Q1 2022 Fresh Del Monte Produce Inc Earnings Call
Please wait the conference will begin shortly.
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Yeah.
Good day, everyone and welcome to fresh del Monte produces first quarter 2022 earnings conference call.
This conference call is being broadcast live over the Internet and is also being recorded for playback purposes. All lines have been placed on mute to prevent any background noise. So.
The speaker's remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again press the star one for opening remarks, and introductions I would like to turn today's call over to Vice President.
F P N E and Investor Relations with fresh del Monte produce Anna Miranda. Please go ahead Ms Miranda.
Thank you Cheryl good morning, everyone and thank you for joining our first quarter 2022 conference calls as Sharon mentioned.
I'm, the vice President Global P&A, and Investor Relations with fresh del Monte.
Joining me in today's discussion are Mohammad Abu <unk>, Chairman, and Chief Executive Officer, and Mike <unk>, Senior Vice President and Chief Financial Officer.
Hope you've had a chance to review the press release that was issued earlier. This morning via business wire. You May also visit the newly updated company's IR website at Investor Relations start fresh del Monte Dot Com to access today's earnings materials and 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 and earnings presentation, which is available on our website I would like to remind you that much of the information we will be speaking to today, including the answers we give in response to your questions may include forward looking statements.
The provisions of the Federal Securities Laws Safe Harbor in 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.
Our statements are as of today may 4th and we have no obligation to update any forward looking statements.
During the call we will provide a business update along with an overview of our first quarter 2022 financial results followed by a question and answer session with that I am pleased to turn today's call over to Mohammad.
And good morning, everyone.
During the first quarter.
Our net sales increased by $49 million compared with the prior year period.
The direct benefit of leading the industry and the implementation of inflation justified pricing actions.
However.
Cost of products sold increased by $64 million.
You go across the board inflationary pressures.
Helping and lower operating income.
We have two very distinct narratives and our performance.
We delivered healthy net sales as a matter of fact our.
Our first quarter net sales.
At the same.
Level realized in the first quarter of 2019 before Covid.
Second.
The increase in cost is truly unprecedented.
Negatively impacting flow through.
Despite this narrative.
Our strong adjusted EBITDA margin of five 5%.
As a testament to all of our length.
Hi, Jared management stage.
We remain focused on driving incremental operating leverage through product innovation.
Cost management and operation.
And efficiencies as reflected in the significant growth in our third party freight services.
Okay.
We made progress on our strategic initiatives effectively managing the business for the long term despite incremental deterioration of already unprecedented supply chain constraints.
And higher inflation compounded by the awarded Greg.
In keeping with our shareholder value accretion approach our capital deployment in the first quarter concentrated operation investments.
The derivative.
Technology, and smart farming strategic investment and I'm paying a higher dividend.
Yes.
Last quarter I updated you on the two exciting strategic investments with pure Elizabeth and good culture.
Our investment in good culture closed in the first quarter, our investment in pure Elizabeth.
At the end of last year.
We are in the initial phases with fuel to Elizabeth on the development of unique and innovative products.
And look forward to incremental performance as the collaboration continues to evolve.
Additionally.
The team is hard at work with our new product pipeline.
So far this year, we launched our mini panic law.
Differentiated by its remarkable sweetness and small sites.
And men's that Tomas and North America.
Last later this year <unk> is expected to dip cute new brand building packaging.
And soon we plan to supplement our avocado category with an exciting new offering.
Last month, we were recognized by Newsweek as one of America's most trusted companies of 2022.
After being life of customer Trust Investor Trust and employee Trust.
We are honored to be among the Companys vehicle price for this hour and remain committed.
So maintaining the honest and transparent C fresh del Monte is noncore.
Since our last sustainability update we received high level scores and the water security climate change and forest categories by CDP.
At 2021, CF business Sustainability Award.
Our approach to funding while preserving biodiversity.
Got it.
Two of our largest funding operations certified carbon neutral.
We are actively working on amplifying those efforts elsewhere.
Our sustainability efforts are the core of what we do as we work to build a food system.
Culture production and biodiversity thrive together.
We awarded the grain has created secondary effects, adding to the already.
The macroeconomic challenges.
Including incremental pressure on the cost of fertilizers.
And shipping disruptions.
Additionally, <unk>.
Fluctuations in exchange rates are expected to go against us in key selling markets given analysts' forecast for a stronger U S dollar.
We actively hedged against movements in the euro and the euro and the Japanese yen to minimize the impact.
Lastly, we do not yet see an environment of course, NOLA mobilization and the near future.
Having said that I am confident in our team's ability to drive growth.
They focus on a multifaceted approach grounded on driving organic and new product expansion.
Implementation of pricing actions to minimize margin erosion and operational efficiencies.
We believe that our vertical integration is a key differentiator.
And that brings even through to date.
Because a little bit we are relatively achieved from elevated shipping rates in certain key markets.
Our vast network has allowed us to optimize our sourcing and distribution.
Additionally, our fleet of vessels has enabled us to expand our commercial cargo services in North America benefited benefiting from elevated demand given kind of ocean freight conditions.
Now I will turn the call to want to get to talk about the first quarter financial results.
It is Monica his first time presenting.
She has been an integral part of finance organization, our finance organization for 25 years.
I am excited to have and have new role as CFO .
I've said that she will continue to add significant contribution a lot of financial discipline as we continue to evolve our conference Monica. Thank you Mohammed It is great to partner with you in my new role and good morning, everyone, Let's turn to our first quarter of 2022 financial results.
As noted by E Commerce net sales for the first quarter of 2022 increased by 49 $49 million or approximately 5% compared with the prior year period net sales primarily benefited from inflation justified pricing actions on key product categories, including banana.
Hi, Napoles and fresh cut Conversely sales were negatively impacted by fluctuations in exchange rates, mainly versus the euro and the Japanese yen compared with the prior year period.
Fortunately lack of availability of third party shipping capacity uncertain shipping routes substantially limited sales of various products.
Adjusted gross profit for the first quarter of 2022 with $90 million compared with $107 million in the prior year period.
Despite higher sales gross profit was negatively impacted by worsening inflationary and other cost pressures.
Paired with the prior year period.
Specifically higher cost of key inputs, including packaging material fertilizer ocean and inland freight fuel and labor impacted our performance. Additionally fluctuations in exchange rates were also unfavorable.
Adjusted operating income was $40 million compared to $58 million in the prior year period. The decrease in operating income was primarily due to lower gross profit and the net impact of disposal of property plant and equipment, partially offset by lower administrative expenses.
Adjusted FTP net income was $26 million compared with $42 million in the prior year period.
Our adjusted diluted earnings per share was <unk> 55, compared with adjusted diluted earnings per share of 88.
In the prior year period.
Adjusted diluted earnings per share was relatively in line with our GAAP performance as both periods had minimal number of non operational or nonrecurring items.
Adjusted EBITDA for the first quarter was 63 million compared with $82 million in the prior year period and corresponding adjusted EBITDA margin was five 5% compared with seven 6% in the prior year period.
Let me now turn to the segment results.
Beginning with our fresh and value added products.
Net sales for the first quarter of 2022 increased $42 million or approximately 7% compared with the prior year period. As a result of increased net sales across most product categories, mainly related to higher pricing.
Fresh and value added products segment gross profit for the first quarter of 2022 was $44 million compared with $52 million in the prior year period.
Despite higher sales and gross profit in this segment continued to be impacted by inflationary and other cost pressures, which resulted in higher per unit product and distribution costs.
As noted earlier the increase in cost of products sold with across the board impacted by substantial surges of key input materials.
As well as third party shipping rates.
For example, as you know crude oil prices have increased over 60% compared to the same period last year.
Containerboard was up approximately 50%, while the cost of certain key fertilizers more than doubled compared to the prior year period.
Additionally, lower gross profit on melons are seasonal product impacted segment performance.
Lastly, the fresh and value added products segment had $3 million of one time charges in the first quarter of 2021 related to damage caused by severe rain storms in Chile, which impacted our non tropical fruit category.
There were no one time charges in the first quarter of 2022.
Moving to our banana segment.
Net sales for the first quarter of 2022 decreased by $12 million compared to the prior year period as a result of lower sales volume in North America, partially offset by higher pricing.
Banana segment gross profit for the first quarter of 2022 was $38 million compared with $50 million in the prior year period.
Similar to the fresh and value added product segment higher input costs impacted gross profit.
One time charges in the banana segment in the prior year period included $1 5 million net insurance recovery related to damage caused by Hurricanes in Central America in the fourth quarter of 2020.
There were no one time charges in the first quarter of 2022.
Lastly, net sales in our other products and services segment increased by $19 million or 49%, mainly due to higher net sales of third party freight services in North America.
Our fleet of vessels has enabled the expansion of our commercial cargo services, which are benefiting from elevated shipping rates and demand due to the current supply chain environment.
<unk> profit increased by $5 million as a result of the higher net sales.
Now moving to the selected financial data.
Selling general and administrative expenses were $45 million compared to $49 million in the prior year period.
The decrease was primarily due to lower administrative expenses.
Net interest expense was relatively in line with in both periods at $5 million.
Income tax expense was $6 million for the first quarter of 2022, compared with $11 million in the prior year period.
Merely due to decreased income in certain higher tax jurisdictions.
Year to date, we used net cash from operating activities of <unk>.
$3 million compared with net cash provided by operating activities of $47 million in the prior year period the.
The decrease was primarily attributable to lower net income higher levels of accounts receivable, mainly due to higher net sales and timing of collections and higher levels of finished goods inventory in part driven by the inflationary cost pressures already mentioned.
We continue to make progress on our optimization program announced in the second half of 2020.
As a reminder, the program involves selling non strategic and underutilized assets, including land and facilities. Since the program was announced we have generated $59 million in cash out of which $2 million was realized in the first quarter of 2022.
We expect progress towards achieving our target of $100 million in cash proceeds to continue in 2022.
As it relates to capital spending we invested $11 million in the first quarter of 2022, compared with $34 million in the prior year period.
Capex spend consisted of improvements to our production facilities in North America, including investments in automation and technology.
Along with improvements to our pineapple and banana operations.
As a reminder, capex in 2021 included delivery up to fuel efficient state of the art refrigerated container vessels, one of which was received in the first quarter of 2021.
Our 2022, Capex will return to more normal levels and is expected to be under $100 million having.
Having said that similar to what many businesses are grappling with.
Lead times on machinery and equipment have nearly doubled which may impact our rate of spend.
Long term debt increased to $554 million at the end of the first quarter of 2022 from $534 million in the previous prior year period.
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 June 10, 2022 to shareholders of record on May 18th.
Compared with <unk> 10 per share in the prior year period.
This concludes our financial review, we can now turn the call over to Q&A Cheryl.
Thank you to ask a question please press star one.
First question is from Mitch Pinheiro of Durbin and company. Please go ahead. Your line is open.
Yes, hi, good morning.
Good morning.
So I guess the first question I have is.
So you've talked about.
You've taken pricing.
But how much.
How much do you actually.
Control pricing I mean, that's a lot of its market driven correct.
Supply and demand of various groups.
Sorted.
<unk>.
<unk>.
Is it just pricing.
Pricing.
So fuel surcharge.
Kind of.
Pricing or is this like permanent pricing.
No fewer charge for instance, we have two types of.
Let's say.
Enforceable clauses in our contracts one actually is the.
Ocean Ocean freight our ocean fewer let's say and this usually is done every quarter.
We will fix.
Kind of.
Sure.
What is the current.
The average current let's say Q1.
Or.
The oil oil today is on the six for instance.
At the end of the quarter or beginning of the second quarter. So we what a new rate, which would reflect the true.
Cost of the fuel as we charged up to our customers.
Three months rolling period.
The end of second quarter at the end of let's say at the beginning of the third quarter.
We'll have to go back and look at the price of oil in the market, whether it has gone down or up.
Adjust our.
Ocean freight so they can.
By the beginning of this month.
April actually we have reviewed and revised our ocean freight. So we have been for argument's sake, we have been kind of impacted negatively in the first quarter because the price of oil have increased tremendously was OLED.
Right was locked at lower let's say.
Ocean freight.
At the beginning of Jetblue has been adjusted to reflect the.
The current let's say more or less.
Fewer costs.
As far as inventory.
Far as inland trade, which relates also to the fuel cost we have been talking to our customers and we have taken action to adjust.
The inland trade as well.
Sure.
The same kind of formula.
Well I guess my question so in your banana business your gross margin.
It's kind of normal for you.
It's a big range that you can have but.
Your banana margins were decent and your other margins are increasing because you are getting nice.
Yes, nice margins on your commercial freight.
Revenue.
On the fresh and value added is where it continues to kind of struggle is that is that where most of the inflationary pressures are in the fresh and value added segment.
More on a percentage basis, perhaps.
So hi, this is Monica and so in that segment, we actually had a couple of other things going on we did have lower margins on our Mellon we had.
Over production and we did have lower margins on that and then our decision product suffered from the lack of shipping and we were unable to ship some of our products out of Chile and that impacted our fresh and value added we do have.
Higher pricing in pineapples.
And fresh cut fruit, so that definitely helped us.
Segment.
So as you look as you look.
In that same segment.
For the rest of the year.
With maybe the Mellon issue going away.
Would we expect I mean I remember.
Progressing value added was <unk>.
Probably.
Our business segment that maybe could get to double digit margins at one point.
Or close to it.
Are you still tracking towards that end.
And should we see improvement in those margins in the in the <unk>.
In the in the in the law.
Last three quarters here.
Absolutely.
What we're working for.
All the loopholes or all the kind of.
First of all kind of mistakes.
<unk> been taken care of and hopefully we will be in the double digits.
Hello.
The range for the value added products.
Okay.
A couple of things.
I will just specifically to bananas.
What's the outlook for supply and demand.
For the next couple of months as far as you can see.
And how has.
The Ukraine, Russia situation hurt.
Either pricing or how's it affected European pricing or.
If you could talk about that I'd appreciate it.
Yes.
Actually the situation this year was very.
Particular.
And different way that Ecuador, Ecuador was hit very very very severely in terms of suppliers, because Ecuador main markets, where Russia, Ukraine and the eastern markets. So what date would be.
Generation market.
Irritation in the Russian and of course, the almost the closure of the Ukrainian markets. So much <unk>.
<unk> were cut off from these markets as there was.
Abundance of fruit in Ecuador, so prices for argument sake prices Ecuador at this time of the year, even all between March April .
February would be around.
Let's say the truth I'm talking about troop would be allowed.
Eight nine to $10 per box.
One for the last six seven weeks has been around two to $2 50.
<unk>.
Box. So you can see the impact as far as.
The export.
Exports from that.
We'll be in market in particular has been steady.
Steady and maintaining strong pricing.
Since the beginning of the year. So we are very optimistic about the European market as a matter of fact, I think the war in grain in Russia has been.
A positive factor for the European market in terms of.
Also the shipping scarcity, I mean, when I say shipping equipment containers.
At chips available to do more fruit to euro clause.
Disrupted in.
Did not have enough, let's say space capacity.
We'll have to ship.
<unk>. So this has helped as well in terms of volumes going to.
Going forward I believe that.
This situation is not sustainable in terms of.
Availability of Ecuador small growth was at mid sized growers suffered tremendously not only because the pricing is.
Eroded substantially but also the fertilizer schools.
More than.
300 <unk>.
Yes.
Aside from a few words as well.
Other inputs the paper because.
There is not a single component that has gone up.
50 to 100, 300%.
Ultimately, we will see some.
Substantial in my opinion I might be wrong, but I believe that we will see some.
Really structural changes in the ecuadorean.
Supply chain.
Intangible bananas, so we just have to wait and see.
Ill.
Playing very safely as far as we're concerned.
Sure.
We would like to be on the safe side.
We see.
Going forward I believe that will be a positive impact to the industry in general.
Okay. Thank you I'll get back in the queue.
Thank you.
Your next question is from Jonathan Feeney of consumer edge. Please go ahead. Your line is open.
Thank you so much and thank you so much for thinking of me.
How are you.
I saw a couple of questions first could you quantify in any way shape or form.
The revenue or profit impact from sales lost due to these supply shortages that were referenced in the prepared remarks that'd be my first question.
Mhm.
Kevin We can give you this information.
If you don't mind after the call.
Well, yes, we haven't quantified that Jonathan we just know that there was definitely a lot of volume that we had the opportunity to ship not just from our tropical products from Chile.
But also out of Ecuador that because of the space constraints, we were not able to do it we can give you.
Kind of a rough.
Figure out that we have.
We believe that we lost about thousand containers of sales during the first.
The first few months of this year, especially in the.
And the first quarters that by by not having enough.
And.
Shipping space as well as.
Containers, and mainly to the European Asian and.
Eastern markets. So, yes, we lost.
How many containers is the base like what what's the what's the total container.
Usage in the quarter fascinating and adult right as this one.
1000, <unk> out of 105.
That is a $1 billion.
Jamie.
I can give you this information later on.
Jonathan but what I'm, telling you what we Miss is about.
About 1000, yes.
Yes, we usually Jonathan we don't provide that level of detail on a regular basis.
Okay. Just wanted to just try to scope that will follow up after the call. Thank you.
Second I wanted to follow up on this Ecuador, $2 50, a box situation, because I hadn't heard that before and that sounds.
Yes, theres a lot of inexpensive crude out theyre marginally because theres been a demand shock.
Ed.
Logistics are constrained so that's having a hard time getting the market does that mean, there was a big overhang for the second quarter and that right. There is a lot of people looking to get rid of a lot of fruit on different markets and as soon as they could get at the North America or any place else, we're going to get at there how should I think about that because thats all historic.
Those are distressing numbers arent they.
Yes.
In North America in particular.
Most of the true most of the as contracted.
The majority of everything that we import and our.
Other suppliers.
Import is.
Almost done.
On a contractual basis. So we don't usually go in.
Speculate in the market.
So the volume.
From Ecuador, and as I can.
See right now.
I don't see that there will be extra volume coming in North America in the next few months.
Actually.
In normal times.
Markets, usually are on spot and speculative market, it's usually Europe middle East in particular.
And it's.
This meant that uranium that's where you will see the speculation in the overflow. However, as I mentioned earlier that because of the shipping constraints because of lack of containers.
Not enough.
Ships and vessels going to these destinations that has been also.
Okay.
Fact of not having enough or more volumes going through these markets and thats.
As a matter of fact stabilize these markets in a very positive way.
During the last.
So I expect that this will continue.
As well as the Warren a quaint today is going to be also another factor of big disruptions.
And to the supply chain.
So.
In summary, I don't believe that the situation is going to change so much from what we see right now.
Yes that makes a lot of sense and I was I wasn't thinking from the perspective that you would be active speculating with trading fruit in the markets in North America I'm, just more thinking that route there are others.
Source directly Opportunistically that kept then yes that weighs on contract pricing as just those that puts pressure on retail prices, but who knows in this environment, maybe that's not even something that retailers think about what the price Berry going up.
Thank you so I wanted to also follow up.
Yeah.
Bob on your comment it was an interesting choice of what support it in the script there that youre revenue exceeded that of Q1 2019 was right about in line I think is what you said.
If I just thinking about foodservice, which yes, we can.
Can you give me a sense are you, saying where is that is that retail has grown in foodservice is still well off its highs or is your foodservice institutional business at what was formerly known as <unk>.
Comfortable capacity levels in the first quarter of 19 or 18 for that matter, how does that split but working.
No I think foodservice still lagging behind.
I think that foodservice has not kept up with the.
<unk>, let's say pre pre COVID-19 period.
We'll have to wait and see how this will develop.
Yes.
<unk> doesn't have.
Perhaps again.
But.
It's a matter of.
Well as we would have to take into consideration China.
And pricing. So there are many factors playing but I don't see that foodservice has popped up with.
With the kind of demand.
We were we had regular or normal.
Pre Covid times.
And last one I always ask you about this and I know it takes a while but so these JV these products value added products what broadly.
Anything that you want a license to.
Do so through partnership.
How is the progress going with that right now is there any prospect to see yet.
Different mix of more branded mix of product.
The higher margin mix of product things like beverages cap.
Cafes, you've talked about now at any point in the next 12 to 18 months, because I don't I mean, COVID-19 put the brakes on a lot of that stuff I. Just wonder now that work everybody has kind of taken out and thinking more long term can we be more ambitious about that.
Or.
The perspective I have on that well.
Yes.
Exactly what we are actually.
Kind of.
Initially stages, but we are in the initial stages, Jonathan but this is definitely our <unk>.
Kind of objective is to grow and add value to our products.
Optimize our assets.
Leverage everything that we have in terms of transportation in terms of.
Utilization as well as working with partners of leveraging our brand.
Ability to distribute our our.
Our distribution network has been an extremely important part of <unk>.
Why we were able to survive in this environment and the loss.
Actually.
Sure.
I would say a year or year and a half because without this distribution centers and fresh cut operations across the United States Gross North America.
We would have been in a much more difficult position as we speak today.
This is in my opinion lots of very very important factor in growing our business and having more sales and being able to reach more customers.
This also has really shown too many other operators of producers.
<unk>.
Companies that.
We'd like to utilize and leverage our network and distribution capabilities, which we are really now capitalizing on.
Without elaboration on that we have many things going on right now, which looks very positive for the near and the long term future.
Okay.
Very helpful as always thank you.
My pleasure.
There are no further questions at this time I will now turn the call over to Mark.
Abu <unk> Li for closing remarks.
Thank you very much I appreciate your attendance to the call today.
Hope, we can come back with better news.
In the next quarter or the rest.
It will be it.
Good day, thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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