CALAVO GROWERS INC [CVGW] Filings

10-Q 1 cvgw-20240731x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2024

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________________ to ______________________

Commission File Number: 000-33385

CALAVO GROWERS, INC.

(Exact name of registrant as specified in its charter)

California

33-0945304

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer Identification No.)


1141-A Cummings Road, Santa Paula, California		93060
(Address of principal executive offices)		(Zip Code)

(805) 525-1245

(Registrant's telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 par value per share	CVGW	Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer ☐	Accelerated filer ☒	Non-accelerated filer ☐	Smaller reporting company ☐
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐ No ☒

Registrant's number of shares of common stock outstanding as of August 31, 2024 was 17,801,574

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, including the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 2, contains statements relating to future events and results of Calavo Growers, Inc. and its consolidated subsidiaries (referred to in this report as “Calavo,” the “Company,” “we,” “us” or “our”), including certain projections and business trends, that are "forward-looking statements," as defined in the Private Securities Litigation Reform Act of 1995, that involve risks, uncertainties and assumptions. These statements are based on our current expectations and are not promises or guarantees. If any of the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Calavo may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including, but not limited to, any projections of revenue, gross profit, expenses, income/(loss) from unconsolidated entities, earnings, earnings per share, tax provisions, cash flows and currency exchange rates; the impact of acquisitions or debt or equity investments or other financial items; any statements of the plans, strategies and objectives of management for future operations, including execution of restructuring and integration (including information technology systems integration) plans; any statements regarding current or future macroeconomic trends or events and the impact of those trends and events on Calavo and its financial performance, whether attributable to Calavo or any of its unconsolidated entities; any statements regarding pending investigations, legal claims or tax disputes; any statements of expectation or belief; any statements about future risks associated with doing business internationally (including possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds, restrictions as a result of trade protection measures such as import/export/customs duties, tariffs and/or quotas); any risks associated with receivables from and/or equity investments in unconsolidated entities; system security risk and cyber-attacks and any statements of assumptions underlying any of the foregoing. The use of words such as "anticipates," "estimates," "expects," "projects," "intends," "plans" and "believes," among others, generally identify forward-looking statements.

Risks and uncertainties that may cause our actual results to be materially different from any future results expressed or implied by the forward-looking statements include, but are not limited to, the following: the ability of our management team to work together successfully; the impact of operational and restructuring initiatives on our business, results of operations, and financial condition, including uncertainty as to whether the desired effects will be achieved; and potential long-term adverse effects from reducing capital expenditures; the impact of weather on market prices and operational costs; seasonality of our business; sensitivity of our business to changes in market prices of avocados and other agricultural products and other raw materials including fuel, packaging and paper; potential disruptions to our supply chain; risks associated with potential future acquisitions, including integration; potential exposure to data breaches and other cyber-attacks on our systems or those of our suppliers or customers; dependence on large customers; dependence on key personnel, and access to labor necessary for us to render services; susceptibility to wage inflation; potential for labor disputes; reliance on co-packers for a portion of our production needs; competitive pressures, including from foreign growers; risks of recalls and food-related injuries to our customers; changing consumer preferences; the impact of environmental regulations, including those related to climate change; risks associated with the environment and climate change, especially as they may affect our sources of supply; our ability to develop and transition new products and services and enhance existing products and services to meet customer needs; risks associated with doing business internationally (including possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds and restrictions as a result of trade protection measures such as import/export/customs duties, tariffs and/or quotas and currency fluctuations); risks associated with receivables from, loans to and/or equity investments in unconsolidated entities; volatility in the value of our common stock; the impact of macroeconomic trends and events; the resolution of pending investigations, legal claims and tax disputes, including an assessment imposed by the Mexican Tax Administrative Service (the “SAT”) and our defenses against collection activities commenced by the SAT.

For a further discussion of these risks and uncertainties and other risks and uncertainties that we face, please see the risk factors described in our most recent Annual Report on Form 10-K for the fiscal year ended October 31, 2023 filed with the Securities and Exchange Commission and any subsequent updates that may be contained in our Quarterly Reports on Form 10-Q (including this Quarterly Report on Form 10-Q) and other filings with the Securities and Exchange Commission. Forward-looking statements contained in this Quarterly Report on Form 10-Q are made only as of the date of this report, and we undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise.

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CALAVO GROWERS, INC.

INDEX

		PAGE

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited):

	Consolidated Balance Sheets –July 31, 2024 (Unaudited) and October 31, 2023	4

	Consolidated Statements of Operations –Three and Nine Months Ended July 31, 2024 and 2023 (Unaudited)	5

	Consolidated Statements of Cash Flows – July 31, 2024 and 2023 (Unaudited)	6

	Consolidated Statements of Shareholders’ Equity – Three and Nine Months Ended July 31, 2024 and 2023 (Unaudited)	7

	Notes to Consolidated Financial Statements	8

Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33

Item 4.	Controls and Procedures	33

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	34

Item 1A.	Risk Factors	34

Item 5.	Other Information	34

Item 6.	Exhibits	34

	Signatures	35

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PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

CALAVO GROWERS, INC.

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(in thousands)


	July 31,		October 31,
	2024		2023

Assets
Current assets:
Cash and cash equivalents	$	1,126	$	2,091
Restricted cash		—		761
Accounts receivable, net of allowances of $3,253 (2024) and $3,364 (2023)		51,845		33,897
Inventories		31,822		31,571
Prepaid expenses and other current assets		8,855		11,739
Advances to suppliers		12,828		14,684
Current assets held for sale		128,213		37,533
Income taxes receivable		3,611		1,094
Total current assets		238,300		133,370
Property, plant, and equipment, net		55,894		60,924
Operating lease right-of-use assets		19,244		18,357
Investments in unconsolidated entities		2,528		2,902
Deferred income tax assets		3,010		3,010
Goodwill		10,211		10,211
Non-current assets held for sale		—		105,424
Intangibles, net		275		275
Other assets		52,964		52,381
	$	382,426	$	386,854
Liabilities and shareholders' equity
Current liabilities:
Payable to growers	$	26,377	$	14,788
Trade accounts payable		9,819		5,097
Accrued expenses		16,962		15,809
Current liabilities held for sale		47,254		29,911
Other current liabilities		11,000		11,000
Current portion of term loan		814		647
Current portion of operating leases		3,480		3,663
Current portion of long-term obligations and finance leases		886		831
Total current liabilities		116,592		81,746
Long-term liabilities:
Borrowings pursuant to line of credit, long-term		29,919		35,024
Long-term liabilities held for sale		—		29,295
Long-term portion of term loan		2,804		3,416
Long-term portion of operating leases		18,242		17,328
Long-term portion of obligations and finance leases		4,514		4,645
Deferred income tax liabilities		746		746
Other long-term liabilities		4,432		4,425
Total long-term liabilities		60,657		94,879
Commitments and contingencies
Shareholders' equity:
Common stock ($0.001 par value, 100,000 shares authorized; 17,802 (2024) and 17,761 (2023) shares issued and outstanding)		18		18
Additional paid-in capital		177,690		176,481
Noncontrolling interest		1,409		1,392
Retained earnings		26,060		32,338
Total shareholders' equity		205,177		210,229
	$	382,426	$	386,854

The accompanying notes are an integral part of these consolidated financial statements.

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CALAVO GROWERS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(in thousands, except per share amounts)


	Three months ended				Nine months ended
	July 31,				July 31,
	2024		2023		2024		2023

Net sales	$	179,596	$	160,856	$	491,585	$	451,898
Cost of sales		159,503		138,852		440,071		403,554
Gross profit		20,093		22,004		51,514		48,344
Selling, general and administrative		10,510		12,994		36,993		37,997
Expenses (recovery) related to Mexican tax matters		225		(1,203)		810		1,231
Operating income		9,358		10,213		13,711		9,116
Foreign currency gain (loss)		(4,203)		2,019		(2,799)		4,435
Interest expense		(833)		(766)		(2,619)		(1,387)
Other income, net		181		177		901		824
Income before income taxes and loss from unconsolidated entities		4,503		11,643		9,194		12,988
Income tax benefit (expense)		1,441		(2,408)		478		(2,851)
Net loss from unconsolidated entities		(579)		(498)		(374)		(398)
Net income from continuing operations		5,365		8,737		9,298		9,739
Net loss from discontinued operations (refer to Note 11)		(6,127)		(2,029)		(10,218)		(9,786)
Net income (loss)		(762)		6,708		(920)		(47)
Add: Net loss (income) attributable to noncontrolling interest		30		(82)		(17)		(390)
Net income (loss) attributable to Calavo Growers, Inc.	$	(732)	$	6,626	$	(937)	$	(437)

Calavo Growers, Inc.’s net income (loss) per share:
Basic
Continuing Operations	$	0.30	$	0.49	$	0.52	$	0.53
Discontinued Operations	$	(0.34)	$	(0.11)	$	(0.57)	$	(0.55)
Net income (loss) attributable to Calavo Growers, Inc	$	(0.04)	$	0.37	$	(0.05)	$	(0.02)

Diluted
Continuing Operations	$	0.30	$	0.48	$	0.52	$	0.52
Discontinued Operations	$	(0.34)	$	(0.11)	$	(0.57)	$	(0.55)
Net income (loss) attributable to Calavo Growers, Inc	$	(0.04)	$	0.37	$	(0.05)	$	(0.02)

Number of shares used in per share computation:
Basic		17,801		17,756		17,800		17,746
Diluted		17,842		17,856		17,848		17,835

The accompanying notes are an integral part of these consolidated financial statements.

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CALAVO GROWERS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(in thousands)


	Nine months ended July 31,
	2024		2023

Cash Flows from Operating Activities:
Net loss	$	(920)	$	(47)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		8,675		12,815
Non-cash operating lease expense		(1,739)		64
Net loss from unconsolidated entities		374		398
Impairment of goodwill		9,280		—
Divesture of Calavo Salsa Lisa		—		624
Provision for uncollectible Mexican IVA taxes receivable		165		1,404
Stock-based compensation expense		1,834		4,382
Gain on sale of Temecula packinghouse		(162)		(162)
Loss on disposal of property, plant, and equipment		56		40
Effect on cash of changes in operating assets and liabilities:
Accounts receivable, net		(17,243)		(17,401)
Inventories		259		(437)
Prepaid expenses and other current assets		3,492		(3,673)
Advances to suppliers		2,456		(2,481)
Income taxes receivable/payable		(2,517)		(754)
Other assets		(748)		(11,622)
Payable to growers		11,588		2,489
Trade accounts payable, accrued expenses and other liabilities		(1,267)		(4,837)
Net cash provided by (used in) operating activities		13,583		(19,198)
Cash Flows from Investing Activities:
Purchases of property, plant, and equipment		(2,519)		(10,092)
Net cash used in investing activities		(2,519)		(10,092)
Cash Flows from Financing Activities:
Payment of dividend to shareholders		(5,341)		(8,654)
Proceeds from revolving credit facility		95,733		215,818
Payments on revolving credit facility		(100,838)		(180,250)
Payments of debt issuance cost		—		(693)
Payments of minimum withholding taxes on net share settlement of equity awards		(625)		—
Proceeds from term loan		—		3,459
Payments on term loan		(445)		—
Payments on long-term obligations and finance leases		(1,274)		(1,409)
Proceeds from stock option exercises		—		48
Net cash provided by (used in) financing activities		(12,790)		28,319
Net decrease in cash, cash equivalents and restricted cash		(1,726)		(971)
Cash, cash equivalents and restricted cash, beginning of period		2,852		3,134
Cash, cash equivalents and restricted cash, end of period	$	1,126	$	2,163
Noncash Investing and Financing Activities:
Right of use assets obtained in exchange for new financing lease obligations	$	640	$	2,016
Settlement of Agricola Belher infrastructure advance offset against payable to growers	$	600	$	1,700
Property, plant, and equipment included in trade accounts payable and accrued expenses	$	29	$	869

The accompanying notes are an integral part of these consolidated financial statements.

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CALAVO GROWERS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (UNAUDITED)

(in thousands)



				Additional
	Common Stock			Paid-in		Retained		Noncontrolling
	Shares	Amount		Capital		Earnings		Interest		Total

Balance, April 30, 2024	17,800	$	18	$	177,302	$	28,572	$	1,439	$	207,331
Issuance of common stock in connection with stock-based compensation, net of tax withholdings	2		—		—		—		—		—
Stock-based compensation expense	—		—		388		—		—		388
Dividend declared to shareholders (0.10 per share)	—		—		—		(1,780)		—		(1,780)
Avocados de Jalisco noncontrolling interest	—		—		—		—		(30)		(30)
Net loss attributable to Calavo Growers, Inc.	—		—		—		(732)		—		(732)
Balance, July 31, 2024	17,802	$	18	$	177,690	$	26,060	$	1,409	$	205,177



				Additional
	Common Stock			Paid-in		Retained		Noncontrolling
	Shares	Amount		Capital		Earnings		Interest		Total

Balance, April 30, 2023	17,752		18		174,674		37,176		1,323		213,191
Issuance of common stock in connection with stock-based compensation, net of tax withholdings	9		—		—		—		—		—
Stock compensation expense	—		—		979		—		—		979
Dividend declared to shareholders (0.10 per share)	—		—		—		(1,778)		—		(1,778)
Avocados de Jalisco noncontrolling interest	—		—		—		—		82		82
Net income attributable to Calavo Growers, Inc.	—		—		—		6,626		—		6,626
Balance, July 31, 2023	17,761	$	18	$	175,653	$	42,024	$	1,405	$	219,100


				Additional
	Common Stock			Paid-in		Retained		Noncontrolling
	Shares	Amount		Capital		Earnings		Interest		Total
Balance, October 31, 2023	17,761	$	18	$	176,481	$	32,338	$	1,392	$	210,229
Issuance of common stock in connection with stock-based compensation, net of tax withholdings	41		—		(625)		—		—		(625)
Stock-based compensation expense	—		—		1,834		—		—		1,834
Dividend declared to shareholders (0.10 per share)	—		—		—		(5,341)		—		(5,341)
Avocados de Jalisco noncontrolling interest	—		—		—		—		17		17
Net loss attributable to Calavo Growers, Inc.	—		—		—		(937)		—		(937)
Balance, July 31, 2024	17,802	$	18	$	177,690	$	26,060	$	1,409	$	205,177


				Additional
	Common Stock			Paid-in		Retained		Noncontrolling
	Shares	Amount		Capital		Earnings		Interest		Total
Balance, October 31, 2022	17,732	$	18	$	171,223	$	51,115	$	1,015	$	223,371
Issuance of common stock in connection with stock-based compensation, net of tax withholdings	29		—		48		—		—		48
Stock-based compensation expense	—		—		4,382		—		—		4,382
Dividend declared to shareholders (0.4875 per share)	—		—		—		(8,654)		—		(8,654)
Avocados de Jalisco noncontrolling interest	—		—		—		—		390		390
Net loss attributable to Calavo Growers, Inc.	—		—		—		(437)		—		(437)
Balance, July 31, 2023	17,761	$	18	$	175,653	$	42,024	$	1,405	$	219,100

See accompanying notes to consolidated financial statements.

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CALAVO GROWERS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. Description of the business

Business

Calavo Growers, Inc. (referred to in this report as “Calavo”, the “Company”, “we”, “us” or “our”), is a global leader in the avocado industry and a provider of value-added fresh food. Our expertise in marketing and distributing avocados, prepared avocados, and other perishable foods allows us to deliver a wide array of fresh and prepared food products to retail grocery, foodservice, club stores, mass merchandisers, food distributors and wholesalers on a worldwide basis. We procure avocados from California, Mexico and other growing regions around the world. Through our various operating facilities, we (i) sort, pack, and/or ripen avocados, tomatoes and/or Hawaiian grown papayas, (ii) create, process and package a portfolio of healthy fresh foods including fresh-cut fruit and vegetables, and prepared foods and (iii) process and package guacamole. We distribute our products both domestically and internationally and we report our operations in two different business segments: Grown and Prepared.

During the nine-months period ended July 31, 2024, management concluded that the Fresh Cut business meets the requirements to be classified as held for sale and discontinued operations. As a result, the financial results of that business are reported as discontinued operations in the accompanying statements of operations, and its assets and liabilities are reflected as amounts held for sale in the accompanying balance sheets. The Company's reporting segments have also been changed for the effects of the divestiture, as described in Note 2. For more information, see Note 11.

We completed the sale of our Fresh Cut business (formerly “RFG”) and related real estate to F&S Fresh Foods of Vineland, New Jersey, on August 15, 2024 for $83 million, subject to various closing adjustments. The Fresh Cut business represents substantially all of the business of the Prepared segment other than the guacamole business, which has been retained following the Transaction. For more information, see Note 12.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared by the Company in accordance with accounting principles generally accepted in the United States and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting of adjustments of a normal recurring nature necessary to present fairly the Company’s financial position, results of operations and cash flows. The results of operations for interim periods are not necessarily indicative of the results that may be expected for a full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2023.

Retrospective reclassifications have been made to prior period financial statements and disclosures to present the Fresh Cut business unit as discontinued operations (see Note 11, “Assets Held for Sale and Discontinued Operations”).

Prior period amounts related to foreign currency remeasurement gains (losses) have been reclassified from cost of sales to foreign currency gain (loss) to conform to the current period presentation.

Recently Issued Accounting Standards

In November 2023, the Financial Standards Accounting Board issued Accounting Standards Update 2023-07 "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures" which expands annual and interim disclosure requirements for reportable segments, primarily through enhanced disclosures about significant segment expenses. ASU 2023-07 is effective for annual periods beginning after December 15, 2023, and interim periods within

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fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the potential effect that the updated standard will have on its financial statement disclosures.

2. Information regarding our operations in different segments

Prior to the decision to divest our Fresh Cut business (formerly RFG), the Company’s Prepared reporting segment included the Fresh Cut business unit and our Guacamole business. As a result of the planned divestiture, the Fresh Cut business unit is no longer included in our Prepared business segment, and is not included in the tables below. All segment information included herein reflects these changes. See Note 11 for further information.

We report our operations in two different business segments: Grown and Prepared. The Grown segment consists of fresh avocados, tomatoes and papayas. The Prepared segment comprises all our guacamole products sold at retail and food service as well as avocado pulp sold to foodservice. These two business segments are presented based on how information is used by our Chief Executive Officer to measure performance and allocate resources. Selling, general and administrative expenses, as well as other non-operating income/expense items, are evaluated by our Chief Executive Officer in the aggregate. We do not allocate assets, or specifically identify them, to our operating segments. The sales data in the following tables is presented in thousands:


	Three months ended July 31, 2024						Three months ended July 31, 2023
	Grown		Prepared		Total		Grown		Prepared		Total

Avocados	$	151,814	$	—	$	151,814	$	127,328	$	—	$	127,328
Tomatoes		9,874		—		9,874		15,188		—		15,188
Papayas		2,268		—		2,268		2,338		—		2,338
Other fresh income		24		—		24		10		—		10
Guacamole		—		18,388		18,388		—		18,721		18,721
Salsa		—		—		—		—		49		49
Total gross sales		163,980		18,388		182,368		144,864		18,770		163,634
Less sales allowances		(762)		(2,010)		(2,772)		(795)		(1,983)		(2,778)
Net sales	$	163,218	$	16,378	$	179,596	$	144,069	$	16,787	$	160,856


	Nine months ended July 31, 2024						Nine months ended July 31, 2023
	Grown		Prepared		Total		Grown		Prepared		Total

Avocados	$	387,500	$	—	$	387,500	$	352,858	$	—	$	352,858
Tomatoes		49,226		—		49,226		44,503		—		44,503
Papayas		8,200		—		8,200		8,193		—		8,193
Other fresh income		72		—		72		75		—		75
Guacamole		—		54,107		54,107		—		54,421		54,421
Salsa		—		—		—		—		756		756
Total gross sales		444,998		54,107		499,105		405,629		55,177		460,806
Less sales allowances		(1,999)		(5,521)		(7,520)		(3,510)		(5,398)		(8,908)
Net sales	$	442,999	$	48,586	$	491,585	$	402,119	$	49,779	$	451,898



	Grown		Prepared		Total

	(All amounts are presented in thousands)
Three months ended July 31, 2024
Net sales	$	163,218	$	16,378	$	179,596
Cost of sales		145,043		14,460		159,503
Gross profit	$	18,175	$	1,918	$	20,093