Mission Produce (AVO) Q2 2026 Earnings Transcript

Image source: The Motley Fool.

DATE

Monday, June 8, 2026 at 5 p.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — John Pawlowski
• Chief Financial Officer — Bryan E. Giles

TAKEAWAYS

• Revenue -- $290.9 million, representing a 24% decrease primarily due to a 36% drop in per unit avocado sales prices from last year's peak environment.
• Avocado volume growth -- 15% increase compared to the prior year, driven by “attracting new consumers and occasions” per management.
• Gross profit -- $20.5 million, down from $28.4 million, with a gross margin decline of 50 basis points to 7% of revenue.
• Adjusted net income -- $800 thousand ($0.01 per diluted share), compared to $8.7 million ($0.12 per diluted share).
• Adjusted EBITDA -- $7.1 million, a decrease from $19.1 million impacted by margin compression and supply/demand mismatch.
• Calavo acquisition -- Closed May 28, with management stating, “We continue to see a minimum of $25 million of annualized cost synergies achievable within 18 months of close with meaningful upside potential.”
• Guidance: Q3 adjusted EBITDA -- Projected at $28 million to $32 million, reflecting partial-quarter Calavo results.
• Guidance: Second half adjusted EBITDA -- Expected between $84 million and $88 million, inclusive of full-quarter Calavo contributions in Q4, higher blueberry yields, and improving avocado margins.
• Marketing and distribution segment sales -- $277.2 million, down from $362.5 million; adjusted EBITDA at $7.2 million versus $16.8 million due to lower per unit margin dynamics.
• International farming segment sales -- $7.7 million versus $8.1 million last year; adjusted EBITDA was a loss of $1.3 million compared to a gain of $1.5 million, reflecting “investments in mango production that did not drive yield improvements” and “lower blueberry packing volumes.”
• Blueberry segment sales -- $11 million, down from $15.7 million, with higher per unit prices offsetting volume declines; adjusted EBITDA improved to $1.2 million from $800 thousand.
• Cash position -- $33 million in cash and cash equivalents as of April 30, 2026.
• Operating cash flow -- Net cash used in operating activities was $21 million for the first six months (includes ~$5 million in Calavo transaction costs), compared to $13 million last year.
• Capital expenditures -- $22.9 million for the first six months, reduced from $28 million in the prior period, consistent with communicated strategic plans.
• Share repurchase program -- Board approved an increase and extension, with management calling it “another reflection of our disciplined approach to capital allocation, and our focus on creating long term shareholder value.”
• Peruvian avocado crop forecast -- Management forecasts “total exportable production... approximately 20% greater than last year,” reaching all-time highs between 120 and 130 million pounds, with increased sales weighted to Q4.
• Avocado industry volume outlook -- Third-quarter avocado industry volumes expected to increase by “approximately 5% to 10%”; per-pound prices projected to be approximately 15% lower based on the $1.75 average in the prior-year quarter.
• Household penetration -- More than 1.6 million new U.S. households entered the avocado category during the quarter; management stated “approximately 50% or greater than 50%” of new households typically remain longer term.
• SG&A costs -- Core SG&A expense was flat year over year, excluding $6.4 million of Calavo transaction advisory costs presented separately for transparency.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• Margin compression -- Reported margin pressure stemmed from “a temporary imbalance of supply and demand of core fruit sizes” and a “multiyear low prices,” cited as “unique and temporary,” but caused per box margins to be “significantly below our target ranges this quarter.”
• International farming segment loss -- Adjusted EBITDA loss of $1.3 million attributed to mango investments “that did not drive yield improvements” and reduced blueberry packing volumes.
• Weather uncertainty -- Management stated, “regards to what is going on with the El Nino expectations and temperatures and rainfall, etcetera. And I would let you know that to date, we have not seen any significant impacts,” but cautioned potential for “slightly lower crops than anticipated in Mexico next year” as a 2027 risk.

SUMMARY

Mission Produce (NASDAQ:AVO) reported a revenue decline of 24%, with lower avocado pricing offset by increased sales volume and new household market penetration. The quarter featured margin compression due to a rare supply/demand mismatch in core avocado sizes, but normalization began in May as the Mexican harvest slowed and contributions from California and Peru increased. The integration of the Calavo acquisition positions the company to achieve a minimum of $25 million in annualized cost synergies within 18 months, with select benefits expected to begin in the fourth quarter. Management guided for significant second half adjusted EBITDA improvement, driven by expanded Peruvian exports, a full quarter of Calavo contributions, improving blueberry yields, and recovering avocado margins.

• Management committed to increased transparency on segment reporting, with planned detail on the Calavo business and prepared foods segment margin structure by the end of the third quarter.
• Guidance embeds no material synergy realization in Q3, but synergy actions “becoming more visible in the fiscal fourth quarter and accelerating through fiscal 2027.”
• Inventory build in international farming is seasonal, and operating cash flows are expected to improve as the back-half harvests are monetized.
• The company highlighted the prepared foods business as a key adjacency, citing the potential to leverage supply and contract pricing for more stable margins.
• The board’s approval to increase and extend the share repurchase program signals confidence in the company’s valuation and long-term growth outlook.
• The company observed record-breaking U.S. avocado consumption and noted evidence of growing household penetration in Europe as well as the United States.

INDUSTRY GLOSSARY

• SG&A: Selling, General, and Administrative expenses encompassing costs not directly tied to production or sales volumes.
• Adjusted EBITDA: Earnings before interest, taxes, depreciation, and amortization, adjusted to exclude one-time or non-recurring items for clearer ongoing operating performance.
• Prepared foods segment: Business line engaged in producing value-added avocado products like guacamole and other ready-to-eat items, distinct from fresh produce sales.
• Per unit margin: Gross profit earned per unit of avocados or other produce, sensitive to both selling price and input cost fluctuations.

Full Conference Call Transcript

John Pawlowski: Thank you, Andrew, and good afternoon, everyone. Before I get into the quarter, let me say a brief word about our leadership transition that is now complete. Following our annual meeting in April, I formally stepped into the CEO role and Steve has moved into the executive chairman seat. And remains actively engaged with the team and the board. His perspective continues to be invaluable as we navigate this next chapter. On behalf of the entire mission team, I want to say thank you to Steve again for the 4-plus decades of leadership that have brought us here today. And I am incredibly proud to be carrying that legacy forward.

I would also like to welcome Andrew Pearson who recently joined Mission as our Vice President of Investor Relations and strategy. On today's call, I will walk you through our second quarter results, and the operating environment that shaped them. Talk about the Calavo acquisition that closed earlier than anticipated on May 28 and share how we are thinking about the path forward. Bryan will then take you through the financial details, and we will open it up for questions. Our second quarter was shaped by an unusually high supply of avocado-environment, with the largest Mexican crop in years. Our sales team executed with excellence while also maintaining a manageable margin in the face of multiyear low prices.

In April, we saw an unfavorable step change in our per unit margins driven by a temporary imbalance of supply and demand of core fruit sizes. Which pressured margins further as we worked to fill in the shortfalls. Our decision to continue to support our customers in the face of compressing margins was deliberate. To help our customers meet heightened demand and facilitate longer term value creation. Supply continues to transition away from Mexico and toward other growing regions. Including California and the start of our Peruvian harvest. That transition is allowing us to lean back into the multi region sourcing network that has long been 1 of our most durable competitive advantages.

Supply of fruit and the sizing curves are now normalized and per unit margins are recovering. Our relationships with customers are solid, and we expect to deliver strong performance for the remainder of the year. Notably, in most avocado pricing environments, high or low, Mission maintains consistent and strong per unit margins. Extreme low prices like we just saw can be an exception. But those environments are rare and mission is still able to fare better than peers given our vertical integration and multi region sourcing network. Our model is intentionally designed to perform across most environments and remains a key competitive advantage of ours. Importantly, we are encouraged by what Q2's high volume dynamics did for the category. U.

S. Avocado consumption reached new highs during the quarter. Increasing strong double digits versus last year. While penetration continued to expand with more than 1.6 million new households entering the category. As we have seen in the past, when the category expands to new consumers, and occasions like in Q2, periods of strong growth often follow. To us, that reinforces that avocados remain a category with substantial runway. We believe this is 1 of the more durable growth categories in the grocery store. benefiting from steady penetration gains, broader everyday consumption, and consumer preferences that continue to favor fresh, nutrient dense foods.

There is still meaningful opportunity to grow here in the US, as well as markets like Europe and Asia, where the category is still in much earlier stages. Turning now to our segments. In our Marketing and Distribution segment, we delivered 15% volume year over year growth in avocados sold for the quarter. Our commercial and operations teams did outstanding jobs supplying that fruit to our broad customer base and all the new consumers entering the category. And despite the Q2 margin pressure, the marketing and distribution segment's gross profit actually increased approximately 5% on a first-half basis versus the prior year period.

Our international farming results in the first half of the year are not particularly meaningful given the seasonality of this segment. With adjusted EBITDA concentrated in the third and fourth quarters alignment to our Peruvian avocado harvest. Our segment's performance versus prior year was impacted by lower third party blueberry packing and storage volume versus the prior year, and our strategy to invest behind the growing mango category. Fruit development at our owned avocado production in Peru is progressing nicely and we are expecting a robust crop this season, with total exportable production forecasted to be approximately 20% greater than last year. In the blueberry segment, the second quarter sits outside the peak Caribbean harvest window.

Which is concentrated in our fiscal first and fourth quarters. The newer acreage is continuing to mature, and we expect yields and per unit costs to improve as those farms reach full productivity. We continue to like where this segment is headed, both as a standalone category and for what it contributes to our broader platform. With that, I now want to turn towards the future. Because this is what we are really excited about and where our entire mission team and board of directors are focused. Following our close of the Calavo transaction on May 28, we are now operating as 1 combined company.

Although we are in the early stages, I am energized by what we are building together. Both in terms of how it positions us strategically and in terms of the immediate value we believe this combination unlocks for both our customers and our shareholders. Our experience this quarter underscored exactly why we believe in this combination. With the market inundated with Mexican supply, our own packing capacity in Mexico was stretched. Forcing us to utilize a greater mix of third party packing services. Which impacts profitability. Next season, we will be able to manage higher volume environments leveraging our larger footprint with the addition of Calavo's pack houses.

Also relevant to Q2, the combined platform should give us greater to align supply to demand, not just managing total volume, but matching the right size curves to the right customer programs. And Calavo strengthens our position as the most reliable year round source of fresh avocados across North America, which is what our largest retail and foodservice customers truly value most. Beyond the avocado category, the prepared foods opportunity is 1 that I am particularly excited about. Calavo's guacamole and ready to eat product lines sit within a large and growing market. And they are a natural adjacency to our core business.

Having spent 2 decades in the branded food industry before joining Mission, I have a deep appreciation for what it takes to drive category leadership. We see meaningful runway to build this capability over time, and we believe it genuinely will be additive to what Mission is already doing today. We continue to see a minimum of $25 million of annualized cost synergies achievable within 18 months of close with meaningful upside potential. On that front, we have a dedicated integration work group, made up of internal experts from each function to bring the industry insights and know how, and external support to bring established and disciplined integration processes.

The team has been in place and planning for day 1 for months already. So our first day owning Calavo simply allowed us to execute the planning that was already well underway. We expect our synergies to materialize from eliminating the redundant operations and SG&A cost structures that come with combining 2 organizations of this scale. With Calavo closing earlier than initially planned, it allows us to accelerate integration and synergy realization. We now expect to start seeing benefit in Q4 of this year, with savings ramping into 2027. Importantly, the mission board, our management team, our talented and focused integration team, and our new colleagues coming over from Calavo are fully aligned around what this combined platform can become.

That alignment is going to be central to how we execute over the next 12 to 18 months. And I want to thank the teams across both organizations for the work that is setting us up for success. I also want to extend a warm welcome to the entire Calavo team. We are happy to have you on board and look forward to more collaboration in the days and weeks ahead. With that, I will turn it over to Bryan for the financial details.

Bryan E. Giles: Thank you, John, and good afternoon to everyone on the call. Fiscal 2 thousand 26 second quarter revenue totaled $290.9 million, This was down 24% from prior year and driven by a 36% decrease in per unit avocado sales prices relative to last year's peak price environment. Given the high supply of Mexican fruit in the current quarter. Importantly, we drove 15% avocado volume growth in the quarter, attracting new consumers and occasions, which should support category demand growth in the future. Gross profit was $20.5 million in the second quarter, compared to $28.4 million in the prior year. With gross margin decreasing 50 basis points to 7% of revenue.

The year over year change in gross profit this quarter was due largely to a mismatch in supply and demand of core fruit sizes within an environment of high overall supply. This mismatch, which peaked in April, caused us to pay higher spot market pricing to fill shortfalls for high demand size while having to reduce prices to move lower demand sizes. The situation compounded a tighter per unit margin environment related to the high supply, lower price avocado market, which in turn led to harvest delays in California and Peru. It was a unique and temporary situation, which has improved meaningfully in recent weeks.

Core SG&A expense was flat versus the prior year period and excludes $6.4 million of transaction advisory costs associated with the Calavo acquisition in the current year period that we have broken out as a separate line item for transparency. Adjusted net income for the quarter was $800 thousand or $0.01 per diluted share compared to $8.7 million or $0.12 per diluted share in the prior year period. Adjusted EBITDA was $7.1 million in the second quarter compared to $19.1 million in the prior year period. Decline was driven primarily by the same elements impacting gross profit that I mentioned. Turning now to the segment financials.

Marketing and Distribution segment sales were $277.2 million compared to $362.5 million in the prior year period. Which reflects lower avocado prices this year partially offset by higher volume. Segment adjusted EBITDA was $7.2 million compared to $16.8 million reflecting the lower per unit margin dynamics we described. International farming segment sales were $7.7 million compared to $8.1 million in the prior year period. Segment sales are concentrated in the third and fourth quarters alongside our Peruvian avocado harvest. Second quarter sales tend to be concentrated in mango farming sales and the provision of blueberry packing services.

Segment adjusted EBITDA was a loss of $1.3 million compared to income of $1.5 million driven by investments in mango production that did not drive yield improvements in the current harvest season. And lower blueberry packing volumes resulting from an earlier end to the blueberry harvest season relative to prior year. In blueberries, segment sales were $11 million compared to $15.7 million in the prior year period. Primarily on lower volumes sold partially offset by higher average per unit pricing. Segment adjusted EBITDA was $1.2 million compared to $800 thousand last year. With the improved per unit pricing more than offsetting higher per unit production costs from lower yields on newer acreage. Shifting to our balance sheet and cash flow.

Cash and cash equivalents were $33 million as of 04/30/2026. Net cash used in operating activities was $21 million for the first 6 months of fiscal 2026. Approximately $5 million of which related to transaction advisory costs, compared to $13 million in the prior year period. With the increase primarily reflecting lower year to date income partially offset by lower working capital build versus the prior year. As a reminder, our operating cash flows are seasonal in nature given the build of inventory in our international farming segment through the first half of the fiscal year. With that inventory monetized through the back half of the year as the Peruvian avocado crop is harvested and sold.

Capital expenditures were $22.9 million for the 6 months ended 04/30/2026. Compared to $28 million for the same period last year. Consistent with the step down we have communicated previously. Moving to our outlook. For the third quarter of fiscal 26, avocado industry volumes are expected to increase by approximately 5% to 10% versus the prior year period. From our own farms in Peru, we expect exportable avocado production to reach all-time highs ranging between 120 to 130 million pounds as compared to 105 million pounds in the 2005 harvest season. With sales of our own production weighted to our fiscal fourth quarter.

Pricing is expected to be lower on a year over year basis by approximately 15% compared to the $1.75 per pound average experienced in the third quarter of fiscal 2025, which is a smaller percentage reduction than experienced in the first half of our fiscal year. As is typical in our category, that change in pricing is directly correlated with expectations for higher volumes available in US and international markets. Supply has now begun transitioning from Mexico toward other growing regions, most notably California and Peru. Enabling the multi region sourcing capabilities that are an important driver of our per unit margin performance to increase in prominence.

The margin dynamics from Q2 are now behind us, and we expect per-unit margins to improve meaningfully improve through the back half of the year. With the Calavo acquisition closing in the fiscal third quarter, we are providing select additional guidance to assist you in your modeling that includes combined Calavo results. Consolidated fiscal third quarter adjusted EBITDA is expected in the range of $28 million to $32 million including the partial quarter contribution from the Calavo acquisition. This is driven primarily by a later harvest of our own Peruvian farms pushing more sales into Q4. Combined with some carryover impact in early May from the mismatched fruit supply dynamics previously noted.

Consolidated second half adjusted EBITDA is expected in the range of $84 million to $88 million reflecting the drivers I mentioned for Q3, plus Q4 contributions from a full quarter of Calavo results, higher blueberry yields, and improving avocado margins. We do not anticipate material synergy realization during the fiscal third quarter, with actions becoming more visible in the fiscal fourth quarter and accelerating through fiscal 27. I would also note that our intention is to be as clear as possible with respect to ongoing integration related expenses associated with our $25 million synergy target. And anticipate detailing those as add backs to our reconciliation of adjusted EBITDA and adjusted net income.

In terms of CapEx, we expect to invest approximately $45 million in the current fiscal year which includes modest expenditures related to the Calavo business. Finally, last week, our board approved an increase in extension to our share repurchase program. We see it as another reflection of our disciplined approach to capital allocation, and our focus on creating long term shareholder value. It gives us the flexibility to repurchase shares when we believe the market price does not reflect the underlying value of the business. And it also underscores our confidence in Mission's long term growth outlook.

In closing, while the second quarter was shaped by an unusual supply environment, we believe it also highlighted the strength of our commercial execution. The resilience of avocado demand, and the value of the customer relationships we continue to build. As supply normalizes and we move through the back half of the year, we expect improving margin performance stronger contributions from Peru, and increasing benefits from our expanded platform following the close of the Calavo transaction. Taken together, we believe that positions Mission well to drive profitable growth and create long term value for shareholders. That concludes our prepared remarks. Operator, now over to you. Please open the call to Q&A.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. 1 moment, while we poll for questions. Our first question comes from the line of Puran Sharma with Stephens Inc. Please proceed with your question.

Puran Sharma: Good afternoon, and thanks for the question. My first question. Hey. Good afternoon. Just on the first question here, wanted to maybe see if you could help bridge the Q3 adjusted EBITDA guide of $28 million to $32 million to kind of the second half guide of $84 to $88 million. Obviously, you kind of detailed a little bit on the call. Big step up for Q4. Just wondering if you could kind of help me think about how much of that step up is just from your own brew production versus a full quarter of Calavo in there versus just more improved fundamentals for just marketing and distribution.

Bryan E. Giles: Sure thing, Puran. Let me give you a break a little bit of a breakdown. We definitely see a more back loaded year this year in our international farming segment than what we saw last year. A lot of it has to do with the timing of harvest. Certainly, last year, though, we were also in a much higher priced environment in Q3. And we saw a deterioration in pricing. As we transition into Q4. We are seeing a very different market today. Where we are actually starting to see prices lift. And we expect more stability through the quarter. So it is both a price and a volume dynamic that is at play in the farming segment.

John Pawlowski: that is helping to drive or we anticipate to drive much stronger results in the fourth quarter than in the third quarter. Keep in mind, we also see our traditional seasonal ramp of the blueberry segment in the fourth quarter, where it has very little contribution in Q3. If we look back at Marketing and Distribution, I think that we expect to continue to see strong volume We expect to start to see prices stabilize as the stepdown is not nearly as meaningful in Q3. As we have seen in Q1 and Q2. We expect that to continue into Q4.

And that should give us room, to continue to maintain margins kind of within our historical ranges that we have that we have mentioned. it is not really a glide path where we need to experience dramatically higher per unit margins on third party fruit that is being sold in the marketing distribution segment. I mean, I would remind you last year, we generated close to $40 million of EBITDA in our fourth quarter. So with the business being more backloaded and bringing the Calavo business in on top of it, I think we feel very comfortable with the glide path to the fourth quarter results that we are guiding towards.

Puran Sharma: Okay. Appreciate the clarity there. I guess on just on the follow-up here, We have been hearing conditions of a super El Nino that might impact fruit conditions or just the growing conditions in some of the key production areas. And was just wondering if you are able to help us think about what that could mean for Mexican production and potentially your own production? And would this be more of a current year impact, or would this be more of something to watch out for next crop cycle?

John Pawlowski: Yeah. Hi, Puran, this is John. First, I will address 2026 We are watching, as you can imagine, watching it very, very closely. We are having conversations weekly with our teams in all regions in regards to what is going on with the El Nino expectations and temperatures and rainfall, etcetera. And I would let you know that to date, we have not seen any significant impacts. We are anticipating some warmer weather in Peru. Over the next 3, 4 months.

As far as 2026 is concerned, we feel like we have done really a great job over the last 18 to 24 months On several of these calls, we have talked about the investment investments we have made in the health of the trees and the nutrition plans that we put in place over the last 2 years. And we feel good that our trees are in a really healthy to be able to handle some instability in regards to weather over the next 3 to 4 months.

So as far as our crop over the 2026 season, we feel confident in the numbers that we are putting out there right now, of some of the weather challenges that could come our way. There are going to be-- you know, we are going to have to watch really closely with when those particular heat spells hit and when those particular rain spells hit if it has to do with when we are flowering or not. Right? So we do think there could be an impact on 2027, but we feel like we are in a spot where we can plan for that. That potential volume change accordingly as we think about next fiscal year.

As far as Mexico is concerned, it really comes down to what happens from a perspective. And 2026, as you know, were in the process of moving from the normal crop to the loca crop In Mexico. We do not see a significant impact of the weather related issues in 2026, but do see potentially the potential impact of El Nino being slightly lower crops than anticipated in Mexico next year, but that is me trying to be crystal ball for you there as far as 2027 is concerned. But, hopefully, the summer here is that we do not see a significant impact on 2026 right now based on what we have done from a perspective of the trees.

And 2027, we are keeping an eye on to make sure we understand those impacts. But do see some potential changes in volumes.

Operator: Great. Thank you for the color. Okay. Thank you. Our next question comes from the line of Gerard Sweeney with Roth Capital Partners. Please proceed with your question.

Gerard Sweeney: Good afternoon, guys. Thanks for taking my call. Congratulations on, you know, closing the Calavo acquisition. First question relates to that. And I know you have given some synergies and opportunities on that front over the next 18 months to $25 million. But now that it is closed and do not wanna get the cart before the horse, but I just want to get maybe what are the first steps for the lowest hanging fruit opportunities for growth from the combined entity? Is it an opportunity to get into additional supermarkets or locations, or how do we look at that? Just if you can give anything on the preliminary front, that would be great.

John Pawlowski: Yeah. Hi, Gerard. This is John. Well, we have got about 8 days under our belt in regards to being officially closed. And we are working through, as I mentioned in my comments, we are working through the integration process and work and teams and people as effectively and efficiently as we can. Our number 1 focus right now is to make sure that there is minimal or, quite frankly, no disruption to the 2 businesses as they kind of become 1 over the course of the next couple of months. As far as low hanging fruit, it is really in the combined cost structures.

Over the next 6 to 12 months. it is really about how do we have how do we optimize the distribution network over time How do we look at redundant SG&A spends, redundant infrastructure costs that have been allocated to both P&Ls over the course of the last 5 to 6 years and making sure we scrub those as efficiently and effectively as possible. That is our immediate focus. When we think about scale though, and we do think about longer term growth, there are opportunities for us to share a customer conversation in ways that we have not been able to do that in the past.

To bring for instance, we are really excited about the guacamole business the prepared foods business, 1 in which that we open a lot more doors than the Calavo business did on its own, not just here domestically, in the United States, although that will be our focus for the first 12 months or so. It starts to open up doors internationally as well where the Calavo team has not had the opportunity to take a bite at that apple. So that is 1 where we do see a nice ramp into the future. In regards to that type of a growth opportunity.

The other piece is as we think about leveraging scale between the combined businesses, we really think there is an opportunity as we secure the sources and build the relationships to really enhance the existing relationships across the enterprise, we see an opportunity to expand into or leverage that across our existing customer bases to find new customers in places where we traditionally have not been able to get into in the past. So expanding our food service footprint over time in ways that Mission had not been able to do and expanding our existing Mango footprint in ways Mission has not been able to do.

So we do think there are new outlets for us, and we are going to push those as we move forward.

Gerard Sweeney: Gotcha. And then a question on the margins, and this is maybe a little bit more for Bryan But obviously, I mean, highlighted you know, you know, volumes and pricing and pricing hitting an extreme low, and then just some of the sizing and staying with your clients and supporting your clients, how much if the margin impact was it more the filling in the gap of that sourcing mismatch versus maybe falling outside of that sweet spot for price and volume?

Bryan E. Giles: Gerard, I think it is a little bit of both. it is tough to put my finger on exactly how much I would attribute to each component of that. What I will say is kind of the mismatch in the size curve tended to become more apparent and obvious during the back half of the quarter in April.

John Pawlowski: We saw some pricing pressure post Super Bowl in February, and that kind of tightened our margins up a bit. We did see some recovery from that during the March time frame. Things, you know, kind of seem to be trending in the right direction. I think when we got to April though, you know, we started to see some challenges in align challenges in aligning the size curve that we are getting out of the field. With our customer base. So I think that you know, while I cannot put an exact number on it from a timing standpoint, that aspect had a bigger impact on the back end of the quarter.

Bryan E. Giles: I think 1 of the challenges we deal with is, you know, the fruit that comes off the tree. it is it is not a perfect science in terms of what sizes we are going to be able, to get. When we harvest. And certainly as we get towards the back end, of the harvest season when we are clearing up the crop. So, yeah, certainly, had to go out and buy fruit on the spot market in order to kind of fill those customer commitments. We also, you know, had a little bit on some of these shoulder sizes some excess supply that we had to move through the market.

John Pawlowski: at maybe a little bit lower price than we originally anticipated. So, you know, I would say that you know, overall, our, you know, per box margins were significantly below our target ranges this quarter. I do not think if that had not happened at the end of the quarter, I think we would have been better off, but we likely still would have been below our target range for the quarter as a whole. Just much closer to it.

Bryan E. Giles: Hey, Gerard. I want to add Yeah. Thanks, Bryan.

John Pawlowski: Add a couple of things. Number 1, I think that when you think about the particular situation we found ourselves in this April, it is 1 that the new scale in regards to the combined companies moving forward allows us more mitigation skills or more mitigation capabilities because we will have we will have access to more fruit from a broader perspective and can move fruit around our network in a way that we have not been able to do in the past. And quite frankly, that not a single 1 of our competitors will be able to do in the future.

Another thing to remember is we try to manage for the good of the customer and the good of the consumer on a 12-month basis. Right? We really try to think about seasonality and cycles in a way that is the best for moving fruit through the system to help our customers and our consumers be as successful as possible. And I think that when you look at the past and you look at other times where we have had significant fruit coming in from a single source, particularly Mexico. Right? Because usually it happens out of Mexico during these kind of late winter, early spring time frames.

We see compression in some of the margin profiles of the industry in general, but we see nice acceleration of what happens with the consumer and what happens with the category. We had we had high-water marks in regards to household penetration during the quarter. We had household we had per capita consumption go up to nearly 10%, if not breached 10% during the quarter. All things that bode well for category health and strength in the future.

And 1 thing we do not really talk about here too much, I think we mentioned a little bit in the in the prepared remarks, is we also started to see both of those measures move nicely in Europe in a way that we have not seen in the past. We have been we have been preaching it is going to happen, and we really believed it was gonna happen, and now we are seeing it happen. So as we think about the future of the category, these kinds of periods happen on occasion, but we really like to manage to the full year focus on our customers, and think about the health of the category for the long run.

And that is exactly what happened Got it. Understood. I really appreciate it. Thanks, guys. You are welcome, Gerard. Thanks, Gerard.

Operator: Thank you. Our next question comes from the line of Mark Smith with Lake Street Capital. Please proceed with your question.

Mark Smith: Hi, guys. Just to follow-up a little bit on that margin compression question. Just as we think about, this issue resolving itself as we move through May and today. Can you just give us an update on kind of the mismatch in supply and demand on fruit sizes and where we stand today?

Bryan E. Giles: Yeah. We feel like we are in much better alignment right now. I mean, there is a few things that we saw happen during the month of May and leading into June. We started to see the harvest season in Mexico start to wind down a bit from where we were at, so we started to see, some lift in pricing. Over the course of the quarter, which then also encouraged California growers to begin their harvest cycle for this year. They would really been delaying, and the price environment that we were in through most of Q2. So that helped lift things up a bit. it is good to get that nice mix in there.

The California fruit still early enough in the season where the fruit has a little bit lower dry matter, has a longer shelf life to it. To help balance in with the Mexican fruit that is near the end of its season. And then it also affords the opportunity to start bringing some Peruvian fruit in. We have been harvesting from our own farms now, for several weeks. We have got our I think our first arrivals coming into the US market very soon, but we have been marketing some third party fruit already out of Peru.

So, again, it really with Mexico slowing down a bit, it is enabling us to lean into some of the other we have. it is led pricing up a bit. And in turn, it is providing a better margin environment for us to operate in. So we have definitely seen improvements after the first couple of weeks of May, definitely trending in the right direction towards the back half of the month and leading into June.

Mark Smith: Perfect. Then I wanted to look at kind of some of the prepared foods business. You know, obviously, a different kind of EBITDA margin profile in this business. I am curious about 2 things here. If you can talk to kind of maybe what is built into the second half guidance around EBITDA, if you can get that specific And then also in that. Just as we think about kind of pricing on prepared foods, you know, has this moved historically as we have looked at low prices in avocados and maybe how that impacts margin in your prepared foods business.

John Pawlowski: Hi, Mark. This is John. I will try to address your second question and then let Bryan try to gap you on the EBITDA question there. But the prepared foods segment operates pretty differently than our traditional fresh segment. Right? You are talking like it is more of a traditional CPG pricing environment. Where you are setting up 6- to 12-month pricing structures with your customers You are trying to get out ahead of what is happening in regards to the longer term pricing arrangement. You are holding that product for 3, 4, 5, 6 months. We freeze some of that product So some of that product can hold for 12 to 15 months.

So the way the prepared food segment operates is we will buy when it is when it is advantageous for us. We will do our best to make sure we are securing fruit at the right times of the year. And as I get to know that team a little bit more and I get to know exactly how they have managed that in the past, we will definitely try to understand the best practices in the industry and make sure we align to those. But we are buying when we can in regards to the fruit we need, and then we are putting it through the ringer in regards to the production side of it.

And then we are storing that product and moving it at the best possible time to assign the best possible price to it based on our contracts and our commitments. So the margin profile is very different. From our current margin profile. So we will share more details as we get into the month of September when we start talking about the detailed segments behind the combined business. But you will see when we get there that there is a significant step up from the fresh business to the food business in regards to that margin profile.

Bryan E. Giles: And that is because of, number 1, the ability to optimize the source at the right time. But 2, it is also the retailer and consumer expectations on pricing. Okay. The only thing I would add to that, Mark, is, you know, kind of getting back to your question around margin. I think it is our intent long term is to be as transparent as we possibly can.

Around the different components of the business, including Calavo's operations, We are evaluating our segment structure as we speak today, and certainly by the time we get to the end of the third quarter, it will be clear as to how their business kind of fits into ours, so how we report publicly on it. And then we will that will, ideally lead into, further information that we will be able to share with the street leading into kind of an investor day that we are anticipating having in late September.

But at this point, you know, 8 days in, you know, we are very much focused on, just getting our arms around the business as a whole, looking at it in combination with the mission operation as we provided that guide for the second half of the year. And we are not really prepared to break that down into any further level of detail quite yet.

Mark Smith: Oh, that is fair. Maybe if I squeeze in 1 more here, just kind of big picture Questions. You guys called out the I think it is 1.6 million in new households entering the avocado category during the quarter. Can you just talk long term kind of what the typical retention rate is like on some of these new customers coming in?

John Pawlowski: Yeah. it is approximately 50% of those households or greater than 50% of those new households stick into the category longer term. And I think the younger the generations get, as we move in deeper and deeper, the higher that number gets. We have seen patterns over the last 10 years that would suggest every time you have a situation like this, that bump is pretty sticky. So if you look at household penetration and per capita consumption over the last 10 to 15 years in the United States, you have seen a nice steady glide path from the left side of the graph to the right side of the graph moving upwards at a considerable pace.

Now granted, we are getting into those mid-70s, high 70s numbers where some categories tend to peter out. But I believe confidently that we are in a category that is so health focused, so consumer forward, and it is so well recognized by those that are involved in that category, particularly our retailers who appreciate the value associated with this category in to the pricing and the margins that play out at retail level. That we have got significantly more room to grow in the United States alone.

That does not even take into account how we think about the international marketplaces and the size of the gap between where avocados are in mature markets versus where they are in places like Europe where there is a lot more room to grow, and we are starting to see steam get behind that engine into the future. So we have seen these kinds of situations before, Mark. We have seen those families stick in the category.

We have seen those families be more resilient to price modification as supply restricts itself in future months, allowing us the honor and the right to gain a little bit more margin on it and the privilege to serve our customers into the future. Excellent. Thank you, guys. Welcome.

Bryan E. Giles: No problem.

Operator: Thank you. And ladies and gentlemen, at this time, I am showing no further questions. I would like to end the question and answer session and turn the conference call back over to management for any closing remarks.

John Pawlowski: Thank you, operator, and thank you all for joining us today. While the second quarter reflected a unique supply environment that pressured near term margins, it also reinforced the strength of our commercial execution. Our customer relationships and the underlying demand for the category. As we move through the back half of this year, we are already seeing supply dynamics improve margins recover and strong contributions ahead from our Peruvian harvest. Combined with the addition of Calavo, we believe we are even better positioned to serve our customers drive operational efficiency and create long term value. We truly, truly appreciate your continued interest in Mission and look forward to updating you next quarter.

Operator: Ladies and gentlemen, that concludes today's conference call, and we do thank you for attending. You may now disconnect your lines.

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.