Mission Produce (AVO)

Avocado company Mission Produce (NASDAQ:AVO) reported Q4 CY2024 results beating Wall Street’s revenue expectations, with sales up 29.2% year on year to $334.2 million. Its non-GAAP profit of $0.10 per share was significantly above analysts’ consensus estimates.

Company Overview

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

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.

Competitors in the avocado industry include Calavo Growers (NASDAQ:CVGW), private company West Pak Avocado, and some smaller, independent growers and distributors.

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years.

With $1.31 billion in revenue over the past 12 months, Mission Produce is a small consumer staples company, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with retailers. On the bright side, it can grow faster because it has a longer list of untapped store chains to sell into.

As you can see below, Mission Produce’s 11.9% annualized revenue growth over the last three years was solid as consumers bought more of its products.

This quarter, Mission Produce reported robust year-on-year revenue growth of 29.2%, and its $334.2 million of revenue topped Wall Street estimates by 17%.

We also like to judge companies based on their projected revenue growth, but not enough Wall Street analysts cover the company for it to have reliable consensus estimates.

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 5.1% 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 Q4 2025, sales volumes jumped 5% year on year. This result was in line with its historical levels.

Mission Produce has bad unit economics for a consumer staples company, signaling it operates in a competitive market and lacks pricing power because its products can be substituted. As you can see below, it averaged a 11.2% gross margin over the last two years. Said differently, for every $100 in revenue, a chunky $88.81 went towards paying for raw materials, production of goods, transportation, and distribution.

In Q4, Mission Produce produced a 9.4% gross profit margin, down 1.7 percentage points year on year but still exceeding analysts’ estimates by 6.5%. On a wider time horizon, however, Mission Produce’s full-year margin has been trending up over the past 12 months, increasing by 1.5 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Mission Produce was profitable over the last two years but held back by its large cost base. Its average operating margin of 4% was weak for a consumer staples business. This result isn’t too surprising given its low gross margin as a starting point.

On the plus side, Mission Produce’s operating margin rose by 2.6 percentage points over the last year, as its sales growth gave it operating leverage.

This quarter, Mission Produce generated an operating profit margin of 2.8%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Mission Produce’s EPS grew at a remarkable 17.7% compounded annual growth rate over the last three years, higher than its 11.9% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q4, Mission Produce reported EPS at $0.10, up from $0.09 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Mission Produce has shown weak cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.9%, subpar for a consumer staples business.

Taking a step back, an encouraging sign is that Mission Produce’s margin expanded by 3.7 percentage points over the last year. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose more than its operating profitability.

Mission Produce burned through $16 million of cash in Q4, equivalent to a negative 4.8% margin. The company’s cash burn was similar to its $400,000 of lost cash in the same quarter last year. These numbers deviate from its longer-term margin, indicating it is a seasonal business that must build up inventory during certain quarters.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Mission Produce historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.8%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

Mission Produce reported $40.1 million of cash and $216 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $106.3 million of EBITDA over the last 12 months, we view Mission Produce’s 1.7× net-debt-to-EBITDA ratio as safe. We also see its $5.4 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Mission Produce blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We think this quarter was a good one. The stock remained flat at $11.70 immediately after reporting.

Updated: May 15, 2025 at 10:42 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Mission Produce.

We cheer for all companies serving everyday consumers, but in the case of Mission Produce, we’ll be cheering from the sidelines. . And while the company’s rising cash profitability gives it more optionality, the downside is its gross margins make it more challenging to reach positive operating profits compared to other consumer staples businesses.

Mission Produce’s EV-to-EBITDA ratio based on the next 12 months is 9.5x. At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $17 on the company (compared to the current share price of $10.97).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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