Fresh Del Monte Produce Inc (FDP) 2002 Q3 法說會逐字稿

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Good day everyone and welcome to Fresh Del Monte Produce's third quarter 2002 earnings conference call. Today's call is being recorded, the lines will be muted during today's program however following the presentation, we'll take questions from the audience and you can signal to ask a question at that time by pressing the star key followed by the digit one on your telephone key pad.

Once again it's star one to ask a question today. I'll now turn the call over to the Director of Investor Relations and Corporate Communications, Ms. Christine . Ms. you may now begin.

Thank you Operator.

Good morning everyone and welcome to Fresh Del Monte's third quarter 2002 conference call. I'm Christine , Director of Investor Relations and Cooperate Communication.

I'm joined today by Chairman and Chief Executive Officer, Mohammad Abu-Ghazaleh and Executive Vice President and Chief Financial Officer, John Inserra, who will discuss our results for the third quarter, which ended September 27th, 2002.

This morning Mohammad will review our operating performance during the quarter, recent developments and outline and John will review our financial performance. At the conclusion of this presentation they will be ready to take your questions.

Before we turn the call over to Mohammad, please let me remind you that lead to the information we will discuss this morning including the answers we give in response to your question may include forward looking statements, regarding our beliefs and current expectations with respect to various business matters.

These forward-looking statements are intended to follow within a safe proper provisions of the Securities Bland. Our actual results may differ materially from those in the forward looking statements as a result of a number of factors, including those described under the heading description of business risk factors and the company's form 20F for the year ended December 28, 2001.

I would also like to add that this call is the property of Fresh Del Monte Produce, redistribution retransmission or rebroadcast of this call in any form without the written consent of Fresh Del Monte Produce is strictly prohibited.

With that please allow me to turn the call over to Mr. Abu-Ghazaleh. Mohammad?

Thank you and I would like to say good morning to all who is participating on this call. We are really very delighted with our first quarter performance of financial results. Net is of Pineapple rose 15 percent with a five- percent increase in volume and nine increase in pricing compared with the same period last year.

Net sales of Melons improved 14 percent in the 2002 third quarter. Due to increase in volumes. As I have debated banana pricing was down slightly in North America compared with last year at this time but it was up significantly in Europe and Asia. Which pricing.

A gross profit was up in Pineapples Melons and Grapes. Our excellent performance across nearly all our entire product line drove an increase in earnings per share to 57 cents up 14 cents in the third quarter of 2001.

Our balance sheet also continued to spread during the third quarter. Our to 17 percent and all time low. Cash flow from operations for the third quarter was $58 million in fact over 257 million operated cash flow for the first nine months of 2002 the cash flow totaled for the entire 12 months of 2001.

Like our third quarter results were driven by the popularity of our by the fine product line and our continuous operating it's excellence and most advice better foreign exchange lower interest fees and lower taxes. There were also an off set to some extent by the return to normal banana markets in North America.

On the distribution centers we continue to expand our net work in North America during the quarter opening in and California.

We are also pleased to report that we did not experience any major problems with the West Coast Coast price. We were well prepared for this duration and the in fact they are just one of our investors. Fortunately we were able to reach all the demands and of our valued customers by altering our programs.

Over the last several quarters we had expanded our organically and through an accusation. that we continue through the first quarters. Europe is very attractive to us and if we grow it all fresh from these areas. You will record a disclose of the second quarter we have joined the U.K. fresh division a of to penetrate the UK's fast growing fresh cut fruit vegetables and prepared salad markets.

We began to realize the full benefits of the acquisition during the first quarter. Experiencing and technology management and secretary. We recently established a Fresh Del Monte in Germany and we are looking to expand our reach in Norway and center of Europe.

In line with our European extensions strategy we recently remarked that we would spend our majority of in Northern Europe in partnership and this way is subject to approval by European entry trust . Beginning in January 2003 we will have some control over our business activities in Northern Europe. We will expand and control of the marketing and sales of our products which will help us to improve margins, increase volumes and build profits in Northern Europe.

We are also looking to build our businesses central European Countries that represent strong growth opportunities. Over the last two or three years the central European on supermarket business has gone through a dramatic transformation.

Largely retail grocery chain have taken over the market and they are dictating plans to or for importers. German, French and British chains are all moving aggressively to gain foothold in this rapidly expanding industry. Size and scale matter in this new environment. So I think we'll see over the next year or two also believe that global grocery chains will move into the market to capture market share.

These retailers will need global partners to supply their needs on short notice. This will be part of the development for Fresh Del Monte and we are by virtue our Gold product line vertical integration and Global in a unique position to supply their needs.

In closing I would like to that I'm extremely proud of our third quarter results. More importantly however is that I believe they are sustainable. We have an excellent track record and we have undertaken every available measure to reduce our risks to control over environmental factors that will impact our earnings.

In other words we have done everything possible to ensure that our earnings remain at these or better levels year in and year out. At this point I would like to turn it over to John to give you some financial highlights of the quarter - John.

Thank you Mohammad and we are very excited about Del Monte - Fresh Del Monte's performance during the third quarter of 2002.

Net sales increased 16 percent. Gross profit was up five percent and for the nine-month period net sales and gross profit were up six percent and 17 percent respectively. Strong earnings drove operating cash flow for the quarter to 58 million as Mohammad said and to 257 million for the nine month period. This is a 49 million-dollar improvement over last year at this time.

The excess cash allowed us to further strengthen our financial position the business has generated more than 575 million dollars in operating cash flow since 1999 and we have used it to pay down more than 345 million dollars in debt since then and we have invested more than 235 million dollars in organic growth and acquisitions that provide synergy.

During the third quarter we continued to be leverage on our balance sheet as previously mentioned. Our debt to equity ratio was 38 percent at year-end 2001. 22 percent in June and now 17 percent. That debt reduction rate gives you some sense of the focus we have on this mission. Once more we have already paid off the 37 million dollars we expended in late June on the U.K. Fresh Cut acquisition. As Mohammad said this debt reduction for the quarter yielded 3.2 million dollars in lower interest expense as we move forward we will continue to pay down debt, while in the infrastructure that will foster our growth.

We benefited by $2 million during the quarter from foreign currency translation, particularly Europe. We also profited from $4 million in lower taxes.

During the third quarter net sales of bananas rose by percent as a result of increased pricing in Europe and Asia. The anticipated reduction in North American banana pricing resulted in a $9 million decline in banana gross profit. For the first nine months gross profit in bananas increased 15 percent compared with the same period last .

However in the other produce category, net sales for the third quarter increased 26 percent, with gross profit increasing 28 percent. On a year to-date basis, the other produce volume and net sales increased six percent and nine percent respectively with gross profit increasing 17 percent. This tremendous increase in gross profit was the result of increased volume and price, and reduced reduction costs in all major products.

Our pineapple business performed exceptionally well during the third quarter with volume rising percent, sales increasing 15 percent, and gross profit growing 18 percent. On a year to-date basis both volume and sales prices of pineapples have increased with gross profit up by 10 percent.

Melons also performed very well during the quarter with volume up 21 percent over last year. For the nine months melon volume increased 14 percent with a with a rise in gross profit of 37 percent over last year's level.

Volumes in sales prices on grapes was also favorable in the third quarter. On a year to-date basis volume has increased 14 percent, with gross profit increasing 17 percent compared with last year.

Fresh sales increased dramatically during the third quarter as a result of our U.K. acquisition combined with continued growth in our North American operations. For the first nine months fresh sales in North America have achieved over the prior year.

Our distribution centers reported a 24 percent increase in sales for the third quarter. On a nine-month basis our distribution centers have an increase in sales of 23 percent.

Based on conversations with the and other experts, we reported a charge during the third quarter of $7 million to increase the accrual for the expected future clean-up costs on the site in Hawaii. This increased our total provision $26 million for the .

On the topic of corporate governance's, we have put in place all the standard operating policies and procedures with regard to requirements. And of course we will file our when we submit the company's form 20-F.

I'd like to turn the call over to the Operator for question and answer session.

Thank you.

If you'd like ask a question or make a comment, you may signal us by pressing the star key followed by the digit one on your telephone keypad. Once again, press star one on your telephone if you'd like to ask a question or make a comment.

We'll pause for a moment to assemble the roster.

Our first question today comes from of Bear Stearns. Please go ahead.

Thank you. Good morning everyone.

Morning, Perry.

Can you hear me OK.

Yeah we very well, thank you.

OK. Congratulations.on another very strong quarter. Just a couple of questions, John in terms of the tax rate, where do we expect that to go if you could just give us a little color on why it is as low as it is and what's your outlook is as we go into the fourth quarter in next year?

Well as far as the fourth quarter and the year is concern more precisely I think we should really look at the full year. I would say we probably have a similar quarter to this quarter in taxes finishing up around you know $15 to $3 million of taxes, somewhere in that neighbor.

OK. And what would you look for zero three there?

I would say if similar number.

OK. Can you just refresh my memory on why it is so low?

Well as you know we have been generate quite a bit of income from the other regions of the world not so much on the U.S. so there is a shift into those regions that do have lower tax we have a smaller tax rate in those regions.

OK. And obviously you did extremely well in your non-Banana businesses during the quarter. Could you give us a little more color on what was going on there, was that I guess what I'm getting to is how much of that may have been possibly new accounts, new territories you know as oppose to selling the other items of fruit you know in kind of the same store basis if you would.

Just a little more color there on you know the reason on such a strong performance?

The strong performance is up and on going way of our development. I mean it's not - it's nothing it's not a particular one you know quarter. I do have seen during the last eight quarters probably, we have been performing more or less in the same pattern and you know we have been vertically in financial development.

This is actual what you see in the last seven eight quarters is a result of our strategy and planning that we have done several years back which started paying off right now. I don't want to go into details but I think that at least if you were going in the right direction.

You know we are growing older in every aspect of being additional building new customers and new additional market share, lower force better margins hold by verification. So we are really addressing all the elements in the business and I believe we are gaining an almost every let's say buckets center or margin center that you can think about in this business.

So really it's a combination of so many factors working together which I would not like to make a you know on a conference call to tell this but it's a part of the strategy and it's a result of this strategy that's how I can you know categorize this.

OK. Can you tell us how much the Fresh Cut business added in sales for the quarter, is that possible?

Yeah we increased the third quarter sales by over $35 million for the quarter.

Oh that's what it came in at is around?

No that's the benefit we're up to about 55 million.

55 million OK. And then one more quick question and I'll yield the floor. Mohammad when you and I spoke earlier on banana pricing, I think it was your believe that at this juncture it looks flat in '03 as opposed to this years is that still what your looking at.

You mean more or less and the same. Right now I believe that north American markets are more or less flat in terms with pricing and why I don't see a you know a prices that we had seen you know last in the past. As far as Europe it's a I would believe that by sometime next month the market start picking up again as well as North America. I believe that the Far East as well will pick up as we go forward in the next few. So more or less for next year I believe that we will see maybe a sustainable more as we have here.

OK so kind of flat to in '03 is that what your looking at?

Yes I believe that it would be more flat.

OK, very good thank you very much and congrats again.

Up next we will go to .

Good morning.

Good morning.

We were all over this quarter just like everybody else and a good job. Let me try and break down a couple of things following on question. If we take a look at the gain in versus the gain in gross margin obviously we are either to give it some slipping which you said was North America some what but still producing a lot cash flow which is good so I want to pose this in the most positive way.

If we take a look at Europe and say that at some point there is got to be a response in the demand in terms of supply and demand. If we were to get some over there what kind of an impact would that have John on the gross profit.

Well I you know the banana really I guess you are referring to bananas but I think we feel that the banana regime is in for the next few years and so we end of our five and so I don't expect any major there in profitability in Europe but I think that's what gives us the ability in the profit in gross profit.

So we are not going to wake up one morning and find out that banana prices are down 10 percent in Europe and the bottom falls out of this thing.

I don't believe that I believe that Europe is very more or less market you know we know when the market is going to get soaked and we know when it is going to get stronger again so I would say it depends on the license availability of each quarter and some indicator of how the market plays.

All right.

All we believe that it is more or less the simple.

By the way I don't know if it is my phone or not but you are kind of breaking up here I think we got most of that. The second thing I wanted to find out is I know we had some supplying problems this year in terms of production problems without looking at the demands side so much could you talk about the supply issues a little bit and which countries maybe coming back in '03 versus which ones may have been down in '02.

I don't think you have to got the short digit applies during the I mean from Central America.

All right.

We didn't have any major shortages there so the markets were supplied the only markets which was really short in one way was the the and the and that drove the prices you know dramatically up and I think it was a good plus for us and maybe and for a good plus for us, and maybe for everybody else in this market.

I believe this trend might continue as well for the next year because what we see right now is some indications of effect in the Philippines taking place, and that might as well continue the trend that we have seen through 2000 - this year, .

OK, sir. Now John, how much do you have over the tax rate, on where you're going to allocate some of your profits?

We don't have any over the tax rate. What it comes out to be is what it comes out to be.

the ability to shift some of your profits in there? Listen I'm not - this is not a negative statement here, I'm just trying to figure out I guess ...

we don't shift the profits, they get earned in those market places. And as you know, we had a lot of earnings this year in Asia and our continued earnings in Europe, which has a different tax structure than the United States.

John, where do you think we ought to wind up this year? What would be a going-in number to use for next year?

Well I think we'd see a similar pattern what we have in the third quarter, probably the fourth quarter. And then I believe pretty much have numbers over the next year. With some, you know, expansion.

I'd use those kind of percentages on the tax.

Well I would start selling John. I was talking about absolute earnings levels.

What is that you have already in - you know, the estimates that you have already in place?

So you're saying that the estimates that we're using out there obviously have to go up, unless you're looking for a lousy fourth quarter, 'cause you're is pretty good in the third which is a trend we'd all like to see continue.

We are not trying to , trust me. We are trying to do a better job that's all that we are here for.

Please don't let us stop you. Continue to through the estimates. We're just trying to figure out what numbers you want to blow through.

I believe that we should keep the fourth quarter as it is, as per your estimates. And we'll see for - you know, we are just at the beginning of the quarter, and we believe we can achieve the estimates that you have put in place. But let's not get overboard, you know, and ...

Exactly right Mohammad, and I don't want to. And then I'm going to, you know, 'cause I'm sure that our boys in Minneapolis want to get on here. But I'm just trying to say, should we be using double-digit growth for next year? Should I use up 25 percent, should we use up 10 percent?

I just want to make sure that we're at least pointed in the right direction besides up. Because we've got to put a multiple eventually on these earnings Mohammad.

And there's a problem is that the multiple does not apply on the . That has come into practice, what I see right now.

All right. somebody else to give it a shot. Thank you.

Thanks.

And moving on we'll turn to Heather Jones.

Good morning. It's a great quarter, congratulations.

Good morning Heather. Thank you.

I have a question. I was just wondering, the U.K. acquisition that you spoke about synergies, and I was just wondering if you would tell us how much that added to the quarter?

In sales that added about $25 million for the quarter, in sales.

Are you going to - willing to tell us how much it added in earnings?

No we are not - we haven't made that public yet.

It's Heather.

OK. Thank you.

As far as Mohammad, your outlook for for '03, is that for Fresh Del Monte in the sense that you're beefing up your distribution network in the U.S. so you know, that helps your pricing or I guess the sales number for the product that goes through the distribution center? Or is this just your overall industry outlook for the in '03?

You know, from day one I always said I'd love to - I would like to be looked - as Fresh Del Monte would like to be looked as on our own as an operator and I think it will be unfair to - make and compare us with the industry. You know because we have been out there forming the industry and I think that this is part of our strategy - the way we handle our business. So I believe you know like always saying that we will sustain our operation I will sustain our performance as we go forward.

Now whether the market is going to the same or not it's a different question. But we have our own means and ways to hopefully be able to contain our course and make sure that we maintain our margins.

Hopefully the prices will remain as I said earlier the prices will remain more or less the same but we have seen during this year but our objective - our target actually is to maintain our profitability and our performance.

OK I guess is as far as Asia I mean provided a big boost to pricing this year and just wondering when your looking at '03 what y our assuming for Asia are you assuming that you cycle that and remain flat or are you assuming that U.S and E.U. pricing are able to offset Asia...

We assume, we assume - probably more modest decline in pricing in the Asian market for next year. We don't believe that we can achieve - the prices that we have achieved this year. However this might change you know as we go forward as we go you know in the year and maybe this will also be a positive as we go forward.

But what I would like to stress again that when we tell you that we will do our - we will continue to maintain our performance that is a fact. You know I mean regardless of the market and - because you have to understand that we have so many markets at the same time you know if is not doing well maybe Europe will be doing better or maybe North America will be doing better or other parts in the world will be doing better.

So we don't look at our business you know in one area or in one variety or category but we look at the business as a whole and the way we operate it means that we can achieve the targets that we put in place.

OK, thanks and the final question is hearing that there's been some strikes in that independent producers have been blocking roads and refusing to export because of - I think the minimum box price is like three dollars and supposedly some big exporters have only been paying I don't know like a buck a box or something. Just wondering has that impacted you all and looking to the fourth quarter I mean do you see that being a problem or you just think it's more of a short-term issue?

I don't believe that it has in any way has been of any importance whatever you listen to the news or you read in the papers is out of context. There hasn't been any shortage or any stoppage or any interruptions what so ever and I believe if it were if it does it will be a plus for us to be honest with you because it will fair better supply situation at the market and push the prices up but it didn't happen.

I don't believe it's going to happen you know, you read a lot about it, but it's just, you know, news.

OK. Thank you.

Appreciate it.

Moving now I'll go to at U.S. Bancorp.

Hi eveyone?

Hi how are you doing?

A quick follow up on the Fresh Cut revenues for the quarter John you might be able to answer this. You had the U.K. acquisitions for what about nine weeks or 10 weeks a little over two months?

Oh no we had the acquisitions for the full quarter.

Oh you had the full quarter OK. Sold?

Sold in June.

OK. Close in June I had in Mid July in the back of my brain. I guess I'm silting on that. What that about 15 - 20 million of revenue then?

I having with somewhere in the neighborhood of 25 ish.

OK got your. OK. And the other income expense sign you know currency and your equity earnings in the quarter were what currencies obviously were favorable?

Like currencies is a major plus in the three month period and some other monies we got from some other proceeds from some insurance and other things in there. But the primary driver in there is the gains in the Euro.

OK. That's the Euro.

It bounces last year's really what the problem was. We had wall to the mill last year as a recall.

Yeah that's correct. OK so you still had a major swelling on that side of it. And you equity earnings were louder material items for the .

Oh the equity earnings we've made this quarter is not a big equity earnings quarter.

OK. Good. And then the final question and either John or Mohammad can address this but you've got a major improvement in Asia this year. You know are we at the beginnings of improvement there or is there more marginal improvement that we can see coming forward in the next year or two in that business?

Which business, Aer, I mean?

In Asia Mohammad?

Like all earnings across the board or?

Well I think the major issue was I think it was Bananas out in the a year ago that would be primarily what I'm interested in?

Well as I mentioned a few minutes earlier to Heather, we believe that the pricing would be a little bit down I mean for next year.

OK.

But of course this might change as well and it could be still better then what you experience of. We are looking for a softer pricing you know because of supplies, however this can change as we go forward.

Sure even in through to the next couple of years in terms of the size of the markets and gaining some share in those, could we see a bigger business in total in Asia?

We are expanding our business quite rapidly in Asia you know through vertical integration you know we are expanding.

Yeah.

In a big way you know we are starting Fresh Cut operations, we are expanding our Fresh Cut operations in Japan. Just started just completing DC completely in UDC in Hong Kong. So we are expanding all most and every market that we are in be it Asia or Europe or America, we are expanding in all simultaneously.

OK good. Final question I have is are you fully positioned now for the well in Hawaii or do you expect more, do you expect more charges to that?

I believe that we would look at it when you know when the time as we go you know as we go forward.

Yes. At the moment we are you know fully provided at this point but again you know this is Government now.

Yeah I hear you. And I must coming back to that's a non charged in this quarter but it will be cash as you complete the project is that correct.

Yes but it's over a long period we are talking about many many years of .

OK.

I had in any one year it won't be a dramatic hit.

OK, all right thank you everyone.

.

Moving on we'll go to of .

brole|Pierre|Brole||PD Holdings|m: First I want to congratulate I wanted to add the word thanks as a shareholder. My question has to do with this morning about melon and some Mexico several years ago there was some strawberries that made people sick any way the question is can you ensure against this type of event.

No actually no it is good you brought the subject because we are the biggest melon producers probably in the World single producer in the World and we are the number one I would say marketer. Once the melons in North America and Europe and Mexico though we have some production in Mexico but it is not coming through our funds it's coming through several parties that we contract with on annual basis which usually comes in the next two or three weeks and stay till about end of January or February. This by the way is a positive you know just a positive news for us because if we have the which we believe has halted all influence of Mexican melons in to the U.S. will give us tremendous leverage as our off season melon season which will be starting very soon from and .

brole (?): I would like to add the thanks goes not only to Modammad John and but to all of you guys through out the company.

Thank you very much we appreciate this and we value it very very much .

And moving on we'll go to with .

rude|Alan|Rude||Principle Capital Management|m: Hi good morning if my math is correct and it may not be it looks to me like cost per volume is going down would you what would you guys attribute that to if I am right is it just of more volumes part of the same fixed cost base or is has there been any material cost reductions in or labor or packaging or anything like that.

You hit the whole efficiency across the board.

OK.

We have been efficient in every phase of the operation to be honest with you and I on that what we see right now is a reflection of that efficiency.

OK thanks.

And before moving on I would like to once again remind our audience to press the star key followed by the number one if you would like to ask a question. Let go to at .

peddlebomb|Leonard|Peddlebomb||Merril Lynch|m: It's been asked and answered thank you.

Thank you. We will go to with .

flinkered|Howard|Flindered||Flinkered & Company|m: Hi I didn't hear your explanations for the shortage in the because your phone was breaking up what happened there.

Well we have had there the production was down because there was a drought and there was not enough rain in the during the past seven or eight months and that brought down the production in general a little bit down plus actually the market improved in general so you know there is a little shortage as well as better markets which produce a better pricing an over all pricing for almost the whole year.

Are many bananas grown in where the is very aggressive.

That's where the bananas are .

That is where the bananas are or that is not where the bananas are?

That is where they are from. I'm saying where the bananas are, actually secured the space area.

Oh I see OK, and the other question or two relate to IAT, how much does IAT own of Fresh Del Monte?

Today it owns 60, about 60 percent.

Around 60 percent and what is the ownership of IAT?

What do you mean by what is the ownership?

Who owns IAT?

My family, just you're family?

Yes.

Oh I see OK. Thank you.

Thank you.

And as a final reminder it's dial one to ask a question. And it looks at this point we haven no further questions, but to Abu-Ghazaleh I'll put things back to you.

Thank you very much, and I would like very much just to emphasize again that we continue to move our company into a high gross value added enterprise. As you know we have the companies from one with almost no growth to a global producer with a strong balance sheet. A highly recognizable brand, vertical production logistics and marketing operation as per the performance.

Our goal is to achieve and have a sustainable profitability each year, not each quarter and we believe that we cannot only achieve that but that we can do it while we out perform our piers market place.

All the components of the company are a step to generate income cash flow and profit as we go forward. Thank you for participating in this call today and hope to talk to you soon. Thank you very much.

That concludes our program, one second everyone thank you for dialing in and have a pleasant day.