Fresh Del Monte Produce Inc (FDP) 2024 Q1 法說會逐字稿

Good day, everyone, and welcome to Fresh Del Monte Produce first-quarter 2024 earnings conference call. Today's conference call 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 today's call over to the Vice President, Corporate Communications with Fresh Del Monte Produce, Claudia Pou. Please go ahead, Ms. Pou.

Thank you, Audra. Good afternoon, everyone, and thank you for joining our first-quarter 2024 conference call. I'm Claudia Pou, Vice President, Corporate Communications with Fresh Del Monte Produce. Joining me in today's discussion are Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer; and Monica Vicente, the Senior Vice President and Chief Financial Officer.

I hope you've had a chance to review the press release that was issued earlier via BusinessWire. You may also visit the company's IR website at investorrelations.freshdelmonte.com to access today's earnings materials and to register for future distribution.

This conference call is being webcast live on our website and will be available for replay after this call.

Please note that our press release and our call today include non-GAAP measures. Reconciliations of these non-GAAP financial measures are set forth in the press release and earnings presentation, which is available on our website.

I would like to remind you that much of the information we'll be speaking to today, including the answers we give in response to your questions, may include forward-looking statements within the Safe Harbor provisions of the Federal Securities laws. In today's press release and in our SEC filings, we detail risks that may cause our future results to differ materially from these forward-looking statements.

All our statements are as of today, May 2, and we have no obligation to update any forward-looking statements we may make.

During the call, we will provide a business update along with an overview of our first-quarter 2024 financial results, followed by a question-and-answer session.

With that, I'm pleased to turn today's call over to Mr. Abu-Ghazaleh.

Thank you, Claudia, and thank you for joining us for first-quarter 2024 results. We continue to see strong momentum in our higher-margin, fresh and value-added products segment, which is a key driver of our long-term growth strategy.

Revenue in this segment grew by 5% year over year, fueled by strong sales of our pineapples and avocados as well as our prepared food. Segment adjusted gross margins also expanded by 50 basis points as we realize production efficiencies and cost savings from our tightly integrated supply chain. Our strong cash flow allowed us to simultaneously reinvest in the business, increase our dividend while paying down our debt.

During the quarter, we reduced total debt by 15% when compared to the prior-year period, further demonstrating our commitment to maximizing shareholder value through disciplined capital allocation. We believe we will unlock further shareholder value by focusing on our strengths in pineapple, fresh-cut, and value-added projects, which is exactly what we did in this first quarter.

Taking a closer look at some of the drivers behind our fresh and value-added segment growth. We saw particularly strong demand for our pineapples. As the leading grower and distributor of this fruit, we continue to look for new and different ways to lead and define our bridge category.

In the first quarter of 2024, we launched two pineapple innovations: the RubyGlow, our red-shelled pineapple, which is being produced in a limited volume at a very high price point. Due to high demand and enters the North America, RubyGlow pineapples are now available to consumers in the United States. Our other newly released by pineapple innovation is the precious HoneyGlow pineapple, a (inaudible) pineapple out of our popular line of HoneyGlow pineapples.

Our previously launched PinkGlow and HoneyGlow pineapple innovations continued to perform very well. In quarter one, net sales for the PinkGlow pineapples were up 62% compared with the same period last year, while net sales for the HoneyGlow pineapples were approximately 13%, higher compared with the same period last year.

Pineapples represent just one growth driver within our fresh and value-added product segments. We also see tremendous opportunity in fresh-cut category. We are pleased to share that this quarter, we further expanded our fresh-cut product distribution in North America, cementing our position as the market leader in fresh-cut products for the convenience store channel.

Also on the horizon within our fresh-cut program, our new premium fruit tray featuring specialty fruits not seen before in our program. This year, we will continue to take advantage of our robust US footprints of company-owned fresh-cut facilities to further grow market share and raise new value-added products to our consumers, driving shareholders' value.

Our fresh-cut growth strategy extends into our other regions outside of North America. In our European region, we recently completed the expansion of our primary fresh-cut production facility in the UK, which will allow us for a significant increase in capacity. And in Asia, we saw a 36% increase in sales in quarter one from our fresh-cut operations in Korea compared with the same quarter last year.

Shifting to our avocado category. The category performed well this quarter with revenue up 23% year over year. One of our newest innovation is our fresh guacamole product. Our fresh guacamole made without preservatives and with Del Monte avocado is a new product for us and is growing rapidly.

In quarter one, guacamole distribution expanded to two major retailers in the Southeast and Northeast regions of the US. We plan to continue this expansion throughout the course of the year.

Looking toward the remainder of 2024, we plan to continue our investments in value-added products and in expanding our pineapple and fresh-cut operations, as well as maximizing our residuals utilization. As one of the world's largest producers of fruits, we see tremendous untapped potential in this space and have identified several profitable use cases of our SKUs, including (inaudible). This venture leverage our strength as a business and allow us to be at the forefront of the fresh produce industry.

With that, I would like to turn the call over to Monica.

Thank you, Mohammad, and good afternoon, everyone, and thank you for joining us on the call today. Net sales for the first quarter of 2024 were $1,108 million compared with $1,129 million in the prior year. The decrease in net sales in the first quarter was due to lower net sales of bananas, driven by lower volume and pricing and lower rates in the third-party ocean freight business in our other products and service segments. The decrease was partially offset by higher net sales in our fresh and value-added product segments due to overall higher sales volume and pricing.

Gross profit for the first quarter of 2024 was $82 million compared with $97 million in the prior year. The decrease was driven by lower overall net sales, higher per unit production and procurement costs, including the impact of fluctuations in exchange rates, partially offset by lower distribution and ocean freight costs.

Gross profit in the first quarter of 2024 includes a $1 million net credit related to insurance recoveries associated with damages tied to the flooding of a seasonal production facility increased during the third quarter of 2023, partially offset by the severance charges from the outsourcing of certain functions at a fresh and value-added production operation.

Gross margin for the first quarter of 2024 was 7.4% compared to 8.6% in the prior year. Excluding the impact from the other product-related charges, adjusted gross profit for the first quarter of '24 was $81 million compared with $99 million in the prior year.

Operating income was $44 million compared with $75 million last year, and adjusted operating income was $31 million compared with $51 million in the prior year. The adjusted operating income decrease was due to lower gross profit and higher SG&A expenses.

SDP net income for the first quarter of '24 was $26 million compared with $39 million in the prior year. And adjusted FDP net income was $16 million compared with $27 million last year. Our diluted earnings per share in the first quarter was $0.55 per share compared with that $0.81 per share in the prior year.

Adjusted diluted earnings per share was $0.34 compared with $0.55 per share in the prior year. Adjusted EBITDA for the first quarter of 2024 was $44 million compared with $65 million in the prior year, primarily driven by lower gross profit and higher SG&A.

I will now go into more detail on the first-quarter performance for each of the segments, beginning with our fresh and value-added products segment. Net sales for the first quarter of 2024 were up 5% to $677 million compared with $643 million in the prior year due to higher sales volume of pineapples, melons and prepared food products and also higher per unit selling prices of avocados.

Gross profit for the first quarter of 2024 was $56 million compared with $47 million in the prior year. The increase was driven by the overall higher net sales, partially offset by higher production and procurement costs of pineapples and avocados, which were impacted by a stronger Costa Rica colón and Mexican pesos. Gross profit includes the previously mentioned other product-related charges and credits. Gross margin increased to 8.3% compared with 7.3% in the prior year.

As Mohamad mentioned, this segment has been an area of intense focus for our team over the past few years. We have undertaken a number of strategic initiatives in this segment aimed at enhancing our product mix, improving operational efficiencies, and strengthening our distribution channels. We've continued to grow our pineapple program with the release of two new offerings this past quarter as well as the continued growth of our popular specialty pineapples, HoneyGlow and PinkGlow, which combined now represent approximately 20% of our pineapple volume.

Our avocado program also delivered strong results, with revenue increasing by 23% driven by higher sell prices. For the remainder of 2024, we continue to expect strong results in this segment, driven by favorable pineapple product mix, strong fresh-cut fruit sales, and non-tropical improvements due to the current market trends.

Moving to our banana segment, net sales for the first quarter were $380 million compared with $425 million in the prior year. The decrease was driven by 5% lower volume, partially due to service level issues in the first two months and lower selling prices due to the competitive market pressures in North America and Europe.

Banana gross profit in the first quarter of 2024 was $22 million compared with $43 million in the prior year. The decrease in gross profit was due to lower net sales, higher per unit production, and procurement costs, including the negative impact of a stronger Costa Rica colón, partially offset by lower distribution and ocean freight costs. Gross margin was 5.7% compared with 10.2% in the prior year.

During last earnings call, we mentioned that we expected banana volume to be similar to 2023. However, given the competitive market pressures, we now anticipate for the full year to have approximately 3% to 4% lower volumes versus last year, along with softer selling prices.

And lastly, net sales in our other products and services segment for the first quarter were $52 million compared with $60 million in the prior year due to lower net sales of third-party ocean freight services as a result of lower rate driven by the competitive market environment, combined with the impact of the sale of our plastics subsidiary in South America in 2023. Gross profit was $5 million compared with $7 million in the prior year as a result of lower net sales. Gross margin was 8.9% compared with 11.2% last year. Our expectations for the remainder of 2024 for this segment are in line with the first-quarter results.

Now moving to selected financial data. Net interest expense was $5 million compared to $8 million in the first quarter of '23 due to lower average debt balances. Income tax provision was $5 million compared to $10 million in the prior year. The decrease was due to lower earnings.

Turning to our financial position, net cash provided by operating activities for the first three months of 2024 was $19 million compared with $16 million in the prior year. The increase was due to our efforts to optimize our net working capital, partially offset by lower net income.

Long-term debt decreased by 15% to $400 million at the end of the first quarter of 2024 compared with $473 million at the end of the same quarter last year. By lowering our debt, our adjusted leverage ratio is now 1.77 times adjusted EBITDA. As it relates to capital spending, we invested $13 million in the first three months of 2024 compared with $10 million in the prior year.

For the full year, we expect capital expenditures to be in the lower end of the range of $65 million to $75 million. As announced in our press release, we declared a quarterly cash dividend of $0.25 per share payable on June 7, 2024, to shareholders of record on May 16, 2024.

And lastly, as it relates to Mann Packing and the announcement we made last quarter, we remain actively engaged in exploring strategic alternatives for this operation to determine the best path forward. We intend to make a decision by the third quarter of 2024. However, there can be no assurances that this process will result in any specific strategic outcomes.

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

Thank you, and we will now begin the question-and-answer session. (Operator Instructions)

Mitch Pinheiro, Sturdivant & Co.

Yes, hi, good afternoon.

Hi, Mitch.

Hi, Mitch.

So let's start with -- so the fresh and value added had a normal, quite a nice quarter and margins look like they're advancing. Two questions, on the pineapple business, are the new pineapple varieties, are they just replacing shelf space of old pineapple products or regular pineapples? Or are you getting -- are grocery stores starting to increase the shelf set for pineapples?

Yes, actually, Mitch, you are right. It's not replacing any -- the old traditional volume that we have. Actually it's incremental, with a much higher value to these new additions. So we are seeing incremental sales and the incremental demand. And as a matter of fact, you know, in most cases we are not even able to meet with demand for these special varieties.

In your own fields, are these all additional acres of pineapple land? Or are you using existing land? And how does that work from the back end?

No, it's additional land that we already have. We have enough land to expand our production, Mitch. So any new varieties with the -- let's say, the HoneyGlow, which is the high colored pineapple, but it is within our existing, let's say, farms. It's a different kind of management, agricultural management, which gives us this advantage of producing this type of pineapple, which commands a premium to the, let's say, Del Monte [go].

But if we are talking about pink pineapple or RubyGlow pineapple, these are all additional new farmland that within our own like properties, you know. We have enough land to grow additional new varieties.

Okay. And in like in an order of magnitude, how much more profitable are these newer pineapple varieties compared to your regular gold pineapple?

By far. I say huge. I would say -- I cannot tell you exactly. It's not for public input. It is a very significant difference in value.

Okay. And was that the primary -- is the mix of your higher margin, higher value pineapple, is there more of an impact on the segment's gross margin than fresh cut? Or are they contributing equally? How has that worked out?

I think that both contributing equally. They are trying to tandem, you know, in terms of marginality. Both of them are commanding high margins. And this is only beginning. We're at the very beginning of our journey towards transforming.

And I've been saying this for several quarters. If you remember, Mitch, and we said that we are transforming the company to be a much -- and to go into much higher value-added products and different avenue. Which I believe as we go quarter after quarter, you will start realizing where the company is going.

As I mentioned in my now script that we have -- out of our residues that we are going to have quality fertilizers. This is something that we are working very seriously on. And very soon, we're all going to be announcing something about this new segment. So there is a lot of new, I would say, avenues that we will be going into that it will change the company going forward.

Okay. Thank you for that. And then a question on bananas. I guess, Monica, if I heard you correctly, you said that for the year, you expect lower volumes in the 3% to 4% range for bananas. Is that --?

Correct. Yes.

A long way to lower selling prices?

Yes. Yes, we expect -- the market is very competitive right now. And we do expect to have the lower volume and softer selling prices.

And this is the competitiveness in both Europe and --

And North America.

North America?

Yes. (multiple speakers)

Yes, I would like to add, Mitch, that the market the consumption is being -- going down actually as we have seen statistically. There is about 5% less consumption in the market in North America compared to the year before.

So we are seeing a tendency for lower, let's say, volume in North America and actually as well in Europe. We don't know why but this is the trend that we are seeing right now.

It sounds like to me, they're eating more pineapples.

Yes. HoneyGlow. (laughter)

Okay. And then as far as -- so as we look out into the -- you don't have a lot of visibility. But if you look into the next quarter, is the second quarter more of the same for bananas?

I would say more or less the same trend; it will go on. I mean, unless there is more efficiencies, better service levels and less headwinds that we have faced in the first quarter, you know. Especially in bananas, you're always susceptible to some factors or variables that we cannot control, which happened in the first quarter this year. Disruption in shipping, some quality issues, some service issues.

So as we speak, you know, as we going forward, we hope that this will stabilize. We believe it's going to be stabilized. We don't want to be too optimistic, but let's take the scenario as -- today's scenario as being the one for the second quarter.

And, Mitch, in Q1, we had a 5% decrease in volume. And for the full year, like I said, we expect 3% to 4%. So we do expect to recover a little bit, not as down as of Q1.

One of our biggest headwinds really in the quarter was the exchange rate in Costa Rica has been really decimating the industry. We're talking about a year to year (inaudible). Once the (inaudible) differs, I mean 20 points difference between one year to the next, I mean, we were exchanging, let's say, $1 for CRC520. And this year, it's almost around CRC500, so for the last few months since the late last year. So it's been really very big headwinds for us.

What was the driver of the -- I don't pay attention to the Costa Rican monetary situation. What's driving on the decline?

So many dollars, I guess, in the market which put pressure on the dollar. I mean, the local currency became very, very strong.

Right, right. Okay. And there's little you can do about it, right? There's no --

Yes, it's difficult to hedge. It's difficult to hedge the colón. There's not enough liquidity.

Right, right. Okay. That's all I have. Thanks for the question.

Thank you, Mitch.

Thank you, Mitch.

And that concludes our Q&A session. I will now turn the conference back over to Mohammad for closing remarks.

Thank you very much, everyone, for you attending this call and hope to speak to you next quarter with even brighter news. Thank you. Have a good day.

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