Fresh Del Monte Produce, Inc.

Good day, everyone, and welcome to Fresh Del Monte Produce's second quarter 2025 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 star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press the star one. For opening remarks and introductions, I would like to turn today's call over to the Vice President, Investor Relations with Fresh Del Monte Produce, Ms. Christine Cannella. Please go ahead, Ms. Cannella.

Thank you, Desiree. Good day, everyone, and thank you for joining our second quarter 2025 conference call. Joining me in today's discussion are Mr. Mohamed Abou Ghazali, Chairman and Chief Executive Officer and Ms. Monica Vicente, Senior Vice President and Chief Financial Officer. I hope that you 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 distribution. 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 will 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, July 30th, 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 second quarter 2025 financial results, followed by a question and answer session. With that, I will turn today's call over to Mr. Mohamed Abou Ghazali. Please go ahead.

Thank you, Christine, and thank you for joining us for our second quarter 2025 earning call. The second quarter of 2025 delivered another period of strong performance for Fresh Del Monte, continuing the momentum we have built through consistent execution and strategic discipline. This quarter, historically our strongest of the year, saw growth across key financial metrics. Net sales increased by 4%, gross profit rose 6% compared with the prior year period, and gross margin expanded to 10.2% from 9.9% compared with the same period last year. This quarter's positive results reflect the power of consistency and continuous improvement across our fresh-cut business and ongoing demand for our pineapple portfolio. Much of this growth reflects a long-term shift in the pineapple category. one we helped lead. In the 1970s, Americans consumed less than a pound of pineapple per day, per person. Today, that number is nearly eight times higher, according to the USDA. This transformation began with our 1996 launch of Del Monte Gold, the first widely available sweet pineapple, and continues through the strength of our proprietary offerings and value-added formats. We know that consumers are engaging more with pineapples. According to Cantor World Panel, a leading provider of real household purchase insights, consumer spend on tropical fruit has risen 58% since 2017. Outpacing overall produce growth and signaling the rising relevance of the category itself. As a pioneer in this space, we are well positioned to lead. Demand for our pineapple portfolio remains strong and continues to outpace supply driven by trusted brands like honey glow and pink glow. Which is the result of decades of agronomic leadership and targeted investments. We're managing global supply carefully, strengthening continuity, and taking steps to ensure consistent availability for our customers. We also launched Pinglo in the United Arab Emirates during the quarter, marking our first sustained market entry for a variety in the Middle East. While still early in scale, it reflects a strategic step in expanding our high-value portfolio into new international markets where brand distinction and long-term potential align. We also know that when it comes to pineapples, convenience matters. Demand accelerates when the product is fresh-cut, prepared, and ready to enjoy. As more consumers around the world prioritize health, flavor, and ease, our ability to meet that demand with the right product mix and the operation agility to deliver it is driving meaningful growth across our fresh-cut business. We are also continuing to advance our efforts in high-margin, value-added business ventures. particularly those focused on residues and specialty ingredients. These projects are still in their early stages, but we believe they represent real long-term opportunities. Like many in the industry, we are managing disruptions at the port of Caldera in Costa Rica. Unusually strong ocean swells, The worst that we have seen in decades have severely limited vessel access. With minimal structural protection, the port has become a choke point, leading to wait times of three to five days and increased congestion. The result is higher costs and broader logistical impact across the industry. While the situation remains difficult, our teams are responding with urgency adjusting schedules, reallocating shipments and doing everything possible to maintain continuity for our customers. Before I go, I believe it's important to discuss an industry-wide situation regarding bananas, one that I have been predicting a warning about for years. There is a global shortage in banana production. The causes are clear. Shifting climate patterns, particularly warmer temperatures combined with humidity, are accelerating the spread of disease in key growing regions. Primarily, Black Cicatoga, on top of that, the continuous spread of Acerium well, known as Tropical Race 4, is adding further pressure. These diseases are having a direct impact on supply. Black Cicatoga is affecting crops across Central America, while other countries are facing the compounded impact of both diseases. As we have shared previously, our R&D teams have been working to address the global threat posed by Fusarium wilt, and we are pleased to report that field testing of TR4-resistant gene-edited banana lines is expected to begin in the coming months. a meaningful step toward long-term category resilience. Meanwhile, global demand for bananas remains strong as they continue to be one of the most affordable and accessible fruits in the grocery aisle. We're already seeing a clear imbalance between supply and demand, and we anticipate this will remain a key industry dynamic in the quarters ahead. With that, I will hand it over to Monica to discuss our second quarter 2025 results in detail. Monica?

Thank you, Mr. Abogazile, and good morning, everyone, and thank you for joining us on today's call. I'll begin with our second quarter financial results, followed by our outlook for the rest of the year. As Christine mentioned, 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. The second quarter is historically our strongest period. Having said that, this quarter reflects our continued efforts to expand our margins by focusing on improving our product mix. Now let's go through the financial results. Net sales were $1,183,000,000 compared with 1 billion, 140 million in the prior year, an increase of 4%. The increase was driven by higher net sales in our fresh and value-added products and banana segments due to higher per unit selling prices and favorable impact of fluctuations in exchange rates, primarily related to Euro, Japanese Yen, British Pound. The increase also reflects tariff-related price adjustments in North America. Gross profit for the second quarter was $120 million compared with $113 million in the prior year. The increase was driven by higher net sales in our fresh and value-added product segment, partially offset by higher per-unit production and procurement costs, as well as increased distribution costs, including tariffs charges in North America. Gross margin was 10.2% compared with 9.9% in the prior year. This also includes a sequential increase from 8.4% in the first quarter. Operating income for the second quarter was 68 million, roughly in line with the prior year. The slight increase was primarily driven by higher gross profit, partially offset by lower gain on disposal of property planning equipment in the current year. Adjusted operating income was 69 million compared with 65 million last year. Other income for the second quarter was a gain of $6 million compared with a gain of $2 million in the prior year. The change was due to equity earnings from unconsolidated companies within the food and nutrition sector. Net income attributable to Fresh Del Monte for the second quarter was $57 million compared with $54 million in the prior year. And adjusted FTP net income was $59 million compared with $51 million last year. Our diluted earnings per share for the second quarter was $1.18 compared with $1.12 in the prior year. And adjusted diluted earnings per share was $1.23 compared with $1.06 in the prior year. Adjusted EBITDA for the second quarter was $95 million up from $89 million in the prior year. Both quarters reflected an 8% margin as the percentage of net sales. Let's now take a closer look at the financial performance for the second quarter across our business segments, beginning with our fresh and value-added product segment. Net sales for the second quarter were $723 million compared with $694 million last year, an increase of 4%. The increase was primarily driven by higher per-unit selling prices in our pineapple product line, as well as higher sales volume and per unit selling prices in our fresh-cut fruit product line, both supported by continued strong market demand. Additional contributions came from the favorable impact of fluctuations in exchange rates, as well as tariff-related price adjustments in North America. The gains were partially offset by lower net sales in our fresh-cut vegetable and vegetable product lines, reflecting strategic operational reductions implemented in the fourth quarter of 2024, which included the sale of certain assets of Freshly Farmed. Gross profit was $85 million compared with $78 million in the prior year. The increase was driven by higher net sales, partially offset by higher per unit production and procurement costs, as well as increased distribution costs, including the impact the impact of tariffs in North America. Gross margin was 11.7% in the second quarter compared with 11.2% in the prior year. This also includes a sequential improvement from 10.1% in the first quarter of this year. We are continuing to build on this momentum as we work toward our goal of sustaining double-digit gross margins in the loan teams for this segment. supported by ongoing improvements in product mix, including growth in our premium pineapple varieties, such as Honey Glow and Jet Fresh. Moving on to banana segments. Net sales for the second quarter were $410 million compared with $394 million in the prior year, an increase of 4%. The increase was primarily driven by higher per unit selling prices across each of our regions, combined with favorable impact of fluctuations in exchange rates, along with tariff-related price adjustments in North America. We also saw higher sales volume in the Middle East, as last year was impacted by shipment disruptions related to the Red Sea conflict. The increase was partially offset by lower sales volume in Asia, where an oversupply of local seasonal fruit weakened demand and persistent crop disease reduced available supply. In North America, sales volume was also impacted by crop disease, specifically the continued spread of Black Sigatoka, which has intensified by adverse weather conditions in our growing regions. Gross profit was $30 million in line with the prior year. The benefit of higher net sales was mostly offset by higher per unit production and procurement costs, resulting from the adverse weather conditions already mentioned, along with higher distribution costs including the impact of tariff-related charges in North America and ongoing industry-wide port congestion and logistical disruptions across our Central American ports. Gross margin was 7.3 percent in the second quarter of 2025 compared with 7.6 percent in the prior year. Lastly, our other products and service segments. Net sales for the second quarter were 50 million compared with 51 million in the prior year. The slight decrease was primarily due to lower per unit selling prices in our poultry and meats business. Gross profit was 5 million compared with 6 million in the prior year as a result of the lower net sales. Gross margin was 10.4% in the second quarter compared with 10.7% last year. Now moving to selected financial results. Our income tax provision for the second quarter was $14 million compared with $12 million in the prior year. The increase was primarily due to increased earnings in certain higher tax jurisdictions. Our effective tax rate for the second quarter was 20%. Net cash provided by operating activities for the six months was $159 million compared with $144 million in the prior year. The increase was primarily due to higher net income and working capital fluctuations, mainly driven by higher levels of accounts payable and accrued expenses, partially offset by higher levels of inventory when compared to the prior year. We ended the second quarter with 201 million of long-term debt, an 84 or 29 percent reduction compared with the prior year, and an 18 percent reduction compared with fiscal year end 2024. Our adjusted leverage ratio remains at less than one times EBITDA. Our capex investment for the first six months was $22 million compared with $21 million in the prior year. As announced in our press release, we declared a quarterly cash dividend of $0.30 per share payable on September 5, 2025 to shareholders of record on August 13, 2025. On an annualized basis, this equates to $1.20 per share, representing a dividend yield of 3.3% based on our current share price. With that, let's turn to our full year outlook and strategic priorities. As we look ahead, we continue to expect full year 2025 to be broadly in line with the outlook we shared during our first quarter call. Our outlook reflects our expectation for stable demand across our core products, ongoing operational efficiency, and disciplined execution on our strategic initiatives. As part of that execution, we're currently transitioning from legacy break-bulk stripping vessels to container vessels in the Asia-Pacific region, and we plan to sell two older vessels later this year. This shift enhances operational efficiency and better aligns with our evolving logistic needs. As I mentioned earlier, historically, the second quarter has been one of our strongest, and this year was no exception. We are confident about our full year trajectory, but we remain mindful of evolving external factors beyond our control. We believe our underlying business fundamentals are strong, and we are confident in our ability to deliver on our full year 2025 objectives. We reiterate our expectation for the full year as follows. We expect to see net sales growth 2% year over year. And as far as gross margins by business segment in our fresh and value added product segments, gross margin is expected to be in the range of 10 to 11%. In our banana segment, gross margin is expected to be in the lower end of historical range of five to 7%. For our other products and services segments, Gross margin is expected to be in the range of 12 to 14%. Our selling general and administrative expense is expected to be in the range of 205 to 210 million. As it relates to CapEx, we now expect our full year spend to be in the range of 70 to 80 million, down from 80 to 90 million previously communicated. This revision reflects updated project execution timelines. We remain committed to funding initiatives that drive long-term value. We expect non-cash provided by operating activities to be in the range of $180 to $190 million. In closing, the second quarter delivered solid net sales and net income, consistent with our expectations and reflective of the seasonal strength we typically see this time of year. As we enter the second half, we're mindful of typical third quarter dynamics, including increased availability of seasonal fruit and softer demand during the summer months. We remain focused on executing our strategy, delivering value, and positioning Fresh Del Monte for long-term success. This concludes our financial review. We can now turn the call over to Q&A. Desiree?

We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Again, press star one to join the queue. And we have a question comes from the line of Michelle Pinheiro with Sturdivant and Company. Your line is open.

Good morning. Good morning. So I did, I want to start, I have a bunch of questions. First on the pineapple business. So pineapple supply has struggled a little bit here. guess weather you know weather related but I was wondering Muhammad if you could give us an update on so where you think and how you know we saw a lot of you know new pineapple growth and was wondering how you expect that to play out over the next six months and then what supply looks like for your pineapples you know into 2026 so we're going to see and increase that fast, or are we not there yet in the cycle?

We expect that continuing, you know, to the end of this year and going into next year, there will be, in our opinion, there will be a shortage of supply, more or less like this year or a little bit even more. Uh, then, then, so we expect, uh, very, very from our part on our side. I, I can't speak for the industry, but as fresh Del Monte, we see a very strong. Uh, pineapple, uh, market going forward, you know, especially with our. Uh, premium varieties that is is in the market and, uh. our expertise and our, you know, seeds are definitely better than anything in the market. So I believe that in our case, I don't see any change to what is going on right now, the dynamics in the market through 26. In addition to that, you know, and I would say about a couple of years, two, three years, we will be starting our production in Brazil, which I think we haven't, you know, announced that. But that will be another new area of production sourcing. And that would be mainly for the Brazilian market in particular.

So once you get through 2026, um you know i guess like what type of growth rate would you expect to see in your own business's supply like are we talking um new plannings and things like that with mid single digit i mean are you stronger i would i would say in in costa rica we will have expansion as we see we are expanding in our production

uh areas that has not been planted before already under plantation you know plantation and uh as i said we are expanding also in other parts of the uh the world in uh in africa and brazil as well as in the philippines so we are having I mean, not concentrated in one location, but really, really across the world. But we will be having over the next two to three years. I cannot give you figures exactly, but I'm telling you that we are already expanding our production capacity, and we expect there will be. And I would say it will not be like, you know, 20 million boxes additional, but there will be a meaningful increase in our production in the next two to three years.

And Mitch, on the Costa Rica expansion specifically, a little bit higher than the mid-single digits, and you know this is a long-term crop, so definitely 27, you know, from today compared to 27, a little bit higher than the mid-single digits, just Costa Rica.

Okay, thank you. And then Um, is regarding pink glow, I'm seeing more distribution. Um, what, where, where do you guys stand in terms of like, you know, let's just talk about the us market or North America, your ACV does, um, where, where is it today? How supply constrained is it? And, um, And what do you see the future as far as distribution growth for the pink glow in the next, say, year, two years?

Actually, we were constrained by limited supply, you know, going to the market because up until recently, the authorities in Costa Rica were not allowing us to plant more pink pineapple because of the GMO issue and the contamination, you know. Uh, risk, uh, we have been granted, you know, uh, recently to, uh. Increase our acreage and that's what we are going to be doing very soon. Uh, so supplies, hopefully, you know, it will take about 18 months for supplies to start coming in additional supplies. I mean, uh, so I will see, I would not say in, uh. Could be at the end of 26 early 27 when we see more supplies coming into the market where the market is really the absorption absorption or the reception is there. It is that we don't have enough supplies along with the other countries that we are not supplying yet. I mean outside North America, which is as we said, we just been sending some pink pineapples by. by air, you know, to the Emirates, just to give, I mean, it's being sold online as well, you know, I mean, it's not in the supermarkets, and just to give you an idea of, it's about, I would say, about $30, $33 a piece that is being sold now online in the Emirates, and everything that we send is pre-booked and pre-sold, so We are now trying to get into Saudi Arabia as well and cover other countries in the region. But as I said, also supply has been constrained. But we will evaluate which market pays more. So, you know, we allocate where the money is.

Yeah, it's quite an accomplishment to, like, I mean, this pink low. just sells out everywhere I go. And when I talk to the produce managers, it's, you know, they sell every one they can get and would like more. So it's a good situation for you guys. And they're selling it, you know, double-digit prices per pineapple, which is incredible. So anyway.

Yeah. Well, I mean, in addition to that, you know, Mitch, we used to have a lot of residues from the pink pineapple that we could not export as export quality. And we didn't have the opportunity because we didn't have the authorization from the Costa Rican authorities to turn them into juice or into frozen, let's say IQF product. Thanks God recently for the last two months, we have been granted, you know, uh to freeze or to use this as as frozen and we are processing this and it and this is a great also addition to our sku is you know i think also going into ice cream and juices and you know through the food service industrial i would say segment i'm changing the subject um moving to fresh cut uh fruit um

You're doing very well in fresh-cooked fruit, obviously. Where specifically is the demand coming from? Is it retail versus food service? Is it equal across the board? Is there any one geography that's growing particularly strong for you guys? Can you talk a little bit about where that growth and demand is coming from and where you see it going?

We see the demand mainly on the retail side. The biggest, you know, increase and expansion is on the retail side and the convenience stores. That's where we see the biggest advances, as well as, you know, I mean, we are not talking only North America, but we are having the U.K., we are having, you know, the Middle East region as well. So expansion and growth is actually across the world. And as we speak, you know, we're looking at different countries, new countries to initiate also fresh cut operations based on, you know, feasibility and return on capital. But that's the way going forward. It's not only North America, but it's a global expansion, you know, with our expertise, know-how and the vertical integration, the supply chain, you know, where we have the fruit and the ability to supply each region closer to the markets. You know, the fresh Del Monte advantage is that it isn't, it's not only in one continent, it's not only producing Costa Rica, let's say pineapple, which is the major SKUs in the fresh cut, you know, We produce it in three different, four different continents. So we are much closer to the markets logistically rather than just shipping it all the way from Costa Rica to, let's say, to Japan or Costa Rica to Europe. We have Africa, which is closer. So we play with logistics more than just the sources.

Okay, and then, and, you know, your, your margins, you know, continue to, to march forward there as you, as you leverage your, your capacity investments. Um, is that something. Um, I mean, we, we should, where do you see the top end of, like, you know.

You mean on the on the fresh cut?

Yeah.

Well, the fresh cut, I think the margins would stay more or less in the same region that we see right now. What would be our? Niche is that we will be introducing, you know more innovation. I mean like let's take guacamole for instance. Fresh guacamole. I mean we started this. Almost a probably a year or less than a year ago and and we see more than double digit growth uh month over month i mean in that category and we are the only one in the market that can produce fresh guacamole uh to the retail sector so that gives you an idea where we are going you know i mean That's the type of products that we, and type of SKUs that we would like to introduce and not just depend on the traditional, you know, type of fruit offerings or vegetables.

Moving to banana, how, in your view, the black sigatoka, that, how much has that,

affected the banana supply in costa rica or in central america is that is it um is it definitely showing up as as as a drag on supply yeah well i mean costa rica alone is down over 20 percent in in their uh export volume uh this year as we speak and that tells you and and it's mainly because of the uh sick at all uh disease as well as other uh you know issues you know in the soil and the the climate and uh so i don't see that this is going away this is getting worse as a matter of fact as we speak you know i mean uh uh it's a disease that you know that the the disease get uh uh get immunity you know i mean they they the disease transform itself against the kind of chemical that is being used. And over time, that chemical doesn't have any more efficacy for treatment. And unfortunately, in this space, there is only one supplier in the world that has this product. And it's becoming even so costly that, you know, it's adding more costs to the banana box because you have to apply more cycles and to do more applications, which costs you more money. And still, I don't think that there is a cure, in my opinion, unless something, you know, kind of extraordinary On our part, we are working on several fronts to find a solution to this category. I cannot disclose at this time, but we are doing a lot of work now to find solutions for that.

Okay. And then, but, you know, over time here with the banana supply affected negatively, I guess it should be good you know, prices you should be able to get. I mean, bananas are obviously one of the lowest priced items in the grocery channel. There seems to be some headroom, you know, for you to raise prices to offset, you know, the the supply limitations. Would you see it that way?

It's actually not our, I mean, it's an industry. It's a supplier's issue. I mean, it's not our issue that still, you know, I mean, we are very much, you know, we even have lowered our volumes over the last two years. in order to maintain profitability and make sense of this business. But the problem is not with the, I believe the problem is with the existing suppliers that they don't understand that going forward, they cannot survive with such pricing in the market.

Just a couple other quick questions. It was interesting, you're selling two of your older, vessels as you switch over to sort of the legacy to the container ships. Are you going to, would you consider buying two new ones like you have, adding to the fleet, or are you happy with your current setup and will sort of lease vessels or however, you know, for your capacity?

No, but what Monica mentioned actually is only for Asia, these two vessels were, you know, were servicing Japan and Korea markets, and that's what we are replacing. We are selling off these ships and using container shipping line now to replace it. As far as North America, everything is also on the table. You know, I mean, we will do whatever is the best interest of the company, definitely.

Okay. And I mean, are you pleased? I mean, are you happy with the way your purchase of those six vessels? Is that working out as expected? It seems to be.

I mean, you can see our cash generation. I think that speaks for itself, Mitch. You look at our cash. Understood.

I think. And then a couple other things. You had a $6 million equity earnings from unconsolidated companies. Which companies are generating that type of profit for you?

Well, actually, we have invested in several funds that are friendly funds that we have been very close with. And these are companies that are in the food industry, let's say. And I think we have made the right choices and we made the right investments. And I think that this is just a beginning. I think these are very successful, extremely successful companies that are already growing, you know, double digit as we speak. So we are very, very, very pleased with what we, You know, invested.

Okay. And then last question was just what was the, I didn't see the queue yet, but the foreign exchange impact on revenue and gross profit, was there any, can you give us those amounts that you mentioned?

Yeah, the Euro obviously has been getting stronger, which helped us. We do have part of our sales hedged. at a little bit lower rate, but it definitely helped. The British pound also was stronger. And the Japanese yen was stronger than last year, even though it's kind of weakened a little bit now. But definitely those three currencies helped our net sales. But the local selling prices in these markets was also very strong. So it was both scenarios.

But to add to what Monica said, that you have to think there is a tailwind on one side and we have headwinds on the other side. I mean, Costa Rica by itself is a very, very difficult situation. You know, I mean, we used to have Cologne, you know, exchange rate to the dollar three years ago for 610, 620. And today we are barely at around 500, 506, 505. which you can say, and increase, of course, inflation over the last two, three years, continuous inflation, continuous increasing costs. And then the exchange rate is getting stronger. And that's huge headwinds for us. I mean, added a lot of costs on our production, be it on the pineapple, melon, or bananas, or whatever we do there. So really, you know, when you look at the the tailwind, which is the euro, but you also have to look at the headwind, and then one offsets against each other. I wish the cologne would have been, you know, normal as it used to be, then it would have been even a much better picture than what we see today.

All right, well, that's all I have. Thank you.

My pleasure. Thank you.

And again, if you would like to ask a question, press star then the number one on your telephone keypad. There are no further questions at this time. I would like to turn the call back over to Mr. Mohamed Abogazaleh for closing remarks.

Thank you, Desiree. And I would like to thank everyone for joining us on this call today. I hope to talk to you on our next quarter with equally good news thank you and have a good day ladies and gentlemen that concludes today's call thank you all for joining and you may now disconnect