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spk07: Greetings and welcome to the Calavo Growers Incorporated second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lisa Mueller, Investor Relations. Thank you, Lisa. You may begin.
spk01: Thank you, Operator, and thank you all for joining us today to discuss Colabo Growers' second quarter 2021 financial results. This afternoon, we issued our earnings release, and this document is available in the investor relations section of our website at ir.colabo.com. I am here today with Jim Gibson, Chief Executive Officer of Colabo, and Kevin Mannion, Chief Financial Officer. On today's call, management will provide prepared remarks, and then we will open up 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, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts, such as statements about our outlook for revenue and adjusted EBITDA, are also forward-looking statements. Our actual financial condition and results of operations may differ materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-K and 10-Q. With that, I would now like to turn the call over to Jim Gibson. Jim, please go ahead.
spk02: Thank you, Lisa, and good afternoon, everyone. We appreciate you joining us to discuss our 2021 second quarter results. I'll kick off the call with a high level overview of the quarter and current state of our company and the industry. Kevin will then, as in past quarters, address our second quarter financial results, our balance sheet, and provide you with guidance based on our near-term outlook and the evolving trends we are seeing in the U.S. economy as it begins to emerge from the pandemic. Then we will open up The line for questions. We are very pleased to report revenue that was essentially on par with last year, especially considering second quarter 2021 was impacted by the pandemic for the full three months compared to only one and a half months last year. We are also pleased with a nine and a half percent increase in EBITDA compared to last year. This gives us comfort that the long-term trends for the business are positive. Our core avocado business continues to experience solid demand. With the first half of 2021, we recorded the highest volume we have seen in the last five years, reflecting growing consumer acceptance across all of our end markets. Avocado volume grew 9% in the second quarter, although elevated supply from the strong crop out of Mexico suppressed pricing. However, with our team's skillful management of both sourcing and volume growth, we reported fresh segment gross profit in line with historical norms. With our RFG and food segments, we saw a return to year-over-year sales growth from improved demand in the retail grocery channel. The RFG segment did experience headwinds at the start of the quarter with extreme weather events in Texas and the Pacific Northwest, which caused us and our customers to close some facilities and also created quite a bit of disruption for our employees and their families. Weather also led to poor quality of imported fruit, which also often delayed products coming in from our ports. We are now in the domestic season, so this issue is not expected to impact us in the next quarter. Despite these challenges and excluding the comparative impact from the April 2020 closure of our Midwest co-packing partner, I am proud of the team's efforts as RG sales increased 16% year over year. We continue to introduce new seasonally relevant products in the fresh cut produce category that align with our commitment to provide our customers with healthy and convenient meal solutions. While we are seeing positive signs as the economy reopens, we have yet to see a full recovery of the food service industry, which includes hospitality, lodging, and restaurants. Anecdotally, We are hearing from some of our hospitality customers that they are forecasting a return to normalcy by the fall, at which time they expect to relaunch their food service offerings. We are encouraged about that timing, but for many food service operators, it is not as easy as turning on a light switch. The process to start things up again takes time, particularly given the current tight labor market. While we expect our food service business to fully recover, it is likely to take more time. We are fully poised to benefit when it does happen. We are also quite encouraged by the continued growth in our international business in both the fresh and food segments. Demand for guacamole, for example, continues to increase, and our near-term outlook remains favorable with a number of new customer opportunities. We are seeing good traction in Asia and are preparing to launch in Europe in the third quarter. We are invested and additional personnel earlier this year, and we are very excited about our future growth potential. We also believe that our guacamole offering expands into these markets. It opens the door for our avocado business as well. While these business lines will have different supply chains, we see a great opportunity because our customer base is pretty much the same. While the international business is small as a percentage of our overall revenue base, It represents a meaningful growth opportunity going forward, and we should continue to see more lift in the third quarter. Another potential upside for our international business is our Jalisco packing house. The Mexican government has rescinded its ban on importing potatoes from the U.S., so regulatory limitations on exporting avocados from Jalisco should be lifted soon. This would pave the way for the USDA to approve the region to sell into the US and will also have the effect of opening up the international side as well. For example, Japan and China do not accept fruit from Alisco because they follow USDA guidelines and the state of Alisco does not yet have USDA approval. We have been shipping to these markets out of Michoacan, but if USDA approval were to open these regions, our shipping from Jalisco would be a smoother way for us to build our international business to these markets. With respect to labor, we, like many businesses across the country right now, are experiencing challenges in staffing. We are experimenting with different options to attract and retain people, such as wage increases, periodic bonuses, and company-sponsored vaccinations. Our internal teams are working to create tailored employee retention plans that will reduce turnover and lead to a more stable and loyal workforce at our facilities. And, as always, employee safety and well-being remain our top priority. We have spent a significant amount of time evaluating our portfolio of products and manufacturing facilities to determine the optimal mix and will continue this process, particularly in light of labor shortages and rising freight costs. From an ESG perspective, Colabo is looking to the future with a focus on a number of fronts, including building our brand to bring innovative, healthy, and convenient value-added products to our customers and the marketplace, utilizing technology to enhance our operations and improve our supply chain, embracing agricultural innovation, focusing on reducing food waste, and continuing our sustainability commitment in all the communities where we operate. We are pleased to share that despite the challenges presented by the pandemic, we were able to make great strides on our transformational journey to become a more nimble company. Our third quarter annual sustainability report will be published later this month. I am proud of our recent achievements that include an 8% reduction in our scope one and two carbon emissions from 2019 to 2020, new projects to address food waste and electrical usage, and a retail shrink reduction through the use of food preservation technologies we have deployed. Finally, at our annual meetings of shareholders, we confirmed our plans to reduce the size of our board over time from 11 to nine directors, which is more in line with the company of our size. We also presented our three-year plan to the board, which included succession planning and information technology investments necessary to address growing data and security needs as we continue to consolidate under our one company initiative. Included in that plan is our goal to drive double-digit growth based on three pillars, organic growth, international expansion, and strategic M&A activity. In the meantime, we remain focused on the things we can control and on advancing our near-term objectives. We continue to monitor inflation, the labor market across the hospitality and food service industries, and our various supply chains to get a better read on how the second half of the year will evolve. We are optimistic about our long-term prospects and continue to focus on our strategic initiatives, capitalizing on opportunities to increase operating leverage, furthering our sustainability initiatives, and realizing synergies across the entire organization with the goal of improving profitability, sustainability, and shareholder value. To that end, we are launching Project Uno, which is a strategic review of our business from top to bottom. We will be engaging a consultant for this project to identify opportunities to enhance revenue growth, streamline operations, drive efficiencies, and make investments that strengthen our competitive position and improve margins over the long term. The project is in its early stages, and we will provide more details as it progresses. With that, I'll turn the call over to Kevin.
spk08: Thank you, Jim, and good afternoon from Global World Headquarters in Phoenix, Santa Paula, California. We are pleased you chose to join us as we know you have other earnings call options today. I'll start by discussing our financial results for the second quarter, followed by our balance sheet and outlook. Please note that all comparisons are year-over-year unless otherwise noted. We will also be discussing non-GAAP results, and a reconciliation of non-GAAP financial measures is included in our earnings release and 10Q. We also have an updated investor relations presentation on our website, which is ir.calabo.com. On a consolidated basis, second quarter revenue was $277 million, which was at the high end of our guidance range, and a slight decline of 1% or $4 million year-over-year. This was primarily driven by two factors, lower tomato revenues, which decreased 31% from last year due to a late start in the season and had a negative impact of $6 million, and 2% lower overall avocado revenue, which was positively impacted by 9% volume growth but negatively impacted by 10% lower avocado average pricing. Gross profit increased 2% year-over-year to $22.6 million, and our gross profit margin percentage expanded to 8.2%, up from 7.9%. The increase in gross profit and margin percentage was mainly due to improvement in the fresh segment, as we delivered higher avocado gross margins in the quarter, with increased volume of 9%, while maintaining our historical gross margin per case rates. These improvements were partially offset by a decline in gross profits in the RFG business unit due to a number of factors. As I mentioned during our last earnings call, at the beginning of the quarter, we incurred losses of $500,000 due to increased spoilage on imported fresh fruit and vegetables, resulting from ongoing port delays from the severe weather events in Texas and the Pacific Northwest that also created temporary disruptions in production. And at the tail end of the quarter, higher labor costs due to the nationwide labor shortage. SG&A expenses declined 6% to 13.7 million from 14.5 million a year ago, primarily due to lower stock-based compensation and lower sales broker commissions. Adjusted EBITDA was $15 million for the quarter, an increase of 9.5% compared to 13.7 million the prior year and came in at the middle of our guidance range. Net income for the quarter was 8.8 million or 50 cents per share, up from a net loss of 3.3 million or 19 cents per share loss in the prior period. Adjusted net income was 7.7 million or 43 cents a share compared to 7 million or 40 cents last year. Now, moving on to our three business segments. Sales in the fresh segment decreased 5% year-over-year to $161.7 million from $170.9 million in the second quarter of 2020, mostly driven by lower tomato revenues. Importantly, while segment revenue declined, avocado volume increased 9% from the prior year, as consumer demand for avocados continues to grow. Similar to last quarter, this quarter's high volume was offset by a 10% decline in the average selling price, as a result of increased market supply due to the forecasted large Mexico harvest this year. And unlike last year, when food service and wholesalers that serve smaller retailers and restaurants helped absorb supply, COVID continued to constrain sales to these customers in the second quarter. As a reminder, food service is about 20% and wholesalers comprise an incremental 6% of our fresh revenue. Gross profit in the fresh segment increased by $600,000 to $15 million, or 9.3% of revenue, up from $14.4 million, or 8.4% of revenue in the second quarter of 2020. Our gross profit per pound of avocados was consistent with last year's second quarter at $0.13 per pound. On a per case basis, our gross profit per case was $3.30, which is within our historical target of $3 to $4 per 25-pound case. Despite the lower avocado pricing, we continue to do a good job of managing growing consumer demand and the pricing spread. In RFG, sales increased 3% to 96.3 million in the second quarter from 93.5 million. The increase reflects improved demand as the country reopens from the pandemic. additional sales in regions where we have added manufacturing capacity the past few years, and our team's effort to deliver new products and sales channels to offset last year's closure of our Midwest co-packer, which occurred in April 2020 and had a $9.8 million impact. Excluding this co-packer impact, revenue would have increased 15% year over year. Gross profit for the second quarter decreased to $2.3 million, or 2.4% of segment sales, compared to a gross profit of $2.7 million, or 2.9% of sales in the same period last year. This decline was mainly due to increased labor costs from a very tight labor market and the resulting need for more overtime costs, which started in April. In addition, as I noted during the previous earnings call, RFG experienced lower yields and higher costs on imported fresh fruits and vegetables, resulting from ongoing port delays as well as some temporary disruptions in production due to severe weather events in Texas and the Pacific Northwest this past February. For the food segment, sales increased 16% year-over-year to $21.6 million due to improved demand as food service began recovering from the pandemic. Following the staffing investments we made earlier this year, international revenue increased 36%. As Jim mentioned, while we have seen improvement in demand from our food service customers, we believe that a return to normalized pre-pandemic demand will occur later this year as many segments of the market are still reopening and ramping up. As a reminder, food service comprises about 50% of this business. Gross profit was 5.3 million, or 25.6 percent of sales, up from 4.9 million, or 27.6 percent of sales in the second quarter of 2020. The higher gross profit was primarily the result of higher volumes. Turning to our balance sheet, we ended the quarter with $144 million of cash, liquid investments, and available debt capacity. which is an increase of 30% compared to $111 million last year. Total debt at April 30th, including finance leases, was $49 million, and our leverage ratio was 0.8x. We continue to have a strong balance sheet and low leverage, positioning us to take advantage of potential opportunities and invest in current infrastructure for the future. As we look to the third quarter of 2021, we see a continued near-term impact of a slow recovery in food service demand, the nationwide labor shortage, and higher commodity and freight costs. While we continue to see growing avocado volume, we believe that the same high supply dynamics we have been experiencing this year will keep margins at lower levels than the prior year. Therefore, we expect third quarter revenues to be in the range of $280 to $300 million. which is a year-over-year increase of 7% at the midpoint, and adjusted EBITDA to be between $11 and $15 million, which is a decrease of 43% at the midpoint from the third quarter of 2020. To be clear, this forecast includes continued near-term inflationary pressure on labor, raw materials, and freight. We anticipate that many of these pressures could be rectified by year-end as we work on pricing initiatives with our business partners and through other internal operating efficiency initiatives. As a reminder, the impact of Project UNO, though, will not be seen until next year. Finally, Jim and I look forward to seeing you at two upcoming virtual conferences, the Baird Global Consumer Conference being held on Thursday of this week and the Jefferies Consumer Conference on June 22nd. With that, I'll turn the call over to the operator for questions.
spk07: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you. Our first question comes from Ben Bienvenu with Stevens Incorporated. Please proceed to your question.
spk03: Hey, good evening. Good afternoon, guys.
spk07: Hi, Ben.
spk03: I want to ask, I want to start on the RFG business. Margin's a little bit lighter than expected. You called out some of the factors, a lot of which sounded transitory, some of which sounded like they might linger for the balance of this fiscal year. Could you help kind of if we try to bridge that margin back to what I think is a more normal margin and the, you know, mid to high single digits, kind of the magnitude of the pieces of freight, labor, fruit yield. It sounds like fruit yield should get better now that you're into the summer and you're in a domestic supply. Labor and freight, though, maybe linger. Maybe just help us think about the cadence of what that margin could look like. And in particular, relative to your guidance for the third quarter, that'd be helpful.
spk08: Sure. So I think let's start with we're just starting to have the conversations with our customers for pricing actions. So that's underway. You know, the results at this point are unclear and mixed. Some of our retailers fully expected it, and we can get them implemented relatively quickly. Some of the larger ones, though, it may take a little more time. So it is transitory when that part sort of repairs itself. But specifically, if you look at labor, it's probably where it's a little low, called between $4.5 and $5 million of negative impact this quarter. Again, we've raised rates for our people. We've also put incentive bonuses in there for staying a certain amount of time. And frankly, we're doing everything we can to get people to come in. So right now our overtime rates are high. Frankly, we're running about 20% less people than we would like to have. And so that's a difficult environment nationwide. On the material side, which includes freight, because most of our stuff comes in freight included in the commodity cost, that's about $4 to $4.5 million worth of additional costs for the quarter. And then I think as we look at just Going on the pure commodity cost where I can identify that separately from freight, we're probably talking somewhere between a half million to a million dollars. So if I were to sort of bridge to it, I think your model would look like it's almost all on the RFG side of things.
spk02: And I would think as well as that, you know, Kevin's kind of indicating, you know, we're moving to, you know, kind of on the inflationary side of things to attract new labor in a very tight market. But probably the bigger issue that drives us is just bringing labor in. And so we're really looking at that September time period for pretty much schools to be back in session fully, child care to be back into place. you know, then people beginning to, you know, being scented to come back kind of into work as unemployment benefits begin to recede. And so that would be the point where it would be a bit transitionary from this period into the next as we get the new labor group. I think some of those inflationary costs are probably going to linger because once they're in place, they stay from that point of view.
spk03: Okay, that's great. That's super helpful. Thanks for all the detail. On avocado pricing, kind of post Cinco de Mayo, prices have been bouncing around a little bit. Could you just talk a little bit about kind of what you're seeing in supply and demand? I know you noted that we're kind of on the tail end of a large Mexico crop, but how does supply look? It sounds like demand is still quite good. Just kind of a lay of the land there would be helpful for us, I think, to hear.
spk02: Yeah, I think what, and we've probably talked about this before, is that certainly on the avocado demand side, you know, it's continuing to be strong and in that, you know, general upward trend. But much like we've talked about throughout the pandemic is that there's just not, doesn't seem to be a lot of appetite for, you know, for those holiday lift kind of concepts that we're historically used to, meaning, you know, moving into Cinco de Mayo or Memorial Day or things like that are generally you know, in this environment a little bit flatter than they've historically been. And so we don't get that traditional lift. And, yes, currently we're in that place where the Mexico supply chain, the Mexican market is very strong, and California is coming into play as well, kind of in that, for us, it was a little bit of a later start, but in that kind of April period, both were in place. And so certainly supply was – you know, up against demand in that environment.
spk03: All right, great. And if I could just ask one more quick one on the Project DUNO. What was the genesis of that? Help us think about where you think today, at least as far as you're aware, what the greatest areas of opportunity are for you to address. And you said more detail on that later this year. Maybe just to the extent, if you could walk us through kind of the critical path of work that's going to be done so we can get a frame of reference for kind of the timeline we should expect to hear more details on it.
spk02: Right. So I think the conversation kind of continues on. It's the concept of the three business units that Colabo exists in and this company of one kind of thought process that I'm implementing. And so we've done quite a few things on the structural side to begin to move in that direction. But now, you know, I've kind of been here just a bit over a year and seen all the business units operating. I think it's a really good time to bring in a third party with another set of eyes that has industry experience overlooking product sets, The dynamics of concepts of our foods division and our Renaissance divisions working together. And then it complements very well the timing that we're sitting in right now, which is this concept of constrained labor. And is there kind of a paradigm shift? in the concept of how much labor is available versus the labor intensity in the products that we make and what is the best product set for us to be able to evolve to. And so I think as we come into this, as we mentioned, we're just in the early stages. We've got several companies that we want to look at to begin to talk to about working with us. We'll probably start that up probably by the end of the third quarter. And then, as Kevin mentioned in his discussion, is that we would expect that maybe we'll have benefits moving into the new year.
spk03: All right, great. Best of luck, and thanks for all the detail. Thanks, Dave. Thank you.
spk07: Thank you. Our next question comes from Mitch Panero with Sturdivant and Company. Please proceed with your question.
spk06: Hi. Good afternoon. Hi, Mitch. So I wanted to look at RFG for a second. When you go back like two years ago in the second quarter, you know, I think it was maybe 100, I forget the number, 140 million of revenue, and we're at, you know, 96. Could you sort of break that down? Like how much of that was either retail business lost? We got the co-packer piece, but, you know, versus, and I know a lot of it's food service, but can you break that down a little more? I'd love to know how retail has been impacted here.
spk02: Yeah, I think what we're talking about is, you know, the Midwest co-pack operation was you know, a very, you know, central strong player kind of in the Renaissance group. And so that was in play in that time period. And what we're indicating now is that in the absence of that player, the existing facilities that are Renaissance are beginning to grow out of the pandemic and are beginning to, you know, access more business and finding success in the marketplaces where they operate.
spk06: I was asking more about, I'm sorry, I was asking more about, you know, I understand that the co-packaging is an impact in the difference, but I was really looking at, you know, how much has retail been hurt at RFG with new packaging and different methods to market at the retail level? You know, the olive bars and sandwiches and salads and delis. How much has that helped or has it hurt or hurt, you know, from two years ago?
spk02: Right. We talked about this a little bit, you know, the evolving kind of pandemic is that, you know, as it came into play in retail, a lot of our deli-type business, which was oriented on grab-and-go, was certainly impacted, meaning sandwiches, salads, and wraps. As people were working remotely, they weren't passing through the grocery stores kind of during lunchtime to grab a sandwich or something like that. So that was definitely impacted early on. And then the Renaissance team continued to evolve and begin to work on items that would support people working remotely, eating at home. And so convenient, value-added vegetable entrees, things like that, that would support people that are just trying to cook at home and find good, healthy food. So they kind of evolved and addressed that. And now we're kind of coming back out of the pandemic. And so The product sets are a bit stronger. Grab-and-go is kind of coming back to a degree, and so there's beginning to be a lift in that environment. As far as the cut fruit and vegetable type business, we're seeing kind of a move right now back to the traditional lift that Renaissance is used to seeing kind of as we move into summer activities, and that is more what I would call normalized. as we move into this season. Our issue right now is not so much the demand side, it's really, as we talked a little bit earlier, the constraints associated with labor.
spk06: And then, have you seen anything, still on RFG, have you seen anything In the marketplace, are you still of the view that the days of the open-air salad bars are over at retail and it's going to be a prepackaged type of delivery to the consumer? Or, I mean, any changes to your view there, what you're seeing in the marketplace today, what your customers are saying?
spk02: Yeah, I think we've heard, you know, in lately is that some of the file bars are opening back up, but it's retailer by retailer.
spk06: Okay, so you don't see this, do you see it ever normalizing, going back to where it was? And is that a good thing for RFG? Or would you rather it stay in sort of the current prepackaged format, the grab and go format?
spk02: Yeah, I mean, you know, the one thing about Renaissance is historically it's been a solutions provider. And so generally, you know, based on what the retailer is looking for, Renaissance has the capacity and capability to respond to that. And so if, you know, as we were in the pandemic, a lot of the delis were closed. were shutting down, and so we were moving to the prepackaged broccoli salad. But as the delis opened back up, we moved back into supplying broccoli salad kits that the deli prepares behind the glass. And so there's capability on each side, and I think the initiative for Renaissance is that as it is opening up, it's moving to respond to what the customer is looking for.
spk06: Okay. And then I guess this last question, and it goes back to the pricing, trying to, you know, trying to get higher prices. On the fresh side, particularly in the avocados, I mean, where is there opportunity? I mean, can you price in food service? Is that harder? Or is it equally hard both on the retail side and food service?
spk02: Well, yeah, I think, you know, as we've talked before on avocado pricing, we're moving inside of the market and working to maintain our margin inside of the cost-price scenario. And that serves both retail and food services. you know, virtually equally from that side of things. The big deal for us in the volume kind of scenario is that we're out in the harvest, we're taking all sizes and all grades. And so as we've talked kind of before inside of the pandemic, kind of in the absence of parts of food service, it inhibits us in some fashion on the margin side because we don't have outlets for all the different sizes and grades. And so when food service is fully in play, generally, because a lot of that food service product is used and brought out in service, they can be like a number two grade, which allows us to have nice outlets all the time, and it balances our full portfolio and allows us to lift our margin inside of how we perform there.
spk06: Thank you for your time. Appreciate the questions. Thanks, Paige.
spk07: Thank you. Our next question comes from Ben Clive with Lake Street Capital Markets. Please proceed with your question.
spk04: All right. Thank you for taking my questions. Just a couple from me. First, a quick clarifying question on Project Uno. Did I hear correctly that you are still looking to identify the consultants that you're going to work with, and as such, this isn't going to really start in full here until later this year? Or do you have somebody named and you've begun that process really kind of in depth already?
spk08: We've narrowed it down pretty quickly. They've not been engaged yet, so you're right. There's a startup time still to come.
spk04: Okay. All right. Very good. Thank you. And then the only other question for me is, you know, you talked about pretty considerable growth in international business from both your fresh and your food segment. You alluded to staffing investments there. I'm wondering if you could elaborate a bit on kind of, you know, how those investments that you made in staffing, you know, are going to really, you know, kind of drive that kind of a result here for quarters to come, if there's kind of one-time benefit that you saw in the quarter, and maybe help us understand the scale of what that, you know, those international opportunities are within those segments.
spk08: Yeah, so we fired a couple of guys that had some great experience. So, The investment is in people, and certainly we've also reached out to some of the relationships that we've historically had that have just lied dormant the past many years. And so right now, international is about 3% of our total revenue. As we put together our three-year plan, we can easily see that getting to about 10% of revenue, given the investment and given the capacity that we've got. And that's why, as Jim mentioned, the opening up of the Jalisco program facility is another great opportunity for us because, you know, we've got capacity there, and certainly at this point we have supply. So whether it's the fresh or the food business, you know, they're very complementary and the customers overlap. So we've gotten off to a nice start. I suspect it might be a bit bumpy or inconsistent the next couple of quarters because we're bringing in new relationships, new customers, and oftentimes it's sort of fill the pipeline, which is probably happening this quarter and next quarter.
spk04: Got it. Got it. Very good. Well, that does it for me. Thanks for taking my questions, and I'll get back into you. Thank you, Ben.
spk02: Thanks, Ben.
spk07: Thank you. Our final question comes from Eric Larson with Seaport Global Securities. Please proceed with your question.
spk05: Yeah, thanks. Good afternoon, everybody. quick question just to dive a little bit more into kind of the kind of the the near-term avocado supply situation obviously we're coming or we're at more the tail end of mexico but we have a pretty good u.s crop um right now and we're now getting to the time of the summer this june july period where you start getting a lot of the peruvian fruit coming in tends to be lower quality it tends to be more it tends to drive pricing down a little bit it's not as it's not as good a fruit as what we produce in Mexico and the United States. Can you give me some ideas of what we're looking at for maybe some of the U.S. supplies as well as international supplies coming in in the next quarter or so?
spk08: Well, hey, let me start with this. So you're right, Peru is starting to come in. I think that crop size, what we heard, is probably 20-ish percent higher than last year now that they've got more mature trees. On the U.S. side, you know, this will be the downish year, if you would, so the every other year drops. We figure that's going to be down somewhere between, let's call it around 15%. I think it was somewhat negatively impacted by the heat and high winds we had in November and December that probably pushed it from a 10% decline in inventory or supply level to maybe 15% down. So you're right. You know, I think the Peruvian fruit pushes prices down and margins down a little bit. Again, the California food stays very localized to sort of the very West Coast, and the margins on that are always pretty good.
spk05: And then, you know, the Colombo food business, I was expecting a 30% change with food You know, if you get the kind of access this fiscal year.
spk08: Hey, Eric, I apologize. Most of your question got broken up on what we heard or didn't hear. Could you repeat it?
spk05: Level foods. The outlook for margins, can we get back into a 30% run rate by the time we get, you know, kind of through this fiscal year? And how quickly is food service covering in foods? I mean, that tends to be a pretty good-sized piece of that business.
spk08: Yeah, the foods business historically has about a 50% food service component to it, so pretty big. You know, I think right now the margins are a little low because the prices have risen on the prices we're paying. And, again, you know, as we look out the next couple of years, 30% is, A little aspirational, but I certainly think we can be back in the 27%, 28% range. Part of that is, of course, as we're building the international markets, we want to be very price competitive, and so we're starting at ranges that are probably a little bit less than 30%. Okay. Thank you.
spk07: There are no further questions at this time. I would like to turn the floor back over to Jim Gibson for closing comments.
spk02: I want to thank you, our shareholders, for your continued support and I look forward to updating you on our progress on our next earnings call. Thank you for your time today.
spk07: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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