Calavo Growers [CVGW] Conference call transcript for 2021 q4
2022-03-14 21:57:09
Fiscal: 2022 q1
Operator: Good afternoon and welcome to the First Quarter 2022 Calavo Growers Earnings Conference Call and Webcast. I will now turn the conference over to your host, Larry Clark, Investor Relations for Calavo. Thank you. You may begin.
Larry Clark: Good afternoon and thank you for joining us today to discuss Calavo Growers financial results for the first quarter of 2022. This afternoon, we issued our earnings release and it's available in the Investor Relations section of our website at ir.calavo.com. With me today on today's call are Brian Kocher, President and Chief Executive Officer of Calavo; and Mariela Matute, Chief Financial Officer. We will begin with their prepared remarks and then open the call for your questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements under the Federal Securities Laws. Forward-looking statements are identified by words, such as will, be, intent, believe, expect, anticipate or other comparable words and phrases. Statements that are not historical facts, such as statements about expected improvement in revenue and operating profit are also forward-looking statements. Our actual results may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause the material difference in our results compared to these forward-looking statements are contained in our SEC filings, including our reports on Form 10-K and 10-Q. With that, I'll now turn the call over to Brian Kocher. Brian?
Brian Kocher: Thank you, Larry, and good afternoon, everyone. We appreciate you joining us. It's my pleasure to speak with you today in my first earnings call as President and CEO of Calavo Growers. I joined the company February 1st and six weeks into this new role, I'm confident that I made the right decision at the right time with the right company. I'm impressed by the talent of the Calavo team and their willingness and desire to drive our financial performance and achieve our potential. I'm encouraged by the early results of Project Uno and that we are on track to reach $70 million in EBITDA improvement in 2023. Most importantly, I'm excited at our opportunity to improve month-by-month and quarter-by-quarter. We carry our mantra forward, be better today than yesterday and better tomorrow than today. We can see the impact of that mindset by the sequential improvement in gross profit, adjusted EBITDA and adjusted net loss from quarter four to quarter one. We are making solid progress toward our goal of improved profitability, but challenges still remain. We must address these challenges in multiple ways in order to continually enhance our operating performance. As it relates to headwinds, the pandemic is becoming endemic and inefficiencies associated with labor shortages have eased, but they have not been eliminated. We must remain vigilant managing our labor costs, having them become more stable and predictable and we will do this through productivity improvements, process initiatives and further automation where possible. Higher freight costs have continued to be an issue. To address this for the first time, we launched an RFP for freight and consolidated our transportation under one national program. This should result in substantial savings and reduce volatility as we implement our new carrier agreements throughout the balance of the year. Although stabilizing and reducing cost are important, I'm excited that we have also made good progress on our pricing initiatives to date as customers recognize the need for price increases in this higher cost environment, but also appreciate the value we provide in the marketplace. Additionally, we are working with each of our customers to ensure they have the right product mix and this will support our continued efforts in SKU rationalization. Another structural component that is part of Project Uno relates to asset utilization. Last fall, we announced the closure of our Florida RFG plant and spent November and December consolidating operations into our Georgia facility. The Georgia facility is one of our newer plants and required substantial reconfiguration to accommodate the volume, so it is taking a little longer to reach optimal throughput. It is also worth noting the consolidation began during the Omicron surge in the Southeast when labor supply was especially problematic and certainly caused short-term inefficiencies during our December transition. In fact, we have already seen labor stabilize and corresponding productivity improvements at our Georgia facility in both January and again in February. Lastly and importantly, Project Uno has helped shape our reality of one-kilometer. Over the course of the last three months, human resources, finance and accounting and transportation have all consolidated in the shared service centers that enable the entirety of Calavo to operate more efficiently. We will continue deploying best practice sharing and central services where they make sense to drive improved productivity across Calavo. Despite the ongoing challenges that our industry is facing, we are navigating them head on. We are optimistic that with the plans we are implementing, we are well on the road towards improved profitability and stability in our business. Now, let me take a few moments and talk about our business segments. In our Fresh segment, avocado prices were 64% higher compared to the first quarter of 2021. Lower available supply in Mexico drove prices higher and also impacted our volume during the quarter, which was down 12% year-over-year. Our gross profits were down year-over-year, mainly due to $1.6 million adverse swing in foreign currency rates. Excluding the impact of foreign exchange, gross profit per carton for the first quarter of 2022 was $3.31 which was $0.54 a case, higher than the prior year period. Additionally, as a sign of continuous improvement, Fresh gross profit also improved by $4.3 million from the fourth quarter of '21 as higher prices more than offset the cost pressures that we've been experiencing. In RFG segment, our overall operating performance improved with the exception of our Georgia facility. Sales increased 6% compared to Q1 last year. Our gross margin loss widened slightly during the quarter as increased pricing and improved product mix were offset by headwinds from commodity cost inflation, higher labor turnover that led to increased costs and some short-term ramp up cost as our Georgia facility transitioned Florida customers. However, excluding our Georgia facility, RFG's gross margin improved by $700,000 from the same quarter as last year and $150,000 over the fourth quarter of 2021. To continue improving sequential results at RFG, we are passing along higher input cost through our pricing initiatives with our customers, driving labor productivity through process and automation, revising our raw product sourcing procedures to stabilize input costs and our rationalizing SKUs where it makes sense. In our Foods segment, sales increased 4% year-over-year due to improved retail demand. However, increased fruit and labor costs pressured gross profit for the segment, which was down $2.5 million from the first quarter of 2021, but up $300,000 from the fourth quarter of 2021. We are currently working with our customers on pricing which we expect to see reflected in our results in the coming quarters and are constantly assessing our raw product sourcing model and techniques to stabilize costs and improve margin. Let me just briefly touch on two items that are not part of our quarterly results, but are worth mentioning. As you are probably aware, the USDA temporarily banned the export of avocados into the United States from the Michoacan region of Mexico, effectively halting shipment of avocados into the country. Fortunately, the ban lasted only seven days and it occurred the week after the Super Bowl, which is typically a slow week for avocados sales. We had enough inventory to continue servicing our customers and because the ban was resolved quickly, the effects on our customers and our business was minimal. The disruption to the supply chain has caused choppiness in the volume of the fruit coming into the U.S. and that could lead to temporary shortages. However, we expect this choppiness to resolve within the next few weeks. The second area discussed relates to avocado supply. As we move from the Michoacan harvest into the California crop, we anticipate prices to remain firm and supplies to remain tight. As was mentioned in our previous call, the State of Jalisco was approved to ship fresh avocados into the U.S. and we expect the fruit to enter the country by mid-year. We are looking forward to the added flexibility when managing market dynamics that will come from an additional sourcing region and an additional facility. In the back half of the year, as fruit from Jalisco begins to move into the U.S., our volume should improve and we have already accounted for that impact in our overall sourcing strategy. Before turning it over to Mariela, I would like to make a few closing remarks. I'd like to thank Steve Hollister for his leadership while serving as Interim CEO and for his support as I joined Calavo. Steve was able to shepherd Project Uno and get the ship headed in the right direction and Calavo is better for it. I'd also like to congratulate Steve on being named Chairman of the Board. We have a strong diverse Board of Directors who take their governance responsibilities very seriously and it's my privilege to work with Steve and the Board to move Calavo forward. As CEO, I want to bring clarity to our organization through a common purpose with goals and objectives that make us better decision makers and better operators focused on what matters to us and our customers. We will relentlessly execute this focus and the discipline necessary to drive operational and financial improvements. We will put Calavo back on a path of sustainable profit growth with the ultimate goal of generating shareholder value. With that, I'll now turn the call over to Mariela.
Mariela Matute: Thank you, Brian. It is great to partnering with you and good afternoon, everyone. As Brian noted, we had made progress in our efforts to counter the market disruption caused by COVID and there is more work to do. Here is a recap of our efforts to-date. We have realized price increases across RFG and Foods customer base. We have eliminated approximately 4.5% of our less profitable SKUs. We have adopted e-sourcing process across all of our facilities and have begun integrating back-offices' functions to improve and speed up execution and free cash flow. As we consolidated our FTE food processing operations from Florida into our Georgia facility, which will improve capacity utilization. As a result of these actions, we realized approximately $5 million of profit improvement in the first quarter as compared to the fourth quarter, bringing our total profit improvements since the beginning of Project Uno to approximately $9 million. We expect to see gradual and increase in improvement in each quarter of the current fiscal year and we'll update you on a quarterly basis as we make progress. Now turning to a discussion regarding our financial results for the first quarter. As we have provided a detail on the year-over-year comparisons in our press release, I will focus my discussion on the improvements we made on sequential basis from our fourth quarter. On a consolidated basis, first quarter revenue was consistent with the fourth quarter of 2021. Fresh segment revenue was sequentially higher as both volume and average prices were up quarter over quarter. This was offset by lower sequential revenue on both, RFG and the Foods segment, mainly due to lower seasonality. Consolidated gross profit increased to $13.3 million, up 4.2 million from the fourth quarter. They increase with due almost entirely to $4.3 million increase in gross profits at the Fresh segment. The Foods segment had $348,000 sequential increase in gross profit and RFG posted a $384,000 higher loss in the quarter. As we note net of the consolidation in efficiencies in our Atlanta facility during this summer, RFG gross profit would have increased $150,000 sequentially. While RFG is beginning to realize price increases, labor productivity gains and the benefits of our SKU rationalization, it is still facing higher labor, material and freight cost. The Foods segment is also experiencing similar cost pressures, which limited our sequential improvement in the gross profit. SG&A was $15.3 million for the first quarter, down $1 million from the fourth quarter of 2021. The improvement was primarily due to lower restructuring cost, which include consulting management recruiting and severance cost as well as lower variable incentive compensation. Adjusted EBITDA was $4.7 million for the first quarter, an improvement of $3.3 million from the fourth quarter of 2021, mainly driven by the higher gross profit in the Fresh segment. During the quarter, we generated cash from operations of $2.5 million. Keep in mind, our first quarter is typically slower quarter for cash generation due to seasonality. We invested $2.5 million in CapEx in the quarter mostly focused on automation investments. With such full year CapEx to be at or below fiscal 2021, with the majority of the investments targeting projects that will increase our operational efficiency. Now turning into our financial position. Subsequent to quarter end, we reached an agreement with our lenders and amended our credit facility, which among other things reduces a total capacity of the facility to $80 million. With this amendment, our pro forma liquidity at quarter end would have been $21 million, which is sufficient for our working capital growth and our investment plans as we continue to implement Project Uno and drive performance improvements across the business. And finally, as Brian said, the long-term outlook for our business remains favorable. The pace of more improvement should continue and accelerate over the next two years consistent with our Project Uno plant. In Q1, January was gross profit positive and early Q2 is showing improvement over January. However, industry wide inflationary pressures on raw materials, freight, packaging and labor cost are ongoing and uncertain. We have and will continue to implement pricing and operational initiatives to offset these increased costs. With that, I will turn the call to the operator for questions.
Operator: Our first question is from Ben Bienvenu of Stephens. Please proceed with your question.
Ben Bienvenu: I want to start on the RFG business. So you're working through consolidating rationalizing capacity there. You alluded to pricing increases that you're putting in place. You also referenced inflation across the industry. Do the pricing increases that you put in place cover the inflationary cost pressures that you have in that business? And to the extent you could talk about, when you look at the options ahead of you as you work to recalibrate that business, what do you think the path to an ultimate margin profile of that business looks like? That's my first question.
Brian Kocher: Thanks, Ben. Appreciate it. I think a couple of things to think about with RFG. One, even for the first quarter, our price increases were able to offset some of the pressures that we saw on commodity cost increases and inflation. We did have, as we mentioned in our prepared remarks, as we were consolidating some of the assets in the Southeast with a little bit of inefficiency partly caused by Omicron, but certainly I would call it short-term and we continue to see improvement in January, see improvement in February and even to date March in our Atlanta productivity. So I do think price increases are offsetting our cost inflation. The fact of the matter is though cost inflation is not stagnant, so we are making sure that we have a mindset associated with managing - constantly managing our portfolio. And it's a string of many things. It's the cost side where we're doing e-sourcing, as Mariela mentioned, it's the revenue side as we are working on continuous pricing increases, sensitivity to input cost and triggers for input cost price increases. It's also labor productivity where either working on training, process improvement or some investments in automation where it makes sense. So I don't think it's exactly one answer. It's the combination of those, but we are squarely focused on pricing and our work, I think the one thing you can take away, our work on pricing, our work on SKU rationalization that should never finish. That should be a constant optimization of pricing, SKU optimization, labor productivity. It's like quality, food safety, and culture, that work never finishes
Ben Bienvenu: Okay, understood. Thank you. My second question is on the Fresh products business. The margin and the volume actually held up well just given how challenging the environment has been, so I wonder if you could talk about the challenges you're facing in that business. You alluded to choppy supply that's ongoing into the second quarter, but could you talk to some of the details that you guys have underway with respect to quantifying that business? I think that is the core of the business, it's a really solid business.
Brian Kocher: Sure. So I think a couple of things. When you are a distributor and a marketer, like we are, optionality is really important. So the fact that we have Jalisco that's coming on probably in our third quarter, the fact that Peru and California are now coming on, it gives us some optionality. And again Mexico is the lion's share of that avocado supply, but having a little bit of options and potentially arbitraging between sourcing regions for either quality sake or price sake is really important to us driving continuous profits. I think the other thing, and again, it is a commodity business, so the other thing that's been helpful has been at least in maintaining a market is there has been tightness of supply. So if we look at our import figures from Mexico, I'd say profits were - excuse me, imports were down probably 10% year-over-year, 10%, 10.5%, our volume was down 12%. I think it's important to notice we also want to grow. But we want to grow in the segments of the market that makes sense for us. Growth for growth sake just won't work in a commodity trading business. So growing in the segments of the avocado supply chain that are attractive, that have good returns, I think that's where we focus our time, effort and energy.
Operator: Our next question is from Rob Dickerson of Jefferies. Please proceed with your question.
Robert Dickerson: Great, thanks so much. I guess, first question, is this - as you've kind of stepped into this new seat as CEO, Brian, obviously the product, it was kind of, let's say, kind of fully developed there. It seems as if there is decent progress on what the strategic outlook will going to be. I'm just curious kind of given your background and the broader produce space, have there been any areas that you kind of were surprised about or anything on the go forward where you think there could be some potential upside extractive just outside of - we're talking rationalization, labor productivity, but have you - lot of times they're already been inactive, this is now kind of a more of a rethinking how to improve it, but I'm assuming you're not in the role just to execute there, had to do something you saw or think of that might be incremental as you think forward the next few years.
Brian Kocher: Thanks, Rob. I appreciate the question. So a couple of things I thought about when I thought about Calavo. First and foremost, a long legacy of leadership in this industry, dating back to Lee Cole, dating back to Rob Wedin and his efforts and a long history and legacy of leadership and that was exciting for me. I think the other thing that was important or some of the macroeconomic conditions that are tailwinds for Calavo. Looking at avocado in a category where demand has exceeded supply for several years in a row and it looks like it will continue doing so. There are even consumption per capita opportunities in the U.S., forget international, even though there are opportunities internationally. So having those chances, I think produce being in - right in line with U.S. trends on health and wellness is really critical for the long-term success and one of the things that excited me. Value added produce growing disproportionately to produce as a whole is really exciting for our RFG and Foods segment. Now just a couple of bits of data on that. If you look at Grab and Go and what I call fresh-cut, that's grown depending on the category data you see from 20% to 25% over the course of the last year, that's a category you'd really like to play in when someone - that's something that's growing that much. And I will tell you one thing that that's really interesting. Purchase intent in Gen Z, millennials, and Gen Y is anywhere from three to five times higher than purchase intent for baby boomers and that's a huge tailwind as we think about opportunities for RFG long-term. So those are some of the broad economic opportunities that I looked at, some of the tailwinds that I looked at it with Calavo joining the organization. I was excited about Project Uno, excited that they done the thought work on that. We have execution to work on. We have to execute that well and bringing the right discipline and reviews to drive results is important. So Project Uno was in fact a big benefit as I was coming into the seat. And then I think the two other things that I'd say. I mentioned it specifically in consumption opportunities for the U.S., but globalization of produce, globalization of avocados is a real opportunity for us. And then lastly, I just - I really liked the idea of being in, in ag and in produce where the food is good, it's good for you, it's healthy, it's sustainable, it hits a lot of cultural significant intent - purchase to intent criteria and so I'm excited about that.
Robert Dickerson: All right, fair enough. And then just kind of quickly on the cadence for the year or I guess maybe the trajectory given there is no - there is no guidance, so there's probably not much credence. I thought I heard comment in the prepared remarks about may be limited gross profit sequential improvement as you did in the Q2 relative to Q1. And I just couldn't - I couldn't tell if that were one different segment or that's total company, so maybe just any clarification remarks you could provide as we kind of think of Q2 relative to Q1? And then just obviously the dynamic between cost and pricing? Thanks. That's it.
Mariela Matute: This is, Mariela. And yes, we are planning to continually improve our profit generation and accelerate the benefits of improvements quarter-over-quarter as Project Uno takes off. So our plan today consists of margin enhancements every quarter as we execute our price initiatives, our SKU rationalization and our plant optimization and procure many initiatives. So we will have some higher growth and some quarters that will be better than Q1. And it will vary, but we will expect that trajectory to improve for our quarter.
Operator: Our next question is from Ben Klieve of Lake Street Capital. Please proceed with your question.
Ben Klieve: All right, thanks for taking my questions. Just a couple from me. One on the consolidation of your shipping relationship down to a nationwide provider, I'm curious when that started if we saw - if you saw any effect on that from that on the Q1 financials and kind of - really kind of how we can - kind of how material of a benefit that's going to be here over the next couple of quarters?
Mariela Matute: Hi, Ben, Mariela. We don't have any benefits in Q1. We use fine - we've not finalized negotiations with many national carriers. We put the RSP back in February and we got many responses and those responses are confirmed would savings. And now more important than ever is to have good transparency on our freight and supply and our ability to pass foods to charges and have been transparent with the cost per mile as you know the inflation in freight has hit us severe in the past. So we are excited about this initiative and this will allow us to have some timing information to understand the freight increases and to pass those through our customer base with data driven analytics.
Ben Klieve: Okay, thank you. And then one other one for me. On your effort of SKU rationalization, I forget the number you quoted. I think you said something like 4% or 5% of SKUs have been rationalized thus far. When you look at that, are you looking at kind of broad categories for it to be completely rationalized and just in markets that you don't like or are you really just kind of looking at kind of fine-tuning SKUs within all broad categories and getting the lowest performing SKUs across the board or both.
Mariela Matute: Yes, so this is a process that we do in line or working with our customers and with our suppliers because it's not only beneficial, so we are looking at some ingredients, packaging order size to sometimes change the SKU offering in line with what the demand and consumer signs are telling us. So this is an ongoing conversation to consolidate in some cases into different SKUs and also and working with customers to enhance that SKU offering and result into our win, win economics where the SKU produces higher margin, but also higher quality benefit for the end consumer.
Brian Kocher: Ben, the only other thing that I would add is this - this should be a continuous cycle of rationalization and innovation, so that we are constantly refreshing our SKU portfolio, both for growth, but also cost efficiencies. And I would think of it not only as product, but sometimes it's ingredients as well, potentially harmonizing proteins amongst various sandwiches or cheeses amongst various offerings. So we really ought to think of this as an ongoing program to manage the portfolio of product offerings that we have with customers. And just as Mariela mentioned, do that in conjunction with the customer, so that we're driving growth and driving efficiency on the shelf.
Ben Klieve: Got it. And I heard those comments that you made in your prepared remarks about kind of driving continuous improvement loud and clear and that's great to hear and good to hear you reiterate that. So, very good. All right. I appreciate you both taking my questions and I'll jump back in queue.
Brian Kocher: Thank you.
Operator: Our next question is from Eric Larson of Seaport Research Partners. Please proceed with your question.
Eric Larson: Well, thank you for taking my question. Good afternoon, everyone. And congratulations, Brian. I look forward to working with you and if we get a chance hopefully we can get together and visit each other in person. So congrats.
Brian Kocher: Thank you very much, looking forward to it.
Eric Larson: Well, and good luck. And so the first question I have for you, Brian, you came from a business - you came from Chiquita which as we all know that the global banana markets, they are large, they are very global in nature. And the one thing that I think Calavo could probably use some help with is why can't they do internationally what they've done in the United States? And I think they are on a path to start doing some of that, but is this an area where you can add a lot more value given your background with Chiquita?
Brian Kocher: Well, I appreciate the question, Eric, and thank you. I think there are certainly opportunities for international expansion. We want to do this right. We want to do it in the right sequence. We wanted to do it in - with the right resource allocation. And again, I think our clear focus has been trying to drive the right EBITDA and profit improvements through Project Uno and other initiatives and that's one that I am squarely focused on in terms of priorities. That being said, there is an opportunity to grow internationally. We've tried to even address that with some resources that we have now. I don't know if it comes out exactly clear in the earnings release, but I think in the first quarter, we had somewhere around 20% or 22% growth in international sales. So you will see us continue to try to drive business internationally where it makes sense, but I want to get back to one comment about the avocado category as a whole. We want to grow. We want to expand, but we want to do it in segments of the market that makes sense for us. And I think there is opportunities certainly in international where it makes sense. And we'll continue to look at that as we kind of go along this path of driving profit growth.
Eric Larson: Okay. My next question is, I know you've only been there for what six weeks or something like that. But when you look at the RFG business, yes, it's significantly more complicated I think than really the avocado business, more labor intensive, probably even more logistic intensive. And we've always had the assumption that this business can get into the mid-high single digit sort of EBIT margins. And I'm curious on your perception of that, is this a business that can achieve that? And then as a follow-up to that, is there - can you give us a little bit of the time frame of when - you're talking gradually continually improving some profit margins here, but is there a timeframe for when RFG is actually going to contribute to the bottom line again here? Is it measuring on a quarter? Is it two quarters? Is it three quarters? I mean, how should we be evaluating the progress in RFGs in the near-term stuff too?
Brian Kocher: Sure. So I appreciate again the question and trying to provide a little bit of clarity. First of all, I think we have always thought in our minds that RFG could get into double-digit gross margin. And I see a path to get there. When Calavo announced Project Uno - they did - we did we - Calavo talked about that being a two-year journey and so I think that reference and that timeframe is still right. And as I mentioned on one of the previous questions, it is a multifaceted approach. It's pricing, it's volume growth, it's material efficiency and sourcing strategy, it's labor efficiency and productivity, it's SKU rationalization, it's working with customers to ensure we've got the right product on the shelf for the consumer, all of those things feed into it, but I believe that there is a long-term path for success. I believe over the course of the next seven quarters, you'll kind of see the work of Project Uno, you'll see us each and every quarter get better and that improvement will accelerate over the course of the next seven quarters. So I can't give you a definitive number on next quarter and the quarter after, but if you think about it in those terms, we're excited about RFG in the portfolio and what it has to offer. And I will get back to those two market data segments that I mentioned before, Grab and Go's, Cut Fruit, whatever you want to kind of categorize that, it's growing between 20% and 25% a year, that's a market that I think we have some expertise in and we want to play in. That and then the purchase intent figures that I mentioned before, Gen Z, Gen Y and millennials are anywhere from two to five times more likely to buy Grab and Go or Freshcut produce items than Baby Boomers. And as the composition of consumers tilt more and more heavily to those three generations that should yield real growth opportunity for the category and that's why we're excited about it.
Operator: Our next question is from Mitch Pinheiro of Sturdivant and Company. Please proceed with your question.
Mitchell Pinheiro: I had couple of questions just sort of staying on RFG. So volumes were flat and I'm sure SKU rationalization played into that, but what's happening on your customer end? I mean, so obviously flat-flat, but when you look across your customers, is there sort of one segment of customers that are still struggling - where are we on your customers sort of grow back to normalcy?
Mariela Matute: This is Mariela, and I'm going to start with Brian's last answer - prior answer on the market expectations for , the demand after COVID surge and we continue to see customers shifting towards Grab and Go and Fresh-Cut Fruits and Vegetables and prepared foods in airports and different channels. So our volume was flat primarily because we close our Florida facility and we consolidated some of the attractive volume into Georgia. And we're making some hard calls to optimize their product line where we want to participate in this big industry. And our customers are working with us. And remember in Q1, we also had the seasonality demand, it goes down because Fresh Fruit is - in the winter is consumed less. So we are priority size in our product optimization with our customers and it's a cue there to get cost savings. And we expect that demand will continue to be there and we plan to grow this business once we have the right product line to go to market.
Mitchell Pinheiro: Okay, so what was - so if you didn't have the Georgia, just the disruption in the sort of the relocation, I mean, volumes - you're suggesting volumes would have been up in RFG?
Mariela Matute: Yes.
Mitchell Pinheiro: Okay. And I mean, so what's the Grab and Grow - Grab and Go market - I mean what's that growth rate right now with your customers? I mean, is that growing or - I still don't have a sense, are we - is customer demand, I mean, is it where it was in 2019 or have - has there been a sort of a lost to that of demand or volume in that segment?
Brian Kocher: Mitch, I think two things that I would say. It's absolutely continues to grow. All right. There is no doubt that Grab and Grows - Grab and Go is growing. I think in our results, it's hard to see. And just frankly a lot of the growth that happened in certain segments of our portfolio was offset because there were certain SKUs that we rationalized, but in transition, in our capacity, there were also certain customers where we couldn't find the path for mutual success is probably the best way I can say it. So, you do see in this quarter, you see a little bit of growth that's offset by some of the changes were made - we made to stabilize RFG business. First rule of improving profit, stabilized business. Next rule, growth. So I think you'll have a chance to see some of that in quarter two because, A, we will get some seasonality impact; B, we will have a more stable customer base; and C, I think this has been really encouraging for us in sort of the first 45 days of the second quarter is labor productivity has improved, material costs have improved, we've seen fill rates improve, all of those things obviously help improve your volume line as well. But I think in the first quarter, growth is masked a little bit because we had some other changes going on in both the SKU and customer portfolio.
Mitchell Pinheiro: That's helpful color. And then on the Fresh side, can you talk about maybe the different dynamics in the first quarter, foodservice versus retail?
Mariela Matute: So, yes, so we see both channels growing on the Fresh side, so our total sales grew 40%. And the majority of that obviously was in price and not in volume and we see similar trends in both, in foodservice as well as retail.
Mitchell Pinheiro: So both - so volume was down 12% in the quarter, is that 12% is it evenly split? Foodservice was down 12% and retail was down 12%?
Mariela Matute: Yes, so to put it in versus pre-COVID, our foodservice channel is still unfavorable if that's what you're asking, we have had room to recover, our volume was 6% down in foodservice, less so than the in retail, but it's still down.
Mitchell Pinheiro: Okay.
Brian Kocher: And then I would also remember in first quarter, I think some of that volume impact with capacity constraints as well. There were more sales available if more product was able to be extracted out of Mexico.
Mitchell Pinheiro: And then so with Mexico, I mean, we've been a very consistent supplier. I mean, there is a largest supplier and it - and I realized at least it going to help probably, but there is always something with Mexico if it's not growers holding that fruit and disagreements there or if it's - I don't know whether they are agricultural expertise kind of can - is keeping up, it just seems like the quality of fruit that I see is below average. I find the sizing available at retail inconsistent and this may be retailers' issue and not a - not the wholesaler side of the equation, but it just doesn't seem like that you can count on Mexico for consistent supply. I know it's an agricultural industry business, but how do you deal with - how do you deal with that? I mean, I know it's an industry problem, but it's - we haven't, but I thought it would be 5%, 6%, 7%, 8% kind of volume growth in the category, you have only seen flat to 2% type of supply growth - when does this sort of gets a better equilibrium?
Brian Kocher: So, Mitch, I think that was a lot of questions in that commentary, but let me kind of talk through the way we're thinking about sourcing. First of all, let's also remember Mexico's 80% of the U.S. market, so that isn't going to change anytime soon, 80% of the U.S. market. I do think there is opportunities, which is why you've seen us continue to expand year after year imports from Peru, why we're excited about Jalisco being an opportunity, why we've started to bring on potentially some sourcing from Colombia or other areas and why we continue to play heavily in the California market because in a commodity marketing, commodity trading area, optionality is important. But considering that Mexico is 80% of the market, you only have so much optionality. So, I think part of it is making sure that that you have a sourcing strategy and we do that allows the most optionality that you can in the arena. That's one. I think the other part of it is making sure that you understand the rules of the game in Mexico as best as you can and then play those rules as hard as we can. So that you get access to fruit where you need it. When you get the high quality fruit, you're able to market it to the right customers, again a little bit back into that concept of playing in the right spots of the avocado category, not all the spots, just to be playing in all the spots, we want to play in the right spots. And those are all aspects of how to manage a successful commodity business and we're pushing and pulling on levers at all of those phases.
Mariela Matute: And if I may add Mexico also has a higher concentration of sustainable farming, natural water, irrigation practice and so on. There have been volatility to the supply production. So what we do as a Company is that we manage the margins and expectations of the profitability of that crop on weekly basis. And you can see that over time, we have been consistent with our margin delivery. So we try to adjust to the Mexico volatility because that's the reality of avocado plant that can last up to 60 years on the ground, but we manage the margin. And over time, we have been successful on delivering that margin.
Operator: We have reached the end of the question-and-answer session. I will now turn the call back over to Brian Kocher for closing remarks.
Brian Kocher: Well, before we hang up, I'd just like to say thank you for your participation. I'd like to thank our shareholders for their continued support of Calavo. And I look forward to meeting many of you in the coming months, either in person or virtually. Until then, we wish you the best and thanks again for tuning in today and for your continued support.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
