Q4 2022 Fresh Del Monte Produce Inc Earnings Call
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Mitch.
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Hi, Ken.
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Third event.
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S T U R D I E.
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And then I have a line.
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Please wait the conference will begin shortly.
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Good day, everyone and welcome to fresh del Monte produce this fourth quarter and full fiscal year 2022 Conference call. Today's 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. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during the Q&A session simply press Star then the number one on your telephone keypad to withdraw your question Press Star one again for opening remarks and introductions.
I would like to turn today's call over to the Vice President corporate communications with fresh del Monte produce quality of Po. Please go ahead Ms Po.
Thank you Regina and good morning, everyone and thank you for joining our fourth quarter and full fiscal year 2022 conference calls as Regina mentioned <unk>, Vice President of corporate communications with fresh del Monte produce.
Joining me in today's discussion are Mohammad Abu <unk>, Chairman and Chief Executive Officer, and lack of a sense as senior Vice President and Chief Financial Officer.
I hope that you had a chance to review the press release press release that was issued earlier this morning via business wire.
You May also visit the company's IR website at Investor Relations, Dr. Fessler months, a dot com to access today's earnings materials and register for future distributions.
This conference call is being webcast live on our website and will be available for replay. After this call. Please.
Please note that our press release and our call today include non-GAAP measures reconciliations of these non-GAAP financial measures and the other required disclosures 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 within 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 February 20.
And we have no obligation to update any forward looking statements we may make.
During the call we will provide a business update along with an overview of our fourth quarter and full year 2022 financial results followed by a question and answer session with that I am pleased to turn today's call over to Mohamad.
Thank you Claudia and good morning, everyone.
Fourth quarter of 'twenty two.
It has been our best performing fourth quarters in recent history.
Led by strong net sales and strong margins.
Okay.
Our net sales for the fourth quarter were the strongest since quarter four of 2018.
In quarter four 2022.
We had our best margins in the.
Fourth quarter no.
This is 4% in 2000 and put to us.
And our gross profit for the quarter was the best since.
Fourth quarter of 2016.
Overall for the year, we closed out 2022, and a much stronger position.
We believe this reflects our commitment to remain flexible and agile.
Controlling our cost leveraging our assets.
New and existing partnerships.
It was a challenging macroeconomic environment for our business as cost for packaging materials fertilizers transportation.
And labor remained elevated throughout the year.
We focused our efforts on being flexible and mitigating the risks associated when do we get.
During the year, we sold to control costs and implemented inflation justified price.
Increased to offset some of the increased costs.
And while fresh del Monte is most notably known for being a global produce marketer and distributor.
Important to note that we are also a logistics provider.
In 2022, we made a conscious efforts to leverage our assets whatever we can within our vertically integrated network.
Net sales of our other products and services segment, which includes third party wholesale rates increased.
Increased 24% for the quarter and.
And 45% for the year compared with 21.
We are extremely proud of the expanded partnership between network shipping and sister companies.
Right.
Okay.
Logistics.
And the work we're doing at various ports.
We are helping to further extend the ocean surface that direct shipping has been affected and to the inland marketplace.
This allows us to offer customers a one stop shop for the logistic needs within Latin America, and the United States.
Our customer relationships are also active source in 2020, do we focus on optimizing our relationships.
We optimize by innovating based all customer needs, we found new ways to work with our top volume customers to make these relationships more efficient yet profitable.
We continue to innovate with our products focusing on creating more value added products that meet our customers.
Sure.
Expectations.
While we are confident in our capabilities our services, we are continuously improving and investing in technology.
And people to keep our edge.
The release of our transportation management systems.
And 2023 for our inland logistics.
Just the next step in our multiyear plan for continued growth as a technology driven company.
Yeah.
We have dedicated numerous years, including a large bulk of 'twenty two working to perfect I woke up a predictability using artificial intelligence.
Our rich library.
We have reached almost 95% predictability on pricing.
Close to perfecting the technology with supply and demand for avocados.
We see this technology is a big step forward for the produce industry.
Not to be the pioneers on this dropped.
We expect to eventually expand this use of AI.
Other products.
Our focus for Q3 will be continued technology focus innovation and leadership in the produce industry.
We want to stay flexible and agile as we continue to pursue partnerships that will allow us to optimize our assets, which include logistics warehousing and distribution.
Now I will turn the call to wanted to get to talk about the financial results Monica. Thank you Mohammed and thank you for joining us on today's call.
First turn to our fourth quarter 2022 financial results.
Net sales for the fourth quarter of 2020 to increase by approximately $23 million or 2% compared with the prior year period.
The increase in net sales was driven by inflation justified for unit price increases, partially offset by lower sales volume and the negative impact of fluctuations in exchange rates, primarily in Europe and Asia. The negative impact of exchange rates was partially mitigated by our foreign currency hedge.
Gross profit for the fourth quarter of 2022 with $82 million compared with $40 million in the prior year period. The increase was a result of higher per unit selling prices across all segments. The increase in selling prices helped offset some of the continuing inflation.
Larry cost pressures.
Which resulted in higher per unit production and distribution costs, including packaging materials fertilizers inland and ocean freight labor and fuel.
Adjusted operating income for the fourth quarter of 2022 with $34 million compared with a loss of $7 million in the prior year period.
The increase in adjusted operating income was primarily due to higher gross profit, partially offset by higher SG&A.
Adjusted FTP net income for the fourth quarter of 2022 with $22 million compared with a loss of $9 million in the prior year.
Our diluted earnings per share for the fourth quarter of 2022 with 38 cents compared with a loss of 24 in the prior year.
Adjusted diluted earnings per share was <unk> 45 <unk>.
Compared with a loss of <unk> 18 in the prior year the.
The difference between GAAP and adjusted diluted earnings per share during the fourth quarter of 2022, with a $3 3 million or seven cents per share asset impairment charge, primarily related to flooding in our Philippine banana operations.
Adjusted EBITDA for the fourth quarter of 2022 was $59 million compared with $15 million in the prior year and corresponding adjusted EBITDA margin increased to five 6%.
One 5% in the prior year.
Let me now turn to the segment results.
Beginning with our fresh and value added products segment.
Net sales for the fourth quarter of 'twenty, two decreased by $22 million or 4% when compared with the prior year, primarily driven by lower net sales of avocados due to lower selling prices.
And also lower net sales of non tropical fruit as a result of lower selling prices and lower volume.
The decrease was partially offset by higher net sales of prepared food products, primarily sales of can non tropical food and industrial pineapple products, driven by higher selling prices and volume.
For the quarter adjusted gross profit in the fresh and value added product segment was $34 million compared with 20 wait $28 million in the prior year.
The increase was primarily driven by higher per unit selling prices and product mix of higher margin categories.
The increase in gross profit was partially offset by higher cost of packaging materials fertilizers, and ocean freight, which negatively impacted per unit production and distribution costs.
Gross margin increased to five 9% from four 7%.
Moving to our banana segment for the fourth quarter of 2022, net sales increased by $33 million or 9% compared with the prior year period, primarily driven by Europe and North America.
The increase in net sales was predominantly from higher per unit selling prices, resulting from inflation justified price increases and the absence of excess volume as a result of our strategic sourcing and respond to market conditions.
The increase was partially offset by fluctuations in exchange rates in Europe and Asia.
Adjusted gross profit for the fourth quarter of 2022 with $38 million compared with $9 million in the prior year period, primarily driven by higher net sales, partially offset by higher cost of packaging material fertilizer and distribution costs, including ocean and inland freight.
Gross margin increased to nine 4% from two 5% in the prior year period.
Lastly for the fourth quarter of 2022 net sales for our other products and services segment increased by $12 million or 24% compared with the prior year, mainly due to higher net sales of third party Ocean freight services.
Our fleet of vessels has enabled us to expand these services, which benefited from elevated shipping rates and demand due to market conditions.
Adjusted gross profit increased by $7 million as a result of higher volume and shipping rates.
Now moving to selected financial data.
Selling general and administrative expenses were $48 million compared with $45 million in the prior year period.
The increase was driven by higher promotional and administrative expenses.
Net interest expense was higher by approximately $2 million in the fourth quarter of 'twenty two.
Due to higher interest rates and higher average debt balances.
Income tax expense was $6 million during the quarter compared with a benefit of $7 million in the prior year, primarily due to the effect of the valuation allowance reversal in 2021 now.
Now turning to our full fiscal year 'twenty two results.
For the full fiscal year 'twenty, two net sales increased $190 million or 4% compared with the prior year period.
The increase was driven by inflation justified per unit price increases, which was partially offset by lower sales volume and the negative impact of fluctuations in exchange rates, primarily in Europe and Asia.
The negative impact of fluctuations in exchange rates was partially mitigated by our foreign currency hedges.
Gross profit for the full fiscal year, 2002 was $340 million compared with $304 million in 2021.
The increase in gross profit was primarily driven by higher gross profit in our other products and services segment as a result of higher net sales of third party Ocean freight services.
Long with the favorable impact of higher per unit sale prices across all segments.
For the full fiscal year 'twenty to adjusted operating income was 149 million compared with $112 million in the prior year period.
The increase was primarily driven by higher gross profit and lower selling general and administrative expenses.
Adjusted SDP net income for 'twenty, two with $94 million compared with $81 million in the prior year.
In 22 diluted earnings per share was $2 <unk> compared with $1 68 in the prior year, while adjusted diluted earnings per share was $1 97, compared with $1 69 in the prior year period.
17% year over year improvement.
Adjusted EBITDA for 'twenty, two with $235 million compared with 207 million in the prior year.
Corresponding adjusted EBITDA margin increased to five 3% from four 9% in the prior year.
Moving on to selected financial data for the full fiscal year 'twenty two.
For the year, we generated $62 million in cash flow from operating activities compared with 121 $29 million in 2021.
Net cash provided by operating activities was impacted by an increase in inventory during the current year largely due to inflationary cost increases and a strategic increase in levels of key raw materials and packaging supplies in order to secure cost and availability.
Additionally, higher levels of accounts receivable as a result of higher net sales impacted net cash provided by operating activities.
Long term debt at the end of 'twenty, two increased by 22 million to $540 million from $519 million at the end of 'twenty one.
On a trailing 12 month basis, our leverage ratio stands at $2 22 times adjusted EBITDA.
Capital expenditures, we invested $48 million in capital expenditures in 2022.
Compared with $99 million in 'twenty, one the $9 million from last $99 million from last year included the final payments on the delivery of two of our refrigerated container ships.
The spend this year has focused on improvements to our banana and pineapple operations in Central America, and enhancements to improve our efficiency and production facilities across our operations.
As announced this morning financial results press release, we declared a quarterly dividend of <unk> 15 per share payable on March 31, 2023 to shareholders of record on March eight 2023.
For the full fiscal year 'twenty, two we declared four quarterly cash dividends totaling <unk> 60 per share.
This concludes our financial review, we can now turn the call to Q&A Regina.
At this time I would like to remind everyone in order to ask a question simply press Star then the number one on your telephone keypad.
Our first question will come from the line of Mitch Pinheiro with Stewart event. Please go ahead.
Okay.
Good morning.
Good morning.
Hey, good morning, Tim Mohamad.
That was.
A surprisingly strong gross margin performance in your Banana segment and I was wondering if you could take us through.
<unk>.
Puts and takes those that are sort of going to be sustainable and those that.
The benefits are sustainable and that and some of the benefits that go away for 2023.
No I think our business has been down.
Mitch I don't want you to keep focusing on bananas.
But that is a two part of our business, but bananas is not going to be the turning point for our business at.
Focusing on symptom and you could see that in our results.
When we are optimizing our assets and logistics distribution warehousing and we have many new projects in the pipeline.
We add a lot of value with our business aside from banana.
And.
So I'm very confident in general.
Bananas, because we are managing our banana volumes in a much better and more rational way that it used to be in the past we are using more technology and more stability in our operations going forward at least in my opinion that would make a big change going forward in our business.
Yes, I appreciate that comment but.
The banana in segments like the big swing in profitability from quarter to quarter and I was wondering yes.
I know, it's about where your focus is and but it's still a meaningful part of the business that it would be helpful to have a little visibility into the first quarter and maybe what youre seeing for the year just the banana business hold onto these margins or just some of the price increases start to get whittled away and do you see any.
Headwinds with regard to sort of some of you know whether its fruit costs erosion freight costs.
What what could be some headwinds in the banana segment.
While the head the headwinds in the banana is.
Would be the oversupply as we have seen during the last seven eight months, especially after the pandemic I think Ecuador has gone down domestically in terms of.
Suppliers and this has helped the market.
Sure.
To be more balanced let's say.
From our side.
Just matching the supply and demand more.
Sure.
Let's put it that way and as a company we are.
Our planning to sell on the cost to settle with low margins that is a policy that we have.
And so I believe that.
Margins will be more or less consistent with fluff fluctuations from quarter to quarter, depending on the time of the year, but.
I think margins will somehow.
Somehow we maintain more or less around the same line that we are taking right now.
So and.
Im going to repeat myself again.
The other businesses.
Really make up for.
For the banana business et cetera.
Okay.
And then on the Ocean freight services.
It's been doing quite well.
And you talked about you're taken from the ocean freight and Youre going to take that same sort of model and move it inland.
Hum.
So for 2023 is this you had a nice growth in 2022 do you see the growth in that segment sustainable and margins in that segment sustainable.
I believe so yes, I believe that would be I don't know if it will be the same.
The SUNFISH of growth, but definitely there would be growth of this segment in 2003.
Okay, Yes, it's a nice it's a nice.
High margin business there for you and then on the fresh and value added.
Margins were down versus a year ago in the quarter.
And.
You explained why.
Or do you expect.
For 2023 in this business.
Is it going to be dependent upon product mix.
Or do you see some.
Fixed cost leverage and some things that youre doing that you can you can sort of outrun some of those headwinds.
The headwinds were the packaging materials.
The transportation.
We are seeing this to be now easing all kind of <unk>.
Mitigated some of this.
Additional costs that we faced during what to do.
And also the product mix metric I mean, sometimes you will have.
<unk>.
Items, which increases your cost.
I believe all in all we should be able to maintain our historical.
The margins on the value added.
<unk>.
Slide Province, which is fresh cup in particular.
In Europe , you were talking another question you were talking about within that segment.
Makoto business.
Yeah.
With avocado prices down do you expect margins to stabilize.
And the early part of 2023, it's really get back to them again.
More normalized margin level.
Yes.
What has happened during the last I would say four five months is that the avocado pricing was more vehicle system and those stabled. Unlike.
21, and 'twenty two.
Was crazy because of.
Cost increases price increases in Mexico.
What we have seen dropped from in the last few months is that the prices were more stable.
Low volatility, which helped the industry in general to be able to predict.
And as I mentioned, we are using artificial intelligence, which we have been working on for several years now.
We have come to almost 95% predictability and we're going to roll that has worked for supply and demand as well. So we're going to be using technology as well in terms of.
Predictability for double double which is the most difficult.
That's actually why we chose <unk> to be the first.
Commodity to apply AI.
It's because it's the most difficult and then once we do that once we dividend actually we are going to roll it out to all of the.
SCE was or commodities that we handle and this.
This will help us going forward in the future.
Okay that's terrific.
So I'll get I'll get back in the queue. Thanks for your time.
Thank you Mitch.
As a reminder to ask a question simply press star one on your telephone keypad.
Yeah.
And there are no further questions at this time I will turn the conference back over to management for any closing remarks.
Yeah.
I would like to thank everyone for joining us on this call today and hope to talk to you.
On our next call.
And the Idaho, Thank you and have a good day.
Ladies and gentlemen that will conclude today's meeting we thank you all for joining you may now disconnect.
Please wait the conference will begin shortly.
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