Mission Produce (AVO)

Avocado company Mission Produce (NASDAQ:AVO) reported Q1 CY2025 results topping the market’s revenue expectations, with sales up 27.8% year on year to $380.3 million. Its non-GAAP profit of $0.12 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.

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years.

With $1.39 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 12.5% 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 27.8%, and its $380.3 million of revenue topped Wall Street estimates by 28.4%.

Looking ahead, sell-side analysts expect revenue to decline by 15% over the next 12 months, a deceleration versus the last three years. This projection is underwhelming and suggests its products will face some demand challenges.

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 2.8% over the last two years. This is pleasing because it shows consumers are purchasing more of its products.

In Mission Produce’s Q1 2025, year on year sales volumes were flat. This result was a meaningful deceleration from its historical levels. We’ll be watching closely to see if Mission Produce can reaccelerate demand for its products.

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 10.9% gross margin over the last two years. Said differently, for every $100 in revenue, a chunky $89.10 went towards paying for raw materials, production of goods, transportation, and distribution.

Mission Produce’s gross profit margin came in at 7.5% this quarter, down 2.9 percentage points year on year and falling way short of analysts’ estimates. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is an important measure of profitability accounting for key expenses such as marketing and advertising, IT systems, wages, and other administrative costs.

Mission Produce was profitable over the last two years but held back by its large cost base. Its average operating margin of 4.1% was weak for a consumer staples business. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, Mission Produce’s operating margin might fluctuated slightly but has generally stayed the same over the last year. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q1, Mission Produce generated an operating margin profit margin of 1.8%, down 2.3 percentage points year on year. Since Mission Produce’s gross margin decreased more than its operating margin, we can assume its recent inefficiencies were driven more by weaker leverage on its cost of sales rather than increased marketing, and administrative overhead expenses.

Revenue trends explain a company’s historical growth, but the change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Mission Produce’s EPS grew at a spectacular 24.3% compounded annual growth rate over the last three years, higher than its 12.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q1, Mission Produce reported EPS at $0.12, down from $0.14 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. We also like to analyze expected EPS growth based on Wall Street analysts’ consensus projections, but there is insufficient data.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and 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 2.5%, subpar for a consumer staples business.

Taking a step back, we can see that Mission Produce’s margin dropped by 1.5 percentage points over the last year. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s becoming a more capital-intensive business.

Mission Produce burned through $25 million of cash in Q1, equivalent to a negative 6.6% margin. The company’s cash burn increased from $4.4 million 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 5.4%, somewhat low compared to the best consumer staples companies that consistently pump out 20%+.

Mission Produce reported $36.7 million of cash and $246.6 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 $105.2 million of EBITDA over the last 12 months, we view Mission Produce’s 2.0× net-debt-to-EBITDA ratio as safe. We also see its $4.5 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’ EPS expectations this quarter. We were also excited its EBITDA outperformed Wall Street’s estimates by a wide margin. On the other hand, its gross margin missed. Zooming out, we think this was a solid print. The stock traded up 1.1% to $10.66 immediately after reporting.

Updated: June 14, 2025 at 10:51 PM EDT

Before investing in or passing on Mission Produce, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

Mission Produce doesn’t pass our quality test. Although its revenue growth was solid over the last three years, it’s expected to deteriorate over the next 12 months and its projected EPS for the next year is lacking. And while the company’s EPS growth over the last three years has been fantastic, 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 15.7x. This valuation tells us a lot of optimism is 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 $12.33).

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.