Is The Bottom In For Calavo Growers?

Calavo Growers Gains Traction With Project Uno 

Calavo Growers NASDAQ: CVGW has been struggling with market conditions, inflation, and COVID-19 all year but it looks like the company is starting to gain some traction. The company-wide rationalization of operations is helping to boost profitability at the same time market conditions began to improve. While hurdles remain, the company is on track with its Project Uno and is expected to deliver ongoing improvement through the end of the next fiscal year. What this means for investors is a chance to get into this 2.7% yielding consumer stock at a time when the outlook is brightening and share prices are at their lowest in over 6 years. 

“... We saw a continuation of the challenging market conditions we experienced in the third quarter including inflationary effects on labor, raw materials and freight,” said Steve Hollister, Interim CEO of Calavo Growers, … “As we moved through the quarter, market conditions improved, and we obtained price increases across customers and product lines. As a result, we experienced steady monthly improvement, and we finished the quarter delivering stronger financial results than at the beginning of the quarter.

Calavo Growers Q4 Results Catch The Market’s Attention 

Calavo Growers had a good Q4 in which revenue of $273.4 million grew 16.6% over last year. The revenue is still down by 6.5% from 2019 levels but pre-COVID business volume should be reached by mid calendar 2022. The good news is that revenue and adjusted earnings came in better than expected and point to continued outperformance in the current quarter. On a segment basis, the Fresh segment led with growth of 26% while the RFG and Foods segments grew a smaller 7% and 6% respectively. 

Moving down to the earnings, margins contracted versus last year due to inflation but less than expected. The gross margin contracted by 570 basis points to 3.3% leaving the operating margin in negative territory. The bad news here is that GAAP earnings of -$0.73 missed by $0.62 but there are mitigating factors. Among them is the closure of processing operations at a Florida facility as part of the greater company-wide rationalization. On an adjusted basis, earnings came in at -$0.08 versus last year’s profit but beat the Marketbeat.com consensus by $0.03. 

The company declined to give any formal guidance but did say demand remains strong. While inflationary pressures are expected to persist, pricing efforts and rationalization are expected to drive margin improvement. 

“While demand for fresh, healthy and convenient products remains strong, the industry-wide inflationary pressures on raw materials, freight and labor costs remain uncertain. We are implementing pricing and operational initiatives to offset these items. We are optimistic that we will see continued profit improvement from our efforts as part of Project Uno.”

The Technical Outlook: Calavo Growers Is At A Bottom 

Price action in Calavo Growers was bullish in the wake of the Q4 report. Shares prices opened slightly higher, tested for support, and then moved higher throughout the session to confirm support at the $39 level. This support is consistent with a major continuation signal formed in 2015 and could lead to a full reversal in price action. Assuming price action can get above the near-term resistance at $43.25 we see the stock moving up to the 150-day EMA at $48.60 and then possibly higher.