Q3 2021 Fresh Del Monte Produce Inc Earnings Call
Hey, Matt.
Hello, everyone.
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Good day.
Welcome to fresh del Monte produce third quarter 2021 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.
If you would like to ask a question. Please press star one on your telephone keypad.
For opening remarks, and introductions I would like to turn the call over to Vice President S. T N E and Investor Relations with fresh del Monte produce honor Miranda. Please go ahead Mr. Miranda.
Thank you Deborah good morning, everyone and thank you for joining our third quarter 2021 conference call.
Barbara mentioned.
Vice President Global Investor Relations with fresh del Monte produce.
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've had a chance to review the press release that we issued earlier. This morning via business wire. You May also visit the company's website at fresh del Monte Dot Com.
For a copy of today's release as well as to register for future distributions.
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 includes non-GAAP measures reconciliations of these non-GAAP financial measures are set forth in the press release, we issued today and on the company's website at fresh del Mar.
<unk> dot com under the Investor Relations tab.
I would like to remind you that much of the information will be speaking to today, including the answers we give in response to your questions will include forward looking statements with the provisions of the Federal Securities Safe Harbor laws.
Today's press release and in our SEC filings, we detailed material risks that may cause our future results to differ from these forward looking statements are statements today are as of today November three and we have no obligation to update any forward looking statements. We may make with that I'm pleased to turn the call over.
Mohamad.
Thank you Anna and good morning, everyone.
During the third quarter of 2021, we've continued to be impacted by that.
The inflation pressures.
Across our supply chain.
Including strain transportation capacity.
Net of sufficient labor availability.
Cost pressures.
These pressures were intensified by the hour.
As the second half of the year is typically more challenging due to the industry was excess supply and shift in demand towards seasonal fruits.
We expect this systemic cost pressures to continue.
To offset the impact last week, we announced our customers' inflation justified price increases on bananas lineup of fresh cut fruits.
Despite our efforts to mitigate these increasing costs within our supply chain.
Cindy do grid to absorb.
The umbrella of course have been in the system and short haul size also normalize it.
These pressures are not unique to our business and therefore.
Collaborate.
Hey, Gabe.
Within our supply chain and with our business partners.
We're also cognizant of our responsibility towards our consumers, who look to us to provide a reliable supply of.
Product options.
For a moment and we are keenly focused on effectively managing our cost, including sourcing optimization and consolidation of our operations and product.
Sure <unk>.
But to improve asset utilization.
<unk> execution.
Our structure.
As we move forward, we remain focused on the growth of our brands by managing our business for the long term.
We believe that recent capital investments and automation of our production facilities improve.
Improving our margins by growing our fresh and value added.
And services segments.
And further leveraging of our vertical integration such as the addition.
Of six new would appreciate it.
And then on the vessels to our fleet will prove to be advantages by putting us in a stronger more agile position as we continue to provide reliable and quality service to our customers.
I would like to highlight that despite the difficult operating conditions.
First nine months of what the.
'twenty one our gross profit is up $15 million compared with the prior year period.
While corresponding gross margin is up 150 basis points.
2%.
On the sustainability front I'm proud to announce that our chief sustainability officer has helped us.
We represent our company in the world by a bandwidth diversity summit Engler school, a great platform to address the important role the private sector.
In responding to the top line challenges of biodiversity loss.
And climate change.
In September we were selected to join the nature based solutions finance and regenerative agriculture.
The United Nations climate.
And during the quarter, we published our 2020 sustainability board.
Solidifying our leadership position in defining what sustainable production means for large scale producers.
We serve some of our key Gordon.
2025, environmental protection rules. Therefore, this year, we said EBIT more ambitious goals for 2030, including climate action water stewardship solid management practices, and reducing food waste and plastic usage.
At this point I would like to turn the call to a global peers.
Thank you Mohammad and good morning, everyone.
As noted earlier during the third clock is systemic increases in input costs and labor shortages impacted our margins and profitability.
Luxury vehicle in 10 quarters of 'twenty to 'twenty one results.
Net sales increased $15 million or 2%.
IPD above $1 billion compared with the following key rates driven by higher net sales across all of our segments.
And the other products and services segments, including third party freight services and bolt EV.
Net sales were also positively impacted by appreciation in the exchange rate, mainly as <unk>, the British pound and the Korean won.
Adjusted gross profit was $49 million compared with $69 million and good prior year period.
<unk> gross margin decreased four 9% from 7% in the prior year period the.
The decrease was primarily driven by invitation managing cost question, which resulted in higher Virginia litigation and distribution costs, including packaging materials.
England freight labor and fuel.
The impact of these pressures in the fourth quarter was intensified by seasonality.
Positive situations in exchange rate versus the Euro and Costa Rica, Cologne, partially offset these decreases.
Adjusted operating income was $300000.
Compared to the $25 million in the prior year period, mostly driven by increases to grasp link.
Adjusted net income was approximately $1 million compared with $16 million in the prior year period.
Our diluted earnings per share was <unk> <unk> compared to diluted earnings per share of 37 cents in.
In the prior year period.
Adjusted diluted earnings per share was relatively in line with the oil and gas performance as both peers and minimal non operational and non recurring items.
Adjusted EBITDA was $26 million compared with $51 million ended prior year period.
Corresponding adjusted EBITDA margin decreased to two 6% from five 2% due to prior year period.
Let me now turn to segment results, beginning with our fresh and value added products segment.
For the third quarter of 2000 10-Q, one net sales in our fresh and value added products segment increased approximately $1 million.
Compared with the prior year period.
Primary drivers were increases in our financial and I will kind of product line.
<unk> net sales increased in most regions driven by higher sales volume, partially offset by lower per unit sales prices.
Our cabinet sales increased primarily North America, driven by higher per unit sales price, partially offset by lower caseload.
As an offset sales of vegetables prepared food products and non tropical fruit decreased during the third quarter compared with the prior year period.
Vegetables, net sales decreased primarily in North America, including our banking operations, driven by lower sales volume related to lower demand from the foodservice channel.
Third food products decreased mainly in Europe as the prior year benefited from heightened and customer demand related to the COVID-19 pandemic as more people stocking up in Canada last year.
Lastly, non tropical fruit net sales decreases primarily in the middle East.
For the quarter adjusted gross profit in our fresh and value added products segments, while at $41 million compared with $56 million in the prior year period.
The primary drivers of the dams, where avocado degrees in North America, primarily driven by lower sales volume, coupled with higher per unit production and distribution costs.
Repairs to the problems were lower primarily in Europe, driven by lower net sales coupled with higher per unit distribution cost.
Fresh cut vegetables in North America, primarily impacting operations were impacted by higher 30 units. So all the costs and lower production yields.
And by Apple It crease in North America, due to lower per unit selling price, coupled with higher per unit production and distribution costs.
Moving to our banana segment.
Sales increased $2 $5 million or 1% compared with the prior year period.
While adjusted gross profit was approximately two and a half million dollars compared with $11 million in the prior year period.
The consolidated decrease while commitment volume excess industry supply, which lowered our unit sales prices, coupled with a higher per unit distribution and production costs impacted by inflationary and cost pressures.
Now moving to select financial data.
Selling general and administrative expenses was $48 million compared with $44 million.
The increase was primarily due to higher administrative expenses.
Net interest expense, while it is likely lower mainly due to lower interest rates and lower average debt.
Income taxes were a benefit of approximately $7 million during the quarter compared with an expense of $5 million in deploying your peers for amazing to decrease income you thoughts on higher tax jurisdictions.
Year to date, we generated $162 million in cash flow from operating activities compared to $174 million in the prior year period.
The decrease was primarily attributable to higher levels of the vintages.
Impacted by the increase in cost of goods largely related to clearing the cost pressures as well as beautiful.
Partially offsetting the decrease were higher net income and higher balances of accounts payable and accrued expenses.
Given current conditions effectively managing our working capital is upfront is a top priority for Nancy.
As it relates to capital spending we invested $83 million in the first nine months of 2021 compared with $93 million in the prior year period.
The lion's share of the spend relates to the last two new container vessels added to our fleet.
Along with expansion and improvements to our operations in North America Asia.
Inc.
To counteract current labor pressures that dollar facility, we are prioritizing projects expected to improve automation, having said that because of supply chain bottlenecks lead times on machinery and equipment have nearly doubled.
During the quarter, we received cash proceeds of one $5 million under our asset optimization program, bringing the total to date to $52 million with programming sales selling non strategic and underutilized assets, including land.
Facility.
The benefits include free cash flow to drive shareholder value cost improvements, resulting from the consolidation of facilities and better return on that.
The completion of the program, we will extend in the first quarter of 2022, and our focus is on value maximization and last so long selling then.
Certain conditions, including COVID-19, travel restrictions and making some of these transactions harvest to close having said that we remain confident in the successful completion of the program, which we expect will suit to advance our already strong cash flow position.
Total debt decreased to $477 million at the end of the third quarter.
$511 million at the end of the third quarter of prior year.
Based on our trailing 12 month period, our total debt stands at slightly above two times adjusted the beta.
This improvement reflects our disciplined cash flow management approach, including capital expenditure planning and continuing proceeds from asset sales.
Asset sales optimization program.
As announced this morning in our financial results press release.
Our board of directors declared a quarterly cash dividend of <unk> <unk> per share payable on December 10, 2021 to shareholders of record on November 17 2021.
This concludes our financial review, we can now turn the call over to Q&A Debra.
Maybe you would like to ask a question or make a comment. Please press star one on your telephone keypad.
Again that is star one to ask a question.
Farmer took a part of the Q&A roster.
And your first question comes from the line of Jonathan Feeney with consumer edge.
Good morning, Thanks very much.
I guess my first question would be.
Yeah, like particularly in the Pineapple segment, you mentioned pricing was down.
Oh.
I'm curious as to your cost position relative to others.
It's hard to count on spot prices for any measure would.
It would be down.
Huge.
Equities and highly visible costs, increasing and I know, there's some micro affects there, but any detail you could give us on the pineapple, but weak or particularly.
And what that means for the next couple of quarters I'd really appreciate first off.
Good morning, Jonathan Good morning.
Now as far as the final after the major major in fact that you have during the last I would say three months has been.
Improved supply, let's say from our pumps.
Hi.
That's a production number one and number two we have a lot of.
Sizes that.
Kind of demanded by retailers in the market.
And that's something that we need to rectify going forward to be honest, we've been discussing this with our sales team that we will not be able to sell anymore.
The way that we have been selling and so we're going to make some changes to our selling strategy regarding defined happen.
As you'll see going forward, we have raised our prices on pineapples as well.
And I can assure you that we are not going to sell antibody.
Future unless they maintain a decent margin.
And Eduardo maybe he'd like to add Jeff So just to add a little bit color there as well so I think <unk>.
The banana that we came up excess supply. So in fact in April in North America to Aynsley.
And against the FDA and we saw a significant decrease year over year on the boards of by now.
Across.
All the all the ports and so and I think everybody was expecting that the demand will decrease in the second half of the year, but because of the COVID-19 situation as well as foodservice restrictions.
That's a higher demand that didn't happen. So it created more fresh air in terms of all gave more supply in the marketplace versus the demand driving prices down.
We have seen in most key in the restated two weeks a reduction in that trend.
Over a year and we believe that began Halle Berry.
For Odyssey to a more normal situation.
Got you now you mentioned supply from your farms and pineapple, how about competitor supply.
More.
Sized or even different size or slightly different product and are there other competitive factors that are depressing prices there, yes for sure that's what I was mentioning.
Can he boards, we noticed that this for mid June.
Competitors, they increased significantly in cancers.
The answers compared to previously.
Jonathan.
Jonathan.
Thanks, Rob.
Its a general trend usually in the industry. If we have more bananas, it's because it's a general trend and if we have more finite business because of the general trend.
That's because somebody is producing more than ever it's usually because of weather conditions because of certain elements that really can make one year more than the.
Usually have more production in certain times.
And this can be not the same going forward. So.
Its nature that is taking its effect but.
Even in our condition.
We were lucky that we have our concentrate plant our IQ apps.
Our operation in Costa Rica, which has absorbed.
Gordon amount of fruit that if we didn't have these facilities would have to send to the market as well.
We have a lot of this fruit into our industrial operations and really bad.
Much more money then.
We would have been selling it as pressure in the market. So we do have flexibility to our service, but sometimes you cannot control nature.
Going forward I believe we have.
Current plans as far as buying up into this point Sir.
Got you, Okay, and then one other thing the timing of the strategic asset sale.
It seems to me that at.
All times.
Maybe I should rephrase that.
What specifically drove the timing if wanted to make strategic asset sales now theres a lot of.
I mean, that's always would seem to me could be a.
Yes.
Return on investment calculation.
You announced the kind of program and several things in the pipeline and why now.
Yes.
Yes.
One you mentioned about <unk> I'm talking about assets that have been with us for almost 20 years as Jonathan had some assets that we bought five years ago, and we want to sell back here and Im talking about assets mainly in Chile.
Chile and Uruguay.
<unk>.
And certainly not in North America, and Europe, and areas, where we have land and we have facility.
Facilities that.
Im going to utilize at this time and why because we have better efficiencies because now we are consolidating operations and a better rate. So really the assets that is because we don't utilize these as they should be sterilized Gordon.
Jonathan as you May remember a year ago and the qualitative next year will allow us to be $100 million asset sales optimization plan that we have been facing that on a quarterly basis and the key thing is do you think again mentioned these several of those decades Farley he felt the managed care and because of that.
The political instability in keeling, mainly.
These says.
Maybe some more color expectations to be deferred into next year.
Got you Okay makes sense. Thank you for the time.
Thank you.
We have no other questions in queue at this time, but I would like to give the audience ample time to ask the question and you may do so by pressing star one we'll pause for just a moment to see if anyone else.
Okay.
Okay.
We have no questions in queue I would like to turn the conference back over to management for closing remarks.
Well I would like to thank everyone for ascent.
Attending this call today and I wish you a good day and hope to speak to you.
In the future. Thank you very much have a good day.
This does conclude today's conference call. Thank you for your participation you may now disconnect your lines.
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Thank you.