Fresh Del Monte Produce (FDP) - 2022 Q1 - Quarterly Report

PART I: FINANCIAL INFORMATION Financial Statements Q1 2022 net sales increased to $1.14 billion, but gross profit and net income fell, and operating cash flow turned negative Consolidated Balance Sheets Total assets grew to $3.50 billion, liabilities to $1.58 billion, and equity to $1.87 billion as of April 1, 2022 Consolidated Balance Sheet Highlights (in millions) | Balance Sheet Item | April 1, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total current assets | $1,218.0 | $1,096.4 | | Total assets | $3,501.8 | $3,398.1 | | Total current liabilities | $676.3 | $629.2 | | Long-term debt and finance leases | $562.3 | $527.7 | | Total liabilities | $1,578.5 | $1,524.6 | | Total shareholders' equity | $1,874.6 | $1,824.0 | Consolidated Statements of Operations Q1 2022 net sales rose to $1.14 billion, but gross profit and net income attributable to the company declined significantly Q1 2022 vs Q1 2021 Statement of Operations (in millions, except per share data) | Metric | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net sales | $1,136.9 | $1,088.3 | | Gross profit | $89.8 | $105.0 | | Operating income | $39.8 | $59.7 | | Net income attributable to Fresh Del Monte | $25.8 | $42.7 | | Diluted EPS | $0.54 | $0.90 | | Dividends declared per share | $0.15 | $0.10 | Consolidated Statements of Cash Flows Q1 2022 net cash used in operating activities was $0.3 million, a significant downturn from the prior year's positive cash flow Q1 2022 vs Q1 2021 Cash Flow Summary (in millions) | Cash Flow Activity | Q1 2022 | Q1 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(0.3) | $46.8 | | Net cash used in investing activities | $(16.6) | $(25.9) | | Net cash provided by (used in) financing activities | $26.7 | $(12.7) | | Net increase in cash and cash equivalents | $9.2 | $9.9 | Notes to Consolidated Financial Statements Notes detail business segments, $156.5 million in tax disputes, a $1.1 billion credit facility, and increased quarterly dividends - The company operates through three reportable segments: Fresh and value-added products, Banana, and Other products and services[30][31][32] - The company is contesting income tax deficiencies of approximately $156.5 million (including interest and penalties) from two foreign jurisdictions related to transfer pricing for tax years 2012-2016[40] - As of April 1, 2022, the company had $554.1 million outstanding under its $1.1 billion senior unsecured revolving credit facility[69][70] Q1 2022 Net Sales by Segment (in millions) | Segment | Net Sales | | :--- | :--- | | Fresh and value-added products | $672.7 | | Banana | $406.0 | | Other products and services | $58.2 | | Total | $1,136.9 | - The company paid a dividend of $0.15 per share in Q1 2022, totaling $7.2 million, with a subsequent quarterly dividend declared on May 3, 2022[126][127] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Sales growth was driven by price increases, but cost inflation eroded gross profit and operating income, with negative operating cash flow Overview and Economic Environment The company faces significant inflationary pressures on costs, leading to price increases, with asset optimization program delays - The company is experiencing significant inflationary and cost pressures impacting production and distribution costs, including packaging, fertilizer, labor, fuel, and freight[132] - To combat rising costs, the company instituted price increases on the majority of its products starting in late 2021[134] - The Optimization Program, aimed at selling non-strategic assets for approximately $100 million, has generated $58.6 million in cash proceeds to date, with completion delayed beyond Q1 2022[136] Results of Operations Q1 2022 net sales increased 5% to $1.14 billion due to price hikes, but gross profit and operating income declined from cost pressures - Net sales increased by $48.6 million (5%) in Q1 2022, primarily due to inflation-justified price increases[142] - Gross profit decreased from $105.0 million to $89.8 million, negatively impacted by worsening inflationary pressures on costs for packaging, fertilizers, freight, fuel, and labor[143] - Operating income decreased by $19.9 million, driven by lower gross profit and a net loss on disposal of property, plant, and equipment[147] Financial Results by Segment Fresh and Banana segments saw margin declines, while 'Other products and services' sales and gross margin surged from freight services Q1 2022 vs Q1 2021 Segment Performance (in millions) | Segment | Net Sales Q1 2022 | Gross Profit Q1 2022 | Gross Margin Q1 2022 | Net Sales Q1 2021 | Gross Profit Q1 2021 | Gross Margin Q1 2021 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Fresh and value-added | $672.7 | $44.4 | 6.6% | $631.0 | $52.2 | 8.3% | | Banana | $406.0 | $37.7 | 9.3% | $418.2 | $50.0 | 12.0% | | Other products/services | $58.2 | $7.7 | 13.1% | $39.1 | $2.8 | 7.3% | - The 'Other products and services' segment's net sales increased by 49% due to higher sales of third-party freight services, benefiting from elevated shipping rates and demand[158] Liquidity and Capital Resources Operating cash flow turned negative at $0.3 million, with $35.0 million net debt borrowings, but $571.9 million credit facility availability - Net cash used in operating activities was $0.3 million, a decrease of $47.1 million from the prior year, primarily due to lower net income and higher levels of accounts receivable and inventory[163] - Net cash provided by financing activities was $26.7 million, mainly consisting of $35.0 million in net debt borrowings, partially offset by $7.2 million in dividends paid[170] - The company maintains a five-year, $1.1 billion syndicated senior unsecured revolving credit facility maturing in October 2024 and was in compliance with all covenants as of April 1, 2022[171][174] Quantitative and Qualitative Disclosures About Market Risk No material changes in market risk exposures were reported compared to the 2021 Annual Report on Form 10-K - There were no material changes in market risk from the disclosures in the company's 2021 Form 10-K[195] Controls and Procedures Disclosure controls and procedures were effective as of April 1, 2022, with no material changes to internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of April 1, 2022[197] - 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[197] PART II: OTHER INFORMATION Legal Proceedings The company is contesting $156.5 million in foreign income tax deficiencies related to transfer pricing for 2012-2016 - The company is contesting income tax deficiencies related to transfer pricing from two foreign jurisdictions, aggregating approximately $156.5 million for tax years 2012-2016[200] - In one jurisdiction, the company has filed actions in judicial court after losing administrative appeals, while in the other, a judicial action is pending after an administrative appeal was denied[201][202] Exhibits Exhibits include CEO/CFO certifications and financial statements presented in Inline XBRL format - The report includes CEO and CFO certifications pursuant to SEC rules 13a-14(a) and 13a-14(b) (Sarbanes-Oxley Act Sections 302 and 906)[204] - Financial data is provided in an interactive format using Inline XBRL (Extensible Business Reporting Language)[204]