Fresh Del Monte Produce Inc (FDP) 2015 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Fresh Del Monte Produce second-quarter 2015 earnings conference call. (Operator Instructions)

I would now like to turn the call over to your host, Ms. Christine Cannella, Assistant Vice President, Investor Relations. Ms. Cannella, you may begin.

Thank you, Brigitte. Good morning, everyone, and welcome to Fresh Del Monte's second-quarter 2015 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 second-quarter press release we made public this morning, and you can find that release or register for future distribution 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 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 risks and uncertainties 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 rebroadcast of this call in any form without our written consent is strictly prohibited.

Let me turn this call over to Mohammad.

Thank you, Christine; good morning, everyone. Overall, we are pleased with the second quarter of 2015. We delivered higher earnings per share, net income and net sales, compared with last year's second quarter, despite the challenges we faced. Our global value-added fresh-cut business turned in an excellent quarter with increased sales in all regions.

We had higher sales of avocados in North America year-over-year, driven by increased customer base. Higher banana sales in North America and Asia also contributed to the second quarter's performance.

However, our results were negatively impacted by a number of challenges. Foreign-exchange rates in Europe and Asia negatively impacted net sales by over $40 million as compared to last year's second quarter. Inconsistent weather patterns in Central and South America resulted in lower banana and pineapple yields and quality issues with Chilean products.

The decrease in volume resulted in higher banana production costs, with lower transportation costs partially offsetting these challenges. During the quarter we made tremendous progress with our global initiatives to expand our market presence, product offerings, and expand our operational footprint, positioning Fresh Del Monte for enhanced performance over the long term.

Just one example for our growth, we recently began exporting lettuce from our farm in Turkey. You may recall in Turkey a couple of years ago, we started with a sales office, and today we are well on our way to becoming a vertically integrated company in this country, which further solidifies our position as a major food company in the region.

In summary, I would like to reiterate that while the second quarter was challenging, we feel good about the future of our business. The strength of our Company is in our diversification and vertically integrated strategy. The performance in the second quarter highlights the power of having a broad portfolio of products, a strong geographic presence, and flexibility in logistics.

Opportunities in health and wellness, convenience and new distribution channels continue to arise, and we will continue to make investments in global initiatives for fresh and prepared products that will allow us to continue to differentiate ourselves within the industry.

At this point, I would like to turn the call to Richard.

Thanks, Mohammad, and good morning. For the second quarter of 2015 on a comparable basis, excluding asset impairment and other charges, we reported earnings per diluted share of $1.20 compared with earnings per diluted share of $1.19 in 2014.

Net sales increased $3 million compared with the prior-year period. Gross profit decreased $8 million to $114 million, compared to $122 million in 2014. Operating income for the quarter was $73 million compared with $77 million in the prior year, and net income was $64 million compared with $66 million in the second quarter of 2014.

Now turning to our business segments. In our banana business segment, net sales increased to $514 million compared with $505 million in the second quarter of 2014, primarily a result of increased sales volume in North America and Asia, along with higher selling prices in the Middle East. Overall volume was 5% higher than last year's second quarter, driven by increased demand and new customers in North America and Europe, along with favorable market conditions in Asia.

Worldwide pricing decreased $0.43 per box to $15.06 per box, primarily due to unfavorable exchange rates. Total worldwide banana unit costs decreased 1% due to lower transportation costs, partially offset by higher fruit production costs. And gross profit decreased $5 million to $45 million, compared with $50 million in the second quarter of 2014.

In our other fresh produce business segment for the second quarter, net sales increased $6 million to $524 million, compared with $518 million in the prior year. Gross profit was $55 million compared with $56 million in the second quarter of 2014.

In our Gold pineapple category, net sales decreased 12% to $152 million during the quarter, primarily due to lower yields in Costa Rica. Volume decreased 13%. Unit pricing was 1% percent higher and unit cost was 3% lower, primarily driven by lower transportation costs.

In our fresh-cut category, net sales increased 16% to $124 million compared with $107 million in the prior year. The increase was primarily the result of higher sales in all of our regions, driven by increased sales volume with existing and new customers, higher selling prices in North America, along with increased production capacity in North America and Asia. Overall volume was 14% higher, unit pricing increased 2%, and unit cost was 2% lower than the prior year.

In our melon category, net sales decreased 8% to $37 million compared with $40 million in the second quarter of 2014. Volume decreased 10%, unit pricing was 2% higher, and unit cost was 1% higher.

In our nontropical category, net sales increased 6% to $143 million compared with $135 million in the second quarter of 2014. The increase in sales was primarily attributable to higher sales volume in our avocado product line, partially offset by lower sales in our grape product line. Volume increased 21%; unit pricing decreased 13%, the result of unfavorable weather conditions in Chile; and unit cost was 7% lower than the prior year.

In our tomato category, net sales decreased 7% to $31 million compared to the prior year. Volume increased 2%; pricing was 9% lower, the result of industry oversupply; and unit cost was 13% lower.

In our prepared food segment, net sales decreased $11 million to $97 million, compared with $108 million in the prior-year period, primarily due to lower sales volume in our poultry product line. Partially offsetting this decrease were higher sales in our canned pineapple product line. And gross profit was $15 million compared with $16 million in the prior year.

Now moving to costs, banana fruit cost, which includes our own production and procurement from growers, increased 3% worldwide and represented 30% of our total cost of sales. The increase in fruit cost during the quarter was primarily driven by higher production cost on our farms in Central America, a result of inconsistent weather patterns that reduced yields.

Carton cost decreased 6% and represented 3% of our total cost of sales. Bunker fuel costs per ton decreased 38% and represented 2% of our total cost of sales. And total ocean freight during the second quarter, which includes bunker fuel, third-party charters and fleet operating cost, was 8% lower. For the quarter, ocean freight? represented 11% of our total cost of sales.

As to foreign currency, the foreign currency impact at the sales level for the second quarter was unfavorable by $42 million, and at the gross profit level the impact was unfavorable by $24 million.

Other expense net for the quarter was $100,000 compared with other expense net of $4 million in the prior-year period, principally attributable to foreign exchange losses during the second quarter of 2014. As to our debt, at the end of the quarter total debt was $209 million.

Income tax expense was $6 million during the quarter compared with income tax expense of $5 million in the prior-year period. And as it relates to capital spending, we spent $53 million on capital expenditures in the first six months of 2014. We expect to spend approximately $180 million in all of 2015.

This concludes our financial review. We can now turn the call over to Q&A.

Thank you. (Operator instructions). Jonathan Feeney, Athlos Research.

Good morning, everyone. Mohammad, first question is, can you give us a little bit more detail about the Middle East? I expected -- it looks like there's a little bit of decline, and I don't think there's a currency factor there. So I'm trying to understand what aspects of the business faced a little bit of headwind there and if anything has changed, and maybe the outlook for the rest of the year in that business.

Well, the only reason why sales declined, I believe it's the banana volume that was coming to the Middle East was short due to a shortage in the Philippine during the period, and that's the only reason. Otherwise, on every other front, business is growing.

So outside of that fresh banana business, you still have the kind of growth you were expecting?

No, we didn't have enough fruit to satisfy the market. Actually, we would have sold a lot more than what we had received, but the Philippine was short.

I see.

And the Philippine -- and Central America at the same time was short as well. So we had like a double effect from Central America was short and Philippine was short. So we couldn't supply them enough to fulfill their requirements, and that's the main reason why probably their sales came down. But on all other fronts, business is growing fantastically.

Great to hear, thanks. And the second question on the pineapple side, I was a little surprised with some of the pressure on the business. Is this a quality issue exclusively? And maybe it would help if you could -- I don't know if you want to disclose this, but if you could tell us what regions were the weakest in the other fresh produce business, I should say?

You mean in general?

Yes, in general. What regions were ?? I saw there was some decline there. What was the ?? what regions were hit the hardest in the other fresh produce and the pineapple business within that?

You mean in terms of volume or in terms of -- it's Costa Rica because we had a lot of weather, you know. Like I said and Richard said, we had so many weather-related issues during the last three, four months. (multiple speakers).

I'm sorry, Mohammad, I meant like demand reach. So you were short fruit because of production issues as you source in fruit, sourcing pineapples, and I'm wondering where was it that you brought less fruit? Was it the United States, was it Europe? What regions were shorted the most pineapple?

It's across the world really, across all regions. We had shortages when we needed the fruit. So the pricing was good, but the volume wasn't there.

Okay, thanks. And last question I had, please, is -- so as I look at some of the pricing data, the third-party pricing data that's out there, whether from Germany or Southern Europe or the Mediterranean, particularly the Mediterranean, though, you're talking about some pretty low banana prices right now.

And it would seem where this is kind of seasonally you'd be expecting to make bananas about breakeven, get a little bit less profitable for the rest of the year, what's your outlook for the banana business for the next six months with those kind of spot prices out there? I know your volumes in the US have been a little bit stronger; that might offset a little bit. If you could give me some perspective on that, I'd really appreciate it.

Really in Europe, it's not a secret that Europe market is really suffering. It's really in turmoil as well -- not only as far as -- but also the exchange rate has been another huge hit for us and everybody else. You have a bad market and then you have also so much headwind in the foreign exchange area.

So I'm not so optimistic about European markets going forward. However, as a company we are taking all kinds of precautions and all kinds of steps to mitigate this to the minimum, in order not to be really negatively impacted by this situation in Europe. So we have other markets and we have other -- but we need to keep the minimum volumes into the market to make sure that our regular long-time customer is supplied, but definitely, hopefully, without losing money. And that's our objective for the future.

And your regional mix within Europe is still pretty weighted towards the South, right, to Southern Europe?

Yes, Southern Europe is the major markets -- Italy, Spain, Portugal; these are the markets that really make a big difference.

Is there some reason why you are underrepresented in Northern European markets, Germany or whatnot?

It's very competitive markets. German market is a market that will demand below-cost prices, which does not meet our criteria. All the Northern markets as a matter of fact are suffering because of the economic situation on one side. Secondly, we notice that now European markets would rather take a second-grade fruit rather than a first-grade fruit because of the price. So that can tell you what is going on in these markets.

Okay. Well, thank you very much. I appreciate it.

Pleasure.

Thank you. (Operator instructions) Mr. Abu-Ghazaleh, I'm not showing any further questions. Please proceed with any closing remarks.

I would like to think everybody for attending this call and as I said, always -- Fresh Del Monte with always go forward and do better as we move forward. Thank you very much and hope to speak to you soon. Bye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.