CVGW - NASDAQ

Greetings, and welcome to Calavo Growers Incorporated Fourth Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the former presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lisa Mueller. Thank you, Lisa. You may begin.

Thank you, operator, and thank you all for joining us today to discuss Calavo Growers fourth quarter 2020 financial results. This afternoon, we issued our earnings release and this document is available in the Investor Relations section of our website at ir.calavo.com. I am here today with Jim Gibson, Chief Executive Officer of Calavo; and Kevin Manion, Chief Financial Officer. On today's call, management will provide prepared remarks and then we will open up the call for your questions. Before we begin, I would 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 our outlook for revenue and adjusted EBITDA are also forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-K and 10-Q. With that, I would now like to turn the call over to Jim Gibson. Jim, please go ahead.

Thank you, Lisa. Good afternoon, everyone. We welcome the opportunity to speak to you today and hope you and your families continue to be healthy and safe. The fourth quarter played out similar to the trends we saw in the third quarter. Avocado volumes continued to expand, reflecting heavy demand and rising popularity across the country. Even so, there was ample supply to meet that demand. Mexico had larger harvest this year, and there was no supply restrictions as we experienced last year. California and Peru also had strong growing seasons, which led to a 22% price contraction compared to last year. Our supply chain remains strong with very low incidence of disruption due to the pandemic. We continue to optimize our supply chain by knowing what our customers want in managing their preferences at the source. Our team is very skilled in matching sizes and grades to customer profiles, which is the delicate balance achieved through decades of experience. In the RFG and Food segments, volume was lower due to the closure of our Midwest co-packer earlier this year, as well as the challenging demand environment in our wholesale and foodservice channels due to the pandemic. While COVID-19 continued to have a negative impact on our business, we remain focused on the things that we can control, including steps to improve processes, innovation, efficiency across our organization. For example, RFG has a strong reputation for its solutions-based approach to serving customers. When demand dropped for grab-and-go products, a high-value category for our customers, our team shifted to meet the rising demand for fast and easy meals at home. We adapted to provide meal solutions such as family sized green salads, vegetable side dishes, and deli service items sold in single-serve configuration to drive sales where deli counters and self-service bars are now closed. The quick pivots we made enhanced our ability to innovate and adapt, which will ultimately leave the Company in a stronger position once we emerge from the pandemic, especially when foodservice and hospitality markets return. I am very proud of our team and want to thank our nearly 4,000 employees for their dedication and commitment. Their collective efforts allowed us to maintain the supply chain continuity and better serve our customers during these unprecedented times. Regardless of the current challenges, we continue to implement our transformative one company initiatives, and we are already seeing the power of operating as one company. Our RFG and Food segments are really beginning to work together to create product sets that are very practical combinations for customers and their cross-selling efforts are paying off to some of our largest customers. We plan to keep expanding into higher-margin food products by developing complementary products with favorable margin profiles. And as we expand our product lines, we will also leverage the Calavo brand appeal to develop new higher-margin products. The current lower avocado price scenario has a silver lining. It presents an opportunity to lower our input costs in our Foods division, allowing us to keep comfortable margins even in the lower volume. With the lower – with the growing popularity of avocados driving double-digit growth in consumption across Europe and Asia, growing international sales is another big initiative for us. In response, we are focused on achieving higher utilizations from our Jalisco packing house by selling into the European marketplace and from our Michoacan plant by selling into Asia. We are excited by the relatively untapped potential for Calavo in those vast markets. Our one company priorities for our employees are to establish centralized leadership, enhance continuous learning and provide career enhancement. To that end, we have consolidated our employee benefits plans and have begun building our management team by adding new leaders in our regional and procurement functions. We're also promoting top employees to the corporate level in areas of quality assurance, marketing, corporate communications, and information technology. In addition, we have raised our commitment to increase communication across our entire one company organization by hosting our first and second employee town hall meetings and publishing a company newsletter. From an environmental perspective, we reduced our office space footprint by about 60%. We also partnered with two food technology companies to offer our customers options to drastically reduce food waste, including Appeal, a plant-based protection barrier that extends shelf life of produce; and Shelf Engine, an intelligent forecasting system that helps grocers more accurately buy perishables. As I've said before, we are very committed to increasing our transparency with all audiences. This year, we accomplished many firsts with the investor community, including hosting quarterly conference calls, this being our third. We also produced an investor presentation, which can be found on our website and participated in two virtual investor conferences with the third scheduled for January. As we close out 2020 and reflect back on the year, our entire team worked very hard to build upon our solid foundation and position the Company for future growth. We made it a top priority to maintain an uninterrupted supply chain. We bolstered our senior management team with key promotions and additions and centralized leadership for all critical operational and financial functions. We initiated programs to consolidate our organizational structure that will deliver improved operational efficiency. We introduced new products and innovative solutions to our customers. We expanded our independent board representation and redoubled our commitment to our ESG initiatives. We maintained a strong balance sheet and ample financial flexibility. We continue to pay an annual dividend to our shareholders as we have for the past 19 years, and we increased it by 4.5% this year. We strengthened our position to capture the increasing demand for avocados across the U.S. and we will continue to push our growth objectives, both domestically and internationally in 2021. As we look at 2021, we expect to see a continuation of current trends across all segments. The large harvest in Mexico, combined with continued impact of COVID-19, will maintain this scenario in which supply remains higher than demand. The silver lining to this situation will benefit the Food segment as lower input costs will allow for solid retained margins and opportunities to gain business. This circumstance is allowing the segment to expand into new selling channels that will be developed as we progress into the second quarter. While RFG is still impacted by the closure of our Midwest co-pack operations through April 2021, year-over-year sales out of existing facilities is expected to continue growing and will provide RFG with the platform to accelerate sales and margin growth during the second-half of the year. With that, I'll turn the call over to Kevin.

Thank you, Jim, and good afternoon from global world headquarters in Phoenix, Santa Paula, California. I'll start by discussing our financial results for the fourth quarter, followed by our balance sheet and outlook. Please note that all comparisons are year-over-year unless otherwise noted. We will also be discussing non-GAAP results and a reconciliation of non-GAAP financial measures is included in our earnings release. We've also updated our Investor Relations presentation on our website at ir.calavo.com. On a consolidated basis, fourth quarter revenue declined $58 million or 20% year-over-year. This was primarily driven by three factors: lower avocado prices, which decreased 22% from last year and had an impact of $30 million; a decrease of $32 million of RFG revenue from the loss of our Midwest co-packing relationship; and the ongoing impact of COVID-19, which particularly impacted our Food Service segments. Even with the decline in consolidated revenues, avocado volumes were up 3% year-over-year, reflecting the ongoing trend of higher consumer demand, particularly at lower price points. Also, excluding the impact from the terminated RFG Midwest co-packing relationship, revenue at RFG increased 3% year-over-year, which we are pleased to see. Gross profit declined 14% year-over-year to $21.2 million from $24.6 million. The gross profit decline was primarily attributable to underperformance in the Fresh segment due to the lower pricing environment and $2.5 million of non-recurring charges from various legacy items in our international operations. These items were slightly offset by improved margins in the RFG business. Our fourth quarter 2020 gross profit margin percentage expanded to 9%, up from 8.4% in the fourth quarter of 2019. Higher gross margins in RFG and Foods more than offset the lower margins in Fresh. Excluding the non-recurring items I just noted, the gross margin percentage would have been 10.1%. SG&A expenses declined 8% to $13.7 million from $14.9 million a year ago, primarily due to the decrease in performance-based compensation, reduced marketing and travel expenses and a reduction in headcount that took effect at the end of the second quarter. As a percent of revenues, fourth quarter SG&A increased by 80 basis points to 5.9% due to lower revenue as compared to 5.1% a year ago. Adjusted EBITDA was $13.4 million for the quarter compared to $14.8 million for the comparable period. This year-over-year decline was due to the $2.5 million of non-recurring charges from the legacy items in the international operations that I mentioned earlier. Absent these items, adjusted EBITDA would have increased by 7% year-over-year, consistent with the guidance that we provided on the last quarter's call. Net income in the fourth quarter was $6.2 million or $0.35 per share, up from $5.2 million or $0.30 a share in the prior period. Adjusted income was $6 million or $0.34 a share. If we exclude the impact of the non-recurring items, adjusted net income would have been $8.4 million or $0.48 per share. Now moving on to our three business segments. Sales in the Fresh segment decreased 18% year-over-year to $118.9 million from $144.5 million in the fourth quarter of 2019. Importantly, while revenue declined, avocado volumes increased 3% as consumer demand for avocado has remained strong. This quarter's higher volume was offset by a 22% decline in the average selling price as a result of increased market supply due to large harvest this year. And unlike last year, when food service and wholesalers that serve smaller retailers and restaurants help absorb supply, COVID-19 continue to constrain or, in many cases, prevent sales to these customers in the fourth quarter. Furthermore, last year's supply was unusually low to a small harvest, both in Mexico and California, which contributed to historically high pricing and margins. Gross profit in the Fresh segment declined to $8.8 million or 7.4% of revenue, down from $12.5 million or 8.7% of revenue in the fourth quarter of 2019. The lower avocado pricing and the non-recurring charges weighed on gross profit and gross profit per carton relative to a year ago. In RFG, sales declined to $99.3 million in the fourth quarter from $125.5 million in the fourth quarter of 2019. While the sales decrease reflects lost sales from the termination of our co-packer relationship in the Midwest, underlying revenues increased 3% year-over-year. As a reminder, our Midwest co-packer relationship ended in late March of this year, so we will lap this comparison during April of 2021. Gross profit for the quarter was $7.7 million or 7.8% of sales, up from $7.3 million or 5.8% of sales in the same period last year. This improvement in gross margin reflects the benefit of the shift to production to our company-operated production facilities and increased manufacturing efficiencies from longer production runs of fresh-cut fruit and vegetables. In addition, we are experiencing higher volumes at our new facilities, which helped contribute to the higher margins. For the Food segment, sales continued to be impacted by softer demand in the heavily COVID impacted food service channel, along with lower volumes and retail as consumer buying habits have not returned to their pre-COVID patterns. For the quarter, sales declined to $17.9 million from $23.8 million in the quarter a year ago. Gross profit was $4.6 million or 25.7% of sales as compared to $4.9 million or 20.4% of sales last year. The higher gross margin was primarily the result of lower avocado costs. Turning to our balance sheet. We ended the year with $137 million of cash, liquid investments and available debt capacity. Total debt at year-end was $28 million, and our leverage ratio was 0.5x. We have a strong balance sheet and low leverage, positioning us to take advantage of opportunistic situations or remain very conservative in this uncertain time. We are also in the process of amending our senior credit facility to extend the term for another five years as well as to allow for greater flexibility with an upsized facility. As Jim mentioned, we declared an annual cash dividend of $1.15 per share, which is an increase of 4.5% from last year. This was our 9th consecutive year of increasing dividends. As we look toward 2021, we see a near-term continuation of the pandemic impact, which makes it difficult to predict when end market demand will return to pre-COVID levels. Therefore, we are not in a position to provide guidance for the full year. However, with respect to the first quarter of 2021, as Jim mentioned, we see avocado supply volumes continuing to grow, which will keep pricing and margins at lower levels than the prior year. Because we do not have a view as to when foodservice resumes, which is an important outlet for non-retail sizes and overall margin support, we expect revenues to be in the range of $215 million to $225 million, which is a year-over-year decrease of 20% at the midpoint, and adjusted EBITDA to be between $7 million and $10 million, which is an increase of 90% at the midpoint from the first quarter of 2020. Again, we wanted to provide such specific quarterly guidance for this first quarter of 2021 as we will not be providing full year guidance due to the uncertainty of the marketplace due to the COVID situation. Lastly, we filed our 10-K today. You will notice we have provided additional details on revenue and margin per pound for our Fresh business to provide more transparency. We've also included tables for adjusted net income and adjusted EBITDA, which are non-GAAP metrics, and which we believe complement the GAAP financial information by providing another perspective on the ongoing operational performance and our metrics we use to manage the business. Before I close, Jim and I look forward to seeing you at the ICR conference in January of 2021. With that, I'll turn the call over to the operator for questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Thank you. Our first question comes from Ben Bienvenu with Stephens. Please proceed with your question.

Hey, good evening, everybody.

Hi, Ben.

I want to ask, Kevin, you made some comments, and you provided detail on the press release as well about the Mexico crop still being abundant as we head into fiscal 2021. Can you elaborate a little bit on what you can tell now in terms of overall crop, I know will still be sourcing primarily from Mexico until at least kind of early summer of next year? But what does California look like as far as you can tell into next summer? And is there any reason to be hopeful that we might see some convergence of kind of return to normal demand patterns at the same time, as we see maybe a transition into a slightly less abundant crop or is that wishful thinking?

Hi, Ben. Yes, absolutely. I think what we're seeing is that the crop out of Mexico, certainly in this bloom is very strong. As we look in -- and we've seen probably annually, we've seen estimates between the probably 8% to 10% all the way up to 20% in growth, we believe that we're more on the 8% to 10% range, and we are looking at the second bloom that is going to come off in that kind of like February, March area, which we believe may be a little bit less strong than we're currently experiencing right now. Yes. And on the demand side, I think, as long as we're operating in the pandemic, and certainly, we know right now that foodservice and the extension out to the restaurant trade is just suffering immensely in this environment. And so until we get some relief from that regard, I think we're going to continue to operate on that side of the world in the same way. On the retail side, I think, retail is moving to increase while not, we would say, promoting very hard, but we are certainly seeing an increase in volume as we're moving through the month -- from month-to-month, so to speak.

Okay. Thank for that. And is it too early to tell what California looks like for the summer?

No, I'm sorry, that's absolutely.

Yes. Sure, sure.

Yes, absolutely. Sorry, I missed that second part of the question there. Yes, I think California is -- if you follow us, it's the -- kind of like the alternate year scenario. It's going to be a bit of a lighter crop. We're seeing probably in the maybe 10% less range than 2020. And then we also -- just in this time of year, while we're waiting for the seasons to change and hopefully, rain to come in, we can experience some wins that are counter to the cropping. So they could have -- they could be influenced from that regard if they get some fruit drop or anything like that, but I think it's going to be -- it will still be a good solid crop. It will just be maybe 90% of what we saw last year.

All right, great. Switching gears a little bit to RFG. You noted the overall revenue change, but you noted the revenue change up 3% ex-Midwest facility impact. Yes, I know that you guys had some new distribution center in Georgia. What else are you guys doing and seeing that's exciting because I know there's obviously headwinds that exist as a result of COVID that are transitory in nature, what are you seeing in the midst of this environment that you're pleased with as you look to grow that business as we head out of COVID?

Right. I think we mentioned it a little bit in the presentation, but those are still fairly young plants that we're talking about, specifically in Atlanta and over in Portland. And what we're seeing, what we're really excited about is the operating efficiency that those two plants are really coming into fold with. I think we've got quite a bit of learning from the openings of Riverside and Florida over the last several years, and those plants are executing very well. So, I think what we're looking for in 2021 is that the full extent of those operations, meaning the six Renaissance facilities are going to begin to perform at a higher level as those younger plants begin to lift the average margin up associated.

Okay. And last quick one for me. You gave the 1Q guidance on revenue. I know a big portion of that will be just absolute price decline in avocados. Any additional color you can offer across the other segments that we should be mindful of as we think about modeling out into next year?

Sure. As Kevin was mentioning…

Just like the 1Q, sorry, I should have said it more clearly.

Right. As the – as Kevin was mentioning, I think, we've got a lot of initiatives, both in Renaissance and in Foods. I think, as a result of pandemic and just the nature of Fresh food, there's a lot of innovation in play. And I think we're getting good foothold on innovation and on new channels to market in that segment. And so, we're looking for that to play out into the -- in first quarter, maybe into the second quarter. On the Food side, it's similar. And I think I've mentioned this a little bit before is that we're seeing maybe in substitution for the standard foodservice type products, we're seeing really nice initiatives on industrial type products that are going out as ingredients for other finished goods. And then even in the U.S., on the industrial side, selling foodservice type products to the industrial marketplace.

Okay. Thanks and best of luck, guys.

Thank you.

Thanks, Ben.

Thank you. Our next question comes from Rob Dickerson with Jefferies. Please proceed with your question.

Great. Thanks a lot. So I guess I just have two questions. First question is just on the volume side. Obviously, volumes were up, which is always positive, but pricing was down a lot, as you've said, for a number of different reasons. So I'm just kind of curious, I guess, maybe for you, Jim, you've been in the business a long time. Depending on categories in food, U.S. statistics can be different. Prices go down, volumes can go up and the prices go back up, volumes can go down. So I'm just curious if you think through next year or more broadly, on the next three, five years, right? If we're kind of reaching, let's say, a more normalized pricing environment at some point, right, which is contingent on the supply and the crop, what have you. Do you kind of feel just -- this is just in the Fresh segment, so like the opportunity for volumes to continue to go up is obviously still there? Maybe it's more international relative to the U.S. if prices go up, right, because the prices are -- and I'm just asking this because I'm just thinking prices you're down 20% in some categories, and you would say, "Oh, wow, look, they're a lot cheaper. I'm going to go out and buy 10% more avocados", you got 3% more. So I'm curious if the prices go up, would you think that buying rates go down or I mean, it seems like consumers just really like avocados, and they're going to continue to buy? So you're almost price inelastic on the volume side? Can may just kind of talk about that a little bit, that would be great? Thanks.

Yes, for sure, Rob. I think the other piece of this on the demand side is that there is the expectation that food service is going to come back for us. And then as we talked before, is that when Calavo is out buying avocados, they're buying the full spectrum of sizes and grades that come off the trees. And so as we do that, we're looking to marry those sizes and grades up with the appropriate customers. And certainly, food service plays a big role in maintain margin in that regard because a lot of that product, either excess product at a certain size or in the number two grade configuration because they're not looking for the fruit they're going to sell at the retail level. We have really nice outlets for it. And so as that matrix kind of plays out when it's really balanced well, it allows for good retained margin and obviously good volume growth. Our expectation is that, yes, we are going to find our way back to the pre-pandemic U.S. marketplace that is continuing in lockstep to increase in volume as we go forward.

Okay, great. And then I guess just on your comments around selling a little bit of some excess supply into Europe and then obviously, the opportunity in Asia is still there. I'm not sure, frankly, because I see my ignorance. I'm not sure if you've really sold into Europe previously or in any material way. So I'm just curious, kind of absent the discussion. On the Asian opportunity, have you learned anything in the past few months, just regarding selling into Europe and maybe Europe actually becomes another driver of growth over the long run? And that's it, thanks a lot.

Yes. Sure, Rob. Yes, I think the big thing for us is that we realize that we've got a build some infrastructure into the thought process of selling into Europe as an example. And so, the idea of finding the right partners in the European theater of getting some -- from our perspective, some boots on the ground that belong to Calavo and begin to evolve that process. So certainly, it's not going to be a light switch, but it is an initiative that Calavo is very interested in developing, and we think that the opportunity is certainly there.

Our next question comes from Mark Smith with Lake Street Capital Markets. Please proceed with your question.

I just want to touch a little bit on kind of demand trends a little bit. Can you talk about food service trends that you saw during the quarter with maybe some reopening during the quarter? And then, what we've seen as far as maybe more shutdowns today during Q1?

Right. So, if we're looking at food service in our world, and this would be both -- we'll talk about both the fresh and the food side of things is that, there's kind of like three different sections. One is the is wholesale, which is the restaurant trade. And obviously, we know that, that's been debilitated by the ongoing shutdowns and things like that. And that's ongoing into the -- it feels like into the first quarter of the year. The next piece is the QSR type channel, and we're seeing that one kind of coming back to a degree as certainly that channel figures out how to service customers in this environment. So as we're looking into the new year, we're expecting that we're going to continue to grow in that arena. And then the other one, which is very strong on the fresh side of things is the likes of a chipotle, which early on in the pandemic really was successful at figuring out the way to connect with their customers, and we're a big supplier and supporter of their efforts. And so those three areas are where we're operating, we think two of three are coming back nicely; and the third is going to be dependent on the end of the pandemic, I'm afraid.

Did you see much volatility, I guess, during the quarter within that? Did you see some maybe signs of life before we enter more shutdowns later in the fall in the winter?

Yes. I would say on the restaurant side, maybe a little bit, but hardly measurable, to be honest, as there if you were following, they were up and down and trying to figure out where they could be in the process. And so, we really didn't feel a whole lot on the wholesale side, but certainly in the other two.

Okay. And then similar question, just as we look at customer trends within grocery stores as we look at kind of fresh versus package, what have you seen as far as evolution from customers and what they're looking forward, and if they're hanging out more at the kind of outside of the store more in a fresh or if they continue to move more towards kind of the enters around more packaged goods?

Right. I think early on, we talked about it, and we -- we're waiting to see, we may feel it again, but early on, there was a movement towards the middle of the store when people were just trying to figure out what the extent of the pandemic was going to look like and how to spend their dollars, but over time, we've seen the customer base move back out to the exterior of the stores to begin to buy produce and deli products again. The next piece of that, though, is that the concept of grab-and-go was challenged as customers move to the remote position, they were cooking more in-house and not going out and buying a sandwich, while they're at work and bringing it back to the office, that sort of thing. So a lot of the Renaissance efforts were to were to innovate and support our customers so there was rationalization of products and then additions of new products in support of the way that people are cooking and eating food at home during the pandemic. And then probably the last piece is shopping habits, is that probably over the last several years in the United States, there was almost the daily drumbeat. People were going to grocery store quite often during the week. And as the pandemic kind of took hold, the shopping habits changed, and that was a movement towards maybe only one or two times during the week with a grocery lift to get in and out of the grocery store. And so one of the things that Calavo is moving very quickly to do on the Fresh side was to get to a bad configuration on avocados, where instead of selling individual avocado, we were also selling heavily in like4 or five avocados in a bag so that an individual, as they shopped, would just be able to pick up the bag, not have to touch a lot of the product and put it in the shopping cart and keep moving. And so, we saw pretty dramatic growth in that type product.

Okay, great. And then the last one for me, just kind of modeling question. As we look at tax rate, it's kind of been all over the place and barring any big changes in statutory rates, is there -- what would you expect for a reported tax rate going forward here?

We've got our reconciliation in the middle of the K there for you on Page 71, but I think there's a few enterprise zone credits that we've had to put on valuation allowances for, so that's probably the only significant permanent difference that you're going to get. So that's probably worth 1 to 1.5 points for us on a favorable side.

Thank you. Our last question comes from Mitch Pinheiro with Sturdivant and Co. Please proceed with your question.

So when I'm looking at -- if you start looking at the Fresh side and you start comparing, you're starting to get easier price comparisons as year-over-year. I mean, clearly, your fourth quarter had some very tough comparisons in September, October, but they're starting to moderate. Is that what you see? Or is it just something that you don't want to try and predict?

Yes, I think what we want to do is specifically is give you a first quarter view, and let's see how the rest of the world works its way out to the pandemic.

But I mean even right now, so in December, and I'm looking year-over-year, instead of being down in the 20% area, I'm seeing prices down, call it, high single digits. Is that not what you're saying or not what you expect to continue? You would think pricing could worsen a little bit here as we enter January, February?

Well, I think as we talked, the supply side is going to grow, particularly from Mexico, anywhere from 8% to 10%, some people have even quoted 20%. So that's a pretty substantial increase in supply. And so, I think it would be fair enough to say that, that would put downward pressure on selling prices, which would probably then have a knock-on effect to margins.

Okay. And then second, when you talk about Calavo Foods and the new channels, what kind of new channels are you referring to that you can share?

Right. When we're talking about -- on the Food side, this is a little bit of the answer I was giving from an earlier question, is that there's a couple of very good channels for us that are also very nice substitutions on the food service side of the world. So the food service product set is generally more of a bulk pack avocado pulp type product, so our channels to market with that going international, where it's sold in and then used as an ingredient going into something else. And then even in the U.S., we sell a similar product, and we're seeing opportunities there where we can sell that bulk type product and sell it on the industrial side to other manufacturers that would use it as an ingredient as well for their finished product.

Okay. Moving on, just two quick questions here, RFG, so you were up 3%, excluding the co-packing comparison, what -- in that 3%, what was the strongest growth, and what was still lagging year-over-year?

Well, so kind of Renaissance sells in three manufacturing areas: So one, cut fruit; another, cut vegetables, convenience style vegetables; and then the other is kind of the USDA certified deli type operations, so sandwiches, salads, wraps, meal solutions, things like that. So in those configurations, wherever we had a grab-and-go type product, those were certainly inhibited. But as I was mentioning over time, what our teams have been able to do very successfully is use the capabilities and innovate into new products that support the way that consumers are now eating in this environment. And so, those just substituted in for items that are kind of pandemic lagging, so to speak.

Are they margin-enhancing, margin-neutral when you make the switch?

I would say in this environment, there they're more margin neutral. They're literally substitutions and using pretty much the same product set ingredient base to achieve them.

Okay. And then final question is just what are you -- your CapEx plans? What are they for fiscal '21?

So we've got a lot of -- we've got infrastructure going into Mexico in support of the supply chain. So looking to optimize our packing house in Uruapan, and then on both the Foods and the Renaissance side, a lot of our efforts are in to optimization of labor efficiencies and materials.

So again, most of it will be certainly in margin enhancement type activities, total dollars will probably be about the same as they were last year.

Thank you very much.

There are no further questions at this time. I would like to turn the call back to Jim Gibson for any closing comments.

Okay. In closing, we believe our fourth quarter results do not reflect our true potential in a more normalized environment. While there will always be uncontrollable factors that influence our results, the pandemic certainly tested our entire organization. Our team not only rose to the new challenges, they also built stronger connections with our customers as we work together to find innovative solutions that will enhance our reputation as valued strategic partner for years to come. We're excited about our strategic initiatives, and we believe we will even be in a better position to compete and succeed in 2021. We wish everyone a very safe and happy holiday season and a prosperous and much anticipated new year. Thank you for joining us today.