Stock Story -
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.
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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
Founded in 1983 in California, Mission Produce (NASDAQ:AVO) grows, packages, and distributes avocados.
Packaged FoodPackaged 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 GrowthMission 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.
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.
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.
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.
