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spk01: Good day everyone and welcome to Fresh Del Monte Produce's first quarter 2024 earnings conference call. Today's conference call is being broadcast live over the internet and is also being recorded for playback purposes. All lines have been placed on mute to prevent any background noise. After the speaker's remarks there will be a question and answer session. If you would like to ask a question during this time simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question press star one again. 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 Poe. Please go ahead, Ms. Poe.
spk02: Thank you, Audra. Good afternoon, everyone, and thank you for joining our first quarter 2024 conference call. I am Claudia Poe, Vice President, Corporate Communications with Fresh Del Monte Produce. Joining me in today's discussion are Muhammad Bugazali, Chairman and Chief Executive Officer, and Monica Vicentes, Senior Vice President and Chief Financial Officer. I hope that you've had a chance to review the press release that was issued earlier via Business Wire. You may also visit the company's IR website at investorrelations.freshdelmonte.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 we'll be speaking to today, including the answers we give in response to your questions, may include forward-looking statements within the safe harbor provisions of the federal securities laws. In today's press release and in our SEC filings, we detail risks that may cause our future results to differ materially from these forward-looking statements. Our statements are as of today, May 2nd, and we have no obligation to update any forward-looking statement we may make. During the call, we will provide a business update along with an overview of our first quarter 2024 financial results, followed by a question and answer session. With that, I'm pleased to turn today's call over to Mr. Ruggazale.
spk04: Thank you, Claudia, and thank you for joining us for first quarter 2024 ending results. We continue to see strong momentum in our higher-margin fresh and value-added product segments, which is a key driver of our long-term growth strategy. Revenue in this segment grew by 5% year-over-year, fueled by strong sales of our pineapples and avocados, as well as our prepared foods. Segment adjusted gross margins also expanded by 50 basis points as we realize production efficiencies and cost savings from our tightly integrated supply chain. Our strong cash flow allowed us to simultaneously reinvest in the business, increase our dividend while paying down our debt. During the quarter, we reduced total debt by 15% when compared to the prior year period, further demonstrating our commitment to maximizing shareholder value through the split capital allocation. We believe we will unlock further shareholder value by focusing on our strengths in pineapple, fresh cut, and value-added projects, which is exactly what we did in this first quarter. Taking a closer look at some of the drivers behind our fresh and value-added segment growth, we saw particularly strong demand for our pineapples. As a leading grower and distributor of this fruit, we continue to look for new and different ways to lead in the pineapple category. In the first quarter of 2024, we launched two pineapple innovations. The ruby glow pineapple, our red shell pineapple, which is being produced in a limited volume at a very high price point. Due to high demand and interest in North America, ruby glow pineapples are now available to consumers in the United States. Our other newly released pineapple innovation this quarter is the precious honey glow pineapple, a personal size fresh pineapple out of our popular line of honey glow pineapples. Our previously launched pin glow and honey glow pineapple innovations continue to perform very well. In quarter one, net sales for the pin glow pineapples were up 62% compared with the same period last year. while net sales for the honey glow pineapples was approximately 13% higher compared with the same period last year. Pineapples represent just one growth driver within our fresh and value-added product segments. We also see tremendous opportunity in fresh cut category. We're pleased to share this We are pleased to share that this quarter we further expanded our fresh-cut product distribution in North America, cementing our position as the market leader in fresh-cut products for the convenience store channel. Also on the horizon within our fresh-cut program are new premium fruit trays featuring specialty fruits not seen before in our program. This year, we will continue to take advantage of our robust U.S. footprints of company-owned Fresh Cup facilities to further grow in market share and release new value-added products to our consumers, driving shareholders' value. Our Fresh Cup growth strategy extends into our other regions outside of North America. In our European region, we recently completed the expansion of our primary fresh cut production facility in the UK, which will allow us for a significant increase in capacity. And in Asia, we saw a 36% increase in sales in quarter one from our fresh cut operations in Korea compared with the same quarter last year. Shifting to our avocado category, the category performed well this quarter with revenue up 23% year over year. One of our newest innovations is our fresh guacamole product. Our fresh guacamole made without preservatives and with Del Monte avocado is a new product for us and is growing rapidly. In quarter one, guacamole distribution expanded to two major retailers in the southeast and northeast regions of the U.S. We plan to continue this expansion throughout the course of the year. Looking toward the remainder of 2024, we plan to continue our investments in value-added products and in expanding our pineapple and fresh-cut operations, as well as maximizing our fruit residuals utilization. As one of the world's largest producers of fruits, we see tremendous untapped potential in this space and have identified several profitable use cases of our residues, including biofertilizers. These ventures leverage our strengths as a business and allow us to be at the forefront of the fresh produce industry. With that, I would like to turn the call over to Monica.
spk00: Please. Thank you, Mohamed, and good afternoon, everyone, and thank you for joining us on the call today. Net sales for the first quarter of 2024 were $1,108,000,000, compared with $1,129,000,000 in the prior year. The decrease in net sales in the first quarter was due to lower net sales of bananas driven by lower volume and pricing and lower rates in the third-party ocean freight business in our other products and service segments. The decrease was partially offset by higher net sales in our fresh and value-added product segments due to overall higher sales volume and pricing. Gross profit for the first quarter of 2024 was 82 million compared with 97 million in the prior year. The decrease was driven by lower overall net sale, higher per unit production and procurement costs, including the impact of fluctuations in exchange rates, partially offset by lower distribution and ocean freight costs. Gross profit in the first quarter of 2024 includes $1 million net credit related to insurance recoveries associated with damages tied to the flooding of a seasonal production facility in Greece during the third quarter of 2023, partially offset by the severance charges from the outsourcing of certain functions at a fresh and value-added production operation. Gross margin for the first quarter of 2024 was 7.4%, compared to 8.6% in the prior year. Excluding the impact from the other product-related charges, adjusted gross profit for the first quarter of 24 was $81 million compared with $99 million in the prior year. Operating income was $44 million compared with $75 million last year. And adjusted operating income was $31 million compared with $51 million in the prior year. The adjusted operating income decrease was due to lower gross profit and higher SG&A expenses. FDP net income for the first quarter of 24 was $26 million compared with $39 million in the prior year. And adjusted FDP net income was $16 million compared with $27 million last year. Our diluted earnings per share in the first quarter was $0.55 per share compared with 81 cents per share in the prior year. Adjusted diluted earnings per share was 34 cents compared with 55 cents per share in the prior year. Adjusted EBITDA for the first quarter of 2024 was 44 million compared with 65 million in the prior year, primarily driven by lower gross profit and higher SG&A. I will now go into more detail on the first quarter performance for each of the segments, beginning with our fresh and value-added product segments. Net sales for the first quarter of 2024 were up 5% to $677 million, compared with $643 million in the prior year, due to higher sales volume of pineapples, melons, and prepared food products. and also higher per unit selling prices of avocados. Gross profit for the first quarter of 2024 was 56 million compared with 47 million in the prior year. The increase was driven by the overall higher net sales, partially offset by higher production and procurement costs of pineapples and avocados, which were impacted by a stronger Costa Rica colon and Mexican peso. Gross profit includes the previously mentioned other product-related charges and credits. Gross margin increased to 8.3% compared with 7.3% in the prior year. As Mohamed mentioned, this segment has been an area of intense focus for our team over the past few years. We have undertaken a number of strategic initiatives in this segment aimed at enhancing our product mix improving operational efficiencies, and strengthening our distribution channels. We've continued to grow our pineapple program with the release of two new offerings this past quarter, as well as the continued growth of our popular specialty pineapples, Honey Glow and Pink Glow, which combined now represent approximately 20% of our pineapple volume. Our avocado program also delivered strong results, with revenue increasing by 23% driven by higher sale prices. For the remainder of 2024, we continue to expect strong results in this segment, driven by favorable pineapple product mix, strong fresh cut fruit sales, and non-tropical improvements due to the current market trends. Moving to our banana segment. Net sales for the first quarter were 380 million compared with 425 million in the prior year. The decrease was driven by 5% lower volume partially due to service level issues in the first two months and lower selling prices due to the competitive market pressures in North America and Europe. Banana gross profit in the first quarter of 2024 was 22 million compared with 43 million in the prior year. The decrease in gross profit was due to lower net sales, higher per unit production and procurement costs, including the negative impact of a stronger Costa Rica colon, partially offset by lower distribution and ocean freight costs. Gross margin was 5.7% compared with 10.2% in the prior year. During last earnings call, we mentioned that we expected banana volume to be similar to 2023. However, given the competitive market pressures, we now anticipate for the full year to have approximately 3 to 4% lower volumes versus last year, along with softer selling prices. Lastly, net sales in our other products and services segment for the first quarter were 52 million compared with 60 million in the prior year due to lower net sales of third-party ocean freight services, as a result of lower rates driven by the competitive market environment, combined with the impact of the sale of our plastic subsidiary in South America in 2023. Gross profit was $5 million compared with $7 million in the prior year as a result of lower net sales. Gross margin was 8.9% compared with 11.2% last year. Our expectations for the remainder of 2024 for this segment are in line with the first quarter results. Now moving to selected financial data. Net interest expense was $5 million compared to $8 million in the first quarter of 23 due to lower average debt balances. Income tax provision was $5 million compared to $10 million in the prior year. The decrease was due to lower earnings. Turning to our financial position, Net cash provided by operating activities for the first three months of 2024 was 19 million compared with 16 million in the prior year. The increase was due to our efforts to optimize our networking capital, partially offset by lower net income. Long-term debt decreased by 15% to 400 million at the end of the first quarter of 2024, compared with $473 million at the end of the same quarter last year. By lowering our debt, our adjusted leverage ratio is now 1.77 times adjusted EBITDA. As it relates to capital spending, we invested $13 million in the first three months of 2024 compared with $10 million in the prior year. For the full year, we expect capital expenditures to be in the lower end of the range of 65 to 75 million. As announced in our press release, we declared a quarterly cash dividend of 25 cents per share, payable on June 7, 2024, to shareholders of record on May 16, 2024. And lastly, as it relates to man packing and the announcement we made last quarter, We remain actively engaged in exploring strategic alternatives for this operation to determine the best path forward. We intend to make a decision by the third quarter of 2024. However, there can be no assurances that this process will result in any specific strategic outcome. This concludes our financial review. We can now turn the call over to Q&A. Audra?
spk01: thank you we will now begin the question and answer session if you have dialed in and would like to ask a question please press star 1 on your telephone keypad to raise your hand and join the queue we'll take our first question from mitch pinero at sturdivant and company hi good afternoon hi mitch hi man uh and so let me start with um so the freshman value added um um had had a um
spk03: Sort of a normal, quite a nice quarter, you know, and margins look like they're advancing. Two questions. One, on the pineapple business, are the new pineapple varieties, are they just replacing shelf space of old pineapple products or, you know, regular pineapples? Or are you getting, are grocery stores starting to increase, you know, the shelf set for pineapple?
spk04: No, actually, Matt, you are right. It's not replacing any of the old traditional volume that we have. Actually, it's incremental with a much higher kind of value to these new additions. we are seeing incremental sales and incremental demand. And as a matter of fact, you know, in most cases we are not even able to meet with the demand for these special varieties.
spk03: And so like where, when, in your own fields, are these all additional acres of pineapple land or Are you using existing land, and how does that work from the back end?
spk04: No, it's additional land that we already have. We have enough land to expand our production, Mitch. So any new varieties with the, let's say the honey glow, which is the high-colored pineapple, it is within our existing, let's say, farms. It's a different kind of management, agricultural management, which gives us this advantage of producing this type of pineapple, which commands a premium to the, let's say, the Montego. But if we are talking about pink pineapple or ruby glow pineapple, these are all additional new farmland that, within our own properties. We have enough land to grow additional new varieties.
spk03: Okay. And in an order of magnitude, how much more profitable are these newer pineapple varieties compared to your regular gold pineapple?
spk04: by far it's a huge huge uh uh i would say i cannot tell you exactly but you know it's public uh it's not for public info but it is it is very significant uh difference in in value okay um and was that the primary is the is the mix of um you know your higher margin higher value pineapple um is that
spk03: more of an impact on the segment's gross margin than fresh cut, or are they contributing equally? How's that work out?
spk04: I think they are both contributing equally. They are going into tandem in terms of marginality. Both of them are commanding high margins. This is only beginning. We are at the very beginning of our journey towards you know, transforming. And I've been saying this for several quarters. If you remember Mitch, we said that we are transforming the company to be a much and to go into much higher value, uh, and products and different, uh, Avenue, which I believe as we go quarter after quarter, you will start realizing where the company is going. Uh, You know, as I mentioned, you know, in my now script that we have, you know, out of our residues that we are going to have by fertilizers, this is something that we are working very seriously on. And very soon, you know, we're going to be announcing something about this new segment, you know. So there is a lot of new, I would say, I mean, it was that we would be going into that. It will change the company going forward.
spk03: Okay. Thank you for that. And then a question on bananas. I guess, Monica, if I heard you correctly, you said that for the year you expect lower volumes in the 3% to 4% range for bananas. Is that? Yes. Along with lower selling prices?
spk00: Yes. Yes, we expect you know the market is very competitive right now and we do expect to have the lower volume and low and softer selling prices.
spk03: And this is the competitiveness. In both Europe. And North America, North America.
spk04: Yes, it is one more. Yeah, I would like to add to this match that the market consumption is being. Going down, actually, as we have seen statistically, you know, there is about 5% less consumption in the market in North America compared to the year before. So we are seeing a tendency for lower, let's say, volume and sales in North America and actually as well in Europe. We don't know why, but this is the trend that we are seeing right now.
spk03: Sounds like to me they're eating more pineapple. Yeah. Honey glow. Honey glow. So, okay. And then as far as, so as we look, you know, into the, you don't have a lot of visibility, but if you look into the next quarter, is the second quarter more the same for bananas? Yes.
spk04: I would say more or less the same trend, it will go on. I mean, unless there is more efficiencies, better service levels, and less headwinds that we have faced in the first quarter. Especially in bananas, you're always susceptible to some factors or variables that we cannot control. uh which which happened in the first quarter this year disruption in the shipping uh some quality issues some service uh issues so as we speak you know as we're going forward uh we hope that this will stabilize we believe it's going to be stabilized we don't want to be too optimistic but let's take the scenario as today's scenario as being the uh one for the second quarter
spk00: And Mitch, in Q1, we had a 5% decrease in volume. And for the full year, like I said, we expect 3% to 4%. So we do expect to recover a little bit, not as down as the Q1.
spk04: One of our biggest headwinds really in the quarter was the exchange rate in Costa Rica has been really decimating the industry. I mean, we're talking about year to year of about, 20 uh colonists difference i mean 20 points difference between uh one year to the next i mean we were exchanging uh let's say a dollar for 520 colonies and this year it's almost around 500 so for the last few months uh since the late last year so it's been really very big headwinds for us what's the driver of the i don't pay attention to the um
spk03: the Costa Rican monetary situation? What's driving the flux, you know, the decline?
spk04: Too many dollars, I guess, in the market, which put pressure on the, I mean, the local currency became very, very strong.
spk03: Right, right. Okay. So, and there's little you can do about it, right? There's no Yeah, it's difficult to hedge.
spk00: Difficult to hedge the go long that there's not enough liquidity.
spk03: You're right. Right. Okay. That's all I have. Thanks for the questions. Thank you, Mitch. Thank you, Mitch.
spk01: And that concludes our Q&A session. I will now turn the conference back over to Mohamed for closing remarks.
spk04: Thank you very much, everyone, for attending this call and hope to speak to you in the next quarter. with even brighter news.
spk01: Thank you. This concludes today's conference call. Again, thank you for your participation. You may now disconnect.
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