425: Calavo Q1 2026 Earnings Decline Amid Merger Costs

Calavo Growers reports a significant drop in first-quarter net sales and income, impacted by lower avocado prices and substantial merger-related expenses, while its Prepared segment shows strong growth.

Summary

• Total net sales decreased to $122.2 million in Q1 2026 from $154.4 million in the prior year quarter.
• Net income fell to $0.7 million from $4.4 million year-over-year.
• Adjusted net income was $4.8 million, or $0.27 per diluted share, down from $6.3 million, or $0.35 per diluted share.
• Adjusted EBITDA decreased to $8.0 million from $9.3 million.
• Selling, general, and administrative (SG&A) expenses increased to $16.4 million, including $7.2 million in non-recurring costs, primarily $4.9 million for the Mission Produce merger.
• The Fresh segment experienced a 25% sales decrease to $104.7 million, driven by a 35% decline in average avocado selling prices, despite a 17% increase in avocado carton volume.
• The Prepared segment's sales increased by 20% to $17.5 million, with a 21% increase in pounds sold, reflecting new customer wins and expanded existing relationships.
• The merger with Mission Produce is progressing, with an expected closing in the third fiscal quarter of 2026, subject to regulatory and shareholder approvals.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a challenging quarter with significant declines in key financial metrics, primarily driven by external pricing pressures in the Fresh segment and substantial merger-related costs. While the Prepared segment's growth is a positive, the overall performance and outlook for avocado pricing suggest ongoing headwinds.

Positives

• Prepared segment sales increased by 20% to $17.5 million, driven by a 21% increase in pounds sold, reflecting expanded sales to existing customers and new customer wins.
• Prepared segment gross profit increased by 36% to $4.9 million, benefiting from higher sales volumes, lower fruit input costs, and improved operating efficiencies.
• Fresh segment avocado carton volume increased by 17%, slightly outpacing the broader industry increase.
• SG&A expenses, when adjusted for M&A and other non-recurring expenses, were down over the prior year.
• The company ended the quarter with strong liquidity, including $47.7 million in cash and cash equivalents and $79.8 million in available liquidity, with no borrowings under its credit facility.
• Progress is being made on the merger with Mission Produce, with initial antitrust submissions completed and a preliminary joint proxy statement filed.

Negatives

• Total net sales decreased by 21% to $122.2 million from $154.4 million in the prior year quarter.
• Net income significantly declined to $0.7 million from $4.4 million year-over-year.
• Adjusted net income decreased to $4.8 million, or $0.27 per diluted share, from $6.3 million, or $0.35 per diluted share.
• Adjusted EBITDA decreased to $8.0 million from $9.3 million.
• Gross profit slightly decreased to $15.2 million from $15.7 million.
• Fresh segment sales decreased by 25% to $104.7 million, primarily due to a 35% decline in average avocado selling prices.
• Fresh segment gross profit decreased by 15% to $10.3 million, reflecting lower avocado selling prices and lower tomato volumes and pricing.
• Tomato sales within the Fresh segment declined by 48%, driven by lower carton volumes and average selling prices.
• SG&A expenses increased significantly to $16.4 million, impacted by $7.2 million of non-recurring expenses, including $4.9 million in M&A-related costs.
• Cash used in operating activities totaled $8.7 million for the first fiscal quarter of 2026.

Risks

• The ability to obtain the requisite Calavo and Mission Produce stockholder approvals.
• The risk that Calavo or Mission Produce may be unable to obtain governmental and regulatory approvals required for the proposed transaction (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the proposed transaction).
• The risk that an event, change or other circumstance could give rise to the termination of the proposed transaction.
• The risk that a condition to closing of the proposed transaction may not be satisfied.
• The risk of delays in completing the proposed transaction.
• The risk that the businesses will not be integrated successfully or that the integration will be more costly or difficult than expected.
• The risk that the cost savings and any other synergies from the proposed transaction may not be fully realized or may take longer to realize than expected.
• The risk that any announcement relating to the proposed transaction could have adverse effects on the market price of Calavo's or Mission Produce's common stock.
• The risk of litigation related to the proposed transaction.
• The risk that the credit ratings of the combined company or its subsidiaries may be different from what the companies expect.
• The diversion of management time from ongoing business operations and opportunities as a result of the proposed transaction.
• The risk of adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed transaction.
• Adverse economic conditions.
• Reductions in spending from Calavo or Mission Produce clients, a slowdown in payments by such clients.
• Risks related to each company's ability to attract new clients and retain existing clients.
• Changes in client advertising, marketing, and corporate communications requirements.
• Failure to manage potential conflicts of interest between or among clients of each company.
• The ability of our management team to work together successfully.
• The impact of weather on market conditions.
• Seasonality of our business.
• Sensitivity of our business to changes in market prices of avocados and other agricultural products and other raw materials including fuel, packaging and paper.
• Changes or actions associated with USDA-APHIS and the Mexican Secretary of Agriculture, Secretariat of Agriculture and Rural Development (SADER) phytosanitary regulations (certification regulation for the importation of Hass avocados to the United States).
• Potential disruptions to our supply chain.
• Risks associated with potential future acquisitions, including integration.
• Potential exposure to data breaches and other cyber-attacks on our systems or those of our suppliers or customers.
• Dependence on large customers.
• Dependence on key personnel and access to labor necessary for us to render services.
• Susceptibility to wage inflation.
• Potential for labor disputes.
• Reliance on co-packers for a portion of our production needs.
• Competitive pressures, including from foreign growers.
• Risks of recalls and food-related injuries to our customers.
• Changing consumer preferences.
• The impact of environmental regulations, including those related to climate change.
• Risks associated with the environment and climate change, especially as they may affect our sources of supply.
• Our ability to develop and transition new products and services and enhance existing products and services to meet customer needs, including but not limited to new guacamole products.
• Risks associated with doing business internationally (including possible non-compliance with U.S. and foreign laws applicable to international trade and dealings and possible restrictive U.S. and foreign governmental actions, such as restrictions on transfers of funds and trade protection measures such as import/export/customs duties, tariffs and/or quotas and currency fluctuations).
• Risks associated with receivables from, loans to and/or equity investments in unconsolidated entities.
• Volatility in the value of our common stock.
• The impact of macroeconomic trends and events.
• The effects of increased interest rates on our cost of borrowing and consumer purchasing behavior.
• The resolution of pending internal and external investigations, legal claims and tax disputes, including an assessment imposed by the Mexican Tax Administrative Service (SAT) and our defenses against collection activities commenced by SAT.
• Our ability to realize the expected expense savings from the sale of the Fresh Cut business.
• Risks related to enhanced regulatory scrutiny or inspection protocols, including detention holds by the U.S. Food and Drug Administration, which can result in shipment delays, third-party testing requirements, incremental logistics and handling costs, and inventory write-downs, and which could in the future result in additional delays, costs, loss of product value, or disruption to customer orders.

Future Outlook

We expect volume growth across both Fresh and Prepared segments in the second fiscal quarter, leveraging scale, customer relationships, and margin discipline to navigate a dynamic pricing environment. The fresh avocado pricing environment is anticipated to remain pressured due to a large Mexican crop. The merger with Mission Produce is on track to close in the third fiscal quarter of 2026, pending regulatory and shareholder approvals.

Management Comments

• Across the first fiscal quarter, we saw sequential improvement in both our Fresh and Prepared segments.
• In Fresh, we executed well around seasonal demand, including Super Bowl-related retail opportunities, increasing sales volumes substantially over the prior year while maintaining solid per-unit margins in a pressured pricing environment.
• Our Prepared segment continued to demonstrate strong momentum in the quarter. Our quarterly sales volumes increased more than 20% over the prior year as our team successfully onboarded new customers, expanded several existing relationships, and benefited from the contribution of newer retail offerings.
• We also continued to manage SG&A expenses, which, when adjusted for M&A related expenses and other non-recurring expenses, were down over the prior year.
• Looking ahead to the second fiscal quarter, we expect volume growth across both segments and believe our scale, customer relationships, and margin discipline position us well to navigate a dynamic pricing environment.
• We anticipate the fresh avocado pricing environment will remain pressured, primarily due to a large Mexican crop.
• We are also making progress on our previously announced merger with Mission Produce. We completed several required merger related filings, including our initial antitrust submissions in the U.S. and Mexico, and a preliminary joint proxy statement. We remain focused on closing the transaction in the third fiscal quarter of 2026, subject to regulatory and shareholder approvals.

Industry Context

StockSavvy.ai notes that the fresh produce industry, particularly avocados, is highly susceptible to commodity price volatility driven by supply dynamics, such as the "large Mexican crop" mentioned, which can significantly impact profitability despite volume growth. The strategic merger with Mission Produce reflects a broader industry trend towards consolidation to achieve scale, enhance market position, and potentially mitigate pricing pressures through diversified offerings and improved supply chain efficiencies. The strong performance of the Prepared segment suggests a growing consumer demand for value-added, convenient avocado products, a trend many food companies are capitalizing on.

Legal Proceedings

• Resolution of pending internal and external investigations, legal claims, and tax disputes, including an assessment imposed by the Mexican Tax Administrative Service (SAT) and defenses against collection activities commenced by SAT.
• A legal settlement of $0.6 million recorded in connection with a legacy employment matter related to the former Fresh Cut Business (divested in August 2024).
• Professional fees related to the Foreign Corruption Practices Act investigation in Mexico (less than $0.1 million in Q1 2026).

Stakeholder Impact

• Shareholders: Potential for dilution or changes in ownership structure due to the merger with Mission Produce. Share price volatility is a risk. Financial performance declines could negatively impact shareholder value.
• Employees: Potential for adverse reactions or changes to business or employee relationships due to the merger. Integration risks could affect employee roles and morale.
• Customers: Expanded sales to existing customers and new customer wins in the Prepared segment indicate positive customer relationships. Supply chain disruptions or recalls could negatively impact customer trust.
• Suppliers: Dependence on suppliers for agricultural products and raw materials, with sensitivity to price changes.
• Creditors: The company has no borrowings under its credit facility and low total debt, indicating a strong position. However, credit ratings of the combined company post-merger could differ from expectations.

Next Steps

• Obtain requisite Calavo and Mission Produce stockholder approvals for the merger.
• Obtain governmental and regulatory approvals for the merger in the U.S. and Mexico.
• Close the merger with Mission Produce in the third fiscal quarter of 2026.
• Navigate a dynamic and pressured fresh avocado pricing environment in the second fiscal quarter.
• Continue to drive volume growth across both Fresh and Prepared segments.
• Continue managing SG&A expenses.
• Address pending internal or external investigations, legal claims, and tax disputes, including the Mexican Tax Administrative Service (SAT) assessment.
• Realize expected expense savings from the sale of the Fresh Cut business.
• Manage risks related to enhanced regulatory scrutiny or inspection protocols by the U.S. Food and Drug Administration.

Key Dates

Recommendation

The significant decline in net sales and income, coupled with a pressured avocado pricing environment, presents near-term challenges. However, the strong growth in the Prepared segment and the strategic merger with Mission Produce offer long-term potential for scale and synergies. The current quarter's results are heavily impacted by non-recurring merger costs, which obscure underlying operational performance. Investors should hold to observe the successful integration of the merger and the realization of anticipated synergies, as well as the stabilization of avocado pricing.

Keywords

Calavo Growers, CVGW, Financial Results, Q1 2026, Avocado, Guacamole, Mission Produce Merger, SEC Filing, Earnings, Fresh Produce, Prepared Foods, Agricultural Products, Form 8-K