8-K: Calavo Growers Finalizes $83 Million Sale of Fresh Cut Business to F&S Fresh Foods

Calavo Growers, Inc. has completed the sale of its Fresh Cut business and related real estate to F&S Fresh Foods for $83 million, allowing the company to focus on its core avocado and guacamole businesses.

Summary

• Calavo Growers, Inc. completed the sale of its Fresh Cut business and related real estate to F&S Fresh Foods on August 15, 2024.
• The total sale price was $83 million, subject to closing adjustments.
• The sale includes the prepared food business, processing and packaging of fresh-cut fruits and vegetables, and prepared foods, excluding the guacamole business.
• F&S Fresh Foods also acquired leasehold interests in certain real properties used by the Fresh Cut business.
• Concurrently, F&S's affiliate purchased the real property located at 1730 Eastridge Ave, Riverside, CA for $30.98 million.
• The purchase price for the assets was $52.02 million, subject to working capital and capital expenditure adjustments.
• Calavo amended its credit agreement with Wells Fargo, reducing revolving commitments from $90 million to $75 million and the machinery and equipment subline from $6.8 million to $1.7 million.
• The company's Executive Vice President RFG Prepared resigned to accept employment with the buyer.

Sentiment

Score: 7

Explanation: The sentiment is positive due to the completion of the sale, which allows the company to focus on its core business and reduce debt. However, the loss of a key executive and the reduction in credit facilities temper the overall positive outlook.

Positives

• The sale allows Calavo to focus on its core avocado and guacamole businesses.
• The Fresh Cut business will be in the hands of a trusted co-packing partner, F&S Fresh Foods.
• The company received $83 million in proceeds from the sale.
• Calavo reduced its debt by reducing its revolving credit commitments and machinery and equipment subline.

Negatives

• The company's Executive Vice President RFG Prepared resigned in connection with the transaction.
• Calavo reduced its revolving credit commitments from $90 million to $75 million.

Risks

• The document contains forward-looking statements that are subject to risks and uncertainties.
• Actual results may differ materially from those expressed or implied by forward-looking statements.
• The company undertakes no obligation to update forward-looking statements.

Future Outlook

The company will focus on its core avocado and guacamole businesses and will share its third quarter results on September 9, 2024.

Management Comments

• We are pleased to announce that the sale of our Fresh Cut business has been finalized, which will allow us to focus on our core avocado and guacamole businesses, said Lee Cole, President and Chief Executive Officer of Calavo Growers, Inc.
• We would like to thank the team members of the Fresh Cut business for their hard work and years of service to Calavo, and we wish them the best as they transition to F&S.
• We also would like to thank the team at F&S for partnering with us on this transaction.
• The Fresh Cut business will be in the very capable hands of F&S, a leader in the industry and one of our long-trusted co-packing partners.

Industry Context

This announcement reflects a strategic shift for Calavo, focusing on its core strengths in the avocado and guacamole markets while divesting its fresh-cut business. This is a common strategy for companies looking to streamline operations and improve profitability.

Comparison to Industry Standards

• The sale of non-core assets to focus on core business is a common strategy in the food industry, similar to moves by companies like Dole Food Company which divested its packaged foods business to focus on fresh produce.
• The reduction of debt and streamlining of operations is a common goal for companies in the food industry, similar to moves by companies like TreeHouse Foods which have divested non-core assets to reduce debt and improve profitability.
• The sale price of $83 million for the Fresh Cut business is within the range of similar transactions in the food processing industry, although specific multiples would depend on the profitability and growth prospects of the business.

Management Changes

Stakeholder Impact

• Shareholders will likely view the sale positively as it allows the company to focus on its core business and reduce debt.
• Employees of the Fresh Cut business will transition to F&S Fresh Foods.
• Customers of the Fresh Cut business will now be served by F&S Fresh Foods.
• Creditors will see a reduction in Calavo's debt.

Next Steps

• Calavo will focus on its core avocado and guacamole businesses.
• Calavo will announce its third quarter results on September 9, 2024.

Key Dates

Keywords

Fresh Cut business, Calavo Growers, F&S Fresh Foods, asset sale, real estate, avocado, guacamole, credit agreement, debt reduction, prepared foods