Management Commentary
“Our third quarter results reflect continued momentum in our flagship avocado business,” said Lee Cole, President and Chief Executive Officer of Calavo Growers, Inc. “Despite temporary industry supply disruptions from Mexico during the quarter, we generated strong financial results due to our operational flexibility and our resilient team. Although our guacamole business experienced headwinds from higher fruit input costs compared to the third quarter last year, our volume increased 7% due to our focus on growing the business. I am also pleased to share that we will be launching some exciting, innovative guacamole products during the fourth quarter.
“Our momentum has carried into the fourth quarter, and we look forward to delivering solid financial results for the fourth quarter and fiscal year. We intend to deploy the cash that we generated from the sale of our Fresh Cut business by investing in our core avocado and guacamole businesses and by returning cash to shareholders over time. Given the renewed focus on our core operations, improvements in our financial performance, and our confidence in our operational execution going forward, I am pleased to share that we have doubled the quarterly dividend to $0.20 per share.”
Third Quarter 2024 Consolidated Financial Review for Continuing Operations
Total net sales for the third quarter were $179.6 million, compared to $160.9 million for the same period last year, an increase of 11.7%. Grown segment sales increased 13.3%, and Prepared segment sales decreased 2.4%. The average selling price of avocados in the Grown segment increased by 25% compared to the prior year.
Gross profit for the third quarter was $20.1 million, or 11.2% of net sales, compared to $22.0 million and 13.7%, respectively, for the same period last year. Foreign currency remeasurement gain and loss impacts have been reclassified from cost of sales to a separate financial statement line item on the consolidated statements of operations and have been included as an adjustment to non-GAAP earnings measures for the current quarter and for prior period results. We have begun adjusting our non-GAAP earnings to exclude foreign currency remeasurement gains and losses given volatility in foreign currency. See non-GAAP financial measure below.
Selling, general and administrative (SG&A) expenses for the third quarter totaled $10.5 million, or 5.9% of net sales, compared to $13.0 million and 8.1% of net sales for the same period last year. The decrease versus the prior year was driven primarily by lower compensation expenses, including a variable compensation accrual in the prior year, while non-recurring professional fees associated with our internal investigation increased expenses by $1.4 million. SG&A expenses in the third quarter last year included $1.2 million related to severance and restructuring.
Net income for the third quarter was $5.4 million, or $0.30 per diluted share. This compares with net income of $8.7 million, or $0.48 per diluted share, for the same period last year. The change in net income compared to the prior year is primarily driven by the change in foreign currency remeasurement from gain to loss and the income tax benefit.
Adjusted net income was $10.2 million, or $0.57 per diluted share, compared to adjusted net income of $7.7 million, or $0.43 per diluted share last year.
Adjusted EBITDA was $13.5 million compared to $13.0 million for the same period last year.
On August 15, 2024, the Company closed the sale of its Fresh Cut business for $83.0 million, subject to various closing adjustments. Due to the sale, we evaluated whether it was more likely than not that the carrying value of the Fresh Cut business exceeded its fair value. We determined that it was more likely than not that the fair value was less than the carrying amount of net assets as of July 31, 2024. Based on the results of the impairment analysis, we recorded a goodwill impairment charge of $9.3 million during the quarter ended July 31, 2024, which is included in discontinued operations. In conjunction with the sale, we incurred transaction costs and settled certain retained liabilities, which were primarily labor related, namely for accumulated paid-time-off for transferring employees. The sale is also expected to generate a tax gain driven by book to tax timing differences. Inclusive of the projected impacts of transaction costs, certain retained liabilities, and taxes, we estimate after-tax net cash proceeds from the sale to approximate $75.0 million.