Dole PLC (DOLE) 2023 Q1 法說會逐字稿

Welcome to the Dole plc First Quarter 2023 Earnings Conference Call and Webcast. Today's conference is being broadcast live over the Internet and is also being recorded for playback purposes. (Operator Instructions)

For opening remarks and introductions, I would like to turn the call over to the Head of Investor Relations with Dole plc, James O'Regan.

Thank you, Rob. Welcome, everybody, and thank you for taking the time to join us on our first quarter 2023 earnings conference call. Joining me on the call today is our Chief Executive Officer, Rory Byrne; our Chief Operating Officer, Johan Linden; and our Chief Financial Officer, Jacinta Devine.

During this call, we will be referring to the presentation slides and supplemental remarks. And these, along with our earnings release and other related materials are available on the Investor Relations section of the Dole plc website. Please note, our remarks today will include certain forward-looking statements within the provisions of the federal securities safe harbor laws.

These reflect circumstances at the time they are made, and the company expressly disclaims any obligation to update or revise any forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied due to a wide range of factors, including those set forth in our SEC filings and press releases.

Information regarding the use of non-GAAP financial measures may be found in our press release, which also includes a reconciliation to the most comparable GAAP measures. Following the agreement to sell the Fresh Vegetables, these results are reported separately in our financial statements as discontinued operations. Unless otherwise noted, our discussion of our results and outlook in today's presentation are on a continuing operations basis.

With that, I'm pleased to turn today's call over to Rory.

Thank you, James. A very warm welcome to everybody, and thank you all for joining us. So today, we're very pleased to report a strong start to the '23 financial year. While the focus of our remarks today will be on our continuing operations, we are also pleased to note that the Fresh Vegetables division has shown an improved performance so far in 2023 as we work our way through the regulatory process to the planned sale of this business to Fresh Express.

Now turning to Slide 6 and the financial highlights for the quarter. While we delivered revenue and adjusted EBITDA growth, driven by strong performances in our Fresh Fruits and Diversified Fresh Produce EMEA segments.

Group revenue increased by 1% on a like-for-like basis, excluding the impact of foreign currency translation movements in M&A, it increased by just under 4%. These increases continue to be driven by higher pricing.

Adjusted EBITDA increased by 9.3% to $100 million, while adjusted diluted earnings per share decreased primarily due to higher year-over-year interest expense.

Moving on to our operational highlights. In our Fresh Fruits segment, we delivered very strong results in Q1, driven by an improved performance in our European operations. 2022 was a challenging year in Europe as we could not quickly pass on significant cost increases in shipping, fuel and sourcing costs to customers, in part due to the instability in the marketplace following the start of the Ukraine war.

While there remains a challenge to push through further price increases to offset some of the inflationary pressures we have faced, we are pleased to see results moving in a good direction in Q1.

Our North American operations performed solidly with a healthy supply and demand balance and bananas aligned for continued good performance. As always, supply and demand dynamics in the banana market remain an important variable for the year ahead. Overall, we believe the industry remains in a good balance as we head into Q2 with our diverse sourcing base, we believe we are well positioned.

Our Diversified Fresh Produce EMEA segment that's had a very strong start to 2023. Inflationary-justified price increases flowing through from our dynamic pricing model have allowed for good revenue growth across our markets. Certain markets volume have been -- volumes have been more challenging. However, overall, our businesses have performed well through prudent cost management and the continued expansion into growth products and markets.

On an underlying local currency basis, we are very pleased with the performance of the segment. And now the more favorable FX comparative starting in Q2, we hope to see an improved performance on a reported U.S. dollar basis also.

Our Diversified Fresh Produce Americas and Rest of World segment has had a relatively slow start to the year. This is partly due to timing differences for the important Chilean cherry season this year and also due to the implementation of a more conservative strategy for the export of certain products following supply chain challenges in '22.

We experienced disruptions as a result of the fire in one of our Chilean operations during the quarter, although this did not have a material impact on operations and the damage incurred was covered by insurance. Despite these impacts, the scale and range of activity in this segment still allowed us to maintain a solid level of performance overall in Q1.

We continue to perform well on a number of our key product groups such as Chilean cherries and potatoes in North America and additionally, began a number of important strategic initiatives to further accelerate growth in these products as we move forward. Looking ahead to the rest of the year, we are confident that the strategy we've taken will deliver results, particularly in the second half.

Before I turn over to Jacinta, I also want to say a quick word on the ransomware attack we mentioned on our last call. Our efforts to quickly contain the and secure our systems resulted in a limited overall impact on group operations. Our continued operations incurred approximately $4.8 million of costs relating to the incident and the Fresh Vegetables business incurred approximately $5.7 million of costs.

Despite the complexity and cost of this issue, we are very pleased with the commitment of our people, ensuring that our systems recovery protocols worked as anticipated.

And with that, I'll hand you over to Jacinta to give the financial review.

Thank you, Rory. Good morning, and good afternoon, everyone. Firstly, turning to the group results on Slide 10. As noted by James and Rory earlier, the results of the Fresh Vegetables segment are reported separately as discontinued operations in our financial statements, and the focus of our discussion is therefore on the results of continuing operations.

We delivered a strong result in the first quarter with revenue increasing $19 million or 1%. However, on a like-for-like basis, revenue increased $73 million or nearly 4% driven by higher pricing.

Adjusted EBITDA increased $8.5 million or 9.3% to $100 million, with the increase driven by a strong performance in Fresh Fruits and Diversified Fresh Produce EMEA offset by a decrease in Diversified Fresh Produce Americas and Rest of World. On a like-for-like basis, adjusted EBITDA increased 9.9%.

Adjusted net income was $32.3 million and adjusted diluted EPS was $0.34 in the quarter compared to $40.5 million and $0.43 in the prior year. The decrease was predominantly due to a $10 million increase in interest expense.

Now looking at each of the segments in more detail and turning to Slide 12 for Fresh Fruits. The Fresh Fruits segment delivered strong results in the quarter. Revenue increased 6.5%, primarily driven by higher worldwide pricing of bananas and pineapples. Volumes of bananas sold increased on a worldwide basis, whereas pineapple volumes were lower.

Adjusted EBITDA increased 14.6% compared to the first quarter of 2022, driven by revenue growth, which offset higher sourcing costs and higher cost of shipping, packaging and handling.

Now turning to Diversified Fresh Produce EMEA on Slide 13. This division performed strongly in the quarter with revenue increasing 1% driven by higher pricing. On a like-for-like basis, revenue increased 7%. Adjusted EBITDA increased over 21% to $23.4 million. And on a like-for-like basis, the increase was 26%. There was a strong performance across the segment with the U.K. performing well and an improved performance in South Africa.

Finally, turning to Diversified Fresh Produce Americas and Rest of World on Slide 14. Primarily due to timing for the Chilean cherry season as well as lower volumes of berries and grapes, this division experienced a decrease in revenue of 8.8%. Partially offsetting these factors with continued strong performance for potatoes and onions in North America. The challenging quarter for berries and grapes was the primary driver of the adjusted EBITDA decrease of 36%.

Now turning to Slide 15 and reflecting on capital allocation and leverage. Capital allocation continues to be a key focus of the group, especially as interest rates continue to rise. To manage this headwind, we are focused on being strategic with the investments we make, efficiently managing our working capital and on identified opportunities to dispose of noncore assets.

In that regard, we are pleased that as of 31st of March, we have received proceeds from noncore asset sales of $6.5 million. And post the end of the quarter, we received a further $6.7 million from the sale of 2 vessels. We expect to deliver further asset sales as the year progresses. And as of 31st of March, we have $40 million of assets held for sale and actively marketed property on our balance sheet.

Capital expenditure for the first quarter was $20 million, with investments in farm renovations as well as IT, logistics and efficiency projects in our warehouses and processing facilities. For 2023, we continue to expect CapEx to be circa $120 million.

We are pleased that our leverage at the end of the quarter came out at 2.8x, below our targeted level of 3x, driven by strong adjusted EBITDA performance and an efficient management of working capital across the group.

Interest expense has increased approximately $10 million to $21 million, following rising rates over the past 12 months. For the full year, we are retaining our forecast of (technical difficulty).

Finally, we are pleased (inaudible) dividend of $0.08 for the first quarter, continuing our commitment to return cash to shareholders.

Now I will hand you back to Rory, who will give an update on our full year outlook and closing remarks.

Thanks, Jacinta. Well, the operating environment so far in 2023 continues to bring with it both new opportunities and some new challenges. As we noted on our last update, so far in 2023, we do see signs of improved logistical efficiencies in several areas, which is helping to bring more stability to the sector after a long period of severe supply chain disruptions.

We've also seen some unusual weather events. And as we progress through the second quarter, we are closely monitoring the impact of unprecedented rains in California, which continued to impact the vegetables and berry crops in that region.

Lastly, looking at the macroeconomic environment, we do continue to see positives for our business with the strengthening euro, more stable fuel prices and continued signs of inflation moderation in certain areas. However, we are also seeing headwinds with interest rates remaining high and unusual currency movements, particularly with the cost we can call on and being helpful to our cost base.

That said, overall, we believe our strong first quarter has put us in an excellent position to deliver on our full year financial targets. Our business is well positioned for growth. And while the environment we operate in remains dynamic, we do continue to expect to deliver adjusted EBITDA from continuing operations of $350 million for the full year of 2023.

In conclusion, we are very pleased not only with the strong start we've made financially to 2023, but with the progress we are making on the wider strategic priorities we outlined earlier in the year.

To recap, our principal strategic priorities for '23 are: completing the sale of the Fresh Vegetables business; focusing on cost control and operating efficiencies across our businesses, including the ongoing synergy projects; continuing with a disciplined approach to capital; and accelerated growth in our core business.

I want to finish by thanking again all of our dedicated and committed people for their ongoing efforts to drive Dole plc forward, as well as our suppliers and customers for their ongoing support, which provides us with confidence as we look out towards the remainder of the year.

So with that, I'll hand it back to the operator, and we can open the line for questions.

(Operator Instructions) Your first question comes from the line of Chris Barnes from Deutsche Bank.

I guess the first question was just around the EBITDA guidance for the year. I mean, 1Q was a lot better than wheat on the Street expected, but you only reaffirmed the year. I appreciate the challenges that you're having in with the California weather and just uncertainty in the macro.

But can you maybe just elaborate on the decision to reiterate? Is this just prudence on your part? Or are you expecting something specific on unwind some of the strength, particularly as we move into the second half when comparisons get tougher and macro conditions or at least expected to deteriorate?

Yes. Thanks, Chris, for the question. Yes. I mean we're comfortable with the $350 million, and it's still relatively early in the year. Last year, as you know, we have very, very strong Q4 in particular. And so forecasting in the current world that we live in is quite, quite complex. We've got some very big macro issues still ongoing, whether it's the law or whether it's the debt ceiling in the U.S. or very -- all those factors.

So we just felt, while we have strong Q1, and we're very happy with it. We are comfortable with the $350 million, but we didn't think the timing was right to in any way change the guidance for the year. There are some headwinds out there. We've highlight just a couple of them. Obviously, the weather has been a serious issue with the worst rains, I think in the 100 years in California.

And -- the costing, prolong ago we source premature of our pineapples has appreciated very significantly. But I think our history has shown we've been able to manage our way through those challenges. So that really is the overall position we've taken on our guidance and sticking with the $350 million.

Understood. That's helpful. And then just a follow-up. It looks like you're absorbing about $11 million of overhead costs with the restatement of the segment EBITDA just as you discontinue Fresh Vegetables.

So -- to what degree do you expect to work these costs down whether this year or over time? And I guess, is there any timing associated with when you expect to extract some of that stranded overhead? Or is it really just part of the base going forward?

No. I think, Chris, it's fair to say that our objective would be to reduce the head office cost allocation and when we sell that division or when we sell the division. It's an ongoing process. We've got a -- over the last year, so we've had a lot of cost associated with adapting the requirement of the SEC, SOX costs and some of those issues are quite expensive until we get them fully embedded into your systems, and we've made great progress on that.

So our -- we have a specific team looking at our total head office costs. It's always been an ongoing process, and we've got a particular focus on that and planning for the future years to have a rightsized head office cost.

And your next question comes from the line of Ben Bienvenu from Stephens.

Congratulations. I want to start following up with the comments that you made just on rains in California. Kind of what are the near-term impacts of what you've seen there. And then kind of what's the follow-through effects that you see as we move through the rest of this year?

Johan, do you want to make a comment on that?

Yes. So we had 2 incidents of rain in California. The first one was not too bad, but the last one that came about really took some of the crop out. So what has happened is that now where we are right now, we have seen some scarcity and therefore, we've seen higher pricing, and that's one of the reasons also where we have good Q1.

We're also starting off okay with vegetables. But what we see because of the rains and because of how that impacted planting, we see a lot of more volume coming towards the end of Q2. So we do see an oversupply in the market towards Q2. That's the direct impact.

And some higher base costs right now that for our value-added business because of scarcity.

And then the ongoing operations, probably on the berry side, the business has been quite significantly disrupted as well. And the overall scheme of things is not a hugely material number for us.

Okay. Okay, very good. And then thinking about the rest of the year, once you complete the sale of Fresh Vegetables, the balance sheet is in a great position. Can you talk a little bit about your desire to grow again inorganically from an M&A standpoint? And with rates having risen, how has that impacted multiples of potential targets that you might pursue?

Yes. I mean, obviously, the last year or 2 have been periods of consolidation. And such a dynamic environment we have been really focused on making sure we adapt to all the cost changes on our adopted business list. But at the same time, we've been keeping a close eye and what's happening in our world. We have our own internal corporate finance department. We do watch all the transactions that are taking place, the players that are being bought and sold and the companies that are interesting for us.

So I think it'll take a time about moving forward on those. And there are some interesting opportunities out there. We continue to keep our eye on, so far, despite interest rates going up, we haven't seen pricing coming down. I think I've mentioned that before, it does seem to something of a disconnect still between the private markets and the public markets in terms of valuation.

So I hope that's a question for us. And then I think over time, they will get closer, but it's -- our plan is to continue to grow over the medium and long-term. So a good track record of adding in the right M&A transactions. And over the medium-term, we believe we will continue to do that.

And your next question comes from the line of Adam Samuelson from Goldman Sachs.

This is actually [Gimo Stefani] for Adam. I was wondering if you could provide any additional color on the drivers for the year-over-year softness in Diversified Fresh Produce for the Americas, and the visibility of those drivers improving over the coming quarters.

And lastly, you mentioned on your presentation you are implementing a more conservative export strategy? I was wondering if you could provide additional color on that as well.

Okay, [Gimo]. I think part of the reason is quarterly reporting in some segments of our business can be a little bit misleading. So if you look at last year, for example, the grape business out of South-Central America was very strong in Q1 '22. And this year, for some of the supply dynamics was considerably worse.

Having said that, the opposite has now happened in Q2 of '23 versus Q2 of '22, where there was in terms of supply chain problems to this huge lot of products came into the market in Q2. At the moment we don't foresee that's going to happen.

The berry business has been a little bit more difficult and just some timing differences around production issues, but nothing major. And when we spoke with that to a more conservative approach to or strategies, we were really talking about cutting back primarily on some of our export grape volumes that because of some of the problems the market suffered last year.

Looking at all those factors, we still do expect that the full year outcome for this division will be more than satisfactory.

One thing to add there, Rory, is also that the seasonality when it comes to cherries was different this year because the Chinese New Year was earlier. So a lot of the volume was exported in Q4 instead of going into Q1.

Thanks, Johan, yes.

That's super helpful. And if I could follow-up on consumer demand elasticity and if you've seen any change in the trend there, either across the business or across geographies?

Look, we haven't seen material impact of pricing elasticity on demand. Perhaps a little bit of pressure at some of the individual products at the higher price per pound or per kilo of the product. A little bit of pressure perhaps in organics, again on price. But nothing material so far to put.

I mean people -- consumers when they've got discretionary spend, our experience here is that they are continuing to spend that on healthy region and food and vegetables falls into that category, obviously.

(Operator Instructions) Your next question comes from the line of Bryan Spillane from Bank of America.

Two questions for me. One, Jacinta, I just wanted to -- I don't know if I caught the whole thing. I thought you said, in the first quarter, there was an asset sale of $7 million, and then there are another $40 million of properties, I guess, that you're expecting to sell. I just want to make sure I heard that comment in terms of asset sale.

Yes. No, that's correct. So we did sales proceeds of $7.6 million in Q1, and they would have been on our balance sheet at the end of December. And then at the 31st of March, we have another $40 million split between about $10 million of assets that are for sale, and about $30 million of actively marketed properties. So timing is always a little bit challenging, but yes, in total, it's $40 million.

Okay. And then is -- just roughly like how we should think about the cash proceeds? Like is there a taxable event in this asset sale?

Yes, there are in several of them, yes. So certainly, there will be a net cash tax impact on those.

Okay. And then it sounds like -- well, my impression or listening to it, it sounds like you've identified and maybe there are some buyers for some of the properties and other assets -- so like is there a chance that, that number -- the asset sales actually creep up as we move through the year? Like is there a potential for more activity there?

We hope so, Bryan. It's always a challenge. I mean we have others on those figures that are called out, we have sold the vessels. So they were things on our balance sheet at the end of December for sales. So that's an additional sale, and we have got proceeds of $6.7 million for those vessels.

Okay. And most of this -- are you selling vessels? Or is it land? It sounds like it's mostly vessels, but I just want to make sure it's right?

No. So for the $6.7 million post the quarter in, that was 2 vessels that we didn't use in our business, and the majority of the rest of it relates to Hawaii land.

Land, okay. Okay. And then second question, I guess, as we're looking at the end market in the U.S., I think one of the things we've observed is as -- even as some produce prices have come down, retailers are kind of slow to show changes in their cost to consumers.

So just wanted to get your sense, is that accurate? There's been retailers actually capturing a little bit of margin, maybe as their costs have come down? And then kind of your expectation as we kind of -- as we move through the year, do we think that we'll see more of an accurate -- a real-time reflection, I guess, of what's happening not understanding that there's ups and downs with lots of different types of produce.

But just our observation and checks suggest that retailers have been trying to cap -- hold on to that margin and just want to understand if that's a structural change or just something that's more transient?

Yes. My sense of it, Bryan, although it's always hard to call is that it's probably something more transient. I think retailers have been realistic in terms of the requirement and the need to pass on genuine cost increases and at the same time trying to balance the ultimate retail price to make sure that across a wide range of products that consumers continue to buy.

So in the Fresh Produce sector, we don't have any particular evidence of significant changes in any of the pricing and to -- there are any out in the margins that retailers are taking out of pricing.

So on Europe, it's a broadly similar situation. So I think your last comment was the relevant one that it's across such a wide range of products. And in non-banana pineapples, we have a very flexible dynamic pricing model that goes pretty much accurately reflect the moving cost base in those individual products. I don't think there's any material shift there.

And then just one last one, if I can, maybe for Jacinta. Just -- if currencies stayed where they are today, so there's nothing moves, would currency be a tailwind to reported results over the balance of the year.

Yes. No, it certainly would. So we take euro/dollar is probably the major currency for us. And so while we're down approximately 4% in the quarter, it's actually up 5% versus Q4, and about 2% from a full year basis. So yes, we should see some positivity there in our retranslated numbers and similarly with the SEK, and yes, certainly. So although the SEK is...

Right, we're not predicting currencies, but if it stays the same, it'll be -- it should contribute to EBITDA at the balance of the year?

Versus last year. Yes, absolutely.

And your next question comes from the line of Gary Martin from Davy.

Congratulations on a strong set of results. Just a few questions on my side. I'll just start with Fresh Fruits just to begin with. That was particularly strong. I suppose just looking at Q2 and H2, do you think that banana and pineapple supply demand dynamics are still in quite a good place? And do you expecting kind of Q1's robust performance to continue into the rest of the year for basically just my question?

Johan, do you want to comment on that?

Yes. So overall, we started the year when it comes to bananas with a very tight supply. We don't see that continue the same way into Q2, we see a much more balanced demand supply. So it's a balance compared to a tight one.

However, on the pineapple side, we have seen supply tighten up. So there, we see a little bit of a shortness. We believe that is good. So overall, we just feel that we are in a good place when it comes to supply and demand, if you put it all together for Fresh Fruits. So we believe in the Q2 also, that will be healthy.

Excellent. And then just kind of associated with the Fresh Fruits segment. I see commercial cargo. I didn't -- there was no color in either the presentation or the results. Could I just get an update on just how that's performing? It's -- I mean, obviously, I think you spoke previously about the strong performance in FY '22, now continuing into '23. But I mean, has there been some strength kind of remaining?

Yes. We still -- the profits -- the contribution of division has done and a lot of that's dry cargo and the rates of dry cargo to have moved off some of the peaks in 2022. So it's down, but still doing well.

Excellent. And then just a second question just on -- just to kind of lay the land on costs. I mean, I think you called out inflation overall as just moderating, but I suppose, just in terms of shipping and sourcing, just to kind of get some of the puts and takes just in regards to what's increasing and what's decreasing and just your view for the rest of the year?

I think the only broad comment we can really making obviously does appear to be a greater degree of stability around those costs. I think costs -- and I think even in shipping so far on some of the dry containers, you're seeing some reduction in the rates. That hasn't flown through fully into reefer containers, but we're not seeing the level of increases that we saw in prior years either. The rest, it's a mixed bag of ups and downs, but our sense of it is stability and moderation.

And there are no further questions at this time. I will now turn the call back over to CEO, Rory Byrne, for some final closing comments.

Thank you. Well, thank you all for participating and the questions. So I think we can be very pleased with another strong quarter. Obviously, we had some major challenges out there, and we believe we've navigated our way for those challenges pretty successfully.

And in summary, we think we're well positioned to continue to move forward in a very good way. So thank you all for joining us today. Thank you very much.

This concludes today's conference call. Thank you for your participation. You may now disconnect.