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Mission Produce Reports Record Revenue Amid Margin Compression

Mission Produce, Inc. (NASDAQ:AVO) reported second-quarter fiscal 2025 earnings with record revenue of $380.3 million, a 28% year-over-year increase. However, adjusted EBITDA fell to $19.1 million due to margin compression.

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AI Rating:   6

Profit Margins and Revenue Growth
Mission Produce’s revenue growth of 28% year-over-year is a strong indicator of robust demand, particularly a 26% increase in per-unit avocado selling prices. Despite this, gross profit experienced a decline of $2.6 million, resulting in a decrease in gross margins by 290 basis points to 7.5%. This comes as a result of challenges in supply and increased costs, showing that while revenue growth is impressive, it has been accompanied by pressure on profit margins.

Free Cash Flow Potential
The company’s capital expenditures for the fiscal year are reaffirmed at $50-55 million. The planned reduction in capital expenditures hints at an expectation of improved free cash flow in the near future, as the company management has indicated a potential cash generation spike in the second half of the year. This is essential for long-term sustainability and growth opportunity for Mission Produce as it navigates through fluctuating revenues and costs.

Market Dynamics and Supply Recovery
Management’s guidance suggests a recovery in Peruvian avocado production, projecting an output rise of 50% compared to the previous year's significantly lower yield. However, this recovery also comes with a forecast of lower prices year-over-year, as pricing is expected to decrease by 10-15%. Investors should note that while production recovery is positive, lower pricing could limit profit margins moving forward.

Overall, while Mission Produce displays resilient revenue growth, the pressure on profit margins and expectations of declining prices introduce risks that could affect investor sentiment in the short term. The company’s operational strategies in maximizing revenue from new product lines, like mangoes, should be monitored closely as these could mitigate some of the adverse impacts from their core avocado business.

Stocks:  AVO