Mission Produce (AVO) has benefited from increased avocado prices, which have boosted its margins and profits. President-elect Donald Trump’s recently proposed tariffs on Mexican imports would likely lead to further price increases for avocados, adding to the Mission’s upside potential. Mission Produce ended Fiscal 2024 with stronger than anticipated financial results, helping to drive the stock up 42% year-to-date. Despite the share price rise, it trades at a relative discount, making it a potentially appealing target for value-oriented investors.
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Benefiting from Diversification
Mission Produce is an industry-leading global business centered on producing and distributing avocados and, more recently, blueberries and mangos. The company caters to a broad customer base, including retail, wholesale, and food service channels in more than 25 countries globally. It operates via a vertically integrated model, owning four state-of-the-art packing facilities in major cultivation locations such as California, Mexico, and Peru. Apart from these areas, it also has sourcing capabilities in Chile, Colombia, the Dominican Republic, Guatemala, Brazil, Ecuador, and South Africa, among other countries, ensuring a consistent supply all year round.
Avocado consumption in the U.S. market is robust, tripling between 2000 and 2021. Ninety percent of avocados consumed in the U.S. originate from Mexico. President-elect Donald Trump’s recently proposed 25% tariff on Mexican imports could significantly impact avocado prices, further benefiting Mission Produce’s profitability.
Price Increases Drive Profits
Mission Produce reported financial results for Q4, beating top-and-bottom-line expectations. Revenue increased 37.4% year-on-year to $354.4 million, spurred mainly by a 36% increase in average per-unit avocado sales prices due to supply constraints from weather conditions in Peru. Despite this, the company managed a 9% increase in North American avocado sales volumes by leveraging its sourcing network across California, Colombia, and Mexico. The blueberry segment saw a 113% rise compared to the prior year.
Gross profit rose to $55.8 million, 15.7% of revenue, primarily due to strong per-unit avocado margins in the Marketing and Distribution segment. Selling, General, and Administrative Expenses increased to $27.2 million, primarily due to higher employee-related costs.
The company’s Q4 net income was $17.3 million, or $0.24 per diluted share, a considerable increase from $4.0 million, or $0.06 per diluted share, reported in the same period last year. Adjusted net income was $19.6 million, or $0.28 per diluted share, compared to $7.5 million, or $0.11 per diluted share, for the same period last year.
As of the quarter’s end, cash and cash equivalents were $58.0 million, compared to $42.9 million. Capital expenditures totaled $32.2 million, primarily attributed to avocado orchard development and other land improvements in Guatemala, as well as associated costs in Peru and the United Kingdom.
Guidelines for Q1 2025
Following the company’s fourth-quarter earnings, AVO’s management expects industry volumes in Q1 2025 to remain consistent with the previous year despite early supply constraints in Mexico due to fruit maturity and sizing. The latter part of the quarter, driven by a larger Mexican harvest season, is expected to show increased industry volumes. Average prices are set to rise approximately 20% year-over-year, reflecting robust demand. Despite expecting higher blueberry volumes from Peru due to yield improvements and new production areas, lower average sales prices due to an industry-wide volume increase will likely offset revenue growth.
Pricing is expected to be about 30% lower compared to Q1 2024, negatively affecting segment adjusted EBITDA. Capital expenditures for 2025, including some carried over from 2024, are expected to range from $50 to $55 million, primarily allocated to the International Farming and Blueberries segments.
Momentum and Value
The stock has been upward trending over the past year, climbing 36.40%. It trades near the high end of its 52-week price range of $9.54 – $15.25 and shows ongoing positive price momentum as it trades above the major moving averages. However, it trades at a relative discount, with an attractive P/S ratio of 0.83x compared to the Consumer Staples sector average of 1.17x.
Analysts following the company have been constructive on AVO stock. Based on the recent recommendations of two analysts, Mission Produce is rated a Moderate Buy. The average price target for AVO stock is $17.00, representing a potential 18.14% upside from current levels.
Mission Produce in Summary
Mission Produce has capitalized on the upsurge in avocado prices and leveraged a broad, global customer base. The possible tariffs on Mexican imports could boost the company’s profitability even more. Mission’s diversified production and distribution system and strategic alignments in key markets have facilitated a consistent year-round supply. Despite a significant rise in stock prices, the stock trades at a relative discount, making it an attractive consideration for value-oriented investors.
