Fresh Del Monte Produce Inc (FDP) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Fresh Del Monte Produce's fourth-quarter and full-year 2014 results conference call. (Operator Instructions).

I would now like to turn the call over to the first speaker for today, Christine Cannella, Assistant Vice President of Investor Relations. Ma'am, you have the floor.

Thank you, Andrew. Good morning, everyone, and welcome to Fresh Del Monte's fourth-quarter and full-year 2014 conference call. Joining me today are Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer, and Richard Contreras, Senior Vice President and Chief Financial Officer.

This call complements our fourth-quarter and full-year 2014 press release we made public this morning and you can find that release or register for future distributions by visiting our website at www.FreshDelMonte.com and clicking on investor relations.

This conference call is being webcast and will be available for replay approximately two hours after conclusion of this call. Our press release includes reconciliations of any non-GAAP financial measures that we mention today to their corresponding GAAP measures.

Before we start, please remember that matters discussed on today's call may include forward-looking statements within the provisions of the Federal Securities Safe Harbor laws. Forward-looking statements involve risk and uncertainty which are more fully described in today's press release and our SEC filings. These risk factors may cause actual Company results to differ materially.

This call is the property of Fresh Del Monte Produce. Redistribution, retransmission or re-broadcast of this call in any form without our written consent is strictly prohibited.

Let me turn the call over to Mohammed.

Thank you, Christine, and good morning, everyone. We continued to achieve strong results in the fourth quarter of 2014 capping a year of operational and financial growth for Fresh Del Monte Produce. We finished 2014 with a 7% increase in net sales on a year-over-year basis with all of our business segments and regions contributing.

We grew our earnings per share to $2.74 and we continued our disciplined approach to creating efficiencies and reducing costs throughout our business. In addition, we made progress toward our strategic initiatives allowing us to finish the year in a very competitive position.

As we begin 2015, we remain focused on our initiatives. We are confident the momentum we have built during the past year along with the experience we have in the industry will benefit us as we continue to seek out and capitalize on opportunities to grow our business, drive for profitability and increase the healthy, convenient products we deliver daily to consumers worldwide.

At this time I will turn the call over to Richard.

Thanks, Mohammad, and good morning. For the year 2014 excluding adjustments on a comparable basis, we reported earnings per diluted share of $2.74 compared with earnings per diluted share of $1.57 in 2013. Net sales increased $244 million or 7% to $3.9 billion compared with $3.7 billion in the prior year.

Gross profit increased to $365 million compared to $292 million in 2013. Operating income for the year was $185 million compared with $110 million in the prior year and net income was $154 million compared with $89 million in 2013. For the fourth quarter 2014 excluding adjustments on a comparable basis, we reported earnings per diluted share of $0.20 compared with a net loss per share of $0.29 in the fourth quarter of 2013.

Net sales were $929 million compared with $880 million in the prior year, an increase of 6%. Gross profit increased to $63 million compared with gross profit of $34 million last year.

Operating income for the fourth quarter was $15 million compared with an operating loss of $14 million in the prior-year period. Net income was $11 million compared with a net loss of $16 million in the fourth quarter of 2014.

Now as I turn to our segments I will only give fourth-quarter statistics as reported. In our banana business segment, net sales increased $12 million to $439 million compared with $427 million in the fourth quarter of 2013 primarily a result of higher sales volume. Overall volume was 2% higher than last year's fourth quarter. Worldwide pricing increased $0.06 per box to $13.76. Total worldwide banana unit costs decreased 2% primarily driven by lower ocean freight costs and gross profit increased $10 million to $6 million compared with a loss of $4 million in the fourth quarter of last year.

In our other fresh produce business segment for the fourth quarter, net sales increased $41 million to $401 million compared with $360 million in the prior-year period. Gross profit increased to $49 million compared with $31 million in the fourth quarter of 2013.

In our gold pineapple category, net sales were $142 million compared with $140 million in the prior year driven by higher sales volume in the Middle East and higher pricing in North America. Overall volume decreased 7%, unit pricing was 8% higher and unit cost was 6% lower.

In our fresh-cut category, net sales increased 3% to $90 million compared with $87 million in the prior year driven by the increased number of new customers and channels in North America, the Middle East and Asia. Overall volume was in line with the prior-year period. Unit pricing increased 2% and unit cost was 5% higher than the prior year.

In our melon category, net sales increased 41% to $27 million compared with $19 million in the fourth quarter of 2013. Volume increased 14%, the result of favorable growing conditions in Guatemala. Unit pricing was 24% higher due to lower industry volume and unit cost was 8% lower.

In our non-tropical category, net sales increased 19% to $74 million compared with $62 million in the fourth quarter of 2013. The increase in sales was primarily attributable to higher sales in our avocado, stone fruit and citrus product lines. Volume increased 7%, unit pricing increased 12%, and unit cost was 6% higher than the prior year.

In our tomato category, net sales increased 81% to $33 million compared with $18 million in the prior year driven by higher sales volume. Volume increased 94%, the result of our first full growing season at our tomato operation in Florida. Pricing was 7% lower and unit cost was 11% higher.

In our prepared food segment, net sales decreased 4% to $89 million compared with $93 million in the prior year while gross profit was almost $1 million higher than the prior year.

Now to summarize costs for the fourth quarter, banana fruit cost which includes our own production and procurement from growers increased 1% worldwide and represented 33% of our total cost of sales for the fourth quarter. Carton cost decreased 3% and represented 4% of our total cost of sales. Bunker fuel cost decreased 15% and represented 4% of our total cost of sales and total ocean freight cost during the quarter which includes bunker fuel, third-party charters and fleet operating cost was 10% lower. For the quarter, ocean freight represented 11% of our total cost of sales.

The foreign currency impact at the sales level for the fourth quarter was unfavorable by $7 million and at the gross profit level the impact was favorable by $3 million. Other expense net for the quarter was $5 million compared with other expense net of $2 million in the fourth quarter of 2013.

As for our stock repurchase plan, during the fourth quarter we repurchased approximately 3,049,000 shares for approximately $103.7 million. Total debt at the end of the quarter was $267 million. Income tax expense was $1 million during the quarter compared with income tax expense of $100,000 in the prior-year period. As it relates to capital spending, we spent $149 million on capital expenditures in 2014. We expect to spend approximately $200 million in 2015.

That concludes our financial review. Operator, we can now turn the call over for Q&A.

(Operator Instructions). Jonathan Feeney, Athlos Research.

Good morning. Thanks very much for the time. Great quarter. So I guess coming into this quarter I have to say I was a little surprised. There is a lot going on in the world. You had some supply interruptions, you have some concern around the Middle East. You have currency headwinds. I guess if you could just focus on those too, the sort of any potential disruption in the Middle East and your currency exposure. I would think one or both of those would have been an impact on the quarter. It doesn't seem like they were. Could you give me an update on that?

Actually there was not any disruption in the Middle East of course some markets are in turmoil but we have still been able to supply them in a consistent way. We had other issues where we had oversupply during the early part of the quarter which affected our prices. The results could have been a lot better had there not been oversupply in the beginning of the quarter.

But if you look at the general picture I think our business has -- we have so mature that we know exactly where to allocate the volumes where we have so much diversified in our product lines and so much new customers in the different parts of the world which really takes off the risk of the perishable business as we always knew it.

So I think the major part of why you see a very good quarter in terms of compared to last year we could have done a better quarter as a matter of fact. But it is because of our work and focus during the last few years on diversification and introducing new products and getting into new areas around the world.

Can you give me a rough sense of how much, what percent of sales and profit the Middle East is now?

I can. For the year, about shy of 15%.

Both sales and profit you said?

Sales.

Of sales. Can you give me a sense what that is of profit? Is it above or below corporate index?

We don't disclose the profit by region. Sorry.

Can't fault a guy for trying.

It is profitable business.

It is not only the Middle East. We have expanded in many countries in Europe and Asia so it is not only the Middle East. As well as North America, we have increased our business significantly in North America through new customers, through new channels and so it is spread actually across the board. It is not in one region as such.

For sure. Now the pineapple business clearly gave you some strong results and if you are feeling that then probably others are as well. Is this going to lead to -- what is your outlook for that profit pool in the course of 2015? Do these seem to be the kind of conditions where there would be more supply or more aggressive pricing coming out?

No. I think it is a consistent business. Over the years we have seen the pineapple business being the major market share of all Fresh Del Monte and we keep that going forward. So we are expanding in our production in Costa Rica and other parts of the world so we consider that this would be consistent going forward.

Now when you look at -- something I noticed these past few days if you look at -- particularly in light of the really strong results here, there has been a fair amount of management level selling. I know, Mohammad, you still retain a huge stake in the Company. But is this part of like a multiyear program or can you comment on -- particularly given the coincidence with the Company buying back stock and was it for that reason now is a good time or some managers have had stock for awhile to let it go? I just want to understand maybe what is behind that or if it is just random?

If you are speaking for myself I had plans that have been there for some time. And most of these stock options that I sold during the last several months actually are expiring in a couple of months so either I had to sell them or to just forfeit them. Nothing really out of the ordinary here. Most of the employees have also probably more or less have been in the same situation. It is just the normal way I guess. Nothing out of the ordinary here.

All of the sales you have seen, Jonathan, are a result of 10(b)5 plans. We have a window period that was not open so all of the sales you see of any employees are previously entered into 10(b)5 plans.

That is helpful. Thank you very much. You talk about the diversification, Mohammad, being the reason for the success this quarter. I mean does that mean looking forward these were much -- these were much better numbers than I was expecting. Do you feel that kind of momentum is continuing into 2015?

Yes, as you see, capital expenditures was almost $150 million in 2014 and we expect to spend another $200 million in 2015 and that gives you an idea what we are doing. That money is going into assets which are productive assets, be it in agriculture, be it in the hydro industry and so on. So all of this is really -- I mean we will see the results in a year or two from now but we are spending a lot of money to new projects and new diversification program.

I guess last question for Richard and maybe it is just a follow-up on something I didn't ask specifically before, but you've got some -- three currencies that are significant to you. The ruble again and the euro. Was there an impact on the quarter from the depreciation of any of those three and do you expect that to be an impact in 2015? As part of that, do you hedge? I have never seen you guys hedging that exposure but are you hedging that exposure now?

The euro? Yes, we do hedge that. We have always hedged that.

I'm sorry, the ruble and the yen.

The yen we do, the ruble we do not. It is a small -- relatively small business, very small for us. It is in its infancy. We are there, we just recently started there. You did see an impact in the quarter because if you look at that almost $5 million other expense below gross profit, that is almost all FX loss.

I see. Okay. Is that going to be a major headwind in 2015 from where you are hedged right now?

By the way, Jonathan, some of those markets when we are selling bananas, we do sell in dollars so we are not impacted. I'm sorry, what was that last question?

Would you expect it to be from where you are right now, where you are protected right now, would you expect just those two particularly, the yen and the ruble to be a headwind -- the yen anyway to be a significant headwind in 2015?

Yes, the yen and the euro could be headwinds in 2015.

Got you. Okay, thanks very much for all your time.

Thank you.

(Operator Instructions). It looks like all the questions for today. So I would like to turn the call back over to the speakers for closing remarks.

Thank you very much and we appreciate your presence on this call and hope to speak to you on our next call. Thank you very much. Have a good day. Goodbye.

Ladies and gentlemen, thank you again for your participation in today's conference. This now concludes the program and you may all disconnect your telephone lines. Everyone have a great day.