Fresh Del Monte Produce (FDP) - 2020 Q3 - Quarterly Report

PART I: FINANCIAL INFORMATION Financial Statements Presents the unaudited consolidated financial statements for the quarterly period ended September 25, 2020 Consolidated Balance Sheets 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 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 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 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] - The company is contesting income tax deficiencies of approximately $145.8 million (including interest and penalties) from two foreign jurisdictions[49] - 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][95] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes the financial results, focusing on the COVID-19 impact and liquidity management COVID-19 Pandemic Impact 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][199] - Impacts included volatile supply/demand, reduced foodservice demand, and increased costs for safety protocols[164] - To conserve liquidity, the company reduced its quarterly cash dividend from $0.10 to $0.05 per share and delayed certain capital expenditures[165] Results of Operations 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] - Banana segment gross profit decreased by $7.8 million in Q3 2020 due to lower per unit sales prices[186] Liquidity and Capital Resources 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] - Capital expenditures were $92.9 million for the first nine months of 2020, including payments for six new refrigerated container ships[223] - 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][231] Quantitative and Qualitative Disclosures About Market Risk 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] - As of September 25, 2020, the fair value of bunker fuel swap cash flow hedges was a net liability of $1.6 million[255] - A hypothetical 10% change in market fuel prices would alter the fair value of the swap contracts by $4.1 million[256] Controls and Procedures 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] PART II. OTHER INFORMATION Legal Proceedings 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] - The company is contesting approximately $145.8 million in proposed income tax deficiencies from two foreign jurisdictions for tax years 2012-2016[263] Risk Factors 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][267] - The pandemic poses a risk to long-term liquidity, though current cash flows and credit facilities are believed to be sufficient[271] - A prolonged adverse impact from COVID-19 could lead to the impairment of goodwill and other intangible assets[273][276] Exhibits 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] - Financial statements and notes are provided in Inline XBRL format[279]