Mission Produce (AVO) Q2 2023: 19% Volume Surge Offsets 36% Price Drop, Global Expansion Gains Traction
Mission Produce’s Q2 saw a sharp rebound in avocado volumes, up 19%, countering a steep price reset and marking a return to normalized market dynamics after last year’s volatility. Management is leaning into global expansion, with new UK distribution and rising Asia demand, as vertical integration in Peru and early-stage farming in Guatemala and Colombia set the stage for multi-year growth. Despite persistent cost headwinds, easing freight and packaging costs and a more balanced size curve in Peru are positioning Mission for sequential margin improvement into the back half of the year.
Summary
- Volume-Driven Margin Stability: Higher volumes and diversified sourcing offset lower per-unit pricing, supporting sequential margin improvement.
- International Expansion Momentum: UK distribution launch and surging Asian demand signal traction in growth markets.
- Vertical Integration Leverage: Peru farming scale and new supply from Guatemala and Colombia enhance control and supply resilience.
Business Overview
Mission Produce is a vertically integrated supplier of Hass avocados and select produce, operating across sourcing, production, distribution, and marketing. The company’s core business is avocado sales, which it sources from its own farms in Peru and third-party growers in Mexico, California, and other regions, distributing to customers globally. Major segments include Marketing & Distribution (avocado sales and logistics), International Farming (own-farm production, mainly in Peru), and Blueberries (early-stage, focused on Peru).
Performance Analysis
Mission Produce’s Q2 2023 results reflected a normalization in avocado market dynamics, with revenue declining 20% year-over-year due to a 36% drop in average per-unit sales pricing, but partially offset by a robust 19% increase in avocado volumes sold. This volume recovery was driven by higher industry supply out of Mexico, contrasting with the prior year’s supply-constrained, price-inflated environment. Gross profit fell modestly, but gross margin improved by 110 basis points to 8.2% of revenue, as higher throughput offset lower per-unit margins.
The company’s Marketing & Distribution segment, which comprises the vast majority of revenue, saw both sales and EBITDA decline due to pricing, while International Farming’s seasonal contribution remained minimal in Q2 but is expected to ramp in the second half. Blueberry operations were negligible, as anticipated for this period. Cash flow reflected typical seasonal working capital swings, with inventory build ahead of the Peruvian harvest, but year-to-date operating cash outflow improved versus prior year due to more stable pricing and working capital discipline.
- Volume Rebound Outpaces Price Decline: Higher supply from Mexico and improved share in core markets drove a 19% volume gain, cushioning the impact of lower pricing.
- Margin Dynamics Reflect Mix Shift: Per-unit margins compressed due to Mexican-heavy sourcing and normalization of price premiums, but sequential improvement signals better cost absorption.
- SG&A Held in Check Amid Inflation: Core operating expenses were flat year-over-year, excluding the impact of blueberry consolidation, demonstrating discipline despite cost pressures.
With the Peruvian harvest ramping in Q3 and Q4, and international expansion underway, Mission is positioned for a seasonal step-up in EBITDA and improved margin leverage as own-farm fruit volumes increase and freight costs ease further.
Executive Commentary
"Our focus remains on driving consumption growth globally by bringing consistent, year-round diversified sourcing capabilities to new growth markets."
Steve Barnard, Chief Executive Officer
"We have margin for pricing to be lower and still generate better margins than we did last year because of all the other things we talked about."
Brian Giles, Chief Financial Officer
Strategic Positioning
1. Global Distribution Expansion
Mission’s opening of a new UK Forward Distribution Center marks a pivotal step in its European growth strategy, providing direct access to major ports and customers and strengthening its position in a region where demand is rising. Early results have exceeded expectations, and management is committed to scaling this cost-efficient model as Europe becomes a more material share of sales.
2. Vertical Integration and Supply Resilience
Peru farming operations, a cornerstone of Mission’s supply chain, are delivering increased volumes and improved fruit size profile this year, supporting both margin stability and flexibility in global sourcing. New farming efforts in Guatemala and Colombia, though early stage, are expected to provide incremental supply and risk diversification, especially for export markets in Europe and Asia.
3. Cost Structure and Margin Management
Management is actively managing cost pressures, with ocean freight and packaging costs easing from 2022 peaks, though labor remains elevated. Higher volumes are improving fixed cost absorption, particularly in North America, and sequential margin gains are expected as own-farm fruit flows through the system in the second half.
4. Consumption Growth and Market Penetration
Lower retail avocado prices are driving higher consumer throughput and enabling retailers to increase displays and promotional activity, which should yield secondary demand benefits in future periods. Notably, Asian markets (especially China) are seeing triple-digit volume growth, supported by targeted product innovation and cross-promotions.
5. Early-Stage Diversification
Blueberry operations remain in investment mode, with capital deployed for irrigation and plant cultivation in Peru’s Olmos region. While not yet a material contributor, the segment is positioned for future growth as the asset base matures and complements the core avocado business.
Key Considerations
This quarter’s results reinforce Mission’s shift from a price-driven, supply-constrained market to a volume-led, consumption-focused growth model, with strategic investments in global infrastructure and farming integration underpinning long-term positioning.
Key Considerations:
- Seasonal Leverage Building: The second half will see a significant ramp in own-farm Peruvian fruit, enhancing margin leverage as cost absorption improves and freight savings accrue.
- International Market Penetration: UK and Asian market growth is outpacing expectations, offering new demand pools as North America’s share moderates slightly.
- Cost Normalization Tailwind: Freight and packaging costs are trending down, but labor remains structurally higher, requiring ongoing discipline and efficiency gains.
- Early Returns on Farming Pipeline: Guatemala and Colombia supply will be incremental in 2024 and beyond, with near-term contributions limited but strategically vital for supply resilience.
Risks
Mission faces ongoing exposure to global avocado pricing volatility, which remains the largest swing factor for margins and profitability. While cost inflation is easing in some areas, labor costs remain elevated and could pressure margins if volume growth stalls. The success of international expansion hinges on execution in new markets, and farming projects in Guatemala and Colombia carry typical agricultural and ramp-up risks. Supply chain disruptions, particularly in export logistics, and shifting consumer preferences in core markets could also impact results.
Forward Outlook
For Q3 2023, Mission expects:
- Avocado pricing to remain stable sequentially, but 35-40% lower year-over-year compared to Q3 2022
- Industry volumes to be approximately 20% higher than prior year, driven by California, Peru, and Mexico supply
For full-year 2023, management maintained a cautious stance on specific EBITDA guidance but expects:
- Own-farm Peruvian production between 125 million and 135 million pounds
- Seasonal EBITDA cadence weighted to Q4 as own-farm fruit sell-through accelerates
Management highlighted several factors that will shape results:
- Pricing remains the largest uncertainty, with margin upside if cost reductions outpace price declines
- International market ramp and operational execution in new facilities will be key watchpoints
Takeaways
Mission’s Q2 marks a return to normalized industry conditions, with volume-driven growth offsetting price resets and setting the stage for margin recovery as the year progresses.
- Volume and Cost Absorption: Higher throughput and easing freight costs are improving fixed cost absorption, supporting sequential margin gains despite lower prices.
- Strategic Infrastructure Investment: UK and Asia expansions are gaining traction, offering new growth vectors and diversifying revenue streams beyond North America.
- Seasonal Inflection Ahead: Investors should monitor the cadence of own-farm fruit sell-through and execution in new markets as key drivers of H2 profitability.
Conclusion
Mission Produce is navigating a fundamentally different market than last year, with volume-led growth, cost normalization, and global expansion defining its trajectory. The company’s vertical integration and new-market investments provide a clear path to multi-year growth, but execution and pricing discipline remain critical as the market resets.
Industry Read-Through
The shift from price-driven to volume-driven growth in avocados signals a broader normalization across fresh produce markets as supply chains stabilize and inflationary pressures recede. Operators with vertical integration and global reach, like Mission, are positioned to capture incremental demand in Europe and Asia, while those reliant on third-party sourcing may face tighter margins as competition for supply intensifies. Retailers are responding to lower prices with increased promotional activity, suggesting potential for a rebound in category consumption and secondary benefits for allied produce categories. Supply chain and cost normalization themes are likely to play out across the sector, with freight and packaging relief offering margin upside for well-run operators.