Fresh Del Monte Produce Inc (FDP) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2016 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions you will follow at that time. (Operator Instructions).

I would now like to turn the conference over to Christine Cannella, Assistant Vice President of Investor Relations. You may begin.

Thank you, Melissa. Good morning everyone and welcome to Fresh Del Monte's first quarter 2016 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 first quarter 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 we mention today to 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 the call over now over to Mohammad.

Thank you, Christine. Good morning, everyone.

We had a great first and a very good start of 2016. We benefited from these packages we have put in place over the years to diversify our business, maximize operating efficiencies and control costs. As a result comparable earnings to diluted share climbed to $1..57 compared with comparable earnings per diluted share of $0.83 for the first quarter 2015.

Net sales increased in our other fresh produce and banana business segments with net income 86% higher year-over-year at $82 million. Throughout the quarter we continued to make investments in our [grower] production and sourcing capabilities and we enhanced our distribution and value-added footprint to meet growing consumer demand for healthy and nutritious food that is also convenient and ready-to-eat. We believe opportunities to expand our product offerings across distribution channels and markets will remain an area of growth for Fresh Del Monte Produce.

In closing I am pleased with the strong start to the year and I'm optimistic about the future of our business. We will continue to (inaudible) our long-term plan which will enable us to build value by computing unique growth opportunities that further strengthens our competitive position.

At this time I would turn the call over to Richard to discuss our financials in more detail. Richard.

Thank you, Mohammad, and good morning.

For the first quarter of 2016, excluding asset impairment and other charges in 2016, on a comparable basis we reported earnings per diluted share of $1.57 compared with earnings per diluted share of $0.83 in 2015. Net sales were $10 million higher than the prior-year period. Gross profit increased to $141 million compared to $100 million in 2015.

Operating income for the quarter was $91 million compared with $58 million in the prior year. And net income was $82 million compared with $44 million in the first quarter of 2015.

Now turning to our business segments, in our banana business segment net sales increased to $459 million compared with $454 million in the first quarter of 2015. Driven by higher sales volume in Asia and the Middle East, primarily as a result of of some of our expansion in the Philippines coming online. The increase in net sales was partially offset by lower sales volume in Europe.

Overall for bananas volume was 2% higher than last year's first quarter, worldwide pricing decreased $0.8 to $14.81 per box, primarily a result of the carryover of strong industry supply in the fourth quarter of 2015. Total worldwide banana unit cost decreased 3% primarily due to lower transportation and fruit costs and gross profit increased $13 million to $49 million compared with $36 million in the first quarter of 2015.

In our other fresh produce business segment for the first quarter, net sales increased $16 million to $481 million compared with $465 million in the prior year. Gross profit increased $26 million to $77 million compared with $51 million in the first quarter of 2015.

In our Gold pineapple category sales increased 3% to $125 million during the quarter due it higher sales in North America the result of higher volume. Overall volume increased 4%. Unit pricing was 1% lower and unit cost was 2% lower.

In our fresh cut category net sales increased 23% to $117 million compared with $95 million in the prior year. The increase was a result of higher sales in all of our regions driven by increased sales volume with both existing and new customers, continued expansion in multiple distribution channels, along with higher selling prices in Asia and North America. Overall volume was 23% higher, unit pricing was in line with the prior-year period, and unit cost was 3% lower than the prior year.

In our non-tropical category net sales decreased 8% to $83 million compared with $90 million in the first quarter of 2015. A direct result of lower grape and stone fruit production from Chile. Volume decreased 13%, unit pricing increased 5%, and unit cost was 4% lower than the prior year.

In our avocado category net sales increased 10% to $44 million compared with $40 million in the prior year as we continue to grow our avocado business in North America to meet increased customer demands. Volume increased 47%, pricing was 25% lower, and unit cost was 28%.

In our prepared foods segment net sales were $79 million compared with $90 million in the prior year due to lower sales in our poultry and canned pineapple product lines. Gross profit was $15 million compared with $14 million in the prior year.

Now moving to costs for the first quarter. Banana fruit costs, which includes our own production and procurement from growers, decreased 2% worldwide and represented 32% of our total cost of sales. Carton costs decreased 5% and represented 4% of our total cost of sales. Bunker fuel costs per ton decreased 48% and represented 1% of our total cost of sales. And total ocean freight cost during the quarter, which includes bunker fuel, third-party charters and fleet operating costs, was 15% lower. For the quarter ocean freight represented 10% of our total cost of sales.

As to foreign currency the foreign currency impact at the sales level for the first quarter was unfavorable by $11 million and at the gross profit level was unfavorable by $2 million. Other income net for the quarter was $3 million compared with other expense net of $6 million in the prior year. The change was principally attributable to foreign exchange gains during the first quarter of 2016 compared with foreign exchange losses during the first quarter of 2015.

As for our stock repurchase plan during the first quarter we repurchased approximately 1,616,000 shares for approximately $64.5 million. At the end of the quarter our total debt was $280 million, income tax expense was $11 million during the quarter compared with income tax expense of $5 million in the prior year. The increase was primarily due to the higher earnings.

As it relates to capital spending we spent $34 million on capital expenditures in the first quarter of 2016. We expect to spend approximately $160 million in the full year 2016.

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

Thank you. (Operator Instructions). And our first question comes from the line of Mitch Pinheiro interest Wunderlich Securities. Your line is now open. Check your mute button.

Hello. Can you hear me.

Yes, we can hear you, Mitch.

Thank you. A little technical difficulties here. So, first question on banana supply and demand outlook. You know, how does that you know right now? It looks like, you know, Europe was down for you in terms of volume. Was that a price decision that you opted not to sell there? I would love to hear your thoughts around that.

Every market we look at -- the volumes and location is based on what is favorable to the Company. So the movement of the fruit is usually based on (inaudible) and not based on market share. So whatever we have seen in Europe or the North America or other parts of the world is based on actually where our interest rests and that is the reason there is more or less than one market or the other, Mitch.

And what's the outlook -- what's the current supply and demand outlook?

More or less it's -- at this time I think it's well balanced. I don't believe that we have the same kind of trend that we had last year. I believe that this year could be better in terms of volume consistency that we would not have the huge uptick that we faced last year. So I hope and I believe that it could be a more smooth sailing during the second half of the year.

And is that on pricing?

No. I'm talking about volume and usually volume, you know, dictates pricing. So if volume is not extreme like what happened last year.

Okay. Understood.

Hopefully pricing would not be affected negatively so much.

Okay. And just one more question on bananas. I saw that a news story where you were looking to purchase 3,000 hectors of land in Panama. Where does that stand now? What's the status of that and if you could explain the strategy behind that.

Well, we'll start with strategy, and we have said it so many times, is that we would like to increase our own banana, sourcing our bananas rather than third parties. That's the strategy. The second thing is that we look at many parts of the world and Panama is another, you know, location that we could look at. Nothing (inaudible), nothing serious. It's just, you know and sometimes you read in the papers more than (inaudible). It's one of the, kind of, potential areas (inaudible) that (inaudible).

Okay.

Nothing -- nothing firm. Nothing confirmed.

Okay. And then -- all right. That's it. I'll pass it on. Thank you very much.

Thank you.

Thank you. (Operator Instructions). And our next question comes from the line of Jonathan Feeney with Athlos Research. Your line is now open.

Good morning. Thanks very much.

Good morning, John.

When I look at the units cost performance in bananas can you give me a sense of how that splits between your actual third-party sourcing costs and just strong performance around efficiency and growing?

It's -- you know, we don't give those compact numbers, Jonathan. It's a little bit of both obviously. There is a big focus on efficiency and on -- as there always is, continually on cost control and but also always trying to get better pricing from the growers. So it's across-the-board.

Well, let me ask it this way, Richard, if you don't mind. You know, where -- I mean were you significantly ahead of your expectations on either or both? I mean ahead of by, I mean doing better as in costs lower because I was surprised it so see -- surprised to see that.

It's many factors that work together, Jonathan. One of them is better yields, you know, better improvements in our farms. Second is less cost, more efficiencies. It's several reasons work, you know, together to make these results come as we see them today. So it's not one factor or one reason. It's several reasons, several factors that work favorably to (inaudible) and I hope that this will be a consistent way in the future.

And how about on the -- how about on the pineapple business? I mean, the bananas were just spectacular on the profit side but you saw some excellent in the pineapple business. Is that despite a tough macro-environment. What's driving that strength? I have always thought of that business as economically sensitive and here you are doing better.

We are number one. You know, we are the pineapple leader in the world, I mean, in fresh pineapples and we can't meet even our (inaudible) today so hopefully that will continue to grow.

But I mean could you comment on the -- I understand your competitive position, which is strong, but -- so are you saying you gained share or is it the demand picture? What's driving better demand?

More consumption. More outlets, more new buyers, more (inaudible), you know, to the market. I think that getting at the new customer base and distribution channel at least consumption and demand and that's what we are facing.

Okay. Final -- I guess my last question for the moment, Mohammad, is obviously, like you said, a very strong start to the year. I mean has consolidation in the industry contributed at all to a more rational environment or would you say you're doing a lot better than your competitors or would you say the entire industry has gotten more rational both in the bananas and pineapples side over the past 18 months?

No. Nothing is rational. We are not talking here about the competition. Nothing has changed. The market's still the same kind of competitiveness, you know, as far as bananas concerned and we haven't seen any change so it's all a matter of how well each is doing on its own and I believe that we have some better (inaudible) this time, as far as we are concerned, and that's why we got better results. But I'm not talking about our competition. They could be worse or better than us, but each is doing his best to achieve, I guess, the best results they can, but there is no rational change or rational, let's say, improvements (inaudible).

Understood. Well, thanks very much.

My pleasure.

Thank you. Our next question comes from the line of [Darka Croswall] with [Evaluate Research]. Your line is now open.

Yes. Hi. Thanks for taking my question. I had a couple of questions. First of all I just wanted to understand from you have (inaudible) so just wanted to get inside what has actually led to such a strong reserves considering the fact that there has been a sluggish or (inaudible) so I just wanted to understand a brief from you.

May I know who -- I don't know who you are.

Yes. Hi. It's (inaudible) from Evaluate Research.

Yes. I'm sorry, I'm afraid that I cannot answer your question because I couldn't hear your question.

Yes.

I didn't understand.

Yes. I just wanted to understand from you that -- can you please give me a list of factors which has actually led to a strong growth in the first quarter considering the fact that there has been a sluggish economy.

What we are doing -- I think we are doing the right things. We have put the right strategy, you know, a few years ago and improved -- in growth I mean by (inaudible), adding new lines of business, you cutting our costs, improving our efficiencies, streamlining the business.

I mean, you know, we are not an (inaudible) say something that we produce things that can be, you know, fluctuating because of the market environment. We are in fruits and produce, which is a consistent business, you know, that every day market. I mean there are buyers every day for our products so we're not so much influenced by what goes in the market in terms of the economy or other factors. That's the main reason why we are doing, in my opinion, better than the market.

Yes. So I got it so just wanted to get a clarification. Do you know is it fair enough to expect this kind of growth for this year? I mean I know given the fact that this is a very complicated business where you can't forecast it forward. So just wanted to get, you know, your view on this, how do you people look for the demand for the coming year?

I believe.

For the banana business.

Yes. We will do our best to continue doing the same job that we are doing today. Of course, we cannot foresee an unpredictable event. You know, we are pretty much influenced by climatic events. I mean whether so if everything is under control, I hope that we can do as good as we can do as good as we are doing now. Of course, don't forget our business, especially in bananas, is a two season event. While the first half of the year is usually very strong and very high and the second half is usually soft so it depends on how soft or how favorable the market is. If it's up as bad as we are seeing last year, it would be a better year.

Yes. Yes. But I mean if you see the banana sales for the first quarter it has been flat if you -- I mean, the other fresh produce segment has this growth but banana has been flat so just wanted to understand about that.

About other businesses, we are growing the other businesses and we will continue to grow and we will continue to improve and we are adding more diversification to our product categories to our business. So that -- in that respect we will keep growing and keep improving our business.

Thank you. And we have a follow-up question from the line of Mitch Pinheiro with Wunderlich Securities. Your line is now open.

Yes. Hi. Just thanks for the follow-up. Just so when I look back at your banana gross profit margin, I mean, it's the best that I have seen going back as far as I can go back and, you know, is that just having the right costs at the right time or is there -- you know, would you have higher margins? Is this going to be a year where, you know, maybe just improved profitability is more sustainable?

You know, we have many -- you know, we are marketing bananas in several parts of the world. We have North America, we have Europe, we are the Far East, we have the Middle East as well. So North America we understand, it's a contracted business, it's very competitive, margins are very, very low, but we have other markets where we are making a lot more money than what we're making in North America.

Of the course, North America has a big volume in terms of the pie, but we do have -- we do make a lot of money in the other markets. So that -- that gives you an idea where we stand today. Plus we have definitely improved our yields and our costs, our efficiencies. So all these factors combined together have helped. Don't forget that on the fuel side, shipping, that has helped as well. So there are so many factors that work together let's say as (inaudible), but definitely the business has improved and overall picture.

Okay. And so -- and but then, you know, correct me if I'm wrong, but don't your ocean freight costs start to get -- you know, you start to lap, you know, easier conditions last year starting in the second half. Is that when it starts to.

What do you mean by conditions?

Well, last year -- I mean your ocean freight costs will start to -- you will see less incremental benefit from that in the second half. Is that fair to say.

It can be, but we do have long-term contracts in case.

Okay. And then last -- this last question on the avocado business. I mean the volume was tremendous. Where are you getting the volume from? I mean are you becoming a greater acquirer of the avocado and are you taking share? Is it just growth of, you know, of the general category?

I think -- I believe that -- you know, our volumes come from Mexico in the first place, California second place, and in some degree to (inaudible) as well but these are the kind of ranking that's where the volume comes from. As far as we are concerned we definitely have -- you have to look at the infrastructure and the reach of Fresh Del Monte into the market and that has really given us tremendous leverage in terms of distribution and sales and marketing and that's why we are gaining every day, every week new customers to our list and that's where you see the growth. So yes, it's -- the market share and as well as natural growth into the category.

Okay. All right. Thank you very much.

My pleasure.

Thank you. And I am showing no further questions. I would now like to turn the call over back over to Mr. Mohammad Abu-Ghazaleh for any further remarks.

I would like to thank everybody for attending this call and I hope that we will talk to you again at the end of the second quarter with as good or better results that what we have done in the first quarter. I wish you a good day and talk to you soon. Bye.

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