Mission Produce’s Q4 Strategy: Managing Risks for 15% Industry Volume Growth

Key Risks to the Expected 15% Industry Volume Increase in Q4

1. Tariff Impact: The company expects approximately $10 million in direct tariff costs on avocado and mango imports annually, with about half attributed to South American production. While this represents less than 1% of total cost of goods, tariffs remain a modest headwind that could affect costs and pricing.

2. Pricing Pressure: Despite the volume increase, pricing is expected to decline by approximately 20% to 25% year-over-year due to higher volumes in the U.S. and international markets. This price pressure could impact revenue and margins.

3. Supply Chain and Operational Disruptions: Last year's harvest season experienced operational disruptions, particularly in Mexico, which the company has addressed by enhancing one of its Mexican packhouses to improve capacity and system efficiencies during peak season.

4. Weather and Production Variability: The volume increase is driven by favorable weather conditions in Peru and Mexico, but any adverse weather could impact production volumes.

5. Working Capital and Inventory Management: Higher production levels have increased working capital requirements and inventory balances, which could pose financial and operational challenges if not managed effectively.

Company Preparations for Potential Supply Chain Disruptions

• Packhouse Enhancements: The company has made improvements to a Mexican packhouse to increase capacity and create system efficiencies, aiming to mitigate operational disruptions experienced in the prior harvest season.

• Global Sourcing and Distribution Network: Mission Produce leverages a vertically integrated international farming and global sourcing strategy, allowing it to optimize sourcing across multiple countries and better manage supply chain risks.

• Advanced Contracting and Programming: The company has undertaken proactive programming and advanced contracting to secure favorable positioning with retail customers, ensuring consistent supply and service.

• Strategic Investments: Investments in international facilities, such as the U.K. packhouse, and expanded distribution capabilities in Europe and Asia support diversified market access and reduce dependency on any single region.

• Financial Flexibility: With a strong balance sheet and a net debt to adjusted EBITDA leverage ratio of approximately 1x, the company maintains flexibility to allocate capital opportunistically to address supply chain challenges.

Summary

While the company anticipates a 15% increase in industry volume in Q4 driven by strong Peruvian and Mexican harvests, risks such as tariffs, pricing pressure, and potential operational disruptions remain. Mission Produce is actively mitigating these risks through operational enhancements, global sourcing strategies, and financial strength to support supply chain resilience and service consistency.