Q1 2021 Fresh Del Monte Produce Inc Earnings Call

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Good day, everyone and welcome to the fresh del Monte produce first quarter 2021 earnings conference call.

This conference call is being broadcast live over the Internet and is also being recorded for playback purposes.

After the Speakers' presentation there'll be a question and answer session. If you like to ask a question during that time you may do so by pressing star one on your telephone keypad.

Withdraw your question press the pound key.

And any remarks and introductions.

I would like to talk from today's call over to the Vice President Investor Relations with fresh del Monte produce Christine Cannella. Please go ahead and Ms Cannella.

Thank you Johanna and good morning, everyone and thank you for joining our first quarter 2021 countries.

And the Hugo mentioned, I'm, Christine Cannella, Vice President Investor Relations with fresh del Monte.

Joining me today's discussion are Mohammad Abu <unk>, Chairman, and Chief Executive Officer, and Eduardo Bezerra, Senior Vice President and Chief Financial Officer and.

Hopefully you had a chance to review the press release that was issued earlier this morning and via business wire. You May also visit the company's website and fresh del Monte Dot com for a copy of todays release and well that's true register for future distributions and.

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

Please note that our press release and our call today includes non-GAAP measures reconciliations of these non-GAAP financial measures are set forth and the press release, we issued today.

And on the company's website and fresh del Monte and Dot Com and then.

On the Investor Relations tab.

And I'd like to remind you that and that's what the information we will be speaking to today, including the answers we give in response to your questions may include forward looking statements within the provisions of the federal Securities Safe harbored on.

In today's press release and in our SEC filings, we detail our material.

With that I'd like to turn the call over to Mohammad.

Thank you Christine and good morning, everyone.

And the first quarter of 2021, we delivered strong profits across all of our business segments.

While net sales were slightly lower year over year.

Gross profit increased 53% from last year's first quarter.

Net income increased 228%.

$43 million.

Or diluted EPS of <unk> 96.

Compared with net income of $50 million or diluted EPS split to seven cents a year ago.

We believe that these results reflect the resilience of our company and our and demonstration of the initiatives we implemented in 2022.

To further strengthen our operating model and improve working capital.

Thanks to all sales marketing and operations teams reorganization and North America, we have further optimized the way we work and our organization.

And our organization has done an excellent job despite the market challenges.

I assume you all know what is happening and the global markets.

The structure of the economy has changed.

We recognize the new economic reality and market challenges we face.

Specifically the inflationary pressures we are facing on all fronts.

Which is forcing us to increase our prices.

We intend to continue to proactively manage and anticipate these challenges as we have done and the best by taking decisive actions to counter balance any adverse conditions or business.

As we move forward and we intend to continue to operate with agility. So that we can quickly respond to market changes as they come.

What you see today is only at the beginning of our potential.

And I will stay the course and wanted to talk about the first quarter financial results and blood to please thank you Mohammed and good morning, everyone.

As you may have seen from our press release. This morning, we had a strong first quarter and we are pleased with how well we performed against the backdrop of the persistent global COVID-19, pandemic and the backing and fruit supply due to the two hurricane.

Gains in Guatemala, and the fourth quarter of 2020.

We also dealt with rising inflationary pressures during the first quarter and.

Now, let's review, our first quarter of 2021 results.

Net sales decreased $29 7 million or 3%.

And a billion.

$88 million compared with the prior year period with favorable exchange rates benefited net sales by $16 million did.

The decrease was primarily attributable to lower net sales and our fresh and value added and banana business segments.

Adjusted gross profit increased 39%.

$207 million and our adjusted gross profit margin increased to 10% compared with 7% and the prior year periods.

We benefited from increased profitability in our fresh and value added business segment, partially offset by higher fruit production equipment and distribution costs. However, I would like to point out that if you apply the adjusted gross profit margin for the fresh and value.

<unk> added products segment of eight 7% to the $19 million on net sales impacted by COVID-19. These segments. We estimate we would have delivered and additional $1 7 million in adjusted gross profit.

Adjusted operating income increased 140% to $58 million.

Compared with the prior year period, mostly driven by increased gross profit and adjusted net income increased 154% to $42 million compared with the prior year period.

We achieved and diluted earnings per share of 90 cents compared to diluted earnings per share of 27 cents in the prior year period.

Excluding nonoperational and nonrecurring items, we delivered adjusted diluted earnings per share of 88 cents compared to the adjusted diluted earnings per share of 34 cents in the prior year period.

Adjusted the beta increased to 61% and adjusted EBITDA margin increased 300 basis points when compared with the prior year period.

And I'll turn to segment results, beginning with dollar fresh and value added branded segment.

For the first quarter of 2021, net sales decreased $30 million or 5% compared with the prior year period.

The primary drivers of the various war lower sales volumes of metals as a result of the hurricanes and Guatemala they.

And the impact of COVID-19 to net sales in January and February and our fresh cut vegetable and vegetable product lines and Inc.

Increases in avocados volume, which was offset by lower per unit sales price that.

Impacted the industry and inquiries and by nipples volume in most of all regions and and increasing net sales and our prepared food product line due to higher per unit sales prices for.

For the quarter adjusted gross profit and our fresh and value added products segment increased 9% to $55 million and adjusted gross profit margin increased 100 basis points.

During the quarter, we began to benefit from the actions we took in 2020 to optimize our operations primarily in the following product lines fresh cut fruit melons, avocados, and our prepared food products.

Fresh cut fruit margins recovered back to double digits.

[noise] rationalization in our domestic met on operations and higher per unit sales prices, helping to offset the damage from the hurricanes.

<unk> gross profit margin doubled during the quarter and achieved a double digit prepared food products margins achieved the high teens.

We also pursue the volume expansion during the quarter and the forum in the following product lines by net volume increased 22% and avocado volume increased 12%.

Gross profit in our non tropical product line decreased primarily and grapes and as a result of damage caused by severe rain storms to some of our farms and Chile, which resulted in a $3 1 million inventory write off.

Our manpack and business was impacted by lower sales volume in our foodservice distribution channels, which drove higher per unit brother costs.

Net sales in our banana segment decreased $9 million to $418 million, while adjusted gross profit increased 93% or $23 million during the quarter, primarily driven by lower net sales.

And North America, and immuno leaf mainly as a result of decreased sales volume, partially offset by strong demand in Asia.

Overall volume decreased 8%.

Pricing increased 7%, which offset the increase in production and procurement costs due to the impact of hurricanes, it and you're off that and Guatemala, as well as inflationary pressure on cost of goods sold.

Now moving to selected financial data.

Selling general and administrative expenses decreased $4 million to $49 million compared.

Compared with $53 million and the prior year periods day decrease was primarily due to cost saving initiatives and our North America region that resulted in reduced promotional expenses and lower selling and marketing costs.

Foreign currency impact and the cross gross profit level for the first quarter was favorable by $13 million compared with the unfavorable effect of $6 million in the prior year period.

Interest expense net for the first quarter at $5 million was in line with the prior year period.

The provision for income taxes was $11 million during the quarter compared with income tax of $300000 and the prior year period, the increase and the provision.

And was due to the increasing the provision for income tax of $10 $7 million is primarily due to increased earnings in certain jurisdictions.

During the quarter, we generated $47 million and cash flow from operating activities compared to $2 million and the prior year period. The increase was primarily attributable to higher net income and a higher balances on accounts payable and accrued expenses principally due to our optima.

<unk> on the efforts associated with working capital.

As it relates to capital spending we invested $34 million in the first quarter compared with $17 million EBIT. Prior year period, our investments were mainly related to our new refrigerated container ships, one of which was received during the first quarter.

And expansion and improvements to facilities in North America and Asia.

And so on the end of the quarter, we received cash proceeds of $42 $4 million in connection with asset sales under the asset optimization Brogan.

Reach approximately $40 million was received in 2020 the.

And the game during the first quarter of 2021, primarily related to a gain on the sale of our refrigerated vessel.

We believe we are on track to achieve the $100 million program by the first quarter of 2022.

We paid down our long term debt by $8 million, resulting net total debt balance of $534 million.

And based on our trailing 12 months, our total debt to adjusted the beat to the H ratio stands at two four times.

And the analyses morning, and our financial results press release, our board of directors declared a quarterly cash dividend of 10 cents per share payable on June 11, 2021 to shareholders on record on May 19, 2020.

Uh huh.

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

If you'd like to ask a question at this time you may do flow by pressing star one on your telephone keypad again that is star one for questions. We'll pause for just a moment to compile the Q&A roster.

Your first question or comment comes from the line of Jonathan Feeney with consumer edge.

Thank you very much and good morning beverage and some very nice results obviously.

And my first question.

Thank you Melissa on my first question is on it strikes me that you know banana volumes are down and avocado volumes are down.

All major product categories did you just do a better job, but yet gross margins are up despite all that deleverage even on item basis did you do a better job just was it just the case that this time last year, you got caught long with a lot of stuff and you did a better job procuring more carefully did you have better pricing power how did all of that work.

And because ordinarily when volumes are down there is fixed costs and the business and you'll see margins get hit and I realize it's an easy compare but even if you go to two years ago. This was some good execution. So I'd love your comments on that and and maybe how that might continue or not continue into the second quarter.

So Jonathan just to clarify one thing in your question so.

Are you asking about bananas and novel COVID-19. So, but then on a volume went down but double cargo volume went up and that's all.

Okay.

Net sales was impacted mainly because of overall industry prices and avocado.

Went down and this was a <unk>.

Continuing trend as compared to last year, Oh, I'm, sorry, I misspoke sales per gallon, but volumes were up okay gotcha. Okay.

Yeah, and I'll follow up on it.

The answer is that this is not a.

Ah Ah hiccup or and just the sheer luck. It this is a very very.

Concentrated work by our team to achieve these results through better efficiencies and throughput.

Position of our assets through.

Our planning and execution. So this is a.

I guess and exercise that is ongoing and improving as we go forward.

Ordinarily Molly currency plays a pretty decent role and your profitability, particularly this time of year as it starts to relate to Europe was currency.

Factor in your ability to achieve pricing and in Europe, or just broadly and bananas, and that's really where you got you.

And you almost doubled profitability there.

But.

And then we have the euro was quite low for several years as you know.

Yeah and.

Sterling as well as well as.

On all of the foreign currencies really have strengthened against the bellows starting.

And those are beginning this year. So I don't believe that this is going to change for the next.

Foreseeable future and I believe that day currencies will stay more or less at this level.

Going forward and.

We do and monitor this on a very very close.

Very closely and soul.

Always we like to take advantage of such.

Such situations.

Gotcha, Yeah. It makes it that makes a lot of sense. So.

Absolutely.

Where are you in terms of just focusing in on the pineapple business volumes are obviously recovered off a low.

Can you give us a sense how much of your are you growing all your pineapples and internally now is there any external sourcing you had to do and where are you on that just pineapples percent outsourced versus in sourced.

Now don't forget that we are.

We produce plant up as and three continents, we produce off of it for study can we produce uppers, pineapples and Kenya as well as in the Philippines. So we cover.

Three different continents.

Markets and.

As of almost last year, beginning of last year, Kenya was mainly producing for our scanning operations.

And with the industry.

And decisions about two years ago to start.

Diversifying our operations and Kenya from being just a camp operation and two being account as well as fresh.

Fish.

And we have been doing and extremely good job of that.

And for our fresh lineup has shrunk and here into the especially into the middle East.

And Europe because of the logistics proximity and the <unk>.

Quality.

The differentiation between the Elba.

Both locations. So we have been doing very well from quest study and go from Kenny and from the Philippines to the deployment.

Market.

And on.

And at the same time and we have also developed new.

And kind of categories, and they pay and up and et cetera. So that has improved the margin.

Thats correct me.

And don't forget as well we are getting into the clinic growth.

And now.

Which is still and the very early stages in terms of volumes, but with very very high margins.

This category, which is exclusive of course.

Oh, two fresh del Monte.

But you were able to I guess, what I'm asking is you were able to support all of that outsized growth year over year with your own volume or did you have to because of all the demand have to buy externally.

No we have our growers that have been with us for so many years and these are still there.

I would say you know and kidney.

And that though production and the Philippines is on.

Our production and and.

And and Costa Rica, we have about 20%.

<unk> growth was this have been long term you know I have been with us for almost.

20 years or so so.

This is with.

Well with that.

Got you okay. So it sounds like you have a handle on that.

What about your I mean with these license operations the cafes.

And foodservice.

Obviously, you were thinking about you put some money and to and had some plants to expand.

In foodservice and North America, a little bit on the timing there is tough.

On hold but where do we stand on that or are we going to push forward with that and the next year or so.

That's what we are hoping for fifth the flagship is actually and our headquarters and corrugate gamblers.

And we are seeing very very promising as.

Results were not going to go and I'm, telling we consolidate and test the model.

<unk>.

And you know and in a way that would give us confidence and assurance that this would it be on.

Our successful.

Concept and then we will roll it over there.

And Florida and difficult part of the country.

Thanks, Matt how about more broadly with the.

The I guess, it's three joint ventures, you have right with other del Monte license holders for different categories of products and particularly North America.

And where do we stand with the development of some of those beverages and other value added products and so it's something we're going to move forward with that.

Where do we stand with that.

Not really I mean, we are focusing on all of them.

And between Us and del Monte food and all of that.

We have had agreement.

And it kind of a settlement and 2017.

Which is working very well for both parties and.

We have come to an agreement, where we win and each will focus at concept based on us.

And there's areas of expertise and knowledge so that.

Where we are focusing on value added products for ourselves and the fresh and healthy and wellness area.

And I see so.

Okay. So no real.

And I wouldn't anticipate any big product change.

And product mix change in North America, Although you do technically you have the right to do that now correct, yes, and we are actually in the and the medicine of new product developments and new offerings.

To the market and.

So we would be coming with new products and the next few months and new offerings to our customers.

I got you and let me. Thank you very much margin, let me wrap up with and old favorite when I look at it.

The last five years average and year ended 2020, EBITDA is something like $216 million adjusted EBITDA and that's the average over five years.

I'm pretty sure the 10 year average and not in front of and machine right now and I'm pretty sure the tire.

Sure.

We've been spending a lot on Capex, we've had a lot more opportunities I mean, it should the next five years average EBITDA.

Same higher significantly higher like how would you how would you think about that because I've always been under the understanding that everything you spend above maintenance capex as something that was going to drive that number forward and it's tricky I realize because theres a $100 million window, there about volatility and COVID-19 made that worse, but.

Now that you're back on the upswing I guess I'm just trying to think about what would be a what's the what's the average EBITDA for this company and is it higher than the last five years do we think same lower I mean, well, how what comments could you make.

What do you want them to say of course, I'd like to be higher.

I would never goes low.

And what would I like you to say I don't know.

Right.

And Mike.

I'd like to be another way and I am per day, but do you want right.

Well, let me let me phrase it this way that based on the investments you've made and where you stand right now its nothing changed is this company a higher average EBITDA company for the next five years and the last five years I believe so for one reason because with the new container ships that we have that has given us a very very tremendous.

Average in terms of our logistics and future.

Operating income and.

As far as like angle.

Okay.

That's helpful and certainly and I mean, your problem and you were making the plans before all this happened, but that certainly seems extraordinarily well time from the time. When you said about these plants do what the value of those kind of logistics are today, so well done.

I'll leave it there and thanks, everybody and again and that great job. Thanks for the time.

Thanks for taking on debt.

Again, if you'd like to ask a question you may do so by pressing star one on your telephone keypad.

Well pause for just a moment and compiled.

The Q&A roster.

And there are no further questions at this time I will now turn the call over to Mr. Mohammad.

Lucas Ali for closing remarks.

Thank you I would like to thank everybody who is on this call and.

I wish you well for today and stay safe and hope to talk to you on our next second quarter report.

Sometime end of July. Thank you very much have a good day.

Thank you for your participation and this does concludes today's conference call you may now disconnect.

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