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spk03: Good afternoon and welcome to the first quarter 2022 Colabo Growers Earnings Conference call and webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. I will now turn the conference over to your host, Larry Clark, Investor Relations for Colabo. Thank you. You may begin.
spk04: Good afternoon, and thank you for joining us today to discuss Colabo Grower's 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.colabo.com. With me today on today's call are Brian Cooker, President and Chief Executive Officer of Colabo, and Mariela Matute, Chief Financial Officer. We'll begin with their prepared remarks and then open the call for your questions. Before we begin, I'd 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 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 a 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 Cooker. Brian?
spk05: 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 Colabo 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 Colabo 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 a 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 the 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'll 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 costs 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 facilities. 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 Colabo. Over the course of the last three months, human resources, finance and accounting, and transportation have all consolidated into shared service centers that enable the entirety of Colabo to operate more efficiently. we will continue deploying best practice sharing and central services where they make sense to drive improved productivity across Colabo. 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're well on the road towards improved profitability and stability in our business. Now, Let me take a few moments to 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 54 cents 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 our 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 costs 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 costs to 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 food 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 21. 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 avocado 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 US, and that could lead to temporary shortages. However, we expect this choppiness to resolve within the next few weeks. The second area to discuss 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 Calabo. Steve was able to shepherd Project Uno and get the ship headed in the right direction, and Colabo 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 Colabo 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 Colabo 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 Mariella.
spk01: Thank you, Brian. It is great partnering with you, and good afternoon, everyone. As Brian noted, we have 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 speed of execution and free cash flow. As we consolidated RFE 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 increasing improvement in each quarter of the current fiscal year and we'll update you on 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-on-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 food segment, mainly due to lower seasonality. Consolidated gross profit increased to $13.3 million, up $4.2 million from the fourth quarter. The increase was viewed almost entirely to a $4.3 million increase in gross profits at the fresh segment. The food segment had a $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 inefficiencies in our Atlanta facility during December, 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 costs. The food 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 costs, which include consulting, management, recruiting, and severance costs. 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 settlement. During the quarter, we generated cash from operations of $2.5 million, Keep in mind, our first quarter is typical slower quarter for cash generation due to seasonality. We invested $2.5 million in CapEx in the quarter, mostly focused on automation investments. We expect 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 the total capacity of the facility to 80 million. With this amendment, our pro forma liquidity at quarter end will 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 our improvement should continue and accelerate over the next two years consistent with our Project Uno plans. 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 costs are ongoing and uncertain. We have and will continue to implement pricing and operational initiatives to offset this increased cost. With that, I will turn the call to the operator for questions.
spk03: Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two 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. Our first question is from Ben Bienvenue of Stevens. Please proceed with your question.
spk08: Hey, good afternoon. Thanks for taking my questions.
spk03: Hi, Ben.
spk05: How are you?
spk08: Doing fine. I want to start on the RFC 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've 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 you think the path to an ultimate margin profile of that business looks like. That's my first question.
spk05: Thanks, Ben. I 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 costs and increases in inflation. We did have, as we mentioned in our prepared remarks, as we were consolidating some of the assets in the southeast, there was 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 an 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 Mariella mentioned. It's the revenue side as we're working on continuous pricing increases, sensitivity to input costs and triggers for input cost price increases. It's also... labor productivity, where we're 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 a 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 skew rationalization, that should never finish. That should be a constant optimization of pricing, skew optimization, labor productivity. It's like quality, food safety, and culture. That work never finishes.
spk08: Yeah, okay, understood. Thank you. My second question is on the fresh product business. You know, the margin and the volume actually, you know, 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 fortifying that business? Because I think that is the core of the business is a really solid business.
spk05: 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, there's been tightness of supply. So if we look at our import figures from Mexico, I'd say profits were, or excuse me, imports were down probably 10% year over year, 10, 10 and a half. 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 make sense for us. Growth for growth's 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'll focus our time, effort, and energy.
spk08: Okay. Thanks very much. Best of luck.
spk02: Thank you.
spk03: Our next question is from Rob Dickerson of Jefferies. Please proceed with your question.
spk09: Great. Thanks so much. I guess, you know, first question, you know, is just as you've kind of stepped into this new seat, you know, as CEO, Brian, you know, obviously, you know, product, you know, was kind of over to, you know, let's say kind of fully developed or it seems as if there's decent progress on what the strategic outlook was going to be. I'm just curious, you know, kind of given your background and the broader, you know, produce space, you know, have there been any, you know, areas that, you know, you kind of were surprised about or, you know, anything on the go forward where you think there could be some, you know, potential upside extracted just outside of You know, we're talking rationalization, labor productivity, what have you. A lot of times, you know, they're already been inactive. This is now kind of a, you know, more of a rethink in how to improve it. But I'm assuming, you know, you're not in the role just to execute. There had to be something you saw or think of, you know, that might be incremental as you think forward the next few years.
spk05: Thanks, Rob. I appreciate the question. So a couple of things I thought about when I thought about Colabo. First and foremost, a long legacy of leadership in this industry. Dating back to Lee Cole, dating back to Rob Woodin and his efforts, a long history and legacy of leadership, and that was exciting for me. I think the other thing that was important are some of the macroeconomic conditions that are tailwinds for Colabo. 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 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 food 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 with something that's growing that much. And I will tell you one thing 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, you know, those are some of the broad economic opportunities that I looked at. Some of the tailwinds that I looked at with Colabo joining the organization. I was excited about Project Uno, excited that they've 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 this 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 like the idea of being 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. All right.
spk09: Fair enough. And then just kind of quickly on the cadence for the year, or I guess maybe the trajectory, given there's no guidance, so there's probably not much cadence. you'll be giving. I thought I heard a comment in the preparatory remarks about maybe limited gross profit sequential improvement as you get into Q2 relative to Q1, and I just couldn't tell if that were one given segment or that's total company, so maybe just you know, any clarification remarks you could provide as we kind of think of Q2 relative to Q1. And then just, you know, obviously the dynamic between cost and pricing. Thanks. That's it.
spk01: Hi, Rob. This is Mariella. And yes, we are planning to continually improve our profit generation and accelerate the benefits or the improvements quarter over quarter. as Project Uno takes off. So our plan today consists of margin enhancements every quarter as we execute our pricing initiatives, our SKU rationalization, and our plant optimization and procurement 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 the trajectory to improve for our quarter.
spk02: Got it. Okay. Thank you so much.
spk03: Our next question is from Ben Cleves of Lake Street Capital. Please proceed with your question.
spk07: All right. Thanks for taking my questions. Just a couple for me. the consolidation of your shipping relationship down to a nationwide provider. I'm curious when that started, if you saw any effect on that, from that on the Q1 financials and kind of, you know, really kind of how we can, kind of how material of a benefit that's going to be here, you know, over the next couple quarters.
spk01: Hi, Ben, Mariela. We don't have any benefits in Q1. We finalized negotiations with many national carriers. We put the RFP back in February, and we got many responses, and those responses... are confirmed with savings. And now more important than ever is to have good transparency on our freight supply and our ability to pass full surcharges and being transparent with the cost per mile as you know the inflation in freight has hit us severely in the past. So we are excited about this initiative and this will allow us to have on time information to understand the freight increases and to pass those through to our customer base with data-driven analytics.
spk02: Okay.
spk07: Thank you. And then one other one for me on your effort to skew rationalization. I forget the number you quoted. I think you said something like four or five percent of skews have been rationalized thus far. That's right. When you look at that, are you looking at broad categories for it to be completely rationalized just in markets that you don't like, or are you really just looking at fine-tuning SKUs within all the broad categories and getting rid of the lowest performing SKUs across the board, or both?
spk01: Yes, so this is a process that we do in line or working with our customers and with our suppliers because it's mutually beneficial. So we are looking at from 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 in working with customers to enhance that SKU offering and result into a win-win economics where the SKU produces higher margin but also higher quality benefit for the end consumer.
spk05: Ben, the only other thing that I would add is this should be a continuous cycle of rationalization and innovation so that we're 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 Mariella mentioned, do that in conjunction with the customer so that we're driving growth and driving efficiency on the shelf.
spk07: Got it, yeah, 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.
spk02: Thank you.
spk03: Our next question is from Eric Larson of Seaport Research Partners. Please proceed with your question.
spk06: Yeah, well, thank you for taking my question. Good afternoon, everyone. you know, congratulations, Brian, and look forward to working with you. And when we get a chance, hopefully we can get together and visit each other in person. So congrats. Thank you. Thank you very much. Looking forward to it. Well, and good luck. And so the first question I have for you, Brian, you know, you came from, you came from a business, you came from Chiquita, which is, we all know that, you know, the global banana markets are large. They're, They're very global in nature. And the one thing that I think Colabo 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're 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?
spk05: Well, I appreciate the question, Eric, and thank you. I think there certainly are opportunities for international expansion. We want to do this right. We want to do it in the right sequence. We want to do it 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'm 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 percent growth in international sales. 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 make sense for us. And I think there's opportunities certainly in international where it makes sense. And we'll continue to look at that as we go. kind of go along this path of driving profit growth.
spk06: Okay. My next question is, you know, I know you've only been there for, you know, what, six weeks or something like that. But when you look at the RFG business, it's significantly more complicated, I think, than really the avocado business, more labor intensive, probably even more logistic intensive. And you know, we've always had the assumption that this business can get into the mid to 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, can you give us a little bit of a timeframe of when, you know, you're talking, you know, gradually, continually improving some profit margins here, but Is there a time frame for when, you know, RFG is actually going to, you know, contribute to the bottom line again here? Is it measured on a quarter? Is it two quarters? Is it three quarters? I mean, how should we be evaluating the progress in RFGs and the near-term stuff too?
spk05: Sure, sure. So, appreciate it again, the question and trying to provide a little bit of clarity. First of all, I think we have, always thought in my mind that RFG could get into double-digit gross margin, double-digit gross margin. And I see a path to get there. When Colabo announced Project Uno, we did. Colabo 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's 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 skew 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 or 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 goes, 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 is Gen Y and millennials are anywhere from two to five times more likely to buy grab-and-go or fresh-cut produce items than baby boomers. And as the composition of consumers tilts 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.
spk02: Okay, great. Thanks for the comments.
spk03: Our next question is from Mitch Pinero of Sturdivant and Company. Please proceed with your question.
spk10: Yeah, hi. A couple questions. I'm just sort of staying on RFG. So volumes were, you know, flat, and I'm sure, you know, SKU rationalization played into that. But what's happening on your customer end? I mean, you know, So, you know, obviously flat's flat, but when you look across your customers, is there, you know, sort of one segment of customers that are still struggling? You know, where are we on your customers' sort of road back to normalcy?
spk01: Hey, Mitch, this is Mariela, and I'm going to start with Brian's last answer. Prior answer on the market expectations for RFG, the demand after COVID surge, and we continue to see customers shifting towards grab and go and fresh cut fruit and veggies and prepare foods in airports and different channels. So our volume was flat primarily because we closed our Florida facility and we consolidated some of the attractive volume into Georgia. And we're making some hard calls to optimize the 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 in the winter is consumed less. So we are prioritizing our product optimization with our customers and execute that 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.
spk10: So, okay, so what would you – so if you didn't have the Georgia – you know, just the disruption in the sort of the relocation, I mean, volumes, you're suggesting volumes would have been up in RFG?
spk03: Yes.
spk10: Okay. And, you know, 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 it growing or, I mean, I still don't have a sense. Are we, you know, is customer demand, I mean, is it where it was in 2019 or has there been a, you know, sort of a loss in that of demand or volume in that segment?
spk05: Mitch, I think two things that I would say. It absolutely continues to grow All right, there's no doubt that 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 skews that we rationalized. But in transition, in our capacity, there were also certain customers where... we couldn't find a 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 we made to stabilize the RFG business. First rule of improving profits, stabilize business. Next rule, grow. 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'll 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 rate 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.
spk10: Okay. Let's help the caller. And then on the fresh side, Can you talk about maybe the different dynamics in the first quarter, food service versus retail?
spk01: 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. not in volume, and we see similar trends in both, in food services as well as retail.
spk10: So volume is down 12% in the quarter. Is that evenly split? Food service was down 12% and retail was down 12%?
spk01: Yeah, so to put it in versus pre-COVID, our food service Channel is still unfavorable, if that's what you're asking. We have room to recover. Our volume was 6% down in food service. Less so than in retail, but it's still down.
spk00: Okay.
spk05: And, Mitch, I would also remember in first quarter, I think some of that volume impact was capacity constraints as well. There were more sales available if more product was able to be extracted out of Mexico.
spk10: Got it. And then, you know, so with Mexico, I mean, they've been a very inconsistent supplier. I mean, they're the largest supplier and, you know, and I realize Jalisco is going to help probably, but you know, there's always something with Mexico. If it's not, you know, um, um, growers holding back fruit and, and, and, and, you know, disagreements there, or if it's, uh, um, you know, they, I don't know, you know, whether their agricultural, you know, expertise, um, kind of can, is keeping up, you know, it just seems like the quality of fruit that I see is below average. Um, I find the sizing available at retail inconsistent. This may be a retailer's issue and 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 we haven't, you know, what I thought would be 5%, 6%, 7%, 8% kind of volume growth in the category. You know, you've only seen, you know, flat to 2% type of supply growth. When does this sort of, you know, get to better equilibriums?
spk05: So, Mitch, I think there 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's opportunities, which is why you've seen us continue to expand year after year imports from Peru and While we're excited about Jalisco being an opportunity, while we've started to bring on potentially some sourcing from Columbia or other areas, and while we continue to play heavily in the California market, because in a commodity marketing, commodity trading area, optionality is important. And, 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 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 you 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.
spk01: And Mitch, if I may add, Mexico also has a higher concentration of sustainable farming and natural water irrigation practice and so on that brings volatility to the supply production. So what we do as a company is that we manage the margin and expectations of the profitability of that crop on a 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 in delivering that margin.
spk02: Okay.
spk10: Well, thanks for taking the questions.
spk03: We have reached the end of the question and answer session. I will now turn the call back over to Brian Coker for closing remarks.
spk05: 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 Colabo. 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.
spk03: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.
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