Dole plc

Welcome to the Dole PLC fourth quarter and full year 2022 earnings conference call and webcast. Today's conference is being broadcast live over the internet 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 Investor Relations with Dole PLC, James O'Regan.

Thank you. Welcome, everybody, and thank you for taking the time to join our fourth quarter and full year 2022 Earnings Conference call. Joining me on the call today is our Chief Executive Officer, Rory Byrne, our Chief Operating Officer, Joanne Linden, and our Chief Financial Officer, Jacinta Devine. During this call, we'll be referring to presentation slides and supplemental remarks, and these, along with our earnings release and other related materials, are available on the Investor Relations section of the Dole PLC website. Please note our remarks today will include certain forward-looking statements within the provisions of the Federal Security's 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. 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 SEC filings and press releases. 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.

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 Company and the subsequent IPO of Dole PLC in July 2021. The continued integration of the two legacy businesses 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 Dole brand. We launched Dole Exotics and the Be Exotic brand in Europe. The 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 as dole plc and set ambitious goals for the year for the near medium and long term these sustainability efforts were recognized by a number of industry bodies during 2022 the american costa rican chamber of commerce recognizes with the social responsibility and action award dole ireland was awarded the origin green gold accolade which is awarded to companies with exceptional annual performance on the sustainability target 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 for this division, which we undertook during 2022. We believe a combination with Fresh Express will improve the offering and service to customers and consumers through increased investment to innovation, efficiencies and food safety. I want to express my gratitude again to the dedicated employees and partners of the Dole Press Ledge for Business for their valuable contributions over the years and the support, in particular the management team, as we worked our way to reaching this agreement. Returning this division to profitability was a key focus for management last year and per se 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. So turning to slide seven on the fourth quarter financial highlights, we've delivered a very strong result for the fourth quarter, driven by particularly good performance in our fresh food segment. 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%. Adjusted EBITDA increased by 21.7% to $74.4 million, driven by the strong performance in our fresh food solvent. This increase in adjusted EBITDA drove the increase in adjusted net income and adjusted diluted earnings per share. On slide eight, then, we recap the overall four-year performance. 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. On a like-for-like basis, revenue increased by 5%. Price increases in response to inflation were the primary reason for this growth. Adjusted EBITDA of $338 million was in line with our guidance. 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 farm currency movements. Our fresh food segment performed very strongly, taking advantage of its strong strategic asset base. Our diversified fresh produce segments also performed well in 2022, remaining agile in the face of challenges from supply chain disruptions, inflationary pressures, and economic uncertainty. So moving on to slide 10 for our operational highlights. Our fresh fruit division had a very positive end to the year and an excellent overall performance in 2022. North American and commercial cargo operations continue to perform very well with a healthy supply and demand balance in bananas and good shipping rates driving our performance. high shipping rates and adverse currency movements continue to impact our profitability, but were partially offset by an improved supply and demand balance in bananas, which allowed for better market pricing in Q4. Importantly, this dynamic has also extended to better contract pricing in Europe for 2023, as recent customer renewals have allowed for important cost variables to be reset to more sustainable levels for the industry. Overall, while supply and demand dynamics in the banana market remain an important variable for 2023, with our diverse sourcing base and leading customer portfolio, we believe we're well-placed to have a strong year. Our diversified EMEA segment continued to trade well on a like-for-like basis in Q4, while also benefiting from its extensive product and geographic diversity. 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 pricing model, we expect to have another consistent year. Our diversified America segments continue to be impacted by specific supply chain challenges in Q4, with disruptions impacting a number of products, particularly in apples and kiwis. More positively, our important Chilean cherry business has a strong start to its season, and our U.S. operations continue to perform well, 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 Diversifieds America segment still allow us to maintain a solid level of performance overall. A fourth quarter performance in fresh vegetables remained somewhat disappointing as the industry went through an exceptional period of supply shortages that led to significant increases in sourcing costs in Q4. Performance improved at the end of the quarter as supply began to improve and also as our turnaround plan began to deliver benefits. We remain focused on driving continued improvement in this business while it remains part of the group. Turning to slide 12 to look at our sustainability pilots in 2022. We published our first sustainability report as dual PLC, which set out our ambitious goals for the coming years. Summary of these goals is set out on page 13 of our presentation. We achieved a 4% reduction in our scope one and two emissions, a B rating for CDP carbon disclosures, and committed to the science-based target initiative. We continue to make investments in renewable energy sources as we transition from fossil fuels. Examples of this include the further development of solar panels to power facilities in Ireland, the addition of two wind turbines of manufacturing facilities in Salinas, and the addition of five new electric tractor rigs at the San Diego port terminal. Our business model remains driven by adding value to society by delivering on social investment, evidenced by our long track record in Latin America through the Dalai Foundation, promoting healthy nutrition to consumers, and finally, being a good steward of our natural resources like water, biodiversity, and so on. Detailed goals for emissions will be itemized during 2023 and submitted to SBTI to continue to focus on climate risk management Our second annual sustainability report will follow in the fourth quarter of 23. So with that, I'll hand you over to Jacinta to give the financial review.

Thank you, Rory. Good morning and good afternoon. 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 two reporters rather than pro forma financials. As Rory mentioned, we delivered a strong performance in the 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. On a like-for-like basis, revenue increased over 10%. 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. On a like-for-like basis, adjusted EBITDA increased 29%. 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. On a full-year basis, Revenue remained in line with the prior year, whereas adjusted EBITDA decreased 14%. The decrease was predominantly due to the significant challenges in our fresh vegetable segment, which resulted in a 33 million adjusted EBITDA loss. Farm exchange translation also had a negative impact of 15 million. These impacts were partially offset by a strong year in fresh fruits. Adjusted net income and adjusted diluted EPS both decreased versus the pro forma comparison for 2021, driven by the decrease in adjusted EBITDA and higher interest expense. I will now provide some more detail on the fourth quarter performance for each of the operating segments, turning to slide 17 for fresh fruit. Fresh fruit had a strong fourth quarter and end to the year with revenue increasing 8.7% and adjusted EBITDA increasing 163%. Similar to third quarter, the increases were driven by higher pricing for bananas worldwide, continued strong performance from commercial cargo and higher pineapple volumes. Operating costs remained elevated, particularly shipping and packaging costs and costs of sourced fruits. However, higher prices have offset these cost increases. Moving on to slide 18 for diversified fresh produce EMEA. 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 decrease reduces to 4.8% on a like-for-like basis. This decrease was mainly due to higher logistics and sourcing costs faced by our Scandinavian businesses and an unfavorable grape yield in South Africa, offset by strong performance in our Spanish, Dutch, and Czech businesses. Turning to diversified fresh produce, Americas and rest of the world on slide 19. 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. Disappointingly, adjusted EBITDA decreased 24% in 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 onions. 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. We continue to incur losses in fourth quarter in fresh vegetables, particularly due to sourcing challenges and increased costs for vegetables and continued inflationary impact on other inputs and manufacturing costs. 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 appreciation for 2022. 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 similar to 2022. 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. Finally, we have declared a dividend of 8 cents for the four 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. 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. More positively, we moved quickly to contain the threat and engage leading third party cybersecurity experts who have been working in partnership with our internal teams to remediate the issue and secure assistance. Switching to looking at the supply chains, so far in 2023, we are seeing signs of improved logistical efficiencies in several areas. However, we've also seen further weather events, such as colder weather, particularly in southern Spain, which has created challenges for importers in northern Europe at the start of the year. And lastly, looking at the macroeconomic environment, we've seen positives for our business with the strength in Europe, lower and more stable fuel prices, as well as some signs of inflation moderation in certain areas. However, as the environment remains uncertain, we need to remain fully and highly focused on managing our costs and delivering operating efficiencies. 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 forecasts assume no contribution from the fresh vegetables division. conclusion we're very pleased to finish 22 with a strong fourth quarter and have agreed to deal to some of that fresh vegetables division uh principal priorities looking at the 23 are obviously completing the sale of the fresh vegetable business continuing to focus on cost control and operating efficiencies across our businesses including the on ongoing synergy projects continuing with a disciplined approach to capital and accelerating growth in our core business areas post-completion of the fresh vegetables 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 Benvenue with Stevens. Your line is open.

Hey, good morning. I want to ask, when we look at your $350 million Viva Dot 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 level. So maybe talk to us about what the push and pulls are in that $350 million guidance commentary.

Sure. Thanks for the question, Ben. Yeah, I think the overall question is that the environment is still quite volatile out there and 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 war still going on in Europe and through 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. I think we're doing very well to manage all of those variables. And then, you know, we look at what's happened just, you know, unexpectedly getting something like the cyber attack, which, you know, while in the overall scheme things is not a material effect, you know, there's a lot of work to try and re-establish the systems and continue to operate as we could do. And on the other hand, FX may well be favourable. Other ups and downs across the business are nothing major. Overall, we've had a solid start to the year. 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 seven, but the annual staff gets you back to about 363. And then what we've done for the purposes of looking at the forecast for 2023, we've reallocated the head office costs that was previously absorbed by the fresh vegetable division. And you take that off and that gets you back to somewhere around the 350 million. so um you know obviously the head office cost we've got a separate project underway that um once we finally divest off the fresh vegetable division we will realign our cost base to reflect the the new business and that should be a benefit that will come through in 2024. so i mean you can stand back from this it's just forecasting is difficult it is the target we've set i think you do stand back with them and you say look an increase in ebitda plus somewhere north of $250 million cash. I think, you know, our enterprise value arguably goes up to $350 to $400 million by just doing those two things. So that's really the summary of where I'm at, Dan.

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 Though 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 have published some deaths, you know, 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, but, you know, good private companies in our sector are still being valued considerably ahead of what The largest player in the sector has been valued by the stock market. So that's a little disappointing. And it discourages us from making serious M&A activities. So we keep it under review. We keep our balance sheet under review. And we push everything into the equation. And we'll manage it as the company evolves over the next year or so.

OK. Thank you so much. Thanks, Ben.

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

Yes, thank you. Good morning, everyone. Good morning, Adam. Good morning. So I guess first question, maybe kind of 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, where you see kind of the most kind of improvement on demand or focus on supply productivity? And then kind of a 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 by quarter. There may be some variations, some switches, but we don't think it's going to be as materially different as 22 was versus 21. So with some ups and downs, but as you know, Adam, we look at this business on a full year basis rather than quarter to quarter, but we don't expect such radical moves. as, for example, we had between Q1 2022 and Q1 2021. So we're a little bit more aligned to the 2022. 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're in a good place right now. We started the 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 for the overall market, but we still feel that we are in a good position when we look out for the full year. We feel that we have a good and well-balanced when it comes to supply and demand. Maybe to put a little bit of color on also one piece of our fresh fruit business is that we had, of course, an exceptional year also last year when it comes to commercial cargo. 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, Jacinto?

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.

All right, that's super helpful. I'll pass it on. Thank you.

Obviously, Adam, that excludes any benefit that we might get depending upon the edge to hopefully complete.

Got it. Thank you.

Our next question comes from Chris Barnes with Deutsche 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 suppose, you know, there's a couple of things worth pointing out on the bench, too. 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. We think this secures the future in a very good way. most importantly we also think that this is a good deal and the right move from a customer and consumer perspective we think the combination would be good to create the ability for greater investment in innovation and efficiencies and particularly around food safety so as you know 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 from ourselves. And the program that we set out within the SBA in terms of how it would be approached and how the application process for competition clearance would be undertaken has been followed rigidly. we'd work our way through it. And, you know, at this point in time, we're not in a position to give any further updates. And, you know, as the process evolves, we get an appropriate update.

Got it. Understood. Um, 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? Um, like obviously at the cybersecurity incident earlier this quarter, um but like have have you seen any impact from like the extreme weather we've seen in california like in january creating new disruption um just any any sort of uh uh just update on how that business is performing and what you what you expect while you still do own it you want to take that to your home 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. And 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 general 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 a simple answer on that is no, we don't expect it to recover on either of those categories. Insurance is prohibitive. You can't actually get sufficient insurance in North America for cybersecurity at the moment. And no, we don't expect it to recover in any other particular way.

Got it. 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 Davey. Your line is open.

Morning all. Just a quick question from me just on the recent update just on the poor weather in Southern Europe and Northern Africa. Is 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?

Yeah, I've been dealing, first of all, with the current shortages in Northern Europe that hasn't had a material impact on our business, some impact on our wholesale business in the UK and some impact on our Irish business. And we do expect that to normalise over the coming weeks, in fact. So I think there's just been something of a perfect storm there between supply chain issues, weather issues, Brexit issues, and perhaps even diversification issues around Brexit from UK supermarkets and reluctance to accept 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. um clearly uh you know in terms of uh the apple business um our kiwi business you know we're obviously hoping for for improvements going into the it'll be a late this year issue um and the great season has been better than last year but but still not perfect but again overall we've taken that into our into our guidance for the year And in terms of inflation, obviously, I suppose our biggest single product line still offers huge and great value for customers in terms of the banana pricing. It's relative to other products still is a really great value item. And we haven't seen any elasticity to pricing on bananas. And I mean, some of the other products we're seeing marginal resistance on the very high price per kilo or price per pound products but hasn't been material um you know i think what's happening is you're seeing consumer spending where it becomes discretionary and you know how the asian is last on the list to be cut so so far hasn't been a material factor for us thanks so much good color pass it on thank you

There are no further questions at this time and I'll turn the call back over to Rory for closing remarks.

OK, thank you very much. So thank you all for joining us today. So obviously we're very pleased to follow a very strong Q3 with a very strong Q4. Overall, despite some significant challenges in 2022, we're pretty pleased with the four-year performance. We think it's a very good outcome on the verge of business, so we need to make sure that we complete that over the course of 2023, and I think that will leave us very well positioned for future years. So thank you all for joining us today. Thank you very much.

This concludes today's conference call. You may now disconnect.