Avocado company Mission Produce (NASDAQ:AVO) reported Q3 CY2024 results beating Wall Street’s revenue expectations, with sales up 37.4% year on year to $354.4 million. Its non-GAAP profit of $0.28 per share was significantly above analysts’ consensus estimates.
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Mission Produce (AVO) Q3 CY2024 Highlights:
- Revenue: $354.4 million vs analyst estimates of $216.8 million (37.4% year-on-year growth, 63.5% beat)
- Adjusted EPS: $0.28 vs analyst estimates of $0.08 (significant beat)
- Adjusted EBITDA: $36.9 million vs analyst estimates of $14 million (10.4% margin, significant beat)
- Operating Margin: 8.1%, up from 2.8% in the same quarter last year
- Free Cash Flow Margin: 8.8%, down from 13.1% in the same quarter last year
- Sales Volumes were flat year on year (-4% in the same quarter last year)
- Average per-unit avocado sales prices increased 36% year on year
- Market Capitalization: $893.5 million
“Mission delivered a strong fourth quarter that rounded out an exceptional full year fiscal 2024 performance where we realized $1.23 billion in revenue and generated $107.8 million in adjusted EBITDA, demonstrating the strength of our business model and industry leading positioning,” stated Steve Barnard, CEO of Mission.
Company Overview
Founded in 1983 in California, Mission Produce (NASDAQ:AVO) grows, packages, and distributes avocados.
Perishable Food
The perishable food industry is diverse, encompassing large-scale producers and distributors to specialty and artisanal brands. These companies sell produce, dairy products, meats, and baked goods and have become integral to serving modern American consumers who prioritize freshness, quality, and nutritional value. Investing in perishable food stocks presents both opportunities and challenges. While the perishable nature of products can introduce risks related to supply chain management and shelf life, it also creates a constant demand driven by the necessity for fresh food. Companies that can efficiently manage inventory, distribution, and quality control are well-positioned to thrive in this competitive market. Navigating the perishable food industry requires adherence to strict food safety standards, regulations, and labeling requirements.
Sales Growth
A company’s long-term performance is an indicator of its overall quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for years.
Mission Produce is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage. On the other hand, it can grow faster because it’s working from a smaller revenue base and has a longer runway of untapped store chains to sell into.
As you can see below, Mission Produce grew its sales at a decent 11.5% compounded annual growth rate over the last three years as consumers bought more of its products.
This quarter, Mission Produce reported wonderful year-on-year revenue growth of 37.4%, and its $354.4 million of revenue exceeded Wall Street’s estimates by 63.5%.
Looking ahead, sell-side analysts expect revenue to decline by 5.6% over the next 12 months, a deceleration versus the last three years. This projection doesn't excite us and suggests its products will see some demand headwinds.
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Volume Growth
Revenue growth can be broken down into changes in price and volume (the number of units sold). While both are important, volume is the lifeblood of a successful staples business as there’s a ceiling to what consumers will pay for everyday goods; they can always trade down to non-branded products if the branded versions are too expensive.
Mission Produce’s average quarterly volume growth was a robust 6.3% over the last two years. This is good because meaningful volume growth is hard to come by in the stable consumer staples sector.
In Mission Produce’s Q3 2024, year-on-year sales volumes were flat, showing most of its growth was driven by the 36% increase in avocado prices. Still, we prefer to analyze volumes, and they meaningfully decelerated from their historical levels. We’ll be watching closely to see if Mission Produce can reaccelerate demand for its products.
Key Takeaways from Mission Produce’s Q3 Results
We were impressed by how significantly Mission Produce blew past analysts’ revenue, gross margin, EBITDA, and EPS expectations this quarter. These beats were mostly driven by pricing, as average per-unit avocado sales prices increased by 36%. Zooming out, we think this quarter featured some important positives. The stock traded up 5.6% to $13.01 immediately following the results.
Mission Produce put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
