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CEO's Message




"Posted record operating results for the sixth consecutive year with revenue, gross margin, net income and earnings per share reaching new all-time highs"


"Completed construction of a new
fresh avocado packinghouse in
Jalisco, the second Mexico
growing region expected to be approved soon for export to the U.S., as domestic consumption continues to rise and to maintain Calavo’s category leadership"

"Expanded RFG production capacity by 260,000 square feet in Florida and Texas to extend the business segment’s national capabilities and drive double-digit growth"

It is with unsurpassed pleasure and pride that I report to you that Calavo Growers, Inc. posted record operating results in fiscal 2016, marking our sixth consecutive year registering new all-time highs.

     Our achievements last year were once again formidable. The above highlights speak equally to these significant accomplishments, as well as Calavo’s opportunities for continuing to leverage these advantages moving forward, which I will discuss in greater detail later in this letter.

     Recapping fiscal 2016 operating results, nearly all key metrics reached record highs. For the 12-months-ended October 31, 2016, net income climbed nearly 40 percent to $38.0 million, or $2.18 per diluted share, from $27.2 million, approximating $1.57 per diluted share, in fiscal 2015. Full-year revenue advanced to $935.7 million, an increase of more than nine percent from $856.8 million one year earlier, paced by higher sales in each of the company’s three business segments. Gross margin (dollars) rose by 26 percent to $107.5 million, or 11.5 percent of total revenues, from $85.2 million, or 10 percent of total revenues, in fiscal 2015. Operating income jumped nearly 40 percent to $61.1 million from $43.7 million in the preceding year.

     In recognition of this outstanding performance, our board of directors declared a $0.90 per share annual cash dividend on Calavo common stock, an increase of 12.5 percent from $0.80 per share awarded in fiscal 2015. By returning $15.7 million to you—our owners—in the form of the cash dividend, we are balancing our dual objectives of delivering the highest possible shareholder returns, while also reinvesting substantial profit back into our businesses to drive Calavo’s future growth.

     Let me share some perspective that brings our operating performance and, by extension, the above metrics into sharper focus—there is no clearer way to underscore how truly impressive they are. First
off, please refer to the charts on page one of this report where you can see that over the past five years, revenue, gross margin, net income and per-share results have each virtually doubled. More significantly, the two-fold growth during that span is entirely internally generated. Consider, for example, gross margin expansion—both in dollars and as a percentage of revenue which rose 150 basis points last year alone. This important measure reflects operating efficiencies realized as we grow across the company, as well as achievements resulting from Calavo’s broad and deep expertise in sourcing, production and sales management—capabilities which I believe are unrivaled in our industry.

     What has propelled this growth is faithful execution of our company’s strategic agenda, which we have done with great success and absolute single-mindedness. Even as we remain deeply committed to the strategic model that has enabled our rapid growth, we are nimble, flexible and highly responsive to fast-changing market conditions. As longtime participants in the commodity produce business, we have come to understand how Mother Nature can be a capricious, sometimes volatile “silent partner” in our businesses.  That is where our management expertise and industry knowledge base serve us extremely well. We have not deviated—nor do we plan to—from the Calavo business model with its emphasis on multiple revenue and profit engines in our three principal operating segments. Going forward, expect no change.

“Expect growth and still more growth. Fiscal 2017 will be
another record year for Calavo, while fiscal 2018 will be an absolute
blockbuster as recent initiatives come to full fruition.”

      All that said, where will we go from here? Expect growth and still more growth. I am highly confident that fiscal 2017 will be another record year for our company and, looking further ahead, fiscal 2018 will be better still—an absolute blockbuster—as recent initiatives come to full fruition to propel Calavo’s top- and bottom-line performance. Let me drill down on these growth drivers.

     Total fresh avocado domestic consumption topped 2.3 billion pounds last year—rising four-fold since 2000 and doubling in the last five years alone. Early forecasts peg this year’s domestic consumption to rise as high as 2.7 billion pounds. Consumer demand remains very strong and growth shows little sign of abating.  The preceding feature spreads speak to the myriad of factors driving consumption, including nonstop avocado “buzz” from influential tastemakers. We have positioned ourselves to capitalize on this uptick, maintain our category leadership, and drive fresh avocado sales higher in fiscal 2017 by as much as 20 percent. Contributing to the top-line growth will be our newest packinghouse in Jalisco—the second Mexico growing region expected to be authorized for export soon to the U.S, as well as other countries—which was completed last year. Building upon our two-decade track record of success in Michoacán state, we are establishing sourcing relationships in Jalisco, where many of our existing Mexican growers also farm avocados.

     Achievements on another fresh produce front—Calavo’s tomato program—punctuate my earlier point about company initiatives that are (pun intended here) bearing fruit. Several years ago, we established a groundbreaking partnership with Mexico-based tomato grower Agricola Belhar. In choosing them, we have an ideal partner—with outstanding farming capabilities, strong breadth of resources and a commitment to quality that mirrors Calavo’s own. Last year’s performance in the tomato category is indicative of our success: sales nearly doubled to $36 million from under $19 million in fiscal 2015 on a 60-plus percent increase in unit volume.

     Our Renaissance Food Group (RFG) business segment saw its revenues expand by more than 13 percent last year to $333.5 million. Putting this sales growth into perspective, that mid-teen increase is approximately twice the six to seven percent growth rate projected for the fresh-prepared refrigerated products category as a whole. For all its success since becoming part of Calavo in mid-2011, RFG’s greatest growth lies ahead. We have made investments exceeding $35 million in RFG over the past year or so, adding or expanding production and distribution capacity near Jacksonville, Florida and in Houston, Texas—a total of 260,000 square feet. Subsequent to fiscal year end, we announced the $19.4 million acquisition of a near-turnkey 128,000-square-foot production facility in Riverside, California, that will come online later in 2017 to serve a growing customer base in the southwest.

     The net effect of these investments is an RFG footprint that covers the nation and enables seamless distribution on the just-in-time basis necessary for the retail grocery channel. We anticipate these investments will accelerate the double-digit sales growth rate for RFG, with segment gross margin improvement as we realize the economies of scale and plant-level efficiencies afforded by size. While fiscal 2017 should be excellent for RFG, its prospects into fiscal 2018 appear even more formidable, as newer facilities ramp up to full capacity.

     Not to be overshadowed by our two larger business segments, Calavo Foods is a steady incremental contributor to company revenue and gross margin. While Calavo Foods represented less than seven percent of total revenue last year, it accounted for 21 percent of company gross profit. Gross margin percentage in the business segment was once again very strong—over 35 percent for the year. Calavo Foods is highly complementary to our other business segments. Avocado availability provides a plentiful raw ingredient source. RFG, on the other hand, represents an outstanding platform for increasing fresh-prepared guacamole and salsa sales to the retail grocery channel. We expect double-digit sales growth in the Calavo Foods segment in fiscal 2017, along with higher gross margin dollars, in part fueled by a strengthening picture in our salsa business, where we have seen performance improve substantially.

     The question I am asked most often is: “Lee, when can we expect to see Calavo make another acquisition?” The answer is, we are always on the lookout but our criteria are exacting. As I said at the outset, we have no plans of deviating from our tried-and-true business model, so any acquisition must fit our current Calavo blueprint. We are not interested in transactions of less than $100 million, as they would be immaterial to the company’s current size. Most significantly, we are judicious and there will be no deal-for-deal’s sake; any transaction must be immediately accretive to earnings. That said, if the right one comes along, with our strong, flexible balance sheet, ample borrowing capacity and proven ability to integrate acquisitions, we are in a position to move quickly.

     In closing, I wish to extend thanks to our senior management team and employees for their dedication, to our board of directors for its wise counsel and unflagging support, and to Calavo’s customers for their patronage. To you, our fellow owners, I express deep appreciation for your loyalty and confidence. If you think the past five years have been something, I encourage you to keep watching. As the old expression goes, you ain’t seen nothin’ yet.


Lee Cole

Chairman, President and Chief Executive Officer

March 4, 2017


      Lee Cole has been called a maverick, a risk-taker, a visionary and a savvy entrepreneur, and indeed, he is all these things. But first and foremost, he is a grower—whether he is tending his 400-acre avocado farm in Santa Paula, California or transforming a local, grower-owned cooperative into a publicly traded, diversified, world-class agribusiness.

Deep Roots in “Calavo Country”
      Born to Oklahoma cattle ranchers, Lecil Edward Cole decided early in life that he would follow his father’s footsteps into ranching. At age 13, he moved with his parents to Santa Paula, and set his sights on owning his own ranch. After a stint in the U.S. Army, he went home to Santa Paula to put his plan into action.

      Cole took a job with Safeway Stores to support himself, and quickly rose through the ranks. At age 21, he became the youngest store manager in Company history. Soon he was promoted to District Manager, overseeing all aspects of operations in 18 stores. All the while, Cole was purchasing land and water rights in Santa Paula. At age 33, with 80 acres of producing avocado trees and 100 head of cattle, Cole left his Safeway career to become a full-time rancher, avocado grower and entrepreneur. Before long, the avocado trees had taken over his ranch, eventually displacing the cattle.

      Then, as now, Santa Paula was “Calavo Country,” and Cole was quickly recruited to join the growers’ cooperative. Seeing a need for improved customer service, he campaigned for the director’s seat and won. Next, he leveraged his 15 years of retailing experience to win election to the directorship in 1982. He has remained on Calavo's board ever since, becoming Chairman and CEO in 1998, and assuming the added role of president in 1999.

A Grower’s Perspective
      Implementing an aggressive strategic agenda while also maintaining strong profitability is key to Cole’s leadership style. From the beginning, he applied his grower’s perspective to retool the Company to compete as an efficient, global enterprise in the 21st century. As a grower as well as a shareholder, he strives to maximize both corporate profit and returns to the farm. As a result, Calavo’s grower returns rank among the industry’s best.

Unlocking Value
      To unlock the Company’s value and pave the way for future growth, Cole spearheaded the co-op’s conversion to a for-profit corporation in 2001 and its listing on the NASDAQ in 2002. This forward-thinking transaction created a currency to use for all-stock acquisitions without needing to leverage Calavo’s strong balance sheet.

      In 2003, Cole led Calavo in its first strategic acquisition, Maui Fresh International, Inc., a multi-product distributor of specialty produce. The transaction extended Calavo’s brand equity and market stature into new perishable product categories and broadened Calavo’s product offerings to dozens of items, ranging from tropical fruits to fresh cut vegetables.  Since then, several acquisitions followed, the most recent being Renaissance Food Group.

Nurturing Grower Relationships
      Understanding that packinghouses thrive on volume, Cole made grower recruitment and retention Calavo’s number one priority. Accordingly, he instituted a strategic grower recruitment plan that resulted in a record 38 to 40 percent of the domestic market share. In 2005, he piloted the Company through an equity cross-investment with Limoneira Company. Calavo now packs and distributes the crops of the number one and number two domestic producers of avocados—Irvine Company and Limoneira, respectively—and has forged alliances with growers in Mexico, Chile, New Zealand and the Dominican Republic.

      To bring new operating efficiencies to its processed-products unit, Cole instituted a comprehensive restructuring of Calavo’s processed products unit, with a 90,000-square- foot production facility in Uruapan, Michaocan, Mexico, ending an inefficient two-step process of pulping and converting to finished product in separate plants. 

A Family Business
      More than 90 years after its founding as a grower-owned cooperative—and numerous years after Cole assumed leadership of the Company—Calavo is growing and profitable. As he continues to move the Company ahead, Cole’s family business continues to blossom as well.

     In addition to his Santa Paula avocado ranch, where he resided with wife, Jeannette, Cole owns a papaya farm and papaya processing plant on Hawaii’s Big Island. Cole’s papayas are sold domestically under the label, "Calavo Gold", his own "Cole" label, and internationally under the "Jeanette" label. Cole’s son, Guy, manages the avocado farm and his daughter, Suzanne, manages the papaya processing plant, which sells papaya purée worldwide.

     As he looks back over 90 years of Calavo history, Cole is characteristically humbled about his stewardship. “I never forget that I am charged with the oversight of a formidable legacy, and I am proud, humbled and even awed to be at its reins,” he says. “I do not feel that I inherited this company from those who preceded me; instead, I am borrowing it from those who will follow me.”

     Thanks to Cole’s leadership, those who follow will enjoy the fruits of a bigger, more broadly based Calavo, solidly positioned to lead the industry for the next 90 years and beyond.

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