New Threads Only:  Add to Google Reader or Homepage
New Threads & Replies:  Add to Google Reader or Homepage
Forums are for serious investors only. GuruFocus Forum Rules.

Forum List » Business News and Headlines
SEC Filings, Earing Reports, Press Releases
New Topic Search
Goto Thread: PreviousNext
Goto: Forum ListMessage ListNew TopicSearchLog In
Calavo Growers Inc. Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: September 9, 2011 03:33PM

Calavo Growers Inc. (CVGW) filed Quarterly Report for the period ended 2011-07-31. Calavo Growers Inc. has a market cap of $284.4 million; its shares were traded at around $19.31 with a P/E ratio of 18.5 and P/S ratio of 0.7. The dividend yield of Calavo Growers Inc. stocks is 2.8%. Calavo Growers Inc. had an annual average earning growth of 10.7% over the past 10 years.



Highlight of Business Operations:

Pursuant to the Acquisition Agreement and based on the fair value of Calavo’s common stock on June 1, 2011, we agreed to pay on the closing date approximately $16 million, payable in a combination of cash and shares of unregistered Calavo common stock, as described below in greater detail. In addition, if RFG attains specified financial goals for certain 12-month periods prior to the fifth anniversary of the closing, we have agreed to pay RFG up to an additional approximate $84 million in earn-out consideration, based on the fair value of Calavo’s common stock on June 1, 2011, payable in cash and shares of unregistered Calavo common stock, as described below in greater detail. As a result, if the maximum earn-out consideration is earned, the total consideration payable to RFG pursuant to the Acquisition Agreement could be approximately $100 million. The fair value of consideration is currently being determined by the Company and will be less than the maximum consideration noted above.

If RFG’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) for any 12-month period commencing after the closing date and ending prior to the fifth anniversary of the closing date, is equal to or greater than $8.0 million, and RFG has concurrently reached a corresponding revenue achievement, we have agreed to pay the Sellers $5 million in cash and to issue to the Sellers 827,000 shares of unregistered Calavo common stock, representing total consideration of approximately $24 million. This represents the maximum that can be awarded pursuant to the 1st earn-out payment. In the event that the maximum EBITDA and revenue achievements have not been reached within five years after the closing date, but RFG’s 12-month EBITDA during such period equals or exceeds $6 million and RFG has concurrently reached a corresponding revenue achievement, a sliding-scale, as defined, will be used to calculate payment. The minimum amount to be paid in the sliding-scale related to the 1st earn-out payment is approximately $14 million, payable in both cash and shares of unregistered Calavo common stock. RFG has five years to achieve any consideration pursuant to the 1st earn-out payment.

Assuming that the maximum earn-out payment has been achieved in the 1st earn-out payment, if RFG’s EBITDA, for a 15-month period commencing after the closing date and ending prior to the fifth anniversary of the closing date, is equal to or greater than $15.0 million for each of the 12-month periods therein, and RFG has concurrently reached a corresponding revenue achievement, we have agreed to pay the Sellers $50 million in cash and to issue to the Sellers 434,783 shares of unregistered Calavo common stock, representing total consideration of approximately $60 million. This represents the maximum that can be awarded pursuant to the 2nd earn-out payment. In the event that the maximum EBITDA and revenue achievements have not been reached within five years after the closing date, but RFG’s 12-month EBITDA during such period equals or exceeds $10 million, and RFG has concurrently reached a corresponding revenue achievement, a sliding-scale will be used to calculate payment. The minimum amount to be paid in the sliding-scale related to the 2nd earn-out payment is approximately $27 million, payable in both cash and shares of unregistered Calavo common stock. RFG has five years to achieve any consideration pursuant to the 2nd earn-out payment.

The following table summarizes the preliminary estimated fair values of the assets acquired, liabilities assumed, and equity issued at the date of acquisition (in thousands). We obtained preliminary third-party valuations for the long-term assets acquired and incurred approximately $0.3 million in acquisition costs, which have been expensed in selling, general and administrative expenses in the period incurred. For the two months ended July 31, 2011, since the acquisition of RFG, total selling, general and administrative expenses for RFG was $1.2 million.

Of the $8,690,000 of intangible assets, $7,400,000 was assigned to customer relationships with a life of 8 years, $920,000 to trademarks and trade names with a life of 8 years, $200,000 to non-competition agreements with a life of 5 years, and $170,000 to trade secrets with a life of 3 years. As discussed above, we will be required to pay a maximum of approximately $100 million if RFG achieves specified revenue targets. The fair value of this contingent consideration was determined based on a probability weighted method, which incorporates management’s forecasted revenue, and the likelihood of the revenue targets being achieved.

Calavo Foods sales for the nine months ended July 31, 2011, when compared to the same period for fiscal 2010, increased $20.0 million, or 54.2%. The significant increase in sales of our Calavo Foods business for the nine months ended July 31, 2011, when compared to the corresponding prior year period, is due to addition of the recently acquired RFG, which contributed approximately $22.8 million in the nine months ended July 31, 2011, when compared to the same prior year period. This increase was partially offset, however, by a decrease in sales related to our prepared guacamole products. This decrease was primarily related to a 14.7% decrease in total pounds sold. The decrease in pounds sold primarily related to a decrease in the pounds sold of our frozen guacamole products, which decreased approximately 19.1%, and a decrease in the sale of our refrigerated guacamole products (formerly high-pressure, see below), which decreased approximately 9.6% when compared to the same prior year period. In an effort to enhance product safety and quality in the segment, we implemented changes in our food safety standards that added steps in our manufacturing process during the first quarter of fiscal 2011. As a result, there was a temporary disruption, which adversely impacted supply and sales in the segment. In addition, sales were impacted by the fact that substantially all guacamole products are now high-pressured for food safety purposes and that the packaging requested from certain customers does not allow for high pressured products. This resulted in the discontinuance of sales to some high-volume, low-margin customers. The net average selling price increased 4.8% during the nine months ended July 31, 2011, when compared to the same prior year period. This increase is primarily related to a change in sales mix and a price increase that went into effect in July 2011 on substantially all products. Notwithstanding the acquisition of RFG, we believe that retail sales, as a percentage of total net Calavo Foods sales, might increase in the future.

Read the The complete Report



Stocks Discussed: CVGW,
Rate this post:




Sorry, only registered users may post in this forum.

Please Login if you have an account or Create a Free Account if you don't




Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial