Q2 2021 Fresh Del Monte Produce Inc Earnings Call
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Good day and welcome to fresh del Monte produce second quarter 'twenty to 'twenty..1 earnings Conference call. Today's conference is being broadcast live over the Internet and is also being recorded for playback purposes.
At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone.
Acquiring to further assistance. Please press star zero for opening remarks, and introductions I would like to turn the call over to the Vice President Investor Relations with fresh del Monte produce Christine Cannella. Please go ahead Scott Miller.
Thank you Brian Good morning, everyone and thank you for joining our second quarter 2021 conference call as Bryan mentioned, I'm, Christine Cannella, Vice President Investor Relations with fresh del Monte.
Joining me in today's discussion are Mohammad Abu <unk>, Chairman and Chief Executive Officer, and Eduardo Bezerra Senior Vice President and Chief Financial Officer, I Hope that you had a chance to review the press release issued earlier this morning via business wire you may.
Also visit the company's website at fresh del Monte downtime from a copy of today's release as well as to register for future distributions. This conference call is being webcast live.
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 in our press release, we issued today and other companies' website at fresh del Monte Dot Com and.
The Investor Relations tab.
I'd like to remind you that much of the information we will be speaking to today, including the answers we get your response to your questions May include forward looking statements within the provision of the federal Securities Safe Harbor laws.
In today's press release and in our SEC filings, we detail material risks that may cause.
Our future results to differ from these forward looking statements are statements are as of today August simple words, and we have no obligation to update any forward looking statements we may make.
I am pleased to turn today's call over to Mohammad.
Thank you Christy and good morning, everyone.
During the second quarter of 2021, we delivered strong financial results with growth throughout several key areas of our business, which will be highlighted by Eduardo.
However, as it was reported this morning, our gross profit for the quarter increased 40% from last year and gross margin increased from 7.2%.
In the prior year period to 9.6% in the second quarter 2021.
Gross margin is an important component of our strategic transformation to a value added global food company.
And this is reflected in our strong year over year operating income and net income.
Like many other companies we are facing unprecedented disruptions in global supply chains and shortages of labor, resulting in significant cost increases.
During the second quarter, we experienced inflation in labor fuel inland trade packaging production and procurement costs.
Speed. These inflationary pressures will remain for the near term and have taken proactive measures to counter the impacts on our results.
Including a comprehensive review of our pricing strategy and sourcing plans for the remainder of the.
We made additional progress with our global operations initiatives as well during the quarter.
For example in Europe, we restructured our fresh operations in France that led to increased efficiencies.
Cost savings.
Entered into a licensing agreement with a U K retailer to brand frozen fruit and chilled juices, which offers a new revenue opportunity for us in Europe that can be expanded to other markets in the middle East Africa.
As you might have seen in our press release. This morning, as a result of our strong cash position.
Our board of directors approved an increase in our quarterly cash dividend to <unk> 15 per share.
As you know the second half will be historically, a tougher market for our industry.
And this year in particular, as we do not see inflationary and cost pressures ending in the near future.
Before I turn the call over to Eduardo I am pleased to share that we would publish fresh del Monte annual corporate responsibility and sustainability report detailing a lot of guiding principles and continuous progress since our last sustainability update.
We look forward to share in the report with you.
At this point I will turn the call to it what the spoke about the second quarter financials.
Results from Bordeaux.
Thank you Mohammad and good morning, everyone.
We delivered strong results in the second quarter of 2021 compared to the prior year period, despite inflationary and cost pressures and other any favorable economic conditions, including labor shortage.
Now, let's review, our second quarter of 2021 results net sales increased $49 million or 5% to a billion $142 million compared with the prior year period, primarily driven by our fresh and value added business segment with favorable exchange rate benefit.
<unk> net sales by $17 million.
Adjusted gross profit increased $23 million or 25% to $112 million and our adjusted gross profit margin increased 160 basis points from 8.2% in the prior year period to 9.8% in the second quarter.
Through 2021.
The increase was driven by higher gross profit in all of our business segments.
Adjusted operating income increased $17 million or 39% to $61 million compared with the prior year period, mostly driven by increased gross profit.
And adjusted net income increased $21 million or 82% to $47 million compared with the prior year period.
We achieved diluted earnings per share of 19, 9% compared to diluted earnings per share of 38 cents in the prior year periods, excluding nonoperational and nonrecurring items, we delivered adjusted diluted earnings per share of <unk> 98 cents compared.
Share with adjusted diluted earnings per share of <unk> 54 in.
In the prior year period.
Adjusted EBITDA increased to 32% and adjusted the <unk> margin increased 150 basis points from 5.8% in the prior year period to 7.3% in the second quarter of 2021.
Let me now turn to segment results, beginning with our fresh and value added products.
Net sales in our fresh and value added products segment increased $38 million or 6% compared with the prior year period.
Primary drivers of the variance war increased demand in our pineapple fresh cut fruit and fresh cut vegetable product lines are several countries begin to lift COVID-19 restrictions.
Enough said were impacted by the severe rain storms in Chile in the first quarter of 2021, that's resulted in lower volumes in our non tropical fruit crops and lower sales volume and per unit sales prices for novel condos as a result of excess supply in north.
Okay.
For the quarter adjusted gross profit in our fresh and value added products segment increased 28% to $59 million.
The primary drivers of the <unk> war in buying a book increased sales volumes and higher prices in all of our regions along with a lower per unit ocean freight costs compared to the prior year period due to our new fleet and container ships in fresh cut fruit and prepared products gross profit.
Margin achieved low and high teens, respectively.
Fresh cut vegetables in our man packing business were impacted by higher per unit Bravo and distribution costs, partially offset by higher per unit sales prices and avocado gross profit decreased as a result of lower sales volume and price is due to increased supply in the markets.
Net sales in our banana segment decreased $3 million to $427 million.
While adjusted gross profit increased 16% or $7 million during the quarter. The primary drivers of the various war lower net sales in the middle East and to a lesser extent North America, partially offset by higher net sales in Europe and Asia.
Higher per unit sales prices and lower per unit Ocean freight costs in North America, and Europe drove the increase in gross profit.
These improvements were partially offset by higher feel LIBOR inland freight packaging production and from equipment costs.
Now moving to selected financial data.
Selling general and administrative expenses increased to $6 million to $51 million compared with 46 million in the prior year period. The increase was primarily due to higher administrative expenses.
Foreign currency impact at the gross profit level for the second quarter was favorable by $11 million compared with an unfavorable effect of $1 million in the prior year period.
Interest expense net for the second quarter at $5 million compared with $6 million in the prior year period, mainly due to lower interest rates and lower average debt balances.
The provision for income tax was $5 million during the quarter compared with $4 million into prior year period, primarily due to increased earnings in certain jurisdictions.
During the quarter, we generated $140 million in cash flow from operating activities compared to $111 million in the prior year period. The increase was primarily attributable to higher net income and lower cash outflows associated with accounts payable and accrued.
<unk>.
As it relates to capital spending we invested $17 million in capital expenditures in the first 6 months of 2021 compared with $36 million into prior year periods. Our investments were mainly related to the final 2 new container vessels, we received during the first.
6 months of 2021, along with expansion and improvements to our facilities in North America and Asia.
As of the end of the quarter, we have received cash proceeds of $51 million in connection with.
Assets sales under the asset optimization program of which approximately $40 million was received in 2020.
Net cash proceeds during the second quarter of 2021, primarily related to the sale of surplus land in the middle East and the vessel.
Total debt decreased from $542 million at the end of $2022.474 million at the end of the second quarter of 2021 based on a trailing 12 month period, our total debt stands below 2 times net.
At the beach.
As announced this morning in our financial results press release, our board of directors declared a quarterly cash dividend of <unk> 15 per share payable on September 10, 2021 to shareholders of record on August 18, 2021. These are then increase.
<unk> per share from the dividends, we paid to shareholders in June 2021.
This concludes our financial review, we can now turn the call over for Q&A Brian.
As a reminder, ladies and gentlemen, if you wish.
Can I ask a question you may do so by pressing star.
Followed by the number 1 on your telephone keypad again day Star 1 to ask a question.
And we now have our first question coming from the line of Jonathan Feeney with consumer edge.
Hello, Thank you very much.
Obviously terrific results nice otherwise mixed earning season I guess a couple of questions. So.
It seems like we're in a sweet spot here, where supply shortages at least 4 for bananas anyway have eased in and yet there is still a reasonable amount of pricing power in volume around like can you give us any outlook on supply for the second half because usually that cash flow and profit.
The dynamics of that business are radically different lower in the second half than first half and I wonder as we model if that's still going to be the case. This year given the extraordinarily good dynamics that seem to be out there to that that'd be my first question.
And secondly.
Do you think you mentioned Mohammad you mentioned in your prepared remarks, this unprecedented supply chain pressures, everybody feeling that and will that flow through to pricing in all tropical fruit in your opinion or.
Is that.
Yeah. This is a very different kind of industry rate itself as an agricultural industry that moves a lot more with cycles of agricultural success and at volume and quality fruit than it does with Ya global inflation. So any perspective, you have on your pricing power in light of those cost pressures.
I appreciate it.
Thank you Jonathan and good morning, as far as the Banana is concerned you know.
Actually the first half of the year, we were impacted mainly by the hurricane.
And that impacted our production and in Guatemala, and in a lesser extending Costa Rica.
The competition.
And this has created the situation, where we had to go and buy maybe extra food from Ecuador, where we had to enforce all of our force measure.
The price increase during the first half of the year.
And that actually is Jewish it wasn't.
A big luck.
Kind of a supply.
Supply shortage, we had.
Some tightness in the market in the first few months.
The main issue was the damages huge damages that happened to the problems and to the infrastructure. So supply of banana is constant.
It it's available in the market.
There is no shortage in that site.
And as we speak you know we know that there is a pressure on the on.
On the pricing in the banana in the market.
Because of the supply because of the leverage of the retailers over the.
The industry players and it's unfortunate that we cannot find a mutual you know kind of a way too.
Keep us as.
Producers marketers to survive.
And this kind of environment.
Now talking about other fruits and other tropical fruits.
They they price the close special as it goes through all the industry not only just for bananas.
The industry for anything that we talk about packaging shipping.
Materials fertilizer is everything that you are talking.
Yeah.
We use into other inputs in our kind of packaging and production.
And the fee that has been impacted however, we have taken several steps by increasing you know on the fresh cut price from fresh.
Got a supply.
Limited price increases in the last couple of months.
To offset some of this.
Cost increases, which has helped us somehow.
And as we go forward, we have are looking at different ways to reduce the impact of the cost itself as well as hoping to be able to reach with our customers you know ways to mitigate this.
Of course increases by increasing the.
Prices as well.
Yeah.
So it sounds like it affects everyone in the industry and your confidence that.
Since it affects everybody that price and we'll get through generally speaking.
Well, we hope so you know we are doing our best but it would be both.
No I mean, it's it's a it's a joint effort.
Mutual.
I think it's a mutual benefit to everybody when everybody is.
So device.
Well, let me ask you 1 follow up please on it and then I'll hop off.
Pass it on police Yep.
Retail environment has changed quite a bit you're seeing you talked you mentioned I mean I've been around a long time and I know, it's not it's had its ups and downs as far as <unk>.
How you go to market certain places.
More spot based and retailers are immediately amount of all the price increases because I just don't have any other choices. Other places you have these contracts that sometimes work in your favor, but a lot of times. They don't has COVID-19 the new volume the sudden fixture asked a lot of these retailers have had like and their urgency I've heard from a lot.
A lot of more consumer staples less fresh product more consumer staples players that grocers have been much much more friendly as far as carrying inventory, Gary King inventories, they're scared to be out of inventories because they left.
Probably billions on the table with out of stocks now when people rushed into these grocery stores and they really maybe after years of reducing working capital or maybe going back. The other way has it become a more friendly retail environment anyway or is it unchanged.
Well, Unfortunately, I have to say that it has been unchanged, even though that we have been you know up to the maximum by supplying all of retail as you know with the consistent supplies every single day it will be.
During our last year during April May June last year.
We have put them through.
Regional share to 40 million Boes.
That was not a because of the.
It kind of slow.
Based at the supermarket. The first couple of months you know on the first month or 2 there was a huge euro rushed to the supermarket and buying stuff to stock and then all of a sudden there was.
Southern drop.
And demand and in sales and we were stuck with a huge volume of products, mainly bananas, and pineapples melons and that though we have contractual relationships and.
But the retail will tell you we cannot sell it because we don't have to buy it. So we had to bump relative to $40 million and these products last year that we had to absorb our subs.
That was and what day and night.
2 'twenty so.
This is the kind of things.
What we are doing as a matter of fact as a company as well and I mentioned this in my script.
Is that we are moving towards more food items into our markets, where we own the brand del Monte in Europe, and the Middle East and Africa, which we have quite a success actually during the last.
7.8 months and we are going to leverage on that and really.
Bringing back our brand into the onto the food.
Side of the business and I believe that this is a.
Very big bright spot for us going forward.
Which I would for sure, which wouldnt really stabilize the business in a better way.
Yeah from what it's worth I completely agree it's been a long time, but you've made a lot of progress to so congrats on that and thanks for the time and nice quarter again, Thank you very much.
Yeah.
Yeah.
Again, ladies and gentlemen, if you wish to ask a question you may do so by pressing Star then the number 1 thing or the telephone keypad again that the star 1 to ask a question.
Yeah.
I see that there are no more further questions I'll turn the call over to Mohammed Abu Abbas.
Holly.
I would like to thank everyone for attending this call and wish you a good day and hope to speak to you soon thank you very much everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you all for participating you may now disconnect.
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