Fresh Del Monte Produce (FDP) - 2023 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION Item 1. Financial Statements This section presents Fresh Del Monte Produce Inc.'s unaudited consolidated financial statements for Q1 2023, detailing key financial results Consolidated Balance Sheets As of March 31, 2023, total assets were $3.44 billion, with liabilities at $1.42 billion and equity at $1.97 billion Consolidated Balance Sheet Highlights (in millions) | Account | March 31, 2023 | December 30, 2022 | | :--- | :--- | :--- | | Total Current Assets | $1,245.9 | $1,241.4 | | Total Assets | $3,443.1 | $3,458.9 | | Total Current Liabilities | $603.0 | $607.0 | | Long-term debt and finance leases | $479.6 | $547.1 | | Total Liabilities | $1,423.9 | $1,483.9 | | Total Shareholders' Equity | $1,969.8 | $1,925.6 | Consolidated Statements of Operations Q1 2023 net sales were $1.128 billion, gross profit increased to $97.0 million, and operating income surged to $74.5 million from asset disposal gains Q1 Statement of Operations (in millions, except per share data) | Metric | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net sales | $1,128.5 | $1,136.9 | | Gross profit | $97.0 | $89.8 | | Gain (loss) on disposal of property, plant and equipment, net | $27.5 | $(3.8) | | Operating income | $74.5 | $39.8 | | Net income attributable to Fresh Del Monte | $39.0 | $25.8 | | Diluted EPS | $0.81 | $0.54 | Consolidated Statements of Cash Flows Q1 2023 net cash from operations was $15.5 million, investing activities provided $79.6 million from asset sales, and financing used $75.9 million Q1 Cash Flow Summary (in millions) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $15.5 | $(0.3) | | Net cash provided by (used in) investing activities | $79.6 | $(16.6) | | Net cash (used in) provided by financing activities | $(75.9) | $26.7 | | Net increase in cash and cash equivalents | $18.5 | $9.2 | Notes to Consolidated Financial Statements Notes detail the company's three segments, ongoing tax disputes, credit facility details, and a subsequent put option event - The company operates through three reportable segments: Fresh and value-added products, Banana, and Other products and services[24][70] - The company is contesting income tax deficiencies from two foreign jurisdictions related to transfer pricing, aggregating approximately $152.1 million for tax years 2012-2016[29] - The company maintains a five-year, $0.9 billion syndicated senior unsecured revolving credit facility maturing in October 2024. As of March 31, 2023, borrowings were $472.7 million[53][54] - Effective April 1, 2023, a noncontrolling shareholder exercised a put option, requiring the company to purchase the remaining 25% of a subsidiary for approximately $5.2 million in Q2 2023[99] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2023 financial results, highlighting inflation impacts, sales trends, and segment performance, with liquidity supported by operating cash flow Results of Operations Q1 2023 consolidated net sales decreased 1% to $1.128 billion, gross profit rose to $97.0 million, and operating income surged to $74.5 million due to asset disposal gains - Net sales decreased 1% YoY due to lower avocado prices, lower sales volumes in the fresh and value-added segment, and negative currency exchange rates[109] - Gross profit increased to $97.0 million from $89.8 million YoY, driven by higher selling prices and lower distribution costs, despite higher production and ocean freight costs[110] - Operating income increased by $34.7 million, primarily driven by a significant gain on the disposal of property, plant, and equipment, which included a $20.5 million gain on the sale of assets in Saudi Arabia and a $6.8 million gain on a facility in North America[112][115] Financial Results by Segment Q1 2023 segment performance shows Fresh and value-added sales decline, Banana sales growth, and Other products sales increase Q1 2023 Segment Performance (in millions) | Segment | Net Sales | Gross Profit | Gross Margin | | :--- | :--- | :--- | :--- | | Fresh and value added products | $643.4 | $47.1 | 7.3% | | Banana | $425.1 | $43.2 | 10.2% | | Other products and services | $60.0 | $6.7 | 11.2% | - Fresh and value-added products sales decreased due to lower avocado prices and reduced volumes, but gross margin improved from 6.6% to 7.3% YoY[120][121] - Banana segment sales and profit increased due to higher pricing and volume, with gross margin expanding to 10.2% from 9.3% YoY[122][123] Liquidity and Capital Resources Liquidity is supported by improved Q1 2023 operating cash flow of $15.5 million and $461.5 million borrowing availability under its credit facility Q1 Cash Flow Comparison (in millions) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash from Operating Activities | $15.5 | $(0.3) | | Net cash from Investing Activities | $79.6 | $(16.6) | | Net cash from Financing Activities | $(75.9) | $26.7 | - Investing activities were driven by $90.7 million in proceeds from the sale of property, plant, and equipment, including distribution centers in Saudi Arabia and a production facility in North America[132] - Financing activities primarily consisted of $67.1 million in net debt repayments and $7.2 million in dividend payments[134] - As of March 31, 2023, the company had $461.5 million of borrowing availability under its committed working capital facilities[143] Item 3. Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposures were reported compared to the 2022 Annual Report on Form 10-K - There were no material changes in market risk from the disclosures in the 2022 Form 10-K[161] Item 4. Controls and Procedures As of March 31, 2023, disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of March 31, 2023[162] - No changes to internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[162] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is contesting ongoing $152.1 million income tax deficiencies related to transfer pricing in two foreign jurisdictions for tax years 2012-2016 - The company is contesting income tax deficiencies related to transfer pricing in two foreign jurisdictions, aggregating approximately $152.1 million for tax years 2012-2016[164] - The company strongly disagrees with the proposed adjustments and is pursuing all necessary administrative and judicial remedies to resolve the matters[166] Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL financial statements - Exhibits filed with the report include CEO and CFO certifications pursuant to SEC rules 13a-14(a) and 13a-14(b), and financial data in Inline XBRL format[168] Signatures - The report was duly signed on May 3, 2023, by Mohammed Abbas, Executive Vice President & Chief Operating Officer, and Monica Vicente, Senior Vice President & Chief Financial Officer[173]