Q3 2024 Dole PLC Earnings Call
Speaker Change: Welcome to the Dole PC third quarter 2024 earnings conference call in webcast. Today's conference is being broadcast live over the internet and is also being recorded for playback purposes.
Speaker Change: Currently, 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 Investor Relations with Dole PLC, James O'Regan.
Thank you, Clifton.
James O'Regan: Welcome everybody and thank you for taking the time to join our third quarter 2024 earnings call. Joining me today is our Chief Executive Officer Rory Byrne, our Chief Operating Officer Johann Linden and our Chief Financial Officer Jacinta Devine.
James O'Regan: During this call, we will be referring to presentation slides to supplement our remarks and these, along with our earnings release and other related materials, are available on the Investor Relations section of the DOE's PLC website.
James O'Regan: Please note our remarks today will include certain forward-looking statements within the provisions of the federal security safe harbor law. These reflect circumstances of the time they are made and the company expressly disclaims any obligation to update or revise any forward looking statements.
James O'Regan: 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 FCC filings and press releases.
Speaker Change: 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.
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Rory Byrne: Thank you, James. Welcome, everybody, and thank you for joining us today as we discuss our results for the current quarter of 2024.
Rory Byrne: So, turning firstly to slide 4 and the Q3 financial highlights. Well, the third quarter was another positive quarter for our business, continuing the good momentum built up over the course of this year. Group reported revenue increased by 1% and on a like-for-like basis the increase was 5.8%. Adjusted EBITDA of $82 million was aligned with market expectations for the quarter and 2.3% ahead of the prior year on a like-for-like basis.
Rory Byrne: The growth in adjusted EBITDA on a like-for-like basis was driven by a very strong performance in our Diversified America segment, offsetting modest decreases in Fresh Fruit and Diversified EMEA.
Rory Byrne: Cash management and capital allocation continue to be a major focus for us and we are pleased to see our leverage reduce further, driven by a $36 million decrease in our absolute level of debt, despite a relatively high level of capital investment made in the quarter, which we will discuss in more detail later on the call.
Rory Byrne: Turning now to slide six on our operational highlights, starting with the fresh food segment.
Rory Byrne: This segment delivered another good performance in the third quarter, adjusted EBITDA was $42.9 million, a small decrease compared to last year, but a result that was ahead of our own expectations, taking into account the higher shipping costs in the quarter due to the ongoing dry docking process that we flagged in our previous earnings calls.
Rory Byrne: North America has been the market predominantly impacted by dry docking, however we had a good overall performance with higher volumes of bananas sold and better pricing, partially compensating the anticipated higher shipping costs.
Rory Byrne: In the European market we continue with our positive momentum, driven by higher volumes of bananas as well as by lower shipping costs.
Rory Byrne: Looking ahead to the remainder of the year for both the North American and European markets, we believe we are well placed. Both banana and pineapple supply remain tight on an industry-wide basis, leading to higher sourcing costs but also allowing for some positive price and momentum in certain markets.
Rory Byrne: As the year has progressed, the benefits of our experienced team, our diversified supply base have again been clear, allowing us to deliver a consistent, competitive and quality service to all our customers.
Rory Byrne: Overall, we anticipate the fresh food segment having a good end to the year, taking into account a continued expectation of higher shipping costs during the dry docking process.
Rory Byrne: Before turning our attention to the diversified segments, I would also like to highlight our recent agreement to expand our shipping fleet by bringing two vessels currently on charter on their own ownership in early 2025 through an option to purchase agreement.
strategically adding a second service to our
Rory Byrne: U.S. East Coast operation this year with the two chartered vessels provides us the flexibility to drive up the vessels in our primary East Coast service without any major service disruption but also gives us a pathway for additional growth in the marketplace.
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Rory Byrne: a lower supply of certain categories in the quarter, but still delivered a good overall result in Q3, broadly in line with their own expectations. In Spain, with some temporary shortages of supply of canary oil and bananas, whereas in other parts of the segment we had the continued impact of shortages for some important seasonal crops typically sourced out of South America, as well as poor weather impacting trade for some of our food service and wholesale businesses.
Rory Byrne: Positively, revenue did, revenue growth did remain strong in the quarter, indicating that on a relying basis, our business is in a good position and we expect to be able to deliver a satisfactory result on a four-year basis.
Rory Byrne: Diversified Americas and this segment delivered another very strong quarter on a like-for-like basis and taking out the impact of progressive projects following its sale in Q1.
Rory Byrne: The strong result was driven by a positive quarter for our North American operations with good volume and price growth across most commodities and avocados in particular.
Rory Byrne: Our North American berry business, while still having much scope to continue to improve, showed a good turnaround from the prior year, and while our South American export business also had a positive quarter with good developments in winter season products.
Rory Byrne: Looking ahead to the remainder of the year, activity will again pick up on the export side as we progress through Q4, the start of several key export seasons of both Peru and Chile.
Rory Byrne: As always, the specific timing of harvest will play an important role in how profitability gets recorded through the year-end. However, we anticipate strong seasonal performance on the export side, as well as continued good momentum in our North American operations.
Rory Byrne: Turning to the fresh vegetables business. As noted in our most recent calls since the termination of the sale of the Interfresh Express, we have been actively exploring strategic alternatives for this business.
Rory Byrne: That process is ongoing and we remain hopeful that we will ultimately deliver a good outcome for all our stakeholders.
Rory Byrne: Operationally, we are very pleased that this business is continuing to deliver improved results and is on track to deliver.
Rory Byrne: positive operating income each quarter of 2024. The continued good performance in the third quarter is delivered despite the anticipated softening of the favourable fresh pack.
Rory Byrne: Marker conditions. I experienced earlier this year demonstrating again the good underlying performance that a committed management team is making in both the fresh-packed and value-added business units within this division.
Rory Byrne: And with that, I'll hand you over to Jacinta to give a financial review for the third quarter.
Thank you, Rory, and good day, everyone.
Jacinta Devine: Firstly, turning to the group results on slide 8, reported revenue increased 1% against the prior year and 5.8% on a like-for-like basis, excluding the impact of FX and the sale of progressive produce. Strong operational performance across all segments drove this growth.
Jacinta Devine: Adjusted EBITDA decreased 3.7% or 3.1 million, primarily driven by decreases in fresh fruit and diversified EMEA segments, partially offset by strong performance in the diversified America segment.
Jacinta Devine: On a like-for-like basis, adjusted EPA increased 2.3% or 1.9 million.
Jacinta Devine: Interest expense for our continuing and discontinued operations decreased 5 million year-on-year due to lower debt levels and also lower market interest rates.
Jacinta Devine: The increase in income tax is due to changes in our jurisdictional profit mix compared with the prior year and the impact of discrete tax items in the period.
Jacinta Devine: Net income of £21.5 million in Q3-24 was £32.5 million lower than Q3-23, primarily due to the prior year having the benefit of an exceptional £28.8 million gain on the sale of land.
Jacinta Devine: There was also a decrease in other income of £9.3 million. This was primarily related to fair value adjustments of financial instruments.
Jacinta Devine: Partially offsetting this was a continued improved performance in our fresh vegetable business with income from discontinued operations of 6.3 million recorded this quarter.
Jacinta Devine: On an adjusted basis, adjusted net income was $18 million and adjusted diluted EPS was $0.19 per share. The year-on-year decrease was mainly due to lower adjusted EBITDA and higher income tax expense, partially offset by lower interest expense.
Jacinta Devine: Turning now to the divisional updates for the third quarter for our continuing operations. Firstly, turning to the fresh fruit on slide 10. The fresh fruit division delivered another good result with the revenue increasing 6.6%.
Jacinta Devine: The increase in revenue was primarily due to higher worldwide volumes of bananas sold, as well as higher worldwide pricing of bananas and pineapples, partially offset by lower worldwide volumes of pineapples and lower pricing and volume for plantains.
Jacinta Devine: As anticipated, adjusted EBITDA was lowered this quarter due to the impact of dry docking related costs. However, the result of £42.9 million was ahead of our expectations, primarily due to strong revenue growth.
Turning to diversified fresh produce in Mayo on slide 11.
Jacinta Devine: This segment delivered 5.1 million revenue growth in the quarter, driven by a strong performance in Ireland, the UK and the Netherlands, as well as a 13.6 million favourable FX impact and an incremental positive impact from acquisitions of 1.8 million.
On a like-for-like basis, revenue increased 3.3%.
Jacinta Devine: Adjusted EBITDA declined 13.1% or 14.5% on a lag-for-lag basis, primarily due to higher one-off IT charges in the UK and temporary supply issues and seasonal timing difference in Spain and South Africa.
Jacinta Devine: Finally turning to diversified fresh produce Americas and rest of world on slide 12
Jacinta Devine: This segment delivered a very strong result in the quarter. Reported revenue was impacted by the sale of progressive produce earlier this year. However, on a like-for-like basis, revenue increased 7.2%, primarily due to the volume and price growth across most commodities in North America.
Jacinta Devine: Adjusted EDA increased $3.6 million, primarily driven by improved performance in our North America, bearish business and positive margin development in avocados, as well as revenue growth across most commodities in North America.
Jacinta Devine: These positive impacts were primarily affected by the disposal of the progressive produce business. On a like-for-like basis, Adjusted EBITDA was £9.2 million ahead of the prior year.
Jacinta Devine: Turning to slide 13, we remain very focused on capital allocation and managing our leverage and are pleased that our leverage reduced further in the quarter to 1.86 times. The reduction was driven by a 36 million decrease in our net debt compared to Q2.
Jacinta Devine: Net cash provided by operation activities from continuing operations was 106.2 million in the year to date. As anticipated, we saw a significant positive inflow in working capital in the third quarter.
Jacinta Devine: And while being conscious of the variability that seasonal timings around year-end can bring to working capital, this is a trend we expect to continue into the year-end.
Jacinta Devine: Cash capital expenditure from continuing operations was $21.1 million in the third quarter. As Rory mentioned, we recently secured an agreement to expand our fleet with the addition of two vessels currently on charter, bringing them under our ownership in early 2025.
Jacinta Devine: Due to this commitment, we have recognised a finance lease, adding both the asset and financial obligation to our balance sheet, as at 30 September.
Speaker Change: As I mentioned earlier, interest expense has continued to decrease compared with the prior year due to lower debt levels as well as lower base rates. For the full year, we now expect our interest expense, including discontinued operations, to be approximately 75 million.
Speaker Change: Continuing our commitment to return cash to shareholders, we are pleased to declare a dividend of 8 cent for the third quarter, which will be paid on January 3rd, 2025 to shareholders on record on December 11th, 2024.
Speaker Change: Now I will hand you back to Rory, who will give an update on our full year outlook.
Thank you.
Thank you Jacinta
Speaker Change: So, we're very pleased to have delivered another robust performance this quarter, putting us in an excellent position to deliver a strong result for the cold year.
Speaker Change: And as we move towards the end of the year, we are raising our full-year adjusted EBITDA target to at least £380 million for 2024.
Speaker Change: On the investment side, we are pleased that our disciplined approach to capital allocation has given us the flexibility to opportunistically execute quickly on a positive transaction this quarter to support our operations and bring two additional vessels into our fleet.
Speaker Change: In conclusion, we're very pleased to have again added another good operating and financial performance to our track record and are now fully focused on finishing the year strongly and delivering on our enhanced full year target, while also focusing on our key strategic priorities for the remainder of the year.
Speaker Change: I do want to finish by once again thanking our excellent people across the group for their ongoing commitment and dedication to drive build PLT forward as well as our suppliers and customers for all their ongoing support. So with that I'll hand you back to the operator and we can open the line for questions. Thank you.
Thank you for tuning in. We'll see you next time.
Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. And if you'd like to withdraw that question, again press star 1. Your first question comes from the line of Christopher Barnes with Deutsche Bank. Please go ahead.
Hi, good morning, good afternoon. Thanks for the question.
Speaker Change: I guess just first to start, EBITDA guidance, the full year target of at least 380 implies the fourth quarter could be down 18% at the low end.
Speaker Change: I know you're really just setting a floor, but could you walk through the puts and takes that we should be mindful of across Fresh Fruit and the diversified businesses in the fourth quarter specifically?
Speaker Change: I know you called out strength from Peru and Chile export seasons as well as tighter banana supply conditions, but any additional color would be helpful. Thanks.
Episode 2
Speaker Change: Yeah, I mean I think as we flagged Chris at the end of half one, this may be a year that's more typical of the historical years where there's a heavier weighting towards the first half of the year compared to the second half of the year. You've got to remember as well that we sold progressive so that had an impact on Q4, an overall four year impact on EBITDA of some £25 million.
Improvement in the Strength of the Dollar.
Speaker Change: with a strong finish to the year last year in 2023. We do know that our shipping costs in the back half of the year are going to be higher, particularly with the dry docking issues that we've got. But we're comfortable with setting the base at 380. We've stepped it up from 360, 370 and now 380. So, you know, putting everything into the mix, we think it's the appropriate number to give to the market.
Thank you. Thank you. Thank you.
Very helpful. And then secondly,
Speaker Change: The Diversified America's business profitability has been what notably strong year to date Essentially masked the impact from divesting progressive produce So is there any way to frame how much of that improvement is?
Speaker Change: real underlying strength in that business versus some of the like seasonal timing that's shifting profitability around into the first first nine months.
Speaker Change: And then separately, Lunar New Year in 2025 is two weeks earlier than it was in 2024.
Speaker Change: Is that going to have any positive impact on the fourth quarter for Chilean Cherries or is that really just a 2025 dynamic? And then I'll pass it on. Thanks.
Speaker Change: Yeah, thanks Chris. If we look at the Diversified Americas business, it's probably the segment that suffered most.
Speaker Change: from, you know, go right back to 2020-21 with the supply chain disruption, the logistics disruption, the very significant shortage of containers and the dramatic increase in freight rates, so it had a very big impact on that segment. You know, we had periods where we couldn't get product discharged into the North American market, so that's all settled down. I think we'd have to say as well within that division, particularly from Chile, you know, instead of having lots of negative headwinds, we probably had a few tailwinds, but behind us the flow of product in terms of the change of seasons from American production into import production has worked well.
Speaker Change: and the flow of products from cherries into the Chinese market has worked well and we've done a lot of work in terms of improving thought of management processes and streamlining that organization and it's worked well.
Speaker Change: I think there can be a little bit of volatility. We do own a reasonable amount of production in Chile, so that can be a little bit more variable than, say, our EMEA division, which tends to be a more stable, consistent profit level. But we're comfortable that we've repositioned that entire business. But they have had an exceptionally strong year this year, so it would be wrong not to recognise that. And we've got to take it when it's there as well.
Speaker Change: Your next question comes from the line of Gary Martin with Davey. Please go ahead.
Gary Martin: Hi all, congrats again on another strong set of results. I have a few questions on my side, I'll just ask them one by one if that's alright.
Gary Martin: I guess just starting off and maybe touching on the last question a little bit.
Gary Martin: I mean, should we expect maybe a more normalised cherry season into Q4? Is that the best way to frame it? I guess the extension of that is, should we expect a more normalised, kind of diversified Americas and Western world?
Gary Martin: profitability and revenue into Q1 next year as well just off the back of that.
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Speaker Change: Do you want to make any comment on that, Johan? Maybe just add what I already said.
Speaker Change: Yeah, no, I think what you said is right. And when it comes to normalize, yes, when you look at Q1, you could probably say it normalized with some of the cherry volume falling into this year, considering where the Chinese New Year is coming.
Speaker Change: Understood, that's helpful. And then just on fresh fruits, I mean you flagged a number of times that it was above your expectations.
Speaker Change: I mean, what are the kind of supply and demand factors that are driving the kind of overall outperformance on volumes across both Europe and North America? And I guess if we, if I put my forecasting hat on and I look into Q4, should we expect to see another fairly consistent quarter on a sequential basis in terms of profitability and revenue?
Do you want to address that as well, Leo, maybe?
Speaker Change: Yeah, so as always, fresh fruit is very dynamic with a lot of puts and calls on it. So what we have right now and what we saw during Q3, we saw a very good
and Solid Demand for Bananas.
driven by organic bananas, but also the normal bananas.
Speaker Change: Good demand and at the same time we have a tight supply.
on the back of them.
weather event, it's been
Speaker Change: dryer up in, dryer in Ecuador, wetter in Central America, and that's on the back of
Speaker Change: El Nino last year when it was vice versa. So the weather has tightened up the supply. So we have had a good supply-demand balance because even if the supply is tight, it does not directly impact the core markets as it's normally the secondary markets that are taking the hit.
Speaker Change: But we're also selling some in the secondary market and there we have seen a tailwind and that has been beneficial to us and we do expect to see some of that benefit also in Q4.
but
Speaker Change: We see it more consistent, like a normalized year, where we don't have the same benefit that we had last year, that was very strong, and the reason for that being, then, shipping costs being higher, the Dole Ocean cargo business, when we sell space on our ships, being a little bit lower.
Speaker Change: And we have also seen some cost of fruit being a little bit higher as volume has been low on pines.
Speaker Change: That's really, really helpful. And then maybe just one final one, just on the two vessels that were previously chartered.
just coming in in early 2025.
Speaker Change: I mean you outlined the greater flexibility when it comes to dry docking cycles and that makes perfect sense but you also touch on further growth potential. Do you want to maybe just go through in a bit more detail the potential growth upside there? Thanks.
Speaker Change: Yeah, I mean, we did take the vessels on charter, short-term charter, annual charter, really with a view to giving us the capacity, flexibility, given the dry docking programs. You know, we found that with our increasing volumes that the extra capacity, we believe, will give us the capacity to grow. And there may be a couple of other...
Speaker Change: Areas where we can develop the violence, just avocados, a little bit more out of Columbia. We haven't put a specific number on that yet, Gary, but we do think first.
Speaker Change: Having the capacity to make sure that we fully comply with the very important service level requirements of our major North American retailers is very important. We've seen a huge amount of volatility on freight rates over the course of the last six months, particularly with the Red Sea issues and the closure of the Suez Canal. Having certainty about capacity of the right size ships, the right capacity, certainty on our trade lanes into the different markets, we think is a strong advantage and will give us a strong position to grow over the course of the next number of years.
Speaker Change: That's a really good caller. I'll pass it on. Thanks so much.
Thanks, Gary.
Speaker Change: And we currently have no further questions in our queue. I will now turn the conference back over to Rory Byrne for closing comments.
Rory Byrne: Thank you. Well, we're very pleased with the way 2024 has evolved. I think it's another good quarter tied now to a very strong sequence of solid results over a sustained period of time.
Rory Byrne: We've got a good focus on all areas about business, operationally, financially and strategically, so we believe we're very well positioned for continued growth. So thank you once again to all our committed people, our investors, our customers, suppliers and thank you for joining us today.
Speaker Change: This concludes today's conference call. Thank you for your participation and you may now disconnect.
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