Full Year 2022 Dole PLC Earnings Call

Speaker 1: 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. For opening remarks and introductions, I would like to turn the call over to the Head of Invest Relations with Dole TLC, James O'Regan.

Speaker 2: Thank you. Welcome everybody and thank you for taking the time to join our fourth quarter in full year 2022, our next conference call. Joining me on the call today is our Chief Executive Officer Rory Byrne, our Chief Operating Officer Johan Linden and our Chief Financial Officer Jacinta Devine.

Speaker 2: During this call we will be referring to presentation slides and supplementary remarks. Please, along with our earnings release and other related materials are available on the investor relations section of the DOL PLC website.

Speaker 2: Please note our remarks today will include certain forward-looking statements within the provisions of the Federal Securities Safe Harbor Law. These reflect circumstances at the time they are made and the company expressly disclaims any obligation to update or revise any forward-looking statements.

Speaker 2: actual results or outcomes may differ materially from those that may be expressed or implied due to a wide range of factors including those set forth in our SCC filing for press releases.

Speaker 2: Information regarding the use of non-GAAP financial measures may be found in our press release which also includes a reconciliation to the most comparable GAAP measures. With that I'm pleased to turn today's call over to Rory.

Speaker 3: Thank you James and welcome everybody and thank you for joining us today. Well, 2022 was the first full financial year for the Group following the completion of the merger of Total Produce and Dole Food Co. and the subsequent IPO of Dole PLC in July 2021.

Speaker 3: The continued integration of the two legacy business was a key operational focus for us during 2022 and we're very pleased with the progress made. Starting out with the rebranding of our operations, we created the backdrop for one new combined entity under the iconic Billwor brand.

Speaker 3: We launched Dole Exotics and the BeExotic brand in Europe . This specialist division is dedicated to the growing, procurement, ripening and marketing of exotic produce such as avocados and mangoes, aligning with our strategy to focus our efforts in categories with strong growth potential. We released our first sustainability report on Dole PLC.

Speaker 3: and set ambitious goals for the near, medium and long term. These sustainability efforts were recognised by a number of industry bodies during 2022. The American Costa Rican Chamber of Commerce recognised this with the Social Responsibility and Action Award. Double Ireland was awarded the Origin Green Gold Accolade.

Speaker 3: which is a war as the companies with exceptional annual reforms on the sustain of those who targets.

Speaker 3: Post year-end, we announced that we reached an agreement to sell our fresh vegetables division to Fresh Express for a gross consideration of approximately $293 million, concluding the strategic review process for this division, which we undertook during 2022.

Speaker 3: We believe a combination of Fresh Express will improve the offering and service to customers and consumers through increased investment in innovation, efficiencies and food safety.

Speaker 3: I want to express my gratitude again to the dedicated employees and partners of the Dole Press vegetable business for their valuable contributions over the years and the support and particularly the management team as we worked our way to reaching this agreement.

Speaker 3: Returning this division to profitability was a key focus for management last year and this sale will allow us to focus on our core activities. We expect to use the net proceeds to reduce our debt, strengthen the financial position of the group and providing more flexibility to finance our future growth.

Speaker 3: So turning to slide 7 on the fourth quarter financial highlights, we've delivered a very strong result for the fourth quarter driven by a particularly good performance in our fresh fruit segment.

Speaker 3: Group revenue increased by 4.7% and on a like-for-like basis, excluding the impact of foreign currency translation movements and M&A, it increased by 10.2%. It just had either that increased by 21.7% to $74.4 million.

Speaker 3: driven by the strong performance in our fresh fruit segment.

Speaker 3: This increase in adjusted EBITDA drove the increase in adjusted net income and adjusted diluted earnings per share. On slide 8 then we recap the overall four-year performance.

Speaker 3: Against the backdrop of an unprecedented economic and operating environment, we are pleased with financial results for the year. Group revenue came in at $9.2 billion in line with the prior year on a pro forma basis and also in line with our guidance to the market.

Speaker 3: And the like-for-like basis revenue increased by 5%.

Speaker 3: Price increases in response to inflation are the primary reasons for this growth.

Speaker 3: Just to leave a D.A.M. of $338 million was a mine with their guidance.

Speaker 3: The decrease year on year was primarily due to the loss incurred by fresh vegetables following a challenging year, along with the impact of negative fan currency movements. A fresh fruit segment performed very strongly, taking advantage of its strong strategic asset base. Our diverse supply of fresh produce segments also performed well in 2022, remaining agile in the face of the pandemic.

Speaker 3: and commercial cargo operations continue to perform very well with a healthy supply and demand balancing balance and good shipping rates driving that performance.

Speaker 3: In Europe , high shipping rates and adverse currency movements continue to impact your profitability or are partially offset by an improved supply and demand balance in bananas, which allow for better market price in Q4.

Speaker 3: Importantly, this dynamic has also extended to better contract pricing in Europe for 2023, and its recent customer renewals have allowed for important cost variables to be reset to more sustainable levels for the industry.

Speaker 3: Overall, supply and demand dynamics in the banana market remain an important variable for 2023.

Speaker 3: With our diverse sourcing base and leading customer portfolio, we believe we're well placed to have a strong year.

Speaker 3: Our diversified EMEA segment continued to trade well on the like-for-like based in Q4, while also benefiting from its extensive product and geographic diversity.

Speaker 3: Inflationary pressures and supply chain challenges continue to be apparent in certain markets, but overall our businesses continue to demonstrate the ability to price dynamically and provide consistent and high quality service to our customers. Looking out to 2023, we continue to be encouraged by our success in managing supply chain complexity and with our dynamic finite pricing model we expect to have another consistent year.

Speaker 3: while particularly in products such as potatoes and onions. Overall in 2022 the negative impact of supply chain disruptions on the export side of the business offset positive developments in the rest of this division. However, the scale and range of activities in our diversified America segment still allowed us to maintain a solid level of performance overall. Our fourth quarter performance in fresh vegetables remains somewhat.

Speaker 3: Turning to slide 12 to look at our sustainability highlights in 2022. We published our first sustainability report as dual PLT, which set out our ambitious goals for the coming years. Summary of these goals is set out on page 13 of our presentation.

Speaker 3: We achieved a 4% reduction in our scope 1 and 2 emissions, a B rating for CVP, carbon disclosures and commitment to the science-based target initiative.

Speaker 3: We continue to make investments in renewable energy sources as we transition from fossil fuels. Examples of this include the further amount of solar panels to power facilities in Ireland, the addition of two wind turbines and manufacturing facilities in Salinas.

Speaker 3: and the addition of five new electric tractor rigs at the San Diego ports terminal.

Speaker 3: Our business model remains driven by adding value to society by delivering on social investment evidenced by a long track record in Latin America through the DALE Foundation, promoting healthy nutrition to consumers and finally being a good steward of our natural resources like water, biodiversity and so on.

Speaker 3: Detailed goals for admissions for the item I was during 2033 and submitted to the SBTI and will continue to focus on climate risk management. Our second annual sustainability report will follow on the fourth quarter of 23. So with that, I'll hand you over to Jacenta to give the financial review.

Speaker 4: Thank you, Rory. Good morning and good afternoon.

Speaker 4: Turning to the group results on slide 15, firstly it is worth noting that the results for the fourth quarter are the first set of quarterly results where we compare to reported results rather than pro forma financials.

Speaker 4: As we mentioned, we delivered a strong performance in fourth quarter and to recap on the key numbers. Revenue for the fourth quarter increased over 100 billion compared to the prior year driven by higher pricing across all segments.

Speaker 4: On a like-for-like basis, revenue increased over 10%.

Speaker 4: Adjusted EBITDA for the fourth quarter increased 21.7% or 13 million to 74 million, with the increase driven by a strong performance in fresh fruit.

Speaker 4: On a like-for-like basis, adjusted EPD-A increased 29%.

Speaker 4: Adjusted net income was 8.9 million and adjusted diluted EPS was 9 cents in the quarter versus break even in Q4 2021 with the increase driven by higher adjusted EBITDA offsetting higher interest expense versus the prior year.

Speaker 4: On a full year basis, revenue remained in line with prior year, whereas adjusted EBA DA decreased 14%.

Speaker 4: The decrease was predominantly due to the significant challenges in our fresh vegetables segment, which resulted in a 33 million adjusted EPD-8 all.

Speaker 4: Foreign exchange translation also had an exit impact of 15 million.

Speaker 4: these impacts were partially offset by a strong year in fresh fruit.

Speaker 4: Adjusted net income and adjusted deduces EPS both decreased versus the Performer Comparities Form 2021 driven by the decrease in adjusted EBA DA and higher interest expense.

Speaker 4: I will now provide some more detail on the fourth quarter performance for each of the operating segments.

Speaker 4: Turning to slide 17 for fresh fruits.

Speaker 4: Fresh Fruit had a strong fourth quarter and end of the year with revenue increasing 8.7% and adjusted EBITDA increasing 163%.

Speaker 4: Similar to the third quarter, the increases were driven by higher pricing for bananas worldwide, continued strong performance from commercial cargo and higher pineapple volumes.

Speaker 4: Operating costs remained elevated, particularly shipping and packaging costs and costs of fruit. However, higher prices have offset these cost increases.

Speaker 4: Moving on to slide 18 for diversified fresh produce in the air.

Speaker 4: The good underlying performance in this segment was demonstrated by the 6.9% increase in revenue on a like-for-like basis driven by higher pricing. Adjusted EBITDA decreased 19.5%. However, adjusting for FX and M&A, this decreased.

Speaker 4: reduces to 4.8% on a like-for-like basis.

Speaker 4: This decrease was mainly due to higher logistics and sourcing costs faced by our Scandinavian businesses and an unfavorable great deal in South Africa, offset by strong performance in our Spanish, Dutch and Czech businesses.

Speaker 4: Turning to Diversified Fresh Produce, Americas and Rest of Worlds on slide 19.

Speaker 4: Revenue for the fourth quarter increased 19.6%, driven by higher pricing and volume of cherries in Chile, and continued strong sales of potatoes and onions in North America.

Speaker 4: Disappointingly, adjusted EBITDA decreased 24% in the quarter following a weak season for Chilean apples and kiwis and lower pricing of raspberries in North America, partially offset by a strong start to the Chilean cherry season and higher pricing of potatoes and onion.

Speaker 4: Finally turning to fresh vegetables on slide 20. Revenue increased 6.1% as we saw the benefit of higher pricing for value-added products and continued strong pricing for the fresh-packed range.

Speaker 4: We continue to incur losses in fourth quarter in fresh vegetables, particularly due to sourcing challenges and increased costs for vegetables and the continued inflationary impact on other input and manufacturing costs.

Speaker 4: Turning to slide 21, capital expenditure for the fourth quarter was 31 million and for the full year we invested 98 million. For 2023 we expect CapEx to be circa 120 million which is in line with depreciation for 2022.

Speaker 4: We are pleased that our net leverage at the end of the year was three times in line with our target. As expected, we saw the unwind of seasonal working capital in the fourth quarter and this contributed to the reduction in leverage from the third quarter. For 2023, we expect the pattern of seasonal working capital movements to be slightly different from the previous year.

Speaker 4: to be similar to 2022.

Speaker 4: Our full year interest expense was 61 million in 2022 with the continued rise in market interest rates. We currently expect our full year interest expense for 2023 to be circa 90 million before any benefit from the sale of fresh vegetables.

Speaker 3: Finally, we have declared a dividend of 8 cents for the fourth quarter, in line with previous quarters this year and continuing our commitment to return cash to shareholders. Now I will hand you back to Rory who will give an update on our full year outlook and closing remarks. Thank you Jacinta. The operating environment so far in 2023 continues to bring with it both new opportunities and new challenges.

Speaker 3: As we noted in a recent update, we experienced a cyber security incident in February identified as ransomware, which although had a limited impact on our overall operations was disruptive to our fresh vegetables division and our Chilean businesses in particular.

Speaker 3: more positively removed quickly to contain the threat on engaged leading third-party cybersecurity experts.

Speaker 3: We've been working in partnership with our internal teams to remediate the issue and secure systems.

Speaker 3: Switching to looking at the supply chains, so far in 2023, we are seeing signs improved logistical efficiencies in several areas. However, we've also seen rather well-earned events, just colder weather, particularly in southern Spain, which has created challenges for importers in northern Europe at the start of the year. And lastly, we're looking at the macroeconomic environment we've seen.

Speaker 3: Overall, for 2023, we believe our business is well positioned for growth and while forecasting in the current environment is complex, we are targeting a full year adjusted EBITDA of $350 million. Our forecast assumes no contribution from the fresh vegetables division.

Speaker 3: In conclusion, we're very pleased to finish 22 with a strong fourth quarter and have a great day!

Principal priorities looking at 23 are obviously completing the same with a fresh-fed, stored business.

continuing to focus on cost control and operating efficiencies across our businesses, including the ongoing SIMMTG projects. Continuing with a disciplined approach to capital and accelerate growth in our core business areas post completion of the PeshBasical Transaction.

I want to finish by thanking again our committed team for their ongoing efforts to drive our business forward and also by thanking our critical partners and customers for their ongoing support which allows us to look to the future with great confidence. With that, I'll hand you back to the operator and we can open the line for questions.

At this time, I would like to remind everyone, in order to ask a question, press star then number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Ben Benvenu with Stevens. Your line is open. Your line is open.

At this time I would like to remind everyone in order to ask a question press star then number one on your telephone keypad We'll pause for just a moment to compile the Q&A roster Our first question comes from Ben Benvenu with Stevens. Your line is open Hey, good morning

I want to ask when we look at your 350 million dollars EVA guidance that you provided some of the core assumptions that go into that and I recognize that you noted you expect no contribution from fresh vegetables but if I take this year's results and I back out fresh vegetables it looks to be above that 350 million.

forecasting continues to be very complex and difficult science without a doubt. There is ongoing supply chain disruption. Who knows where foreign exchange is going to end up. It has been quite volatile over the last couple of years. Unfortunately, we've got the wars still going on in Europe and through the Ukraine.

energy costs quite volatile, fuel quite volatile, and inflation although we've seen some indication that it might be moderating and then in the last day or two maybe some European markets looks like it's increasing still so I think we're doing very well to manage all of those variables.

and FX may well be favorable. Other ups and downs across the business, nothing major. Overall, we've had a solid start to the year. So I think putting all of that into the mix, I think we're not too far off the expectation of the combined group of analysts that covers. So if we take the average across all the analysts, it's somewhere around 370 million.

We take off 7, but the annual sub gets you back to about 363. And then what we've done for the purposes of looking at the forecast for 2023, we reallocated the head office cost that was previously absorbed by the FreshVage Dual Division and you take that off and that gets you back to somewhere around the 350 million. So obviously the head office cost, we've got a separate project underway.

and you said an increase in EBITDA plus somewhere north of 250 million cash. I think our enterprise value arguably goes up at 350 to 400 million by just doing those two things. So that's really the summary of where we're at on LinkedIn.

Okay, very good. And you noted the cash coming in the door from the sale of fresh vegetables. I think the primary objective is to pay down debt. Can you talk about your appetite as you pay down debt?

and you start to see some of the other business lines improve, perhaps some of the headwinds that you identified ease, what is your appetite to accelerate growth investment and or pursue M&A?

Yeah, I mean we obviously are focusing on this, the interest rate environment continues to increase a little bit so that probably drives a little bit of caution in terms of investment or M&A. We are still seeing something of a disconnect between the public and private markets that good private companies in our sector are still being valued considerably parent hates the market.

and we'll manage it as the company evolves over the next year or so.

as the company evolved to have been exuberant. Okay, thank you so much.

Thanks, Ben. Our next question comes from Adam Samuelson with Goldman Sachs. Your line is open.

Thanks, Ben. Our next question comes from Adam Samuelson with Goldman Sachs. Your line is open. Yes, thank you. Good morning, everyone.

So I guess first question maybe can I continuing on the kind of some of the puts and takes around 2023? Can you talk about where the supply demand balance in bananas and pineapples as it sits today, how where you see kind of the most kind of Right.

improvement on demand or focus on supply productivity? And then kind of related question on the guidance is there any kind of thoughts on phasing first half second half seasonality that we should be particularly cognizant of? Yeah, I think in relation to seasonality we're expecting a broadly similar profile.

go moves as for example we had between Q1-22 and Q1-21. So it'll be a little bit more aligned to the 22 RAC. And then perhaps Johan, do you want to make some comments on the overall supply demand balance on the banana which was Adam's first question.

Sure, so we feel that we are in a good place right now. We started a year good. The market has been tight, so the supply has been tight when it comes to bananas, but we have had supply, so we have been able to perform well. The supply position will ease a little bit below overall market, but we still feel that we are in a good position when we look at

We believe we're going to have a good year in commercial cargo, but it's not going to be as exceptional that we had during 2021 and especially during 2022.

All right, that's all very helpful. If I ask just a quick follow-up, just what's the expectations for interest expense and cap-backs for the year?

Do you want to say that Jacinta? Sure, yeah. So we're expecting interest expense of approximately 90 million, which is a reflection of the increase in interest rates. And then for CAPEX, we're expecting about 120 million.

which is pretty much aligned with our depreciation number for 2022.

Alright, that's a super helpful pass it on. Thank you. Obviously Adam that excludes any benefit that we might get depending on whether the dead still hopefully completes.

That's super helpful. I'll pass it on. Thank you. Obviously, Adam, that excludes any benefit that we might get, depending on when the DEDS deal hopefully completes. Got it. Thank you.

Our next question comes from Chris Barnes with Georgia Bank. Your line is open.

Hi, thanks guys for the question. I just wanted to follow up on the fresh vegetable sale.

Are you able to share any expectations on just the timing of when you expect this transaction to close and then just also around your confidence in completing the transaction just given potential antitrust concern on the salad business? Thanks.

Yeah, thanks Chris. You know, I like to build a couple of things for Pontiac on the bench deal. First of all, we believe that this is a very good outcome for all the stakeholders involved in this transaction. We think it's a good deal for the buyer. We think it's a good deal for us considering our financial dynamics. We think it's a good deal for the people involved in the business as well. I think this is a good deal.

food safety.

So as you know, the competition process is underway. We've been advised not to make too much public comment on it. We don't want to risk any interference in that process. It's a process that's driven by the buyer with appropriate input.

and you know at this point in time we're not in the position to give any further update and as the process evolves we give an appropriate update.

Got it, understood. I guess just in the meantime while you do own the business, can you just provide any sort of like status update on returning the business to profitability? Like obviously the cybersecurity incident earlier this quarter, but like have you seen any impact from like the extreme weather we've seen?

Yeah, so we are happy with the work that the division is doing. The focus has been on, as we mentioned on the earlier course that we had, is to service the customers and if you service the customers you normally get the volume and you can get the price and we are doing that well right now.

very strong operational cost focus to get costs down and we have also seen good progress on that. We have negotiated some new contracts and there we've been able to push some price through. We have reformulated some SKUs. So we believe that we are making good headwinds with the division. We had a good

Finish of the year we had a relatively strong finish going into and also a good start of the year and unfortunately, we had the cyber attack that had a an Impact when it comes to serving our customer for a while, but we are back in servicing them fully now. So that's fine The weather has had an impact all the rain that we got in

California in January especially, although we don't have production there, we don't supply in January out of California, we do that out of Arizona, but we had already started to plant. So we will see some higher vegetables cost when we now do the transition here come in a couple of weeks. So the yields will be a little bit worse, but overall we feel that we are moving in the right direction.

Got it. That's helpful. And just a final question for me, just around the cyber incident. Do you expect to recover any of like the disruption amount like either later in the year just through like supply recovery or also like insurance proceeds? And I'll pass it on after that. Thanks.

I suppose the simple answer on that is no we don't expect to recover on either of those categories. Insurance is prohibitive, you can't actually get sufficient insurance in North America for cyber security at the moment and no we don't expect to recover in any other particular way.

Thanks so much. Thank you. Again, if you would like to ask a question, please press star 1. Our next question comes from Gary Martin with Davy. Your line is open. Good morning all. Just a quick question from me just on the recent update just on the poor weather in southern Europe and northern Africa.

this expected to be a Q1 only issue or is there going to be an impact just throughout the first half of the year and just similarly just in terms of the low yield in Chile is that expected to just be a Q4 issue or will it transition into Q1 Q2 of FY23

So that's just my first question and then just a second one just on inflation adjusted prices just on some of the higher value fruit and veg products. Have you seen any just demand attrition so far with the higher prices? Thanks. Yeah, I'm in different personal with the current choice just in order.

on there between supply chain issues, weather issues, Brexit issues, and perhaps even diversification issues around Brexit from UK supermarkets. Reluctance, except some of the price increases may have caused some of the Spanish producers on short-cycle crops to plant a little bit less. So we think that the market will adjust that over time and we're seeing signs of that improving at the moment, but not a material impact from our perspective.

Chilly, in terms of the Apple business, our kiwi business, we're obviously hoping for improvements going into the year. It'll be a late this year issue and the great season has been better than last year but still not perfect. Again, overall we've taken that into our guidance for the year.

and we haven't seen any elasticity decreasing on bananas.

And I mean it's some of the other products and We're seeing marginal resistance on the very high price per kilo or price per pound products, but hasn't been material You know, I think what's happening is you're seeing consumer spending where it becomes discretionary and how the Asian is last on the list because of the pandemic.

Okay, thank you very much. Thank you all for joining us today. Obviously, we're very pleased to follow a very strong Q3 with a very strong Q4. Overall, despite some significant challenges in Q22, we're pretty pleased with the four-year performance. We think it's a very good outcome on the edge of business and we need to make sure that we're getting the best performance