Fresh Del Monte Produce Inc. (NYSE:FDP) Q3 2021 Earnings Conference Call November 3, 2021 10:00 AM ET Company Participants Ana Miranda - Investor Relations Mohammad Abu-Ghazaleh - Chairman and Chief Executive Officer Eduardo Bezerra - Senior Vice President and Chief Financial Officer Conference Call Participants Jonathan Feeney - Consumer Edge Operator Good day and welcome to Fresh Del Monte Produce Third Quarter 2021 Earnings Conference Call. Today’s conference is being broadcast live over the internet and ...

[PART I: FINANCIAL INFORMATION](index=4&type=section&id=PART%20I%3A%20FINANCIAL%20INFORMATION) This section presents the company's unaudited consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Fresh Del Monte Produce Inc. and its subsidiaries, including balance sheets, statements of operations, comprehensive income, cash flows, and shareholders' equity, along with detailed notes explaining accounting policies, recent pronouncements, asset impairments, income taxes, credit losses, share-based compensation, inventories, debt, commitments, earnings per share, retirement benefits, business segment data, derivative instruments, fair value measurements, and accumulated other comprehensive loss [Consolidated Balance Sheets (Unaudited)](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section presents the company's financial position, detailing assets, liabilities, and shareholders' equity at specific dates | Metric | October 1, 2021 (Millions USD) | January 1, 2021 (Millions USD) | | :------------------------------------------------------------------ | :----------------------------- | :----------------------------- | | **Assets** | | | | Total current assets | 1,046.6 | 1,012.3 | | Total assets | 3,387.7 | 3,343.3 | | **Liabilities and Shareholders' Equity** | | | | Total current liabilities | 588.6 | 554.8 | | Long-term debt and finance leases | 476.9 | 541.8 | | Total liabilities | 1,506.4 | 1,543.4 | | Total Fresh Del Monte Produce Inc. shareholders' equity | 1,810.4 | 1,728.0 | | Total liabilities, redeemable noncontrolling interest and shareholders' equity | 3,387.7 | 3,343.3 | - Total assets increased by **$44.4 million** from January 1, 2021, to October 1, 2021, reaching **$3,387.7 million**. Total liabilities decreased by **$37.0 million**, while total shareholders' equity increased by **$82.2 million**[14](index=14&type=chunk) [Consolidated Statements of Operations (Unaudited)](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's financial performance, including net sales, gross profit, operating income, and net income over specified periods | Metric | Q3 2021 (Millions USD) | Q3 2020 (Millions USD) | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :------------------------------------------------------------------ | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net sales | 1,004.8 | 989.7 | 3,234.6 | 3,200.0 | | Gross profit | 48.9 | 67.3 | 264.0 | 214.5 | | Operating income | 1.3 | 26.6 | 120.2 | 77.4 | | Net income attributable to Fresh Del Monte Produce Inc. | 1.3 | 17.4 | 91.2 | 48.3 | | Net income per ordinary share - Basic | 0.03 | 0.37 | 1.92 | 1.01 | | Net income per ordinary share - Diluted | 0.03 | 0.37 | 1.91 | 1.01 | | Dividends declared per ordinary share | 0.15 | 0.05 | 0.35 | 0.20 | - Net sales increased by **2%** in Q3 2021 YoY and **1%** in 9M 2021 YoY. Gross profit decreased by **27%** in Q3 2021 YoY but increased by **23%** in 9M 2021 YoY. Net income attributable to Fresh Del Monte Produce Inc. significantly decreased in Q3 2021 YoY from **$17.4 million** to **$1.3 million**, but nearly doubled in 9M 2021 YoY from **$48.3 million** to **$91.2 million**[16](index=16&type=chunk) [Consolidated Statements of Comprehensive (Loss) Income (Unaudited)](index=6&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20%28Loss%29%20Income) This section outlines the company's comprehensive income, including net income and other comprehensive income components like unrealized gains/losses on derivatives and foreign currency translation | Metric | Q3 2021 (Millions USD) | Q3 2020 (Millions USD) | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :------------------------------------------------------------------ | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net income | 1.5 | 16.2 | 90.6 | 47.3 | | Other comprehensive (loss) income: | | | | | | Net unrealized (loss) gain on derivatives, net of tax | (5.7) | 0.3 | 12.3 | (26.9) | | Net unrealized foreign currency translation (loss) gain | (4.9) | 6.1 | (9.2) | 2.5 | | Net change in retirement benefit adjustment, net of tax | (0.3) | (0.1) | (1.2) | 0.4 | | Comprehensive (loss) income | (9.4) | 22.5 | 92.5 | 23.3 | | Comprehensive (loss) income attributable to Fresh Del Monte Produce Inc. | (9.6) | 23.7 | 93.1 | 24.3 | - Comprehensive income attributable to Fresh Del Monte Produce Inc. shifted from a gain of **$23.7 million** in Q3 2020 to a loss of **$9.6 million** in Q3 2021. For the nine months, it significantly increased from **$24.3 million** in 2020 to **$93.1 million** in 2021, primarily driven by a positive shift in unrealized gains on derivatives[21](index=21&type=chunk) [Consolidated Statements of Cash Flows (Unaudited)](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section reports the company's cash inflows and outflows from operating, investing, and financing activities over specified periods | Metric | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :-------------------------------------------- | :--------------------- | :--------------------- | | Net cash provided by operating activities | 151.6 | 173.9 | | Net cash used in investing activities | (67.2) | (82.5) | | Net cash used in financing activities | (86.7) | (111.4) | | Net increase (decrease) in cash and cash equivalents | 2.5 | (19.3) | | Cash and cash equivalents, ending | 19.0 | 14.0 | - Net cash provided by operating activities decreased by **$22.3 million** in the first nine months of 2021 compared to 2020, primarily due to higher inventory levels and receivables, partially offset by higher net income and accounts payable[24](index=24&type=chunk)[217](index=217&type=chunk)[219](index=219&type=chunk)[224](index=224&type=chunk) - Net cash used in investing activities decreased by **$15.3 million**, while net cash used in financing activities decreased by **$24.7 million**[24](index=24&type=chunk)[217](index=217&type=chunk)[219](index=219&type=chunk)[224](index=224&type=chunk) [Consolidated Statements of Shareholders' Equity and Redeemable Noncontrolling Interest (Unaudited)](index=8&type=section&id=Consolidated%20Statements%20of%20Shareholders%27%20Equity%20and%20Redeemable%20Noncontrolling%20Interest) This section details changes in shareholders' equity and noncontrolling interests, reflecting contributions, distributions, and comprehensive income | Metric | October 1, 2021 (Millions USD) | January 1, 2021 (Millions USD) | | :------------------------------------------------------------------ | :----------------------------- | :----------------------------- | | Fresh Del Monte Produce Inc. Shareholders' Equity | 1,810.4 | 1,728.0 | | Noncontrolling Interests | 21.5 | 21.7 | | Total Shareholders' Equity | 1,831.9 | 1,749.7 | | Redeemable Noncontrolling Interest | 49.4 | 50.2 | - Total shareholders' equity increased by **$82.2 million** from January 1, 2021, to October 1, 2021, primarily driven by an increase in retained earnings and paid-in capital, partially offset by a decrease in accumulated other comprehensive loss[27](index=27&type=chunk) [Notes to Consolidated Financial Statements (Unaudited)](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies and specific financial items [1. General](index=10&type=section&id=1.%20General) This note describes the company's business operations, global presence, and reportable segments - Fresh Del Monte Produce Inc. is a vertically integrated producer, marketer, and distributor of fresh and fresh-cut fruit and vegetables, and prepared foods, operating globally under the Del Monte brand[34](index=34&type=chunk)[35](index=35&type=chunk) - The business is organized into three reportable segments: Fresh and value-added products, Banana, and Other products and services[36](index=36&type=chunk) [2. Recently Issued Accounting Pronouncements](index=11&type=section&id=2.%20Recently%20Issued%20Accounting%20Pronouncements) This note discusses the adoption and evaluation of recent accounting standards and their impact on financial statements - The company adopted ASU 2020-01 (Investments-Equity Securities) and ASU 2019-12 (Income Taxes) on the first day of fiscal year 2021, neither of which had a material impact on consolidated financial statements[41](index=41&type=chunk)[42](index=42&type=chunk) - The company is evaluating ASU 2020-04 and ASU 2021-01 (Reference Rate Reform) for potential future adoption, as it has LIBOR-based borrowings and interest rate hedges[43](index=43&type=chunk) [3. Asset Impairment and Other Charges (Credits), Net](index=12&type=section&id=3.%20Asset%20Impairment%20and%20Other%20Charges%20%28Credits%29%2C%20Net) This note details asset impairment charges, credits, and other related items affecting the company's financial results | Segment / Item | Q3 2021 (Millions USD) | Q3 2020 (Millions USD) | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :-------------------------------------------- | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Total asset impairment and other charges (credits), net | 0.1 | (3.5) | (0.3) | (3.8) | | Banana segment: Philippines asset impairment | 0.3 | 0.1 | 0.3 | 0.8 | | Fresh and value-added products segment: Exit costs related to European facility | (0.2) | — | 0.3 | — | | Fresh and value-added products segment: Insurance recovery related to product recall | — | (4.4) | — | (10.4) | - For the nine months ended October 1, 2021, asset impairment and other charges resulted in a net credit of **$(0.3) million**, including a **$(0.8) million** insurance recovery for hurricane damages in Guatemala[45](index=45&type=chunk) - This contrasts with a net credit of **$(3.8) million** in 9M 2020, which included a **$(10.4) million** insurance recovery for a product recall, partially offset by asset impairments and legal settlement charges[45](index=45&type=chunk)[174](index=174&type=chunk) [4. Income Taxes](index=13&type=section&id=4.%20Income%20Taxes) This note provides information on the company's income tax provision, effective tax rates, and ongoing tax disputes | Metric | Q3 2021 (Millions USD) | Q3 2020 (Millions USD) | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :------------------------------------ | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Income tax (benefit) provision | (6.6) | 4.9 | 9.1 | 9.4 | - The income tax provision decreased in both the third quarter and first nine months of 2021, primarily due to decreased earnings in certain higher tax jurisdictions[50](index=50&type=chunk) - The nine-month provision also includes benefits from the CARES Act NOL carryback provision (**$0.8 million** in 2021 vs. **$1.7 million** in 2020)[47](index=47&type=chunk)[48](index=48&type=chunk) - The company is vigorously contesting **$147.4 million** in transfer pricing tax deficiencies in two foreign jurisdictions for tax years 2012-2016[49](index=49&type=chunk) [5. Allowance for Credit Losses](index=14&type=section&id=5.%20Allowance%20for%20Credit%20Losses) This note outlines the company's allowance for credit losses on trade receivables and advances to growers and suppliers | Metric | October 1, 2021 (Millions USD) | January 1, 2021 (Millions USD) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Trade accounts receivable, net | 354.4 | 359.0 | | Allowance for trade receivable credit losses (end of period) | 13.1 | 15.1 | | Gross advances to growers and suppliers (Current) | 36.7 | 34.3 | | Gross advances to growers and suppliers (Past-Due) | 5.7 | 4.0 | | Allowance for advances to growers and suppliers (end of period) | 1.7 | 2.1 | - The allowance for trade receivable credit losses decreased from **$15.1 million** at the beginning of the period to **$13.1 million** as of October 1, 2021, partly due to a **$2.6 million** reclassification to long-term allowance[56](index=56&type=chunk)[57](index=57&type=chunk) - Gross advances to growers and suppliers increased, with past-due amounts rising from **$4.0 million** to **$5.7 million**[63](index=63&type=chunk) [6. Share-Based Compensation](index=16&type=section&id=6.%20Share-Based%20Compensation) This note describes the company's share-based compensation plans, including expense recognition and types of awards granted | Metric | Q3 2021 (Millions USD) | Q3 2020 (Millions USD) | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :------------------------------------ | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Total share-based compensation expense | 2.1 | 1.6 | 5.8 | 6.2 | - Share-based compensation expense increased to **$2.1 million** in Q3 2021 from **$1.6 million** in Q3 2020, but slightly decreased for the nine months from **$6.2 million** in 2020 to **$5.8 million** in 2021[66](index=66&type=chunk) - Awards include Restricted Stock Units (RSUs) and Performance Stock Units (PSUs) under the 2014 Omnibus Share Incentive Plan, with PSUs vesting based on performance criteria and RSUs vesting over a three-year service period[67](index=67&type=chunk)[68](index=68&type=chunk)[69](index=69&type=chunk) [7. Inventories, net](index=17&type=section&id=7.%20Inventories%2C%20net) This note details the composition of the company's inventories, including finished goods, raw materials, and growing crops | Metric | October 1, 2021 (Millions USD) | January 1, 2021 (Millions USD) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Finished goods | 190.4 | 190.7 | | Raw materials and packaging supplies | 167.5 | 136.8 | | Growing crops | 180.9 | 180.2 | | Total inventories, net | 538.8 | 507.7 | - Total inventories, net, increased by **$31.1 million** from **$507.7 million** at January 1, 2021, to **$538.8 million** at October 1, 2021, primarily driven by a **$30.7 million** increase in raw materials and packaging supplies[74](index=74&type=chunk) [8. Debt and Finance Lease Obligations](index=17&type=section&id=8.%20Debt%20and%20Finance%20Lease%20Obligations) This note provides information on the company's debt instruments, finance lease obligations, and compliance with debt covenants | Metric | October 1, 2021 (Millions USD) | January 1, 2021 (Millions USD) | | :------------------------------------ | :----------------------------- | :----------------------------- | | Senior unsecured revolving credit facility | 476.9 | 541.7 | | Finance lease obligations | 0.1 | 0.3 | | Total debt and finance lease obligations | 477.0 | 542.0 | | Long-term debt and finance lease obligations | 476.9 | 541.8 | - Long-term debt and finance lease obligations decreased by **$64.9 million** from **$541.8 million** at January 1, 2021, to **$476.9 million** at October 1, 2021[75](index=75&type=chunk) - The company maintains a **$1.1 billion** syndicated senior unsecured revolving credit facility maturing in October 2024, with **$476.9 million** outstanding at an interest rate of **1.24%** as of October 1, 2021[76](index=76&type=chunk)[81](index=81&type=chunk)[83](index=83&type=chunk)[226](index=226&type=chunk) - The company was in compliance with all debt covenants[228](index=228&type=chunk) [9. Commitments and Contingencies](index=19&type=section&id=9.%20Commitments%20and%20Contingencies) This note discloses the company's significant commitments and contingencies, including environmental liabilities and legal actions - The company has an estimated clean-up cost of **$12.9 million** to **$28.7 million** for the Kunia Well Site in Hawaii, with **$12.6 million** accrued in other noncurrent liabilities and **$0.3 million** in accounts payable as of October 1, 2021[87](index=87&type=chunk) - Expected expenditures are **$0.4 million** in 2021, **$1.1 million** in 2022, and **$0.9 million** annually from 2023-2025[88](index=88&type=chunk) - Management believes other claims and legal actions are not currently expected to have a material adverse effect on operations, financial position, or cash flows[89](index=89&type=chunk) [10. Earnings Per Share](index=19&type=section&id=10.%20Earnings%20Per%20Share) This note presents the calculation of basic and diluted earnings per share, including the weighted average number of shares outstanding | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :------------------------------------------------------------------ | :------ | :------ | :------ | :------ | | Net income attributable to Fresh Del Monte Produce Inc. (Millions USD) | 1.3 | 17.4 | 91.2 | 48.3 | | Weighted average number of ordinary shares - Basic | 47,535,873 | 47,355,918 | 47,494,168 | 47,641,712 | | Weighted average number of ordinary shares - Diluted | 47,743,758 | 47,427,723 | 47,661,055 | 47,731,747 | | Net income per ordinary share - Basic | 0.03 | 0.37 | 1.92 | 1.01 | | Net income per ordinary share - Diluted | 0.03 | 0.37 | 1.91 | 1.01 | - Basic and diluted EPS for Q3 2021 were **$0.03**, a significant decrease from **$0.37** in Q3 2020[91](index=91&type=chunk) - For the nine months, basic and diluted EPS increased to **$1.92** and **$1.91**, respectively, from **$1.01** in 9M 2020[91](index=91&type=chunk) [11. Retirement and Other Employee Benefits](index=20&type=section&id=11.%20Retirement%20and%20Other%20Employee%20Benefits) This note details the company's defined benefit pension and post-retirement plans, including net periodic benefit costs | Metric | Q3 2021 (Millions USD) | Q3 2020 (Millions USD) | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :------------------------------------ | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net periodic benefit costs | 2.4 | 2.8 | 7.3 | 8.3 | | Net periodic benefit costs (other non-U.S.-based plans) | 0.9 | 0.8 | 2.7 | 2.4 | - Net periodic benefit costs for defined benefit pension and post-retirement plans decreased to **$2.4 million** in Q3 2021 from **$2.8 million** in Q3 2020, and to **$7.3 million** in 9M 2021 from **$8.3 million** in 9M 2020[93](index=93&type=chunk) - Service costs are recognized in the Consolidated Statements of Operations, while other components (interest, expected return, amortization) are recorded in other expense, net[94](index=94&type=chunk) [12. Business Segment Data](index=21&type=section&id=12.%20Business%20Segment%20Data) This note provides financial information by business segment and geographic region, including net sales and gross profit | Segment | Q3 2021 Net Sales (Millions USD) | Q3 2020 Net Sales (Millions USD) | 9M 2021 Net Sales (Millions USD) | 9M 2020 Net Sales (Millions USD) | | :-------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | Fresh and value-added products | 601.2 | 600.6 | 1,906.0 | 1,897.8 | | Banana | 365.3 | 361.8 | 1,210.2 | 1,218.4 | | Other products and services | 38.3 | 27.3 | 118.4 | 83.8 | | Totals | 1,004.8 | 989.7 | 3,234.6 | 3,200.0 | | Segment | Q3 2021 Gross Profit (Millions USD) | Q3 2020 Gross Profit (Millions USD) | 9M 2021 Gross Profit (Millions USD) | 9M 2020 Gross Profit (Millions USD) | | :-------------------------- | :---------------------------------- | :---------------------------------- | :---------------------------------- | :---------------------------------- | | Fresh and value-added products | 40.9 | 54.2 | 149.8 | 133.8 | | Banana | 2.4 | 10.8 | 98.2 | 74.3 | | Other products and services | 5.6 | 2.3 | 16.0 | 6.4 | | Totals | 48.9 | 67.3 | 264.0 | 214.5 | | Geographic Region | Q3 2021 Net Sales (Millions USD) | Q3 2020 Net Sales (Millions USD) | 9M 2021 Net Sales (Millions USD) | 9M 2020 Net Sales (Millions USD) | | :---------------- | :------------------------------- | :------------------------------- | :------------------------------- | :------------------------------- | | North America | 622.0 | 619.4 | 1,951.2 | 1,992.0 | | Europe | 150.7 | 150.0 | 531.2 | 485.2 | | Asia | 111.9 | 107.9 | 380.2 | 355.3 | | Middle East | 108.2 | 102.7 | 323.0 | 329.3 | | Other | 12.0 | 9.7 | 49.0 | 38.2 | | Totals | 1,004.8 | 989.7 | 3,234.6 | 3,200.0 | - Net sales for Fresh and value-added products increased slightly in Q3 2021 and 9M 2021, while Banana segment net sales increased in Q3 but decreased in 9M[98](index=98&type=chunk) - Other products and services showed strong growth in both periods[98](index=98&type=chunk) - Gross profit for Fresh and value-added products and Banana segments decreased significantly in Q3 2021 due to cost pressures, but both showed increases for the nine-month period[98](index=98&type=chunk) [13. Derivative Financial Instruments](index=23&type=section&id=13.%20Derivative%20Financial%20Instruments) This note describes the company's use of derivative instruments to hedge exposure to foreign currency, fuel prices, and interest rates | Derivative Type | Notional Amount (Millions) as of Oct 1, 2021 | | :-------------------------- | :------------------------------------------- | | Euro (foreign currency) | 53.8 | | British pound (foreign currency) | 6.8 | | Japanese yen (foreign currency) | 1,964.0 | | Chilean peso (foreign currency) | 56,583.4 | | Kenya shilling (foreign currency) | 898.5 | | Korean won (foreign currency) | 17,984.5 | | Interest rate contracts | 400.0 | | Derivative Type | Q3 2021 Net Amount in OCI (Millions USD) | Q3 2020 Net Amount in OCI (Millions USD) | 9M 2021 Net Amount in OCI (Millions USD) | 9M 2020 Net Amount in OCI (Millions USD) | | :-------------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Foreign exchange contracts | (6.7) | (2.0) | (0.1) | (3.8) | | Bunker fuel swaps | (1.4) | 0.9 | (0.5) | (1.3) | | Interest rate swaps, net of tax | 2.4 | 1.4 | 12.9 | (21.8) | | Total | (5.7) | 0.3 | 12.3 | (26.9) | - The company uses foreign currency forward contracts, bunker fuel swap agreements, and interest rate swaps to hedge exposure to fluctuations in foreign exchange rates, bunker fuel prices, and variable interest rates[102](index=102&type=chunk)[108](index=108&type=chunk)[112](index=112&type=chunk) - During Q1 2021, the company voluntarily terminated its remaining bunker fuel hedge portfolio due to fleet optimization and changes in forecasted fuel mix, resulting in a **$3.3 million** gain recorded in other expense, net[113](index=113&type=chunk)[114](index=114&type=chunk)[115](index=115&type=chunk) [14. Fair Value Measurements](index=26&type=section&id=14.%20Fair%20Value%20Measurements) This note explains the fair value measurements of financial instruments and assets held for sale, categorized by input levels | Derivative Type (Net Liability) | October 1, 2021 (Millions USD) | January 1, 2021 (Millions USD) | | :------------------------------ | :----------------------------- | :----------------------------- | | Foreign currency contracts | (7.0) | (6.9) | | Bunker fuel contracts | — | 2.4 | | Interest rate contracts | (35.8) | (50.6) | - The fair value of derivative instruments, classified as Level 2, includes foreign exchange, bunker fuel, and interest rate derivatives[122](index=122&type=chunk)[123](index=123&type=chunk) - The net liability position for interest rate swaps decreased from **$50.6 million** to **$35.8 million** due to an increase in variable interest rates[130](index=130&type=chunk) - The company also holds **$20.0 million** in assets held for sale, primarily non-strategic property, plant, and equipment, valued using Level 3 inputs (third-party appraisals)[236](index=236&type=chunk) [15. Accumulated Other Comprehensive Loss](index=27&type=section&id=15.%20Accumulated%20Other%20Comprehensive%20Loss) This note details the components of accumulated other comprehensive loss, including cash flow hedges and foreign currency translation adjustments | Component | Balance at Jan 1, 2021 (Millions USD) | Balance at Oct 1, 2021 (Millions USD) | | :-------------------------------------- | :------------------------------------ | :------------------------------------ | | Cash Flow Hedges | (49.6) | (37.3) | | Foreign Currency Translation Adjustment | (3.3) | (12.5) | | Retirement Benefit Adjustment | (24.1) | (25.3) | | Total Accumulated Other Comprehensive Loss | (77.0) | (75.1) | - Accumulated other comprehensive loss improved from **$(77.0) million** at January 1, 2021, to **$(75.1) million** at October 1, 2021[132](index=132&type=chunk) - This change was primarily driven by a **$12.3 million** net current period other comprehensive income from cash flow hedges, partially offset by a **$9.2 million** loss from foreign currency translation adjustment[132](index=132&type=chunk) | Reclassified from AOCI (9M 2021) | Amount (Millions USD) | Affected Line Item in Statement of Operations | | :------------------------------- | :-------------------- | :-------------------------------------------- | | Foreign currency cash flow hedges (Net sales) | (0.8) | Net sales | | Foreign currency cash flow hedges (Cost of products sold) | — | Cost of products sold | | Bunker fuel swaps (Cost of products sold) | — | Cost of products sold | | Interest rate swaps | 8.5 | Interest expense | | Bunker fuel swaps no longer designated (Cost of products sold) | (4.6) | Cost of products sold | | Bunker fuel swaps no longer designated (Other expense, net) | (1.0) | Other expense, net | | Actuarial losses | 0.7 | Other expense, net | | Total | 2.1 | | [16. Shareholders' Equity](index=29&type=section&id=16.%20Shareholders%27%20Equity) This note provides information on changes in shareholders' equity, including ordinary shares outstanding and dividends declared | Metric | October 1, 2021 | January 1, 2021 | | :------------------------------------ | :-------------- | :-------------- | | Ordinary shares issued and outstanding | 47,544,395 | 47,372,419 | | Dividend Payment Date | Cash per Share (9M 2021) | Cash per Share (9M 2020) | | :-------------------- | :----------------------- | :----------------------- | | September 10, 2021 | 0.15 | 0.05 | | June 11, 2021 | 0.10 | 0.05 | | April 2, 2021 | 0.10 | 0.10 | | Total Dividends Paid (9M) | 16.6 (Millions USD) | 9.6 (Millions USD) | - The number of ordinary shares issued and outstanding increased to **47,544,395** as of October 1, 2021[139](index=139&type=chunk) - Dividends paid for the nine months ended October 1, 2021, totaled **$16.6 million**, an increase from **$9.6 million** in the prior-year period[141](index=141&type=chunk) - The Board declared a quarterly cash dividend of **$0.15** per share payable on December 10, 2021[142](index=142&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial performance, condition, and results of operations for the third quarter and first nine months of 2021 compared to 2020. It highlights the impact of the COVID-19 pandemic, inflationary pressures, the Optimization Program, and details financial results by segment, liquidity, capital resources, and critical accounting policies [Overview](index=30&type=section&id=Overview) This section provides an overview of the company's global operations, business structure, and key product segments - Fresh Del Monte Produce Inc. is a global, vertically integrated producer, marketer, and distributor of fresh and fresh-cut fruit and vegetables, and prepared foods under the Del Monte brand[144](index=144&type=chunk)[146](index=146&type=chunk) - The company's business is structured into three reportable segments: Fresh and value-added products, Banana, and Other products and services[147](index=147&type=chunk) [COVID-19 Pandemic Impact](index=30&type=section&id=COVID-19%20Pandemic%20Impact) This section discusses the material impact of the COVID-19 pandemic on operations, including cost inflation and supply chain disruptions - The COVID-19 pandemic has materially impacted operations since Q1 2020, causing volatile supply/demand, reduced foodservice channel demand, and increased production and distribution costs due to inflation (packaging, fertilizer, labor, fuel, inland freight) and strained transportation capacity[145](index=145&type=chunk) - The company announced price increases on bananas, pineapples, and fresh-cut fruit effective November 1, 2021, to partially mitigate these cost pressures, which are expected to continue negatively impacting gross profit[151](index=151&type=chunk) [Optimization Program](index=32&type=section&id=Optimization%20Program) This section details the company's program to dispose of non-strategic assets and consolidate operations for cost savings - The Optimization Program, initiated in fiscal 2020, aims to dispose of non-strategic and underutilized assets across all regions, with anticipated cash proceeds of approximately **$100.0 million**[154](index=154&type=chunk) - As of October 1, 2021, **$52.0 million** in cash proceeds have been received[155](index=155&type=chunk) - The program's completion is delayed beyond Q1 2022 due to challenging market conditions and COVID-119 travel restrictions[155](index=155&type=chunk) - The consolidation of Mann Packing operations has yielded cost savings, but financial results are still negatively impacted by reduced foodservice demand and increased costs[155](index=155&type=chunk) [Income Taxes](index=32&type=section&id=Income%20Taxes) This section addresses the company's ongoing disputes regarding income tax deficiencies related to transfer pricing in foreign jurisdictions - The company is vigorously contesting income tax deficiencies totaling approximately **$147.4 million** (including interest and penalties) related to transfer pricing in two foreign jurisdictions for tax years 2012-2016[156](index=156&type=chunk)[157](index=157&type=chunk)[158](index=158&type=chunk) - Appeals have been filed in judicial courts, and the company intends to exhaust all administrative and judicial remedies[160](index=160&type=chunk) [RESULTS OF OPERATIONS](index=33&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed analysis of the company's consolidated and segment-specific financial performance [Consolidated Financial Results](index=33&type=section&id=Consolidated%20Financial%20Results) This section analyzes the company's overall net sales, gross profit, and operating income for the reported periods | Metric | Q3 2021 (Millions USD) | Q3 2020 (Millions USD) | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :------------------------------------ | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net sales | 1,004.8 | 989.7 | 3,234.6 | 3,200.0 | | Gross profit | 48.9 | 67.3 | 264.0 | 214.5 | | Selling, general and administrative expenses | 48.0 | 44.1 | 148.3 | 142.4 | | Operating income | 1.3 | 26.6 | 120.2 | 77.4 | - Net sales increased by **2%** in Q3 2021 and **1%** in 9M 2021, positively impacted by exchange rate fluctuations[162](index=162&type=chunk)[163](index=163&type=chunk) - Gross profit decreased by **27%** in Q3 2021 due to inflation and cost pressures, but increased by **23%** in 9M 2021 due to higher per unit sales prices in bananas and improved performance in fresh and value-added products[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk) - Operating income decreased by **$25.3 million** in Q3 2021 but increased by **$42.8 million** in 9M 2021[175](index=175&type=chunk) [Financial Results by Segment](index=35&type=section&id=Financial%20Results%20by%20Segment) This section breaks down the company's financial performance by its Fresh and value-added products, Banana, and Other products and services segments [Fresh and value-added products](index=35&type=section&id=Fresh%20and%20value-added%20products) This section analyzes the net sales and gross profit performance of the Fresh and value-added products segment | Metric | Q3 2021 (Millions USD) | Q3 2020 (Millions USD) | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :------------------------------------ | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net Sales | 601.2 | 600.6 | 1,906.0 | 1,897.8 | | Gross Profit | 40.9 | 54.2 | 149.8 | 133.8 | - Q3 2021 net sales increased slightly by **$0.6 million**, driven by pineapples and avocados, but gross profit decreased by **$13.3 million** (**25%**) due to higher production and distribution costs[182](index=182&type=chunk)[183](index=183&type=chunk) - For 9M 2021, net sales increased by **$8.2 million**, primarily from pineapples and fresh-cut fruits, and gross profit increased by **$16.0 million** (**12%**) due to higher net sales and lower production costs in some categories, despite ongoing inflationary pressures[192](index=192&type=chunk)[198](index=198&type=chunk) [Banana](index=38&type=section&id=Banana) This section analyzes the net sales and gross profit performance of the Banana segment | Metric | Q3 2021 (Millions USD) | Q3 2020 (Millions USD) | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :------------------------------------ | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net Sales | 365.3 | 361.8 | 1,210.2 | 1,218.4 | | Gross Profit | 2.4 | 10.8 | 98.2 | 74.3 | - Q3 2021 net sales increased by **$3.5 million** (**1%**) due to higher per unit sales prices in Europe and higher sales volume in the Middle East[206](index=206&type=chunk) - However, gross profit decreased by **$8.4 million** (**78%**) due to excess industry supply, lower per unit sales prices, and increased distribution and production costs[207](index=207&type=chunk) - For 9M 2021, net sales decreased by **$8.2 million** (**1%**), but gross profit increased by **$23.9 million** (**32%**) primarily due to higher per unit sales prices in North America and Europe, and a **$2.5 million** insurance recovery, partially offset by inflationary cost pressures[208](index=208&type=chunk)[209](index=209&type=chunk) [Other products and services](index=38&type=section&id=Other%20products%20and%20services) This section analyzes the net sales and gross profit performance of the Other products and services segment | Metric | Q3 2021 (Millions USD) | Q3 2020 (Millions USD) | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :------------------------------------ | :--------------------- | :--------------------- | :--------------------- | :--------------------- | | Net Sales | 38.3 | 27.3 | 118.4 | 83.8 | | Gross Profit | 5.6 | 2.3 | 16.0 | 6.4 | - Net sales for other products and services increased significantly by **$11.0 million** (**40%**) in Q3 2021 and **$34.6 million** (**41%**) in 9M 2021, primarily driven by higher sales of third-party freight services and poultry and meats in the Middle East[210](index=210&type=chunk)[211](index=211&type=chunk) - Gross profit also saw substantial increases, rising by **$3.3 million** (**143%**) in Q3 and **$9.6 million** (**150%**) in 9M, directly correlating with the higher net sales[212](index=212&type=chunk)[213](index=213&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's cash flows from operating, investing, and financing activities, along with its debt and capital resources [Operating Activities](index=39&type=section&id=Operating%20Activities) This section details the cash generated or used by the company's core business operations | Metric | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :------------------------------------ | :--------------------- | :--------------------- | | Net cash provided by operating activities | 151.6 | 173.9 | - Net cash provided by operating activities decreased by **$22.3 million** to **$151.6 million** for the first nine months of 2021, primarily due to higher inventory levels and receivables, partially offset by higher net income and increased accounts payable[217](index=217&type=chunk)[218](index=218&type=chunk) - Working capital slightly increased by **$0.5 million** to **$458.0 million** at October 1, 2021[218](index=218&type=chunk) [Investing Activities](index=39&type=section&id=Investing%20Activities) This section outlines the cash flows related to the acquisition and disposal of long-term assets and investments | Metric | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :------------------------------------ | :--------------------- | :--------------------- | | Net cash used in investing activities | (67.2) | (82.5) | | Capital expenditures | (83.4) | (92.9) | | Proceeds from sales of property, plant and equipment | 12.5 | 9.8 | - Net cash used in investing activities decreased by **$15.3 million** to **$67.2 million** for the first nine months of 2021[219](index=219&type=chunk) - This was mainly due to lower capital expenditures (**$83.4 million** vs. **$92.9 million**) for new refrigerated container ships and facility expansions, partially offset by proceeds from asset sales (**$12.5 million**) and derivative settlements (**$4.6 million**)[219](index=219&type=chunk)[220](index=220&type=chunk) [Financing Activities](index=40&type=section&id=Financing%20Activities) This section describes the cash flows associated with debt, equity, and dividend payments | Metric | 9M 2021 (Millions USD) | 9M 2020 (Millions USD) | | :------------------------------------ | :--------------------- | :--------------------- | | Net cash used in financing activities | (86.7) | (111.4) | | Net repayments on debt | (64.9) | (76.0) | | Dividends paid | (16.6) | (9.6) | | Repurchase and retirement of ordinary shares | — | (20.8) | - Net cash used in financing activities decreased by **$24.7 million** to **$86.7 million** for the first nine months of 2021[224](index=224&type=chunk) - This was primarily due to lower net repayments on debt (**$64.9 million** vs. **$76.0 million**) and no share repurchases (compared to **$20.8 million** in 2020), partially offset by higher dividends paid (**$16.6 million** vs. **$9.6 million**)[224](index=224&type=chunk) [Debt Instruments and Debt Service Requirements](index=40&type=section&id=Debt%20Instruments%20and%20Debt%20Service%20Requirements) This section provides details on the company's debt facilities, outstanding balances, interest rates, and covenant compliance - The company has a **$1.1 billion** senior unsecured revolving credit facility maturing October 1, 2024, with **$476.9 million** outstanding at an interest rate of **1.24%** as of October 1, 2021[225](index=225&type=chunk)[226](index=226&type=chunk) - The facility includes an accordion feature for up to **$300 million** in incremental increases[227](index=227&type=chunk) - The company was in compliance with all financial covenants, including a Consolidated Leverage Ratio not exceeding **3.50 to 1.00** and a minimum Consolidated Interest Coverage Ratio of **2.25 to 1.00**[228](index=228&type=chunk) - As of October 1, 2021, the company had **$646.9 million** of borrowing availability under committed working capital facilities[231](index=231&type=chunk) - Management believes current cash, credit facility capacity, and operating cash flows will be sufficient for the next twelve months, but acknowledges uncertainties related to the COVID-19 pandemic and economic environment[232](index=232&type=chunk) [Contractual Obligations](index=41&type=section&id=Contractual%20Obligations) This section summarizes the company's material commitments under contractual obligations - There were no material changes in commitments under contractual obligations as of October 1, 2021, compared to those disclosed in the Annual Report on Form 10-K for the year ended January 1, 2021[233](index=233&type=chunk) [Critical Accounting Policies and Estimates](index=41&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section highlights the accounting policies and estimates that require significant management judgment - No material changes occurred to the critical accounting policies or estimates during the third quarter of 2021, as previously discussed in the Form 10-K for the fiscal year ended January 1, 2021[234](index=234&type=chunk) [Fair Value Measurements](index=41&type=section&id=Fair%20Value%20Measurements) This section discusses the fair value of derivative instruments and assets held for sale, and their sensitivity to market changes - The fair value of foreign currency cash flow hedges was a net liability of **$7.0 million** as of October 1, 2021, while interest rate swap cash flow hedges had a net liability of **$35.8 million**, a decrease from **$50.6 million** due to increased variable interest rates[235](index=235&type=chunk)[236](index=236&type=chunk) - The company terminated its bunker fuel hedge portfolio in Q1 2021 due to fleet optimization[237](index=237&type=chunk) - **$10.5 million** of net fair value from designated and dedesignated hedges is expected to transfer to earnings in the next 12 months, with the remaining **$31.1 million** over 7 years[239](index=239&type=chunk) - The fair value of goodwill for the banana and prepared food reporting units, and related trade names/trademarks, remains sensitive to changes in estimated cash flows and discount rates[240](index=240&type=chunk) - No impairment charges were recorded for these assets during the nine months ended October 1, 2021, but performance is continuously monitored[241](index=241&type=chunk) [New Accounting Pronouncements](index=42&type=section&id=New%20Accounting%20Pronouncements) This section refers to disclosures on recently issued accounting pronouncements and their potential impact - Refer to Note 2, 'Recently Issued Accounting Pronouncements,' for a discussion of recent accounting pronouncements[243](index=243&type=chunk) [Seasonality](index=42&type=section&id=Seasonality) This section explains the seasonal variations in the company's net sales and gross profit - Interim results are subject to significant seasonal variations, with a greater portion of net sales and gross profit historically realized during the first two calendar quarters of the year due to fluctuating sales prices based on supply and demand for fresh produce[244](index=244&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=45&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section describes the company's exposure to market risks, particularly bunker fuel price fluctuations, and hedging strategies - The company is exposed to bunker fuel price fluctuations and previously used swap agreements to hedge this risk[254](index=254&type=chunk) - However, due to fleet optimization initiatives and changes in forecasted fuel mix, the remaining bunker fuel hedge portfolio was voluntarily terminated in Q1 2021[254](index=254&type=chunk) [Item 4. Controls and Procedures](index=46&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and reports on internal control over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of October 1, 2021[257](index=257&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter ended October 1, 2021[257](index=257&type=chunk) [PART II. OTHER INFORMATION](index=47&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, exhibits, and required signatures [Item 1. Legal Proceedings](index=47&type=section&id=Item%201.%20Legal%20Proceedings) This section details ongoing legal proceedings, specifically focusing on significant income tax deficiencies related to transfer pricing in foreign jurisdictions - The company is contesting income tax deficiencies of approximately **$147.4 million** (including interest and penalties) from transfer pricing in two foreign jurisdictions for tax years 2012-2016[260](index=260&type=chunk)[261](index=261&type=chunk) - Appeals have been filed in judicial courts, and the company intends to vigorously pursue all administrative and judicial remedies[262](index=262&type=chunk) [Item 1A. Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) This section updates the risk factors, emphasizing current market conditions, inflationary pressures, and supply chain disruptions - Current market conditions, including inflationary pressures, are significantly increasing production and distribution costs (packaging, fertilizers, inland freight, labor, fuel) and causing supply chain disruptions due to strained transportation capacity and labor shortages[264](index=264&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk)[268](index=268&type=chunk) - These factors have adversely affected gross profit in Q3 2021 and are expected to continue impacting future periods[268](index=268&type=chunk) - Efforts to raise prices may not fully offset these cost increases and could lead to sales losses[270](index=270&type=chunk) [Item 6. Exhibits](index=49&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - The exhibits include certifications from the Chief Executive Officer and Chief Financial Officer, as well as Inline XBRL documents for the Consolidated Balance Sheets, Statements of Operations, Comprehensive (Loss) Income, Cash Flows, Shareholders' Equity, and Notes to Consolidated Financial Statements[272](index=272&type=chunk) [Signatures](index=50&type=section&id=Signatures) This section contains the required signatures for the Form 10-Q, confirming its submission on behalf of the company - The report was signed by Youssef Zakharia, President & Chief Operating Officer, and Eduardo Bezerra on November 3, 2021[277](index=277&type=chunk)[278](index=278&type=chunk)

INNOVATING FOR A BETTER WORLD TOMORROW Fresh Del Monte Produce Inc. Investor Relations August 4, 2021 Forward-Looking Statements This presentation contains certain forward-looking statements regarding the intent, beliefs or current expectations of the Company or its officers with respect to the Company's plans and future performance. These forward-looking statements are based on information currently available to the Company and the Company assumes no obligation to update these statements. It is important t ...

Financial Data and Key Metrics Changes - Gross profit for Q2 2021 increased by 40% year-over-year, with gross margin rising from 7.2% to 9.6% [6] - Net sales increased by $49 million or 5% to $1.142 billion, driven primarily by fresh and value-added business segments [12] - Adjusted net income rose by $21 million or 82% to $47 million, with diluted earnings per share increasing to $0.99 from $0.38 [14] - Adjusted EBITDA increased by 32%, with adjusted EBITDA margin rising from 5.8% to 7.3% [15] Business Segment Data and Key Metrics Changes - Fresh and value-added products segment saw net sales increase by $38 million or 6%, driven by higher demand for pineapple, fresh-cut fruit, and vegetables [16] - Adjusted gross profit in the fresh and value-added products segment increased by 28% to $59 million, supported by higher sales volumes and prices [18] - Banana segment net sales decreased by $3 million to $427 million, but adjusted gross profit increased by 16% or $7 million due to higher per unit sales prices [20] Market Data and Key Metrics Changes - The foreign currency impact at the gross profit level was favorable by $11 million, compared to an unfavorable effect of $1 million in the prior year [22] - Cash flow from operating activities increased to $140 million from $111 million in the prior year, attributed to higher net income [24] Company Strategy and Development Direction - The company is focusing on transforming into a value-added global food company, with strategic initiatives in Europe leading to increased efficiencies and cost savings [7][9] - A licensing agreement with a UK retailer for frozen fruit and chili juices presents new revenue opportunities in Europe, with potential expansion to the Middle East and Africa [9] - The company plans to publish its annual corporate responsibility and sustainability report, highlighting its guiding principles and progress [11] Management's Comments on Operating Environment and Future Outlook - Management acknowledged facing unprecedented disruptions in global supply chains and labor shortages, leading to significant cost increases [7] - Inflationary pressures are expected to persist in the near term, prompting a comprehensive review of pricing strategies [8] - The second half of the year is historically tougher for the industry, with management cautious about ongoing inflation and cost pressures [10] Other Important Information - The Board of Directors approved an increase in the quarterly cash dividend to $0.15 per share, reflecting a strong cash position [10][28] - Total debt decreased from $542 million at the end of 2020 to $474 million at the end of Q2 2021, with total debt standing below two times adjusted EBITDA [27] Q&A Session Summary Question: Outlook on banana supply for the second half of the year - Management indicated that supply is constant and available, with no shortage in the market, but pricing pressures exist due to retailer leverage [31][32] Question: Impact of supply chain pressures on pricing across the industry - Management noted that cost pressures affect all segments, and they have implemented price increases to offset some of these costs [33][34] Question: Changes in the retail environment post-COVID - Management stated that the retail environment remains unchanged, despite efforts to maintain consistent supply, and highlighted past challenges with excess inventory [38][39]

——————————— UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ——————————— FORM 10-Q ——————————— (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 02, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to 333-07708 (Commission file number) ——————————— FRESH DEL MONTE PRODUCE INC. (Exact Name of Registrant as Specified in It ...

Fresh Del Monte Produce, Inc. (NYSE:FDP) Q1 2021 Earnings Conference Call May 5, 2021 10:00 AM ET Company Participants Christine Cannella - VP & IR Officer Mohammad Abu-Ghazaleh - Chairman & CEO Eduardo Bezerra - CFO, CAO & SVP Conference Call Participants Jonathan Feeney - Consumer Edge Research Operator Good morning, everyone, and welcome to the Fresh Del Monte Produce First Quarter 2021 Earnings Conference Call. Today's conference call is being broadcast live over the Internet and is also being recorded ...

——————————— Title of each class Trading Symbol Name of each exchange on which registered Ordinary Shares, $0.01 Par Value Per Share FDP New York Stock Exchange UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ——————————— FORM 10-Q ——————————— (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 02, 2021 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For t ...

Fresh Del Monte Produce Inc. (NYSE:FDP) Q4 2020 Earnings Conference Call February 24, 2021 10:00 AM ET Company Participants Christine Cannella - Vice President, Investor Relations Mohammad Abu-Ghazaleh - Chairman and Chief Executive Officer Eduardo Bezerra - Senior Vice President and Chief Financial Officer Conference Call Participants Jonathan Feeney - Consumer Edge Mitch Pinheiro - Sturdivant Operator Good day, everyone and welcome to Fresh Del Monte Produce's Fourth Quarter and Full Year 2020 Conference ...

PART I: FINANCIAL INFORMATION [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) Presents the unaudited consolidated financial statements for the quarterly period ended September 25, 2020 [Consolidated Balance Sheets](index=5&type=section&id=Consolidated%20Balance%20Sheets) Total assets and liabilities decreased slightly as of September 25, 2020 compared to year-end 2019 Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | Sep 25, 2020 | Dec 27, 2019 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $14.0 | $33.3 | | Inventories, net | $500.5 | $551.8 | | Total current assets | $990.0 | $1,051.5 | | Property, plant and equipment, net | $1,398.6 | $1,403.2 | | **Total assets** | **$3,281.4** | **$3,349.9** | | **Liabilities & Equity** | | | | Accounts payable and accrued expenses | $504.7 | $522.2 | | Long-term debt and finance leases | $510.8 | $586.8 | | **Total liabilities** | **$1,489.5** | **$1,550.9** | | **Total shareholders' equity** | **$1,741.4** | **$1,743.7** | [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) Net sales and net income declined for the nine-month period ending September 25, 2020 Q3 and Nine-Month Performance (in millions, except per share data) | Metric | Q3 2020 | Q3 2019 | Nine Months 2020 | Nine Months 2019 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $989.7 | $1,070.2 | $3,200.0 | $3,463.8 | | Gross profit | $67.3 | $76.2 | $214.5 | $268.9 | | Operating income | $26.6 | $27.1 | $77.4 | $125.6 | | Net income attributable to FDP | $17.4 | $18.1 | $48.3 | $92.3 | | Diluted EPS | $0.37 | $0.38 | $1.01 | $1.90 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow increased while investing and financing outflows led to a net decrease in cash Nine-Month Cash Flow Summary (in millions) | Cash Flow Activity | Nine Months Ended Sep 25, 2020 | Nine Months Ended Sep 27, 2019 | | :--- | :--- | :--- | | Net cash provided by operating activities | $173.9 | $130.1 | | Net cash used in investing activities | ($82.5) | ($44.8) | | Net cash used in financing activities | ($111.4) | ($96.3) | | **Net decrease in cash and cash equivalents** | **($19.3)** | **($5.0)** | | Cash and cash equivalents, ending | $14.0 | $16.3 | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Key notes cover new accounting standards, tax disputes, insurance recoveries, and segment performance - The company adopted the new credit loss standard (ASC 326) in 2020, resulting in a **$1.2 million cumulative-effect adjustment** to retained earnings[39](index=39&type=chunk) - The company is contesting income tax deficiencies of approximately **$145.8 million** (including interest and penalties) from two foreign jurisdictions[49](index=49&type=chunk) - For the nine months ended September 25, 2020, the company recognized a **$10.4 million insurance recovery** related to a 2019 voluntary product recall[48](index=48&type=chunk)[95](index=95&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=38&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes the financial results, focusing on the COVID-19 impact and liquidity management [COVID-19 Pandemic Impact](index=38&type=section&id=COVID-19%20Pandemic%20Impact) The COVID-19 pandemic materially impacted net sales due to volatile demand and increased costs - The COVID-19 pandemic negatively impacted net sales by an estimated **$73.0 million in Q3 2020** and **$232.0 million in the first nine months of 2020**[178](index=178&type=chunk)[199](index=199&type=chunk) - Impacts included volatile supply/demand, reduced foodservice demand, and increased costs for safety protocols[164](index=164&type=chunk) - To conserve liquidity, the company **reduced its quarterly cash dividend from $0.10 to $0.05 per share** and delayed certain capital expenditures[165](index=165&type=chunk) [Results of Operations](index=41&type=section&id=Results%20of%20Operations) Net sales and gross profit declined in Q3 and the first nine months due to lower volumes and pricing Q3 2020 vs Q3 2019 Performance (in millions) | Metric | Q3 2020 | Q3 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $989.7 | $1,070.2 | ($80.5) | -7.5% | | Gross Profit | $67.3 | $76.2 | ($8.9) | -11.7% | | Operating Income | $26.6 | $27.1 | ($0.5) | -1.8% | Nine Months 2020 vs 2019 Performance (in millions) | Metric | Nine Months 2020 | Nine Months 2019 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $3,200.0 | $3,463.8 | ($263.8) | -7.6% | | Gross Profit | $214.5 | $268.9 | ($54.4) | -20.2% | | Operating Income | $77.4 | $125.6 | ($48.2) | -38.4% | - The decrease in Q3 net sales was driven by lower sales of fresh-cut vegetables, avocados, and fresh-cut fruit[180](index=180&type=chunk) - Banana segment gross profit **decreased by $7.8 million in Q3 2020** due to lower per unit sales prices[186](index=186&type=chunk) [Liquidity and Capital Resources](index=48&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is supported by strong operating cash flow and a $1.1 billion revolving credit facility - Net cash from operating activities **increased to $173.9 million** for the first nine months of 2020, up from $130.1 million in the prior year[222](index=222&type=chunk) - Capital expenditures were **$92.9 million** for the first nine months of 2020, including payments for six new refrigerated container ships[223](index=223&type=chunk) - The company has a five-year, **$1.1 billion senior unsecured revolving credit facility** with $510.7 million outstanding as of September 25, 2020[230](index=230&type=chunk)[231](index=231&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=53&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages fuel price risk using bunker fuel swap agreements - The company uses **bunker fuel swap agreements** to hedge against rising fuel prices for its shipping operations[254](index=254&type=chunk) - As of September 25, 2020, the fair value of bunker fuel swap cash flow hedges was a **net liability of $1.6 million**[255](index=255&type=chunk) - A hypothetical **10% change in market fuel prices** would alter the fair value of the swap contracts by **$4.1 million**[256](index=256&type=chunk) [Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were deemed effective with no material changes to internal controls - Management, including the CEO and CFO, concluded that as of September 25, 2020, the company's **disclosure controls and procedures were effective**[259](index=259&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=55&type=section&id=Item%201.%20Legal%20Proceedings) The company settled a CARB matter and is contesting significant foreign income tax deficiencies - On August 2, 2020, the company settled with the California Air Resource Board (CARB) for a total of **$2.0 million** without admitting liability[262](index=262&type=chunk) - The company is contesting approximately **$145.8 million in proposed income tax deficiencies** from two foreign jurisdictions for tax years 2012-2016[263](index=263&type=chunk) [Risk Factors](index=55&type=section&id=Item%201A.%20Risk%20Factors) Key risks include the ongoing adverse effects of the COVID-19 pandemic and potential asset impairment - The COVID-19 pandemic is adversely affecting business operations, with an estimated **$232.0 million in lost sales** for the first nine months of 2020[265](index=265&type=chunk)[267](index=267&type=chunk) - The pandemic poses a risk to long-term liquidity, though current cash flows and credit facilities are believed to be sufficient[271](index=271&type=chunk) - A prolonged adverse impact from COVID-19 could lead to the **impairment of goodwill and other intangible assets**[273](index=273&type=chunk)[276](index=276&type=chunk) [Exhibits](index=58&type=section&id=Item%206.%20Exhibits) Lists filed exhibits, including Sarbanes-Oxley certifications and Inline XBRL financial data - The exhibits include **CEO and CFO certifications** as required by sections 302 and 906 of the Sarbanes-Oxley Act[278](index=278&type=chunk) - Financial statements and notes are provided in **Inline XBRL format**[279](index=279&type=chunk)

Financial Data and Key Metrics Changes - The company reported a net income per diluted share of $0.38 for Q2 2020, down from $0.78 in Q2 2019 [10] - Adjusted net income per diluted share was $0.54 compared to $0.72 in the prior year [11] - Net sales decreased to $1.092 billion from $1.239 billion in the same quarter last year, impacted by unfavorable exchange rates [13] - Adjusted gross profit was $89 million, down from $98 million in 2019 [13] - Cash flow from operating activities was $111 million, with long-term debt reduced by $52 million since the end of 2019 [12][24] Business Segment Performance Changes - Fresh and value-added products saw net sales decrease by $128 million to $636 million, primarily due to lower sales in fresh-cut food and vegetables, avocado, pineapple, and prepared food lines [14] - Pineapple product line net sales were $114 million, down from $126 million, affected by lower selling prices and sales volume [15] - Fresh-cut food product line net sales decreased to $110 million from $146 million, with a 26% drop in volume [16] - Fresh-cut vegetable product line net sales fell to $86 million from $119 million, with a 32% decrease in volume [17] - Avocado product line net sales decreased to $94 million from $125 million, with a 7% drop in volume [18] - Banana segment net sales decreased to $413 million from $440 million, with a 1% drop in volume [21] Market Data and Key Metrics Changes - The company experienced reduced demand in North America, particularly in the restaurant and foodservice sectors, which were down by 50% to 60% [6][33] - The COVID-19 pandemic impacted various markets differently, with some regions experiencing gradual re-openings [6] - The company noted a significant recovery in pineapple prices, although the sustainability of this trend remains uncertain [34] Company Strategy and Development Direction - The company is focused on a business transformation plan to enhance efficiency and asset utilization, including consolidating operations in California and Arizona [7][8] - A new avocado processing facility in Mexico was ramped up four months ahead of schedule, contributing to improved margins [7][31] - The company is expanding its e-commerce strategy, launching a pilot in Dallas, Texas, to enhance direct consumer marketing [9] Management Comments on Operating Environment and Future Outlook - Management emphasized resilience in navigating challenges posed by the COVID-19 pandemic, with a focus on maintaining business continuity [5] - The company expects to see improvements in the fresh-cut area as foodservice begins to recover, although challenges remain [32] - Management remains confident in the company's ability to emerge stronger from the pandemic, focusing on cost management and operational efficiencies [12][34] Other Important Information - The company repurchased approximately 549,836 shares for about $13 million during the quarter [26] - An interim cash dividend of $0.05 per share was declared, payable on September 4, 2020 [26] Q&A Session Summary Question: Were there any unusual costs in the quarter? - Management indicated that the main unusual cost was related to the write-off of $10 million in unsalable fruit due to COVID-19 disruptions [28][29] Question: What caused the decline in the avocado business? - The decline was attributed to lower prices and not primarily due to foodservice sales, with prices dropping significantly compared to the previous year [30] Question: What is the outlook for the third quarter? - Management noted that foodservice remains heavily impacted, with only slight improvements expected in retail [32][33] Question: How much stock remains on the repurchase authorization? - There is still over $200 million available for stock repurchases [37] Question: Can you comment on the disconnect between tangible book value and stock price? - Management acknowledged the disconnect and expressed aspirations for the stock price to rise significantly in the future [39]