Right. Thank you all for joining us today. My name is Jeff Sonnek, Investor Relations with ICR, and I am happy to host Founder CEO Steve Barnard and CFO Bryan Giles from Mission Produce. Thanks for joining us, guys.
Thank you very much.
Steve, maybe just to kind of kick off and frame our discussion today, just tell us a little bit about, you know, what is the business? What is Mission Produce all about here? What are we doing?
Good question. Well, Mission Produce started out about 42 or 43 years ago as a California avocado packer. It was all California at the time. Mexico couldn't come into the States, and there was a co-op that had 80% market share, so we decided that that would be a pretty good target. Fast forward, today we're the largest avocado distributor in the world, operate in 10 countries and 8 countries and 7 states, 9 countries and 7 states. I guess we got out of Canada the other day, and a couple of things made it happen. When we started, it was all California, so it was a different environment, but three things made the avocado industry what it is today. One was when the Mexican border opened up back in the 1990s. You now had a Hass variety year-round. We were the first one there.
We were there actually before the border opened up because we had a processing business down there. So we were in position and ready to go, and we were the largest from day one, and we're still the largest by probably double than the second place player down there. So that now provided a year-long Hass avocado to the United States. The other thing that happened was when we started selling them ripe, sales tripled overnight here in the United States. We'd had a gal from the University of British Columbia do a master's thesis one summer at our facility in Oxnard and different levels of ethylene and temperature and whatnot, and she would put these boxes out for the crew to take home because we couldn't put them back in rotation because back then we sold everything hard, and if you'd ripen something, you'd get a rejection.
We noticed after a while that the crew was taking only the ripe ones, and they were leaving the ones that were not quite ripe. I asked her, "Why not?" We asked the crew one time, "Why didn't they take them all?" They said, "Well, they're not ripe. We won't take them till they're ripe. We don't need them." We decided to do a trial on that at retail, a Ralphs grocery store in Oxnard. Did a trial and took 10 boxes down there one Friday and made a display.
Next to the back then, they sold them piled up real high, hard and cheap. Said, "We're going to do a low two or three level layer of ripe avocados, and we're going to add $0.20 over those avocados." The guy says, "You're crazy. This is not going to work," well, we'll see what happens. So long story short, came back the following Monday, and they were all gone, and there were oranges there. He says, "I sold out by noon on Saturday." So Ralph's grocery store is owned by Kroger. They agreed to do a deal for a year on ripe avocados.
Their sales went up 300%, and Kroger went national with it, and I gave about six months to Kroger, and then I called Walmart, and that's what really created the avocado revolution, I'll call it, from just eating them hard and green and multiple varieties, et cetera, and then the third thing was the health benefits that they, you know, back then they used to say it had cholesterol. It doesn't have any cholesterol. It's monounsaturated fat, and lots of fiber, so it's actually the number one superfood now.
So those three things made the revolution happen, and we were at the forefront of every one of them. There's a few times we had to turn around, but we started it, and we're still running as fast as we can because it's turning global now, so.
So building on the Ralphs example, I mean, the business has evolved quite a bit over the years as well. Maybe you can just talk a little bit about the mix, both in terms of your customer base as well as kind of the source regions given your global reach.
Yeah, it's interesting. When we started, most of the avocado business wasn't big enough to sell direct retail. You had to go through a middleman, a wholesaler, or a broker or something, and they never bought a straight load. And so again, we were at the forefront of that. One of the things we did when we started selling ripes was delivery because we couldn't ripen something, and then the guy said, "Well, I canceled that truck. We'll pick them up in three days." No, wrong. We're going to deliver them today. So we got into the transportation business, which is actually pretty relevant as far as our income statement because it's just another link in the chain.
And then we also realized we're not going to have enough product, so we got into the production business, delivery and growing and filling gaps in the calendar and looking at latitudes and altitudes to figure out when this Hass avocados are going to come off. So we've got a huge operation in Peru. We were in Guatemala. We're in Mexico. We're in the U.S. We're in South Africa, Colombia, all to fill the calendar up here for the U.S. So it's one thing led to another, and you just got to keep filling the need, develop the need, and then fill it.
Yeah. And to fill in a few of the specific details, today in the U.S. market, probably 70% of the product we sell is to retail customers. Our focus is on nationwide retailers. We have a distribution network that can support them. You know, and then the other 30% is food service wholesale. Certainly, we need both of those groupings. We sell the entire tree. Retailers tend to want pristine grade one, certain size fruit that they'll pay a premium price for. Food service doesn't really care what the fruit looks like. They know it's the same on the inside. So we use them to sell the shoulders and the grade two fruit, and I think they're both very important to parts of our customer base. And then on the supply side, again, I think we're more diversified than most players, most global players, particularly in the U.S. market.
We source roughly 70% of our fruit from Mexico in any given year, with Peru, California, Colombia, and a number of others filling in the gaps. Again, I think in general, about 85% roughly of the avocados sold in the U.S. come from Mexico. So while we're very dependent upon it as well, the whole industry is, we are a little less reliant than some of our competitors.
Your ability to leverage your diversified source network really came to bear in this past fiscal year. You had phenomenal performance. Maybe just take us through a little bit, kind of what happened, what you achieved, and size of the business today.
Yeah. I mean, from a financial standpoint, it really was a record year for Mission. We topped $1.2 billion in revenue for the first time. Only the second time we've been over $1 billion in revenues. Certainly supported by strong volumes, high avocado pricing that we saw during the year, and then supplemented by growth within both our mango and blueberry categories as well. I think bottom line, we generated close to $108 million of EBITDA, second strongest year in the company's history. It was really driven primarily off the per box margins that we were making in the marketing distribution side of our business. I think we benefited. There were some supply constraints, and we had access to supply when others did not because of our global sourcing network, and we were able to generate better per box or per unit margins than we would typically expect to do.
I think that certainly helped offset the impact of some of the challenges we saw in our farming segment this year, which contributed to, I think, the higher prices and the lack of maybe volume in the broader market that we experienced. I think we did a very good job on execution, and we were really able to take advantage of market conditions that were presented to us, but I think we were able to do so to an extent that very few others could because of our global scale.
From a capital standpoint, I know the South American operation in Peru has been kind of a big use of cash to develop that farming capability down there, but we're kind of coming off a big CapEx cycle too. So maybe just address kind of how that has moved through the last several years in terms of free cash flow generation, that sort of thing.
Sure. You know, we've made significant investments probably starting in fiscal 2020, leading up through 2023 on investing on the supply and distribution side of the business. I think we've communicated from early on that it was peaking and that it was going to step down over time, and that is indeed what's happened. As we look at the year that just finished, we spent roughly $32-$33 million on CapEx, roughly half of what we spent back in fiscal 2021. I think it probably stepped down a little faster than we expected. There were some projects where the spend just happened a little slower, and it's rolling into the current fiscal year we're in today, but nonetheless, that step down is meaningful, and it's in line with what we were projecting, and we generated free cash flow of over $60 million this past year.
We think that as we move forward, that's what the type profile of our business could look like. As we look now for this coming year, about $55 million of CapEx in our plan, finishing off some development that we're doing in Guatemala and some blueberry plantings that we're doing in Peru, most of the latter of which are really funded through the joint venture that we control through the operating cash from that joint venture. I think we will continue beyond this year to see a step back down again. Over the long term, our CapEx is likely to sit in the $30-$35 million range exclusive of any big projects that might come up. But on the flip side, if we look at the operating performance of the business, we expect to continue to see that grow and improve.
We've got the infrastructure in place today to handle more volume, handle more growth on the marketing side. We also have young farms on the supply side where Peru, most of the acreage there is in production. We still have close to 1,500 hectares between Guatemala and through our joint venture in Colombia that are still very low-level production today that will ramp up over the coming years, and we're very excited about that.
Going back to the performance this past year, I mean, I think one of the things we kind of observed was a pretty durable consumer. So maybe just talk about demand elasticity, what we saw, kind of how the environment kind of morphed as we kind of moved through the last couple of years.
Last year, the supply was a little bit strained, but it was similar to the prior year. We expect growth every year, so I always said it was strained, but when you look at the numbers, the volume was up and the prices were up, strained compared to growth. It grew, but it didn't grow that much, but the price stayed stable with increased volume.
Yeah. With some of the data, we do collect data sources, IRI, Circana data. And what we saw, to Steve's point, was something interesting this year. We had a year where our domestic volumes were relatively flat year over year, but we saw price points jump close to between 8%-10% at retail level. So that's indicative of us that there's strong demand for the product that we're seeing. I think retail is heavily behind the category. We saw a lot more promotion, digital promotion as well this year. And yeah, again, just a lot of excitement where I think retail believes that it brings foot traffic into the store. Maybe it's the first time since COVID that we've started to see this level of activity again.
Again, I just think that while inflation has kind of subsided for us on the cost side of the business, I think the supply conditions were ripe, I should say, this year for finally passing some of those price increases along to our customer base, which needed to be done. I think it was done and absorbed fairly easily.
We've talked a little bit about your international farming presence, the physical farming of avocado trees and ranches in South America, but why are we doing that in the first place? Why is that a necessary component of the business?
We've asked ourselves that question at times, but no, the real reason is we have a substantial farm in Peru, 10,000 acres or so. And they say, "Well, why do you have something in Peru when you have something in California?" Well, California, the United States can consume what California grows in a weekend, almost. It's a little bit of an exaggeration, but it doesn't produce much. It produces maybe 300 or 400 million pounds. That's maybe five weeks of supply. So we need this Peruvian opportunity came about about 10, 12 years ago, maybe a little longer than that, 15 years ago, and it got approved for the U.S.
So we were pretty aggressive in buying land down there and planning out avocado farms, and it's turned out to be just what the doctor needed as far as the supply and how it fit with where we are today on supplies. Otherwise, we would be pretty much scarce of avocados in the summertime in the United States.
The farming business isn't without volatility either, right? I mean, just to kind of be clear about what the risks are, and I think you guys have done kind of some extra effort on not fixing it necessarily, but optimizing what you have given the market conditions. Can you just talk a little bit about some of the strategy behind it?
We like at least two sources of supply at any one time, and that's apart from California. We're in Peru. We've got access to South Africa, Colombia, Guatemala, Mexico, of course, which never stops. It just slows down in the summertime. We like to have options. There could be a strike, there could be a weather phenomenon or crop failure, you never know, or pest infestation. We like options, lots of options, and we're pretty well in position now where we won't need to add to it. I think we're pretty well set as far as production-type investments.
Yeah. When we look at our own productions, to the point you made about volatility, we've seen substantial movement in our yields over the last few years. If I went back to 2022, we exported 117 million pounds of avocados from Peru. 2023, we were expecting to be a bigger year through most of the development of the crop, and then we had some weather conditions that came about that caused a lot of it to drop late in the season. We ended up exporting about 100 million pounds. This last year, those same weather conditions impacted the development of the fruit on the tree. This one, we had a little more visibility of in advance. We knew there was going to be a lighter crop as opposed to it happening on short notice. We ended up getting about 43 million pounds off the farm.
So within a three-year window, we've seen pretty dramatic movement. I think what we have done, what we've seen is we've seen a maturity within the farms, regardless. We believe that they'll return to kind of a normalized level of production in the very near term. So we feel there's lots of upside there as we move forward from the year that we just finished. But beyond that, I think we're looking at the opportunities to take costs out of the structure there. It is maturing. As Steve alluded to, we've pretty much planted out Peru at this point from an avocado standpoint. So now the focus has shifted more as it's matured towards cost reduction initiatives in areas that we can to drive efficiency and drive down per unit costs within there.
So I think what we saw this year, while the farming business did not come together the way we expected it to, we were still able to deliver very strong results. But part of it was due to the fact that even though the yields were low, we did take significant steps on reducing costs within the farms to offset that impact, as well as we were, I think we've made some alterations even in our marketing strategy in terms of how we go about driving the highest absolute sales return for that fruit as well.
The business has also evolved beyond avocados to some other fruit. Maybe just talk first about mangoes, for example.
Yeah. It's kind of a funny story. We were in the mango business a long time ago back in the 1990s. And to make a long story short, we lost $2 million on it one day. A storm parked over our farm that we'd prepaid for. Anyway, we got out of it and got back in it. But the mango category is probably one of the fastest fruit-growing categories today out there on consumption. It is the number one consumed fruit in the world, just not here in the United States. And you have to ripen a mango, and the customer base is exactly the same as an avocado customer, retail primarily. So we got into the space a couple of years ago, and it's growing very fast. It's actually growing right now faster than the avocado space.
Of course, it's less mature, of course, but it fits real well with our network of ripening and distribution and customers. You have to ripen them. They're coming out of the same countries that the avocados are in, so we have a team already there in many cases. The thing about the mango business, it changes every six weeks to a different location. So you can't build a big packing house and make it pencil. You have to kind of use all the little packing houses that are there already and contract with them. But we are seeing we're picking up avocado business now because we sell mangoes, which is a surprise to us, but no one is ripening and delivering a good mango till now. And they're lined up.
We just came out with a mango bag that has four or five mangoes in it with a zip and a scan code on it, and they're lined up to take it. Now we're still working with some operational inefficiencies on how to fill it because you can't put equipment in because you're moving it every six weeks. But we'll get that figured out. It's very similar to what you see in peaches or grapes and that kind of thing, but it's just exploded. And we've had retailers say, "We want your mangoes, and you can keep sending your avocados too, but this is a priority." I mean, it surprised us too, but it's a nice surprise.
Yeah. I think there's real opportunities for growth in that space. We've grown that piece of our business from roughly $17 million in fiscal 2022 to over $55 million last year, so 3x over a two-year timeframe. I think as we moved from 2023 to 2024, not only did we grow the business meaningfully, but we made it much more profitable to us as well. I would say today that the mango side of the business still isn't quite as profitable as avocado is on a per-unit basis, but we see a path towards continuing to improve on that over time. Our share within the mango category, we've been in it for a few years. We feel we have roughly approximately 5%-6% share in the U.S. market today. We're probably the sixth, seventh largest distributor within a pretty short timeframe we put that together.
Whereas in avocados, we're closer to 20% share. We think we can replicate over time with mangoes what we've done with avocados. The synergies there, the similarities are there, and we expect to continue to build on that going forward. And yeah, I think as Steve heard him allude to, it's kind of like a little brother to the avocado category. I don't see it ever being kind of the leading driver behind Mission, but it can certainly be a meaningful component.
But it leverages all the ripening centers, it leverages all the transportation, and it leverages the customers. So I mean, it's a win-win-win.
I mean, that's a good segue to the blueberry, which is one of our reportable segments. Talk to us about kind of how the blueberry business has changed with new varietals, your JV, and just some of the momentum going on.
I'll just start by explaining why we got into it in the first place, that it didn't match anything we were doing. In the avocado space in Peru, we have about 10,000 pickers during the season for avocados. The season lasts, I don't know, five months, maybe down there. You don't want those 10,000 employees to disappear because you have to go find them again and recruit them. We thought, "Well, we need to keep something here for them to do." Driscoll had been nosing around down there about planting blueberries, so we thought we'd plant some blueberries to help keep the labor there on the ranch. I don't know how long we've been doing it, maybe six, seven years or so, maybe a little longer. It's turned out to be a pretty good business. Now we're up to about 1,000 hectares.
We will be here by the end of this year, and they've got these new varieties now that put out double the production, double the size of the fruit, and double the price. Now, I'm not a mathematician, but I like that, and anyway, we've been planting these new genetics that are just addictive. You buy a little tray of six ounces of them, they don't even make it home because you've eaten them in the car, so we're planting as many of those as we can and leveraging our packing house because we take them there to cool them. We put equipment in to pack blueberries inside the packing house, so the labor is the same labor as it packs the avocados, so it's worked out very well.
I mean, it is a farming business that has similar attributes to the avocado growing that we do in Peru. I think the key drivers of that business are production yields, yield per hectare, and average selling prices. I think we've been doing this, to Steve's point, for I think it's close to 10 years. I think we've gotten better as each year has gone by in terms of identifying the varieties that grow best down there and generate the best yields. We've seen that continued improvement. I think Driscoll's has gotten better and better at developing the markets for that Peruvian fruit. I think the thing to keep in mind with blueberries in Peru is that over the last decade, there went from being no blueberries grown in Peru to being the largest producer of blueberries globally.
So it's changed a lot, and I think it's required some adaptation along the way. We've had some years where average selling prices were below what we expected. We've seen years where it's above what we expected, like the one we just finished. We think longer term, with the marketing strategies and some slowdown in supply growth going forward, that it's going to continue to generate strong margin for us.
We also do the deliveries and manage all the freight on all those containers. So it's leveraging our team too.
Great. We're at time, so I'll thank you again for joining us here at ICR Conference 2025. We have another breakout this afternoon for anybody in the audience that would like to join to follow up. Thanks.
Thank you for your time.