Mission Produce's Margin Squeeze: Glitch or Structural Weakness?

Mission Produce, Inc.’s AVO second-quarter fiscal 2025 results highlight a classic margin squeeze that raises the question of whether the issue is temporary or structural. Despite record revenue growth of 28% to $380.3 million, gross profit declined 8.3% year over year to $28.4 million. Gross margin also slipped to 7.5%, down 290 basis points (bps) from last year, as per-unit margins on avocados fell, mainly due to supply challenges in Mexico early in the quarter. The company also absorbed unique costs, including $1.1 million in tariffs and $1.5 million related to Canadian facility closures, which further pressured profitability. This disconnect between strong top-line growth and weaker margins underscores the vulnerability of Mission Produce’s model when supply dynamics tighten.

Management emphasized that some of these pressures were situational rather than permanent. As the quarter progressed, the company was able to rebalance sourcing by leaning on California and Peru, which helped margins improve toward quarter-end. Similarly, the tariff headwinds were short-lived, lasting only a few days in March, and disruptions at the border stabilized by April.

Avocado pricing and supply remain highly volatile, leaving Mission Produce dependent on its global sourcing agility to protect margins. Even with diversification into mangos and blueberries, avocados remain the core driver of profitability, meaning persistent supply frictions in Mexico or tariff risks could lead to recurring margin volatility.

While Mission Produce’s infrastructure and diversified sourcing mitigate some risks, the business model may remain structurally vulnerable to external shocks in its primary commodity. The upcoming Peruvian harvest, expected to be significantly stronger than last year, will provide a key test of whether margins can normalize or whether ongoing margin compression is a feature investors must discount.

AVO Faces Stiff Competition From DOLE & FDP

Dole Plc DOLE and Fresh Del Monte Produce Inc. FDP are two key competitors in the global produce market, and their recent quarterly results underscore the different margin dynamics shaping the industry.

Dole’s margins continue to reflect resilience despite sourcing and shipping headwinds. Strong pricing in bananas and pineapples, coupled with higher volumes, supported profitability across key markets. The company has benefited from robust retail demand, cost discipline, and strategic divestitures, allowing it to maintain solid operating leverage. While supply disruptions and tariffs add pressure, Dole’s diversified portfolio and efficiency measures provide a stable margin profile with room for sustainable improvement.

Fresh Del Monte’s second-quarter fiscal 2025 results showcased improved profitability, with gross profit rising to $120.1 million, up from $113.2 million in the year-ago period, and gross margin expanding to 10.2% from 9.9%, delivering a 30-bps year over year. This margin gain was largely fueled by strong demand for proprietary pineapple varieties and momentum in the fresh-cut fruit segment, which helped offset elevated production, procurement and distribution costs, including tariff-related expenses in North America.

AVO’s Price Performance, Valuation & Estimates

Shares of Mission Produce have gained 15% in the last three months compared with the industry’s growth of 6.6%.

From a valuation standpoint, AVO trades at a forward price-to-earnings ratio of 29.93X, significantly above the industry’s average of 14.86X.

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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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

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