10-Q: Calavo Growers Q1 Sales Dip Amid Avocado Price Pressure

Calavo Growers reported a 21% decline in Q1 net sales to $122.2 million, driven by lower avocado prices, while net income fell significantly to $0.7 million, impacted by merger-related expenses.

Summary

• Net sales for the three months ended January 31, 2026, decreased by $32.2 million, or 21%, to $122.2 million compared to $154.4 million in the prior year.
• The Fresh segment's net sales decreased by 25% to $104.7 million, primarily due to a 35% decrease in average avocado selling price per carton, despite a 17% increase in avocado carton volume.
• Tomato sales within the Fresh segment decreased by 48% to $6.8 million, driven by a 22% decline in carton volume and a 33% decrease in average selling price.
• The Prepared segment's net sales increased by 20% to $17.5 million, primarily due to a 21% increase in pounds sold of guacamole and related products.
• Gross profit decreased by 3% to $15.2 million, with Fresh segment gross profit down 15% and Prepared segment gross profit up 36%.
• Operating income shifted to an operating loss of $1.4 million, compared to an operating income of $5.0 million in the prior year.
• Net income attributable to Calavo Growers, Inc. was $0.7 million, a significant decrease from $4.4 million in the same period last year.
• Diluted earnings per share (EPS) was $0.04, down from $0.25 in the prior year.
• Selling, general and administrative (SG&A) expenses increased by 59% to $16.4 million, primarily due to $4.9 million in M&A-related costs for the pending merger with Mission Produce and $1.8 million in higher stock-based compensation.
• The company recorded a foreign currency gain of $2.6 million, compared to a loss of $1.0 million in the prior year.
• A loss of $0.5 million was realized from unconsolidated entities, contrasting with a gain of $0.9 million in the prior year.
• Cash and cash equivalents decreased to $47.7 million as of January 31, 2026, from $61.2 million as of October 31, 2025.
• Working capital decreased to $83.6 million as of January 31, 2026, from $89.0 million as of October 31, 2025.
• The company is involved in ongoing legal proceedings related to a 2013 Mexico tax assessment totaling approximately $201.8 million USD, for which an $11 million provision has been recorded.
• A $0.6 million expense was recorded related to a claim under California's Private Attorneys General Act (PAGA) associated with the former Fresh Cut business.

Sentiment

Score: 3

Explanation: StockSavvy.ai views this as a challenging quarter with significant declines in sales and profitability, largely due to market pricing pressures and merger-related expenses, despite some positive performance in the Prepared segment.

Positives

• The Prepared segment demonstrated strong growth with net sales increasing 20% and gross profit increasing 36%, driven by higher sales volumes and improved unit profitability.
• Avocado carton volume increased by 17%, indicating strong demand or market penetration despite lower pricing.
• A foreign currency gain of $2.6 million positively impacted the financial results.
• Recent favorable rulings from a Federal Court in Mexico formally recognized CDM as a maquiladora, strengthening the company's position regarding the recoverability of IVA receivables and the 2013 Mexico Assessment.
• The Board declared a quarterly cash dividend of $0.20 per share, maintaining shareholder returns.

Negatives

• Overall net sales decreased by 21% year-over-year, primarily due to a significant 35% decrease in average avocado selling price.
• Tomato sales declined sharply by 48% due to adverse weather, elevated industry supply, and weaker market demand.
• The company reported an operating loss of $1.4 million, a substantial decline from an operating income of $5.0 million in the prior year.
• Net income attributable to Calavo Growers, Inc. decreased significantly to $0.7 million from $4.4 million.
• Diluted EPS dropped from $0.25 to $0.04, reflecting reduced profitability.
• SG&A expenses surged by 59% to $16.4 million, largely driven by $4.9 million in M&A-related costs for the Mission Produce merger and $1.8 million in higher stock-based compensation.
• A loss of $0.5 million was incurred from unconsolidated entities, reversing a gain from the prior year.
• Cash and cash equivalents decreased by $13.5 million during the quarter, and working capital also declined.
• A $0.6 million expense was recorded for a PAGA claim related to the former Fresh Cut business.

Risks

• Volatility in avocado and raw material prices (including packaging, paper, and fuel) can significantly impact costs and margins.
• Supply chain disruptions, such as the temporary pause in Mexican avocado operations due to a security event, pose risks to sourcing and distribution.
• Risks associated with current or future acquisitions, including integration challenges related to the proposed merger with Mission Produce.
• Unfavorable legal or administrative outcomes from pending matters with the Mexican Tax Administration Service (SAT), including the 2013 Mexico Assessment (approximately $201.8 million USD) and the recoverability of IVA receivables (approximately $60.8 million USD).
• Potential impacts of changes in U.S. and foreign trade policy, including tariffs and quotas, on sourcing, costs, pricing, and demand.
• Data breaches or cybersecurity incidents could disrupt operations, impact liquidity, or affect financial results.
• Dependency on large customers and key personnel could create business vulnerabilities.
• Labor availability and wage inflation may increase operating costs.
• Reliance on co-packers and competitive pressures in the market.
• Product recalls or food safety issues could damage reputation and financial performance.
• Shifting consumer preferences and sustainability trends may require adaptation in product offerings and operations.
• Environmental regulations and climate-related supply risks could affect agricultural output and costs.
• Exposure to unconsolidated entities and the volatility of the company's stock.
• Secondary liability as a guarantor for assigned leases from the divested Fresh Cut business, with a maximum exposure of $28.0 million in undiscounted future minimum base rent payments.

Future Outlook

The company remains focused on expanding grower partnerships and strengthening relationships with retail and foodservice customers to support long-term net sales growth across both segments. Management believes that existing cash reserves, cash generated from operations, and available borrowing under the Credit Facility will be sufficient to satisfy capital expenditures, working capital needs, and other operating requirements for at least the next 12 months. Longer-term capital allocation decisions, including capital expenditures, may be affected by the timing and completion of the pending merger with Mission Produce.

Management Comments

• We remain focused on expanding grower partnerships and strengthening relationships with retail and foodservice customers to support long-term net sales growth across both segments.
• We believe that our cash balance, cash flows from operations, availability under our Credit Facility, and other sources will be sufficient to satisfy our capital expenditures, working capital needs, and other operating requirements for at least the next 12 months.
• We continue to believe that the 2013 Mexico Assessment is completely without merit and that we will prevail in the Nullity Trial in the Federal Tax Court, but we also believe it is in the best interest of CDM and the Company to settle the 2013 Mexico Assessment as quickly as possible.

Industry Context

StockSavvy.ai notes that the avocado industry experienced increased supply, particularly from Mexico, leading to downward pressure on market prices, which significantly impacted Calavo Growers' Fresh segment. The temporary pause in Mexican avocado operations due to a security event highlights the geopolitical and supply chain risks inherent in the fresh produce industry, though the company stated it had no material impact. The proposed merger with Mission Produce indicates a trend towards consolidation in the avocado sector, aiming to achieve greater scale and market share amidst competitive pressures.

Comparison to Industry Standards

• The 35% decrease in average avocado selling price suggests a highly competitive market or oversupply, potentially impacting Calavo Growers' margins more severely than some industry peers with more diversified product portfolios or stronger pricing power.
• The 20% growth in the Prepared segment, driven by increased volumes and new customer wins, indicates strong performance in value-added products, potentially outperforming segments of the broader food industry facing stagnant demand.
• The significant increase in SG&A due to M&A costs is typical for companies undergoing major strategic transactions like the proposed merger with Mission Produce, a direct competitor in the avocado market, as they incur substantial legal and advisory fees.

Management Changes

Corporate Governance

Legal Proceedings

• 2013 Mexico Assessment: A final tax assessment from the SAT totaling approximately $201.8 million USD (3.5 billion Mexican pesos) as of January 31, 2026, plus an employee profit-sharing liability of approximately $6.8 million USD. The company has filed a Nullity Trial and believes the assessment is without merit, but is also open to settlement, having recorded an $11 million provision.
• Fiscal Years 2019 and 2020 Audits: The SAT initiated income tax audits for these fiscal years, focusing on whether CDM is properly classified as a maquiladora for Mexican tax purposes. No formal conclusions have been issued for 2020, and the 2019 audit is currently before PRODECON.
• PAGA Claim: Approximately $0.6 million was recorded related to a claim under California's Private Attorneys General Act associated with the former Fresh Cut business, which was divested in the fourth fiscal quarter of 2024.
• Lease Contingency: The company is secondarily liable as a guarantor for assigned leases from the divested Fresh Cut business, with a maximum exposure of $28.0 million of undiscounted future minimum base rent payments. The company does not believe it is probable that it will be required to satisfy these obligations.

Related Party Transactions

• Procurement of avocados from entities owned or controlled by Board members was $0.0 million for Q1 2026, compared to $0.6 million for Q1 2025.
• Procurement of avocados from entities affiliated with the former Chief Executive Officer was $0.0 million for Q1 2026, compared to $1.1 million for Q1 2025.
• Outstanding advances to Agricola Don Memo, S.A. de C.V. (50% owned unconsolidated entity) totaled $7.3 million as of January 31, 2026.
• An infrastructure loan balance of $1.6 million to Don Memo was outstanding as of January 31, 2026.
• Cost of sales to Don Memo was $3.7 million for Q1 2026, compared to $8.0 million for Q1 2025.
• Grower advances due from Agricola Belher totaled $8.0 million as of January 31, 2026, compared to $5.2 million as of October 31, 2025.
• A bridge loan balance of $0.4 million to Belher was outstanding as of January 31, 2026.
• Cost of sales to Belher was $2.6 million for Q1 2026, compared to $2.7 million for Q1 2025.
• Purchases of avocados from the partners of Avocados de Jalisco (an 83% owned consolidated entity) were approximately $0.7 million for Q1 2026, compared to $0.2 million for Q1 2025.

Stakeholder Impact

• Shareholders: Experienced a significant decrease in net income and diluted EPS, but continued to receive a quarterly cash dividend. The proposed merger with Mission Produce could offer long-term strategic benefits.
• Employees: Potential impact from the employee profit-sharing liability related to the 2013 Mexico Assessment.
• Growers: Faced lower avocado prices, which could impact their revenue, although avocado carton volume increased.
• Customers: Benefited from increased avocado supply and lower market prices.
• Creditors: The company remains in compliance with the financial covenants of its Credit Facility, indicating stable creditworthiness despite financial headwinds.

Next Steps

• Mission Produce to file a Registration Statement on Form S-4 with the SEC (already filed on March 9, 2026).
• Obtain required governmental and shareholder approvals for the proposed merger with Mission Produce.
• Execute integration efforts following the completion of the merger with Mission Produce.
• Payment of the declared quarterly cash dividend of $0.20 per share on April 29, 2026, to shareholders of record on April 1, 2026.
• Continue efforts to collect IVA receivables and resolve the 2013 Mexico Assessment and the 2019/2020 tax audits.
• Evaluate the potential effect of recently issued accounting standards (ASU 2025-06, ASU 2025-05, ASU 2024-03, ASU 2023-09) on financial statements.

Key Dates

Recommendation

While the company faces significant headwinds from lower avocado prices and substantial merger-related costs impacting current profitability, the strategic merger with Mission Produce could create long-term value through scale and market leadership. The Prepared segment shows strong growth, and favorable developments in the Mexican tax dispute offer some upside. However, the immediate financial performance is weak, and integration risks remain, suggesting a 'Hold' position until the merger's benefits materialize and tax issues are resolved.

Keywords

Calavo Growers, CVGW, avocados, guacamole, fresh produce, prepared foods, SEC filing, 10-Q, financial results, merger, Mission Produce, Mexico tax, IVA, supply chain, Q1 2026