AVO Navigates Inflation & Oversupply: Are Margins Stabilizing?

Mission Produce Inc. AVO is actively navigating the dual challenges of inflation and industry-wide avocado oversupply through a combination of operational flexibility and strategic diversification. The company has faced rising input and freight costs, as well as unstable supply conditions in Mexico, requiring costly spot market and co-packer purchases. Despite these pressures, Mission Produce has leaned on its vertically integrated supply chain, particularly its farming operations in Peru, Colombia and Guatemala, to maintain consistent fruit availability while reducing procurement risks tied to any single region. This diversified sourcing network has been critical in offsetting inflationary pressures and protecting service levels.

From a strategic standpoint, Mission Produce continues to invest in long-term resilience. The company has optimized its distribution footprint by closing underperforming facilities, particularly in Canada, to enhance cost efficiency. It has also increased its focus on high-growth complementary categories such as blueberries and mangoes, which share supply chain synergies with avocados and offer margin diversification. Meanwhile, technology initiatives like AvoIntel, its data-driven pricing and forecasting platform, are helping Mission Produce respond more nimbly to market fluctuations and optimize product mix and pricing strategies in real time.

AVO’s margin outlook shows cautious optimism. Although the company witnessed margin compression in the first and second quarters due to inflation and supply imbalances, it reported sequential improvements at the end of the second quarter, indicating potential stabilization. Increased utilization of owned assets and packing facilities, particularly in Peru, is driving better fixed-cost absorption. If input costs continue to moderate and supply conditions normalize, AVO’s balanced global sourcing model and tech-enabled demand forecasting could support gradual margin recovery. However, persistent macroeconomic headwinds and soft consumer spending remain risks to near-term performance.

AVO Faces Stiff Competition From CVGW & FDP

Mission Produce works to stabilize margins amid inflationary pressures and global avocado oversupply. Meanwhile, its key competitors, Calavo Growers, Inc. CVGW and Fresh Del Monte Produce Inc. FDP, are deploying strategic responses to preserve profitability and strengthen market positioning. Here is how each is managing the current volatility across the produce supply chain.

Calavo is also faced with inflationary pressures and volatility in global supply. The company has responded by aggressively streamlining operations through cost-cutting initiatives, consolidating facilities and optimizing its sourcing mix. Calavo's “Project Uno” transformation plan focuses on improving margin efficiency by centralizing production and reducing overhead, which helped it return to profitability after a difficult period marked by oversupply and weak demand. CVGW continues to leverage its Fresh Cut segment and processed avocado products to cushion margin fluctuations and reduce reliance on raw commodity pricing.

Fresh Del Monte, with a broader global portfolio beyond avocados, is navigating inflation and supply chain disruptions through diversification and vertical integration. The company has invested heavily in agri-tech, including AI-driven forecasting tools and advanced farming techniques to manage crop yields and optimize supply planning. Fresh Del Monte's integrated shipping and logistics operations provide a key advantage in periods of freight inflation and port congestion. While the company has not been immune to pricing pressures, it has maintained steady margins by shifting its product mix toward higher-margin categories and enhancing value-added services.

AVO’s Price Performance, Valuation & Estimates

Shares of Mission Produce have gained 23.5% in the last three months compared with the industry’s growth of 7.5%.

From a valuation standpoint, AVO trades at a forward price-to-earnings ratio of 23.77X, significantly above the industry’s average of 17.68X.

The Zacks Consensus Estimate for AVO’s fiscal 2025 and 2026 earnings suggests a year-over-year decline of 20.3% for both years. The estimates for fiscal 2025 and 2026 have been unchanged in the past seven days.

AVO stock currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

This article originally published on Zacks Investment Research (zacks.com).

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