Mission Produce (NASDAQ:AVO) Reports Upbeat Q1, Stock Soars

Max Juang /
2024/03/11 4:13 pm EDT

Avocado company Mission Produce (NASDAQ:AVO) reported Q1 FY2024 results topping analysts' expectations, with revenue up 21.2% year on year to $258.7 million. It made a non-GAAP profit of $0.09 per share, improving from its loss of $0.07 per share in the same quarter last year.

Is now the time to buy Mission Produce? Find out by accessing our full research report, it's free.

Mission Produce (AVO) Q1 FY2024 Highlights:

  • Revenue: $258.7 million vs analyst estimates of $210.8 million (22.8% beat)
  • EPS (non-GAAP): $0.09 vs analyst estimates of -$0.07 ($0.16 beat)
  • Gross Margin (GAAP): 11.1%, up from 4.5% in the same quarter last year
  • Free Cash Flow was -$400,000, down from $33.7 million in the previous quarter
  • Market Capitalization: $780 million

Steve Barnard, CEO of Mission, commented, “We are off to a strong start in fiscal 2024 with the delivery of a first quarter that demonstrated solid execution across all facets of our business. The team’s focus resulted in significantly improved per-unit margins, which translated to nearly 700 basis points of gross margin expansion and resulted in a significant improvement in adjusted EBITDA performance year-over-year. Our margin improvement was spurred by strength in avocado margins in our Marketing & Distribution segment, as well as the achievement of record quarterly revenues in our Blueberries segment due to advantageous pricing conditions, which contributed meaningfully to our overall adjusted EBITDA generation. In our International Farming segment, our team has been focused on implementing cost savings measures across our farming and packing operations. We expect to see the benefits of these initiatives in the second half of our fiscal year when we harvest and sell our owned avocado production from Peru. Our improved overall performance is a direct result of the actions we are taking to optimize our business and enhance profitability, and it is expected to result in a meaningful step-up in free cash flow generation in 2024.”

Founded in 1983 in California, Mission Produce (NASDAQ:AVO) grows, packages, and distributes avocados.

Packaged Food

Packaged food stocks are considered resilient investments because people always need to eat. These companies therefore can enjoy consistent demand as long as they stay on top of changing consumer preferences. But consumer preferences can be a double-edged sword, as companies that aren't at the front of trends such as health and wellness and natural ingredients can fall behind. Finally, with the advent of the social media, the cost of starting a brand from scratch is much lower, meaning that new entrants can chip away at the market shares of established players.

Sales Growth

Mission Produce is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefitting from better brand awareness and economies of scale.

As you can see below, the company's annualized revenue growth rate of 6% over the last three years was mediocre for a consumer staples business.

Mission Produce Total Revenue

This quarter, Mission Produce reported remarkable year-on-year revenue growth of 21.2%, and its $258.7 million in revenue topped Wall Street estimates by 22.8%. Looking ahead, Wall Street expects revenue to decline 2.6% over the next 12 months, a deceleration from this quarter.

Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.

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 healthy 3.5% over the last two years. This is pleasing because it shows consumers are purchasing more of its products.

Mission Produce Year-On-Year Volume Growth

In Mission Produce's Q1 2024, year on year sales volumes were flat. By the company's standards, this result was a meaningful deceleration from the 14% year-on-year increase it posted 12 months ago. We'll be watching Mission Produce closely to see if it can reaccelerate demand for its products.

Key Takeaways from Mission Produce's Q1 Results

We were impressed by how significantly Mission Produce blew past analysts' revenue and EPS expectations this quarter. We were also excited its gross margin outperformed Wall Street's estimates. Management is pleased with recent performance, specifically margins, adding that "The team’s focus resulted in significantly improved per-unit margins, which translated to nearly 700 basis points of gross margin expansion and resulted in a significant improvement in adjusted EBITDA performance year-over-year." Zooming out, we think this was an impressive quarter that should delight shareholders. The stock is up 5.9% after reporting and currently trades at $11.33 per share.

Mission Produce may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.