Q2 2020 Fresh Del Monte Produce Inc Earnings Call
Good day, everyone and welcome to fresh del Monte Potus. This second quarter 2020 earnings conference call.
Today's conference call is being broadcast live over the Internet and is also being recorded for playback purposes.
At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session. You want me to press Star one on your telephone.
For opening remarks, and introductions I would like to turn todays call over to the Vice President Investor Relations with fresh del Monte Protess Christine Cannella. Please go ahead Miss can I left.
Thank you Lindsay good morning, everyone and thank you for joining or second quarter 2020 conference call as Louis mentioned, I'm, Christine Cannella, Vice President Investor relation with fresh dough money for <unk>.
Joining me in today's discussion or Mohamad busy Sadly chairman and Chief Executive Officer ended word of is there a senior vice President and Chief Financial Officer.
I hope that you had a chance to review the press release that was issued earlier this morning via business wire.
You May also visit the company's website at fresh del Monte Dotcom or a copy of today's release as opposed to register for future distribution.
This conference call is being webcast slides on our website and will be available for replay after this call.
Please note that our press release includes reconciliations of any non-GAAP financial measures, we mentioned today to their corresponding GAAP measures.
I would like to remind you that much of the information we will be speaking to today, including the answers. We gave in response to your question May include forward looking statement within the provision the federal Securities Safe Harbor that.
We ask that you review the forward looking statements information included in the press release, we issued this morning and in the company's most recent filings with the FCC.
With that I'm pleased to turn todays call over to Mohamad.
Thank you Christina.
Hi, good morning, everyone.
Hi, My friend.
After dinner, but today is walgreens videos.
First I loved your produce and pay them by Jim.
So there will always be challenges.
No.
We don't break mobile approximately in line with that's on the study.
Even with the new charter school, why the goblins I'd like to you, but Burke.
Oh I think of integration.
Oh for new Diversifications [laughter], our business continuity in the second fulfilled from falls in flight.
As a goal.
Operator.
Let's go to search.
Oh the goal.
Okay.
Buckets like oversight gene in different ways.
So different degrees.
[laughter] does very well known Saturday and government shutdown.
When it got through school food service.
This for years.
Well I would've been better entered into cost of will gradually openings secondary Joe's globally.
North America, we go through after Expedia sort of Jewish good luck.
[laughter] divorce, and that's absolutely true industries.
[laughter] ongoing shift.
I think there.
That's.
Our core match up there for us.
Despite these challenges overall, one felt less and distribution centers.
Remain corporation wouldn't minimal disruptions in our shipping just pick corporations.
We're also strengthened our liquidity position at work.
Oh, what that despite the market disruption.
Turning to report.
[laughter] fabric Oh, we remain focused for our structural transformation plan for 2012.
I feel.
It was booked on economic environment as bullish about spoke about the performance as we work through with the global in fact.
I've got sick.
Well I didn't get parts, so what you're in a good still driving efficiencies and improve utilization.
Assets.
<unk> de leverage our business.
Right liquidity.
Oh, and that's that's wonderful benches.
[laughter] available properties, we've a lot.
What was in the future.
We don't sell I saw one new gobbled processing facility in Mexico.
[laughter], Oh sooner, but [laughter].
We formats Oh, what is your flows out of California facility.
The board.
Last but operations well set a date because of the wall who.
Okay well into 2012.
Like whats inhibition endpoint girls moving our fresh stuff, that's really good feel Fresno, California.
Got it.
[laughter] what.
Do you need outside bridge.
Assessing fresh come true.
[laughter] vegetables in one facility and gets better units, but.
Another highlight our transformation is costs on a going concern at this.
Phoenix.
Which we believe will offer significant savings.
And after July what do you see but for us Oh, a six year old Balkanized [laughter].
Well that's scheduled Tracy.
Mmm vessels.
Spreads over the next five watts.
Which we're going to be existing chopped up vessels.
We believe these new book.
This will allow us to generate substantial savings.
Let's see logistics.
That's all metrics cargo business.
As well as I'm sure, Okay optimization and greet score injury.
[laughter], but on the bias.
Good job growth.
It's about a Jewish over [laughter] ambitious my [laughter] witnessed an interest savings over nearly 19000, I'm, saying I see about Oh, you wouldn't be cheaper.
During the war, we side, we outlined I won't say, it's Mark had been got operation steam in North America I don't want was either.
So the way we work I thought I forget a dish.
I love it exactly the water business transformation, what's taking steps.
I'd say they bring spectrum.
Our strategy.
And the middle East and the status quo.
Hi, Okay [laughter] mid July.
Well you long [laughter] my fresh them off the top golf.
And then not success [laughter].
I think I watch it called finishes in the North America, Hello, Rob just luck.
When at full wondering I think our offerings expanding the liberty daughter should those areas in the near future.
Allowing us to market and message I won't go for that product.
Directly into what's yours.
Well I'm extremely proud that we're going to induce I wasn't sure if things go find out.
Well I want it got sprite and becoming weeks.
Our initial that's launch has gone well we're excited to show that's innovative product.
With consumers.
In summary, we maybe that's the focus.
Continuing to execute our CLO.
Thanks to our operations have focused by our balance sheet.
At this point I would tend to cope with what the football soccer schools. The fact that shows as well as wonderful.
Thank you Mohammad and good morning, everybody.
Let me I'm extremely proud.
For their phone calls and perseverance truly extraordinary that those circumstances brought about to be colby 19th and that meet.
And the M. Rested then the challenges presented by the situation.
I want to highlight some key financial accomplishments.
Despite continued disruption in food service, so you and shifting demand that we deal during the second quarter Twentytwenty.
We achieved the net income per diluted share all 38 cents per share.
Net income per diluted share of 78 cents.
The second quarter.
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Excluding among the other thing the effect on all their problems related charges.
Which resulted in up $10.6 million girls Rafi deemed bag related to inventory write off.
Which included donations all Robinson local communities, we delivered adjusted net income per diluted share of 54 cents.
Compared with adjusted net income per diluted share.
Seven to sand in the second quarter of 2000 <unk>.
Hi, Wagner only likes to point out CAD <unk>.
If you look like.
Adjusted gross profit margin of 8.1% <unk>.
Maybe 132 million of net sales impacted by Colby 19.
We estimate that we wouldn't have delever, an additional $10 million you know adjusted gross profit.
Additionally.
Keep being strong liquidity has seen a key focus for our key.
Despite the headwinds LT Colby, 19th and Debbie we generated hundreds and doesn't happen dollars.
No from operating activities during the second quarter.
We reduced our long term that by $52 million seems the end of 2019, and we've reduced our long term debt by $64 million compared with the and before spark in Oh 20 Twond.
During the quarter. We also focused on your best seem Crazy go higher margin capital projects talk to my eyes on rope Nations and we are under two I'll review, our underperforming assets.
As Mohammed mentioned these train football the company and you diverse.
Portfolio, our most GAAP rents in times like <unk>.
And I remain confident fresh del Monte we were much stronger from the challenges he blows by do you spend them.
With that.
I'll give you do the results for the second quarter of 20 between.
Net sales were well below 92 million compared with the one began 239 million this second quarter Oftwenty twin.
With the unfavorable exchange rate negatively impacting net sales by $6 million.
Adjusted gross profit was $89 million compared with $98 million in 2009.
Adjusted operating income for the quarter was $44 million.
Compared with $53 million in the prior year.
And adjusted net income was $26 million compared with $35 million into second quarter 2009.
In regards to our business segment performance in the second quartile Twentytwenty.
In our fresh and value added Robyn.
Okay.
[laughter] cereals decreased $128 million <unk> $636 million compared with $764 million in the prior year.
Did a degree using that sales was primarily the result of lower net sales in our fresh cut fruit and vegetables.
Oh, God, you'll find that pool and prepared food product line.
As compared with our regional expectation the Colgan 19 pandemic affected our mats sales all fresh and value added problems by an estimated.
Great then $17 million during the quarter when compared with our original expectation driven by reduced demand for.
And price competition in the retail channel.
Also be continue effect of B to B November 2019 man backing voluntary product recall affected our mats sales in the second quarter opportunity twin.
Gross profit decreased $21 million.
$37 million.
Paired with $58 million into second quarter of 2019.
Oh, they're probably can relate the charges represented $9 million for the segment.
I'm married related to events, we write offs include donation Oh.
By now apples.
Got it vegetables and men.
In our clinical product line net sales were 100, then $14 million.
Compared with 100, then $26 million in the prior year period.
Primarily due to lower selling prices and sales volume in North America in Europe.
Also contributing to the degrees in that sales was the impact on the Colby 19, pandemic, which resulted in lower demand for pineapples.
Partially offsetting these decreases were higher sales volume in Asia, and a higher selling prices in the neither we.
Overall volume was 5% lower.
You'll need to pricing was 4% fees over and unit cost was 10% higher than the prior year.
You know our fresh gourmet food Robert line.
Net sales wore 100 than $10 million compared to win 100, then $46 million in the second quarter all 2019.
The decrease in that sale was primarily driven by lower demand in our big Ball club store distribution channel.
As a result, both social decency measures imposed by governments around the world.
Overall volume was 26% lower.
Unit pricing was 2% higher.
And you need to call was 1% higher than the prior year period.
You know Prescott vegetable brabec line.
Net sales were $86 million.
Compared with hundreds and $19 million.
The second quarter off 2009.
The degrees in that sale was due to the effect of the Colby 19 pandemic.
Which resulted in a significant reduction of most of our global foodservice business during the quarter, mainly in our men Becky subsidiary.
We also see big continually effect of our voluntary brabec recall in November 2019.
Volume was 32% for lower.
Unit pricing was 6% higher.
Unit cost was 11% higher than the prior year.
You know Cabot product line, lower selling prices and degrees the sales volume in North America as a result of cold in 19 led to net sales of $94 million.
Paired with $125 million into second quarter 2019.
Volume decreased.
7%.
Pricing was 19% lower.
And your needs cost was 23% no work during the prior year period.
Primarily due to favorable exchange rates and increased efficiencies as a result of our new processing facility in would walk on Mexico.
In our basketball product line.
Net sales were $35 million compared with the $43 million into second quarter of 2019.
Primarily due to lower sales volume as a result, all the Colombian 19 pandemic and lowered mat sales due to the backbone the men backings voluntary product recall.
Volume degree.
Do you want person.
Units pricing was 3% higher and unit cost was 9% higher than the prior year view.
In our non tropical product line, which includes our great. Barry Apple features there beach lung neck, Threem Cherry and Q, we product line.
Net sales were $75 million <unk>.
Compared with $70 million in the second quarter 2019.
Volume increased 14%.
You need writing decreased 5% and union caused.
7% dealer.
In our prepared food product line, which includes the company's prepared for additional problems and meals and snacks product line net sales decreased primarily due to lower sales in the company's meals and snacks ball decline.
Principal lead due to the backbone Colby 19 pandemic, the continuing impact on the 2019 broader could call and product rationalization that work in our men Becky operations in North America.
The decrease was partially offset by higher sales volume and very unique selling prices all candidates on apple products due to increased customer demand and higher selling prices all find that will concentrate due to lower industry supply.
We look for performance in our prepared food product line to improve as a result dog and entering into a new contracts with higher selling prices versus prior year.
In our banana segment net sales decreased.
10 million dollar.
Too far hunger and $13 million compared with $414 billion in the second quarter of 2019, primarily due to lower net sales in North America in Europe.
As a result of decreased sales volume and lower demand due to Colby 90.
The decrease was partially offset by higher net sales in them, either we and Asia.
The call nine deep on d'amico affected net banana net sales by an estimated $50 million during the quarter versus our original expectations.
Overall volume was 1% lower.
Worldwide rights to decrease the one person over the prior year period.
And total worldwide banana and unique call was 2% lower.
Gross profit increased to 39 million dollar.
Compared to $37 million in the second quarter of 2019.
All their problem to related charges represented $1.6 million for segment, primarily related to inventory write offs, including donation.
Now moving to selected financial data.
Selling general and administrative expenses during the quarter were in line with the second quarter 2018.
The decrease in travel I mean in Turkey, and promotional expenses in most of our region was partially offset by an increase in selling and marketing expenses recall nice.
In the quarter.
The foreign currency back at the gross profit level for the second quarter was unfavorable by.
Point $9 million.
Compared with an unfavorable effect of $4 million.
The second quarter of 2009.
In March 2020, we entered into several fuel hedges.
That extend through the end of 2021 to take advantage of lower fuel prices reduced exposure of our shipping call in the Americas and Asia.
The fuel hedges are similar to the foreign currency hedging we haven't played to reduce a war exposure in different countries that we market our brothers.
These hedges are intended to minimize our financial exposure to volatility in the market.
Interest expense net board its excellent work there was $6 million.
Yeah, we.
$7 million in the second quarter of 2019, due to lower average loan balances and lower interest rate.
The provision for income tax.
$4 million during the quarter compared with income tax expense of $9 million in the prior year period.
Did the green using the provision for income taxes was primary due to lower earnings certain taxable jurisdictions.
Four to six months of Twentytwenty, our net cash provided by raising activity was 100, then $11 million compared with net cash provided by operating activities $65 million in the same period of 2009.
The $46 million, increasing math cash.
Was primarily attributable to lower payments of accounts payable and accrued expenses and lower levels of inventory and accounts receivable, partially offset by lower net income.
Our total dad decreased from $599 million at the end of the first quarter of Twentytwenty.
To $535 million at the end of second quarter of 2020.
As it relates to kept both spending we have postponed several projects to the second half of the year as well with into 2020 well.
We invested $90 million in capital expenditures in the second quarter of Twentytwenty compared with $36 million into second quarter of 2000 they eat.
For the first six months, so twentytwenty, we invested $36 million compared with $70 million in the same period of 2019.
We continue to prioritizing investments.
While keeping eye strong liquidity position for the remainder of the.
Our investments in Twentytwenty will be in key projects that were in the pipeline, including the lead free for new container vessel.
The consolidation of men backing and our Fresno operation in our New Gonzales, California facility and edits Mohamad mention the consolidation of our two distribution centers in Phoenix, Arizona.
During the second quarter, we've repurchased approximately 549836 shares for approximately $13 million.
And as announced this morning in our financial results press release, our board of directors declared an increasing cash dividend of five cents per share payable on September for 2022 shareholders of record.
On August 12 2020.
This concludes our financial review, we can now turn the call over four key money.
[noise] as a reminder to ask a question you want me to press Star one on your telephone.
Withdraw your question press the pound for hash key.
Please standby lobby compiled acuity roster.
[noise] hold me to have a question from the line of net daily with our try Mitch Pinheiro with it started event Cowen. Your line is now open.
Hi, there good morning.
Why match.
So couple of things first.
So other than.
Looking at the.
Virus like affected operations here.
[music].
The write off of $10 million.
Well fruit.
And obviously the losses.
Were there any.
Other costs.
[noise].
Related.
That sort of work part of just your normal gross margin anything anything.
Usual in there that we can also called out.
In the quarter.
[noise] things like all things so match.
Okay.
[music].
I agree that are actually that she got its almost $11 million.
Good stuff, we have to unfortunately golf.
They took a 20 batch.
But they won't show up.
Because although I saw that there was.
We've got to cope with so much in fact, our stores at the all day and water.
Pockets.
We could not of course, especially in a lot.
Okay.
That's the most especially well try this business.
Thank you shut down almost 60.
[laughter] case, it that's what they told us well not anybody that's starting to see.
They they volumes in.
In addition, we should have plus the cost assumptions, what they call it at having less people working inside as well.
Are they didn't want to.
I guess, oh, well and that stores that they can just off the shelf.
Sure.
That's why accident. The main themes, that's why we had this.
Good.
No. Unfortunately.
Well, it's mainly because of market conditions.
Well the already exists at getting started so Oh of course watch what do you got.
That show, where they are definitely I thought I should I, that's what Oh boy that was going after the market. So we started.
Got it off.
You know matching the last one supply.
Thanks.
Of course watch the market stuff that Oh, Okay stand the flipside instead of down by about 50% as we speak Reid.
Well first off as much as well you saw that if they start kept for especially at much faster.
Hey.
Doug.
Yeah, the condo business I was surprised it was down as much as it was is that because so a lot of your avocados into the food service sector.
Not really Oh wait.
Oh, what most of our.
Okay great.
Oh.
So then here at all.
Well, so I mean.
[laughter] Qs Oh, Oh, but that they the main reason why don't demand are you guys. Why we so there's a difference at price between last year last year and during the second quarter, we had prices of about 60 or $60.
Oh why are we saw prices.
Oh, yeah subject to get those folks if I told us it during the second quarter because they didnt.
Like I thought it does not affect us because we buy according to the market demand. So the price in Mexico, where the Dol also drastically. So it's all about total oh pricing not because we're offsetting Joel phone service overall.
I think there, but our major.
You know said going into it.
And she was wet and that's what sets.
And and image you find me compliment.
So with the opening of all are really de Mexico, there was a significant business model cheap.
As you May remember in the past, we would sort of solar projects through co Packers.
And so as me sort of as Alan mentioned last year, we the huge spike in prices.
Either to growers or the cool bankers they were the ones that were mostly benefited from that.
We did change in our model, we're sourcing directly from growers in Mexico.
And so if you compared to March.
You know a lower margin expanded almost more than 400 basis points in this quarter versus last year.
Because we were able to capture a better cost as managing our relationships with the grower and also banner fees from the currency veterans that took place in this quarter.
The other thing is important as we highlighted we our you know expectations was that we would achieve.
Full capacity more towards the end of the year and given the strength of our business and the focus that we gave were able to ramp up its foster.
And one thing that event and so that's also contributed to have a better margin than what we originally expected.
Okay.
Thank you for that and then.
Can you talk.
So if we look at the third quarter here.
So we're going to see a little more the same maybe a tad better sort of in the a fresh area because.
Food service is opening up.
You know a little bit more than it was maybe in June.
That is that fair it'll be sort of more the same.
In Q3.
No.
Mitch to be honest, we view this [laughter] foodservice instead of being affected.
Yes.
I mean, we are seeing we've tried this oh by 50 to 60, but.
As we speak and what we see is curious.
Thank you can get better than what we saw in second quarter.
So I don't believe that big food show, which is why because I do wish as we speak now.
[laughter] back again, and I don't believe that we kept this is going to open it up.
Okay things situation, you don't give up more more.
Okay, and if that future.
I believe that that yes, we feel it can become important.
If they tend to fluctuate a bit.
Let's say a pick up stores, but.
And Oh here already [laughter], Oh boy, they pulled from the second quarter sequentially, though although what we thought proposal. Thanks Kate.
Okay and Mitch.
If I make compliment the what did the Mr. Tim mentioned is so if we look into the fresh and value added products I wanted to highlight some pause right. So.
Pineapples was hardly acted in the second cancer and we're seeing.
An important threeq overly prices.
It's not clear that's going to be sustaining towards the end of the year, but that's very close to you signed so I think we passed to the most difficult part will be year.
When you look into fresh good food, although we cannot control de demand.
We are able to control or call. So if you look we were able to improve even with 30, a 26% to lower volume, we're able to improve our margin by 1%.
And.
That's mainly because of the focus that we're taking on managing our cost in more facilities around the world and because of the recovery in certain markets to Cook. Please.
Late during the quarter, we do believe there's still opportunity you know P.C. the same trend competing me.
When we look into fresh cut vegetable vegetables, and meals and snacks.
At the consolidation of man back. He is gone that is gonna take place in the third quarter, we'll start bringing you know a frothy right away because we're going to be able to get out though.
Leases that we have today and there are a lot so.
Cost associated with logistics, so moving for all these around so consolidated consolidating that in one facility they probably are.
And much it with much higher automation. That's also will drive lower labor costs. So that's going to be a margin expansion that we expect there.
And also the important team the prepared for additional problems that over the last.
Couple of years.
So I've heard a lot because of oversupply in the marketplace that drove a significant competition you prices and lower margin.
That is has improved significantly in euro and so we were able to reduce.
The losses, and even turn back into a significant profit contribution for this year and also there would be a factor on improving our working capital as we are able to reduce inventories and optimize our operations that we have in Kenya.
No.
It's hard to predict what's going to happen to the demand, but it's important to highlight that everything that is under our control in terms of driving you know efficiencies you know operation optimizing our cost.
Reducing you know improving underutilized assets or efficiency.
We're going to see a significant contribution not that more towards the last quarter of these here.
And in 2021.
In the aside from that with the new vessels can mean that they're gonna be run.
At a lower speed so lower consumption.
And the the fuel that's used is cheaper that is going to also helped to drive efficiencies in the last quarter out there.
Okay.
Thank you for that appreciate the color and I'll hop back in the queue. Thank you.
Thank you.
Hi, Dan if you would like to ask a question press star one on your telephone.
Hi next question comes from the line of mix Daily you Miss E. M are holding your line is now open.
Hi, good morning, Thanks for taking a call and first of all.
Congratulations on how well you.
Controlled what you've been able to controlled pandemic I might have missed it sounds like call in your comments, but earlier in the quarter you announced that you had we re authorized stock repurchase [noise].
Program did you repurchased any shares in the corner.
Yes, we request that we check.
Yeah, We report changes the almost 550000 shares for approximately $13 million.
Okay.
And then secondly.
How much less than ever.
The authorization.
I'm sorry.
Good question.
How much left on the be authorization.
Ah, we still have a significant oh volume of shared that were authorized.
By the board in 2018 in excess of $200 million that we wouldn't be able to repurchase.
That makes sense for the company.
Okay and.
Currently Muhammad yeah, yeah, so some stock during the quarter, which seems like you know where the stock is 52 weeks you know low when they sold it.
Would you care to comment on that.
No actually I need to talk gosh, I haven't talked stops robust probably five years. So appreciate it.
How does that go into California, all the result.
Okay, and then I guess finally is it more you no longer term a question on him probably post pandemics, but there seems to be a real disconnect.
Between the tangible book value as a company that real estate assets you know all your assets. These a b where the stock is trading I mean longer term.
You know tell you when the board discussed ways to close that gap.
No we are well that's fine to go up so.
So our stock price.
Well I'm going to go away.
Sure.
[music].
Okay.
Okay, alright, thanks very much appreciate your time.
Thank you my pleasure.
Our next question comes from the line of Cocky Coverity with Wells Fargo. Your line is now open.
Hi, Thank you for the question just wanted to follow up on the.
Net sales and looking at fresh value added products.
And the decline so if we put aside price mix and we only look at just the volume losses, which I assume came mostly from North America.
How much of that volume decline do you can you tell us what's attributable to like consumer demand and how much of that was volume lost because of other factors like you mentioned quite a product rationalization or recall.
Thank you.
[noise], Jeremy Prescott throws off cash Compressco works, because we do have.
Two categories that.
Well actually.
Yeah, the entirety of crashing why why products.
But I would like to involve Joel as far I'd say, it's fresh.
[laughter], which has made by backing.
At this has been affected negatively at the end of 2019, one we had said he called if if you are aware of that.
That that affected our sales during the first and second quarter.
Now as we moving toward a oh, no facilitating wattyl switches fatal that's really what 20 compared to all our that's oh for different facilities et cetera.
Oh.
And that's why I couldn't give us.
Leverage with or without quality.
I sure that's off here at all.
Well just didn't see I would've been able we aren't going to.
Okay cool, what we have lost if they tell us six month or so off as we go forward towards the end of the and then flip to watch as far as fresh approach itself, mainly it was because of the closures Oh I bet, especially in the full childress at retail.
Particularly as well as convenient stores when all we need we we can't throw money at it must be fulfilled.
Okay.
A convenient stores.
Well as Qs August and others. So when we look at Dave Schulz itself.
Well, Yeah, I'd say is picked right drilling that well.
Second to try to five quetzsat.
Oh, yes.
As far as especially so we saw it gets would show this almost 50.
Oh.
Did you say it as we speak today, we see the fresh food coming back we spent about 15, that's what kept us up 15%.
Decline since year over year or as far as before.
Where do you see.
I can think like adapt a in that area.
It's just Bang Bang because they don't show so for us to watch the full service shut off.
Fives.
Okay that helps thank you.
Thank you.
There's no questions at this time, Mr. Mohammad Abu Ghazaleh I turn the call back over to you.
I would like to affect everyone.
But well, let's get back to me on that score.
As we speak at all I'm very confident about the future.
I want to a short lived up well, but like everything.
Oh I can gain on the addressed.
[laughter] disruption, that's well facing today, the baskets because of the topic, but well then we would pick up the measure was definitely keep us it all as I.
That's all those factors I watch.
I hope to speak due over the next school spectrum.
This concludes today's conference call you may now disconnect.
[music].