Fresh Del Monte Produce Inc. (FDP) Q4 2022 Earnings Call Transcript

Fresh Del Monte Produce Inc. (NYSE:FDP) Q4 2022 Earnings Conference Call February 22, 2023 10:00 AM ET

Company Participants

Claudia Pou - VP, Corporate Communications

Mohammad Abu-Ghazaleh - Chairman and CEO

Monica Vicente - SVP and CFO

Conference Call Participants

Mitch Pinheiro - Sturdivant

Operator

Good time everyone and invited to Fresh Del Monte Produce's Fourth Quarter and Full Fiscal Year 2022 Conference Call. Today's convention telephone is being broadcast unrecorded complete nan Internet and is besides being recorded for playback purposes. [Operator Instructions]

For opening remarks and introductions, I would for illustration to move today's telephone complete to nan Vice President, Corporate Communications pinch Fresh Del Monte Produce, Claudia Pou. Please spell ahead, Ms. Pou.

Claudia Pou

Thank you, Regina. Good greeting everyone and convey you for joining our 4th fourth and afloat fiscal twelvemonth 2022 convention call. As Regina mentioned, I'm Claudia Pou, Vice President of Corporate Communications pinch Fresh Del Monte Produce. Joining maine successful today's chat are Mohammad Abu-Ghazaleh, Chairman and Chief Executive Officer; and Monica Vicente, Senior Vice President and Chief Financial Officer.

I dream that you had a chance to reappraisal nan property merchandise that was issued earlier this greeting via Business Wire. You whitethorn besides sojourn nan company's IR website astatine investorrelations.freshdelmonte.com to entree today's net materials and registry for early distributions. This convention telephone is being webcast unrecorded connected our website and will beryllium disposable for replay aft this call.

Please statement that our property merchandise and our telephone coming see non-GAAP measures. Reconciliations of these non-GAAP financial measures and nan different required disclosures are group distant successful nan property merchandise and net presentation, which is disposable connected our website. I would for illustration to punctual you that overmuch of nan accusation we'll beryllium speaking to today, including nan answers we springiness successful consequence to your questions may see forward-looking statements wrong nan provisions of nan national securities laws Safe Harbor. In today's property merchandise and successful our SEC filings, we item worldly risks that whitethorn origin our early results to disagree from these forward-looking statements. Our statements are arsenic of today, February 22 and we person no responsibility to update immoderate forward-looking statements we whitethorn make. During nan call, we will supply a business update, on pinch an overview of our 4th fourth and afloat twelvemonth 2022 financial results, followed by a question-and-answer session.

With that, I'm pleased to move today's telephone complete to Mohammad.

Mohammad Abu-Ghazaleh

Thank you, Claudia. Good morning, everyone.

Fourth 4th of '22 has been our champion performing 4th fourth successful caller history, led by beardown nett income and beardown margins. Our nett income for nan 4th fourth were nan strongest since 4th 4 of 2018.

In 4th 4 2022, we had our champion margins and nan champion 10th 4th quarters now astatine 8% versus 4% successful 2021. And our gross profit for nan 4th was nan champion since 4th fourth of 2016. Overall for nan year, we closed retired 2022 successful a overmuch stronger position than '21.

We judge this reflects our committedness to remaining elastic and agile, controlling our costs, leveraging our assets and optimizing caller and existing partnerships. It was a challenging macroeconomic situation for our business arsenic costs for packaging materials, fertilizers, proscription and labour remained elevated passim nan year. Yet, we focused our efforts connected being elastic and mitigating nan risks associated wherever we can.

During nan year, we sought to power costs and implemented ostentation justified value summation to offset immoderate of nan accrued costs. And why Fresh Del Monte is astir notably known for being a world nutrient marketer and distributor, it's important to statement that we are besides a logistics provider. In 2022, we made a conscious effort to leverage our assets wherever we tin wrong our vertically integrated network.

Net income successful our different products and services segment, which includes 3rd statement water freight services accrued 24% for nan 4th and 45% for nan year, compared pinch '21. We are highly proud of nan expanded business betwixt Network Shipping and sister companies, for illustration Tricont Trucking and Tricont Logistics and nan activity we are doing astatine various ports. We are helping to further widen nan water work that Network Shipping has perfected into nan inland marketplace.

This allows america to connection customers a one-stop shop for their logistics needs wrong Latin America and nan United States. Our customer relationships are besides assets to us. In 2022, we focused connected optimizing our relationships. We optimized by innovating based connected customer needs. We recovered caller ways to activity pinch our apical measurement customers to make these relationships much businesslike yet profitable.

We proceed to innovate pinch our products, focusing connected creating much value-added products that meet our customers and consumers expectations. While we are confident, our capabilities and services we are continuously improving and investing successful technology, processes and group to support our edge.

The merchandise of our Transportation Management Systems, TMS successful 2023 for our inland logistic limb is conscionable nan adjacent measurement successful a multi-year scheme for continued maturation arsenic a technology-driven company. We person dedicated galore years including nan past portion of '22 moving to cleanable avocado predictability, utilizing Artificial Intelligence and our rich | information library. We person reached almost 95% predictability connected pricing and we are adjacent to perfecting this exertion pinch proviso and request for avocados.

We spot this exertion arsenic a large measurement guardant for nan Produce manufacture and are proud to beryllium nan pioneers connected this trial. We expect to yet grow this usage of AI to our different products. Our attraction for '23 will beryllium continued exertion focus, invention and activity successful nan Produce industry. We want to enactment elastic and agile arsenic we proceed to prosecute partnerships that will let america to optimize our assets, which includes logistics, warehousing and distribution.

Now, I will move nan telephone to Monica to get to talk astir nan financial results. Monica?

Monica Vicente

Thank you, Mohammad, and convey you for joining america connected today's call.

Let's first move to our 4th fourth 2022 financial results. Net income for nan 4th fourth of 2022 accrued by astir $23 cardinal aliases 2% compared pinch nan anterior twelvemonth period. The summation successful nett income was driven by ostentation justified per portion value increases, partially offset by little income measurement and nan antagonistic effect of fluctuations successful speech rates, chiefly successful Europe and Asia.

The antagonistic effect of speech rates was partially mitigated by our overseas rate hedges. Gross profit for nan 4th fourth of 2022 was $82 cardinal compared pinch $40 cardinal successful nan anterior twelvemonth period.

The summation was a consequence of higher per portion trading prices crossed each segments. The summation successful trading prices helped offset immoderate of nan continuing inflationary costs pressures, which resulted successful higher per portion accumulation and distribution costs including packaging materials, fertilizers, inland and water freight, labour and fuel.

Adjusted operating income for nan 4th fourth of 2022 was $34 cardinal compared pinch a nonaccomplishment of $7 cardinal successful nan anterior twelvemonth period. The summation successful adjusted operating income was chiefly owed to higher gross profit, partially offset by higher SG&A.

Adjusted FDP nett income for nan 4th fourth of 2022 was $22 cardinal compared pinch a nonaccomplishment of $9 cardinal successful nan anterior year. Our diluted net per stock for nan 4th fourth of 2022 was $0.38 compared pinch a nonaccomplishment of $0.24 successful nan anterior year.

Adjusted diluted net per stock was $0.45 compared pinch a nonaccomplishment of $0.18 successful nan anterior year. The quality betwixt GAAP and adjusted diluted net per stock during nan 4th fourth of 2022 was astatine $3.3 cardinal aliases $0.07 per stock plus impairment complaint chiefly related to flooding successful our Philippines Banana operations.

Adjusted EBITDA for nan 4th fourth of 2022 was $59 cardinal compared pinch $15 cardinal successful nan anterior year, and corresponding adjusted EBITDA separator accrued to 5.6% from 1.5% successful nan anterior year.

Let maine now move to nan conception results, opening pinch our caller and value-added products segment. Net income for nan 4th fourth of '22 decreased by $22 cardinal aliases 4% erstwhile compared pinch nan anterior year, chiefly driven by little nett income of avocados owed to little trading prices, and besides little nett income of non-tropical consequence arsenic a consequence of little trading prices and little volumes. The alteration was partially offset by higher nett income of prepared nutrient products chiefly income of canned non-tropical nutrient and business pineapple products driven by higher trading prices and volume.

For nan quarter, adjusted gross profit successful nan caller and value-added products conception was $34 cardinal compared pinch $28 cardinal successful nan anterior year. The summation was chiefly driven by higher per portion trading prices and merchandise operation of higher separator categories. The summation successful gross profit was partially offset by higher costs of packaging materials, fertilizers and water freight, which negatively impacted per portion accumulation and distribution costs. Gross separator accrued to 5.9% from 4.7%.

Moving to our Banana segment, for nan 4th fourth of 2022 nett income accrued by $33 cardinal aliases 9% compared pinch nan anterior twelvemonth period, chiefly driven by Europe and North America. The summation successful nett income was predominantly from higher per portion trading prices resulting from ostentation justified value increases and nan absence of excess measurement arsenic a consequence of our strategical sourcing successful consequence to marketplace conditions. The summation was partially offset by fluctuations successful speech rates successful Europe and Asia.

Adjusted gross profit for nan 4th fourth of 2022 was $38 cardinal compared pinch $9 cardinal successful nan anterior twelvemonth period, chiefly driven by higher nett sales, partially offset by higher costs of packaging materials, fertilizer and distribution costs including water and inland freight. Gross separator accrued to 9.4% from 2.5% successful nan anterior twelvemonth period.

Lastly, for nan 4th fourth of 2022, nett income for our different products and services conception accrued by $12 cardinal aliases 24% compared pinch nan anterior year, chiefly owed to higher nett income of third-party water freight services.

Our fleet of vessels has enabled america to grow these services, which benefited from elevated shipping rates and request owed to marketplace conditions. Adjusted gross profit accrued by $7 cardinal arsenic a consequence of higher measurement and shipping rates.

Now moving to selected financial data. Selling, wide and administrative expenses was $48 cardinal compared pinch $45 cardinal successful nan anterior twelvemonth period. The summation was driven by higher promotional and administrative expenses.

Net liking disbursal was higher by astir $2 cardinal successful nan 4th fourth of '22 related to higher liking rates and person higher mean indebtedness balances. Income taxation disbursal was $6 cardinal during nan 4th compared pinch a use of $7 cardinal successful nan anterior year, chiefly owed to nan effect of a valuation allowance reversal successful 2021.

Now turning to our afloat fiscal twelvemonth '22 results. For nan afloat fiscal twelvemonth '22, nett income accrued $190 cardinal aliases 4% compared pinch nan anterior twelvemonth period. The summation was driven by ostentation justified per portion value increases, which was partially offset by little income measurement and nan antagonistic effect of fluctuations successful speech rates, chiefly successful Europe and Asia.

The antagonistic effect of fluctuations successful speech rates was partially mitigated by our overseas rate hedges. Gross profit for nan afloat fiscal twelvemonth '22 was $340 million, compared pinch $304 cardinal successful 2021. The summation successful gross profit was chiefly driven by higher gross profit successful our different products and services segments arsenic a consequence of higher nett income of third-party water freight services, on pinch nan favorable effect of higher per portion income prices crossed each segments.

For nan afloat fiscal twelvemonth '22 adjusted operating income was $149 cardinal compared pinch $112 cardinal successful nan anterior twelvemonth period. The summation was chiefly driven by higher gross profit and little selling, wide and administrative expenses. Adjusted FDP nett income for '22 was $94 cardinal compared pinch $81 cardinal successful nan anterior year.

In '22 diluted net per stock was $2.06 compared pinch $1.68 successful nan anterior year, while adjusted diluted net per stock was $1.97 compared pinch $1.69 successful nan anterior twelvemonth period. A 17% year-over-year improvement. Adjusted EBITDA for '22 was $235 cardinal compared pinch $207 cardinal successful nan anterior year, a corresponding adjusted EBITDA separator accrued to 5.3% from 4.9% successful nan anterior year.

Moving connected to selected financial information for nan afloat fiscal twelvemonth '22. For nan year, we generated $62 cardinal successful rate travel from operating activities, compared pinch $129 cardinal successful 2021. Net rate provided by operating activities was impacted by an summation successful inventory during nan existent year, mostly owed to inflationary costs increases and a strategical summation successful levels of cardinal earthy materials and packaging supplies successful bid to unafraid costs and availability.

Additionally, higher levels of accounts receivable arsenic a consequence of higher nett income impacted nett rate provided by operating activities. Long-term indebtedness astatine nan extremity of '22 accrued by $22 cardinal to $540 cardinal from $519 cardinal astatine nan extremity of '21. On a trailing 12-month basis, our leverage ratio stands astatine 2.22 times adjusted EBITDA.

Capital expenditures, we invested $48 cardinal successful superior expenditures successful 2022 compared pinch $99 cardinal successful '21. The $99 cardinal from past twelvemonth included nan last payments connected nan transportation of 2 of our refrigerated instrumentality ships. The walk this twelvemonth has focused connected improvements to our banana and pineapple operations successful Central America and enhancements to amended our ratio and accumulation accommodation crossed our operations.

As announced this greeting successful financial results property release, we declared a quarterly dividend of $0.15 per stock payable connected March 31, 2023 to shareholders of grounds connected March 8, 2023. For nan afloat fiscal twelvemonth '22, we declared 4 quarterly rate dividends totaling $0.60 per share.

This concludes our financial review. We tin now move nan telephone to Q&A. Regina?

Question-and-Answer Session

Operator

[Operator Instructions] Our first mobility will travel from nan statement of Mitch Pinheiro pinch Sturdivant. Please spell ahead.

Mitch Pinheiro

Good morning. So, Mohammad that was a amazingly beardown gross separator capacity successful your banana conception and I was wondering if you could return america done nan puts and takes those that are benignant of going to beryllium sustainable, and those that - nan benefits are sustainable connected nan - and immoderate of nan benefits that spell distant for 2023?

Mohammad Abu-Ghazaleh

No, I deliberation our business has turned around, and Mitch I don't want you to support focusing connected bananas, because banana is simply a existent portion of our business. But bananas is not going to beryllium nan turning constituent for our business and I support focusing connected certain. And you could spot that successful our results that, erstwhile we are optimizing our assets successful logistics, distribution, warehousing and we person galore caller projects successful nan pipeline that will adhd a batch of worth to our business speech from banana.

And so, I'm very assured successful wide astir bananas because we are managing our banana volumes successful a overmuch amended and much logical measurement than it utilized to beryllium successful nan past. We are utilizing much exertion and much predictability successful our operations going forward. And these successful my opinion, will make a large alteration going guardant successful our business.

Mitch Pinheiro

Yes, I mean I admit that Mohammad, but nan bananas segments for illustration nan large plaything successful profitability from quarter-to-quarter and I was wondering if - I cognize it's not wherever your attraction is and - but it's still a meaningful portion of nan business that it would beryllium adjuvant to person a small visibility into nan first 4th and possibly what you're seeing for nan twelvemonth conscionable banana business clasp connected to these margins aliases to immoderate of nan value increases commencement to get whittled away? And do you spot immoderate headwinds pinch respect to benignant of immoderate of - whether it's consequence costs aliases water freight costs, what could beryllium immoderate headwinds successful nan banana segment?

Mohammad Abu-Ghazaleh

Well, nan headwinds successful nan bananas would beryllium nan oversupply. As we person seen during nan past seven, 8 months, particularly aft nan pandemic, I deliberation Ecuador person gone down drastically successful position of supplies. And this has helped nan marketplace to beryllium much balanced, let's say. And from our side, we are conscionable matching proviso and request much rationally, let's put it that way.

And arsenic a Company, we are not readying to waste nether costs aliases to waste pinch debased margins. That is simply a argumentation that we person taken. And truthful I judge that margins will beryllium much aliases little accordant pinch fluctuations from quarter-to-quarter depending connected nan clip of nan year. But I deliberation margins will someway beryllium maintained much aliases little astir nan aforesaid lines that we are taking correct now. So - and I americium going to repetition myself, again Mitchell that, different businesses will really dress up a batch for nan banana business itself.

Mitch Pinheiro

Okay. And past connected nan water freight services, it's been doing rather well. And you talked about, you've taken from nan water freight, you're going to return that aforesaid benignant of exemplary and move it inland. So for 2023, is this - you had a bully maturation successful 2022, do you spot nan maturation successful that conception sustainable and margins successful that conception sustainable?

Mohammad Abu-Ghazaleh

I judge so, yes. I judge that would be. I don't know, I deliberation it would beryllium nan aforesaid percent of growth, but decidedly location would beryllium maturation connected this conception successful '23.

Mitch Pinheiro

Okay. Yes, it's a bully - it's a bully precocious separator business therefore. And past connected nan caller and worth added, margins were down versus a twelvemonth agone successful nan quarter, which explained why - what do you expect for 2023 successful this business? Is it going to beryllium limited upon merchandise operation aliases do you spot immoderate fixed costs leverage and immoderate things that you're doing that you tin benignant of outrun immoderate of those headwinds?

Mohammad Abu-Ghazaleh

The headwinds were nan packaging materials and proscription and we are seeing this to beryllium now easing benignant of to mitigate immoderate of this further costs that we faced during '22, and besides nan merchandise mix, Mitch. I mean sometimes you'll person shortage connected definite items which increases your cost, but I judge all-in-all, we should beryllium capable to support our humanities benignant of margins connected nan value-added for illustration products, which is fresh-cut successful particular.

Mitch Pinheiro

And you were talking - different question, you were talking astir wrong that segment, nan avocado business. With avocado prices down, do you expect margins to stabilize successful nan early portion of 2023, that's really get backmost to again much normalized separator level?

Mohammad Abu-Ghazaleh

Yes, well, you cognize what has happened during nan last, I would say, four, 5 months, is that nan avocado pricing was much - very accordant and very unchangeable dissimilar '21 and '22 first half was crazy. The benignant of costs increases, value increases successful Mexico. And what we person seen from - successful nan past fewer months is that, nan prices were much stable, nary volatility, which helped nan manufacture successful general, to beryllium capable to foretell better.

And arsenic I mentioned, we are utilizing now Artificial Intelligence, which we person been moving connected for respective years now and we person travel to almost 95% predictability and we're going to rotation that arsenic good for proviso and request arsenic well.

So we're going to beryllium utilizing exertion arsenic good successful position of predictability for avocados, which is nan astir difficult, and that's really why we chose avocado to beryllium nan champion commodity to use AI, is because it's nan astir difficult. And past erstwhile we do that and erstwhile we did that really we are going to rotation it retired to each different SKUs aliases commodities that we grip and this will thief america going guardant successful nan future.

Operator

[Operator Instructions] And location are nary further questions astatine this time, I will move nan convention backmost complete to guidance for immoderate closing remarks.

Mohammad Abu-Ghazaleh

I would for illustration to convey everyone for joining america connected this telephone coming and dream to talk to you connected our adjacent telephone successful May I hope. Thank you and person a bully day.

Operator

Ladies and gentlemen, that will reason today's meeting. We convey you each for joining. You whitethorn now disconnect.