Q3 2023 Fresh Del Monte Produce Inc Earnings Call
Okay.
Okay.
Good day, everyone and welcome to fresh del Monte produce third quarter 2023 earnings Conference call. Today's conference call is being broadcast live over the Internet and is also being recorded for playback purposes.
Ladies and gentlemen, I want to thank you for standing by my name is Sharelle and that'll be accomplished operator today.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
For those analysts who would like to ask a question. During this time simply press star.
All of it by the number one on your telephone keypad, if he would like to withdraw your question Press Star one again. Thank you.
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 Claudia poll. Please go ahead Ms Pauls.
Thank you Cheryl good morning, everyone and thank you for joining our third quarter 2023 conference call.
You all mentioned I'm quite a Poe Vice President corporate communications with fresh del Monte produce.
Joining me in today's discussion are Mohammad Abu <unk>, Chairman and Chief Executive Officer.
And Mark <unk>, Senior Vice President and Chief Financial Officer.
I hope that you've had a chance to review the press release that was issued earlier. This morning via business wire. You May also visit the company's IR website at Investor Relations that 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 include 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 will be speaking to today, including the answers. We gave 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 November 1st 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 third quarter and our nine months 2023 financial results followed by a question and answer section.
That I am pleased to turn today's call over to Mr. Because Ellie.
Thank you Claudia good morning, everyone.
We are pleased with our 'twenty to 'twenty to 'twenty three results.
Mark by more than 140 basis points improvement in adjusted gross margins solid adjusted EBITDA.
Full year adjusted EPS growth.
Our results were driven by our focus on operational excellence, leading to logistical infrastructure and continued improvements in efficiencies and sustainability practices.
For the nine months.
Adjusted EBITDA increased 14% to 201 million boats.
And our adjusted diluted EPS increased 23%.
$1 87.
We achieved these strong nine months' results, despite facing macroeconomic challenges such as inflationary pressures and escalating weather events.
Such as the fluff increase demonstrating our ability to run across the globe with enterprise in the face of large scale challenges.
The third quarter excuse any our softest quarter the headwinds this quarter were as follows.
The September floods in Greece, effected our seasonal non tropical product scanning facilities, which resulted in $8 4 million inventory write offs and clean up costs.
Global demand for third party business softened, which caused a decrease of our other products and services segments.
As a reminder.
This segment benefited from elevated shipping rates and demand due to market logistical or tissues.
Now for the highlights in the third quarter, therefore, partially offset these headwinds.
Gross margin in the banana segment during the third quarter was up 250 basis points.
Our cost of debt this quarter were a meaningful contributor thanks to increases in sales volumes.
Prices and gross profit.
Our continued solid adjusted EBITDA enables us to have numerous options for strong asset allocation, we continue to use our healthy cash flow.
On a time value to shareholders through activities, such as improving efficiencies paying down debt and continuing to deliver.
Innovation led new to market products. We also continue to look for ways to optimize our asset base.
To maximize our shred it to maximize our shareholder values.
All of these actions enabled us to accomplish our mission of making the worldwide demand is getting consumers to eat healthy a fresh programs.
We strive daily to achieve the mission by providing our offerings to consumers, when and where they shop and by partnering with a leading CPG companies that are looking to improve that healthy offerings and are working to enter the space.
Areas, where we have distributed leaders.
Our lunchables with fresh fruit.
Chip with the best highest continued and continues to test in the market.
We announced a partnership with a global investment.
If we were.
<unk> alone.
Consumers to enjoy the rest of its most popular set of tissues.
The construction of their homes.
<unk> available at select retailers across the U S with the potential to expect to kind of down below.
Second our ended up logistic solution under web event this year, which was made public in September.
The new website and branding will help the third party logistics provides enhanced customer experience and broaden its customer base on the use of multi year growth.
We also began to part of the <unk> Association.
Organizationally that helps companies such as fresh del Monte find ways to maximize the use of our food waste.
It is exciting to part with the up cycle.
Association to find ways to upside to our waste, which plays a role in fresh del Montes long term R&D sustainability plans.
We also launched our latest sustainability report two weeks ago. A few highlights include we reduced our scope one scope two emissions by 26% compared to 2019 levels, bringing us 94% of the way towards our 2030 goal.
We reduced our food loss and organic waste by 41 that set in 2022, bringing up 82% of the way towards our 2000.
Good.
And we donated approximately 53.
<unk> metric tons of food to organizations that assist those in need.
And either from a posted also as adjuvant waste to third parties to prevent.
The provinces into animal feed and Biofuels.
We are truly one of the world's leading vertically integrated producer of distributors are marketers of fresh produce.
When we have such dividend sustainability into all facets of our business, while making fresh healthy produce accessible website.
Yeah.
We have several initiatives in different stages with global CPG.
Similar to past MBS chance.
In addition, we'll continue to push innovation forward, creating value for our consumers and our business.
Holiday programs for our popular Piney Grove and <unk> grew by that is are being activated.
Gross toward launching a new buy another variety of that would be unique to fresh del Montes. We further cement our reputation is believed by in a bit of innovation.
As always our management team will continue to focus on enhancing <unk> general the value by evaluating how to best leverage our experience.
Smart.
<unk> logistics sustainability sustainability and marketing combined with our valuable portfolio of agriculture Les.
With that I would like to turn the call over to Mike Our CFO.
Thank you Mohammad and good morning, everyone and thank you for joining us on the call today.
I would like to start this morning by providing some background on the seasonality of our business before we jump into the results.
We believe the best way to view our business on an annual basis not quarterly historically, our first and second quarters are seasonally stronger quarters.
Our third and fourth quarters are seasonally softer.
The selling price of any fresh produce item fluctuates throughout the year due to supply and demand for that particular item as well as the pricing and availability of other fresh produce items.
Many of which are seasonal in nature, such as summer months, when competing seasonal fruit is abundant.
Last year was an atypical year for our company in terms of seasonality due to the high inflationary environment, we faced and the lag in price increases which resulted in an unusually saw firsthand.
And a stronger second half of.
For the year.
So far this year our results are consistent with historical trends, what do we have realized a greater portion of our net sales and gross profit during the first two fiscal quarters of the year.
With that let's move on to our third quarter 2023 results followed by our nine months results.
Net sales for the third quarter of 2023, 1 billion compared with $1 billion and 54 million in the prior year.
Net sales for the first nine months of 2023 were $3 3 billion compared with $3 4 billion in the first nine months of 'twenty two.
In both periods. The net sales variance was primarily driven by lower sales volume in the fresh and value added products segment and a decrease in sales in the other products and services segment due to the softening global demand of our third party Ocean freight business.
Banana net sales for the third quarter of 23 were lower primarily due to selling prices in North America.
However for the first nine months banana net sales were higher due to higher pricing and volumes.
Gross profit for the third quarter of 2023 with $74 million compared with $88 million in the prior year.
Gross profit was impacted by lower sales volume across most products, a stronger Costa Rica colon and the Mexican peso.
And the inventory write off related to the flooding.
Our seasonal prepared product facility in Greece.
Partially offset by lower distribution and ocean freight costs.
Excluding the impact from the inventory write off and clean up costs increase adjusted gross profit for the third quarter of 2003 with $83 million compared with $88 million in the prior year.
Gross profit for the first nine months of 'twenty, three increased by 11% to $288 million from $259 million in the prior year.
The increase was primarily driven by higher sales volume selling prices of bananas, partially offset by lower sales of fresh and value added products and our third party Ocean freight services.
Adjusted gross profit for the first nine months increased 15% to $298 million from $259 million in the prior year.
Operating income was $25 million compared with $51 million in the prior year and adjusted operating income was $34 million compared with $41 million.
The decrease in adjusted operating income was primarily due to lower gross profit and higher selling general and administrative expenses.
Operating income for the first nine months increased by 38% to $172 million from $125 million in the prior year.
And adjusted operating income increased by 33% to $153 million from $115 million in 'twenty two.
SDP net income for the third quarter of 2023 with $8 million compared with $33 million in the prior year.
And adjusted FTP net income was $17 million compared with $26 million in 2022.
<unk> net income for the first nine months increased by 19% to $95 million from $80 million in the prior year.
Adjusted FTP net income increased 23% to 90 million compared with $73 million in the prior year.
Our diluted earnings per share in the third quarter of 2023 was 17 <unk>.
Paired with 69% in the prior year.
Adjusted diluted earnings per share was 30, <unk> compared with 54 cents in the prior year.
The difference between GAAP and adjusted diluted EPS during the third quarter of 2023 was primarily related to the product related charges due to the flooding that impacted our Greek production facility.
For the first nine months of 2023 diluted EPS increased 17% to 197 per share from $1 68 per share in the prior year period, and adjusted diluted EPS increased 23% to $1 87 per share to $1 52 per <unk>.
Share in the prior year.
Adjusted EBITDA for the third quarter of 2023 was $50 million compared with $58 million in the prior year.
For the first nine months.
Adjusted EBITDA increased by 14% to $201 million from $176 million in the prior year.
And a corresponding adjusted EBITDA margin increased 90 basis points to six 1% from five 2%.
Let me now turn to segment results.
Fresh and value added segments.
Net sales for the third quarter of 2023 were $574 million compared with $600 million in the prior year, primarily a result of lower sales volumes of non tropical fruit.
Paul fresh cut fruit and fresh cut vegetables.
As well as prepared.
Partially offset by higher per unit selling prices of non tropical fruit fresh cut fruit and <unk>.
What product categories, combined with higher sales volume and sales prices of avocados.
Gross profit for the third quarter of 2023 was $36 million compared with $55 million in the prior year.
Gross profit variance was primarily due to higher production and procurement cost of most products, partially due to a stronger Costa Rica colon and Mexican peso.
Along with lower net sales volume, partially offset by higher selling prices and lower ocean freight.
Gross profit for the third quarter of 2020 through 2023 included $8 million of other product related charges.
Priced primarily of inventory write offs and cleanup costs tied to the flooding of our seasonal production facility increase.
As a result of these factors gross margin decreased to six 3% compared with nine 2% in the prior year.
Moving to our banana segment net sales for the third quarter were $385 million compared with $388 million in the prior year.
I'm really a result of lower per unit selling prices and sales volume in North America, mostly offset by higher sales volume and per unit selling prices in Europe.
Banana gross profit in the third quarter was $32 million compared with $23 million in the prior year, an increase of 41%.
The increase in gross profit was due to lower distribution ocean freight and product cost, partially offset by a stronger Costa Rica colon.
As a result of these factors gross margin increased to eight 3% compared with five 8% in the prior year.
Yeah.
Lastly, net sales in our other products and services segment for the third quarter were $44 million compared with $65 million in the prior year.
As a result of lower net sales of third party freight services due to softening global demand.
<unk> profit was $6 million compared with $10 million in the prior year as a result of the lower net sales.
Gross margin was 14, 2% compared with $15 seven in the prior year.
Now moving to selected financial data.
Selling general and administrative expenses for the third quarter were $48 million compared with $47 million in the prior year, driven primarily by higher employee compensation expense.
Interest expense remained flat at $6 million for the third quarter of 2023 compared with the prior year, despite lower average debt balance due to higher interest rates.
Other expense net for the third quarter of 2023 was $7 million compared with $9 million in the prior year.
The decrease relates to lower foreign currency related losses.
Income tax provision was $4 million compared with $3 million in the prior year. The increase in the provision was primarily due to increased earnings and certain higher tax jurisdictions.
Net cash provided by operating activities for the first nine months of 2023 was $180 million compared with $106 million in the prior year the.
The increase was primarily due to lower working capital mainly related to lower levels of raw materials and packaging supplies combined with higher net income.
Long term debt sequentially retained remained flat at approximately $401 million at the end of third quarter of 2023 as compared with the end of the second quarter.
And a decreased 26% from $540 million at the end of fiscal year 'twenty two.
Our adjusted leverage ratio is now 134 compared to the prior quarter of $1 42.
As it relates to capital spending we invested $41 million in capital expenditures in the first nine months of 2023 compared with $36 million in the prior year.
As announced this morning in our financial results press release, we declared a quarterly cash dividend of <unk> 20 per share payable on December eight 2023 to shareholders of record on November 15 2023.
This concludes our financial review and we can now turn to our Q&A Cheryl.
At this time.
I would like to remind participating analysts in order to ask a question. Please press Star then the number one on your telephone keypad.
Our first question comes from the line of Moats.
Your line is now open.
Yes.
Yeah.
Morning.
Good morning, Mitch.
Hey, I wanted to talk first question about <unk>.
<unk>.
So we're in the same quarter and here, we had in North America, we have lower prices and lower volume.
And in.
In Europe, we have higher prices and higher volume, which really is counter tenney normal.
City.
Expectations. So could you just talk about why these two markets.
Hey differently in the quarter and related to that what we should expect.
Here in the fourth quarter.
Yes.
Mitch.
The less.
We have fixed contracts.
Most of the volume that goes into Europe.
Regularly.
So the.
The modules and the prices of more or less fixed and not fluctuating.
And in the U S.
Operator: Good day, everyone, and welcome to Fresh Del Monte Produce, 3rd quarter, 2023 earnings conference call. Today's conference call is being broadcast live over the Internet, and it's also being recorded for playback purposes. Ladies and gentlemen, I want to thank you for standing by.
Majority of our supplies.
Contract basis with retailers.
However, part of that also volume goes into the spot market and during the last couple of months there has been.
Cheryl: My name is Cheryl, and I will be your conference operator today. All lines have been placed on mute to prevent any background noise. At those speakers remarks, there will be a question to answer session. For those analysts who would like to ask the question during this time, simply press star, follow by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you.
I would say a soft market in the U S.
Consult shovel bananas has beams.
Unfortunately on the client side.
As we speak.
And Thats why.
Prices have been addressed affected but.
As Monica mentioned we.
That's the most important thing that we need to focus on is really at annual basis above of the transaction or quarter to quarter basis.
Claudia Pou: 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, Claudia Pou, please go ahead Ms. Pou. Thank you, Cheryl. Good morning, everyone, and thank you for joining our 3rd quarter, 2023 conference call. As Cheryl mentioned, I'm Claudia Pou, Vice President Corporate Communications with Fresh Del Monte Produce. Joining me in today's discussion are Mohammad Abu Ghazali, Chairman and Chief Executive Officer, and Monica Vicente, Senior Vice President and Chief Financial Officer.
Because that will give you a better picture here towards the end of the how the operation performed rather than just take it quarter by quarter. We are in produce business we offer them.
CPG.
Tumor goods.
Manufacturers. So we are always influenced by market.
Climate.
One of the things that Monica mentioned about Greece at the club as we took a write off of over 8 million Boes, but really.
Claudia Pou: I hope that you've had a chance to review the press release that was issued earlier this morning via business wire. You may also visit the company's IR website at investorrelations.freshvel Monte.com to access today's earnings materials and to register for future distributions. This conference call is being broadcast live on our website and will be available for replay after this call. Please note that our press release and our call today include non-gap measures.
Other side.
We have also insurers.
Sure.
10 million euros.
We are going to be recovering saw these losses do you see today it will be recovered in the next three or four months I have been in the next few months.
So we don't want to have the picture to be.
Claudia Pou: Reconciliation of these non-gap 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'll be speaking to you today, including the answers we gave in response to your questions, may include forward-looking statements within the provisions of the Federal Security's laws, say, Tarber. In today's press release and in our SEC filings, we detail material risks that may cause our future results to differ from these forward-looking statements.
Kind of.
This misguided.
We extend the facts as they are today, but we have also a contingency plan like.
The insurance is a couple of that that much of that loss and even we have support from the government of Greece to also.
A couple of other losses be efficiently materials. So all in all I'm very optimistic about.
Claudia Pou: Our statements are as of today, November 1st, and we have no obligations to update any forward-looking statement we may make. During the call, we will provide a business update along with an overview of our third quarter and our nine months 2023 financial results followed by a question and answer section.
At the quarter itself is not too bad compared to the conditions of the.
Environment all of those.
Going forward I have very high confidence in our delivery of our performance.
Why do you think volumes are down in the U S.
Mohammad Abu Ghazali: With that, I am pleased to turn today's call over to Mr. Bugazali. Thank you, Claudia. Good morning, everyone.
And they have been soft for a little bit is there something going on just generally speaking with the consumer.
We have also some off 2% decline.
Mohammad Abu Ghazali: We are pleased with our nine months 2022 and 2023 results. Marked by more than 140 basis points in improvement in adjusted gross margins, solid adjusted a bit that year, over year adjusted EBS growth. Our results were driven by our focus on operational excellence, leading logistical infrastructure and continued improvements in efficiencies and sustainability practices. For the nine months, our adjusted EBITDA increased 40% to 201 million dollars, and our adjusted eluted EPS increased 23% to $1.87.
And volumes.
Or in consumption.
And we don't know really the reasons for that except that.
Yes.
Is that the.
The.
People are spending.
Sure.
Well.
<unk> are focusing on.
Types of fruits.
During this period, but this has been a pattern that we have witnessed over the last couple of years.
Okay.
And then.
So if you look at.
The business on an annual basis and the bananas in particular again for a second.
Typically cut.
Mohammad Abu Ghazali: We achieved these strong nine months results despite facing macroeconomic challenges such as inflationary pressures and escalating weather events. Shopped such as the floods increase, demonstrating our ability to run a profitable global enterprise in the face of large scale challenges.
Covered you for a long time and I've always thought that gross margins would be in the 4% to 6% annualized range.
Generally around six but for the last couple of years <unk> been on the higher end of that.
Last year your banana business did seven 4% gross margin.
Mohammad Abu Ghazali: The third quarter is seasonally our softest in quarter. The headwinds this quarter were as follows. The September floods increase impacted our seasonal non-tropical product scanning facility which resulted in 8.4 million dollars of inventory right off and cleave clean up costs. Global demand for our third-party ocean freight business, softened which caused a decrease in our other products and services segments. As a reminder in the previous year, this segment benefited from elevated shipping grains and demand due to market logistical conditions.
This year, it's looking good looking.
That are better.
No.
What do you think it is.
Driving the banana margins too.
Above historic level range.
Anything youre doing.
Internally, whether it's buying more of your own.
Versus purchased fruit.
As your efficiencies in the field is adjust pricing can you talk a little bit about that.
Yes.
With efficiencies in the field that there is one major item secondly, we have all kinds of streamlining and more efficient and supply and demand.
Mohammad Abu Ghazali: Now for the highlights in the third quarter that were partially offset these headwinds. Gross margin in the banana segment during the third quarter was up to 150 basis points. Avucas returned around this quarter and were meaningful contributors thanks to increases in sales volumes, telling prices and gross profit. Our continued solid adjusted EBITDA enables us to have numerous options for strong asset allocations. We continue to use our healthy cash flow to retain value to shareholders through activities such as improving efficiency, paying down debt, and continuing to deliver innovation led new to market products.
Kind of.
Elisa.
In the previous years.
Especially during the second half of the year that will always be an oversupply.
Bananas through improper, let's say planning.
And meeting you at all.
Kind of demand or supply in the last couple of years last year of this year.
<unk>.
Managing.
Supply and demand side of the story so.
And so our margins that has improved significantly.
Significantly because mainly of our efficiency in terms of.
Meeting only the demand, but all of them having oversupply in the market.
Mohammad Abu Ghazali: We also continue to look for ways to optimize our asset base to maximize our shareholder values. All these actions enabled us to accomplish our mission of meeting the worldwide demand of getting consumers to eat healthier fresh products. We strive then to achieve the mission by providing our offerings consumers when and where they shop and by partnering with other leading CPG companies that are looking to improve their healthy offerings and are looking to enter the fresh space.
Among other things that we're doing of course.
With logistics.
Other issues.
<unk> zero in terms of.
Cost structure.
That said, yes, yes that's.
And we believe we believe this will continue to improve as we go forward.
Okay. So you think it's sustainable.
I would like to higher end of the range kind of level from year to year, yes. Okay.
Then.
If you could talk.
Mohamad Youre.
Mohammad Abu Ghazali: Two areas where we undercipient leaders. Our lunch levels with fresh food, partnership with craft highs continued and continued to test in the market. We announce the partnership with the global restaurant chain PFChance. We unveiled two select kits that allow consumers to enjoy the restaurants most popular salad dishes in the comfort of their homes. The kits are available in select retailers across the U.S, with the potential to expand to Canada and beyond.
What's going on in the Middle East I mean, how is that going to affect.
Your business in the near term.
It's a daily margin.
Where we are.
Our major markets.
In the Gulf and Turkey, and other areas that is up.
Yes.
Influenced by what is going on right now.
Yes.
We don't see really any.
Any guidance.
Significant or material.
Impact on our business in <unk>.
Mohammad Abu Ghazali: Trichord, our Ellen DigiStick solution, underwent a rebrand this year which was made publicly The new website and branding will help the third party logistics provider enhance its customer experience and broaden its customer base on the years of multi-year growth. We also became a part of the Upcycle Food Association, the organization that helps companies such as Fresh Del Monte find ways to maximize the use of our food waste. It is exciting to partner with the Upcycle Food Association and find ways to upcycle our waste which plays a role in Fresh Del Monte's long term R&D and sustainability plans.
And as part of the World right now.
Okay and then just last question for me and I'll get back in the queue, but.
On the fresh and value added business.
You continue that.
Year over year.
Sequentially the margins were down, but you are making some nice progress there climbing back.
So where we are I think do you think the business ought to be.
<unk>.
Are there any headwinds for that business in the fourth quarter and can you talk about how the margins are going to look next year roughly I mean are we going to see continued improvement.
Is there any other headwinds that we need to know about.
Not really I think that we are doing well and we are.
Mohammad Abu Ghazali: We also launched our latest sustainability report two weeks ago. A few highlights include, we reduce our scope one and scope two emissions by 26% compared to 2019 levels, bringing us 94% of the way towards our 2030 goal. We reduce our food loss and organic waste by 41% in 2022, bringing us 82% of the way towards our 2030 goal. We donated approximately 53,000 tons, metric tons of food, organizations that assist those in need, and either composted also eligible waste to third parties to convert it into animal feed and biofuel.
Sure.
We are growing into new.
As I speak to new kind of.
Transactions at joint ventures as well.
We go into the new year.
That will improve our margins and improve our kind of utilization of our assets and that's the most important thing.
Resources assets and I think that for 'twenty four we are very confident about the future you know we are definitely.
Growing in the right direction.
And where do you think by the way.
Thing, but where do you think margins can go longer term in the fresh and value added business.
I would go for above our target and our objective is to reach about.
Mohammad Abu Ghazali: We are truly one of the world's leading vertically integrated producers, distributors and marketers of Fresh Produce. We weave sustainability into all facets of our business while making fresh healthy produce accessible worldwide. We have several initiatives and different stages with global CBG brands similar to craft and BFChance. In addition, we continue to push innovation forward, creating value for our consumers and our business. Quality programs for our popular honey glow and pink glow pineapples are being activated. And we are close to launching a new pineapple variety that will be unique to Fresh Del Monte as we further cement our reputation as the leader in pineapple innovation.
That said the gross margins.
Okay.
Still a lot of upside left there.
Yes.
Okay, well, thank you I'll get back in the queue. Thanks.
Thank you Mitch.
I will now turn the call back over to Mr. Abu <unk> for closing remarks.
Thank you very much everyone.
It was a pleasure to talk with you today and hopefully we've gotten.
John again on our next call. Thank you and have a good day.
You may now disconnect and have a good day.
Mohammad Abu Ghazali: As always, our management team will continue to focus on enhancing long-term share health, general of the value by evaluating how to best leverage our experience in small farming, logistics, sustainability and marketing combined with our valuable portfolio of agricultural lands.
Please wait the conference will begin shortly.
Monica Vicente: With that, I would like to turn the call over to Manika, our CFO. Thank you, Mohammed. Good morning, everyone, and thank you for joining us on the call today.
Yes.
Sure.
[music].
Monica Vicente: I would like to start this morning by providing some background on the seasonality of our business before we jump into the results. We believe the best way to view our business is on an annual basis, not quarterly. Historically, our first and second quarters are a seasonally stronger quarters, while our third and fourth quarters are seasonally softer. The selling price of any fresh produce item fluctuates throughout the year due to supply and demand for that particular item, as well as the pricing and availability of other fresh produce items.
Okay.
Sure.
[music].
Yes.
Yes.
Sure.
Okay.
[music].
Monica Vicente: Many of which are seasonal in nature, such as summer or months when competing seasonal fruit is abundant Last year was an eight typical year for our company in terms of seasonality due to the high inflationary environment we faced and a lag in price increases which resulted in an unusually soft first and a stronger second half of the year. We have realized a greater portion of our net sales and gross profit during the first two fiscal quarters of the year.
Monica Vicente: With that, let's move on to our third quarter 2023 results followed by our nine month results. Net sales for the third quarter of 2023 were 1 billion compared with 1 billion 54 million in the prior year. Net sales for the first nine months of 2023 were 3.3 billion compared with 3.4 billion in the first nine months of 22. In both periods, the net sales variance was primarily driven by lower sales volume and the fresh and value added product segment and a decrease in sales in the other products and services segment due to the soft and global demand of our third party ocean freight business.
Monica Vicente: Banana net sales for the third quarter of 23 were lower primarily due to selling prices in North America. However, for the first nine months banana net sales were higher due to higher pricing and volumes. Gross profit for the third quarter of 2023 with 74 million compared with 88 million in the prior year. Gross profit was impacted by lower sales volume across most most products, a stronger Costa Rica colon and a Mexican peso and the inventory right off related to the flooding of our seasonal prepared product facility in Greece.
Monica Vicente: Partially offset by lower distribution and ocean freight costs. Excluding the impact from the inventory right off and cleanup costs in Greece, adjusted gross profit for the third quarter of 23 was 83 million compared with 88 million in the prior year. Gross profit for the first nine months of 23 increased by 11% to 288 million from 259 million in the prior year. The increase was primarily driven by higher sales volume selling prices of bananas partially offset by lower sales of fresh and value added products and our third party ocean freight services.
Monica Vicente: Adjusted gross profit for the first nine months increased 15% to 298 million from 259 million in the prior year. Operating income was 25 million compared with 51 million in the prior year and adjusted operating income was 34 million compared with 41 million. The decrease in adjusted operating income was primarily due to lower gross profit and higher selling general and administrative expenses. Operating income for the first nine months increased by 38% to 172 million from 125 million in the prior year, and adjusted operating income increased by 33% to 153 million from 150 million in 22.
Monica Vicente: SDP net income for the third quarter of 2023 was 8 million compared with 33 million in the prior year and adjusted FDP net income was 17 million compared with 26 million in 2022. SDP net income for the first nine months increased by 19% to 95 million from 80 million in the prior year adjusted FDP net income increased 23% to 90 million compared with 73 million in the prior year. Our diluted earnings per share in the third quarter of 2023 was 17 cents compared with 69 cents in the prior year.
Monica Vicente: I adjusted diluted earnings per share was 35 cents compared with 54 cents in the prior year. The difference between gap and adjusted diluted EPS during the third quarter of 2023 was primarily related to the product related charges due to the floods that impacted our Greek production facility. For the first nine months of 2023 diluted EPS increased 17% to 197 per share from 168 per share in the prior year period and adjusted diluted EPS increased 23% to 187 per share to 152 per share in the prior year.
Monica Vicente: Adjusted EBITDA for the third quarter of 2023 was 50 million compared with 58 million in the prior year. For the first nine months adjusted EBITDA increased by 14% to 201 million from 176 million in the prior year and corresponding adjusted EBITDA margin increased 90 basis points to 6.1 per cent from 5.2 per cent.
Monica Vicente: Let me now turn to segment results. Fresh and value added segments. Net sales for the third quarter of 2023 were 574 million compared with 600 million in the prior year. Primarily a result of lower sales volumes of non-tropical fruit, pineapple, fresh cut fruit and fresh cut vegetables, as well as prepared. Partially offset by higher per unit selling prices of non-tropical fruit, fresh cut fruit, and pineapple product categories combined with higher sales volume and sale prices of EPS.
Monica Vicente: Gross profit for the third quarter of 2023 was 36 million compared with 55 million in the prior year. Gross profit variance was primarily due to higher production and procurement costs of most products, partially due to a stronger Costa Rica colon and Mexican peso, along with lower net sales volume partially offset by higher selling prices and lower ocean phrase. Gross profit for the third quarter of 2023 included 8 million of other product-related charges, comprised primarily of inventory write offs and cleanup costs tied to the flooding of our seasonal production facility increase.
Monica Vicente: As a result of these factors, gross margin decreased to 6.3% compared with 9.2% in the prior year. Moving to our banana segment, net sales for the third quarter were 385 million compared with 388 million in the prior year. Primarily a result of lower per unit selling prices and sales volume in North America mostly offset by higher sales volume and per unit selling prices in Europe. Banana gross profit in the third quarter was 32 million compared with 23 million in the prior year and increased of 41%.
Monica Vicente: The increasing gross profit was due to lower distribution, ocean freight and product costs partially offset by a stronger Costa Rica colon. As a result of these factors, gross margin increased to 8.3% compared with 5.8% in the prior year. Lastly, net sales in our other products and services segment for the third quarter were 44 million compared with 65 million in the prior year. As a result of lower net sales of third priority freight services due to softened global demand. Gross profit was 6 million compared with 10 million in the prior year as a result of the lower net sales. Gross margin was 14.2% compared with 15.7 in the prior year.
Monica Vicente: Now moving to selected financial data. Selling general and administrative expenses for the third quarter were 48 million compared with 47 million in the prior year driven primarily by higher employee compensation expense. Interest expense remained flat at 6 million for the third quarter of 2023 compared with the prior year despite lower average debt balance due to higher interest rates. Other expense net for the third quarter of 2023 was 7 million compared with 9 million in the prior year.
Monica Vicente: The decrease relates to lower foreign currency related lockers. Income tax provision was 4 million compared with 3 million in the prior year. The increase in the provision was primarily due to increased earnings in certain higher tax jurisdictions. Net cash provided by operating activities for the first nine months of 2023 was 180 million compared with 106 million in the prior year. The increase was primarily due to lower working capital mainly related to lower levels of raw materials and packaging supplies combined with higher net income.
Monica Vicente: Long term debt sequentially retained remained flat at approximately 401 million at the end of third quarter of 2023 as compared with the end of the second quarter and it decreased 26% from 540 million at the end of fiscal year 22. Our adjusted leverage ratio is now 1.34 compared to the prior quarter of 1.42. As it relates to capital spending, we invested 41 million in capital expenditures in the first nine months of 2023 compared with 36 million in the prior year.
Monica Vicente: As announced this morning in our financial results press release, we declared a quarterly cash dividend of 20 cents per share, payable on December 8, 2023 to share holders of record on November 15, 2023.
Operator: This concludes our financial review and we can now turn to our Q&A, Shura. As this time, I would like to remind participating analysts in order to ask a question, please press star in the number one on your telephone key page.
Mitchell Pinheiro: Our first question comes from the line of Mitchell Pinheiro. Your line is now open. Yeah, good morning.
Mohammad Abu Ghazali: One minute. I want to just talk first question about bananas. You know, so we're in the same quarter and here we had North America, we had lower prices and lower volume. And in Europe, we have higher prices and higher volume, which really is counter-tenny normal elasticity expectations. So can you just talk about why these two markets behave differently in the quarter and related to that, what we should expect here in the fourth quarter.
Mohammad Abu Ghazali: Mitchell, in Europe, we have fixed contacts for most of the volume that goes into Europe regularly. So the margins and the prices are more or less fixed and not fluctuating. In the US, of course, a majority of our supplies are on contract basis with retailers and buyers. However, part of that also volume goes into the spot market. And during the last couple of months there has been, I would say, a soft market in the US and consumption bananas has been unfortunately on the decline side as we speak.
Mohammad Abu Ghazali: And that's why prices have been adversely affected. But as Monica mentioned, we mentioned that the most important thing that we need to focus on is really an annual basis of rather than transaction or quarter to quarter basis. Because that will give you a better picture at the end of the year, how the operation performed rather than just taking quarter to quarter. We are in produce business, we are not CPAG consumer goods manufacturers.
Mohammad Abu Ghazali: So we are always influenced by markets and climate. And one of the things that Monica mentioned about Greece and the flood and we took a right of over 8 million dollars. But really, on the other side, we have also insurance, for 10 million euros that we are going to be recovering. So, these losses to you see today will be recovered in the next three or four months, I mean in the next few months.
Mohammad Abu Ghazali: So, we don't want the picture to be kind of clouded or misguided. I mean, we state the facts as they are today, but we have also contingency plans like the insurers that covers that damage or that loss, and even we have support from the government of Greece to also cover other losses, be it machinery and material.
Mitchell Pinheiro: So, all in all, I'm very optimistic about the, you know, environment around us and going forward, I have very high confidence in our delivery and our performance. What do you think volumes are down the US? And they've been soft for a little bit. Is there something going on just generally speaking with the consumer? We're not just about 2% decline in volumes or in consumption. And we don't know really the reasons for that, except that either the people are spending on other items or focusing on other types of fruits during this period, but this has been a pattern that we have witnessed over the last couple of years.
Mitchell Pinheiro: And then, you know, you, so if you look at the business on an annual basis and the bananas in particular again, well, for a second, you know, typically, you know, I've covered you for a long time and I've always thought that gross margins would be in a four to six percent annualized range, you know, and generally around six. But for the last couple of years, you've been on the higher end of that, you know, last year, your banana business did 7.4% gross margin.
Mitchell Pinheiro: And this year, it's looking good, looking, you know, that or better. So what do you think it is driving the banana margins to, you know, above historic level range? Are we anything you're doing internally, whether it's buying more of your own fruit versus purchased fruit? As your efficiencies in the field, is it just pricing? Can you talk a little bit about that? Yeah, well, to start with, efficiency is in the field.
Mitchell Pinheiro: That is one major item. Secondly, we are more kind of streamlining and more efficient in supply and demand kind of alignment. In the previous years, especially during the second half of the year, there always been over supply of bananas, you know, through improper, let's say, planning and meeting, you know, kind of demand of supply. And the last couple of years, last year and this year, we are efficiently and better managing the supply and demand side of the story.
Mitchell Pinheiro: So our mind is that it has improved significantly because mainly of our efficiency in terms of meeting only the demand and rather than having oversupply in the market among other things that we are doing of course with logistics and other issues in terms of cost structure. But that's why we believe this will continue to improve as we go forward. Okay, so you think it's sustainable, you know, like the higher end of the range kind of level from your years. Yes, yes, okay.
Mohammad Abu Ghazali: And then, you know, if you could talk, you know, Mohammad, your what's going on in the Middle East, I mean, how is that going to affect your business in the near term? It's really marginal, I mean, you know, where we are, our major markets are in the in the Gulf and Turkey and other areas that is not influenced by what is going on right now and, you know, we don't see really any kind of significant or material impact on our business in this part of the world right now.
Mohammad Abu Ghazali: Okay, and then just less question for me, and I'll get back in the queue, but on the fresh and value added business, you continue to, you know, you're over year and sequentially the margins were down, but you're making some nice progress there, climbing back to where, where I think you think the business ought to be.
Mohammad Abu Ghazali: Is there any headwinds for that business in the fourth quarter, and can you talk about how the margins are going to look next year, roughly, I mean, we're going to see continued improvement, is there any other headwinds that we need to know about? Not really, I think that we are doing well, we are going into new, as I speak, new kind of transactions and joint ventures as we go into the new year that will improve our margins and improve our kind of utilization of our assets, and that's the most important thing. Resources and assets, and I think that for 24, we are very confident about the future, you know, we're definitely going in the right direction.
Mohammad Abu Ghazali: And, and where do you think, by the way, let's just think, but where do you think margins can go longer term in the fresh and value and business? I would go for about our target and our objective is to reach about 12% of the gross margins. Okay, so still a lot of upside left there. Yeah.
Mitchell Pinheiro: Okay, well, thank you, I'll get back in the queue.
Operator: Thank you.
Mohammad Abu Ghazali: I will now turn the call back over to Mr. Abu Ghazir for closing marks. Thank you very much everyone and it was a pleasure to talk with you today and hopefully we can join again on our next call.
Operator: Thank you and have a good day.
Operator: You may now disconnect. Have a good day.
Operator: Please wait, the conference will begin shortly.