Q2 2023 Dole PLC Earnings Call

Speaker 1: Welcome to the DOL PLC 2nd Quarter 2023 Earnings Conference call and webcast. Today's conference is being broadcast.

Speaker 1: live over the internet and is also being recorded for playback purposes. At this time, all participants are in listen mode only. 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 investor relations with Dole, a PLC.

Speaker 2: James O'Rigan, you may now start the conference. Thank you, Ellie. Welcome everybody, and thank you for taking the time to join our second quarter of 2023 earnings conference call. Joining me on the call today is our Chief Executive Officer Rory Bern, our Chief of the Quality Performance is equally strong.

We sincerely hope that with the help of vulnerable together that they can recover from this tragedy.

I'll hand, you back to the operator, I'm happy to take questions.

Okay.

We are now open for the question and answer session.

We have our first question from Ben when you view from Stephens. Your line is now open.

Hey, good morning, everybody.

So I wanted to start with the guidance I appreciate it.

The nuanced kind of guidance raise that you provided us with this morning.

When you think about the elements of variability it sounds like.

As an abundance of caution relative to the unknown unknown being primarily weather.

Is there any evidence of disruption thus far and can you just give us a sense of when the window, where that risk is most acutely manifesting itself.

So that we can be aware of maybe when we're.

Yeah, that's about where we get better visibility.

Yes.

Obviously, there's a few things go into a special we had a very strong finish to the year last year and a half two and in particular Q4 was particularly strong.

Security in that division.

Division plummeted by the times to forecast just generally I mean, we've been hit with so many uncertainties over the last last couple of years.

Russia, Ukraine, Malawi prices energy issues weather.

Continuing obligations for just the artist's forecasting accurately becomes a little bit more.

Having said that I'm, feeling very positive and we have out of the at least to the $3 50 to underpin that confidence I think if any impact is likely to come in terms of weather or otherwise it could be in Q4, but it's a little early to call, but we are generally speaking, leaving good there's nothing in the current trading that would.

Require us to make any kind of comments to suggest something different to that.

Okay, Great and then maybe.

Thinking about I know, it's early but thinking about next year.

I kind of think of this business is a very steady grower on an organic basis call. It low to mid single digit EBITDA growth.

Is it your expectation that once you've got the fresh vegetables business sale behind you.

Notwithstanding.

Unpredictable external variables. This business seems poised to deliver that as you guys continue to generate cost efficiencies.

And you're seeing strong performance return from a topline perspective across your businesses.

Yeah, it's a little early to give any kind of guidance or forecast for 2024.

The broad summary of the scenario as it is.

As accuracy and all will be planning.

Working over the next few months to just to make sure that we maximize our position in 2024.

Okay fair enough congratulations.

Thank you.

Our next question will come from Adam Samuelson from Goldman Sachs. Your line is now open.

Hi, yes. Thank you good morning, everyone.

Good morning.

Good morning.

I guess, the first question and maybe sort of king.

Ben's point, if you look back historically.

El Nino periods.

Can you can you maybe talk about the parts of the business that have.

Proven more susceptible or at risk of supply disruption over the maybe the geographies.

Good to hear you.

Your most kind of closely watching based on historical precedent and I'll leave it here.

John .

Yeah. So good morning, Adam Yeah. So historically the biggest impact has been within our banana segment and you will have rain in Ecuador, and you will basically have droughts, India to play and then if you go back historically for the last two big ones. We had one was in the end of the 19th.

And one was I think it was 15 16.

At the end of the 19th the volumes overall volumes in Ecuador came down 8% because of the rain.

What's happened since then is of course at least if we looked at ourselves.

We have a very.

<unk>, we have the best team in the industry. They lived through already what happened in the late nineties, we have prepared when it comes to drainage we have AG practices. So that we feel that we are in a very good position to handle what might come out of.

Also when you look at the dry areas, we have more irrigation in place and also the different actress practices than we had been so we don't believe the impact will be as big as it was in the late nineties.

Then there are some other impacts in Peru, when it comes to have Ocado and berries.

The season is getting a little bit.

He's got a little bit lower but the big ones Aqua bananas.

Okay.

That's very helpful.

And then to clarify on the EBITDA guidance for the year and I appreciate that there's the modifier of at least.

I guess.

First half.

EBIT.

Two.

223.

Just the implied second half.

This is almost a $350 million almost vehicle to what you did in the second quarter alone.

Appreciating their seasonality, but can you just.

Maybe talk about where seasonality youre expecting seasonality might be more pronounce that.

A $350 million EBITDA level yeah.

Historically, if you go back over the banana business. It was a strong gross profit and a much weaker second half.

Last year, certainly the back half of the year was disproportionately strong.

And so it's a little bit of an unusual year, we're seeing a little bit more consistency in earnings over the course of the year with some of the dynamics underlying gentlemen, changing.

Changing as we move along.

So I mean.

We've just put the factors, which were happy with Q2, we're happy with where we're trading at the moment and we're feeling positive about the full year outcome, but we just don't think differently.

Being more specific than that at this point in time.

Okay Alright.

Helpful I'll pass it on thanks.

Hello.

Yeah.

Our next question comes from Christopher Parkinson Jewish Paul Your line is now open.

Hi, good afternoon. Thanks for the question I guess.

Also kind of pick up on on the EBITDA guidance.

It just seems like with the.

The way the European currencies are moving moderating inflation.

Being even more beneficial over the back half versus what we just saw in the first half.

Alongside like easing comparisons in the Americas, the rest of the world business with with the comparison with the great business a year ago.

Like like where like where specifically do you see like the greater like like what's what's causing you to like the greatest.

Cause for concern like over the back half I know like spot rates for the Costa Rica, colon and Colombian peso appear to be moving against you, but like any just any incremental color over the back half would be it would be helpful. Thanks.

I think really set earlier lots of as relates to the outcome in the back half of last year. We had an exceptionally strong set of circumstances on everything came together in a positive way, particularly in the fresh Foods Division.

In the last quarter of 2022.

The.

Back half of the year, historically tends to be quite a bit weaker.

We don't want to suggest that this year, it's going to be dramatically weaker, but it's just we put all the factors into the mix.

Think let's take it step by step and Thats something ahead of ourselves in terms of putting out a figure and then up to justify it.

We're feeling comfortable with staying positive.

We've put the guidance out on that basis pressure into the market.

Got it thank you.

And Johan like as it related to the volume decline of 8% for the bananas in the late nineties El Nino.

Are you able to like how much of like an EBITDA headwind was that of amounted to.

Obviously, you mentioned all the improved.

Improved operation operational practices do you have in place, but this is a way I guess.

Like what like we have a worst case scenario like what what kind of an EBITDA headwind are we looking at.

The beauty for US is that if the worst comes to pass and there is a very dramatic decrease in volumes, we have a diversification both clinical with our sourcing network.

And how are we shipping is set up that we will be able to handle that better than the industry in general.

We don't believe it will have a big hit if it come to pass.

For us.

Okay. That's helpful. Thanks, and then one last follow up.

The gross debt write ups in the quarter was nice to see like how much further like do you expect to be able to reduce debt over the balance of the year. As a result of just organic cash flow as well as like non core asset sales.

Obviously, the timing of the fresh vegetable businesses.

Out of out of your control.

Trying to understand.

What what within your control what you can do to continue reducing debt. Thanks.

And I have two.

So for the for the balance of the year, we would hope to have a working capital inflow similar to last year.

And asset sales, we do anticipate off the pads, but I suppose it can be difficult to predict the exact timing and things so we'd be expecting to come in somewhere in the range of <unk>.

Around $9 50 to 970 something like that.

Towards the end of the air, but it's difficult to predict particularly with the working capital movements were pleased with the progress we've made so far this year in that regard.

Great. Thanks, very much I'll pass it on.

Thanks Christopher.

Before we move on to the next question. If you have any questions from the start and number one on your telephone keypad you have our next question from Bryan Spillane from Bank of America. Your line is now open. Thanks.

Thanks, operator, good morning, everyone.

But she said they wanted to just pick up maybe on that last question with regards to cash flow and free cash flow. If we look at the first half.

We've got EBITDA up.

Pretty meaningfully and we actually have cash from operations down pretty meaningfully free.

Free cash flow conversion of net income is like 14% conversion from EBITDA pretty low.

So I guess two questions. You just mentioned you expect some working capital improvements in the back half of the year, but maybe more broadly.

Can you just give us some guideposts on how we should think about free cash flow as a percentage of EBITDA and net income just what the what's the normal free cash flow conversion in this business.

Just simply because it's very erratic it's moved around a lot and just trying to get a level set as we kind of work through our DCF models, how we should really thinking thinking about cash flows.

Yes. It is it is difficult to predict.

As.

But our large turnover and we obviously can have significant working capital movements.

So the impact in the year to date is very much normal seasonal we're actually despite the outflow in working capital were in the six months were actually changed because.

And that reflects a reduction in inventories, which you might recall from last year, we had increased our inventories as a defense mechanism against supply chain disruptions. So overall of that working capital movement.

Is positive for us at this time this year.

Very really challenging to be honest.

To answer more comprehensive Ethan bass.

All I can phase, we're working hard to manage our working capital, but obviously with higher prices and managing bass ads that can impact the gross amount of working capital.

But anyway, and that's of course, ignoring the yen.

Especially it's transaction, which would obviously change our AR and cash flow significantly.

If we can take that at the end of the year.

Yes.

Divestitures and free cash.

Nonoperating sorry.

Yeah, It's obviously a fair enough yeah I just.

But so I guess I guess two follow ups, there if I'm understanding it correctly.

What you are working hard on in terms of working capital is really inventory is that where the biggest sort of.

Lever is if you will in terms of converting EBITDA to free cash flow.

Capital items is it inventory that we should be watching.

Inventory is important.

Trade receivables are important.

Different at different times of year, our funding of our growers and suppliers can move around a bit so that's important and the timing of seasonal mix that's M.

Difficult to see the end of the year can be impacted by the timing of seasons in that regard.

So that moves around.

Ah ranked quite space, yes.

But it is its focus on working capital.

Manage that as tightly as we can all the neighbors that we have in that regard.

Okay, and then again I'm going to ask again I'm, just trying to get a sense of as we're modeling out years I'm not asking for just a pinpoint estimate but just.

What's the range of.

Converting EBITDA to free cash flow.

Yes.

Out of EBITDA or 20% of EBITDA.

Okay.

Okay.

Yes, so we hope to have somewhere around around 50 ish.

$50 million for the year so.

Yeah.

$50 million of free cash flow.

Yeah.

Okay and is that a normal like again, so just kind of think about that as a.

Our ratio of net income is that kind of a normalized free cash flow conversion yes.

Yes.

A normalized number.

Perfect. Thank you very much.

Yes.

Yeah.

Yeah.

We have our next question is from Gary Martin from JV. Your line is now open.

Hi, Rory Johan.

Graduations on a very strong set of results for that.

Just a few questions from my side.

Just a first just starting with I know you mentioned, a continuation of strong supply and demand dynamics for our fresh fruit, but just to double click into that a little bit more are you expecting positive volumes in the second half and also just I suppose in congruence with up you'd mentioned, a strong pricing and fresh fruit or particularly been honest.

Are you also expecting that to persist into the second half.

Okay.

Yes, I think I'd like to take that one I think I mean volumes were expected to be pretty stable.

Centered this housing supply demand there and pricing.

We'll be pushy similar drill.

Even from that stability in volumes to the first half of the year, maybe maybe a slight weakening, but it's too hard to call it to our each call yes.

Thanks for that and then just secondly, just on the the small bolt on acquisition made in a diversified EMEA churn during the quarter. It was interesting to see I mean should we see this as a bit of a start in pistol to kind of kick back into just kind of more acquisitions in the diversified space I mean, what's the best way to think about that.

Yeah, I mean, it's it's pretty small.

We're constantly looking at whether its.

Neighboring businesses with our existing businesses that can add something and get efficiencies, but that's an ongoing process. So over time, we may add a few more.

Pieces like that.

We're not going to move the dial materially those kind of acquisitions, but they're interesting absolute or by acquisition.

Build our categories and our positioning with customers.

Historically in the total projects model, that's what we did and will.

We'll continue to do that going forward.

That's great and then just maybe a final one just I know you've touched on Ilene, you quite extensively but I suppose just touching on the the European Heatwave in June and July .

I mean as I expect to have any knock on impact later in the year.

Or any kind of fruit and veg production issues off the occupancy is expected to impact the whole anyway.

The best way to think about them. We don't we don't think of US in place that's going to have a material impact on us it will affect some categories of supply in northern Europe .

In Europe in particular appeal.

The temperatures in Spain, and Spain in particular.

Of an impact.

But we're not expecting a material impact on us.

Okay. That's really helpful. Thanks, so much I'll pass it on thanks guys.

Okay.

It seems like with John .

<unk> right now I'd now like to hand back to having management for the closing remarks.

Okay. Thank you. So I think we can look back at Q2 as being another good quarter on a strong sequence with good core performance has plenty of challenges, but we don't see there's plenty of what the change in something we look forward to the future with optimism. So thank you all for joining the call today. Thank you very much.

Right.

Okay.

Thank you everyone you may now disconnect.

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Thank you.

So everybody gets disconnected snow Jameson Irish life.

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