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CEO's Message


Lee Cole
Chairman of the Board and CEO

Message To Our Shareholders - Fiscal 2015
Fresher Than Ever


     It is with pride and pleasure that I report Calavo Growers, Inc. posted record operating results in fiscal 2015—eclipsing the prior all-time highs reached one-year earlier.

     These accomplishments—along with corporate initiatives put in motion last year—are expected to continue powering the company’s upward trajectory and measurably strengthen the underpinnings of our industry-leadership position well into the future.  Significant fiscal 2015 achievements included:

  • Registering record revenue, gross margin, net income and per-share results;
  • Packing and marketing 16 percent more fresh avocado units year-over-year to keep pace with total industry fruit consumption which shattered the two-billion pound mark;
  • Continuing to expand our best-in-category, fresh-refrigerated-packaged business segment-Renaissance Food Group, LLC-which delivered double-digit revenue and gross-margin growth again last year; and,
  • Investing in new facilities-a second Mexico-based fresh avocado packinghouse and a 208,000-square-foot operation in Jacksonville, Florida-which come online fully in fiscal 2016 and will enhance, respectively, fruit sourcing and proximity ot our customers.

     Our company’s sustained success is attributable to many factors. Most notably, it reflects the disciplined execution of Calavo’s strategic business agenda.  This growth blueprint has—and continues—to serve us well.  If pressed to give any single reason for our accomplishments, though, I would say this: laser-sharp focus.  Our management team has not strayed from its well-mapped course.  We do not deviate into businesses that are not fully complementary to those at Calavo’s core.  And, we are judicious in the expenditure of corporate resources—both financial and human capital. 

     For the fiscal year ended October 31, 2015, net income climbed to $27.2 million, equal to $1.57 per diluted share.  This compares to net income of $97,000, or $0.01 per diluted share, in the prior year.  Fiscal 2014 results include contingent consideration primarily related to the revaluation of earn-out liability associated with the acquisition of RFG.  Net of income tax, this non-cash operating expense approximated $32.4 million, or $1.88 per diluted share.  Year-earlier results also include a gain recorded on Calavo’s deconsolidation of FreshRealm, LLC which, net of income tax, equaled $7.5 million, or $0.44 per diluted share.  The net effect of these two non-cash expenses approximated $24.9 million, or $1.44 per diluted share.  Fiscal 2014 adjusted net income excluding these two items total $25.0 million, equal to $1.45 per diluted share.

     Revenues in the most recent fiscal year grew to $856.8 million, a 9.5 percent increase over $782.5 million in fiscal 2014.  Gross margin climbed 19.7 percent in fiscal 2015 to reach $85.2 million, or 10.0 percent of revenues, from $71.2 million, or 9.1 percent of revenues, one year earlier.  As point of note, gross margin expansion was fueled by increases in each of Calavo’s three principal business segments.

     On the strength of these formidable results, our Board of Directors raised the company’s annual cash dividend on Calavo common stock to 80 cents per share—a seven percent increase from the prior year—which was paid to shareholders subsequent to fiscal-year-end.  Calavo’s most recent distribution totaled nearly $14 million; our dividend has risen 300 percent since 2002. It is a resounding message of our commitment to delivering shareholder returns, while also re-investing profit in future growth which we are confident will fuel the company to still-greater heights.

     Nowhere are those growth prospects more evident than in fresh avocado operations.  The avocado industry continued its remarkable upward consumption trend line again last year, with total volume surpassing two billion pounds for the first time.  That translates to per capita annual consumption of more than six and a half pounds—a staggering growth rate from just a decade ago when that figure registered approximately two pounds.  As mind-boggling as that statistic sounds, double-digit growth—to as high as two and a half billion pounds—is expected again in 2016.  With our market-leading industry position, Calavo is playing an instrumental role in driving avocado category growth, not to mention, is its principal beneficiary.  Our company packed and marketed 16 percent more avocado units last year in this rising green tide.

     A growing Hispanic population, awareness of the fruit’s health benefits, and brilliant industry marketing are pillars of today’s Avocado Age.  In my estimation, though, the single-most significant factor in this prolonged growth has been the advent of avocado ripening and pre-conditioning technologies, with our own ProRipeVIP™ leading the charge.  A boon to consumption, the convenience afforded consumers by delivering ripe, ready-to-eat avocados to their local grocery stores cannot be overstated.  It compresses selling cycles and increases demand.  And the more avocados consumers eat, the more they seem to want.

     Internationally, avocado demand is rising rapidly, as well, and we are better positioned than ever to satisfy the collective global appetite.  Our capital investment in a second Mexico-based packinghouse in Guzmán, Jalisco—another prime avocado growing region—will provide Calavo a strong source for fresh fruit directed toward markets including China, Japan other parts of Asia, and Europe.  With strong grower relationships in the Jalisco region and deep, longstanding operational experience in Mexico, we intend to keep leveraging this bountiful region to meet domestic and global demand. 

     Through RFG, we continue to expand the company footprint in the refrigerated fresh packaged goods category, the fastest-growing segment of the grocery industry.  RFG’s business model and execution have been outstanding; segment revenues have nearly tripled and gross margin has risen four-fold since its acquisition by Calavo.  Central to RFG’s success are quick-turn order fulfillment and just-in-time distribution of an outstanding, ever-growing product portfolio from facilities across the country. 

     With our company’s new facility in Jacksonville—which came online subsequent to fiscal-year end and will be fully optimized in fiscal 2016—Calavo and RFG have the platform to more deeply penetrate and better serve the southeastern United States. In addition to our physical expansion into a new region, the Jacksonville facility marks the first time fresh avocados, RFG and Calavo Foods will operate together from a single location.  Beyond that, it is a milestone in our strategic vision to leverage the company’s complementary business segments and operate as one.

     Central to our strategy, Calavo’s three principal business segments provide diverse engines that enable us to counterbalance market conditions, such as those encountered in the fresh-avocado industry last year, and continue to propel solid revenue and profit growth.  The case-in-point here would be Calavo Foods. The business unit benefited from a unique, transitory downturn in fruit costs to deliver stellar segment gross margins which rose about 58 percent last year.  Calavo Foods accounted for a comparatively small seven percent of total revenues in fiscal 2015.  Yet this little powerhouse delivered 24 percent of company gross margin.  Figures like that put things squarely in perspective.  Behind those numbers is a lineup of outstanding prepared fresh avocado and salsa products—truly worthy of the Calavo brand—with strong customer affinity in the retail grocery and foodservice channels.

     Our various businesses provide Calavo with solid platforms to make strategic acquisitions. Inarguably, we possess the operational expertise and breadth of human and financial resources, as well as a proven track-record of success integrating substantial acquisitions such as RFG—and growing them. 

     We will continue to identify and pursue transactions that are complementary to our company.  As always, we are judicious in this pursuit and any prospective deals have to meet our exacting criteria, most notably being accretive to earnings.  We are pursuing transactions only that can add $100 million or more to Calavo’s top line; acquisitions below that threshold are now immaterial owing to the company’s sustained growth.  Our balance sheet is strong and flexible, with little long-term debt and ample capacity for leverage to execute the right deal on the right terms.

     Where will we go from here, you ask?  Upward is my reply.  I am unwavering in my optimism that fiscal 2016 will be another banner year at Calavo and forecast record revenues and per-share results.  I anticipate double-digit gross margin increases in each of our three business segments, as well. In every respect, Calavo is Fresher Than Ever, the theme of this year’s annual report.

     Let me close by expressing profound gratitude to our board of directors for its stewardship.  I extend thanks to Calavo’s senior management team and employees for their dedication and tireless work, and to our customers for their continued patronage and support.  To you—our shareholders—I offer appreciation for your loyalty and confidence, which we work hard to justify each and every day.


Lee Cole

Chairman and Chief Executive Officer

March 4, 2016


Chairman and Chief Executive Officer
Calavo Growers, Inc.

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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