Calavo Growers, Inc. (NASDAQ:CVGW), Small-Cap Ag Play
Calavo Growers, Inc. (NASDAQ:CVGW), Small-Cap Ag Play
Consider the avocado. As the word rolls off of your tongue it conjures mouth watering images of your last visit to a favorite Mexican restaurant. The rich buttery fruit is used in everything from soups to salads and dozens of entrees in-between. It’s not sweet, but rich and smooth, with an almost creamy texture, yet it is used in both savory and sweet dishes. It’s also very popular in vegetarian cuisine as a substitute for meats in sandwiches because of its high fat content. The avocado is native to Central Mexico. It is a commercially valuable cash crop and is cultivated in tropical and Mediterranean climes throughout the world. The fruit was introduced from Mexico to California in the 19th century and has become a highly successful cash crop in the United States. About 59,000 acres, 95 percent of the United States avocado crop, is located in Southern California.
Now consider investing in the avocado. It turns out that they have been quite popular lately with consumers and investors alike. Calavo Growers, Inc. (NASDAQ:CVGW), a small-cap agriculture company that specializes in cultivating and processing avocados, beat market expectations this week when it announced a quarterly profit of $0.42 a share. That’s ahead of the $0.41 a share that analysts were expecting and the meager $0.25 a share that it posted a year ago. That translates into a fourth-quarter net income increase to $6.2 million from $3.6 million year-over-year. Revenues totaled $141.6 million compared to $147.3 million in the fiscal 2011 fourth quarter. This was in large part due to the decline in avocado prices. Analysts expected revenue of $157.38 million for the quarter. Gross margin rose to a quarterly record of $17.9 Million, a 35 percent increase from $13.2 Million a year earlier. The strength of the company’s performance allowed it to return to shareholders more than $9.6 million subsequent to fiscal-year end in the form of the company’s annual cash dividend. The dividend jumped 18 percent from the prior year to $0.65 per share. Since 2002, Calavo’s annual cash dividend has risen steadily from $0.20 per share to its current payout level. The company has a market cap of $359.46 million and is trading at $24.24 a share.
But there is more than the avocado connection here. The company sells fresh produce items including tropical fruits of all types. In addition, Calavo Foods makes and distributes guacamole, hummus, salsa and tortilla chips under the Calavo trade name. Calavo Foods also owns Renaissance Food Group, LLC, which creates and distributes a selection of healthy, high-quality products for clients through several fast-growing brands that include Garden Highway and Chef Essentials. Calavo was founded in 1924 and serves food distributors, produce wholesalers, supermarket and restaurant chains globally.
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I think many investors are missing the industry. There is a looming food shortage with increase in population. I like how this company has beaten expectations. Should be in the radar of analysts in due time.
I would like to understand why CVGW has failed to meet NASDAQ Continued Listing Requirements. Although it seems to have an interesting business model with good prospects for 2013 and beat consensus for EPS, I would like to understand why they missed on consensus revenues by a significant amount.
As with any investment, research will out the reasons on the NASDAQ listing issue. I too think that this is an overlooked segment of the market although the trend is a bit pricey. Seems when it comes to earnings you pay more for avocados than you do Apple. Go figure. I do like that the company was a former co-op and has been around for almost 100 years and is still here.
I think it is hilarious that we pay more for avocados than apples! Longevity of a company and reputation is very important, and a 100-year history is something to at least look at for the portfolio.
Definitely worth watching. Avocados are a hot commodity and a good business to be in compared to other foods. However, as stated earlier in the comments, the food shortage is only going to get worse as the population continues to rise.
Also, the fact that the company has not pegged all its prospects on Avocado suggests that its tactful. Consumers tastes keep on changing and I am impressed that Calavo has this in mind.
The revenue dilemma would negatively skew my investment in the business. Avocados are a popular, and the fact that the company has been around so long shows they are able to get through economic cycles fairly unscathed. Tough call..
There is certainly the potential for long-term food shortages, resulting mostly from climate changes and water shortages. However, that’s not a significant concern with a company like Calavo, which is providing a specialty product to an affluent market. Broader shortages tend to hit major commodities–wheat, corn, rice, and so forth. If you want to play those, I suggest an agricultural commodity ETF like DBA or MOO.
ETFs are certainly the safer route risk-wise.
The last year was brutal for weather and doesn’t seem to be any better for 2013. I worry how any food producer will manage in the near term, even one that seems capable like Calavo.