Fresh Del Monte Produce Inc. (FDP) experienced notable growth in its Fresh and Value-Added Product segment in the first quarter of 2024, with a 5% increase in revenue year-over-year, driven by robust sales of pineapples, avocados, and prepared foods. However, the company faced challenges in its Banana segment, with decreased net sales and gross profit due to competitive pressures leading to lower volume and selling prices. The company is also considering strategic options for its Mann Packing operation and expects to decide by the third quarter of 2024.
Key Takeaways
- Fresh Del Monte's Fresh and Value-Added Product segment saw a 5% revenue increase, with expanded margins due to efficiencies and cost savings.
- The company reduced its total debt by 15% from the previous year and plans to continue investing in Value-Added Products.
- Pineapple sales were strong, with Pinkglow and Honeyglow varieties showing significant sales increases.
- The Banana segment struggled with lower sales and profits due to competitive market pressures.
- Net sales in the Other Products and Services segment declined, partly due to decreased third-party ocean freight services.
- Fresh Del Monte declared a quarterly cash dividend of $0.25 per share.
- The company is exploring strategic alternatives for its Mann Packing operation.
Company Outlook
- Fresh Del Monte anticipates a 3-4% decrease in Banana volume for the full year.
- Capital spending is projected to be between $65-75 million.
- A decision on the future of Mann Packing is expected by the third quarter of 2024.
Bearish Highlights
- The Banana segment's performance was weak, with net sales and gross profit declining due to lower volume and selling prices.
- Other Products and Services segment also saw reduced net sales.
- The company experienced a decrease in consumption and sales in North America and Europe, with the trend expected to continue into the next quarter.
Bullish Highlights
- The company successfully expanded its high-margin product lines and reduced its debt.
- Sales of innovative pineapple products significantly increased.
- Net interest expense, income tax provision, and long-term debt decreased, while net cash from operating activities increased.
Misses
- Declines in the Banana segment and Other Products and Services segment impacted overall performance.
- The company faced currency exchange challenges in Costa Rica, which affected its business operations.
Q&A Highlights
- The company discussed the impact of a stronger local currency in Costa Rica, noting it as a significant challenge with limited hedging options.
- Management expressed hope for recovery and improved performance in the upcoming quarter, despite current challenges.
Fresh Del Monte's first quarter of 2024 showcased a mixed financial landscape, with strong growth in certain high-margin products but also facing headwinds in other areas, particularly in the Banana segment and from currency fluctuations. The company's strategic focus on Value-Added Products and cost-saving measures has shown positive results, and its efforts to streamline operations through strategic alternatives for its Mann Packing operation may further shape its future trajectory. Investors and stakeholders are keeping a close watch on the company's next moves as it navigates through market pressures and macroeconomic challenges.
InvestingPro Insights
Fresh Del Monte Produce Inc. (FDP) has demonstrated resilience in its Fresh and Value-Added Product segment, but the InvestingPro data and tips highlight a more nuanced picture of the company's financial health and potential investment value. With a market capitalization of $1.24 billion and a positive dividend yield trend, Fresh Del Monte stands out for its commitment to shareholder returns.
InvestingPro Data metrics indicate that the company's gross profit margin for the last twelve months as of Q1 2024 stands at 7.88%, reflecting the competitive challenges noted in the Banana segment. Despite a slight revenue decline of 3.02% over the same period, Fresh Del Monte's valuation implies a strong free cash flow yield, which could be attractive to investors seeking companies with potential for cash generation.
Adding to the complexity, the company's P/E ratio is currently at -109.45, suggesting investors have concerns about its earnings potential. However, analysts predict profitability this year, providing a possible upside for those willing to take a longer-term view.
InvestingPro Tips highlight Fresh Del Monte's track record of raising its dividend for 4 consecutive years and maintaining dividend payments for 15 consecutive years, underscoring the company's consistent approach to rewarding shareholders. Additionally, the company's liquid assets exceed short-term obligations, which speaks to its financial stability.
For readers interested in a deeper dive into Fresh Del Monte's investment potential, there are 11 additional InvestingPro Tips available on https://www.investing.com/pro/FDP. These tips could offer valuable insights into the company's performance and outlook. Remember to use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, providing access to these exclusive insights.
Full transcript - Fresh Del Monte Produce Inc (FDP) Q1 2024:
Operator: 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. [Operator Instructions] For opening remarks and introductions, I would like to turn today’s call over to the Vice President, Corporate Communications with Fresh Del Monte Produce, Claudia Pou. Please go ahead, Ms. Pou.
Claudia Pou: Thank you, Audra. Good afternoon, everyone, and thank you for joining our first quarter 2024 conference call. I am Claudia Pou, Vice President, Corporate Communications with Fresh Del Monte Produce. Joining me in today’s discussion are Mohammad Ghazaleh, Chairman and Chief Executive Officer; and Monica Vicente, 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 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’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 statements you 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. Ghazaleh.
Mohammad Ghazaleh: Thank you, Claudia, and thank you for joining us for the first quarter 2024 earnings results. We continue to see strong momentum in our high-margin Fresh and Value-Added Product segment, 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 realized 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 disciplined 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 Rubyglow pineapple, our red-shelled pineapple, which is being produced in a limited volume at a very high price point. Due to high demand and interest in North America, Rubyglow pineapples are now available to consumers in the United States. Our other newly released pineapple innovation this quarter is the Precious Honeyglow pineapple, a personal-sized fresh pineapple out of our popular line of Honeyglow pineapples. Our previously launched Pinkglow and Honeyglow pineapple innovations continue to perform very well. In quarter one, net sales for the Pinkglow pineapples were up 62% compared with the same period last year, while net sales for the Honeyglow 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 the fresh-cut category. We are pleased to share his -- 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-cut facilities to further grow in market share and release new Value-Added Products to our consumers, driving shareholders’ value. Our fresh-cut 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 U.K., which will allow us for a significant increase in capacity. And in Asia, we saw a 30% -- 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 strength 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. Please?
Monica Vicente: Thank you, Mohammad, 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 million, compared with $1,129 million 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 sales, 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 recovery 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 2024 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 2024 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 $0.81 per share in the prior year. Adjusted diluted earnings per share was $0.34 per share, compared with $0.55 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 segment. 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, Honeyglow and Pinkglow, 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 with $8 million in the first quarter of 2023, due to lower average debt balances. Income tax provision was $5 million, compared with $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 million to $75 million. As announced in our press release, we declared a quarterly cash dividend of $0.25 per share, payable on June 7, 2024, to shareholders of record on May 16, 2024. And lastly, as it relates to Mann 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 strategic -- specific strategic outcome. This concludes our financial review. We can now turn the call over to Q&A. Audra?
Operator: Thank you. [Operator Instructions] We’ll take our first question from Mitch Pinheiro at Sturdivant & Company.
Mitch Pinheiro: Yeah. Hi. Good afternoon.
Mohammad Ghazaleh: Hi, Mitch.
Monica Vicente: Hi, Mitch.
Mitch Pinheiro: So, let me start with, so the Fresh and Value-Added had a sort of a normal, quite a nice quarter and margins look like they’re advancing. Two questions. One, are -- on the pineapple business, is the -- are the new pineapple varieties, are they just replacing shelf space of old pineapple products or regular pineapples, or are you getting, are grocery stores starting to increase the shelf set for pineapple?
Mohammad Ghazaleh: No, actually, Mitch, 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. So, we are seeing incremental sales and incremental demand. And as a matter of fact, in most cases, we are not even able to meet with the demand for these special varieties.
Mitch Pinheiro: 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’s that work from the back end?
Mohammad Ghazaleh: 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 Honeyglow, which is the high color 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…
Mitch Pinheiro: Okay.
Mohammad Ghazaleh: … which commands a premium to the, let’s say, the Montego. But if we are talking about Pink pineapple or Rubyglow pineapple, these are all additional new farmland that within our own, like, properties, we have enough land to grow additional new varieties.
Mitch Pinheiro: Okay. And like, in an order of magnitude, how much more profitable are these newer pineapple varieties compared to your regular gold pineapple?
Mohammad Ghazaleh: By far. It’s a huge, huge, I would say, I cannot tell you exactly, but it’s public, it’s not for public input, but it is very significant difference in value.
Mitch Pinheiro: Okay. And was that the primary, is the mix of, your higher margin, higher value pineapple, is that more of an impact on the segment’s gross margin than fresh-cut or are they contributing equally? How’s that work out?
Mohammad Ghazaleh: I think they are both contributing equally. They are going into kind of 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 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-Added Product and different avenue, which I believe, as we go quarter-after-quarter, you will start realizing where the company is going. As I mentioned, in my now script that we have, out of -- our residues that we are going to have biofertilizers. This is something that we are working very seriously on and very soon we’re going to be announcing something about this new segment. So that is a lot of new, I would say, avenues that we will be going into that will change the company going forward.
Mitch Pinheiro: 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…
Monica Vicente: Correct.
Mitch Pinheiro: Is that…
Monica Vicente: Yes.
Mitch Pinheiro: Along with lower selling prices?
Monica Vicente: Yes. Yes. We expect, the market is very competitive right now and we do expect to have the lower volume and softer selling prices.
Mitch Pinheiro: And is the competitiveness in both Europe and…
Monica Vicente: And North America?
Mitch Pinheiro: …North America.
Monica Vicente: Yes.
Mitch Pinheiro: Is one more competitive?
Mohammad Ghazaleh: Yeah. I would like to add to this, Mitch, that the market, the consumption is being going down, actually, as we have seen statistically, 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…
Mitch Pinheiro: What do you think about…?
Mohammad Ghazaleh: … but this…
Mitch Pinheiro: Okay.
Mohammad Ghazaleh: We don’t know why, but this is the trend that we are seeing right now.
Mitch Pinheiro: Sounds like to me they are eating more pineapple.
Monica Vicente: Yeah. Honeyglow.
Mitch Pinheiro: Honeyglow. So, okay. And then as far as, so as we look, 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?
Mohammad Ghazaleh: 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, and especially Bananas, we -- you’re always susceptible to some factors or variables that we cannot control, which happened in the first quarter this year, disruption in the shipping, some quality issues, some service issues. So as we speak, as we’re going forward, 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 one for the second quarter.
Monica Vicente: As you mentioned, 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 of Q1.
Mitch Pinheiro: Got it.
Mohammad Ghazaleh: 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 colones difference, I mean, 20 points difference between one year to the next. I mean, we were exchanging, let’s say, $1 for 520 colones, and this year it’s almost around 500 colones. So for the last few months, since the late last year. So it’s been really very big headwinds for us.
Mitch Pinheiro: What’s the driver of the, I don’t pay attention to the Costa Rican monetary situation, what’s driving the flux, the decline?
Mohammad Ghazaleh: Too many dollars, I guess, in the market, which put pressure on the, I mean, the local currency became very, very strong.
Mitch Pinheiro: Right. Right. Okay. So, and there’s little you can do about it, right? There’s no.
Monica Vicente: Yeah. It’s difficult to hedge.
Mitch Pinheiro: Absolute…
Monica Vicente: Difficulty to hedge the colon, but there’s not enough liquidity, so.
Mitch Pinheiro: You’re right. Right. Okay. That’s all I have. Thanks for the questions.
Mohammad Ghazaleh: Thank you, Mitch.
Monica Vicente: Thank you, Mitch.
Operator: And that concludes our Q&A session. I will now turn the conference back over to Mohammad for closing remarks.
Mohammad Ghazaleh: Thank you very much everyone for attending this call and hope to speak to you in the next quarter with even brighter news. Thank you. Have a good day.
Operator: This concludes today’s conference call. Again, thank you for your participation. You may now disconnect.
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