guacamole products of approximately 4.3%, primarily due to a change in the product mix.

Six Months Ended 2014 vs. Six Months Ended 2013

Sales for Calavo Foods for the six months ended April 30, 2014, when compared to the same period for fiscal 2013, increased $3.8 million, or 15.9%. This increase is due to an increase in sales of prepared guacamole products which increased approximately $4.1 million, or 17.9%, for the six months ended April 30, 2014, when compared to the same prior year period. The increase in sales of prepared guacamole was primarily related to an increase in overall pounds sold, which increased 2.6 million pounds, or 26.6%, partially offset by a decrease in the average net selling price per pound for both our frozen guacamole products and our refrigerated guacamole products of approximately 6.4%, primarily due to a change in the product mix.

RFG

Second Quarter 2014 vs. Second Quarter 2013

Sales for RFG for the quarter ended April 30, 2014, when compared to the same period for fiscal 2013, increased $14.2 million, or 34.1%. This increase is due primarily to increased sales from cut fruit and vegetable platters, as well as an increase in sales of deli products. The overall increase in sales is primarily due to an increase in sales volume. Collectively, cut fruit, cut vegetable, and deli product sales increased 4.8 million units, or 28.0%. We believe the overall increase in sales volume is primarily due to an increase in demand for the variety of innovative products that we offer.

Six Months Ended 2014 vs. Six Months Ended 2013

Sales for RFG for the six months ended April 30, 2014, when compared to the same period for fiscal 2013, increased $27.3 million, or 32.4%. This increase is due primarily to increased sales from cut fruit and vegetable platters, as well as an increase in sales of deli products. The overall increase in sales is primarily due to an increase in sales volume. Collectively, cut fruit, cut vegetable, and deli product sales increased 9.8 million units, or 28.8%. We believe the overall increase in sales volume is primarily due to an increase in demand for the variety of innovative products that we offer.


Table of Contents

Gross Margins

The following table summarizes our gross margins and gross profit percentages by
business segment for each of the three and six-month periods ended April 30,
2014 and 2013:



                                           Three months ended April 30,                Six months ended April 30,
(in thousands)                           2014         Change          2013          2014        Change          2013
Gross margins:
Fresh products                         $   9,683        138.1 %     $  4,066      $ 15,891         46.7 %     $ 10,835
Calavo Foods                               3,823        (11.2 )%       4,303         6,415        (13.2 )%       7,391
RFG                                        5,471         72.8 %        3,167        10,361         61.0 %        6,434

Total gross margins                    $  18,977         64.5 %     $ 11,536      $ 32,667         32.5 %     $ 24,660

Gross profit percentages:
Fresh products                               7.8 %                       3.6 %         7.1 %                       5.5 %
Calavo Foods                                25.3 %                      35.3 %        22.9 %                      30.6 %
RFG                                          9.8 %                       7.6 %         9.3 %                       7.6 %
Consolidated                                 9.7 %                       6.9 %         9.0 %                       8.1 %

Summary

Our cost of goods sold consists predominantly of fruit costs, packing materials, freight and handling, labor and overhead (including depreciation) associated with preparing food products and other direct expenses pertaining to products sold. Gross margins increased by approximately $7.4 million, or 64.5%, for the second quarter of fiscal 2014, when compared to the same period for fiscal 2013. Gross margins increased by approximately $8.0 million, or 32.5%, for the first six months of fiscal 2014 when compared to the same period for fiscal 2013. These increases were attributable to gross margin increases in our Fresh products and RFG segments, partially offset by a decrease in our Calavo Foods segment.

Fresh products

During our three and six months ended April 30, 2014, as compared to the same prior year periods, the increase in our Fresh products segment gross margin percentage was primarily the result of significantly higher Mexican sourced avocado fruit costs in the prior year that uncharacteristically increased at a pace faster than anticipated in the latter part of March 2013 and remained higher than expected through April 2013. In the prior year, the average sales price of Mexican sourced avocados increased 3.2%, yet average fruit costs increased 31.8% from the first quarter of fiscal 2013 to the second quarter of fiscal 2013. In the current year, we were able to manage the spread between the sales price and the fruit cost of Mexican sourced avocados more effectively, as average sales prices increased 16.8%, while average fruit costs increased 18.4% from the first quarter of fiscal 2014 to the second quarter of fiscal 2014.

Calavo Foods

The Calavo Foods segment gross margin percentage during our three and six months ended April 30, 2014, when compared to the same prior year periods, decreased primarily due to an increase in fruit costs. Fruit costs increased during our three and six months ended April 30, 2014, by approximately 46.5% and 44.0%. In addition, gross margins decreased due to an increase in sales of frozen, high volume but low margin customers. Partially offsetting these decreases to the gross margin percentage was the strengthening of the U.S. Dollar compared to the Mexican Peso, which decreased many of our per pound costs. We anticipate that the gross margin percentage for our Calavo Foods segment will continue to experience significant fluctuations during this fiscal year primarily due to the uncertainty of the cost of fruit that will be used in the production process. In addition, any significant fluctuation in the exchange rate between the U.S. Dollar and the Mexican Peso may have a material impact on future gross margins for our Fresh products and Calavo Foods segments.


Table of Contents

RFG

RFG's improved gross-margin is reflective of certain economies of scale resulting from significant sales growth (see discussion above), improved labor utilization and improved raw-material quality and yield. Benefits from superior fruit quality/yield extend beyond just lower fruit costs, but also reduce other costs, including the labor needed to process such fruit.

Selling, General and Administrative



                                             Three months ended April 30,                 Six months ended April 30,
(in thousands)                             2014           Change        2013           2014          Change         2013
Selling, general and administrative     $    9,111           11.2 %    $ 8,190      $   17,383           2.2 %    $ 17,011
Percentage of net sales                        4.7 %                       4.9 %           4.8 %                       5.6 %

Selling, general and administrative expenses include costs of marketing and advertising, sales expenses and other general and administrative costs. Selling, general and administrative expenses increased $0.9 million, or 11.2%, for the three months ended April 30, 2014, when compared to the same period for fiscal 2013. This increase was primarily related to higher corporate costs, including, but not limited to, general and administrative costs related to management bonuses (approximately $0.8 million), salaries (approximately $0.2 million), accounting fees (approximately $0.2 million), stock option expense (approximately $0.1 million), and bad debt expense (approximately $0.1 million), partially offset by decreases in the RFG revalue adjustment of contingent consideration (approximately $0.2 million), the start-up operations of FreshRealm (approximately $0.1 million), legal fees (approximately $0.1 million) and promotions and advertising (approximately $0.1 million).

Selling, general and administrative expenses increased $0.4 million, or 2.2%, for the six months ended April 30, 2014, when compared to the same period for fiscal 2013. This increase was primarily related to higher corporate costs, including, but not limited to, general and administrative costs related to management bonuses (approximately $0.8 million), the start-up operations of FreshRealm (approximately $0.4 million), salaries (approximately $0.3 million), and accounting fees (approximately $0.2 million), partially offset by a decrease in the RFG revalue adjustment of contingent consideration (approximately $1.4 million).

Provision for Income Taxes



                                             Three months ended April 30,               Six months ended April 30,
(in thousands)                             2014           Change        2013          2014         Change        2013
Provision for income taxes               $   3,432          220.4 %    $ 1,071      $   5,254        103.7 %    $ 2,579
Percentage of income before provision
for income taxes                              34.9 %                      32.8 %         34.7 %                    34.6 %

For the second quarter of fiscal 2014, our provision for income taxes was $3.4 million, as compared to $1.1 million recorded for the comparable prior year period.

For the first six months of fiscal 2014, our provision for income taxes was $5.3 million, as compared to $2.6 million recorded for the comparable prior year period. We expect our effective tax rate to approximate 34.7% during fiscal 2014.


Table of Contents

Liquidity and Capital Resources

Cash provided by operating activities was $13.3 million for the six months ended April 30, 2014, compared to $3.5 million provided by operations for the similar period in fiscal 2013. Operating cash flows for the six months ended April 30, 2014 reflect our net income of $9.9 million, net non-cash (depreciation and amortization, stock compensation expense, interest on deferred consideration and income from unconsolidated entities) of $3.7 million and a net decrease in the noncash components of our operating capital of approximately $0.3 million.

Our operating capital decrease includes a net increase in accounts receivable of $9.0 million, an increase in inventory of $3.6 million, and an increase in prepaid expenses and other current assets of $2.8 million, partially offset by a net increase in trade accounts payable and accrued expenses of $5.8 million, an increase in payable to growers of $4.6 million, a decrease in advances to suppliers of $3.2 million, a decrease in income tax receivable of $1.4 million and a decrease in other assets of $0.1 million.

The increase in our accounts receivable, as of April 30, 2014, when compared to October 31, 2013, primarily reflects higher sales recorded in the month of April 2014, as compared to October 2013. The increase in inventory is primarily related to higher fruit costs for avocados at April 2014, as compared to October 2013. The increase in payable to growers primarily reflects an increase in California fruit delivered in the month of April 2014, as compared to October 2013. The decrease in advances to suppliers primarily reflects fewer advances made to Agricola Belher related to the receipt of tomatoes in April 2014, compared to October 2013.

Cash used in investing activities was $5.6 million for the six months ended April 30, 2014 and related primarily to the purchase of property, plant and equipment items.

Cash provided by financing activities was $4.2 million for the six months ended April 30, 2014, which related principally to proceeds received for the issuance of FreshRealm stock of $10.0 million (see Note 10 in the consolidated financial statements for more information), proceeds from our credit facilities totaling $7.0 million and exercises of stock options of $0.1 million, partially offset by the payment of our $11.0 million dividend, and payments on long-term obligations of $1.9 million

Our principal sources of liquidity are our existing cash balances, cash generated from operations and amounts available for borrowing under our existing credit facilities. Cash and cash equivalents as of April 30, 2014 and October 31, 2013 totaled $19.9 million and $8.0 million. Our working capital at April 30, 2014 was $28.7 million, compared to $12.4 million at October 31, 2013.

We believe that cash flows from operations and available credit facilities will be sufficient to satisfy our future capital expenditures, grower recruitment efforts, working capital and other financing requirements. We will continue to evaluate grower recruitment opportunities and exclusivity arrangements with food service companies to fuel growth in each of our business segments. Our non-collateralized, revolving credit facilities with Farm Credit West, PCA and Bank of America, N.A. expire in February 2016. Under the terms of these agreements, we are advanced funds for both working capital and long-term productive asset purchases. Total credit available under these combined borrowing agreements was $65 million, with a weighted-average interest rate of 1.7% at April 30, 2014 and October 31, 2013. Under these credit facilities, we had $41.0 million and $34.0 million outstanding as April 30, 2014 and October 31, 2013. These credit facilities contain various financial covenants, the most significant relating to Tangible Net Worth (as defined), Current Ratio (as defined), and Fixed Charge Coverage Ratio (as defined). We were in compliance with all such covenants at April 30, 2014.


Table of Contents

Contractual Obligations

There have been no material changes to our contractual commitments from those previously disclosed in our Annual Report on Form 10-K for our fiscal year ended October 31, 2013. For a summary of the contractual commitments at October 31, 2013, see Part II, Item 7, in our 2013 Annual Report on Form 10-K.

Impact of Recently Issued Accounting Pronouncements

See footnote 1 to the consolidated condensed financial statements that are included in this Quarterly Report on Form 10-Q.


Table of Contents

  Add CVGW to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for CVGW - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.